29 May 2013
To raise share of high-margin products to 57%.
Taking a cue from its US subsidiary, Hindalco Industries, India’s biggest aluminium producer, is planning to raise its high-margin value-added product (VAP) share in overall production to 57% from the current 47% in two years.
VAP share was 43% in total production for the last fiscal against the annual average of 40%.
“For increasing the share of VAP in the overall product portfolio, assets have to be introduced. We are in the process of doing that and will be slowly increasing the share of this segment over time,” said Debnarayan Bhattacharya, managing director, Hindalco.
He said the share usually falls when large-scale capacity additions of primary metal take place.
So, while the company’s share of VAP products will fall to 30% next year, it will be taken up to 57% the year after.
However, this would also depend on the then market conditions and demand scenario, he said.
“We have already solidified our Indian business’ VAP strategy with Hirakud FRP and Mouda Foils projects, but at the same time our pure metals capacity is also getting commissioned,” he said.
Currently, the company is almost trebling its aluminium smelting capacity from 0.6 million tonne per annum (mtpa) to 1.7 mtpa through two greenfield projects – Mahan and Aditya. Also, it is increasing its alumina capacity from 1.5 mtpa to 3 mtpa.
On the value added front, the company would operationalise its 135,000 tonne flat rolled product (FRP) capacity at Hirakud this year and Mouda Foils with a similar capacity.
The strategy is in line with its US-based can-body and automotive aluminium producing subsidiary – Novelis Inc, which is also targeting a cost reduction and higher margins through the use of more recycled aluminium products.
The subsidiary has a target of raising its recycling ability to 80% by 2020 from the current 43%.
While Novelis’ plan deals with backward integration, Hindalco’s is looking at forward integration – but both are driven by same objectives of cost saving and increasing margins, said Bhattacharya.
Praveen Maheshwari, chief financial officer of Hindalco, said the margins in VAP business is different for different products but range between Rs 5,000 per tonne and Rs 1 lakh a tonne over and above the cost of primary metal.
Aluminium foils have the highest margins, which will be achieved through the Mouda Foils plant.
For the last fiscal, Hindalco posted a 0.8% drop in net sales at Rs 80,193 crore and a 10.9% drop in net profit at Rs 3,027 crore.
Bhattacharya said high interest cost of Rs 436 crore, up from Rs 294 crore posted last fiscal took away 10% from the net profit, but the company was still able to maintain a margin of last year’s level of 8.5%, much better than its peers. The consolidated results include performances of Novelis Inc and Aditya Birla Minerals Ltd. The Hindalco Board has recommended a dividend of Rs 1.40 per share for the last fiscal.
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.
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