Hindalco Industries has said that the metals business will face challenges in the near term as aluminium prices continue to remain weak in the international market, and will have bearing on its financial results in 2013-14.
“As aluminium prices continue to remain weak in the international market, the metals business will face challenges in the near-term. The depreciation and the interest burden from expansion projects will also have a bearing on the financial results in FY14,” Hindalco chairman Kumar Mangalam Birla said in the company’s annual report.
Birla said, however, that the business remains extremely well-placed for the long term, with the addition of these mega-scale assets in their portfolio. As these projects ramp up to their full potential, the company will see an exponential growth in volumes and profitability in the years ahead.
The company’s consolidated capex spend was close to $2.6 billion (R14,000 crore). The 2012-13 fiscal was the third consecutive year of the highest ever capex spend. “These investments, which we have persevered with, will not only propel us towards the growth trajectory planned for the metals business, but will also create the lowest-cost production bases on the global cost curve — ones that can withstand any phase of the business cycle,” Birla said.
He pointed out that the copper business put up yet another robust performance, despite the sharp reduction in sulphuric acid realisations. Deft concentrate sourcing, coal sourcing and a higher proportion of value-added production enabled it to achieve outstanding results. Strong performance of the copper business, which has a conversion business model, cushioned the pressure on aluminium margins. “It once again vindicated the virtue of our de-risked business model in the metals business,” he added.
On the economic scenario, Birla said slow growth, investor diffidence, the rupee falling to an all-time low, power outages and a poor monsoon added to the country’s woes. High commodity prices and supply constraints of critical raw material, such as coal and natural gas further compounded the problem.
India’s GDP growth slowed markedly in 2012-13, to 5%, down from 6.2% in the previous year. The manufacturing sector recorded a growth of only 1.9% in 2012-13, down from 2.7% in 2011-12.