‘We plan to reduce logistics cost to 10% in 2 years’

Having invested ₹30,000 crore to enhance capacity, Hindalco Industries is now focusing on value added products. Satish Pai, the company’s new Managing Director, is driving the initiative. “With the ground firmly set, we are stepping into an interesting phase of our growth story,” said Pai in an exclusive interaction with Business Line.

Will rising crude and coal prices impact margins?

Coal prices in the Indian market are still reasonable. You are right — internationally the import price of coal has gone up. Ever since we got our own mine — Gare Palma 4 and 5 (in Chhattisgarh) — we have stopped importing coal. The mining at Gare Palma 4 is running at full capacity and the other one will do so next quarter. We have got coal linkage of 4.5 million tonnes (mt) at a very reasonable price. The supply will start by October. So the input costs on coal and alumina are under control. The only worry I have is the price of oil. It has an impact on the furnace oil we use in our refineries and the carbon we use in our smelters.

How much coal do you source from captive mines?

Of our total annual requirement of 16 mt, we will be sourcing 1.6 mt from captive mines this year. We have an old linkage of 4 mt from Krishnashila for the Renusagar power plant. So, along with the new linkage, we have secured coal supply of 10 mt for this fiscal.

We will be buying about 6 mt from the open market. Our Gare Palma mines have coal of 5,000 plus Gcv (Gross Calorific Value). So we buy 3,000-plus Gcv coal supplied by Coal India from other mines and blend it with our captive supply.

What are your plans to cut down logistics costs?

Logistics and supply chain will be the next frontier where we can make a meaningful reduction in cost. We are trying to use more rail than road.

We have put more rail sidings in all our plants to move products by rail. We will also focus on port infrastructure because we import and export a lot. We have made logistics a separate department with a focus to reduce costs. Currently, logistics account for 15 per cent of our cost. We want to bring that below 10 per cent over two years. On the supply side, we are trying to aggregate various contracts we sign to see whether they can be renegotiated to get further discounts. Otherwise every plant was trying to negotiate on its own.

We have created a procurement centre of excellence which will now negotiate to drive cost down. We have already centralised the procurement of coal.

What makes you use the Railways when other companies are moving away from it?

You have to be highly efficient to use the Railways.

We see to it that every rake that comes into Mahan is loaded in four hours. Just imagine — we can move 3,000 tonnes of alumina in one rake whereas in bulk you can transport only 30 tonnes. The scale is completely different. Moreover, there is a theft scare on road as the vehicle stops in many places.

Is availability of rake an issue?

We have been talking to the Railway Minister and Railway Board. They have been tremendously supportive. I think the government understands that improvement in both rail and road can make a tremendous different in the Make in India story.

How much has aluminium import gone up?

In the first quarter of this fiscal primary aluminium ingot imports have gone up 22 per cent. The real danger here is the growth story of India will get eaten up by cheap imports from West Asia and China. We have been flagging this strongly. We want imports curtailed from countries that subsidise energy cost. For instance, the Middle East provides free gas to companies. It is a big threat to Indian industry.

How does China’s cost of production compare with India?

Aluminium production in the east coast of China is not very different from that of India. But that produced in the north-west of China’s Xiancheng province is cheaper. Being a remote area, the Chinese government gives a lot of incentives including captive coal and rail subsidy to move finished products to the east coast. This is why we are complaining that it is not a level playing field. Primary aluminium is imported into India from Baharin and Oman because transport charges between Jebel Ali (Dubai) and Silvassa is $12 (₹804) a tonne whereas from Mahan (Madhya Pradesh) to Silvassa we pay $70 (₹4,690) a tonne. The associate oilfields (in Gulf countries) have so much gas that instead of burning it (due to weak demand) they are giving it to aluminium plants.

Does fall in can body demand worry Novelis (an American subsidiary of Hindalco)?

Can body demand is coming down only in developed countries. That is why we have put up capacity to supply to the automobile sector there.

The demand for can body is still growing in Latin America and Asia. India uses about 40,000 tonnes per year while the US uses 700,000 tonnes.

If India starts to increase usage the growth rate will be tremendous.

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