Hindalco exporting over 80% of output amid contracting domestic demand

Facing demand contraction in the domestic market, Hindalco Industries is exporting more than 80 per cent of its output. The coronavirus pandemic has dealt a body blow to domestic aluminium consumption that shrunk six per cent  year-on-year (y-o-y) to 3.72 million tonnes (mt) during FY20. In Q4 of last fiscal, the decline was sharper at 11 per cent.

 “We are exporting more than 80 per cent of our total output to countries like Korea, USA, Malaysia, Brazil, Japan, while minimizing our inventory build-up and absorbing the plant fixed costs. Our aluminium downstream plants in India had shut down initially, except at two plants, while other downstream facilities continued to operate and serve essential sector customers”, said Satish Pai, managing director, Hindalco Industries at the company’s recent earnings conference call.

Pai said Hindalco’s four aluminium smelters and the Utkal alumina refinery (in Odisha) ran at near full capacity even during lockdown. The captive coal and bauxite mines also operated at regular scale.

Hindalco has restarted downstream operations at truncated capacities to meet the existing market demand. After initial temporary shutdowns, the company owned copper smelters have resumed and are now stabilising to reach optimal levels. Amongst its overseas operations, temporary or partial shutdowns were taken up at Novelis automotive plants across the regions in response to shrinking demand or by government decree.

“The plant schedules are being adjusted to be in line with latest customer demand. All Capex (Capital expenditure), excluding maintenance and essential Capex for the next year, is being curtailed in India and Novelis. All businesses are focusing on fixed cost reductions and maintaining adequate liquidity to sustain plant operations in the current environment”, said Pai.

Despite a challenging business environment induced by Covid, Hindalco’s aluminium business including Odisha operations, recorded an Ebitda (earnings before interest, taxes, depreciation and amortisation) of Rs 1039 crore, up three per cent y-o-y in Q4 of FY20. The Ebitda margin was firm at 20 per cent. Operating under Covid shadow, aluminium metal production was up three per cent y-o-y during the March quarter or Q4. Sales of aluminium value added products (except wire rods), though, was down eight per cent y-o-y due to the lockdown impact.

Domestic demand for Flat Rolled Products (FRP) was subdued in line with the global demand. FRP demand in India contracted nine per cent in Q4 and three per cent in FY20 y-o-y due to weak demand in transportation, electrical and building & construction sectors. Presently, industries like packaging, pharma, beverages are driving the demand for FRP in the country.

“The continued slowdown across all user industries, such as electrical, automotive, building and construction were the primary reasons for the sluggish growth in consumption during the quarter. Domestic demand for aluminum in FY21 is likely to continue to be subdued. The government's recent announcement of a stimulus package of Rs 20 lakh crore and its thrust on infrastructure, housing and electrical sectors will help offset the negative economic sentiments post Covid to some extent”, Pai said.