Production cost will remain flat in Q3FY21; It will improve our margins in the quarter: Satish Pai, MD, Hindalco

Satish Pai, Managing Director, Hindalco talks about the one-time loss of around Rs 1,400 crore in Q2FY21, Brazil’s beverage can facility, margins and coal auctions during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Despite a one-time impact of around Rs 1,400 crore the consolidated number is good. How do you see the results, please share highlights with us?

A: The quarter results have been very good and our EBITDA and net profit have increased 20-30% on a year-on-year basis. But in the quarter, we had to take a one-time loss because we had closed the acquisition of Aleris. And, Lewisport, which was an asset of the US, was to be sold. In November, the Department of Justice put pressure on us to close it although the condition is so bad amid the COVID environment in which M&A doesn’t happen easily. It is an injustice as we had to sell the asset in this loss situation to a private equity firm. It is a reality that we had to take a one-time charge but if you look at the quarter’s numbers and our forward-looking outlook for Novelis is quite strong. Sadly, we had to take a one-time loss by selling an asset at a low price but we are looking forward with great hope that Novelis results will be better than Q2 in Q3 and Q4.

Q: When do you expect commissioning of Brazil’s beverage can facility?

A: It is a facility and it is an expansion project and the normal plant is running at full capacity. But the 100 KT-expansion will come in line in the third or fourth quarter of FY22.

Q: Margins have expanded during the quarter. Going forward, what is your outlook on the margins and tell us about the input cost and EBITDA guidance from here?

A: If you are talking about the cost of production of India’s aluminium business then Q2 cost was equal to Q1 cost. So, there was an increase in LME but the cost remained flat for us due to which our margins went up. I expect that the cost of production will remain flat even in the Q3, it may go up by 1%, but LME has increased more due to which our Q3 margins will remain good. I feel that cost inflation can be seen in Q4 because coal and oil prices are going up. But, we will have to see if LME which is at 1900 at present remains between 1,800 and 1,900 then our Q4 results will also remain good. So, the cost is under our control but coal cost and oil cost, because furnace oil and CP coke cost are dependent on oil, and these two input costs are quite sensitive for us.

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Q: Company has been actively participating in coal auctions. What sort of operational benefit do you foresee with integrated coal mines and what is your outlook there?

A: The ongoing auctions are almost finished now and we have received mine in Chakla in Jharkhand. It is a very big mine with four and a half million to 5 million tons capacity. It is very good for us because it is located at an equal distance from both of our clusters in Renukoot and Sambalpur. This mine will favour us a lot on the grounds of security and price but it will take three years to start the mine. So, we will get this mine in the next three years, which will be good for us.