Hindalco to emerge as global player: Kumar Mangalam Birla

Dear Shareholders,

It is a pleasure to welcome you to the 52^nd Annual General Meeting of your Company.

E B Desai, who had been on the Board of your Company for over 26 years, left for his heavenly abode in December 2010. As a mark of respect to the departed soul, may I request everybody  to please stand-up  and observe silence for a minute.

Worldwide, an unmistakable phenomenon all around has been the sharp accentuation of uncertainty about the future course of the large global economies. Governments are struggling to respond appropriately to this uncertainty which inevitably spills over into the world of business. This is more than evident in terms of volatile financial markets, uncertainty in growth, uneven trade, high unemployment, and intractable inflation. Clearly, such pronounced volatility is highly disruptive, both for the global economy and for business.  And India is no exception to these tectonic happenings.

India’s economic performance during FY11 was powered by the agricultural and service sectors. Growth in the infrastructure and capital goods sector was slower than the GDP growth. While the economy showed signs of a turnaround, it suffered setbacks, albeit in a limited way. Factors that affected us include high inflation, fiscal and current account deficits and lack of policy facilitation to increase domestic investments, among others.  Despite several measures adopted by the Government and the Reserve Bank of India, inflation has not been reined in at the desired level.

Fortunately, despite these developments, the aluminum sector fared better than other sectors. Globally, aluminium consumption stood at around 41 million tonne, a sharp increase of over 20% over 34 million tonne over the previous year. Production was marginally higher at around 42 million tonne   vis-à-vis 38 million tonne in 2009.

The strong recovery in the emerging market demand and primarily restocking led growth in developed markets have been the stokers. China continued to be the driving force, growing at ~ 21% and contributing to over 41% of the global aluminium demand in 2010. Aluminium production spiked as producers restarted their capacities on account of the smart recovery in the aluminium LME. Consequently,   the global markets continued to be in surplus.

Likewise, refined copper consumption saw an impressive recovery in 2010, after two consecutive years of decline in 2008 and 2009. Consumption rose to 18.5 million tonne in 2010, clocking a growth of 8.5% over 2009, despite a 46% rise in LME prices.

Copper TcRc for the year 2010  declined sharply but,  taking advantage of a special window  when TcRc moved up for a short period,  your Company,  in the current year (FY 12),  is in a better position  than many other custom smelters.

Moving on to the operations of your Company during the year under review, I am pleased to share with you that your Company has truly excelled.

Your company’s consolidated revenue at US$15.9bn is the highest ever. This reflects a growth of 24%. Its adjusted EBITDA stands at US$1.93bn. Your Company’s low cost business model, operational excellence, superior product mix and its balanced and de-risked portfolio  have been the growth propellers..

With industry-leading assets and technology around the globe,  your company’s subsidiary  Novelis,  produces the highest quality aluminum sheet and foil products for customers  in premium-value markets  including transportation,  packaging,  architecture,  electronics  and printing.

Your company’s standalone results have been impressive as well. Revenues for the year crossed US$5bn. But for input cost pressures,  lower TcRc  and one-timers associated with the Hirakud power outage,  your company’s performance could have been even more impressive.

The EBITDA at Rs. 3,502 crore  as against Rs. 3,210 crore in FY10  is not comparable. In the preceding year,  your company had recorded a gain of over Rs. 349 crore,  arising out of the AS-30 transition  and this was factored in the EBITDA. The EBITDA growth,  when adjusted for this one timer, last year  is at 22%.

In the Aluminium Business in India, constant endeavours to produce more metal through asset sweating and de-bottlenecking at Renukoot enabled your company to produce 538 KT. The outage at Hirakud affected metal production. However, aggregate production was just marginally lower than the previous year’s production of 555 KT.

Aluminium sales at Rs. 7,965 crore were up 14%,  on the back of better realization. The EBIT margin of the Aluminium Business  is amongst the highest  compared to domestic and global peers. This underlines  your Company’s strategic thrust and commitment   to combine cost leadership  and portfolio de-risking.

For the Copper Business in India,  FY11 posed several challenges.  Strong copper prices leading to higher working capital blockage,  tightness in the concentrate market,  and lower TcRc,  along with severe cost inflation squeezed  the custom smelters’ margins significantly. Our Copper Business today,  in a way  is a portfolio of various business opportunities arising out of the by-products in copper manufacturing.

Against these significant odds,  your Company’s Copper smelting business  delivered a strong performance. The business contributed Rs. 15,902 crore to the top line,  a growth of 27% YOY,  and delivered an EBIT of Rs. 602 crore  as compared to  Rs. 660 crore last year. Loss in production  due to an unexpected cooling tower problem  coupled with adverse TcRc and rising cost pressures  constrained the business.

I am pleased to share with you  that your Company’s subsidiary  - Aditya Birla Minerals Ltd.  in Australia has done well. It has contributed AUD 57 million  to your company’s net profits. Its Nifty mines  recorded the highest production in copper  and the  highest mined ore processed  to-date. Production at Nifty copper  was at an all time high  at 59.6 Kt  despite lower copper grade. Mount Gordon,  its other mine has received the requisite approval for mining.

Now, let me focus briefly on Novelis. It has posted truly outstanding results. A net income of US $ 116 million, an adjusted EBITDA of US$1.1bn and a solid free cash flow of US $ 310 million. These numbers reflect a slew of ongoing initiatives geared  to strengthen the business. These include optimizing the Company’s footprint,  reducing its cost base by closing underperforming and non-core plants  and investing in recycling initiatives. The expansion of the Company’s Pinda mill in Brazil and global debottlenecking projects designed to increase capacity, have been the stimulants.

On Financing,  despite the grim global scenario,  your Company has successfully closed  transactions in excess of USD 7 billion. These include  the financial closure of Utkal Alumina  and Mahan Aluminium Projects. Additionally,  the refinancing at Novelis  has opened up a funding avenue between Novelis and Hindalco  to ensure superior allocation of resources  through fungiblity of cash.

On your company’s brownfield expansion projects,  several projects are on the ground. The Hirakud Flat Rolled Products project  is underway. As perhaps you are also aware,  the FRP production  from the Novelis Plant at Rogerstone in the United Kingdom  is being moved to India. The project will be completed by end 2011. It will give your Company  an edge  in the local and export markets.

On your Company’s greenfield projects,  let me mention that all of your Company’s Greenfield projects  are progressing well. Of these projects,  two aluminium smelters and one large alumina refinery  viz.,  Mahan Aluminium,  Aditya Aluminium  and Utkal Alumina are in an advance stage of execution  with a capital outlay of US $ 5 billion. Let me reiterate  that when these projects,  along with those which are currently on the drawing board,  are commissioned,  your Company would be a 1.7 million tonne aluminium behemoth  with 6 million tonne alumina refining capacity.

The clearance of the Mahan coal block  has been referred  to an Empowered Group of Ministers (EGoM)  which has been constituted for the purpose  of deciding on forest clearance for coal blocks,  including that for Mahan. Your Company has already made detailed representations  and is hopeful of a favourable decision by EGoM,  considering the merits of the case. Your Company is making alternate arrangements for the interim period,  pending approval of coal block.

The timely execution of the greenfield projects  would enhance our cost competitiveness  and give your Company  a distinct global competitive edge.

On the outlook for the future,  I believe,  it would be great going for your Company  as we move ahead. We are on the threshold of significantly increasing our  Alumina Refining and Aluminium Smelting  capacity. The revenues and EBITDA stream from these projects  would begin  with the projects  going on stream. The timely commissioning of these projects is a key to our future profitability.

 I believe your Company  is well poised  to emerge as a “Global Metal Business”  comprising India Centric Upstream capacities  and  Global Value Added Downstream capacities.

Moving on to dividend,  your Directors  have recommended a dividend of Rs. 1.50 per equity share,  higher by more than 10% compared to previous year. The dividend distribution will result in a cash outgo of Rs. 334 crore  (including tax on dividend of  Rs. 47 crore) compared to Rs. 301 crore  (including the tax on dividend of Rs. 43 crore) for the previous year. The dividend is subject to your approval.

Before going ahead with the agenda for the day,  I would like to very briefly speak  about your Company’s role  as a caring corporate citizen.

At the Aditya Birla Group,  caring for the underserved  is a legacy and an unwritten edict.  Your Company  is proud to be a part of this legacy. Your Company’s CSR activities  are concentrated in 660 villages  and 10 urban slums  which are close to your Company’s manufacturing plants. These are spread across the country.

Your Company's endeavours  to bring in inclusive growth  are channelized through the Aditya Birla Centre for Community Initiatives and Rural Development,  of which,  your Director, Mrs. Rajashree Birla,  is the Chairperson.

Long before  sustainability and environment conservation  became buzzwords,  we as a Group,  operated  and continue to operate our businesses as  Trustees  with a deep rooted obligation to synergize  growth  with responsibility. Even as we build  a robust business model  for long-term growth,  texturing sustainable development within its ambit,  is part of our process.  Environment conservation  and sustainable development  are always on our radar.

Social and environmental practices in our Group  entail the simultaneous creation of economic,  environmental  and social value,  and taking these practices  far beyond compliance. Over the last decade,   these measures have been institutionalized in the Group. Consequently,  these are integrated into our business strategies  and in all our endeavors  to foster inclusive growth as well.

Your Company’s efforts towards environment conservation  and social projects  are spelt out in detail in the Annual Report. I hope all of you have read these chapters.

I also take this opportunity  to very warmly thank  all of our employees  for their contribution to your Company’s performance. We applaud them for their superior levels of competence,  dedication  and commitment to your Company. I am grateful to our Bankers  who have helped us  by supporting our growth momentum.

I would also like to express our deep sense of gratitude  to all of you,  our shareholders. I look forward to your continuing commitment  and support  in your Company’s onward march. Finally,  I wish you all  a very happy festive season.

Having provided you with a snapshot of your Company,  may I now commend the first resolution  relating to the adoption of the Accounts and Directors’ Report  for your consideration and approval.

Thank you,

Kumar Mangalam Birla