Hindalco Banks On Rising Aluminium Prices To Cut Debt
Rising aluminium prices to help Hindalco pare debt, says MD Satish Pai.
Hindalco Industries Ltd. is banking on record aluminium margins and rising prices to reduce debt at India’s largest producer of the base metal.
The company has reduced its gross debt by Rs 5,399 crore so far this financial year to Rs 29,809 crore, Satish Pai, managing director, Hindalco Industries, said in an interaction with BloombergQuint. It expects to reduce the debt by another Rs 4,000 crore in the year to March 2018, he said.
The company’s aluminium margin stood at 25 percent in the quarter ended June, said Pai. Aluminium prices have rebounded this year to cross over $2,000 a metric tonne for the first time since 2014, according to Bloomberg. It’s the best performing base metal on the London Metal Exchange.
The prices are expected to remain firm for the year on the back of smelter shutdowns in China, Mangolia and Shandong, said Pai.
The company also hopes to revive volumes over the next nine months. They fell 6 percent due to disruption ahead of the Goods and Service Tax. “July has been still weak. August is showing some positive signs,” said Pai. “A lot of people at the lower end of the chain are still adjusting to GST, while bigger guys are well equipped.”
Domestic demand is expected to pick up in the next few months ahead of the festival season, Pai said.
Volume growth in the domestic market was flat in the year to March. “This year, we expected 6-7 percent growth, but the first quarter has been weak. If we get 4-5 percent growth for the year, we would be happy,” said Pai.
Expect Better Performance At Novelis
Pai said pricing pressure has more or else stabilised in the first quarter for Novelis. It’s U.S. arm posted $370 per tonne in earnings before interest, tax, depreciation and amortisation compared to $367 a quarter ago. These margins are expected to get better in the next few quarters as aluminium prices are expected remain firm, said Pai.
SBI Loan Reset
Hindalco has a Rs 12,500 crore debt from the State Bank of India, which is coming up for reset in November. The reset would reduce the interest rate by 80 basis points (100 basis points = 1 percentage point). This would translate into interest savings of around Rs 100 crore, said Pai. “Novelis’ $4.9 billion debt is at lower rates. We would rather reduce the debt in India.”
Capex Plan
The company plans to double the downstream capacity from 300 kilo tonnes a year to 600 kta and Utkal brownfield expansion from 1.5 million tonnes to 2 mt. “We will spend around Rs 4,000-5,000 crore over the next five years, all from internal accruals,” said Pai.