We have cut back on our capital expenditure for this year: Hindalco MD

In a Q&A, Satish Pai says his firm switched to higher exports in April and May as domestic demand was weak. And while metal prices remain low, around 80% of its Ebitda remains unaffected by price

With a focus on reducing cost due to Covid-19, Hindalco plans to scale down capital expenditure this year. At Rs 1,395 crore, the company on Friday reported a 19 per cent fall in profit before tax and exceptional items for the quarter ending March 2020 over the same period previous year. Satish Pai, managing director for Hindalco Industries, told Amritha Pillay, the company also switched to higher exports in April and May as domestic demand was weak. While metal prices remain low, the executive added around 80 per cent of his Ebitda remains unaffected by the price change. Excerpts.

How does demand look for the June quarter?

There was hardly any domestic demand in April apart from pharmaceuticals and food packaging, so we exported 90 per cent of our production. In May, we were exporting about 80 per cent and in June it is coming down further as domestic demand is picking up. The June quarter overall should see 75 per cent exports.

What is the demand trend for Novelis?

For Novelis, demand for the automobile sector was hit as auto plants in the US and the UK shut down. There was an impact in April and May, but they have all started now and the demand is coming back.

Is demand back to pre-Covid levels?

Yes. In the US, it is back. In Europe, it has not and in China demand is stronger than the pre-covid levels. China got hit first, but the government stimulus has also been strong there.

Would you look to change your export mix to reflect changing market dynamics?

We are going to sell whatever we produce. Until the domestic demand picks up, we will continue to export more. In the June quarter, it will be 75 per cent export, in the September quarter if the domestic demand picks up it will fall to 60 per cent of exports and in the December quarter if the domestic economy really picks up it should be 50 per cent each. A possibility of 40 per cent domestic sales looks sure.

Which segments of the domestic market do you see the demand returning?

Our biggest sectors are electrical, then pharma, food packaging, industrial and then building infrastructure. Electrical demand is coming back now, food packaging and pharma continues to see strong demand. The housing sector would be the last one to come back.

How much of an impact will your raw material prices have on financial performance?

The most important raw material for us is coal. Our Q4 results in aluminium are better year-on-year because of lower coal prices and we are already getting a big tailwind from the input cost of coal. We believe the first quarter is going to be even lower than the Q4 of FY20.

You mentioned Novelis bonds were refinanced in the March quarter. Would you look to further refinance any debt this year? Any debt reduction or fund raising planned for this financial year?

No. I think we have enough liquidity now and would not need to raise more cash. No plans for debt reduction either. We have to be able to maintain cash. There are no plans to refinance debt as well.

Do your expansion plans still hold for this financial year?

We have cut back our capital expenditure for this year. We have an ongoing expansion at the Utkal refinery that we will complete, other than that capex will be limited to maintenance. We were planning about Rs 2,300 crore, now we will spend Rs 1,500 crore, of which Rs 350 crore is for the Utkal expansion.

Are your divestments plans on track?

Our deal with Liberty House is on track for the Duffel plant. For the sale of the Louis plant, we have enough time till the end of this year that we will come out with when the market conditions improve. It is not the right time to sell assets, and we need to carve out the business before we sell.

How much has India's migrant labour issue impacted operations for Hindalco? What is the indirect impact on business due to impact on consumer business?

My customers are more impacted. Our smelters and plants ran without any problem because we are not dependent on migrant labour. However, many of my customers are impacted, and if they do not ramp up, we cannot sell.