MUMBAI (NewsRise) -- Hindalco Industries posted a 24% slump in third-quarter net profit, hurt by falling metal prices in a slowing global economy.
The trade war between the U.S. and China and slowing demand in Chinese economy damped industrial commodity prices over the past several months. The outbreak of the novel coronavirus in China has further aggravated the decline in metal prices, stirring fears that Asia's biggest economy is in for a deeper economic slowdown. Tighter liquidity conditions in India that squeezed private capital investment also added to Hindalco's woes.
According to Emkay Securities, the LME prices of aluminum dropped 11% in October-December to $1,754 per ton, while that of copper shrank 5%. Zinc, on the other hand, saw a 9% decline.
Hindalco said consolidated net profit in the quarter ended in December stood at 10.6 billion rupees ($149 million). The quarter included savings of 430 million rupees due to regulatory changes in obligation to buy renewable power, as well as 720 million rupees in reversal of provisions for such changes for the first half of this fiscal year, the company said.
Revenue from operations slumped 15% to 292 billion rupees. Operating earnings at the company's stand-alone aluminum business dropped more than 17%.
The Indian government's move to pump-in money into infrastructure is likely to kick-start consumption, Satish Pai, Hindalco managing director, told reporters at a news conference. That, along with an expected recovery in demand for automobiles, will help revive domestic demand for metals in the fiscal year 2021, Pai said.
On Tuesday, Hindalco's U.S.-based unit Novelis, the world's largest recycler of aluminum, reported a 31% jump in net profit to $132 million on the back of strong demand from beverage can sheet and automotive sectors.
Pai said he expects the coronavirus outbreak in China to impact Novelis's financials by about $2 million to $3 million in the current quarter. "The jury is still out on the broader impact of what can happen."
Novelis is still in the process of acquiring Aleris, as the $2.6 billion deal announced in 2018 remains stuck in a regulatory loop in the U.S. Hindalco said Novelis won antitrust approval from China for the Aleris acquisition. The European Commission is currently evaluating the suitability of the proposed buyer of Aleris' Duffel, Belgium plant, while arbitration proceedings are in progress in the U.S.
The U.S. Justice Department had, in September, filed a lawsuit aimed at stopping Novelis' acquisition of Aleris over higher prices of aluminum sheet used to make cars. The sale of the Duffel plant was a condition set by the European regulator to clear the Novelis-Aleris deal.
In December, Britain's GFG Alliance agreed to buy the Duffel plant from Novelis. Pai said he expects the outcome of arbitration on Aleris deal on Mar. 16.
Shares of Hindalco rose 0.1% in Mumbai trading on Wednesday, while the benchmark S&P BSE Sensex added 0.9%.
--Jigar Pathak and Dhanya Ann Thoppil