Hindalco: On Its Own Ground
Hindalco may have slipped just one slot below last year’s rankings. The aluminium major’s income and assets rose just 2.29 per cent in FY17, placing the company at No. 13 on the popular BW Real 500 rankings.
Last year, the aluminium behemoth achieved its highest aluminium production of 1.3 million tonnes and alumina production of 2.3 million tonnes, clocking consolidated income of Rs 1.01 lakh crore. Production of value-added products increased 14 per cent to 481 kilotonnes. In fact, production at the new plants have been fired up to desired levels.
Profit figures, too, have improved markedly. After having suffered losses in FY16, Hindalco scripted a spectacular plumping up of its bottom line, from a Rs 873-crore loss to a Rs 1,907-crore profit — speaking volumes of the company’s new asset-light strategy!
Its copper business, however, was subdued last year. Production dipped as the company planned a shutdown; besides demand was low, causing production to dip in sub-segments like cathodes, CC rods, etc.
Hindalco has also embarked on a de-leveraging strategy that has seen it prepay, and reduce, debt of Rs 5,500 crore last year. Subsidiary Novelis refinanced a $4.3 billion long-term debt with lower-cost debt. This has helped Hindalco save nearly $79 million in interest costs.
Further, its financial position was bolstered by a successful $500 million QIP, which was used to pare down debt. Besides, Novelis signed a contract with Kobe Steel in May to sell 50 per cent of its South Korea facility, Ulsan, for about $315 million. The proceeds of this sale will be used to prep up the balance sheet and cut back debt on the balance sheet.
Hindalco’s three new operating units are faring fairly well. “All of our company’s new plants, Aditya Aluminium, Mahan Aluminium and Utkal Alumina, are operating at their rated capacities,” noted chairman Kumar Managalam Birla in the annual accounts. In fact, Utkal Alumina is one of the lowest-cost refineries in the world.
In FY17 Hindalco secured additional coal linkages of 5 million tonnes, about 30 per cent of the coal it requires annually. With this linkage, more than two-thirds of its annual coal requirement has been secured, further helping reduce costs in coming quarters. Some of its coal mines such as Gare Palma IV and V have reached peak capacities.
The revival in the global aluminium market is expected to lead to consolidation, which would lead to further improvements. Demand in the domestic market is expected to come from new infrastructure projects. In India, the power sector is expected to drive major demand for Hindalco’s products.
The company has also been bolstering R&D to develop solutions to the issues faced in the non-ferrous sector, such as raw-material quality, cost-effective management of waste generated during processing, recovery of value from by-products, reducing energy consumption and carbon footprint. Hindalco also operates two innovation centres focusing on aluminium products and aluminium-fabricated products.
If the recent past is anything to go by, Hindalco will continue to derive efficiency gains as opposed to increasing capacities while making a larger foray into value-added products. It is a strategy that might not see it making too much capital expenditure, but will definitely keep the profit registers clinking.
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