MUMBAI: The market value of Hindalco Industries declined further on Thursday, after the aluminium producer reported a 34% decline in profit on the back of flat sales growth and higher operating expenses during the June 2012 quarter. The improvement in operations at Novelis – its US based subsidiary – did little to cheer investors.

The stock, which has lost 24% in the past six months, currently trades at a price to earnings multiple of 6.6 times – a discount to its peers Nalco and Sterlite Industries.

The June 2012 quarter has proved to be one of the worst for in twelve quarters Hindalco. Revenue remained flat, operating profit margins fell to their lowest in twelve quarters and profit declined the most the twelve quarters. While volume growth is a one time concern, contraction of operating profit margins is likely to continue in the coming quarters as well. Moreover, other income jumped 69% to Rs 301.43 crore. Had it not been for this sharp rise in the company’s non core income, net profit would have been lower.

Aluminium volumes were lower due to problems with the grid at Hirakud and Renukoot. At the same time LME (London Metal Exchange) aluminium were 24% lower than the same quarter last year at $1,977 per tonne. On a standalone basis, the company’s net sales came in at Rs 5964.11 crore compared with Rs 5979.03 crore in the same period last year.

Its operating profit margin dropped to 8% – the lowest in over twelve quarters mainly on account of the rise in prices of raw materials – coal, caustic soda and furnace oil. With LME prices not expected to rise significantly hereon and raw material prices at current levels, sustaining margins will remain a big concern at Hindalco’s Indian operations.

Meanwhile, Novelis reported a 20% increase, year-on-year, in net profit to $91 million or about Rs 510 crore as the company was able to successfully offset the fall in shipment with lower operating costs.

Net sales were 18% lower than the year ago period mainly as a result of lower volumes and a $626 per tonne decline in average aluminum prices. But this was partially offset by favorable conversion premiums. Whether this performance is sustainable overt the next few quarters is yet to be seen considering the woes for the aluminium industry across the board as far from over.