Excerpts from the Chairman, Mr. Kumar Mangalam Birla’s address to shareholders at the 59th Annual General Meeting

21 September, 2018

Addressing shareholders at Hindalco’s 59th Annual General Meeting, Mr. Kumar Mangalam Birla, the Company’s Chairman, presented an optimistic note both on the global economy and India’s economy.

Stated that Hindalco’s performance, this year has truly been record-breaking year, even as global markets experienced unusual volatility. The Company registered its highest ever consolidated EBITDA at Rs.15,025 crore on a turnover of Rs.1,15,809 crores. Its Aluminium and Copper businesses in India and Novelis continued to deliver outstanding operational and financial performance. Stable efficiencies, better realisations and supportive macros were the major enablers.

The Company including Utkal Alumina achieved record aluminium and alumina production levels at 1.29 million tonne and 2.88 million tonne respectively. All of the Company’s plants including Aditya and Mahan operated at their rated capacities. The output of Value Added Products along with wire rods stood at 479 kilotonne in FY19.

In the Copper Business, Cathode production touched 410 kilotonnes, higher by 9 per cent over that of the earlier year. Copper Rod production was 156 kilotonnes, up by 4 per cent. The new CCR-3 plant at Dahej was commissioned in Q4 of FY18.

Highlighting the coal linkages, Mr. Birla said, “Hindalco has secured around 3.2 million tonnes of coal in the linkage auctions that concluded during FY18. With this, the total quantity of secured coal via linkages reached to 11.9 million tonne. This accounts for 71 per cent of the annual coal requirements of Hindalco. The overall annual requirement of coal is currently secured at more than 90 per cent, through long-term linkages and captive mines. Currently, three captive mines viz. Gare Palma IV/4, Gare Palma IV/5 and Kathautia are operational. The fourth captive mine at Dumri is in the process of obtaining necessary statutory clearances. It will hopefully be operational by the end of FY19.”

Focusing on Novelis, Mr. Birla applauded the Company for its path-breaking performance this year with a record shipment of 3.2 million tonne, higher by 4 per cent over the previous year. Its EBITDA of $1.2 billion was up by 12 per cent. The per ton EBITDA of $381 is indeed notable. Novelis continues to improve its product mix. It has raised its share of the automotive sector from 18 per cent to 20 per cent. Novelis’ thrust on sustainability and recycled aluminium is unparalleled. Novelis has widened the scope of recycled scrap for reuse. It has increased the share of recycling to 57 per cent in FY18, from 55 per cent in FY17, he added.

To strengthen the balance sheet, Hindalco has prepaid close to Rs.8,000 crore of long-term project loans in India. This has led to a significant improvement in the consolidated net debt to EBITDA at below 3x at the end of March 2018.

Novelis has completed the JV to establish Ulsan Aluminium Limited in South Korea. Novelis has divested approximately 50 per cent of its ownership in the Ulsan Plant to Kobe Steel for $314 million. This has unlocked value for Novelis.

He characterised the proposed acquisition of Aleris Corporation as the most significant strategic move made in the current year. Headquartered in the United States, this global aluminium rolled products major is at an EV of US$ 2.58 billion through a debt finance deal.

“The acquisition of Aleris is the next phase of our aluminium value added products growth strategy. This will solidify our position as the world’s No.1 aluminium Value-Added Products player. Post this acquisition, we are well placed to serve our customers across geographies in automotive and now the high-end aerospace segments. We will have presence throughout the downstream aluminium value chain in Asia, positioning us for future growth in the region. This also enhances the access to world class manufacturing capabilities for our existing Indian aluminium value added operations and accelerates our path to making world class products in India,” averred Mr. Birla.

Novelis today is the world’s number 1 Company in the aluminium value added products segment in terms of size and in segments like Automotive and Beverage Can and its earnings have grown many fold since its acquisition.

Apprising shareholders on the significance of the proposed acquisition, Mr. Birla added that, at a market segment level, the Aleris acquisition enriches the portfolio with the fast growing automotive segment and entry into the high-end technology driven aerospace segment. Moreover, access to the continuous-cast capabilities would enhance Hindalco’s competitive position in the Building and Construction (B&;C) segment.

Focusing on what Aleris will bring to the table, Mr. Birla said, “The acquisition adds to Hindalco’s ability to bring in the latest capabilities in aluminium value added products to India. The Indian aluminium market is at the cusp of growth given the evolving state of per capita GDP vs Aluminium consumption in the country — similar exponential growth was witnessed in China a decade ago. In these early stages of growth and fueled by the government’s Make-in-India campaign, segments like B&;C and transportation are likely to grow significantly. Given its synergy with Novelis, Hindalco has become the market leader in aluminium value added products in India and is poised to capture this growth in the future. Further, Aleris’ expertise in this segment will give Hindalco’s India Aluminium value added products business an edge over local competition while enabling it to compete with global players foraying into the lucrative Indian market.”

On the outlook for the future, Mr. Birla mentioned that, the Company has a strong focus on strengthening the balance sheet through deleveraging, allocation of capex towards growth strategies and generating positive free cash flows. It will also continue to increase its share in the Value Added Product segment in both the businesses.

Commenting on the Company’s thrust going forward, Mr. Birla added, “The Company is focusing on enriching its product mix. It is evaluating investments in aluminium downstream facilities towards newer products and its existing product lines. On the domestic front, demand is expected to recover significantly in FY19. There seems to be surge in industrial activities in the core sectors, which bodes well for us. The power, packaging and transport sectors are the demand drivers of aluminium domestically in the coming years.”

The per capita aluminium consumption in India is still far below the global average. So there is a huge potential for higher consumption, given our demographic and economic outlook.

In the Copper Business, the newly commissioned continuous copper cast rod plant CCR-3, should ramp up in FY19. With this Hindalco’s rod capacity rises to ~80 per cent of the cathode production, from the earlier 33 per cent. This will enable Hindalco cater to the growing demand of copper rods in the domestic market. However, concerns on the import in aluminium and copper continue to hurt the domestic aluminium and copper industries, opined Mr. Birla.

The Company will continue to keep a close watch on input prices. These have a bearing on the cost of production, including that of coal. Efforts to mitigate these by utilising its resources well, with better efficiencies across all plant locations, including Novelis.

Novelis’ thrust will be on its balanced approach and explore potential opportunities will continue. It will drive profitable volume growth in its current product lines and other core end-markets. The overall outlook in Mr. Birla’s view is positive.

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