‘Small firms might be hit by demonetisation’

14 November 2016

Business Standard

With operating profits more than double in the September quarter, Hindalco Industries is set to churn good margins as its aluminium premiums and copper treatment and refining charges (TaRCs) move up. The company's managing director, SATISH PAI, talks to Aditi Divekar about raising Rs.5,000 crore to de-leverage the balance sheet and impact of demonetisation on business. Edited excerpts:

Has the government's demonetisation move affected Hindalco Industries' business? Trade in other sectors such as steel has taken a hit.
Majority of our raw material moves via railways and those are not affected. Trucks carrying finished goods were affected for the first couple of days. But, since we work with fairly large contractors, things have got back on track and transportation is coming to normalcy. I do not see any disruption. More, the largest part of our shipments happens after November 15, by when the transport issues will smoothen out.

Do you see any impact of demonetisation on the domestic aluminium industry?
A lot of aluminium scrap that is coming to India in huge quantities of about 860,000 tonnes. Small aluminium players, especially the scrap importers, might get affected as they deal in cash trade. But, it is too early to say anything. We need to wait and watch.

Hindalco Industries is looking to raise Rs.5,000 crore. By when do you plan to and where will the amount be used?
Deleveraging the company is our main objective at present. We are making all efforts to bring down the Debt:Ebitda (earnings before interest, taxes, depreciation and amortisation) ratio. Secondly, we plan to invest in downstream facilities, which are less capital-intensive. So, the fund usage will be a mix of the two. Depending on the time taken for approval and market conditions, we'll then decide when to raise these funds.

Global copper prices have jumped in the past three weeks. How do you see TC/RC for 2017?
Slightly higher than 2016, by about five per cent. Since we are 80 per cent in long-term contracts, this should help us. The worry is whether there could be any downside, but it doesn't look likely for a couple of reasons - supply is tight and demand is fairly good. Another factor is that the Chinese want good TC/RC. Since they (Chinese) decide it, we expect it to be higher. Mid-November is when TC/RC will be declared for 2017.

How do you see aluminium premiums for the current quarter and for 2017?
Premiums have come down to $72 a tonne, but seems to have bottomed out. Q4 (fourth quarter, October-December) could be higher, in the range of $85-90 a tonne and around the same range next year. We don't see much higher side for premiums. Broadly, it will remain in the same range.