Companies

‘We have retained cash flexibility for Novelis, Hindalco'

Suresh P. Iyengar Mumbai | Updated on February 15, 2011

Mr. D. Bhattacherya, Managing Director, Hindalco Industries Ltd

Hindalco Industries, the flagship of the Aditya Birla Group, seems to have revived the Canadian can manufacturer Novelis Inc faster than expected.

Four years ago, Hindalco acquired Novelis, which was nearly three times its size, in a $6-billion deal. Since then, Hindalco has not only turned around Novelis but also recovered half of the cash outgo for acquisition by way of dividend.

Novelis is now set to be part of Hindalco's growth in India. It plans to invest $18 million in a new multi-chamber melting furnace to recycle 50,000 tonnes of aluminium scrap annually to feed the rolling mill at Alunorf, Germany.

Mr Debu Bhattacharya, Managing Director, Hindalco Industries, spoke more about the company's plans to Business Line.

What is your strategy for Novelis in the coming days?

We have recently de-leveraged the Novelis balance-sheet by refinancing its high cost debt. The move would ensure strategic flexibility for both (Novelis and Hindalco) to retain financing flexibility for their growth aspirations while maintaining sufficient liquidity. We have put in a debt structure which diversifies sources of capital and provides tenor at competitive pricing with less onerous covenants. It will improve the maturity profile of Novelis and avoid the risk of refinancing.

Why was the cost of funds for Hindalco down this quarter?

As part of the Novelis debt restructuring, Hindalco received a dividend of $1.7 billion which was used to repay some high cost debt. We have invested the remaining $700 million in treasury to be used for funding our expansion projects in India.

India Inc is concerned over the increasing cost of operations and rising interest rates. What is your take on this?

The rising input cost has been a cause of concern. We have seen a sharp increase in prices of all energy products. For instance, coal prices have gone up by 20 per cent in this quarter. CP (calcined petroleum) coke has increased by 45 per cent and furnace oil and natural gas by 15 per cent. However, we have managed the cost pressure by using less expensive inputs without compromising on quality. We are also producing more from the available asset and choosing the right product mix.

Do you expect any global slowdown in aluminium demand?

We do not expect a slowdown in global aluminium demand. The World Bank has recently forecast a global GDP growth of 4.2 per cent in 2011. China is expected to grow at 9.2 per cent and India at 8.6 per cent. We expect the current stockpile at the London Metal Exchange to remain more or less at the current level. However, high inflation and hardening interest rates may impact consumption. The global aluminium production in 2011 is expected to be slightly on the higher side at 47 million tonnes compared to the consumption of 46 million tonnes.

Is there a delay in work at the Mahan Coal Block allotted to you and Essar Power?

The coal block developed by Mahan Coal (MCL) has come under the ‘No Go' area recently classified by the Environment Ministry. As most of the land of this block is in the forest area, the Madhya Pradesh Government had forwarded our proposal for forest clearance to the Environment Ministry in December 2007 for Stage-1 clearance.

The Forest Advisory Committee of MoEF had already held four meetings and MCL has complied with all the directions of the FAC.

The Prime Minister has also set up a Group of Ministers to resolve all cases where there is significant progress on construction of downstream projects, and mining approval is awaited from the Forest Department.

We expect a favourable response in the February 17 meeting of the Group of Ministers. As an interim measure, we have applied to the Ministry of Coal for temporary supply (of coal) to the Mahan captive power plant until our own mines commence operations.

Published on February 14, 2011

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