Cost of production in Jul-Sep may rise 17-19% on qtr, says Hindalco

 11 Aug 2022

Hindalco Industries Ltd expects the cost of production to rise in the high teens in the Jul-Sep quarter due to the flow-through effect of high coal costs in the June quarter, the management told analysts in a conference call with investors and analysts on Wednesday.

Coal costs is reflected in the power and fuel expenses of the aluminium and copper producer.

The cost of production in the June quarter was 17% higher than that in the previous quarter, the company said.

"Probably Q2 (September quarter) will be in some way our worst quarter from the cost of production point of view because the majority of the coal problems and the high cost coal that we had to buy during May-Jun will be consumed in Jul-Sep quarter," a senior official said.

The company expects the production costs to rise sequentially in the high teens which could mean that the rise would be in the 16-19% range.

The company said the coal has been the biggest factor in the rise in the cost of production since the company had to source 31% of their coal from the auction market after the government restricted the linkage coal supply to non-power producers.

The premiums in the auction market had risen substantially to 500%, the company said.

The company expects the share of shrinkage coal from 50% to 65% in the December quarter with coal supply woes easing gradually.

On a standalone basis, Hindalco's power and fuel expenses rose 32% sequentially to 25.1 bln rupees and it made up for 15.1% of operating expenses. Raw material expenses, which made up for 59% of expenses, recorded a decline of 17% sequentially.

The standalone operating margin of Hindalco contracted to 15% in Apr-Jun from 17.2% in the previous quarter. The operating profit, defined as earnings before interest, tax, depreciation and amortisation, declined by 10.3% sequentially to 29.3 bln rupees.