We'll bring down debt/Ebitda ratio: Satish Pai

Interview with Managing director of Hindalco

With realisations staying weak quarter after quarter, Hindalco Industries plans to raise the contribution of value-added products to improve the company’s operating income. Satish Pai, managing director of Hindalco, talks to Aditi Divekar about it. Edited excerpts:

How do you plan to improve Hindalco's top line when realisations have been weak for quite sometime now?

For the next five years, Hindalco will focus on value-added products to raise its Ebitda (earnings before interest, taxes, depreciation and amortisation) / tonne both in copper and aluminium. All our capex will be directed towards growing the downstream segment organically.

In aluminium, we plan to raise the contribution of value-added products to 70 per cent over the next two-three years from 40 per cent at present. The copper division, on the other hand, will see doubling of wire rod capacity as the company is currently setting up a 250,000-tonne unit scheduled to come up in March 2018. An investment of Rs 250 crore is being made via internal accruals to set up this unit. The main aim is to lower debt/Ebitda ratio to a comfortable level of three in the next few years from five at present.

Coal security has helped Hindalco lower costs significantly, improving the company’s Ebitda. Do you see more room for cost control measures. Which other cost component does Hindalco plan to focus going ahead?

The logistics segment is one of the biggest areas where we plan to cut costs. Currently, about 15 per cent of total cost comes from this segment. We aim to bring it below 10 per cent over the next two years. For this, we are trying to lower road movement and maximise rail movement. Railway sidings are already in place at our new plants. We plan to have such sidings at the old facilities as well.

About 40 per cent capacity at Hindalco’s Hirakud facility has been shut down for a few quarters. What is the company’s long-term plan for its old and less efficient units at Hirakud and Renukoot?

In terms of efficiency, old plants can never be as good as Mahan and Aditya facilities. But, it does not mean we’ll phase them out. The plan is to make small investment at the two units to inject technology and enhance automation to get a reasonably good blended mix in terms of costs of production. At Hirakud, we have cleaned up several inefficiencies and will take a call on restarting idle capacity lines in the fourth quarter as demand-supply equation also needs to be watched.

Novelis’ auto shipments, which are mainly Europe and US-centric, grew 15 per cent in the June quarter. Outlook for this business is strong in the coming quarters. Does Brexit worry you?

The duty tariffs between the UK and the European Union will be crucial when things start changing at the ground level for Brexit. But, since the UK and Europe need each other, I doubt if there would be high tariff margins.

However, it is too early to plan for this change. Negotiations between the two regions are important and knowing the English, hopefully, economic growth that the UK has been having will not get affected.