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Below are Views On Growth with sustainability a key focus By Mr. Satish Pai, Managing Director, Hindalco Industries - Motilal Oswal

ESG remains a key focus

ESG remains a key focus area for HNDL. The management aims to achieve net carbon neutrality by CY50. In Phase I, it aims to achieve 30% CO2 emission reduction (base CY16) by CY26. The key initiatives in achieving carbon reduction would be use of green energy for smelting operations and increase in recycling capacities.

Aluminum prices to remain strong in the future

Mr. Pai expects aluminum prices to remain strong in the future as focus on decarbonization would limit capacity growth in China and lead to higher costs. Higher raw material prices and power costs would lead to greater costs, thus making return on new capacities unviable and leading to lower new capacity additions. In the Novelis business, it expects scrap spreads to remain favorable, which would help margin sustain at higher levels.

Major organic expansion completed in Novelis

Novelis completed its 300ktpa Automotive capacity expansion in FY21 – a) 200ktpa greenfield Automotive facility in Kentucky, US, and b) 100ktpa Automotive finishing line at Changzhou, China. After this expansion, its Automotive sheet capacity has expanded to 1mtpa. The 100ktpa capacity at Changzhou, China is likely to achieve 100% capacity utilization by CY22-end. However, ramp-up in Kentucky would be slow due to limited availability of a hot-mill. The 100kt rolling and recycling expansion in Pinda, Brazil would be commissioned in 2HFY22.

Volumes for Novelis remain strong

Demand for Novelis’ products remain resilient. The same for beverage cans has grown higher than pre-COVID levels, whereas demand from Specialty and Building and Construction has recovered to pre-COVID levels. While the semi-conductor shortage has impacted Auto production, volumes for Novelis were not impacted much due to prioritization of high-end vehicles by Auto producers.

Aims at 4.5mtpa capacity by FY25, announces expansion in China

Novelis aims to expand its capacity to 4.5mtpa by FY25 by way of new capacities and optimization of existing capacities from 4mtpa (including Pinda expansion) in FY22. HNDL has announced a 270ktpa cold mill expansion in Zhenjiang, China at a capex of USD375m spread over the next three years. This would include hot mill upgradation. The expansion would integrate Novelis’ existing business with Aleris facilities and would lead to full integration of its Automotive business in Asia. The management expects to achieve USD100m in synergies via this expansion.

Downstream expansion remains the key focus area in the India business

HNDL aims to grow its downstream capacities to 900ktpa over the next five years from 300ktpa to tap the growing demand from the downstream segments in India like Building and Construction, Auto, Transportation, Consumer Durables, etc. In line with its policy, it has announced 34ktpa extrusion capacity at Silvasa and 170ktpa FRP sheet capacity at Hirakud/Aditya for INR7.3b/INR30b. The extrusion capacity at Silvasa is expected to commence production in 4QFY23, whereas the FRP expansion at Hirakud and Aditya would commence production by FY25. The 500ktpa Utkal expansion has been completed and has achieved a 100% capacity run-rate.

Recycling the way forward for expansion in India

HNDL is looking to add a 100ktpa copper recycling plant, which would increase its copper smelting capacity to 521kt. The company is also evaluating an opportunity for setting up an aluminum recycling plant in the future.

Capital allocation

The management aims to utilize cash flows for organic growth plans with high IRRs which would also improve overall RoEs. Excess cash flows, post capital expenditure and return to shareholders (8-10% of free cash flows before project capex), would be utilized for debt repayment. It does not have any plans for inorganic growth expansion in India and through Novelis. The management laid out its USD2.9b debt reduction plan over Jun’20-Mar’22. Of this, it has already reduced debt by USD2b at Novelis. It aims to reduce debt by USD0.6b in FY22. In the India business, it aims to repay gross debt of INR20b (~USD0.3b) in FY22.

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