HINDALCO INDUSTRIES LIMITED
ANNUAL REPORT 2009-2010
DIRECTOR'S REPORT
TO
THE SHAREHOLDERS
Dear Shareholders,
Your Directors are pleased to present the 51st Annual Report along with the
audited annual accounts for the year ended 31st March, 2010.
The severe downturn witnessed in the previous year was arrested and macro
economic factors showed signs of recovery. Several measures taken by your
Company started yielding results in the form of higher production, lower
cost and higher sale of value-added products. Your Company also
successfully placed QIP of USD 600 Million during the year under review.
Financial Performance:
Your Company's Consolidated Revenue crossed USD 12.8 Billion mark during
the year. The consolidated EBIDTA was at USD 2.1 Billion i.e. Rs.10,069
Crore. Business Performance is amongst the best ever with highest net
profit.
Overall results of your Company clearly reflect derisked business portfolio
in terms of geographic and product mix.
Standalone Results:
For the year ended 31 March 2010, net sales at Rs.19,536 crore were higher
by 7%. The highest ever metal volume, better product and geographic mix,
despite subdued commodity prices helped improve the company's performance.
The superior operational performance in terms of highest ever metal
production and substantial cost savings on improved efficiencies were
negated by adverse macro-economic factors, which were pronounced in both
the businesses.
In the Aluminium Business, lower Rupee-LME eroded profit by around Rs.750
crore. Additionally, Rs.100 crore was lost on account of the higher coal
cost at Renusagar Power. Copper Business, which benefitted from higher
contracted TcRc (Treatment charges and Refining charges), lost Rs.750 crore
on lower by-product credit, in terms of sulphuric acid realisation and
lower fertiliser subsidy. Against this backdrop, the performance of both
the Businesses was satisfactory. Other income at Rs.260 crore was lower by
Rs.377 crore, on account of low treasury corpus, post repayment of bridge
loan in November 2008, which was taken for Novelis acquisition and for
higher project spending. Abundant liquidity kept short-term rates low. This
also affected yields on the company's investments which are mostly in
liquid plans. It also reduced the cost of working capital borrowing. As a
result, the interest and financing charges also reduced from Rs.337 crore
in FY09 to Rs.278 crore in FY10.
Arising from the announcement of the Institute of Chartered Accountants of
India dated 29th March, 2008 on Accounting for Derivatives, the Company has
decided for early adoption of Accounting Standard (AS) 30 on Financial
Instruments : Recognition and Measurement, in so far as it relates to
derivative accounting, from 1st April, 2009. Accordingly, net loss arising
on fair valuation of outstanding derivatives as on 01st April, 2009
amounting to Rs. 230.58 crore (net of deferred tax of Rs. 118.73 crore) has
been adjusted against General Reserves following transitional provisions.
Accounting for all derivatives from 1st April, 2009 have been done as
prescribed under the AS. As a result, net gain / (loss) of Rs. (236.12)
crore and Rs. 167.75 crore & Rs. 246.09 crore for the year ended 31st
March, 2010 have been included under Sales and Raw Materials Consumed &
Other Expenses (in Manufacturing and Other Expenses), respectively, with
consequential impact on profit for the year ended 31st March, 2010. The
figures of the current year in respect of above items are, therefore, not
comparable with those of the previous year.
Consolidated Results:
Consolidated revenues were lower at Rs. 60,722 crore, mainly due to lower
aluminum prices and softness in the Company's end-markets in the first half
of the year, especially for Novelis.
Further, change in the status of Idea Cellular Ltd. from joint venture to
associate w.e.f from 1st January 2009 for the purpose of consolidation,
also resulted in proportionate revenue from Idea not being included in the
consolidated revenues.
Profit before depreciation, interest and taxes soared to a record level of
Rs.10,069 crore from Rs. 3,661crore in FY09.Consolidated result include
pre-tax adjustment for unrealised derivative gain/(Loss) of Rs. 2,736.4
crore in FY 10 and (Rs. 2,380.7) crore in FY 09 at Novelis.
Aluminium Business revenue fell by 11% to Rs.48,091 crore on the back of
lower LME and lower demand in first half of the year. Earning before
interest and tax turned around from a loss of Rs. 425 crore to a profit of
Rs. 5,998 crore. This reflects steady improvements in operations across the
board. Copper business revenue increased by 13% to Rs.12,575 crore and EBIT
trebled from Rs. 374 crore to Rs. 1,003 crore.
(Rs. in Crores)
Standalone
Financial Results for the year ended 31.03.2010 31.03.2009
Net Sales and Operating Revenues 19,536.28 18,219.65
Profit before Tax 2,264.56 2,690.32
Provision for Current Tax 374.20 478.11
Provision for Deferred Tax 87.90 121.40
Provision for Fringe Benefit Tax 0.00 11.37
Tax adjustment for earlier years (Net) (113.17) (150.83)
Profit before Minority Interest 1,915.63 2,230.27
Minority Interest 0.00 0.00
Share in Profit / (Loss) of Associates (Net) 0.00 0.00
Net Profit 1,915.63 2,230.27
Appropriations:
Debenture Redemption Reserve 0.00 5.00
Capital Reserve 0.00 0.00
Capital Redemption Reserve 0.00 0.41
Special Reserve 0.00 0.00
Dividend on Preference Shares 0.00 0.02
Dividend Tax on Preference Shares 0.00 0.01
Proposed Dividend on Equity Shares 258.32 229.58
Tax on Proposed Dividend 42.90 39.02
Transfer to General Reserve 1,701.91 1,956.23
(Rs. in Crores)
Consolidated
Financial Results for the year ended 31.03.2010 31.03.2009
Net Sales and Operating Revenues 60,722.11 65,962.95
Profit before Tax 6,180.76 (604.92)
Provision for Current Tax 554.30 872.53
Provision for Deferred Tax 1,377.59 (1,689.36)
Provision for Fringe Benefit Tax 0.00 12.19
Tax adjustment for earlier years (Net) (102.98) (149.11)
Profit before Minority Interest 4,351.85 348.83
Minority Interest 423.70 (171.78)
Share in Profit / (Loss) of Associates (Net) 2.68 36.72
Net Profit 3,925.47 483.89
Appropriations:
Debenture Redemption Reserve 0.00 5.00
Capital Reserve 0.00 1.50
Capital Redemption Reserve 0.00 0.41
Special Reserve 0.48 0.92
Dividend on Preference Shares 0.00 0.02
Dividend Tax on Preference Shares 0.00 0.01
Proposed Dividend on Equity Shares 259.91 231.16
Tax on Proposed Dividend 43.48 39.61
Transfer to General Reserve 1,704.96 1,958.55
Dividend:
Your Directors have recommended a dividend of Rs.1.35 per share i.e. @135%
per equity share for the financial year ended March 31, 2010 amounting to
Rs.258.32 crore.
Together with the Corporate Dividend Tax of Rs. 42.90 crore, the total
payout works out to Rs. 301.22 crore.
Growth plans underway in Aluminium:
Your Company is aggressively pursuing various brownfield and greenfield
growth opportunities in Aluminium as described below:
Project Commissioning
Hirakud Smelter:
155 KTPA to 161 KTPA Q2FY11
161 KTPA to 213 KTPA Q4FY12
Flat Rolled Products at Hirakud Q2FY12
Utkal Alumina Project Q2FY12
Mahan Aluminium Project Q2FY12
Aditya Aluminium Project Q3FY12
Aditya Refinery Project Q1FY14
Jharkhand Aluminium Project Q1FY14
Further to the above, the smelting capacity at Hirakud is intended to be
expanded from the proposed 213 KTPA to 360 KTPA with corresponding increase
in back-up captive power from proposed 467.5 MW to 967.5 MW. The Company
expanded from the proposed 213 KTPA to 360 KTPA with corresponding increase
undertakes to appropriately finance the project.
To debottleneck and increase capacity, primarily in South America and Asia,
Novelis has increased its capital expenditure plan by approximately USD 150
Million or 148 per cent for fiscal 2011 compared to the previous year. A
significant amount is aimed at expanding its rolling operations in Brazil.
This investment will increase capacity by over 50 per cent and better
support the increasing demand for flat rolled products in the region. The
expansion is expected to be completed by late 2012.
The details of the projects are covered in greater detail as the part of
Management Discussion and Analysis section.
Finance:
The Authorised Capital of the Company has increased from Rs. 200.00 crore
to Rs. 215.00 crore by way of increase of 15,00,00,000 equity shares of
Re.1 each pursuant to a resolution passed at the Annual general meeting
held on 18 September, 2009.
Upon allotment of 213,147,391 equity shares of Re 1 each at a premium of
Rs.129.90 through Qualified Institutions Placement (QIP) on 1st December,
2009, paid-up capital of the Company has increased by Rs. 21.31 crore. The
total amount received against QIP is Rs. 2,790.10 crore. Out of this amount
Rs. 396 crore has been spent for various ongoing projects (including issue
related expenses) till 31st March, 2010 and the balance amount has been
invested temporarily in mutual funds.
Consolidated Financial Statements:
In accordance with Accounting Standards AS-21 on Consolidated Financial
Statements read with Accounting Standard 23 on Accounting for investments
in Associates and AS-27 on Financial Reporting of Interest in Joint
Ventures, the audited Consolidated Financial Statements are provided in the
Annual Report.
Management Discussion and Analysis Report:
The Management Discussion and Analysis Report forming part of Directors'
Report for the year under review, as stipulated under Clause 49 of the
Listing Agreement with the Stock Exchange(s), forms part of Annual Report.
The report provides strategic direction and a more detailed analysis on the
performance of individual businesses and their outlook.
Corporate Governance:
Your Directors reaffirm their commitment to the corporate governance
standards as prescribed by The Securities and Exchange Board of India
(SEBI). A separate section on Corporate Governance together with a
certificate from the Auditors of the Company regarding full compliance of
conditions of Corporate Governance as stipulated under Clause 49 of the
Listing Agreement with the Stock Exchange(s) forms part of Annual Report.
Directors' Responsibility Statement:
Your Directors affirm that the audited accounts containing financial
statements for the financial year 2009-10 are in full conformity with the
requirements of the Companies Act, 1956. They believe that the financial
statements reflect fairly, the form and substance of transactions carried
out during the year and reasonably present the Company's financial
condition and results of operations. These statements were audited by the
statutory auditors of the Company, M/s. Singhi & Co., Chartered
Accountants.
Your Directors further confirm that:
1) In the presentation of the Annual Accounts, applicable Accounting
Standards have been followed. However, the deviation from the Accounting
Standard has been carried out with reference to the Scheme of arrangement,
approved by the court for the purpose of preparing Consolidated Financial
Statements. Refer Notes on Accounts for details of the same.
2) That the accounting policies are consistently applied and reasonable,
prudent judgment and estimates are made so as to give a true and fair view
of the state of affairs of the Company at the end of the Financial Year.
3) The Directors have taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of the Act
for safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities.
4) The Directors have prepared the Annual Accounts on a going-concern
basis.
Your Company's Internal Auditors have conducted periodic audits to provide
reasonable assurance that established policies and procedures have been
followed.
Subsidiaries/Joint Venture:
A wholly-owned subsidiary by the name Mauda Energy Limited has been
incorporated on 5th October 2009 for generation of power to be used
captively.
In terms of the facility agreement for foreign currency borrowing of US
$981.80 Million availed by A V Minerals (Netherlands) B.V., a wholly owned
subsidiary, the Company has entered into a deed of pledge of registered
shares in A V Minerals (Netherlands) B.V. in favour of HSBC Bank USA, N.A.
as pledgee.
Novelis:
Shipments of aluminium rolled products totalled 2,708 kilotonne for fiscal
2010, a decrease of two percent compared to shipments of 2,770 kilotonne in
the previous year, driven by softer end-market conditions in most of the
regions during the first half of the year.
Net sales for fiscal 2010 were USD 8.7 Billion; a decrease of 15 per cent
compared to the USD 10.2 Billion reported in the same period a year ago, a
result of lower aluminium prices and softness in the Company's end-markets
in the first half of the year.
Adjusted EBITDA for the year was a record USD 754 Million, representing a
55 per cent increase from adjusted EBITDA of USD 486 Million posted for the
same period a year ago. These record operating results were primarily due
to the Company's focus on cost reductions and restructuring initiatives.
Aditya Birla Minerals:
Aditya Birla Minerals Limited, the Australian subsidiary, reported profit
after tax of AUD 61.4 Million as against a loss of AUD 76.0 Million in the
previous year. Sustained cost management resulted in turnaround in
financial performance. Lower production was mainly due to loss of
production of copper in concentrate at Mt. Gordon and cathode production at
Nifty oxide operations which were put under care and maintenance as a
management decision. The drop in overall production was partly off-set by
13.8% increase in Nifty's production of copper in concentrate.
FY10 FY09
Copper Production (MT) 57,093 70,111
EBIT (AUD 000) 93,259 (103,605)
PAT (AUD 000) 61,440 (76,019)
The performance of the subsidiaries is covered elsewhere in this Annual
Report.
Your Company has applied to the Central Government for grant of an
exemption to your Company under Section 212(8) of the Companies Act, 1956,
from attaching a copy of the Balance Sheet, Profit and Loss Account, Report
of the Board of Directors and the Report of the Auditors to all the
Subsidiary Companies. Subject to receipt of the approval, aforesaid
documents are not being attached with the financial statements of your
Company. These documents can be requested by any member, investor of the
company / subsidiary company. Further, in line with the Listing Agreement
and in accordance with the Accounting Standard 21 (AS-21), Consolidated
Financial Statements prepared by the Company include financial information
of its subsidiaries.
Employee Stock Option Scheme:
The shareholders of the Company has approved an Employee Stock Option
Scheme ('ESOS 2006'), formulated by the Company, under which the Company
may issue 3,475,000 options to its permanent employees in the management
cadre, in one or more tranches, whether working in India or out of India,
including the Whole Time Directors of the Company. Each option when
exercised would be converted into one fully paid-up equity share of Re. 1/-
each of the Company. The ESOS 2006 is administered by the Compensation
Committee of the Board of Directors of the Company ('the Committee'). Under
the ESOS 2006, the Committee has granted 2,973,390 options to its eligible
employees in two tranches. Disclosure pursuant to the provisions of the
Securities and Exchange Board of India (Employee Stock Option Scheme)
Guidelines, 1999 is given in Annexure-A.
Particulars as per Section 217 of the Companies Act, 1956:
The information relating to the conservation of Energy, Technology
Absorption and Foreign Exchange Earnings and Outgo required under Section
217 (1)(e) of the Companies Act, 1956, is set out in a separate statement
attached to this report (Annexure B).
In accordance with the provisions of sections 217 (2A), read with the
Companies (Particulars of Employees) Rules, 1975, the names and other
particulars of employees are to be set out in the directors' report, as an
addendum thereto. However, as per the provisions of Section 219 (1) (b)(iv)
of the Companies Act, 1956, the report and accounts, as therein set out,
are being sent to all members of the company excluding the aforesaid
information about employees. Any member, who is interested in obtaining
such particulars about employees, may write to the Company Secretary at the
Registered Office of the company.
Fixed Deposits:
Your Company was accepting Fixed Deposits from the Employees. Acceptance of
such fixed deposits has been discontinued from FY 2009-10. The total
outstanding deposits are Rs. 0.33 crore as at 31st March, 2010.
Directors:
In accordance with Article 146 of the Articles of Association of the
Company, Mr. Kumar Mangalam Birla, Mr. E.B. Desai and Mr. A.K. Agarwala
retire from office by rotation, and being eligible, offer themselves for
reappointment.
Awards & Recognitions:
Several accolades have been conferred upon your Company, in recognition of
its contribution in diverse fields. A selective list:
1. Renukoot unit was awarded the Greentech Safety Gold Award 2009 for
Occupational Health and Safety Management and the Greentech Environment
Gold Award 2009 for environmental excellence, in the Mining and Metal
Sector, presented by Greentech Foundation, New Delhi.
2. Renukoot unit was awarded the prestigious 'Golden Peacock National
Quality Award - 2010'.
3. Amity International Business School conferred on Renukoot unit the
'Amity Corporate Excellence Award' for its notable initiatives in Corporate
Social Responsibility.
4. Institute of Engineers (India) awarded Renukoot unit with the 'Safety
Innovation Award-2009' in the metals sector for its exemplary initiatives
in Occupational Health and Safety.
5. Renusagar Power Division was awarded the 'Golden Peacock Environment
Management Award 2009'.
6. Renusagar Power Division received the 'Rajiv Gandhi National Quality
Award 2008,'' Commendation Certificate presented by the Bureau of Indian
Standard (BIS).
7. Renusagar Power Unit was awarded the 'Greentech Environment Excellence
Gold Award 2009,' in Thermal Power Plant Category, by Greentech Foundation,
New Delhi.
8. CII has conferred the 'Energy Efficient Unit' award to Renusagar Power
Division during the '10th National Awards for Excellence in Energy
Management-2009'.
9. Hirakud Smelter unit was awarded the National Energy Conservation Award
2009, ranking first in the Aluminium Sector.
10. Hirakud Smelter unit awarded the Greentech Safety Silver Award 2009 for
Occupational Health and Safety Management presented by GreenTech
Foundation, New Delhi.
11. Hirakud Power Unit was globally recognised as one of the top six power
plants for its environment friendly operations by the POWER Magazine.
12. Hirakud Power Unit was awarded the Greentech Environment Gold Award
2009 for best environment management and practices, and the Greentech
Safety Silver Award 2009, by Greentech Foundation, New Delhi.
13. Your Company's Mines earned awards in Environment, Safety, Mining
Practices during the Mines Safety Week and Mineral Conservation Week
programmes at regional levels.
14. Birla Copper Dahej was awarded the Greentech Environment Gold Award for
its exemplary environmental practices and performance and the Greentech
Safety Silver Award, presented by Greentech Foundation, New Delhi.
Environment Protection and Pollution Control:
Your Company is committed to sustainable development. Your Company is a
signatory to the Global Compact and subscribes to the principle of triple-
bottom line accountability.
A separate chapter in this report deals at length with your Company's
initiatives and commitment to environment conservation.
Auditors:
The observations made in the Auditors' Report are self-explanatory and do
not call for any further comments under Section 217 (3) of the Companies
Act, 1956.
M/s. Singhi & Company, Chartered Accountants and Auditors of the Company,
retire, and being eligible, offer themselves for appointment.
Human Resource Development:
Your Company continuously strives to foster a culture of high performance.
Your Management has infused a lot of rigor and intensity in its people
development processes and in honing skill sets. Its HR processes are
absolutely aligned to organizational goals. The implementation of People
Soft HRMS (Human Resource Management System), the variable pay plan and job
bands have been institutionalized.
Ongoing learning, refreshing HR systems in line with global benchmarks,
aligning rewards and recognition with performance, have enabled your
Company sustain its reputation of a meritocratic organization. The Group's
Corporate Human Resources function has played and continues to play an
integral role in your Company's Talent Management Processes.
Appreciation:
Your Directors place on record their sincere appreciation for the
assistance and guidance provided by the Honorable Ministers, Secretaries
and other officials of the Ministry of Mines, Ministry of Coal, the
Ministry of Chemicals and Fertilizers and various State Governments. Your
Directors thank the Financial Institutions and Banks associated with your
Company for their support as well.
Your Company's employees are instrumental in your Company scaling new
heights, year after year. Their commitment and contribution is deeply
acknowledged.
Your involvement as Shareholders is greatly valued. Your Directors look
forward to your continuing support.
For and on behalf of the Board
Place: Mumbai Kumar Mangalam Birla
Dated: The 4th Day of June, 2010 Chairman
ANNEXURE A' TO THE DIRECTORS' REPORT
Disclosure pursuant to the provisions of the Securities and Exchange Board
of India (Employee Stock Option Scheme) Guidelines, 1999:
Nature of Disclosure:
a) Options Granted:
2,973,390
b) The pricing Formula:
Tranche-I:
The exercise price was determined by averaging the daily closing price of
the Company's equity shares during 7 days immediately preceding the date of
grant and discounting it by 30%. (Exercise price- Rs. 98.30 per option).
Tranche-II:
The exercise price was the closing market price, prior to the date of
grant. (Exercise price - Rs. 150.10 per option).
c) Options vested/Exercisable as at 31st March 2010:
958,270
d) Options Exercised during the year:
44,244
e) The total number of shares arising as a result of exercise of options:
44,244
f) Options Lapsed:
Nil
g) Variation in terms of options:
Nil
h) Money realised on exercise of options:
Rs.4,349,185
i) Total number of options in force:
2,028,555
j) Employee-wise details of options granted:
i) Senior Managerial Personnel:
Mr. D. Bhattacharya - 9,70,100
ii) Any other employee who received a grant in any one year of option
amounting to 5% or more of options granted during that year:
Nil
iii) Identified employees who were granted option during any one year,
equal to or exceeding 1% of the issued capital (excluding outstanding
warrants and conversions) of the company at the time of grant:
Nil
k) Diluted Earnings per share:
NA.
l) Difference between the employee compensation cost computed using
intrinsic value of the stock options, and the employee compensation cost
that shall have been recognised, if the fair value of the options was used:
Rs.1.84 crore.
The impact of this difference on profits and on EPS of the company:
The effect of adopting the fair value on the net income and earnings per
share for 2009-10 is as presented below:
Rs. In Crore
Particulars 2009-10
Net Profit as Reported 1,915.63
Less: Dividend on Preference Shares (including Tax) 0.00
Net Profit attributable to Equity Shareholders 1,915.63
Add: Compensation cost under ESOS as per intrinsic
value included in the Net Profit 1.00
Less: Compensation cost under ESOS as per fair -2.84
value
Proforma Net Profit 1,913.79
Less: Tax adjustment for earlier years -113.17
Proforma Net Profit before Tax adjustment for
earlier years 1,800.62
Weighted average number of Basic
Equity Shares outstanding 1,770,939,077
Weighted average number of Diluted
Equity Shares outstanding 1,771,286,354
Face value of Equity Shares (in Re.) 1
Reported Earning per Share (EPS):
Basic EPS (in Rs.) 10.82
Diluted EPS (in Rs.) 10.81
Basic EPS before Tax adjustment for
earlier years (in Rs.) 10.18
Diluted EPS before Tax adjustment for
earlier years (in Rs.) 10.18
Proforma Earning per Share (EPS):
Basic EPS (in Rs.) 10.81
Diluted EPS (in Rs.) 10.80
Basic EPS before Tax adjustment for
earlier years (in Rs.) 10.17
Diluted EPS before Tax adjustment for
earlier years (in Rs.) 10.17
m) i) Weighted-average exercise } Options granted under Tranche II
prices and weighted average fair }
values of options whose exercise } Weighted average exercise : 150.10
price equals the market price of } price (Rs.)
the stock }
} Weighted average fair : 57.11
ii) Weighted-average exercise } value (Rs.)
prices and weighted average fair }
values of options whose exercise } Options granted under Tranche-I
price is less than the market }
price of the stock } Weighted average exercise : 98.30
} price (Rs.)
iii) Weighted-average exercise }
prices and weighted average fair } Weighted average fair : 65.78
values of options whose exercise } value (Rs.)
price exceeds the market price of }
the stock }
n) A description of method and significant assumptions used during the year
to estimate the fair values of options, including the following weighted
average information:
i) Risk free Interest rate (%) 8
ii) Expected life (No. of Years) 5
iii) Expected volatility (%) Tranche-I 34%
Tranche-II 37%
iv) Dividend yield (%) 170
v) The price of the underlying shares in Tranche-I Rs. 138.95
the market at the time of option grant Tranche-II Rs. 150.10
ANNEXURE B' TO THE DIRECTORS' REPORT:
[Statement of particulars under the Companies (Disclosure of particulars in
the Report of the Board of Directors) Rules, 1988]
A. CONSERVATION OF ENERGY:
Energy plays a key role in achieving the goals of sustainable development.
Increasing access to energy and enhanced energy efficiency is important for
our development. Our own policy of appreciating the importance of Energy
Conservation for sustainable development is by way of promotion of energy
efficiency. In an unending endeavor & strong commitment to improve the
Energy efficiency and capacity utilization, we are continuously working
towards reduction in cost of production. The Company has a well-defined
Energy Policy, which is meticulously adhered to across all the
establishments of the company in the country. Every unit of your Company
has trained professionals to implement this policy. The Company has a well-
defined Energy Management Organization structure, with a Bottom Up & Top
Down approach. It acts as a catalyst towards its continuous journey for
excellence in energy conservation. Involvement of all employees right from
workmen level to the top executive is ensured through walk through &
detailed energy audits, quality circles, WCM committees and suggestion
scheme. To inculcate awareness on the importance of Energy conservation,
Your Company as corporate entity, focuses not only on employees of company
but also the society.
The Company has a dedicated & well established Energy Cell having prime
objective of minimizing energy consumption, putting consistent efforts for
optimizing operating process parameters and modernizing / upgrading
technology for increasing energy efficiency throughout the organization.
Employees are encouraged to give suggestions and get involved in Energy
Conservation initiatives & suggestions with significant merit are suitably
rewarded under the well established reward & recognition system.
Company's efforts in Energy Conservation have been consistently recognized
over the years by the competent authorities. Hirakud unit of your Company's
Aluminium business have been recently awarded the 'Top Rank Award' in the
'National Awards for Energy Conservation' instituted by the Ministry of
Power, Government of India for the year 2009.
a. ENERGY CONSERVATION MEASURES TAKEN:
GENERAL MEASURES:
i. Optimization of colony power voltage to save power.
ii. Rationalization of luminary's wattage.
iii. Modification in lighting circuit for ON/OFF control of lights.
iv. Interlocking of Cooling Towers fan motor through temperature switch.
v. Conversion of connection from delta to star for under loaded motors.
vi. Installation of capacitor banks to improve power factor.
vii. Installation of small PLC logo in office AC system to avoid idle
running.
viii. Motor HP rationalization.
ix. Installation of transparent sheets in roof to utilize the natural
light.
x. Interlocking of auxiliary equipments with main equipment.
xi. Regular monitoring and cleaning of waste heat recovery system.
xii. Regular walkthrough audit of Steam and compressed air lines to avoid
the losses.
xiii. Regular monitoring and benchmarking of Energy Intensive equipment.
xiv. Optimization of transformer loading.
xv. Optimization of AC unit running time as well as temp setting.
xvi. Energy audit from external agencies.
xvii. Installation of efficient luminaries.
xviii. Optimum utilization of Energy through process redesigning as well as
employment of equipment that offers improved energy efficiency.
xix. Installation of door limit switches in MCC rooms.
1. ALUMINA PLANT:
i. Installation of VFD for PD Overflow re-circulation pump #1.
ii. Energy efficient double digestion technology in place of high
temperature Digestion technology.
iii. Installation of DSM screen to increase output of Ball mill #4 & 8 thus
reducing the specific power consumption.
iv. Installation of energy efficient falling film evaporation unit #4.
v. Introduction of additive in acid cleaning of liquor heaters to improve
heat transfer co-efficient.
vi. Provision of additional chemical cleaning facilities for parallel
cleaning of slurry heaters of digestion I & II units.
vii. Upgradation of Liquor-A & T-6 mud washers underflow pipelines together
with replacement of Motors and incorporation of VFD.
viii. Installation of temperature switches in cooling towers to optimize
the fan running hours.
ix. Modified the impeller of ISC cold well pump and use lower HP hot well
pump to meet out the reduced flow requirement during winter.
x. Re-routing of DS tank slurry transfer line to eliminate the use of
transfer pump.
xi. Modification in lighting circuits of different areas to optimize the
lighting load and ON time.
2. SMELTER:
i. Optimization of DSS fan flow to reduce specific power consumption.
ii. Installation of VFD operated screw compressor.
iii. Installation of Harmonic filter at Rectifier station #2.
iv. Welding of Anode bus bar and riser bus bar bolted joints for reduction
in DC voltage drops.
v. Modification in discharge circuits of air slides fans to optimize of
running number of fans.
vi. Optimization of lifting height of primary air lifts of Pot line #9 to
11 DSS to save power.
vii. Optimization of compressed air header pressure of point feeder & DSS
line to save power.
viii. Modification in suction line of reciprocating compressors to increase
its efficiency.
ix. Installation of VFD for ventilation fans of Pot line #7 to 11.
x. Minimizing the load of the equipment by modifying the control philosophy
in PLC in Pot line 9 to 11 Air lift blower.
xi. Better utilization of Induction furnace to save power.
xii. Modification inducting system of Paste Plant Bag houses to optimize
the loading.
xiii. Reduced pot voltage through process optimization to reduce specific
energy consumption of smelter.
xiv. Modification in water circuit of AC System of Rectifier Plant #2
control room to stop the running of water pump.
xv. Commissioning of one 90 MVA high energy efficient transformer in place
of old low efficiency transformer.
xvi. Better utilization of 132 KV standby higher efficient Rectifier for
feeding the load of Pot line #3.
xvii. Switching off cooling fan of Pot line #1 Rectifier Unit as and when
required.
xviii. Reduction in yoke to carbon drops of anode.
3. FABRICATION PLANT:
i. Revamping of one Properzi Furnace to improve its efficiency.
ii. Installation of off delay timer in hydraulic pump motors of blue cut
Star CTL and Caster Unit to avoid the idle running.
iii. Interlocking of LNP motor to avoid idle running.
iv. Reduction in running time of cooling fan motors of Extrusion Press #3,
5 & 6.
v. Automatic switching off of 90 TR AC compressor unit based on
temperature.
vi. Optimization of Homogenizing of AA 3003 DDQ cycles to save energy.
vii. Optimization of Annealing practices to reduce power consumption.
viii. Installation of VFDs in Casting Plant, Extrusion Press and Rolling
Mill Coolant filter.
ix. Reduction in number cold rolling passes through modification in AA 3105
coils.
x. Elimination of one stress relieving cycle by process modification in AA
5052 rolled coils.
xi. Clubbing of process to increase the productivity of furnaces.
xii. Optimization of partial annealing cycles to reduce the cycle time.
xiii. Conversion of H32 temper into H22 temper to save energy.
xiv. Re - insulation of Pre heater of Furnace #2 & 3.
4. POWER PLANTS/CO-GENERATIONS:
i. Installation of VFD in FD Fans of Boiler #3 of Co-Generation unit and AC
Unit #2.
ii. Reduction in Boiler #3 Feed pump rotor stage to reduce auxiliary power
consumption of Co-Generation unit.
iii. Fuel substitution from HSD to FO in Boilers to reduce cost of Co-
Generation Unit and Captive Power Plant.
iv. Trimming of CW pump impeller of TG #4, 6 & 7 to save auxiliary power at
Captive Power Plant.
v. Installation of additional APH baskets in Spare Boiler of Captive Power
plant to increase its efficiency.
vi. Operation of single FD Fan instead of two in 9 Boilers of Captive Power
Plant to reduce auxiliary power.
vii. Modification in LDAD system for ash slurry discharging at lower
elevation resulted stoppage of 350 kW Pump.
viii. Increase in chilled water temperature of administrative building air
conditioner of Captive Power Plant to reduce power consumption.
ix. Modification Raw water header of CHP area & ESP area to eliminate pump
running.
x. Conversion of connection from delta to star in coal feeder motors of
Captive Power. xi. Stage removal of recovery water pump impeller at
Bichhari.
xii. Installation of SS liner in Boiler #4 bunker at Captive Power Plant to
avoid coal flow interruption.
xiii. Installation of Fluid Coupling in Boiler feed Pump-A of Unit #1.
5. FOIL DIVISION:
i. Optimization of the frequency of VFD at Fume Exhaust fan at Mill M50.
ii. Modified and rerouted the power cable to shut off the 4 nos. of HT
transformers to save its no load losses.
iii. Optimization of annealing practices to reduce power.
6. COPPER DIVISION:
i. Replacement of SA and PU fans of HT motor by LT Motor.
ii. Installation of variable frequency drive for Boiler-1,3 & 4 and PAP.
iii. Installation of MV Drive in PA fan HT motor in Boiler no. 3.
iv. VFD installation in combined cooling tower fan in Smelter-1.
v. Installation of HT capacitor bank to improve the power factor.
vi. Replacement of conventional light with CFL.
b. ADDITIONAL INVESTMENT AND PROPOSALS BEING IMPLEMENTED:
1. ALUMINA PLANT:
i. Installation of VAM unit utilizing waste heat stream of Calciner fluxo
cooler.
ii. Up-gradation of ISC cooling tower.
iii. Installation of energy efficient pumps in place of Old inefficient
pumps and VFDs in 13 B
Evaporators.
iv. Installation of additional heater in Evaporation #1 to increase
availability for effective cooling cleaning.
v. Installation of VFD for Evaporation Unit #3 feed pump, PT feed area
slurry disposal pump & PD overflow re-circulation pump #2.
vi. Installation of voltage regulating transformer in lighting circuit.
vii. Installation of level control switches in sump pits to avoid idle
running sump pumps.
viii. Installation of door limit switches in lighting circuit of control
rooms.
ix. Bokela modification on drum filter no.- 2.
x. Revamping of IBSH with addition of 5th Set.
xi. Installation of VFDs in Primary, secondary Air fans, Rotary vane
feeder, Air Slide Fan, compressor and Cooling tower.
2. SMELTER:
i. Arrangement of water showers at the roof of cooling chamber of Billet
Casting.
ii. Replacement of Baking Furnace ID Fan with energy efficient fan.
iii. Modification in insulation of Metal transfer Cruce to reduce the heat
loss.
iv. Improvement in Coefficient of Performance of Air Conditioners.
v. Installation of temperature sensor in Induction furnace.
vi. Replacements of chain drive system of conveyor #21 of Rodding shop with
gravity roller conveyor.
vii. Installation of thermostatic controller to optimize the running of
cooling Tower fans.
viii. Installations of MV drive in DSS main Fan.
ix. Capacity enhancement of bath crushing plant.
x. Redesign of ID Fan impeller of Pot line #7.
xi. Redesign of Bag houses of Pot line #5 & 6.
xii. Provide pressure regulator in tapping air to reduce the compressed air
consumption.
xiii. Modification in pulley ratio of alumina transfer system ID fan at TT-
2.
xiv. Introduction of stepped cathode technology for reducing energy
consumption in smelter.
xv. Replacement of reciprocating compressors by centrifugal compressors and
inefficient Rectiformers & transformers.
xvi. Reduction in DC voltage drop in Cathode bar and Anode by using cast
iron pouring and Yoke to carbon drop respectively.
3. FABRICATION PLANT:
i. Introduction of longer carbon chain additive to take higher reduction
thereby reduction in number of cold rolling passes.
ii. Optimization of Homogenizing cycles to reduce energy consumption at Hot
Mill.
iii. Installation of VFD in reciprocating compressor.
iv. Installation of photo switches to control the on time of Street lights.
v. Installation of small PLCs (Logo) to control the running of Office ACs.
vi. Replacement of 24 nos inefficient motors with efficient motors of Hot
Mill and Annealing Furnaces.
vii. Re-insulation of Annealing furnaces.
viii. To install VFDs in Soaking Pit #4 and Rolling Mill auxiliary.
ix. To install re - generative burners in Remelting Furnace.
x. To replace inefficient AC with more efficient Air Conditioner.
xi. Replacement of convectional lighting with CFL.
4. POWER PLANTS/CO-GENERATION UNITS:
i. Modification in heat recovery system of Boiler #1 & 3 of Co-Generation
Unit to improve its efficiency.
ii. Removal of feed pump rotor stage of Boiler #4 of Co-Generation unit to
reduce auxiliary power consumption.
iii. Installation of VFD in FD Fans of Boiler #3.
iv. Modification of Boiler Feed pumps to reduce auxiliary power
consumption.
v. Heat recovery from Boiler #3 flue gas.
vi. Installation of additional APH Basket in Boiler 5 to 8 & spare Boiler
to improve Boiler efficiency.
vii. Up-gradation of Motor capacity of Boiler #4 PA Fan at Co-Generation
Unit to make system run on one Fan.
viii. Installation of coal dust extraction system to reduce the coal dust
losses at Co-Generation Unit.
ix. Installation of additional APH baskets in Boiler #5 to 8 of Captive
Power plant to increase its efficiency.
x. Installation of additional economizer coil in Spare Boiler to increase
its efficiency.
xi. Resizing of Boiler Feed pump impeller of TG #1, 2 & 8 at Captive Power
Plant to reduce the auxiliary power consumption.
xii. Installation of VFD in CEP of TG #3 to 5 to reduce auxiliary power
consumption at Captive Power Plant.
xiii. Installation of refrigerated air drier in series with existing
heatless type instrument air driers in unit #9 & 10 at Captive Power Plant.
xiv. Installation of VFD in two numbers of PA fan of one of the boilers in
Unit 3 and cooling Tower #2 & 3.
5. FOIL DIVISION:
i. Installation of one new pump in pump house for water supply system of
the plant.
ii. To provide the infrastructure required for wheeling of power by
installing and commissioning the CT, PT and ABT metering system of 0.2
class of accuracy.
iii. Installation of VFD s in Rolling Mill, Coater & Laminator.
iv. Replacement of old plant & street Lighting with Energy efficient
lighting system.
6. COPPER DIVISION:
i. To install variable frequency drives in more Energy intensive
equipments.
ii. Replacement of conventional light with CFL in the plant.
iii. Installation of Capacitor Bank for power factor improvement.
c. IMPACT OF MEASURES IN (a) AND (b) ABOVE:
The various Energy Conservation Measures undertaken by your Company have
yielded encouraging results in most production centers. Efforts continue to
further optimize energy productivity through ongoing and planned measures.
d. TOTAL ENERGY CONSUMPTION AND ENERGY CONSUMPTION PER TON OF PRODUCTION:
(As per Form 'A' below)
FORM A
2009-10 2008-09
A. Power & Fuel Consumption:
1 Electricity
a) Purchased from SEB's
Units (KWH in thousands) 278214 261155
Total Amount (Rs. in crores) (excluding 122 110
Minimum Demand Charges)
Rate/Unit (Rs.) 4.39 4.20
b) Own Generation:
i) Through Steam Turbine/Generator:
Units (KWH in thousands) 9722615 9221098
Cost/Unit (Rs.) (Coal & Fuel only) 1.26 1.25
ii) Through Diesel Generator:
Units (KWH in thousands) 1354 1496
Cost/Unit (Rs.) 12.50 14.13
3. Adjusted out of Banked Energy:
Units (KWH in thousands) 31295 36631
2. Steam Coal (for Generation of Steam):
Quantity (Tonnes) 9730854 9176204
Total Amount (Rs. in crores) 1337 1244
Average Rate (Rs.) 1374 1356
3. Furnace Oil (Fuel Oil, L.D. Oil, HSD Oil):
Quantity (KL) 210481 207136
Total Amount (Rs. in crores) 470 517
Average Rate (Rs.) 22310 24953
4. Steam (Purchased):
Quantity (Tonnes) 243341 237117
Total Amount (Rs. in crores) 5 5
Average Rate (Rs.) 207 204
B. Consumptuioon per Unit of Production:
Unit 2009-10 2008-09
1 Aluminium Metal (including Alumina):
Electricity kwh 15,871 15,870
Furnace Oil Litres 223 228
Steam Coal MT 1.528 1.477
2 Redraw Rods (including Alloy Rods):
Electricity kwh 56 59
Furnace Oil Litres 22 26
3 Fabricated Products (Rolled &
Extrusion):
Electricity kwh 1,063 1,053
Furnace Oil Litres 57 50
4 Aluminium Foil:
Electricity kwh 1,368 1,029
5 Aluminium Wheel:
Electricity kwh - 90
6 Copper Cathodes:
Electricity kwh 1,504 1,573
Furnace Oil Litres 19 24
Propane Kg 0.01 3
Naptha Kg 7 34
RLNG SCM 69 43
7 Copper Rods:
Electricity kwh 62 54
Propane Kg - 1
RLNG SCM 48 43
8 Di Ammonium Phopate (DAP/NPK):
Electricity kwh 175 187
Furnace Oil Litres 2 6
ANNEXURE B' TO DIRECTORS' REPORT
TECHNOLOGY ABSORPTION:
Efforts made in Technology Absorptions Form 'B':
RESEARCH & DEVELOPMENT (R&D):
FORM B:
A. ALUMINIUM BUSINESS:
1. Specific Areas in which R&D has been carried out:
* Development of High Grade Lithographic Sheet, High Pressure Gas Cylinder
application, Composite Panel Stock material, Foil Stock Coils and Finstock.
* Development of indigenous hydrophilic coating for Fin-stock.
* Optimization of packing methods across foil business.
* Argon gas was used to see effect of materials in cast structures in order
to avoid homogenizing process from production cycle.
* Casting practice was modified to suit production of High Strength - Low
Cost aluminium specially for defence, ordinance and auto sector product
segment.
* Study on recovery of precious metals from Red Mud was undertaken.
* Process development for the reduction of silica content from high-silica
bauxite ores.
* Process development for the production of special grade alumina for
catalyst application, Special refractory and ceramic grades.
* Process trials for with anti-scaling additives, coating for chimney,
calciner exit duct and related high corrosion prone areas was carried out
to improve process efficiency and elongation of service life.
* Efforts were made to create value from waste generated from plant
operations and utilizing it in production chain to minimize cost of inputs
for metal production.
* Material development work using special liner to improve slidability of
alumina powder on each pots feedbox.
* Welding of cast iron grade valve bodies, pressure vessel of extrusion
press was examined and tested for its soundness and health subsequent to
repair.
* Vendor development and capability study was undertaken for procurement of
Tension Leveler Rolls with indigenous source.
* Roll failure analysis study was undertaken in collaboration with external
stress analysis service providers ANSYS, Roll Designers and Manufacturers.
* Heat balance studies on Baking furnace to reduce oil consumption.
* New Gauging system alongwith MG slitter with new Technology for better
process control.
2. Benefits derived as a result of the above R&D:
* Continued leadership in all product segments.
* Reduction in operational, energy and resource cost with focus on
improving efficiency.
* Increased net running time / availability of production equipment.
* Exploratory identification of potential new businesses and improved
customer satisfaction.
* Reduced dependency on imports.
3. Future plan of action:
* Exploring new aluminium markets and increasing penetration.
* Continue to identify non-value adding / processes and work for its
replacement with value adding processes.
* Capturing new product specification and looking for its feasibility of
its production in existing facility like foil for pharmaceutical
application, high strength low cost aluminium, specialty aluminas and
aluminium products.
* Development of anodes for improved electrical and mechanical properties.
* Development of lubricants and oil testing methods for casting operations.
* Roll bending and roll coolant system improvement for customer delight.
B. COPPER BUSINESS:
1. Specific areas in which R&D has been carried out:
* Improvement in uptime of Cu-1 WHB in smelter to reduce accretion
formation and modification of slide gate dampers in Cu-1 converter.
* Installation and commissioning of new hammering & rapping system in Cu-1
Smelter and burner in AF launders of Cu-3 Smelter.
* Reduction in anode weight variation in Cu-3 plant.
* Recovery of Tellurium as Copper Telluride in Refinery.
2. Benefits derived as a result of the above R&D:
* New product development.
* Improved plant operation performance, heat recovery, Operational
reliability and anode quality.
* Reduction in Converter Blowtime.
* Better life of the water cooled launder and cost saving.
3. Future Plan of action:
* Expansion of PMR plant.
* Production of Copper Telluride.
* Development of mineralogical model of Cu-1 Smelter with capability to
predict the FSF performance with different blend.
Expenditure on R & D:
(Rs. In Crores)
2009-10 2008-09
a) Capital 2.35 0.86
b) Recurring 5.45 7.73
c) Total (a+b) 7.80 8.59
d) Total R & D Expenditure as % of Total Turnover 0.04% 0.04%
Technology Absorption, Adaptation and Innovation:
i) Efforts in Brief:
* Imported technologies have been fully absorbed and the plant operations
are stabilized.
ii) Benefits derived:
* Improvement in plant production capacities.
* Reduction in overall energy consumption.
* Improvement in product quality and reduction in cost.
* New product development.
* Advancement of basic skill and knowledge.
* Reduction in specific consumption of power/utilities.
* Increased Plant availability/capacity.
* Excellent Environment performance.
iii) Details of technology imported in the past 5 years:
Technology Imported for A B C
ALUMINIUM:
Clad Sheet manufacturing 2006-07 Yes NA
Improvement in quality and productivity
of brazing sheet 2007-08 Yes NA
High Pressure Double Digestion technology 2007-08 Yes NA
COPPER:
Cryogenic air separation for Oxygen IV 2005-06 Yes NA
Cryogenic air separation for Oxygen V 2006-07 Yes NA
Molecular Recognition Technology for
Bismuth Recovery 2008-09 Yes NA
Continuous Cast Rod Plant-II from
SouthWire, USA 2009-10 Yes NA
A = Year of Import
B = Has technology been fully absorbed
C = If not fully absorbed areas, where this has not taken place, reasons
thereof and future plan of action
C. FOREIGN EXCHANGE EARNINGS & OUTGO:
a) Activities related to Exports:
Exports during the year were Rs. 5,267.58 Crores.
b) Total Foreign Exchange used and earned:
Foreign exchange used Rs. 12,213.67 Crores.
Foreign exchange earned Rs. 5,278.64 Crores.
Persons constituting group coming within the definition of 'group' for the
purpose of Regulation 3 (1)(e)(i) of the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997,
include the following:
Shri Kumar Mangalam Birla
Smt. Rajashree Birla
Smt. Neerja Birla
Master Aryaman Vikram Birla
Birla Group Holdings Private Limited
BGH Exim Limited
Birla TMT Holdings Private Limited
Chaturbhuj Enterprises LLP
Essel Mining & Industries Limited
Global Holdings Private Limited
Gwalior Properties And Estates Private Limited
Heritage Housing Finance Limited
IGH Holdings Private Limited
Infocyber India Private Limited
Mangalam Services Limited
Naman Finance And Investment Private Limited
Rajratna Holdings Private Limited
Seshasayee Properties Private Limited
Siddhipriya Enterprises LLP
TGS Investment And Trade Private Limited
Trapti Trading And Investments Private Limited
Turquoise Investments And Finance Private Limited
Umang Commercial Company Limited
Vighnahara Enterprises LLP
Vaibhav Holdings Private Limited
MANAGEMENT DISCUSSION AND ANALYSIS:
Business Overview:
FY 10 was a remarkable year on various counts. Today, as one looks back at
the strong recovery in the aftermath of an unprecedented sanguinary spell
that befell us towards the second half of FY09, it appears to be a far
better year than FY09. After reaching its nadir in March 09, the commodity
prices have recovered and the situation appears to be far better than it
was around the same time last year.
And yet, if one compares full year FY10 with FY09, in FY09 average
commodity prices were almost the same or were higher than FY10 averages, a
fact overlooked by many. This also explains the velocity of decline and
recovery, of commodity prices; a truly amazing phenomenon. Equally
intriguing was the sharp fall in demand and subsequent demand recovery
initially in the wake of Government's stimulus measures and later on
account of general improvement in the global demand, primarily led by the
emerging markets.
Consolidated sales were Rs.60,722 crore in FY10 as compared with Rs.65,963
crore in FY09. Revenues were lower mainly due to lower aluminium prices and
softness in the Company's end-markets in the first half of the year,
especially for Novelis. Further, change in the status of Idea Cellular Ltd.
from Joint Venture to Associate w.e.f from 1st Jan 2009 for the purpose of
consolidation, also resulted in proportionate revenue from Idea not being
included in the consolidated revenue. The PBIDTA stood at Rs.10,069 Crore
as compared with Rs.3,661 Crore in the previous year. This includes USD 578
million of unrealized gains consisting of USD 504 million reversal of
previously recognized losses upon settlement of derivatives and USD 74
million of unrealized gains relating to mark to market adjustments on metal
and currency derivatives at Novelis.
Aluminium business revenue fell by 11% to Rs.48,091 crore mainly due to
lower LME; and lower demand in first half of the year. Earning before
Interest turned around from a loss of Rs.425 crore to a profit of Rs.5,998
crore. This is significantly attributable to the remarkable results of
Novelis.
The performance of the Aluminium business segment of standalone Hindalco
during FY10 was impacted due to lower average LME. Average LME was lower by
around 16% than the previous year. The demand for downstream value added
products improved smartly in the second half and the sales volumes for the
year were higher by 21% compared to previous year.
Operational Highlights:
1. Highest ever aluminium production.
2. Highest ever downstream value added production leading to improved
product mix.
3. Significantly higher sales in more lucrative domestic market.
4. Continuous reduction in conversion cost despite rising input cost
pressures.
We continued producing more metal both through asset sweating and
brownfield expansion of the Hirakud smelter and de-bottlenecking at
Renukoot. We produced 555 KT of hot metal against 523 KT in the previous
year. The Company recorded highest ever primary aluminium production in
this year . The turnover in the aluminium business declined by 8% to Rs.
7,001 crore vis-a-vis Rs. 7,604 crore in the corresponding period in the
previous year with decline in LME, even though the decline was partly
offset through higher volumes.
To mitigate the impact of sharp fall in realizations several cost control
initiatives were successfully adopted. The increased proportion of Hirakud
metal in our basket also enabled us to reduce blended cost of production.
The EBIT margin of our Aluminium business is amongst the highest relative
to domestic and global peers which underlines our strategic thrust and
commitment to combine cost leadership and portfolio de-risking. As a
result, our EBIT margin is relatively less impacted by LME compared to pure
play aluminium companies. FY10 was perhaps one of the most challenging
years for Copper smelters worldwide. The business witnessed extreme price
volatility in the aftermath of the economic meltdown, compounded by acute
tightness in the concentrate market and unviable spot TCRC levels. While
the benchmark TCRC's were a healthy 75/7.5, the spot TCRC's plummeted from
a high of 90/9 in Jan, 09 to near zero by Q310 and remained well below the
cash costs of most smelters for significant part of the year.
The Copper business significantly improved its underlying operating
performance despite tightness in the concentrate market and escalating
input costs. Copper business revenue increased by 18% to Rs. 12,542 crore
and EBIT doubled from Rs. 379 crore to Rs. 660 crore.
Novelis:
Novelis witnessed a tremendous turnaround in the midst of challenging
circumstances. In an economy that was still emerging from recession Novelis
reported record results. Record adjusted EBITDA, record liquidity and
record free cash flow. Novelis achieved these record results despite a 2%
decrease in shipments Y-o-Y driven by soft market conditions in the first
half of the year. Novelis' sales declined due to decrease in the average
LME prices and 2% lower shipments.
Adjusted EBITDA increased by 55% Y-o-Y, reaching USD 754 Million. This was
achieved on the back of price increases negotiated in specific contracts
across all regions and cost-out and restructuring initiatives that the
company identified and implemented throughout the year. Your Company also
saw a dramatic improvement in liquidity over the past year, liquidity
surpassed USD 1 Billion driven by strong operational cash flow, the bond
issuance and increased gross borrowing capacity under the ABL. Free cash
flow went from a negative USD 352 Million in FY09 to a positive USD 355
Million in FY10. This was a direct result of stronger performance, working
capital management and controlled capex levels.
The IT subsidiary of Novelis in Pune, Novelis India Infotech Ltd is now up
and running. It is now catering to some of the IT and ERP requirements of
Novelis globally.
Effective, 1st January, 2010, Novelis is no longer impacted by can price
ceilings. In terms of continued cost savings, Novelis is taking a series of
steps to streamline and optimise the manufacturing operations in mature
markets.
In response to the growing demand for its products in South America, the
company is undertaking a major expansion in Brazil. The expansion will
increase the plant's capacity in Brazil by more than 50%.
Aditya Birla Minerals:
Aditya Birla Minerals Limited, your Company's Australian Subsidiary,
reported Profit after Tax of AUD 61.4 Million as against a loss of AUD 76.0
Million in the previous year. Sustained cost management resulted in
turnaround in financial performance. The production was however; lower
mainly due to loss of production of Copper in Concentrate at Mt. Gordon and
Cathode production at Nifty Oxide operations which were put under Care &
Maintenance as a conscious management decision. The drop in overall
production was partly off-set by 13.8% increase in Nifty's production of
Copper in Concentrate.
Projects:
Our projects continue to follow the strategic plan which we have set for
ourselves. The benefits of brownfield expansions and earlier inorganic
acquisitions have been the major factors which helped us tide over the
challenging environment in FY10. We are working on five greenfield sites in
difficult terrain and uncertain regulatory environment. Site work on all
greenfield projects has gained momentum and is in various stages of
progress.
Business Reconstruction Reserve:
Last year the Company formulated a scheme of financial restructuring to
deal with various extraordinary costs associated with its organic and
inorganic growth plan. The recent economic downturn particularly in the
commodity space is also expected to result in impairment / diminution in
value of certain assets/ investments. Accordingly, as per a Scheme of
Arrangement under Sections 391 to 394 of the Companies Act 1956 ('the
Scheme') between the Company and its equity shareholders approved by the
High Court of judicature of Bombay, a separate reserve account titled as
Business Reconstruction Reserve ('BRR') has been created by transferring
balance standing to the credit of Securities Premium Account of the Company
for adjustment of certain expenses as prescribed therein. This year no
adjustment was made pertaining to standalone accounts in this reserve and
Rs. 304 Crore relating to interest and finance charges on loan taken by AV
Minerals (Netherlands) B.V. was made for consolidated accounts, which has
been suitably disclosed.
Corporate:
The standalone basic and diluted Earning per Share was at Rs.10.8 per share
FY10 as compared with Rs.14.8 per share in FY09.
Business Performance Review:
Aluminium Business:
Aluminium Industry Review:
Global economies recovered after an unprecedented sharp fall in FY09. The
recovery was equally spectacular but fraught with uncertainty and the
average aluminium prices remained lower than the FY09 averages. The Indian
economy showed its resilience in FY09 and staged a sharp recovery albeit on
the back of generous stimulus packages by the Government. In the aftermath
of FY09 meltdown and in the midst of uncertainty surrounding this recovery,
many global majors were forced to adapt to the dynamic conditions in an ad
hoc manner and resorted to reactive actions in response to the challenges
faced such as curtailing production, closing facilities and then re-
starting some of these facilities when the situation improved.
Your company on the other hand approached these adversities in a much
steadier and controlled manner and was able to weather the storm much
better. Not only did it perform credibly on the operational front but also
ensured smooth and steady progress on the various Greenfield projects.
Demand and Market:
In CY 2009, the world aluminium consumption stood at around 34 Mn tonnes, a
sharp decline of over 8% from around 37.5 Mn tonnes consumption in CY 2008.
The CY09 production stood at 37.7 Mn tonnes against production of 40 Mn
tonnes in CY 08.
After an abysmal first quarter, the growth rebounded in FY10 reaching
around 36.3 Mn tonnes, a growth of around 2.5%.
India on the other hand witnessed a smart recovery post a slow down in
FY2009, as the GDP clawed back to 7.4% in FY10 from 6.7% in FY09. A sharp
turnaround in the end user segments such as automobiles, Industrial and
infrastructure and thrust on power sector growth propelled the aluminium
industry growth. The improvement coupled with low base effect resulted in a
strong 27.8% growth in domestic demand.
In FY10 LME aluminium prices staged a remarkable recovery to around USD
2,000 levels after touching lows of sub USD1400 in March 2009.
The depreciating rupee helped domestic aluminium producers partially as the
prices are dollar denominated. The prices continued to rise even as
inventory levels remained at their historic highs. This was the result of
tightness in the physical market, with most inventories tied up at various
ware houses under financing deals.
Aluminium continued to remain in contango taking more and more aluminium
outside the physical market as borrowing costs remain low and warehouses
rent continued to be attractive.
Globally, Aluminium production increased as the producers restarted their
capacities with the smart recovery in the aluminium LME. As a result the
global markets continued to be in surplus and global inventory increased to
historical peaks.
The primary aluminium production for the year was around 40 Mn tonnes.
China again led the production in 2009, producing around 14 Mn tonnes.
The cost of production of aluminium increased as input costs such as
alumina and power surged. Alumina costs increased as the aluminium prices
recovered and bauxite quality deteriorated. For most producers power costs
increased with sharp rise in coal/energy prices. The cost of other inputs
such as CPC coke and anodes also increased in line with recovery in the
crude prices.
Operational Review:
On this backdrop, your Company's performance was commendable and its
performance was amongst the best performance in the industry.
The aluminium business operational performance was indeed exceptional and
recorded highest ever production of aluminium metal surpassing the record
it achieved last year.
Alumina:
We increased alumina production by 6% to 1.3 Mn tonnes primarily through
production ramp up post expansion at Muri. We increased the higher paying
domestic sale of specials by 4%. Overall alumina sales volumes however,
were almost flat on account of higher captive consumption.
Primary Metal:
Primary aluminium production increased to 555,404 MT up 6% over the
previous year. This increase in production growth was possible through
brownfield expansion of Hirakud smelter facility that led to 16% production
growth from 134,301 Mt to 156,206 Mt and through continued efforts to
debottleneck the Renukoot capacity, which yielded around 10,000 tonnes of
incremental production.
Aluminium sales volumes increased in line with the production increase.
However it was sales of value added products such as FRP and Extrusions
that improved sharply.
Wire Rods:
Wire rods production grew by over 23% from 74,968 MT in FY 09 to 91,903 MT.
The production was increased to cater to growing demand from power sector.
Value Added Products (VAP):
This remains the key focus area of your company to enhance profitability.
This segment saw a sharp rebound with improved economic scenario.
The VAP (i.e. flat rolled products, extrusions and foils) volumes in
tonnage improved significantly compared to that of last year. The overall
revenue though remained depressed on account of lower aluminium LME. The
markup in the down stream business has shown a continuous improvement over
the years with continuous improvement in product mix as well as
geographical mix.
Flat Rolled Products:
The FRP production increased to 205,265 MT, in line with the increasing
domestic demand, an increase of 13% over previous years. The export demand
though remained subdued.
Extrusions:
Extrusion segment demand also improved as the economy recovered. An
improvement in the fortunes of housing and automobile sectors resulted in a
demand increase for extruded products. Extrusion production was higher at
38,909 MT in FY10 as compared with 35,895 MT in FY09. Extrusions sales
volume increased 9% in FY10.
Financial Performance:
The turnover of the aluminium domestic business declined by 8% to Rs. 7,001
Crore vis-a-vis Rs. 7,604 crore in the previous year, inspite of the
highest ever metal volumes, as average LME for the year was 16% lower than
the previous year.
Earnings before interest and taxes (EBIT) declined by 18% to Rs. 1,767
Crore due to pressure on realizations and the cost push. The costs push,
was the result of increase in crude prices leading to some increase in
crude derivative prices such as CP coke and fuel oil. Coal prices also
increased sharply. Aluminium producers across the globe experienced
pressure on EBIT margins The decline in the case of your Company was
amongst the lowest in the industry. This was possible primarily on account
of higher production, sales volumes and superior product and geographic mix
as discussed earlier. The other cost management measures that helped in
containing the fall in EBIT were:
* Improvement in operational efficiency in Power consumption, Carbon
consumption etc.
* Cost effective sourcing of key Raw materials.
The sustainability of your company's profitability is reflected in healthy
EBIT margins of 25% despite all the adversities.
Aluminium Outlook:
In 2010, the global aluminium demand is expected to recover back to almost
39 Mn tonnes an improvement of almost 13% over 2009. The Chinese demand is
expected to rise by almost 18% after a relatively modest increase in 2009.
The US demand is expected to recover sharply awhile Europe is expected to
recover slowly. In India, the demand is expected to increase at almost 14%
with an improvement in Industrial activity and automobile growth. Over the
medium term, thrust on power sector spending will spur the aluminium
demand.
Aluminium production is expected to increase in line with the demand. The
market surplus is going to continue for a while. With unprecedented demand
destruction towards later part of FY2009, the prices of aluminium had
declined very sharply by over 50% in less than 4 months. The recovery has
also been strong. As a result, many smelters that had curtailed production
are again back in action. In addition some new smelters are on the verge of
delivering.
The cost push has been felt in the recent times with rise in crude prices
from the recent highs. Most input costs such as fuel oil, coal tar pitch
have increased along with the freight costs.
The prices are expected to continue to stay range bound over the short term
with a large inventory overhang. Aluminium inventories across the globe are
near all time high. But most of these inventories are reportedly bound in
financing deals and are not expected to flood the market. The long term
fundamentals are strong and the surplus is expected to reduce significantly
by FY 10 end.
Business Outlook:
Your Company has demonstrated its mettle in the wake of severe
macroeconomic adversities. The ferocity and the velocity of the turmoil
surprised the industry. But by leveraging its fundamental strengths and
through robust business model your Company has emerged stronger from the
meltdown.
Your Company has adopted a consistent strategy to achieve global size and
scale through the acquisition of Novelis. The de-risked business model of
Novelis, where LME is a pass through, its robust product portfolio with
over 50% going into manufacture of beverage cans and strong presence in
emerging markets has shown its strength in possibly worst of the times.
This business complements your Company's ongoing brownfield and greenfield
expansion plans in the upstream aluminium business. This will also guard
your Company against the commodity meltdown in future.
Brownfield Expansions:
* The expansion of Muri Alumina Refinery from 110,000 tpa to 450,000 tpa is
complete.
* The Hirakud Smelter expansion from 143,000 tpa to 155,000 tpa is
complete. Further expansion from 155,000 tonnes to 161,000 tonnes is under
progress and is expected to be completed by Q2 FY11.
* In Hirakud, work is on to expand the capacity further to 213,000 tonnes,
through addition of 80 pots. We expect to complete this by Q4 FY 12.
* Further to the above, we are evaluating the possibility of expanding the
smelting capacity at Hirakud from the proposed 213 KTPA to 360 KTPA with
corresponding increase in back-up captive power from proposed 467.5 MW to
967.5 MW.
* Flat Rolled Products:
A project is underway for transfer of all key equipments for flat rolled
products from the Novelis Plant at Rogerstone, UK to Hirakud. This will
enable the company to produce Can Body Stock for local and export markets.
The project is slated for completion in Q2 FY 12. Dismantling activities
are around 65% completed. Many of the major orders for refurbishment of
existing equipment and procurement of new equipment have been placed.
Greenfield Projects:
Greenfield Projects have made significant progress.
Utkal Alumina project:
Construction of 1.5 Mio TPA Alumina refinery along with a 90 MW captive
cogen plant is in full swing. The output from Utkal would be sufficient to
feed alumina to the Mahan and the Aditya smelters. Engineering for Refinery
and captive cogen plant is nearing completion. Contractors are working at
site for civil & structural work and have mobilized more than 5000 people
at site. Piling is 85% complete, fabrication and concreting are around 35%
complete. Major equipment like Boilers, Evaporators & Turbines have started
arriving at site. The erection and structural work for various equipments
is in progress. Orders for all the long delivery equipments placed. Around
82% of the project cost has already been committed.
The project team has estimated a total cost of Rs.5,600 crore without
financing cost. The project commissioning is projected in Q2 FY12.
Sanctioned credit approvals from a consortium of banks for the entire debt
requirement of the project have been obtained. The Common loan agreement
was signed in July, 2010 and the drawdown is expected soon.
Mahan Aluminium project:
An 359 ktpa, Aluminium Smelter of capacity along with a 900 MW captive
power plant is coming up in Bargwan, Madhya Pradesh.
All major approvals are in place and site activities are on track. Major
contractors have mobilized about 10,000 people at site. Three out of the
six boilers & electrostatic precipitator foundations are complete. The
powerhouse foundation work is in progress. Two chimney rafts are complete.
The erection of the engineering structure for boilers is in progress.
Around 82% of the total project cost has been committed. The project team
has estimated a total cost of Rs.9,200 crore without financing cost. The
project is expected to be commissioned in Q2FY12.
The Aditya Aluminium project: A 359 ktpa, Aluminium smelter along with a
900 MW captive power plant, identical to the Mahan Project, is coming up in
Orissa.
All major approvals are in place. Critical equipment orders have been
placed for both the smelter and the power plant. The site activities like
area grading and boundary wall are on.
Around 59% of the total project cost has been committed. The project team
has estimated a total cost of Rs.9,200 crore without the financing cost.
The project commissioning is slated in Q3 FY12.
The Aditya Refinery Project: A 1.5 Mio TPA Alumina Refinery along with a 90
MW cogen plant, replica of the Utkal Alumina refinery is coming up in
Orissa. The cost estimate in the order of magnitude is Rs. 6,000 crore
without financing cost. It is planned for commissioning in Q1 FY14.
The Jharkhand Aluminium project: 359 ktpa, Aluminium smelter along with a
900 MW captive power plant is coming up in Sonahatu, Jharkhand. The land
acquisition process has already begun. The process for obtaining
environmental clearance has begun. To that effect, a presentation has been
made to the MOEF expert committee. The Tubed Coal Mine has been allotted to
the project jointly with Tata Power.
This project seeks to replicate the Aditya / Mahan smelter. The cost
estimate in the order of magnitude is Rs.10,000 crore without financing
cost. It is planned for commissioning in Q1 FY14.
The blueprint for a suitable financing plan for the projects is in place.
These projects will significantly enhance the scale of operations of your
company. These will further improve the cost competitiveness of your
Company and will firmly establish it as one of the lowest cost global
alumina and aluminium producers.
To debottleneck and increase capacity, primarily in South America and Asia,
Novelis has increased its capital expenditure plan by approximately USD150
Million or 148 percent for fiscal 2011 compared to the previous year. A
significant amount is aimed at expanding its rolling operations in Brazil.
This investment will increase capacity by over 50 percent and better
support the increasing demand for flat rolled products in the Regions. The
expansion is expected to be completed by late 2012.
Copper Business Review:
Industry Review:
Global refined copper consumption declined second year on the trot in CY
2009. In last 2 years, the decline has been from 18 Mn tonnes (CY 2007) to
16.7 Mn tonnes (CY 2009). The decline in CY 09 though was much lower than
earlier anticipated. The production however, continued to remain reasonably
strong declining to only 18 Mn tonnes resulting into a surplus.
However, China continued to import large quantities of copper through SRB
purchases. In the last quarter of CY 09 and the first quarter of CY10,
copper demand witnessed a sharp recovery. Globally refined copper
consumption increased 13% in Q4 FY10 over the same period last year, albeit
on a low base. Projections suggest that world copper market is likely to
remain in surplus in 2010, although at a much smaller surplus than in the
previous year. The copper price on LME has generally been firm, though it
witnessed some decline in the last few days due to increased risk aversion.
FY10 was perhaps one of the most challenging years for Copper smelters
worldwide. The business witnessed extreme price volatility in the aftermath
of the economic meltdown, compounded by acute tightness in the concentrate
market and unviable spot TcRc levels. While the benchmark TcRc was a
healthy 75/7.5, the spot TcRc's plummeted from a high of 90/9 in Jan, 09 to
near zero by Q3,09 and remained well below the cash costs of smelters for
most part of the year. The situation got further aggravated by precipitous
fall in sulphuric acid prices from a peak of $350/t in 2008 to -$25/t fob
in FH- 2009 and sharp drop in fertilizer subsidies.
Company Performance:
The Copper business performed well despite adverse macro-economic
environment.
Your company recorded creditable production performance notwithstanding bi-
annual shutdowns. Your Company also managed its market mix well to improve
overall copper realizations despite lower volumes.
Globally many Smelters were forced to cut back their output on account of
Sulphuric acid evacuation problems. Global smelter capacity utilization, as
a result, dropped by 7-8% during the year, whereas our capacity utilization
increased by 9% during the same period. Your Company proactively seized a
larger share of the shrinking pie of sulphuric acid demand through
innovative supply chain interventions & aggressive pricing, thus not
letting our Smelters suffer on this count.
During the year significant improvements were achieved in operating
performance. Your Company delivered highest ever production of cathode-
improvement of 12% over the previous year. DAP volumes too were 7% higher
than the pervious year.
The high point of operational performance was dramatic reduction in cost of
production through improvement in operational efficiencies and innovative
optimization of input energy cost through use of alternative fuels (LNG and
Petcoke).
In FY10, your Company delivered 30% reduction in cost of production over
the previous year.
Today Dahej ranks in top quartile of the Global cost competitiveness.
Financial:
The sharp rise in LME coupled with higher sales volumes led to higher
revenues, which were up by 18%. However, for custom smelters like your
company, copper prices are just a pass through and the margins are largely
determined by Tc/Rc and as a result a decline in LME copper prices did not
have significant impact on the profitability.
The favourable impact of higher contracted Tc/Rc was largely negated by
lower product contribution. However, operational improvements, better
working capital management led to delivery of robust performance and
improvement in cash flows.
Copper Outlook:
The global refined copper demand is expected to increase by around 5.5% in
CY2010. Marginal recovery in western world consumption, with strong demand
from emerging economies notably Asia and South America will keep overall
demand buoyant. The US is showing early signs of recovery, while Europe
after early promises is depicting some edginess.
The surplus will continue over short term, however with constrained supply
from mines the extent of surplus shall be lower than previous year. China
will be a large determinant for the market as has been the case in the
recent past.
The long term Tc Rc contracts for the year were significantly lower than
CY2009 due to constrained mine supply and strong demand for refined copper.
The Spot Tc Rcs declined to historical lows driven by tight concentrate
availability on account of delays in the expected new mine capacities,
rising project costs and associated risk / socio-political factors. Higher
capital costs, declining ore grades and labour related issues in some of
the major copper producing countries are expected to restrict the
availability of concentrate and put further pressure on spot Tc Rcs.
Indian refined copper consumption is expected to increase sharply after a
brief pause last year. The annual consumption growth is expected to be
around 9% with strong growth in power, automobile and manufacturing sector.
The long term fundamentals are strong and the copper consumption is
expected to increase with renewed thrust on power sector reforms and urban
housing.
The copper consumption in India is relatively low. The per capita copper
consumption stands at around a Kg as compared to 7Kgs in the US or even 3.6
Kgs in China and hence the growth potential is enormous.
Business Outlook:
Your Company has continued to perform creditably in the challenging times.
It continues to make steady progress on the planned growth track. Your
Company will continue to strive to improve operating efficiencies and
reduce conversion costs. Your Company's production flexibility with respect
to various value added by-products will increase the available options for
profit and cash flow improvements.
Financial Review and Analysis:
Share of Net Sales Value:
SAP, DAP and Complexes, Precious Metals and Others 11%
Hydrate and Alumina 3%
Aluminium Ingots and Billets 10%
Rolled Products 12%
Extrusions 3%
Conductor and Redraw Rods 5%
Aluminium Foils, Wheels and Others 3%
Concast Copper Rods 24%
Copper Cathodes 29%
Aluminium 36%
Copper 64%
Net Sales and Operating Revenues:
Standalone Net Sales and Operating Revenues for the year 2009-10 increased
by 7 % YOY to Rs. 19,536 Crore due to higher volumes and also on the back
of higher copper LME, while aluminium LME declined.
Consolidated revenues decreased from Rs. 65,963 crore to Rs. 60,722 crore,
a drop of 8%, primarily on account of weaker Aluminium LME and lower
Novelis shipment volume.
Other Income:
Standalone other Income at Rs. 260 Crore was sharply lower as compared to
Rs. 637 Crore in the previous year largely due to lower treasury corpus
post repayment of bridge loan in November 08 for Novelis acquisition and
higher project spending. The yield was also lower due to lower interest
rates on the short end of yield curve, which was largely due to higher
liquidity in the economy.
Interest:
Your Company's working capital requirement increased on account of higher
copper prices due to higher LME. Softening interest rates resulted in lower
average cost of borrowing which also affected yields on the company's
investments which are mostly in liquid plans. It also reduced the cost of
working capital borrowing. As a result the interest and financing charges
have reduced from Rs. 337 crore in FY09 to Rs. 278 crore in FY10.
Depreciation:
Depreciation charges were at Rs. 667 crore in FY10 against Rs. 645 crore in
FY09.
Taxes:
The provision for tax was lower due to lower PBT and higher capitalization.
Profit:
In the Aluminium business, lower Rupee LME eroded around Rs.750 crore.
Additionally Rs.100 crore was lost on account of the higher coal cost at
Renusagar. Copper business which benefited by higher contracted TcRc lost
Rs. 750 crore on lower by-product credit in terms of Sulphuric acid
realisation and lower fertiliser subsidy. On this back drop Net Profit
declined by 14% to Rs.1,916 Crore.
Due to early adoption of Accounting Standard (AS) 30 on Financial
Instrument : Recognition and Measurement, the figures of the current period
are not comparable with the previous year.
Consolidated Profit stood at Rs. 3,925 Crore as compared to Rs. 484 Crore
in the previous year.
Consolidated result include Pre-tax adjustments for unrealised derivatives
gain / (loss) of Rs. 2,736 Crore in FY10.
Cashflow Analysis:
Rs. in Crore
Particulars FY09 FY10 %
SOURCE OF CASH:
Cash from operations 3,171 1,717 36%
Non-operating income 691 322 7%
Equity Raised 4,426 2,750 57%
Divestments of investments (Net) 5,507
Total 13,795 4,789 100%
APPLICATION OF CASH:
Net capital expenditure 967 2,619 48%
Investment in subsidiaries 11,004 276 5%
Other investments (Net) - 1,501 27%
Net debt Outflows 193 186 3%
Interest & Finance Charges 669 641 12%
Dividend payout 266 269 5%
Total 13,099 5,492 100%
Increase/(Decrease) in Cash and Cash 696 (703)
Equivalents
Sources of Cash:
Cash from operations:
Lower realisations for Aluminium and Lower TcRc affected cash profits and
this coupled with increase in working capital due to higher Copper LME
towards end of fiscal resulted in lower cash flow from operations compared
to last year.
Non-operating Income:
Cash from non-operating income decreased to Rs. 322 crore as compared to
Rs. 691 crore in last year. The decrease is on account of lower dividend
and other income on investments. Average investments were lower due to
liquidation of treasury investments in last year for take-out of the bridge
loan taken for Novelis acquisition and for capital expenditures.
Equity:
Your Company raised Rs.2,750 crore (net of issue expenses) from issue of
equity to qualified institutional investors to finance capital expenditure.
Application of Cash:
Capital Expenditure:
Your Company spent Rs. 2,619 crore on various expansion and efficiency
improvement projects. Going forward, this amount is slated to rise
considerably as per planned investments in Brownfield and Greenfield
projects.
Investment in Subsidiaries (Net):
Aggregate Investments (net), including Loans & Advances to Subsidiaries,
amounted to Rs. 276 crore.
Other Investments (Net):
Increase of Rs.1501 Crore in other investments (net) is mainly in short
term treasury investments. Treasury investments rose on account of issue of
equity to qualified institutional investors.
Interest:
Interest & Finance charges paid for the year was Rs.641 Crore, almost same
as in last year. Interest charged to profit and loss account is only Rs.278
crore on account of interest capitalized.
Dividend:
Dividend paid including tax on dividend is Rs.269 Crore.
* We have put in place a strong capital structure to support our strategic
business plan. We successfully managed to raise USD 600 Mn through a
Qualified Institutional Placement issuance; one of the largest QIP's to hit
the market in 2009. The price achieved was strong too, representing a
discount of just 1.6% on the previous day's closing share price. There was
a very strong participation from long only investors and the stock traded
up post the issuance. We managed to preserve our balance sheet strength to
grow by reducing our leverage while doing so. With this we have largely
tied up equity contribution for our green field expansion plans.
RISK MANAGEMENT:
In addition to the risk and currency fluctuation inherent in its
operations, your company has got significant exposure to commodity prices.
Hindalco's financial performance is significantly impacted by fluctuations
in the prices of Aluminium Alumina exchange rates and interest rates. The
Company takes a very structured approach to the identification and
quantification of each such risk and has a comprehensive risk management
policy.
Clearly defined policies and management controls govern all risk management
activities. Transactions in financial instruments for which there is no
underlying exposure to the company are prohibited. All of the commodity,
interest rate and foreign currency contracts are used to mitigate
uncertainty and volatility and to cover underlying exposures.
Commodity Price Risk:
Company's commodity hedging activities can be divided into following:
* Timing mismatch risk:
This is the price risk arising due to timing mismatch of purchases of
copper concentrate, which is priced based on copper, gold and silver
content and sale of copper products, gold and silver. We use various spread
risk management tools to hedge this risk.
* Absolute price risk:
We have price risk on aluminium that we produce. We use various derivative
tools for hedging this risk from time to time.
Foreign Currency Exchange Risk:
Exchange rate movements, particularly between the Indian Rupee (INR) and
United States Dollars (USD) have an impact on Hindalco's cost and revenues.
Since the company is long in USD (inflow greater than outflow), the company
will benefit from weakening of the INR against USD and conversely, is
disadvantaged if the rupee appreciates. In order to hedge this risk, your
Company uses various tools such as foreign currency borrowings, currency
forward and option contracts.
Interest Rate Risk:
Your Company uses interest rate swaps to help maintain a strategic balance
between fixed and floating-rate debts and to manage overall financing
costs. Most of the long term loans are at fixed rate currently.
Project Execution Risk:
Your Company is in the process of setting up 4 greenfield projects in
difficult terrain. The project execution is contingent upon several
external factors including but not limited to land acquisition, project
management skills, timely delivery of equipments etc. Any delay in these
activities could result in change in implementation schedule and affect the
financial performance of the Company. Your Company is continuously
monitoring the progress to ensure that the implementation schedules are
adhered.
Internal Control:
A strong internal control culture is pervasive throughout our Group.
Regular internal audits at all our locations are undertaken to ensure that
the highest standards of internal control are maintained. The effectiveness
of a business' internal control environment is a component of senior
management performance appraisals. The principal aim of the system of
internal control is the management of business risks, with a view to
enhancing shareholders' value and safeguarding the Group's assets. It
provides a reasonable assurance on the internal control environment and
assurance against material misstatement or loss.
The Group operates a comprehensive annual planning, financial reporting and
forecasting process. The Board formally approves a strategic plan and the
annual budget. The Group's performance is monitored against the budget on a
monthly and quarterly basis by the Executive Committee; significant
variances are reviewed. The audit observations are reported and discussed
by the senior management and the important ones are also presented to the
Audit Committee of the Board. The audit observations are discussed and the
appropriate feedback is conveyed to the relevant managers.
Arising from the announcement of the Institute of Chartered Accountants of
India dated 29th March, 2008 on Accounting for Derivatives, the Company has
decided for early adoption of Accounting Standard (AS) 30 on Financial
Instruments : Recognition and Measurement, in so far as it relates to
derivative accounting, from 1st April, 2009. In order to get reliable fair
valuation and do accounting of different types of derivative transactions
which the Company enters into to mitigate certain financial risks, we have
used one third party software of international repute. Besides its
usefulness in the area of derivative accounting, this software also has the
capability to effectively take care of various tenets of hedge accounting.
The resultant impact of early adoption of the AS and various disclosure
requirements associated with derivative accounting have been dealt with
elaborately in Notes on Accounts section of separate financial statements
of the Company.
Material developments in human resources/ industrial relations front,
including number of people employed:
In 2007, our Group was adjudged as the best employer in India by Hewitt.
Our culture and reputation as a business leader in the industry enables us
to recruit and retain the best available talent in India.
Human capital:
Our professionals are our most important assets. We are committed to
remaining among the industry's leading employers. We have a pool of around
19,500 employees in our fold. The group has a well laid talent development
plan that ensures attracting the talent and provides for nurturing and
enhancement of talent.
Training and Development:
Our training, continuing education and career development programs are
designed to ensure that our professionals enhance their business skills.
Our Group initiatives and our learning campus provide continuous learning
opportunities. Our in-house faculty conducts integrated training for our
new employees. Leadership development is a core part of our training
program.
Conclusion:
To sum up the achievements in the financial year, your Company recorded a
commendable performance in a volatile year fraught with huge uncertainty in
the financial and commodity markets. This performance is testimony to the
sound business models of our Aluminium and Copper businesses, the
underlying strength of business operations and project management
capabilities, stable and capable processes, and successful implementation
of a well thought out strategic plan for quantum growth supported by a
strong balance sheet and robust cash flows from existing operations. The
year also witnessed a dramatic turnaround at Novelis and ABML two
contrasting businesses operating in two entirely different geographies
amidst different challenges.
With our business portfolio proving its mettle, we now have focused on
timely execution of Greenfield projects that would further enhance our cost
competitiveness and catapult us to a position of further strength.
Global economy is expected to revive slowly and overall growth could remain
subdued. The upstream aluminium industry will continue to face pricing
pressure on account of large inventories and uncertain demand growth, while
copper business will continue to face challenges on account of poor
concentrate availability and low TcRcs.
FY 11 will be a landmark year:
* We have strengthened our balance sheet and have reduced our leverage.
This would allow us to progress smoothly on the Greenfield projects through
a calibrated approach.
* The brownfield expansions at Muri and Hirakud have been commissioned and
will deliver the targeted cash flows to help finance our growth
aspirations.
* We working on five greenfield sites in difficult terrain and have put in
place the necessary organization to keep these projects on track.
The key focus will be to:
* Maintain profitability in the uncertain macroeconomic environment.
* Maximise Free Cash Flow from existing operations.
* Leverage economies of scale and cutting edge technology in greenfield
upstream projects and high-end downstream products.
* Your Company is progressing well to realise its aggressive growth plans.
These plans will enable your Company to grow in a steady and robust manner
and continue to outperform the peers. Several cost reduction measures
across the businesses and your company's inherent strengths will help us to
sharpen its focus further and become even more competitive in the near
future.
Place: Mumbai
Dated: The 4th Day of June, 2010.
CAUTIONARY STATEMENT:
Statements in this 'Management's Discussion and Analysis' describing the
Company's objectives, projections, estimates, expectations or predictions
may be 'forward looking statements' within the meaning of applicable
securities laws and regulations. Actual results could differ materially
from those expressed or implied. Important factors that could make a
difference to the Company's operations include global and Indian demand
supply conditions, finished goods prices, feedstock availability and
prices, cyclical demand and pricing in the Company's principal markets,
changes in the Government regulations, tax regimes, economic developments
within India and the countries within which the Company conducts business
and other factors such as litigation and labour negotiations. The Company
assumes no responsibility to publicly amend, modify or revise any forward
looking statements, on the basis of any subsequent development, information
or events or otherwise.
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