Assignment on Analysis of Hindalco Industry in the context of Economic Recession and GDP of India.

Jaipuria Institute of Management, Lucknow

Submitted To Prof. Mahima Sharma Submitted By

Divyank Gupta (PGDM- 51) Gaurav Singhi (PGDM- 53)

Acknowledgement
This assignment has been made possible through the direct and indirect co-operation of various people for whom we wish to express our appreciation and gratitude. In the preparation of this assignment we have received help and encouragement from different sources. We are very thankful to our teacher Prof. Mahima Sharma, she not only helped us to make this report come true but also gave us the valuable inspiration at every critical moment. We express our strong sense of gratitude to her. She helped us in every possible way beside the useful guidance & the constructive inputs regarding final shaping up of this report on the topic Analysis of Hindalco Industry in the context of Economic Recession and GDP of India

Table of content with tile and pages

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Content
Indian Economy a General Overview Analysis of Indian Economy

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5-7 Overview of Company History Hindalco Industry Analysis in the Context of Economic Recession An Insight to HIL P&L Account Analysis of HIL P&L Account 13 What is LME 14-15 Analysis of Hindalco Share Price 16 Conclusion of Report 17 8-9

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Bibliography

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Indian Economy a General Overview

Year Mar Jun Sep Dec Average 2009 5.80 6.10 5.95

2008 8.60 7.80 7.70 5.80 7.48 2007 9.20 9.00 9.30 9.17

The Indian economy witnessed moderation in growth in 2008-09 in comparison with the robust growth performance in the preceding five years. Domestic Aggregate Demand also moderated due to sharp deceleration in the growth of private consumption demand. Corporate performance remained dampened, with significant fall in sales and decline in profits. The Indian economy confronted one of the severest external shocks in 2008-09 in the form of an intense global financial crisis coupled with a global recession, but exhibited notable resilience, with GDP growth at 6.7 percent. When the global markets turned dysfunctional in September 2008, with intense scramble for liquidity and subsequent credit freeze under the pressure of deleveraging, the Indian markets reverberated the shock, which was seen in the form of higher volatility in all segments of the financial markets and sharp corrections in stock prices.

ANALYSIS OF INDIAN ECONOMY Fiscal Stance

The Fiscal Responsibility and Budget Management (FRBM) Act which budgeted 3 % fiscal deficit of GDP reached 10.7 per cent of GDP in 2008-09 due to rise in Oil and Fertilizer price.

Inflation Divergence
Headline Inflation, as measured by year-on-year variations in the WPI. Inflation from the peak of 12.91 percent on August 02, 2008 , and since June 2009 has remained negative, primarily reflecting the high base effect of the previous year that resulted from significant increases in the prices of food and international commodities in the first half of 2008-09.

Agricultural and Allied Activities

The agricultural growth prospects in 2009-10 have to be assessed taking into account the output impact of deficient monsoon. With almost 60 per cent of the agricultural land being rain-fed, Indian agriculture is still dependent on the performance of the monsoon, particularly the South-West monsoon. India, food grains production in 2009-10 could be adversely affected because of the deficiency in rainfall. Rainfall deficiency entails the additional risk of shortfall in hydro power generation, which may also add to the existing infrastructure constraint to growth, particularly when the energy demand increases with the recovery.

Industrial Performance
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The industrial production, which was on a robust growth trajectory during 2003-08, with an average growth of 8.7 per cent, witnessed a significant moderation thereafter to 2.7 per cent in 2008-09, on the back of heightened uncertainty and weak domestic and external demand.

COMPANY HISTORY
Birlas were always a powerful name before Independence of India. After it, they were all set to make their foundation more powerful by entering into metal sector. It all started in 1958 when Hindalco was incorporated in Mumbai. The company was formed by the house of Birlas and with the Kaiser Organization of U.S.A. The first production plant was set up in Renukoot in 1962 with a 20000mtpa Aluminium metal production capacity and 40000mtpa of Alumina production. With the advent of Kumar Mangalam Birla in 1995 as the Chairman of the company the expansion via organic and inorganic for both of its Copper as well as for Aluminium division was on top priority. Their was always an unquenchable thrust for growth that led the company for inorganic and other alliance. The most prominent one are:1. In 2000 Acquisition of controlling stake in Indian Aluminium Company Limited. And furthering it to 96.5% later.
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2. The amalgamation of Indo Gulf Corporation Limiteds Copper business, Birla Copper with Hindalco, with effect from 1st April 2002 3. Hindalco acquires the Nifty Copper Mine in 2003 through Aditya Birla Mineral ltd. By the year 2003 Hindalco has left behind their peer group in the market and set up them self as a market leader in term of cost and quality. They were now best not only in India alone but stand alone first in Asia. Now thats not all they have achieve when we compare it with their Vision. They are continuously striving to be number one in the world. No doubt their actions are meeting their goal and for sure they will achieve it.

Hindalco Industry Analysis Context of Economic Recession

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With the acquisition of Novelis, Hindalco has become the worlds largest rolling company. They have now a global player with a strong presence in five continents and is in the league of the top 7 global players. Its product portfolio is a natural hedge against the volatility of the LME. This year was an extremely challenging one with unprecedented economic volatility in commodity and money markets. This was triggered by the sub-prime crisis, concerns about US recession and runaway increase in oil prices. In FY08 LME aluminium prices fluctuated significantly between USD 2400 and USD 3100 per tonne. The average LME aluminium price for the year was almost flat at FY 08 levels. The depreciating dollar resulted in a sharp fall in domestic aluminium realizations as the prices are dollar denominated. Continuing with the stated policy of import duty reduction, the government cut the customs duty on Average LME was marginally lower than the previous year but still remained strong. This strength could not, however, be translated into the key value driver viz. domestic realization due to appreciation of the Indian rupee by over 11% and fall in import duty from 8.7% to 5.1%. The result was a sharp 11% drop in average rupee realization per tonne of primary metal as compared to FY07. The effective import duty for aluminium declined from 8.1% to 5.7%. As a result of these macro economic factors, average aluminium realisations for FY08 declined sharply by11% as compared with FY07 realisations These adversities were mitigated in part by : Higher volumes mainly in primaries, flat rolled products and extrusions. This places in perspective the benefits of the brownfield expansions and low-cost inorganic acquisitions implemented earlier as part of the strategic growth plan. Improved plant efficiencies. Better working capital management
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An Insight to HIL P&L Account

Hindalco Industry Profit and Loss Statement Hindalco Industries Ltd. Rs. Crore Income Sales Other income Change in stocks Non-recurring income Expenditure Raw materials, stores, etc. Wages & salaries Energy (power & fuel) Indirect taxes (excise, etc.) Advertising & marketing expenses Distribution expenses Others Less: expenses capitalised Non-recurring expenses Mar Mar Mar 2006 2007 2008 12 12 mths 12 mths mths

12483. 43 19879.16 151.16 250.85 1036.3 443.88 137.96 187.99

20876.9 9 517.2 141.8 702.41

6926.8 586.89 1820.3 2 1091.0 9 33.9

11494.89 519.59 1848.62 1618.69 41.71

12486.6 3 621.23 1910.83 1833.86 36.16 274.45 701.18 31.82 48.04

215.72 252.12 318.58 660.48 13.47 6.97 59.02 89.36

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Profits / losses PBDIT Financial charges (incl. lease rent) 199.67 2622.3 PBDT 8 Depreciation 516.68 PBT 2105.7 Tax provision 450.15 1655.5 PAT 5 Appropriation of profits Dividends 247.25 Retained earnings 1408.3 2822.0 5 4295.44 182.91 4112.53 552.8 3559.73 995.4 2564.33 4357.84 203.75 4154.09 587.81 3566.28 705.34 2860.94

202.22 2362.11

265.48 2595.46

Analysis of Hindalco P&L Account

We chose Hindalco P&L Account as this shows up two very important information, SALES and PAT. A laymen look to this figure would say that company sales and PAT has increased, but a critical look to it shows that the growth rate in sales has decreased compared to previous. In year 2007 there was 60% increase in sales, but the growth rate has decreased to mere 5% in the year 2008. The same is true for PAT also. Growth rate of 55 % has reduced to 11%. This clearly shows the impact of global recession on the company. Main attribute of this is depreciating dollar and high LME price. Depreciating dollar has lead to lower the receipt and high LME price causes export to decline, thus both of which has a considerable negative impact on company sales and PAT figures. A strategic move by Hindalco Industry done during this recessionary period has a considerable effect on the future potential. Company focused on expansion and invested in green field project. Through this they have expanded their capacity to
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produce so to meet higher demand when economy comes in normal phase and also to reduce the overall cost of production.

Analysis of Hindalco Stock Price from Oct 08 to Oct 09

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Share price of any company shows the health of a company. A

shape graph of Hindalco share price shows the effect of downturn in company with respect to Indian economy. The effect of Recession is evident from the share price of Hindalco Industries. The crash of stock prices after collapse of Lehman Brothers is clearly shown in the above graph. Weak global and domestic economic cues lead to lowering of investor sentiments. Stock price of Hindalco reach 52 weak low to around Rs.36 per share in Feb 2009 when economic recession has caused liquidity crisis all around the globe. Export which constitutes a major chunk of Hindalcos earning has declined causing reduction in overall earning of it. Government initiative from time to time has lead to improvement in domestic market, and with the improving global market the share price of Hindalco too improved. In the 2nd Quarter of 2009 the economy is shaping in recovery mood and so the share price of Hindalco. This also shows the rising confidence level of investor.

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Conclusion of Report
We compared our country GDP, which was growing with an unprecedented growth rate of +9 per cent. With the advent of economic recession the GDP declines and the main attribute of this decline is poor performance of Industrial and Manufacturing sector. Government Initiative like Farmer Debt Waver, 6th Pay Commission, Reduced Cen Vat and Service Tax, Reduction in Policy and Reserve Rate to boost domestic demand has helped the growth momentum to be above 6 per cent. These measure on an aggregate increased the money in the hand of people and thus generated demand. The Aggregate Demand thus improved. Government special initiative to reduce Excise Tax and Tax holiday given to specific export oriented industries again was very appreciated, and resulted in improved performance of industries. Hindalco Industries suffered from rising input prices and costly finance for its operation. Global Aluminum prices has reached a record high of $ 3100 per ton and hover around $2400-3100 per ton. The prices were normal not before may 2008, which caused immense damage to company revenue. Sales and Profit figure were no doubt increased but the growth rate has came down drastically which shows the negative effect of recession on it. In the phase of recession when the demand was low and price began to fall down Hindalco Industry focused more on future demand. This was done by initiating new project and investing in green and brown field project. This has lead to improve there capacity and reduce there cost so too meet further challenge.

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Bibliography

www.rbi.gov.in

Hindalco Industry Annual Report

www.equitymaster.com www.wikipedia.com www.imf.org

www.hindalco.com

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