Financial Express
31 March 2005

The Aditya Birla Group company - Hindalco Industries Ltd - is setting up a 3.25 lakh tonne per annum aluminium facility in Jharkhand at a cost of Rs 7,800 crore. With a capacity of 3.45 lakh tpa, Hindalco is India's largest aluminium producer followed by its own subsidiary Indal (1.1 lakh tpa). The expansion will take Hindalco's aluminium capacity to 7.8 lakh tpa and catapult it to among the top 10 aluminium producers in the world.

Alcoa is the world's largest aluminium producer with 4.1 million tonne per annum (mtpa), or 13 per cent of world output, followed by Alcan and Russian company RusAl with about 3.5 million tpa each. The top 10 companies account for roughly 50 per cent of the global production of 30 million tpa. The global market grew close to 7 per cent in 2004 led by a recovery in the US and huge demand from China.

In a communique to The Stock Exchange, Mumbai (BSE), Hindalco said it has signed a memorandum of understanding (MoU) on 30 March 2005 with the Jharkhand government. The project includes a 750 MW captive power plant and a captive coal mine. In India, the aluminium market has grown over 10 per cent in the first nine months of 2004-05. Production in April-December, 2004 grew six per cent over the same period last year. The average prices increased by six per cent during April-February, 2004-05 over the corresponding period last year. In 2005-06, domestic demand is expected to grow 8-10 per cent and average domestic prices are expected to decline after the customs duty cut in the Budget.

Analysts said Hindalco would focus more on exports given a state of oversupply in the domestic market. A 2 million tpa shortage in the global market created due to booming demand from China, Middle East and South East Asia, will help Hindalco realise better margins from exports given its competitiveness vis-à-vis China.

Hindalco, a fully integrated producer, is currently among the lowest cost producers of the metal in the world and its strong presence in value-added aluminium products also helps it secure better realisations. Moreover, raising funds may not be an issue as Hindalco has low gearing, giving it adequate leverage to raise funds for this new project, industry sources said.
According to an ICRA report on the outlook for the sector published last year, large Indian companies like Hindalco are likely to continue enjoying healthy profitability and strong operational cash flows even at soft aluminium prices. "This, coupled with the conservative capital structure, lends strong support to their credit quality," the ICRA report adds.

For the nine months ended 31 December 2004, Hindalco reported a net profit of Rs 710 crore (Rs 667 crore in the previous corresponding period) on net sales of Rs 5,766 crore (Rs 4,305 crore). For the year ended 31 March 2004, the company reported a net profit of Rs 839 crore (Rs 582 crore for the year ended 31 March 2003) on net sales of Rs 5,952 crore (Rs 4,680 crore).