Hindalco Industries (Hindalco) annual report analysis for FY12 highlights actuarial losses of INR10.1bn incurred during the year on the post retirement defined benefit scheme which, with the change in the accounting policy, were charged of directly through reserves. The scheme is underfunded though no detailed disclosures are available. Besides, the company has incurred losses of INR5.4bn as cost of exiting certain businesses which were charged of through the BRR. Forex loss stands at INR8.7bn but no details on unhedged position are available.
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Actuarial losses charged through reserves; scheme underfunded
During FY12, Hindalco Industries (Hindalco) changed its accounting policy of charging actuarial losses/gains on pension and other post employment benefits (DBP) with respect to Novelis Inc., a subsidiary, directly through the reserves instead of the earlier practice of charging the same through P&L which led the employee cost to be lower and PBT to be higher by INR10.1bn (23.2% of PBT).
Hindalco, in its annual report, has not disclosed further details on DBP. Novelis in its annual report highlights an underfunded status of DBP as at the end of FY12 of USD761mn, which is reflected in loan term provision for employee liability of INR39.2bn (FY11 INR27.3bn) in Hindalco’s financials.
Cost of exiting business skirts P&L, charged through BRR
The cost of exiting certain business (INR5.4bn) has been charged off directly through the business reconstruction reserve. Had the same been charged as per the IGAAPs, other expenses would have been higher and PBT would have been lower by INR5.4bn (12.4% of PBT).
Significant forex losses incurred; unhedged position not disclosed
During FY12, the INR depreciated by ~14.6% against the USD. The company incurred a loss of INR8.7bn (FY11 at INR 0.04bn) on account of foreign currency transaction. Of this, INR5.4bn has been adjusted in revenue from operation, INR2.0bn in cost of material and INR1.4bn in other expenses.
This is despite that the company highlights that with respect to Aluminium business the company benefits when INR depreciates against USD. The company has not stated the unhedged position as at the end of FY12.
Other income forms significant proportion of profitability
Other income has increased from INR5.1bn (13.4% of PBT) to INR7.8bn (18.0% of PBT) primarily on account of write back of provision of INR1.6bn (FY11 at INR0.4bn).
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