Hindalco Industries, an Aditya Birla Group company, had surprised the markets by closing a $2.8-billion deal to acquire global speciality aluminium company Aleris amid economic uncertainty. Group Chairman Kumar Mangalam Birla addressed over 6,000 employees of Aleris and Novelis over MS Teams as the integration of both companies began over the unprecedented economic lockdown. In an interview with BusinessLine , Satish Pai, Managing Director, Hindalco Industries, expressed confidence that the company would overcome the challenges, given its integrated operations and tight cost control. Excepts:

Given the market condition, how confident are you in finding a buyer for the mandatory sale of Aleris plants in the US and Europe?

We have already signed with Liberty House for selling the Duffle plant in the US and the final announcement is expected soon. The deadline for selling Duffle is June-end. We are waiting for approval from the Chinese government. If not in June, we should close it early next month. In Europe, we have time till the end of this year to sell the Lewisport facility and we are quite confident that we can find a buyer.

How do you see Novelis’ performance on the back the IMF’s prediction of negative growth in global GDP?

Novelis is largely dependent of three main sectors ― can body, automobile and other sectors including aerospace. About 60 per cent of its revenues come from can body, 20 per cent from auto, while other speciality sectors account for the rest. As far as can body is concerned, it is pretty strong, despite the corona-induced lockdown hitting economies across the globe. In fact, the demand for can body is slightly higher due to the focus on hygiene in different sectors. The auto sector got impacted between March-end and early May due to Covid-19. However, the plants have started production since then, but we have to wait for assessing the longer-term impact. In fact, the Chinese auto sector is already at pre-Covid levels and it has picked up in the US also, but the slow recovery in Europe is a bit of a worry. JLR is our big customer in Europe. We foresee some kind of impact on the auto side.

In the speciality business, we are seeing a comeback. Robust can body demand cannot make up for the slide in auto, as the profitability is much higher in the latter. The slowdown in auto will be felt in the June quarter. Aleris’ aerospace would be impacted in the June and September quarters but much of it would depend on how fast the economy bounces back. Airbus is one of the biggest customers of Aleris. In fact, pre-Covid-19, Airbus had an order book for seven years. Of course, now a few orders might have been cancelled. We have to wait to see how air travel improves in the next few months. If some kind of normalcy returns, then airlines would need new planes to retire old ones.

What were your Covid-19 preparation in India?

Since we had operations in China and Italy we had early signals on the Covid-19 impact in January. We have a plant in the Jiangsu province of China. About the second week of January, China started getting impacted and there was a delay in people returning to work after the New Year in February. Then the government extended the New Year holidays. Immediately, Italy, where we have two plants, also started showing signs of Covid-19 impact. After this, we in India started preparing for the worst.

The first thing we did was to cut all kind of travel as our employees’ health was paramount. We started to cash up by drawing down more working capital. That is why our cash balance as of March-end is very high. We pushed back some of the projects that could be delayed. We started building raw material for smelters. This ensured that we could produce through the lockdown as we had a month of raw material against inventory of 15 days we maintain usually. For coal, we had inventory of over a month. Our bauxite mine was producing at full capacity. In fact, Utkal Alumina had record production in the March quarter.

Do you expect migrant worker and logistics issues impacting your operations?

We are already producing at 95 per cent capacity and we do not face any issue. We get labourers from around the nearby villages where the company is providing assistance to tackle Covid-19. However, our customers who are starting up in Delhi and Gujarat are facing issues due to lack of labourers. As we were exporting 70 per cent of our production, we had switched to rail from road and did not face any logistics issue.

Is import of aluminium a concern?

Currently, domestic demand is low and prices in China are very high. However, in the March quarter, imports accounted for 58 per cent despite the domestic demand falling.

What are your views on mining reforms?

Auctioning coal and bauxite blocks together for aluminum producers is a great idea and Hindalco will definitely participate if it becomes a reality. We are also interested in bidding for standalone coal blocks, if auctioned.

How do you see aluminum prices, particularly with China deciding not to follow the global benchmark LME prices?

Aluminum is currently trading at $1,600 a tonne. I believe, it will trade at $1,500-$1,700 and remain volatile, given the uncertain global economy. The cost advantage of China would vanish if it starts pricing the metal based on its domestic demand and supply. Their prices would be much higher than others and they will not be able to dump produce in other countries like before.

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