Escalating industrial commodity prices has hit A V Birla group’s flagship company Hindalco Industries hard on its expansion plans. The planned expenditure of India’s largest aluminium producer on setting up two refineries and three smelters was an estimated Rs 36,395 crore till six months back, but now it has increased by 12 per cent or Rs 4,500 crore to Rs 40,893 crore.
The higher cost would mean larger debt and higher outgo from internal accrual on all these projects. Hindalco plans to fund 30 per cent of its total capital expenditure through equity infusion and internal accruals. It raised Rs 2,900 crore by selling fresh equity in a qualified institutional placement in November. It is now tying up the debt component for these projects.
“Seventy per cent of the cost revision is on the back of the rise in price for commodities such as steel, copper, aluminium and cement,” said a Hindalco executive who did not wish to be quoted. “The rest is due to change in design,” he said.
| HARD HIT | ||
| Smelter | Cost in November | Cost Now |
| Mahan Aluminium | 8,214 | 9,200 |
| Aditya Aluminium | 8,214 | 9,200 |
| Jharkhand Aluminium | 8,214 | 10,000 |
| Refinery | ||
| Utkal Alumina | 5,560 | 5,600 |
| Aditya Alumina | 5,300 | 6,000 |
| Figures in Rs crore | ||
The company plans to set up the five projects in two phases. In the first phase, it will set up one refinery and two smelters. First is Utkal Alumina Refinery, a 1.5-million tonne per annum (mtpa) project in Orissa, which will produce alumina from bauxite and is expected to be ready by September 2011. The alumina, which is the raw material for producing aluminium, will be then fed to two smelters Mahan Aluminium and Aditya Aluminium.
Mahan is a smelter-power plant complex that boasts of a 359-ktpa aluminum smelter and a 900-Mw captive thermal power plant in Madhya Pradesh and it would be also ready by September 2011. Aditya Aluminium, a 359-ktpa smelter in Orissa, would be ready by December 2011.
While the project cost for Utkal Refinery has been revised by a meagre Rs 40 crore, the project cost for each smelter has been revised by about Rs 1,000 crore. These two smelters would now together cost Rs 18,400 instead of the earlier projection of Rs 16,428 crore.
More From This Section
“We also altered our choice of vendor for the power plant which escalated the cost,” said the executive. The company has chosen leading Indian power equipment maker BHEL, instead of the option of cheap foreign providers. “These projects will help us become one of the cheapest producers of aluminium in the world and in the long run, these capital expenditure escalation would not matter,” said the executive.
The second phase of the greenfield expansion includes setting up another 1.5 million-tpa alumina refinery in Orissa called Aditya Refinery by June 2013. This will be followed by another smelter-power plant complex with a capacity of 359 ktpa powered by a 900-Mw captive thermal power plant in Jharkhand. This will be also ready by June 2013. Here while the cost of refinery has increased by 1,700 crore to Rs 6,000 crore, the cost of smelter has increased by about Rs 1,800 crore to Rs 10,000 crore.