14 February 2017
With Donald Trump's presidential victory in the US and lending rates coming down in the domestic market, Hindalco Industries, the flagship company of Aditya Birla, is set to make the best of both developments. In an interview with Aditi Divekar, managing director Satish Pai talks about strategy to maintain Novelis profits and benefits on project loans in domestic market. Edited excerpts:
With Trump's victory in the US, what prospects do you see for Novelis business going ahead. Will Novelis continue to make profits the way it has in the past few quarters?
Trump's victory is going to benefit Novelis as this business is completely inside the US and Europe and there is no import-export. If the US economy expands, Novelis will only do well. Currently, the cans business in Brazil is hit and this is the most profitable part of our Novelis business. We are concerned but we think Brazil has hit the bottom and their economy should start to move up here on. Also, as can headwinds come in, automobile business would go up and our auto operating profit per tonne is much higher than can. This, combined with strong cost-cutting focus, will help us maintain profits.
What are the kind of cost-cutting measures being planned at Novelis?
We are looking at metal procurement and operational efficiency closely. Higher operational efficiency will bring in major savings to the business.
With interest rates having come down, how has it benefitted Hindalco debt. What is your average cost of funds? How much refinancing of loans have you done so far?
Novelis's $4.7-billion loan has all been refinanced. We will save $80 million per year due to this refinancing. All of Hindalco loans have been moved to 2030. With interest rates coming down, we are looking to pre-pay to bring down leverage. Our average cost of funds has come down to 9.3 per cent from 9.7 per cent and will come down further when SBI (State Bank of India) will reset it next in November. We will get 0.8 per cent benefit on each of three project loans (Mahan, Utkal, and Aditya projects) which is Rs 17,000 crore.
With Kathautia coal mines also becoming operational, along with two Gare Palma mines, what would be the input cost reduction?
Our input costs will not come down because of our own mines. In fact, the coal from these blocks are highly priced but these prices are cheaper than imported coal. So that is one benefit. Second, we will be having assured supply of coal especially for Mahan project whose linkage could have otherwise gotten disrupted in monsoon. We use a total of 16 million tonnes, of which 3.86 million comes from existing linkages and about three million will come from these three blocks now. The fourth Dhumri block will come later in the year, which will again supply for Mahan.
Dr. Pragnya RamGroup Executive President, Corporate Communications & CSRAditya Birla Management Corporation Private LimitedAditya Birla Centre, 1st Floor, 'C' WingS.K. Ahire Marg, WorliMumbai 400 030.
91-22-6652 5000 /2499 5000
Fax: 91-22-6652 5741/ 42