Auto slowdown has no decipherable impact on Vedanta's performance: CEO

Topics Vedanta Ltd | aluminium

Ajay Kapur, CEO (Aluminium & Power), Vedanta Ltd
As aluminium producers are disquieted by headwinds like soft LME prices and soaring imports, Vedanta is focusing on reducing costs and ramping up portfolio of value-added products. Ajay Kapur, CEO (aluminium & power), Vedanta, talks to Jayajit Dash about Vedanta’s plans. Edited excerpts:

Vedanta has set a target to contain aluminium production cost to $1,500 per tonne. By when and how will you achieve it?

While a cost of production of $1,500 per tonne is our mid-term vision, we have given a guidance of $1,725 to $1,775 per tonne for the current fiscal and are on course to achieving it. Costs in the aluminium industry are primarily driven by the cost of its raw materials – alumina, bauxite and coal. We are focused on unlocking operational efficiencies and controlling cost drivers to ensure lower production cost. Accordingly, we have secured robust long-term contracts for bauxite with global suppliers along with the domestic ones.

LME aluminium prices are hovering around $1,700. What does this mean for the domestic aluminium producers? Do you think global aluminium prices will strengthen in the near term?

The global economy has been volatile over the past quarters owing to several uncertainties and escalating trade wars. LME prices reflect these global trends as well. Like every commodity, we expect LME to rebound. It is important to bear in mind that aluminium is the second-most important metal in the world and finds critical applications in key sectors. From that standpoint, the demand for aluminium will only surge.

The country’s aluminium consumption has taken a hit due to slowing demand from end-user industries. How does Vedanta plan to overcome it?

Aluminium is a metal of strategic importance for the country and is important for nation building. India's aluminium demand grew at 10 per cent in 2018-19, fuelled by GDP growth and the growth of aviation, automobiles, infrastructure and electrical sectors. Some amount of headwind in the economy is to be expected. Businesses such as ours that take a long-term view are equipped to take these in our stride. As India strides towards its ambition of becoming a $5 trillion economy, consumption patterns will grow, and with it, aluminium consumption is bound to grow. Today in India, per capita consumption of aluminium is at 2.5 kg while the world average is 11 kg and in China it is 24 kg. However, over the next five years, India’s demand for aluminium is expected to reach over seven million tonnes at double-digit growth rates.

How has the slump in the automotive sector and subdued economic growth affected your sales performance? Will it have any bearing on your gross revenues and profitability?

The automotive sector in India has been facing slowdown over the past few months, but it usually operates via long-term contracts through ancillary units. Vedanta has limited exposure to the automotive sector and the slowdown has no decipherable impact on Vedanta’s sales and performance. 

Flat-rolled products in aluminium are gaining traction with a consensual forecast that it will be in the growth territory through 2025. Does Vedanta intend to branch out into this segment?

The use of aluminium flat rolled products defines the degree of sophistication of an economy. Flat rolled products cater to a niche market in India as of now, but that is also evolving. As our economy matures, the consumption of flat rolled products will increase over the years. Vedanta already maintains a presence in the rolled products segment through its 70 kg tonne facility at its Balco smelter in Chhattisgarh.

The deluge of cheaper aluminium imports and the ongoing RCEP negotiations have unnerved aluminium companies. Have you got any favourable response from the government on duty structure?

This year, ahead of the Regional Comprehensive Economic Partnership (RCEP) meeting, aluminium producers have asked the commerce ministry to protect the industry from cheaper imports by excluding aluminium from tariff reduction commitments in the Regional Comprehensive Economic Partnership (RCEP) negotiations. 

Vedanta Aluminium has achieved the highest production figures and emerged a leader. How do you intend to capitalise this position and chart the future course of action?

Vedanta is the largest producer of aluminium in the country. In FY9, Vedanta Aluminium clocked 1.95 mt (million tonnes) production, a 17 per cent growth year-on-year. This is, I’m told, the highest ever production by any company in the history of India. The biggest reason for this achievement is the way capacities have been ramped at the smelters in Jharsuguda and Balco and at the alumina refinery at Lanjigarh (Odisha). But more importantly, this landmark achievement will take Vedanta a step closer to becoming a trusted partner of the government. Supporting the government to enable India attain self-sufficiency is one of our key business priorities.

How do you plan to expand your downstream/valued-added products portfolio?

Currently, value-added products form nearly 45 per cent of our sales mix, but we envisage taking it much beyond. Vedanta is working with various stakeholders of the value chain like auto-industry players, façade manufacturers, extruders and rolling aluminium customers for advanced R&D and production of customised aluminium alloys which can cater to industry-specific needs. The company has already started working with all top automobile original equipment manufacturers (OEMs) over the last few months for supply of primary foundry alloy. The company is in talks with the Odisha government to put up a hot metal park in Jharsuguda, in the vicinity of our smelter which is also one of the biggest aluminium smelters in the world outside China.

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