Date | Nov 07, 2017:
Hindalco Industries, an Aditya Birla Group company, has sailed through the monsoon with a sound pre-planning. Though aluminium demand was weak, high prices on the London Metal Exchange pushed up its realisation as it had tight control on cost. Satish Pai, Managing Director, Hindalco Industries, spoke to BusinessLine on the company’s strategy ahead.
How did the coal shortage impact Hindalco during the September quarter?
While coal supply was an issue, we had managed to live with high prices because we had locked in the prices through linkages. Prices are not a concern as long as coal gets delivered. We always face challenges in supply during the monsoon. We had built enough coal inventories. Things are getting back to normalcy. To be honest, this is one of the monsoons that I had less of sleepless night. Supply from our captive coal mines also helped us. We get 80 per cent of our requirement from our three operating coal mines. Our Dumri coal mine in Jharkhand will start production in 2019. Normally, we keep 20 days coal, so during monsoon we have inventory for 30-35 days. Yes, when we maintain such high inventory there is cost involved. It is better to incur the cost than keeping the plant shut. We do monsoon planning from February when we start building inventory of all materials so that we are not caught napping. Our planning helped us during monsoon.
Do you have plans to own wagons for transporting coal?
Yes. We would like to have our own wagons for transporting coal just like we have for transporting alumina. For this to happen, the government should allow captive power plant operators to have their own wagons. It will be win-win situation for both the railways and power plant operators. I think for this to happen, government needs to make fresh regulation because coal is very tightly controlled. We have made a representation. For alumina, they had come up with a new scheme and allowed us to buy rakes. They can start by allowing captive power plant operators to own minimal rakes so that it can be put to use when there is real wagon shortage which comes in only for limited period.
Will you continue to deliverage balance sheet?
Now, I think we will take a pause on repayment as our EBITDA level is going up. We are comfortable with our net debt to EBITDA at the current level. Hindalco’s net debt to equity is 3.2 from 6.7 at the peak when the greenfield projects were completed. We have repaid ₹7,966 crore since April of this year. This quarter we repaid Utkal’s debt of ₹2,280 crore and Aditya Aluminium’s ₹1,133 crore which was technically paid on October 2 but it was planned for September quarter. Net debt of Hindalco is about ₹18,605 crore and EBITDA is ₹6,140 crore. Novelis net debt is $3.94 billion and trailing 12 month EBITDA is $1138 million and net debt to EBITDA is 3.46. EBITDA for the combined company is ₹13,480 crore and net debt to EBITDA is 3.29 against 3.74 at the end of last fiscal. Actually, Novelis can have little bit high net debt to EBITDA, but we are planning for organic expansion and want to keep its balance sheet strong.
Is aluminium demand keeping pace with your expansion?
It is not growing at the pace we expected. We expected the demand to pick once the GST is rolled out. For the first half of this fiscal, aluminium demand has grown just 2 per cent, and in copper, there is no growth. In the second-half, we expect power and housing sector should drive the aluminium demand. High-end housing may be little subdued but demand for affordable housing will pick up with government measures. However, on the ground we have not seen demand pick up yet. But it is little early as the monsoon is still withdrawing in most parts of the country. The demand was so weak in domestic market so we had to give discounts to the international prices. The percentage of value added products have come down because the market was weak.
Is imports still a worry?
Import of finished aluminium products have come down. But scrap shipments have increased. It has gone up because LME prices are high. Then scrap becomes financially attractive. You can buy scrap at a percentage discount to LME. If LME is high, scrap imports will continue as the scrap spread becomes attractive.
Do you plan to sell alumina with aluminium demand being weak?
We sell very little alumina. As part of our five-year strategy, we are expanding Utkal Alumina capacity from 1.5 million tonne to 2 million tonne with investment of ₹1,200 crore. This is covered under ₹6,000 crore we will be spending in the next five years. We will be commissioning 2.30 lakh tonne copper rod mill at Dahej by March 2019. Once commissioned, we will sell 90 per cent value add copper product and very little of cathode. Our investments are with India growth story.
(Source: http://www.thehindubusinessline.com/)