Satish Pai, MD of Hindalco, spoke to CNBC-TV18 about the company's business plans and shared growth outlook.
“The LME prices have dropped exactly 21 percent quarter on quarter (QoQ) largely because of the US-China trade tensions that are going on. This happens because China is 50 percent of the supply of aluminium and 50 percent of the consumption of aluminium. So the Chinese economy and the Chinese demand are under quite a lot of stress right now. That is what is keeping the LME down,” Pai said on the sidelines of the Motilal Oswal Investor Conference in Mumbai.
“In the Q1 that we just declared results, a full 79 percent of our EBITDA is non-LME linked. If you take the last financial year that we had reported in March 31, 70 percent of our EBITDA was non-LME linked. So, the Hindalco portfolio largely because of Novelis and downstream is in some ways cushioned from the sharp gyrations that we see in the commodity prices right now,” he added.
“Metal is a pass-through and what they earn is what you call a conversion premium to convert in some ways raw aluminium to a highly value-added product like a can-body sheet or an auto sheet. If you look at the full earnings of Novelis and the EBITDA for Novelis, it is completely a pass-through from the LME point of view. This is what we call the balanced model of Hindalco because when the LME prices are low and if you see the results of Novelis in Q1, they probably had their best ever quarter. Q1 normally is not that strong quarter. But they had – in the last seven-eight years – the best over quarter for Novelis. This provides the cushion because the value-added market demand that Novelis participates in, we are not seeing a demand slowdown there,” said Pai.
In terms of volumes, he said, “For copper, our target is still 400 kt. The first quarter, we had a planned shutdown – generally our copper output and we operate at 100 percent capacity will be about 400 kt. On the aluminium side, our capacity is 1.3 million, we will produce about 1.295. So we are also at about 99.9 percent capacity there. On both sides, we will be operating at full capacity.”
“As far as the capex guidance goes, our plan, which we originally announced was around Rs 2,600 crore but as the macro environment has been a little bit weak, we have been on record that we will probably pull that capex back to about Rs 2,000-2,100 crore because of the macroeconomic environment that we are seeing right now,” he said.
Speaking about the debt, Pai added, “We are running at a net debt to EBITDA at the Hindalco India level at about 2.69 and overall our worldwide with Novelis is also at the 2.6. So our net debt in India is about Rs 15,500 crore. We are in this lower commodity price cycle with a very healthy balance sheet because over the last 24 months, we paid back nearly Rs 11,000 crore of long-term loans. So our balancesheet is healthy in this weaker commodity cycle we are going into right now.”