Hindalco and Vedanta: Tale of two aluminum producers and their strategies

Hindalco Industries, the country’s largest aluminium producer, says it is preparing to use the majority of its domestic output for the downstream segment over the next five years.

However, the Anil Agarwal-led Vedanta, its peer company, has no such plan.

Hindalco  says it wishes to insulate itself from price fluctuations on the London Metal Exchange (LME). So, the Aditya Birla Group company aims to use 75 per cent of its domestic aluminium production for the downstream segment. At present, of Hindalco’s aluminium production of 1.3 million tonnes in India, only 300,000 tonnes is for this segment. “At a standalone level, LME aluminium impacts us significantly. So, the bigger plan is to move towards consumer-facing products. We have the ability to make aluminium can-body sheets in India at our Hirakud (Odisha) plant. At present, the Indian market for cans is small at about 29,000 tonnes ( annually) and, hence, has huge growth potential,” explained M anaging Director Satish Pai.

On a consolidated basis, 60-65 per cent of Hindalco's revenue comes from the downstream segment, US-based Novelis holding the lion’s share. Within the segment, Hindalco is looking at aluminium in housing, in transportation such as buses and trucks, and semi-rigid containers and foils, among other products.

“After the plastic ban, we have seen demand for semi-rigid aluminium containers grow along with foils. Also, in the transportation segment, Hindalco has registered a 12 per cent year-on-year growth in the March quarter, mainly in the trucks and buses category,” Pai said.

The smelting operations are at Renukoot in Uttar Pradesh, Aditya Aluminium in Odisha at Hirakud, and at Mahan Aluminium in Madhya Pradesh. Combined, these produce around 1.3 million tonnes of primary aluminium annually.

Moving into the downstream segment from the core commodity allows the product to become a pass-through in dealing with LME price fluctuation. Currently, only seven or eight per cent of all the aluminium consumed in India is by the packaging sector, said industry officials.

Meanwhile, Vedanta has no plan to go the downstream way. It has a different idea for making global aluminium price volatility a pass-through for itself. “We are already moving up our product portfolio into value-added products. We will focus on this segment alone, as we are of the view that this is going to create shareholder value for us,” said Ajay Kapur, chief executive officer (aluminium and power).