CARE noted that as captive coal mines are expected to cater only about a quarter of Hindalco’s requirement, it will remain exposed to market risk for the remaining need. (PTI)
Two months after rating CRISIL lowered its rating of the long-term debt instruments of Hindalco industries, CARE ratings on Wednesday downgraded its rating of the metal player’s non-convertible debentures.
The agency revised the ratings for Hindalco’s NCDs worth Rs 6,000 crore to ‘AA’ from ‘AA+’ citing moderation in profitability and debt protection parameters from expected levels.
“Besides continued trend of lower LME (London Metal Exchange) aluminium prices have exerted pressure on the profitability margins of HIL combined with increased debt levels due to substantial debt in Novelis and term debt availed for the greenfield projects in HIL are other key rating concerns,” added CARE ratings.
It said that the lower rating also factors in increased cost of production for Aditya Birla group’s flagship business, due to the premium paid for acquiring captive coal mines in auctions held in February this year.
CARE noted that as captive coal mines are expected to cater only about a quarter of Hindalco’s requirement, it will remain exposed to market risk for the remaining need.
“While the rating factors the proactive steps taken by the management to replace part of its term loans with a longer maturity profile which is expected to reduce the stress on the cash flows in medium term, it notes that the amortization of such loans has spread beyond the earlier envisaged schedule,” added the agency.
CARE ratings also assigned ‘AA’ grade to Rs 18,445.6 crore of long-term debt facilities of Hindalco and said that the rating continues to derive strength from stable performance of the copper division with increased margins in FY15.
Amidst plunge in global base metal prices and slower pick-up in demand, Hindalco has seen a decline in its earnings profile in last three quarters. Benchmark global copper and aluminium prices on London Metals Exchange have declined by 18% and 13% respectively in 2015 so far.
While its standalone earnings have witnessed negative to flat yoy growth in each of the quarters since three months to September 2014, its consolidated profit for fiscal 2014-15 fell by 61% to Rs 854.2 crore. The aluminium and copper producer which carries total debt of Rs 68467.5 crore on its balance sheet as of March 2015 also reported a yoy decline of 10% in its operating cash flow for the period.
Analysts are predicting metal companies including Hindalco to sustain weak financial performance in the upcoming earnings season. According to Kotak Institutional Equities, Hindalco may report net loss for its standalone operations during Q2FY16.
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