Hind Aluminium Industries Ltd Management Discussions.
Industry Sector and Development
Your Company is primarily involved in three sectors of business, namely Aluminium, Minerals and Solar and Wind Power Generation.
Aluminium, the "Metal of Future" is the fastest growing metal, as much as 20 times in the last sixty years compared to 6 times of other metals. Production and Consumption of Aluminium in India has increased during 9M-FY19. Better operational e_iciency in production and an increase in sector-wise consumption like Power (48%) is one of the major factors driving the rise.
Power Sector in FY19 at a Glance
With an average electrical energy per capita of 1,149 KWh (per person per year), India ranks third in power consumption with an installed capacity of 356 GW as on March 31st, 2019. Total electricity generation (including grid connected RE sources) during FY18-19 is reported at 1376 BU, a growth of 5.19% over the previous year. Renewable Energy sources contributed 107 BU and recorded a 24.47% growth. Transmission lines of 22,437 ckms were added in FY19. As per the 19th Electric Power Survey, all-India energy requirements are projected at 1566 BU by 2021-22. To feed this demand, plans are to increase the installed capacity to 304 GW from conventional sources and 175 GW from renewable energy sources by FY22.
The Rural Electrification program of GOI, Pradhan Mantri Sahaj Bijli Har Ghar Yojna (Saubhagya) reports 99.93% household electrification with 2,62,84,350 houses electrified till March 2019. GOIs ambitious goal to provide 24x7 electricity coupled with the rising demand would need an e_icient, reliable system. This has opened up several avenues, the most relevant to your company being the addition of new transmission lines and up-rating/strengthening of ageing lines.
The electricity generation target for conventional sources for the year 2019-20 has been fixed at 1330 BU, a growth of 6.46% over the previous year. Govt. is planning to invest Rs. 35,210 Crores ($ 5 billion) to evacuate renewable energy by connecting it to the grid. To evacuate 12 GW of renewable energy transmission line tenders has been awarded since December 2018 while tenders for a further 16 GW is planned for June. Another 38 GW would be bid out by March 2020.
RoW clearance seems to be the major threat in delay of the projects. The long process involved in planning of transmission projects is also an issue. Due to uncertainties in policies, auctions of around 8000 MW solar projects was cancelled. Powergrid & major Utilities have no clarity in their buying plans. Implementation of safeguard duty on imports by various Aluminium manufacturers would have a negative impact on fixed price contracts, something that has been seen in the highly-competitive domestic market recently.
For Aluminium division of the Company, there has been some sluggishness in the transmission space despite very optimistic expectations. This has in resulted in this division contributing a total of Rs.551.58 Cores in the revenue of Company as compared to Rs.702.31 Cores in the previous year. However, from the end of March, 2019 there was a significant change in the sentiment, and ordering on the ground. We are still feeling these headwinds.
In the mineral sector your Company is trying to look for good sources of mineral & at present the Company has restricted its operation in this segment.
The Company has two Wind Turbine Generators (WTG) & four Solar Power Plants with total power generation capacity of 4.18 Mega Watts and all are working well and contributed Rs.3.82 Cores in the total revenue of the Company as compared to Rs.3.25 Cores in the previous year.
The government initiating investments in the power sector there seems to be a positive outlook for our products. We also hope to significantly expand our Bauxite operations in the coming year.
Risk and concern
The Company recognises that risk is an integral part of business and is committed to managing the risks in a proactive and e_icient manner. As always, volatility in the price of aluminium will affect the performance of the Company.
Internal control system and their adequacy
The entire facility of both Wire Rod as well as Conductor manufacturing are ISO certified. Your Company has a real time system of monitoring its targets as well as expenditure. Your Company has been externally rated by CARE as CARE A-/A2+ . This has infused great confidence in the bankers of the Company.
Your Company has constantly trying to increase its sales as well as profitability.
Development in human resource / industrial relations
The company places high importance on the development of its human resources. It imparts regular training to its employees to make them more focused to adapt to the constant change in the business environment. Industrial relation in the units was satisfactory.
Key Financial Ratios with details of significant changes
The company has identified the following as key financial ratios:
|Debtors Turnover Ratio||4.47||5.27||4.65||5.80|
|Interest Coverage Ratio||1.44||2.13||1.04||2.04|
|Debt Equity Ratio||2.35||3.09||2.53||3.27|
|Operating Profit Margin (%)||0.03||0.03||0.02||0.03|
|Net Profit Margin||0.01||0.01||0.004||0.01|
|Change in Net Worth as compare to previous year**||-2%||9%||-5%||10%|
*Company has maintained inventory as per business requirement/reorder level and for better performance of the Company. So Company has tried to reduce inventory turnover upto certain extent.
**Change in net worth as compared to previous financial year is due to effect of prior period items.