After rigorously following a deleveraging drive, aluminium major Hindalco Industries wants to take a break from prepaying debt and wants to use cash for expansion. As the company looks to set up new factories in the US and China to cater to rising auto demand through overseas subsidiary Novelis, back home, talks are on to tap into the high-speed railway segment as well as aerospace and defence. In an interview with ET's Vatsala Gaur and Baiju Kalesh, Hindalco MD Satish Pai said they expect domestic demand to pick up from the second half of the fiscal. Edited excerpts.
What’s the narrative of this quarter’s financial performance?
This has been the best operating profit for Hindalco in the past 7-8 years. Commodity cycle has improved but the market has been quite tough. We kept 30 days inventory of coal going in to the monsoon which is good planning. So, these are costs that affect your bottom line. When every player has the same LME, then the costs are what differentiate the bottom line of two companies. When operations are running stable, then you take advantage of the commodity cycle.
A surge in the commodity cycle has pushed both input prices as well as prices of the final commodity. How do you tackle this to get the most of the upturn in the cycle?
The key thing is that you have to make your operations efficient enough so that the rate of increase in input costs is slightly lower. We are quite efficient there, but the monsoon quarter is a difficult one. Coal quality during monsoon always sinks which increases your coal consumption, taking up your kilowatt hour per tonne, but October onwards we should be able to squeeze our efficiencies tightly.
What are your current concerns of the commodity market?
The only thing that we have been trying to push is the downstream value-added products where the market has been weak. Electrical and housing sectors have been weak in demand, but in the second half, we see a strong demand coming through. GST was not a big disruption for us, and we are hoping the Indian economy will pick up. Another worry is imports, especially scrap imports.
Are the customers buying more from you?
My biggest sector is power grid, but they are not buying a lot. Forty per cent ofaluminium goes into power followed by transport and packaging and housing. We are expecting housing to take off with affordable housing that uses prefabricated walls that make use of aluminium. In electricity, the grid demand is there — it’s the question of the grid companies to put orders in execution; affordable housing demand is there, the question is when will the government get the projects off the ground. Consumption is strong, so we are not worried about packaging. Automotive is also picking up now.
What about expansion in auto and Aleris?
In auto, we are looking at organic expansion in two places: the US and Asia. The US will probably be the first place. In case of other expansions, we will not do something that will put us back under stress. We will do it if it makes sense and is good for the shareholders. Right now, organic offers better opportunities, so we will pursue that.
What are the new areas opening up?
We are really excited about railways. If high-speed rail comes, the bodies of high-speed trains are made of aluminium. We are working on the technology with some partners and looking at different options. We are also talking to a number of players in aerospace and defence.
What’s the narrative of this quarter’s financial performance?
This has been the best operating profit for Hindalco in the past 7-8 years. Commodity cycle has improved but the market has been quite tough. We kept 30 days inventory of coal going in to the monsoon which is good planning. So, these are costs that affect your bottom line. When every player has the same LME, then the costs are what differentiate the bottom line of two companies. When operations are running stable, then you take advantage of the commodity cycle.
A surge in the commodity cycle has pushed both input prices as well as prices of the final commodity. How do you tackle this to get the most of the upturn in the cycle?
The key thing is that you have to make your operations efficient enough so that the rate of increase in input costs is slightly lower. We are quite efficient there, but the monsoon quarter is a difficult one. Coal quality during monsoon always sinks which increases your coal consumption, taking up your kilowatt hour per tonne, but October onwards we should be able to squeeze our efficiencies tightly.
What are your current concerns of the commodity market?
The only thing that we have been trying to push is the downstream value-added products where the market has been weak. Electrical and housing sectors have been weak in demand, but in the second half, we see a strong demand coming through. GST was not a big disruption for us, and we are hoping the Indian economy will pick up. Another worry is imports, especially scrap imports.
Are the customers buying more from you?
My biggest sector is power grid, but they are not buying a lot. Forty per cent ofaluminium goes into power followed by transport and packaging and housing. We are expecting housing to take off with affordable housing that uses prefabricated walls that make use of aluminium. In electricity, the grid demand is there — it’s the question of the grid companies to put orders in execution; affordable housing demand is there, the question is when will the government get the projects off the ground. Consumption is strong, so we are not worried about packaging. Automotive is also picking up now.
What about expansion in auto and Aleris?
In auto, we are looking at organic expansion in two places: the US and Asia. The US will probably be the first place. In case of other expansions, we will not do something that will put us back under stress. We will do it if it makes sense and is good for the shareholders. Right now, organic offers better opportunities, so we will pursue that.
What are the new areas opening up?
We are really excited about railways. If high-speed rail comes, the bodies of high-speed trains are made of aluminium. We are working on the technology with some partners and looking at different options. We are also talking to a number of players in aerospace and defence.
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