The pick up in global and domestic demand augurs well for the Indian metal industry. Satish Pai, managing director, Hindalco Industries, tells Shubhra Tandon that this growth is here for the long haul. With deleveraging of balance sheet behind it, Pai says the company is geared up for organic and inorganic growth opportunities. Excerpts:
What is your outlook on domestic and global demand and what will be the drivers?
In India, a few months prior and post the implementation of GST, the demand was a bit weak, but it has started to pick up from mid-November. Even January demand has been strong. So, I am hoping now that general bouyancy and a good budget with infrastructure spend should mean that we see a good growth cycle. At Novelis, the auto and can demand has been strong.
How sustainable is this growth going forward?
Demand for aluminium and copper in India is just started to pick up.I think this should be sustainable for the next year or so, if the government policies are as they have outlined. Additionally, world economies have never looked as healthy as they are looking now. Europe, Japan, Brazil all of them have come out of either a recession or a flat growth. So, the world economy or GDP growth seems to be on the positive side.
Where do you see the future demand coming from?
Infrastructure is a big one. Already, 40% of India’s aluminium goes into electric conductor cables. So, if you spend on infrastructure, electric sector will go up, transportation will go up — rails, metros, new airports, so all that needs more aluminium and copper consumption. The general GDP growth means household consumption is also strong. So, in the packaging sector, too, we are seeing a strong demand. We are also seeing good growth opportunities in foil.
What are the key risks to this growth? Oil prices are volatile…
Input costs are the key risks we see right now. We remain worried about coal costs, Coal India just increased the price this January. We are also worried about oil and carbon prices remaining high.
How is the debt position and would there be further deleveraging?
We are now at 2.7-2.8 net debt to ebitda (earnings before interest, tax, depreciation and amortisation) levels, so we are not that focused on further paying down at this point in time. Now, we will take cash and start to look for new growth opportunities. Our net debt at the end of December 2017 is at Rs 18,711 crore, which give us the net debt to ebitda of 2.72.
Would these be organic or inorganic opportunities?
We announced the Utkal brownfield expansion last quarter and have started work on that. We are finishing the copper-rod plant in Dahej, and put more money in the downsteream operations in India. So now, over the next few years you will start to see organic growth options, mostly brownfield coming up. Inorganic, if it comes, we will look at it.
Is the acquisition of Aleris on the cards?
No comments. Suffice to say, that we are looking at growth opportunities and we are going to look at that growth in a very disciplined manner. Not going to do anything irrationally.
How do you plan to fund this growth?
It will be an extremely capital disciplined approach. Whatever cash we generate over the next five years we would like to put that into business.