MANAGEMENT DISCUSSION AND ANALYSIS

position for the first time in seven years. The average

aluminium LME price for the year was around 6%
higher than FY14. On the other hand, copper LME
price was around 8% lower than the previous year due
to slowdown in Chinese demand growth and higher
mining output. Aluminium realisations were strong on
the back of supportive LME and high regional premium.
The average premium at $ 390(MJP) was almost 47%
higher than FY14.
Strong demand, attractive financing deals on account
of lower interest rates and strong contango and supply
curtailments led to an unprecedented rise in aluminium
premium.
While the crude prices witnessed a sharp decline during
the year, in India, coal prices increased substantially
with rising demand and shortage of coal; the
acuteness of shortage was accentuated by regulatory
developments and infrastructure bottlenecks.
FY15 was an extremely challenging year for your
D. Bhattacharya
Company. Even as the three greenfield and three
Managing Director
brownfield projects continued their ramp up, braving
the teething troubles and coal sourcing challenges
(Aditya and Mahan), the Supreme Court ruling that
led to deallocation of the coal blocks posed a serious
Business Overview challenge from a long term perspective.
FY15 was a mixed year for the Global economy. The US The deallocation of all the coal blocks was a major
economy continued to be resilient and grew at around setback for your Company. This not only created
2%, while Chinese growth momentum continued its uncertainty over the availability and cost dynamics
downward trajectory with the economy growing at of the new smelter projects, but also made the
7.4% as compared with double digit growth during rationale behind the choice of smelter locations void.
the last decade. The rest of the developed world grew The existing smelter at Hirakud also lost its access to
at a moderate pace amidst various hiccups on the Talabira-I captive coal block from April 2015. While the
economic front, viz. Middle East crisis, oil crash, Euro economics of Aluminium smelters has been affected
zone uncertainty etc., to name a few. Growth found by deallocation of coal blocks, the bauxite value chain
support in easy money policies adopted by several continued to play its part as per the plan; and Utkal
central banks such as ECB, US Fed, BOJ and Chinese alumina project is delivering world-class alumina at a
central bank. very competitive cost.
The emerging markets trudged along their recovery Though deal location of coal blocks did not have
path struggling to gain momentum throughout FY15. a direct impact on coal cost during the year FY15,
India was no exception. The recovery has been slow this development contributed to further affecting the
but is expected to gain momentum as the reforms start sentiment in the already tight availability scenario of
showing their impact. coal in the country, leading to sharp increase in coal
The commodity sector was also a mixed bag. prices in the domestic markets. Logistical bottlenecks
Aluminium fundamentals improved in 2014, with further impacted coal availability and the landed cost
large-scale smelting curtailments by global majors of coal at the Company’s power plants.
supporting aluminium price recovery, and the global Inspite of these odds, your Company performed
primary aluminium industry swinging back to a deficit remarkably well. The revenues and operating profits of

Hindalco Annual Report 1-48 pages.indb 4 8/17/2015 10:33:45 AM

 MANAGEMENT DISCUSSION
AND ANALYSIS

standalone Hindalco increased by over 24% and 37% Some of the highlights of FY 15 are:-

HIGHLIGHTS
FINANCIAL
respectively, even as projects were ramping up in a • Strong revenue growth on the back of strong
challenging environment. Your Company registered a volumes and realisations:
turnover of US$ 17.1 billion (` 104,281crore) and an
„ Consolidated Revenues up 19% at ` 1,04,281

MANAGEMENT DISCUSSION
PBITDA of US $ 1.6 billion (` 10,049 crore).
crore.

AND ANALYSIS
Subsequently, during the first round of coal block
„ Standalone Revenues up 24% at ` 34,525
auctions, your Company won 4 coal blocks. The details
crore.
of these are as below:
• Consolidated Profit before interest and
Coal Block Reserves Capacity depreciation up 8% at ` 10,049 crore.
(Mnt) (Mtpa)
Kathautia (Jharkhand) 26 0.8 • Standalone PBITDA up 19% at ` 4,299 crore.

CORPORATE GOVERNANCE
Gare Palma IV/5 41 1.0 • Aluminium EBIT up 44% to ` 1,349 crore on the
(Chhattisgarh) back of record Aluminium production volumes as

REPORT
Gare Palma IV/4 11 1.0 the plants ramped up.
(Chhattisgarh)
• Record operating profits registered by Copper
Dumri (Jharkhand) 46 1.0
business as production volumes grew to record
This was a significant development post deallocation. levels:

SHAREHOLDER
INFORMATION
The objective in this round of bidding was to optimise „ Copper production increased 17% and DAP
the coal sourcing keeping in mind smooth ramp up of production increased 30% over FY 14.
the projects and logistic challenges in getting imported
„ Copper EBIT at ` 1,516 crore, up 62%.
coal to the plant.
Hydrate and Alumina

DEVELOPMENT
SUSTAINABLE
SAP/DAP, Complexes,
Novelis, your Company’s wholly owned subsidiary also Precious Metals and Others
3%
faced several headwinds as it continued to ramp up its 11%
Aluminium Ingots
production from newly commissioned facilities. Rising 20%
premium, lower SHFE impacting competitiveness in

REPORT
SOCIAL
the Asian markets, unfavourable foreign exchange
movements and higher start-up costs were some of Aluminium 41%
the challenges that it faced during the year. Despite

DIRECTORS’
Concast 28 % Copper

REPORT
these headwinds, Novelis has progressed remarkably Copper Rods
59% 10% Rolled Products
on its strategic path and the strategic investments
in auto and recycling are expected to deliver in the 2%

BUSINESS RESPONSIBILITY
Extrusions
coming years. 4%
2% Conductor and
Redraw Rods
Business Highlights

REPORT
20% Aluminium Foils
and Others
Hindalco: Concast Copper Rods

Your Company, over the last few years, has achieved Novelis:
significant scale and has developed a strong business
• Registered record sales of $11.1 billion on the
portfolio that can weather the commodity cycles much
STANDALONE FINANCIAL

back of record shipments of 3,050 kilotonnes.

better. Six projects that were commissioned during
STATEMENTS

2013 and 2014, are under ramp up. Utkal Alumina is • Adjusted PBITDA increased two percent to $902
already a world class asset with a cost structure that is million.
amongst the best in the world. • Delivered record automotive shipments following
A unique strategy to take Indian aluminium market to the the launch of three new finishing lines.
next level is already in place and soon your Company • Achieved an average recycled content input rate
FINANCIAL STATEMENTS

shall be producing world class products such as can of 49 percent during the year (53 percent in the
CONSOLIDATED

body stock and ultra thin gauge foils from our facilities fourth quarter).
in Hirakud and Mouda respectively. This would not only At Novelis, the projects are getting readied to
enhance your Company’s product portfolio but would capture the growth in emerging markets and
also re-define the Indian aluminium market. enhance product portfolios across the globe.

Hindalco Annual Report 1-48 pages.indb 5 8/17/2015 10:33:45 AM

 These projects will enable your Company to leverage Trend in Global Production (kt), Consumption (kt)
the exponential growth in new product markets such and LME Price ($/t) of Aluminium
as automobiles (BIW). 60000 3000

55000
ABML: 2500

thousand tones
Your Company’s subsidiary in Australia, Aditya Birla 50000
2000

$ per ton
Minerals Limited (ABML) had an extremely challenging 45000
1500
year in a depressed copper pricing scenario. 40000
1000
• Copper production sharply declined on account of 35000
500
decline in head grade and stoppage in production 30000

at Nifty copper mines due to the unfortunate 25000 0

sinkhole incident in March 2014.

• As a result, ABML registered an operating loss of Production (kt) Consumption (kt) LME Price ($/t)
A$35 Million in FY15.
Global demand for aluminium has historically tended
Hindalco Earnings per share (EPS) to outperform that for other metals. The weak price
The standalone basic and diluted Earnings Per Share performance in some of the recent years has been
were at ` 4.48 per share in FY15 as compared with more due to supply side developments than any issues
` 7.09 in FY14. The consolidated EPS was ` 4.14 with demand. In 2014, global aluminium consumption
per share as compared with ` 10.91 per share in the rose 5.5% YoY, the fastest pace in three years, despite
previous year. The decline was primarily on account the slowdown in Chinese consumption growth to
around 8%.
of higher finance charges and depreciation attributed
to commissioning of greenfield projects. The EPS also China accounted for 44% of global primary aluminium
got impacted due to lower net income on account of consumption in 2014, up from 23% in 2005. As
the country continues to develop towards a more
certain exceptional items.
consumer-focused economy, aluminium consumption
Business Performance Review: is expected to become more consumer-driven.
Aluminium Business Aluminium consumption in the USA has recovered well
since the financial crisis, rising by over a third in the
Industry Review: five years to 2014. However consumption still remains
Aluminium has widespread uses throughout the 20% below pre-crisis peak levels.
economy and is equally important to both the European demand has struggled to grow in recent
industrial and consumer sectors. On the industrial years, as it has been affected by the ongoing economic
side, aluminium is heavily used in electrical power malaise there. In 2014, Aluminium market was in a
transmission, machinery and equipment, and deficit of around 0.7 Mn tonnes, the first deficit in last
construction. Housing, in particular, makes heavy 7 years.
use of the lightweight material as a substitute Indian aluminium demand rose by 38% in the five
for steel and wood in doors, windows and siding. years to 2014. India is currently the world’s fifth-largest
On the consumer side, aluminium is used in a variety consumer of aluminium, behind China, the USA,
of retail products, including cans, packaging, air Japan and Germany, and it is expected that the strong
conditioners, furniture and vehicles. demand fundamentals have potential to elevate the
country to the No. 3 position by 2016.
In addition, there is major transformation underway in
It is estimated that since the beginning of 2012 to date,
the automotive industry, which is positive for aluminium
nearly 2.8 million tons of capacity have been curtailed
consumption. The automotive sector is expected to outside of China (about 11% of 2013 production
use more aluminium in the production of passenger ex-China), led by international players, including Rusal
and commercial vehicles. The regulatory pressures and Alcoa. The year 2014 witnessed over 750,000
for lighter and more fuel-efficient cars have driven tonnes of smelter closures outside of China,mostly
auto makers and aluminium producers to invest in in higher-cost producing areas such as Europe. In
newer adhesive technology. As a result, over the past addition to these permanent shutdowns, Brazilian
five years considerable progress has been made in aluminium output last year declined by 350,000 tonnes
aluminium-intensive vehicle production. as power shortages caused by droughts made smelting

Hindalco Annual Report 1-48 pages.indb 6 8/17/2015 10:33:45 AM

 MANAGEMENT DISCUSSION
AND ANALYSIS

less economical. Russian producer Rusal also cut during the year. The projects continued to ramp up,

HIGHLIGHTS
FINANCIAL
back production at seven smelters last year. Brazil and even as coal availability remained constrained due
Russia are the major countries with spare capacity that to various reasons. There was a spike in coal prices
could return to the market, making producers there the as all the players scrambled for coal security amidst

MANAGEMENT DISCUSSION
key ones to watch as an indication of whether market infrastructure challenges.
deficit and higher returns can hold.

AND ANALYSIS
Alumina
While smelting capacity additions in China have led to
ever higher aluminium production, elsewhere capacity Your Company’s Alumina production at 2.3 Million
growth has not resulted in a surge in output in recent tonnes was 35% higher than in the previous year,
years. Over 4m tonnes of new smelters have been primarily on account of increased production from
commissioned outside China since 2008. However, Utkal. Utkal is ramping up fast to its full capacity and
ex-China aluminium production in 2014 was still 3.2% already is amongst the lowest cost alumina producers

CORPORATE GOVERNANCE
below the 2008 level, as closures of higher-cost facilities globally.
almost entirely offset the new, lower-cost supply. Primary Metal

REPORT
Strong contango and low financing cost coupled In FY15, Primary aluminium production increased
with strong demand and low load out rates from by 36% to 834 KT (kilo tonnes or thousand tonnes).
warehouses due to various reasons including logistic This increase was primarily on account of production
challenges ensured high regional premiums, which from Mahan and Aditya smelters, which contributed 93
reached historic high, even as LME aluminium

SHAREHOLDER
KT this year. The brownfield expansion of the smelter

INFORMATION
inventory declined by over 1.25m tonnes in 2014. The
at Hirakud was fully ramped up by the third quarter
year 2014 also witnessed a deficit of around 0.7 Mn
of the year, which also contributed to higher metal
tonnes (difference between annual production and
production.
consumption), after almost 7 years.

DEVELOPMENT
SUSTAINABLE
As a result, both LME and Premium were broadly Value Added Products (VAP)
supportive with firm all inclusive aluminium prices • The value added downstream production grew
during a large part of FY15. by 10% over last year to 300 KT. This growth was
in line with your Company’s focussed strategy of
2500 LME Aluminium Price ($ per ton)
value maximisation.

REPORT
SOCIAL
2000 New Facilities: An Update -
During the current financial year, the three greenfield

DIRECTORS’
REPORT
1500 projects are well on their way towards full capacity
utilization. Mahan smelter has ramped up to over 90%
1000 of its envisaged capacity, even as the ramp up was

BUSINESS RESPONSIBILITY
impacted on account of constrained coal availability in
500 FY'14 FY'15 the country. Aditya smelter is now operating at over
half of its full capacity level. Both these smelters are

REPORT
0 expected to deliver strong efficiency gains as they
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar reach optimum capacity utilization rates.
However, during the last quarter of the year, heightened Utkal alumina refinery has excelled on operational front
risk averseness led to dumping of commodities across and is already counted as one of the low cost refineries
STANDALONE FINANCIAL

the board. The resultant rise in USD, coupled with in the world.
surging Chinese exports following slowing demand Your company’s brownfield projects in India - Hirakud
STATEMENTS

growth in China resulted in a sharp decline in LME, FRP and Mouda Foil mill - are expected to significantly
which dropped sharply by almost 10%. This was contribute to your Company’s strategic goal of higher
also accompanied with significant decline in regional VAP proportion.
premium, which have declined by over 70% over last
Your Company won 4 coal blocks namely Kathautia,
few months, resulting in a large decline in all inclusive
FINANCIAL STATEMENTS

Dumri and Gare Palma IV/4 & Gare Palma IV/5 during
aluminium realisations putting pressure on margins.
CONSOLIDATED

the recently concluded rounds of coal auctions. With

Operational Review these blocks, the company has significant flexibility
Against this backdrop, your Company’s aluminium with regards to optimisation of coal sources. In the
business operational performance was truly creditable, subsequent rounds, the company would continue to
especially in the wake of specific challenges it faced strive to improve its coal security further.

Hindalco Annual Report 1-48 pages.indb 7 8/17/2015 10:33:45 AM

 Utkal Alumina

Mahan Aluminium

Aditya Aluminium

Hindalco Annual Report 1-48 pages.indb 8 8/17/2015 10:33:45 AM

 MANAGEMENT DISCUSSION
AND ANALYSIS

Novelis also progressed well on its strategic expansion costs, declining bauxite quality and rise in freight,

HIGHLIGHTS
FINANCIAL
plan that entailed an investment of USD 2 Bn and a consequence of diesel price deregulation.
included rolling capacity expansions at Brazil and Korea The cost pressures were to some extent cushioned by
that would take Novelis’ rolling capability to around adopting multiple initiatives, including:

MANAGEMENT DISCUSSION
3.6 Mn tonnes. The automotive finishing line expansions
• Continuous improvement in operational efficiencies,
in the US, Europe and China are also over and are

AND ANALYSIS
geared to produce auto body sheet (BIW) - the next big • Higher sale of special hydrate/alumina,
driver of aluminium rolling sheets. Novelis’ thrust on • Optimization of logistics costs.
sustainability and recycled aluminium is unchallenged. Outlook:
Your company has invested significantly in recycling
After a slowdown, the Indian recovery is on the mend
initiatives and has developed high-tech recycling
and the economy is expected to grow at over 7.5%
capabilities, expanded aluminium scrap buying foot

CORPORATE GOVERNANCE
print globally, widened scope of recycled scrap that can in FY16 and FY17. This would result in aluminium
be used, and developed close loop recycling systems demand growth on account of stronger consumption

REPORT
with end users to improve efficiencies. Novelis has also and investment. The government’s thrust on power
developed alloys for higher re-cycled content. All this sector that went through a challenging phase bodes
has already shown results and the company processed well for aluminium industry as power sector is a
53% scrap (as a % of input) in the last quarter of FY15 strong demand driver for aluminium consumption in
as compared with 46% in FY14. India. Rapid urbanization, as the country continues to

SHAREHOLDER
INFORMATION
develop towards a more consumer-focused economy,
Novelis is well positioned to reap the benefits of these
should augment consumer-driven demand and will
investments and all the facilities are ramping up on
help to sustain growth in aluminium demand into the
expected lines.
next decade.

DEVELOPMENT
SUSTAINABLE
Financial Performance Outside India, the fastest growth in aluminium
In FY15, the consolidated turnover of Aluminium consumption is likely to be seen in Asia due to the
business increased by 20% to ` 83,139 crore - a fallout emergence of consumerism among the rising middle
of strong volume growth & higher realisations. classes.

REPORT
SOCIAL
The turnover of the standalone aluminium business The US demand is expected to remain strong growing
increased by 40 per cent to ` 14,105 crore vis-à-vis at a CAGR of 4-5% over next few years, as the housing
` 10,050 crore in the previous year, primarily due to recovery gains traction, car sales continue to improve

DIRECTORS’
REPORT
higher metal volumes, and better realisations. and aluminium demand benefits from new applications,
The consolidated Earnings before interest and taxes particularly in the automotive sector.
(EBIT) stood at ` 4,226 crore which was 12% higher The light weighting of vehicles is driven by the

BUSINESS RESPONSIBILITY
than the previous year. Corporate Average Fuel Economy (CAFE) legislation
`/$ in the United States, finalized in 2012. The CAFE

REPORT
63 legislation mandates that vehicle manufacturers
62
achieve 54.5 miles per gallon (MPG) on their fleet of
61
cars and light duty trucks by 2025 — almost double the
60
MPG compared to the 2011 standards.
59
Western Europe is expected to grow moderately
STANDALONE FINANCIAL

58
57 amidst economic uncertainty. The aluminium demand
STATEMENTS

56 is expected to grow at around 2.5%.

55 Aluminium serves a variety of consumer-related end
54
markets; and in China, aluminium penetration for
53
consumer products is still low, with lots of upside
52
potential as the general wealth level increases.
FINANCIAL STATEMENTS

Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15

However, the short term outlook is shrouded with
CONSOLIDATED

The standalone Aluminium EBIT improved 44% to

` 1,349 crore even as increased input costs continued uncertainty, especially against the backdrop of
to put pressure on margins which were also impacted decelerating Chinese demand growth.
by ramp-up related teething troubles. Your company In 2015, Chinese aluminium demand is expected to
also witnessed cost push on account of rising coal grow at around 6-7%, a substantial slowdown from

Hindalco Annual Report 1-48 pages.indb 9 8/17/2015 10:33:51 AM

 the double-digit increase of the past decade. Demand factors such as heightened risk averseness, European
growth will be strongest in consumer-related sectors. region uncertainty related to Greece, slowing demand
Transport and packaging should both see 8-9% growth, growth from China and rising exports from it. The
while the power sector is likely to report more than regional premium has also crashed from all time highs.
7% growth. The other two industries - machinery and The premiums across the regions have declined over
consumer durables – are expected to be the laggards 70%. This was primarily on account of large inventory
as they have begun to slow last year. The construction de-stocking, which was the result of carry trade
sector is also likely to remain subdued. Recently, the becoming less attractive, which in turn can be attributed
Chinese National Energy Administration has released to various factors such as change in LME warehousing
details of a new standard which will regulate the use rules, flattening of forward curve resulting into decline
of lower voltage aluminium cables. The directive will in contago, tightened regulatory environment that
be effective from September 2015 and is expected to discouraged warehousing and impending spectre
cause consumers to shift from copper to aluminium of Fed increasing interest rates resulting in higher
cables, as aluminium is cheaper. This should drive the financing costs.
use of aluminium in electrical sector. As a result, all-in realisations have declined sharply in
Japanese demand too is expected to be muted due to recent months. This scenario may continue for a while
weak growth in the transportation sector. and hence over short term, realisations may remain
Supply of aluminium outside China is expected to be under pressure.
limited with not many new capacities expected outside On the positive side, the reduction in prices of crude-
China. derivatives in the recent months is expected to help on
China’s rapid economic growth has been the cost front. In the recent quarters, coal availability
accompanied by environmental degradation. Energy in India is showing signs of improvement. With the
and environmental policies have been in place since expected growth in output of public sector coal
the 1990s to encourage energy conservation, coal mining companies and the likely operationalisation
diversification and environment friendly development. of captive coal blocks, coal availability in the country
Nevertheless, economic growth has assumed more may improve further, which will ease the cost-side
importance and environmental pollution has continued pressures.
to worsen. This is expected to change under NDRC’s The outlook for aluminium business is cautiously
policies but the pace and timings are being debated optimistic. The investment phase of the company
among analysts. has been largely completed and all the new projects
Despite weaker than expected demand, Chinese are inching towards their full capacity levels. The
primary producers in Xinjiang and Shandong are cancellation of earlier allocated coal blocks has affected
ramping up production at a rapid pace. Although the cost dynamics of the new facilities adversely. The
around 667,500 tonnes of primary capacity has been operating costs are not yet optimal as projects are
closed in 2015 so far, China has added 2M tonnes of ramping up. This, coupled with the recent weakness in
additional primary capacity in the first half of 2015. This the prices, is expected to keep margins under pressure.
supply increase along with weakening demand growth However, your Company is trying to mitigate these
has led to surge in exports. adversities through a sharp focus on cost reduction
Overall the demand supply scenario for primary in its day-to-day operations, optimization of logistics
aluminium globally looks encouraging over long term costs, and by identifying high-impact, capex-light
as demand continues to be robust with expectations interventions to improve its structural cost position.
of around 6% growth. Copper Business
However, over short term, Chinese supply is expected Industry Review
to continue to impact Rest of the World demand-
Copper has the highest level of conductivity out of
supply dynamics adversely.
the base metals and is used extensively in power
The fact that the energy prices globally are lower is also transmission, particularly in smart grids and other
resulting in decline in aluminium production cost and this technology-intensive power transmission systems.
is also putting a downward pressure on aluminium prices. Copper is also extensively used in infrastructure and
Aluminium prices on LME have declined quite sharply housing in the form of pipe, electrical wire and building
over the last few months due to confluence of many materials.

10

Hindalco Annual Report 1-48 pages.indb 10 8/17/2015 10:33:51 AM

 MANAGEMENT DISCUSSION
AND ANALYSIS

The global refined copper demand increased by in 2015. Chinese demand is expected to be around

HIGHLIGHTS
FINANCIAL
around 4.5% in 2014 to 21.5 Mn tonnes. Production 10 Mn tonnes, while the demand in Europe and North
growth exceeded consumption growth rate, resulting Americas is expected to be 3.7 Mn tonnes and 2.2 Mn
into a surplus of around 350 KT. This mismatch was tonnes respectively.

MANAGEMENT DISCUSSION
primarily on account of slowdown in Chinese copper Chinese demand is expected to grow at a relatively
consumption growth. In China, which accounts for

AND ANALYSIS
modest rate of around 3-3.5% after a strong growth in
over 44% of global copper consumption, the growth previous decade with the next growth driver expected
rate declined from around 10% in 2013 to 7% in to be renewable energy and investments surrounding
2014. Growth in other emerging markets too was lack the sector.
lustre leading to the surplus. Many western countries Indian copper demand is expected to be around
registered a demand pick up as their economies 650 Kt in 2015, 8% higher than the demand in 2014.

CORPORATE GOVERNANCE
continued with the recovery and grew moderately. The demand growth is expected to pick up going
As a result, the utilization rates of smelters were under forward with the government’s thrust on manufacturing

REPORT
pressure. This resulted in strong treatment & refining sector, smart cities and power sector. Indian per capita
charges, a major value driver for custom smelters such consumption of copper stands at around 0.5 Kg as
as your Company’s copper business. compared with the global average of 2.4 Kg/person
Business Performance and this puts in perspective the potential demand.
Refined copper production is broadly expected to

SHAREHOLDER
INFORMATION
Your Company’s copper business delivered a record
performance in FY15, registering highest ever cathode keep pace with the demand. Again China, continues
production. Strong operating gains on the back of to be at the forefront with around 7.5 Mn tonnes
enhanced efficiencies, aided by various strategic production in 2015. The production growth will largely
come from Asian region, contributing over 50% of

DEVELOPMENT
initiatives for value maximisation and waste to wealth

SUSTAINABLE
CY 2015 production, which is estimated to be around
initiatives, enabled the business to register best ever
22 Mn tonnes.
operating performance, with EBIT surpassing ` 1500
Crore mark for the first time in the history of the World Copper Production, Consumption and LME Trend
6000 12000
business.

REPORT
SOCIAL
The Revenues of the copper business increased by 5000 10000

over 15%, primarily on account of higher volumes and

DIRECTORS’
4000 8000
increased proportion of value added products.

REPORT
The business registered an EBIT of ` 1516 Cr - an 3000 6000
improvement of 62% over ` 938 Crore it achieved
in the previous year. Copper EBIT has grown almost 2000 4000

BUSINESS RESPONSIBILITY
2.5 times over last 4 years and has validated your
1000 2000
Company’s portfolio business model.

REPORT
0 0
Q-I 11 Q-II 11 Q-III 11 Q-IV 11 Q-I 12 Q-II 12 Q-III 12Q-IV 12 Q-I 13 Q-II 13 Q-III 13 Q-IV 13 Q-I 14 Q-II 14 Q-III 14 Q-IV 14 Q-I 15
(` Cr) Copper EBIT
2000 World Prodn.(Kt) World Cons.(Kt) LME Cash ($/t)

1500 1516 Overall, industry experts are expecting a small surplus

market with production marginally higher than demand.
STANDALONE FINANCIAL

1000
938
802 768 On account of surplus and risk averse macroeconomic
STATEMENTS

500 660 602

environment the copper prices are expected to remain
0
FY10 FY11 FY12 FY13 subdued over next 1-2 years. In the short term,
suspected metal financing scam in China may continue
Copper Outlook: to depress the prices as traders fear exodus of metal
out of China, even as exchanges stocks declined.
FINANCIAL STATEMENTS

In the short-term, marginally higher pace of copper

CONSOLIDATED

supply growth relative to demand is expected to Overall mine production capacity is forecast to rise
keep the market in surplus till 2017. Industry experts from 18 Mt in 2013 to 21 Mt by 2015, an increase of
forecast growth in refined copper consumption to 17%. Higher mining production and lower concentrate
be 3.5% in 2015, driven largely by China and North demand has resulted into higher TC/RC. The benchmark
America, with the demand estimated at 22 Mn tonnes TC/RC for 2015 is higher than 2014 benchmarks.

11

Hindalco Annual Report 1-48 pages.indb 11 8/17/2015 10:33:51 AM

 The last few years have been relatively better for custom Depreciation
smelters due to improved concentrate availability and • Consolidated depreciation increased marginally
the trend is expected to continue reflecting in strong from 3,553 crore to ` 3,591 Crore.
TC/RC. Higher TC/RC coupled with revival in demand
• Depreciation stood at ` 837 crore compared to
especially from power and housing sector, augurs well
` 823 crore in previous year, reflecting the change
for your Company.
in manner of calculation of depreciation w.e.f.
Spot TCRC Market Trend (c/lb) 1st April, 2014 by considering revised useful life of
35.00
30.00 assets to bring it in line with the Schedule II of the
25.00
20.00 Companies Act, 2013.
15.00
10.00 Taxes
5.00
0.00
Q-I 11 Q-II 11 Q-III 11 Q-IV 11 Q-I 12 Q-II 12 Q-III 12 Q-IV 12 Q-I 13 Q-II 13 Q-III 13 Q-IV 13 Q-I 14 Q-II 14 Q-III 14 Q-IV 14 Q-I 15 • The provision for tax was at ` 322 crore in standalone
Spot TCRC (c/lb) business and ` 256 crore in consolidated business.
With an improvement in Indian GDP, the co-product Profit
prices are also expected to be supportive and this
• Net profit at the consolidated level was lower
should help the copper business. With increasing
at ` 854 crore, because of higher interest cost
thrust on agriculture sector, the demand for DAP and
and exceptional items. Exceptional items in the
sulphuric acid is expected to increase.
Standalone results included additional levy on coal
With an improvement in Indian GDP, the co-product extracted from Talabira-I coal block imposed by
prices are also expected to be supportive and this the judgment of the Supreme Court, provision for
should help the copper business. With increasing diminution in the carrying value of investments in
thrust on agriculture sector, the demand for DAP and ABML, and liability provided towards Renewable
sulphuric acid is expected to increase. Power Obligations (RPO) under the Electricity Act,
Financial Review and analysis 2003. The exceptional items in the Consolidated
results, in addition to items included in standalone,
Hindalco’s consolidated revenue stood at ` 104,281
mainly relate to the sinkhole incident and change
crore as compared with ` 87,695 crore in FY14.
in macro-economic conditions at ABML that has
Profit before depreciation, interest and taxes stood
resulted in impairment of fixed assets, write down
at `10,049 crore as compared with `9,303 crore in
in value of inventories and expenses incurred
FY14. This increase was contributed by volumes
towards restoration of operations.
growth across both businesses and the stellar
performance by copper business even as aluminium • Net profit for the standalone stood at ` 925 crore
faced several challenges on the cost front and compared to ` 1,413 crore in previous year.
weakness in demand in certain global geographies Profit before exceptional items at ` 1,825 crore
following macroeconomic headwinds. There were was lower by 12% compared to FY14 mainly due
also certain one-offs that affected both Hindalco- to higher interest.
standalone and Novelis.
Risk management
Standalone revenue for the year increased 24% to
Hindalco’s financial performance is significantly
` 34,525 crore. Profit before interest and depreciation was
impacted by fluctuations in the prices of Aluminium,
` 4,299 crore vs. ` 3,616 crore in FY14, a jump of 19%.
Alumina, exchange rates and interest rates. Your
Other Income Company takes a very structured approach to the
• Standalone other Income at ` 882 crore was lower identification and quantification of each such risk and
as compared with ` 1124 Cr in FY14 on account of has a comprehensive board approved risk management
lower treasury corpus. policy. The company has also put in place an elaborate
ERM (Enterprise Risk Management) framework.
Interest
Internal Controls
• Consolidated Interest expenses increased from
` 2,702 crore to ` 4,178 crore. In standalone A strong internal control culture is pervasive
business, finance costs increased from ` 712 crore in throughout Aditya Birla Group. Regular internal audits
FY14 to ` 1,637 crore in FY15 due to higher interest at all locations are undertaken to ensure that the
capitalisation post ramp up of greenfield facilities. highest standards of internal control are maintained.

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 MANAGEMENT DISCUSSION
AND ANALYSIS

The effectiveness of a business internal control of raw materials. Your Company believes in systems

HIGHLIGHTS
FINANCIAL
environment is a component of senior management and work practices that contribute to conserving
performance appraisals. The principal aim of the resources, energy and environment and ensuring
system of internal control is the management health and safety.

MANAGEMENT DISCUSSION
of business risks, with a view to enhancing the Aluminium is a 100% recyclable metal and does not
shareholders’ value and safeguarding the Group’s

AND ANALYSIS
degrade in quality on recycling. Your Company’s wholly
assets. It provides a reasonable assurance on the owned subsidiary Novelis presently uses nearly half of
internal control environment and assurance against its input in the form of recycled scrap - a sharp jump
material misstatement or loss. from 39% three years back. It has also announced the
Sustainability commercial debut of Evercan™ high recycled-content
Both Aluminium and copper are widely used metals aluminum beverage can sheet. Novelis has invested

CORPORATE GOVERNANCE
with bright consumption prospects. The recent in major recycling initiatives, including advanced
emphasis on greenhouse emissions have brought in equipment and technology to process diversified scrap.

REPORT
new game changing concepts such as light-weighting Your Company’s Copper business in India also has a
in the automobile industry further augmenting the focused approach on recycled material and recycles
consumption growth. Your Company’s business model a substantial proportion of the scrap generated in the
is geared to ride on these changing patterns and today process again.
boasts of a de-risked portfolio through a strong accent Your Company continues to maintain its thrust on

SHAREHOLDER
INFORMATION
on conversion business. inclusive growth as it believes in triple bottom line
Given its focus on value added products, your Company accounting and trusteeship management concept. It
also has a strong commitment towards product has carried out several projects aimed at development
development. It has developed several pioneering of neighbouring communities and society with focus

DEVELOPMENT
SUSTAINABLE
applications in the Indian context and Novelis is the areas being health care, education, sustainable
global leader in FRP space. livelihood, infrastructure and social reform.
Sustained access and availability of resources is critical Human capital
to the businesses of your Company. Hindalco follows

REPORT
Aditya Birla Group is one of the preferred employers

SOCIAL
holistic approach to address the multi-dimensional
facets of resource sustainability throughout the value in the country. In the last few years, for its people
chain. As it continues to serve the increased demands practices, it has got several accolades from the

DIRECTORS’
global agencies like AON Hewitt, Fortune, SHRM

REPORT
of the society for sustainable metals, your Company
recognizes the limited availability of resources and etc. Few of them were “Excellence in Developing
impact of resource extraction. Its strategy is to have the Leaders of Tomorrow” in the First People Awards
a good mix of captive sources as well as long-term 2012 (Strategic Human Resource Management,

BUSINESS RESPONSIBILITY
sourcing arrangement based on long term cost SHRM) India, Ranked No. 4 in the Global “Top
and sustainability parameters. Its mining practices, Companies for Leaders” survey and ranked No. 1 in

REPORT
regeneration activities and community engagement are Asia Pacific for 2011 (Aon Hewett, Fortune Magazine
aimed at minimising the environmental impact with a and RBL), 2nd Best Employer in India (Aon-Hewitt
focus on improving socio economic life. Survey 2011) etc. The People oriented best HR
Safety continues to be a critical focus area for your Practices enable the group to attract and retain the
best of available talent.
STANDALONE FINANCIAL

Company. Even as the major safety parameters

showed an improving trend during FY15; the policies Your Company firmly believes that people are its
STATEMENTS

and practices of the Company are continuously being most valuable asset and it is ensuring that all the
finetuned towards achieving its goal of ‘Zero Harm’. HR systems, processes and practices are helping
Line managers are responsible for setting expectations people both personally and professionally. Currently,
in terms of safety performance, for conducting safety your Company is managing a pool of around 22,000
training, for conducting effective accident investigation, people across 17 locations. For managing people,
FINANCIAL STATEMENTS

and for ingraining safety, health and environmental it has well laid down HR Policies in place including
CONSOLIDATED

aspects into the fabric of how work is carried out on talent management, employee engagement,
a daily basis. performance management, rewards and recognition
Improving operational efficiencies, adoption of alongwith all the necessary support systems for the
technological advances are important for efficient use robust implementation of the people practices.

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 Training and Development the choice of location of the smelters, has dented
The Learning and Development function is well the earlier envisaged cost structure significantly. Your
integrated with the overall HR Function and the company is striving hard to dilute the impact of this
Business Objective. Across locations, your Company setback and has been actively pursuing all possible
has full fledged learning infrastructure to support its strategic options to secure long term supply of coal at
learning objectives. Its Strategy aims at equipping all competitive cost to partially offset this loss.
people across Units with business linked knowledge, The company expects to increase production
technical and behavioural based learning events. significantly as the new state of the art facilities
For Managers and the talent pool, your Company works achieve their targeted capacities. However, during the
closely with the ‘Gyanodaya- Aditya Birla Group’s ramp up, the plants will be operating at suboptimal
Learning University’ and as per need nominates people efficiencies and this will have some bearing on costs.
to other learning institutes / professional bodies for The deallocation of Talabira-I coal mine that used to
professional development. supply coal to Hirakud smelter will also impact the cost
Summing Up of production.
Over the years, your Company has successfully FY16 onwards, following the full ramp up of the
demonstrated benefits of integrated approach with projects, the reported financial performance will be
low cost upstream operations and significant abilities significantly impacted as interest and depreciation flow
and reach in downstream business. The robustness through the P&L statement. As a result, the short term
of Novelis’ de-risked business model and focused outlook appears challenging for domestic aluminium
approach to leverage the dominance in its chosen business.
product segments has yielded desired outcome in In the coming years, the focus will be on operational
challenging times. excellence and increasing the productivity of
During FY15, Utkal Alumina has established itself as new assets. We believe that the strong business
a world class asset ensuring alumina production at portfolio comprising de-risked copper business and
very competitive cost which in turn is fed mainly to the technologically intensive portfolio of Novelis, with
two new age smelters. The cancellation of the earlier focused approach would go a long way in ensuring a
allocated coal blocks, instrumental in determining robust future for your Company.

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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