Mr. D. Bhattacharya, Managing Director, Hindalco Industries Ltd., Vice Chairman of Novelis Inc. and Director, Aditya Birla Management Corporation. Mr. Bhattacharya heads the Aditya Birla Group's non-ferrous metals business. He is the Chairman of Utkal Alumina International Ltd. and Aditya Birla Minerals Ltd., a wholly-owned copper subsidiary of Hindalco in Australia, which runs two copper mines - one in Nifty and the other one in Mt. Gordon. Before taking over as Managing Director of Hindalco Industries Ltd., Mr. Bhattacharya was the Managing Director of erstwhile Indo Gulf Corporation Ltd. He is the recipient of the prestigious "India Business Leader of the Year Award (IBLA) 2005", and the much coveted "The Asia Corporate Citizen of the Year Award (ABLA) 2005". Mr. Bhattacharya is the recipient of the LEXI Award 2007 for Strategic & Leadership Excellence as well. He earned a B. Tech (Hons.) in Chemical Engineering from IIT, Kharagpur, and a B.Sc. (Hons.) in Chemistry from Presidency College, Kolkata.
Hindalco Industries Ltd. is an industry leader in aluminium and copper. The metals flagship of the Aditya Birla Group is the world's largest aluminium rolling company and one of the biggest producers of primary aluminium in Asia. Its copper smelter is the world’s largest custom smelter at a single location. Established in 1958, Hindalco commissioned its aluminium facility at Renukoot in eastern Uttar Pradesh, India in 1962. It has strengthened its position in value-added alumina, aluminium and copper products through a series of acquisitions and mergers. The acquisition of Novelis Inc. in 2007 positioned Hindalco among the top five aluminium majors worldwide and the largest vertically integrated aluminium company in India. Today, Hindalco is a metals powerhouse with high-end rolling capabilities and a global footprint in 13 countries.
On May 8, Mr. D. Bhattacharya announced the financial results of Hindalco Industries Ltd. for Q4 and FY12. Hemant P. Maradia of IIFL presents to you some of the key highlights of that media briefing by Mr. D. Bhattacharya.
“I cannot tell what the Aluminium LME will be in FY13, but my personal view is that it will be rangebound between US$2,200 and US$2,400 per ton,” says Mr. D. Bhattacharya.
Annual revenues cross Rs 25,000 crores in FY12
Despite a steep cost escalation, Hindalco Industries’ revenues were in excess of Rs 26,597 crore during the fiscal year ended March 2012. Net profit stood at Rs 22.37bn, 4.7% higher than the preceding year.
FY12 started on an optimistic note with strong LME pricing amidst strong investor appetite. However, during the year, the LME rally fizzled out as global macro economic concerns resurfaced.
Costs continued to flare up
Cost push continued unabated, especially on the energy side due to geo-political concerns and India specific coal issues. Physical demand continued to be strong even as inventory overhang persisted.
The rising cost pressures in Aluminium were mitigated by increased production through asset sweating, continuous improvement in efficiencies and better realisation.
Domestic Aluminium sales up 5%
Domestic Aluminium sales in FY12 were up 5% at 489 kt while overall metal sales rose by 6% to 568 kt. We exported more than what we did in FY11.
Hindalco witnessed an 8% increase in special alumina/hydrate sales during FY12, even as standard alumina sales declined on higher captive use. We have tried to get more profit out of the same tonnage and even in some cases reduced tonnage.
All in all, our strong operational performance in Aluminium helped us tide over the rough external environment during FY12.
Year-end inventory reduced to 5,100 tons; we have never achieved such low annual inventory in our history. That means we de-blocked a lot of cash. Total inventory turnover – a measure of good business performance – was 28 times. The best we achieved prior to this was 23 times. And, the faster we rotate our assets better it is for us. This in turn leads to less cash being locked up in inventory because inventory doesn’t earn anything for the company. It adds to the cost.
EBIT for the Aluminium business falls
EBIT for the Aluminium business fell to Rs 18.22bn in FY12 from Rs 20.04bn on the back of two problems - one, drop in Aluminium LME and two rising cost pressures. Almost every input saw a substantial rise in costs during the year.
During Q4, the Aluminium EBIT fell by 14% compared to the year-ago period but witnessed big improvement over the previous quarter.
Copper cathode output down in FY12
Coming to Copper business, the FY12 Cathode output stood at 330 kt versus 336 kt in FY11 mainly because the concentrate was of a lower grade. So, despite enjoying high level of efficiency we ended up producing slightly less copper cathode output during FY12.
But, on all other parameters, our copper performance was very good. First, we produced more value-added products. We produced higher proportion of CCR, which fetches better margins compared to cathode. Marketing mix was also optimised, which helped us get better EBIDTA. We converted some of the by-products into value-added products like Selenium.
Q4 one of the best quarters for Copper
FY12 sales in the Copper business went up by 10.5% to Rs 175.75bn. But, EBIT for FY12 surged by 33.2% because of improvement in product mix and also because of better efficiencies.
Even in Q4, the EBIT for the Copper business rose by a robust 42.5% to Rs 2.93bn. This has been one of the best quarters for the Copper business.
All projects progressing as per schedule
Coming to ongoing projects, the Utkal Alumina refinery is moving well and is on schedule. The heat exchangers and the turbines have already been erected. Alignment of turbines is in progress. Coal handling equipment is also in place. Erection of rod mill for bauxite is also underway. The Utkal refinery will be commissioned by December 2012.
The Mahan smelter is also progressing very well. There will be 180 pots and we will be producing 2.7 tons of metal per day per pot. The captive power plant is also getting ready at Mahan. We have received the approval for expanding our capacity from 325 kt to 360 kt. Therefore, we will have CPP capacity of 900 MW.
The Aditya smelter is similar to Mahan in nature, capacity and technology.
The Hirakud FRP is also as per schedule.
Multiple macro-economic headwinds globally
As far as the global economy is concerned, there are multiple sources of anxiety, particularly for the financial markets. The latest election results have caused fresh concerns about the eurozone problems. Even the US, which was doing well until recently, seems to be showing signs of fatigue.
China, which has been the engine for growth for the manufacturing sector, is also slowing down. The 7.5% GDP growth projected by China for 2012 is a significantly lower number than what they have achieved in the recent past. The only positive is that China is likely to deliver much better GDP figures than what they predict.
Aluminium LME to be rangebound in FY13
I cannot tell what the Aluminium LME will be but my personal view is that it will be rangebound between US$2,200 per ton and US$2,400 per ton in FY13.
Aluminium stocks around the world are high but much of that is not available as it is locked up in warehouses. At the same time, Aluminium consumption growth in Q1 of 2012 was only 3.3% versus 9.6% in the same period in 2011.
Pressure on Aluminium LME will continue; we will not see levels of US$3,500 a ton, and therefore margins will remain under pressure. India-specific cost pressures will also persist, especially on the coal side.
Outlook remains cautious
Projects are expected to kick in FY13, putting Hindalco on high growth trajectory. But conversion of EBITDA to bottomline will be impacted because of higher depreciation and interest costs on the newly commissioned projects.
Inspite of the operational improvement that has taken place at Hindalco over the past few quarters, the outlook is cautious.
Mahan coal block issue with GoM
Mahan coal block was allocated to Hindalco and Essar. We were given this block because we committed to utilise the coal in our own factory at Mahan.
We received the environment clearance as Mahan coal block doesn’t fall under reserve forest and it doesn’t have any wild life. Every condition was fulfilled by us. But, the law changed and certain areas were marked as ‘no-go’ for coal mining.
The matter is now with the Group of Ministers (GoM). We hope that the GoM will soon release the Mahan coal block by granting Stage 1 forest clearance. Hindalco will get coal in 12 months time once Stage 1 is cleared.