Challenging market to affect Hindalco's performance: Birla

New Delhi: The challenging conditions in the commodities market, particularly the aluminium sector, will impact Hindalco's performance in the short term, the company's Chairman Kumar Mangalam Birla said Wednesday.

Birla, also the Chairman of the Aditya Birla Group, said improved aluminium fundamentals and large-scale smelting curtailment by global majors have supported the recovery in aluminium price, a company statement said.

"The commodity markets, in particular the aluminium industry, are going through a challenging phase at present because of the sharp slide in realisations. This would impact Hindalco's performance in the near term," the statement quoted Birla as saying at Hindalco's AGM today.

He, however, said the firm is all set to capitalise on the growth opportunities such as growing urbanisation, light weight of vehicles and growth in emerging markets.

"2015-16 onwards, following the full ramp-up of projects, Hindalco's financial performance will be significantly impacted as interest and depreciation flow through the P&L (profit and loss) statement," he said.

It is in this context that the short-term outlook for domestic aluminium business would be challenging. In coming years, the focus will continue to be on operational excellence and increasing the productivity of new assets, Birla added.

"The company has a strong business portfolio comprising de-risked copper business, coupled with the technologically intensive portfolio of Novelis. Along with this, its focused approach would go a long way in ensuring a robust future," he assured the company's shareholders.

On the global commodities market, Birla said the improved aluminium fundamentals, large-scale smelting curtailment by global majors have supported the price recovery.

Consequently, the global primary aluminium industry moved back to a deficit position for the first time in 7 years. The average aluminium LME price was around 6 per cent higher than 2013-14.

On the other hand, copper LME price was 8 per cent lower than the previous year, weighed down by the slowdown in the Chinese demand growth and higher mining output, Birla said.

Aluminium realisations were strong on the back of supportive LME and high regional premium. The average premium at USD 390 Main Japanese Port (MJP) was almost 47 per cent higher than 2013-14. However in the current fiscal, LME has fallen sharply and the premium has nosedived, he said.

Hindalco's Utkal Alumina refinery has achieved near-full capacity utilisation while Mahan has now ramped up fully. The Aditya smelter has bumped it up to nearly 55 per cent and will attain full capacity this fiscal, he added.

"On the back of these ambitious, new-age projects, aluminium volumes in India jumped 37 per cent to 0.8 million tonnes and alumina output soared by 40 per cent to 2.3 million tonnes (MT). EBITDA from aluminium business in India, including Utkal, rose 62 per cent in 2014-15 to Rs 2,345 crore," Birla noted. 

On Novelis, he said the firm's shipments grew across all

regions, crossing the 3 million tonne mark. With rolling expansions in Brazil and Korea playing a key role, its adjusted EBITDA increased 2 per cent to USD 902 million, despite market headwinds.

Copper business's performance has been particularly noteworthy, recording the highest-ever volumes of 3,86,000 tonnes. Its EBITDA of USD 258 million (Rs 1,601 crore) reflected a growth of 45 per cent over the last year, Birla said.

Operational efficiencies, lower cost of production coupled with a favourable trend in treatment and refining charges have been their success drivers, he added.

"The de-allocation of coal blocks by the Supreme Court last year was a disruptive change in the business environment for its aluminium business. Our expansion strategy closely hinged on the coal blocks allocated by the government," he said.

In the changed scenario, Hindalco participated in the fiercely competitive auctions of coal blocks and managed to bag four, securing around 25 per cent of its total coal requirement, he added.