High debt not a burning issue, says Hindalco MD

Suresh P Iyengar
The Hindu Business Line
3 June 2014

Hindalco Industries' capacity addition comes at a time when the business sentiment has turned positive with the Narendra Modi Government stepping up reforms. Though there is uncertainty over getting green nod for the Mahan coal block in Madhya Pradesh, and high debt playing a spoilsport, Debu Bhattacharya, Managing Director, Hindalco, exudes confidence in an interaction with Business Line. Edited excerpts:

What about Hindalco's capacity addition?

The total aluminium production will go up to 720,000 tonnes from 600,000 tonnes when all the three projects at Utkal (Odisha), Mahan and Aditya Aluminium in Odisha ramp up to their full capacity by this fiscal-end. Mahan and Aditya will produce 360,000 tonnes each additional metal a year, while Utkal Alumina, with a capacity of 1 million tonne (mt), will feed the key raw material to both these projects.

Will you be able to sell the new capacity amid economic slowdown?

Annual aluminium consumption is pegged at 48 mt and is growing at 6 per cent a year. So, roughly you need three Hindalcos to be added every year. Six per cent of 48 mt is almost 2.8 mt. Indian market is also expected to grow. I would be surprised if it grows at 6 per cent.

Will you tap into (US-based subsidiary) Novelis to repay debt?

All the projects that have gone live will start generating cash and provide a cushion. Moreover, the repayment schedule is very friendly so I do not foresee any problem there. This apart, we have plenty of option to refinance debt. As of now, debt (of Rs.27,000 crore) is not a burning issue. We will receive a dividend of $250 million (about Rs.1,500 crore) from Novelis this quarter. There is no question of us tapping into Novelis to repay debt.

Is demand for value-added products strong?

It’s growing steadily. It’s like a catch-22 situation. Since the value-added products were not produced in India, demand was not there. Similarly, since demand was not there, nobody was investing to produce these products. It’s like mobile phones. When it was not there, nobody felt the need. The moment we started producing in India, it had an explosive growth. This is true not just for the can body stock, but for all the downstream aluminium products. For instance, we now supply aluminium for electric cable producers.

The electric sector accounts for 41 per cent of the aluminium consumption in India.

Aluminium is being used on the facade of buildings. The back plate of high-end mobile is made of aluminium sheets. In fact, aluminium consumption is growing on a daily basis. So, I expect this to continue.

How do you see LME prices moving?

We do not predict prices. But the general view is that aluminium prices on LME (London Metal Exchange) have bottomed out. But who knows I may be wrong. Really speaking, nobody can predict what will be the LME. There is an inventory of 90 days at LME warehouses. As long as this remains locked up in the warehouses, LME prices would not be negatively impacted. So far, there is no possibility of this stock coming out in the market.

If the inventory stocks come out, then the supply deficit will become surplus and prices may come down. In 2014, we expect the supply compared to demand to fall short by 0.2 mt.

What will be the key driver of demand?

The expected turnaround in global economy will drive demand. The purchasing power of people will improve and whatever they purchase will have a piece of aluminium in it.

Sale of more cars and high-end mobiles will have aluminium. We sell roofing sheets and its demand will grow with the increase in disposable income of consumers. So, we see demand growing in both new segments and areas where it’s already being used.