SWOT ANALYSIS report of Hindalco Industries Limited
Hindalco, the metals flagship company of Aditya Birla Group, is engaged in the production of aluminum and copper. The company has operations in 13 countries and serves customers in more than 50 countries. Hindalco is India‘s largest producer of flat rolled products, and one of the leading global players in aluminum rolling. Novelis, the company’s subsidiary, is the largest producer of flat rolled aluminum products in Europe, South America, and Asia and is the second largest producer in North America. Hindalco's strong market position gives it advantage of scale and increases its bargaining power. However, operating risks in its mining and production activities would increase the operating costs of Hindalco which would have a material effect on the company’s profits.
Strengths
An industry leader in aluminum and copper
Hindalco, the metals flagship company of the Aditya Birla Group, is the world's largest aluminum rolling company and one of the biggest producers of primary aluminum in Asia. Its copper smelter is the world’s largest custom smelter at a single location. The company also made investments of strategic importance, which further scaled its market presence. For instance, acquisitions and mergers with Indian Aluminium Company (Indal), Birla Copper, and the Mt Gordon Copper Mine in Australia, have strengthened the company’s position in value-added alumina, aluminum, and copper products. Further, the acquisition of Novelis in 2007 has positioned Hindalco among the top five aluminum majors worldwide and the largest vertically integrated aluminum company in India. Novelis is the largest producer of flat rolled aluminum products in Europe, South America, and Asia and is the second largest in North America. These efforts have enabled the company to acquire a global footprint in 13 countries and increase its market reach. Hindalco's strong market position gives it advantage of scale and increases its bargaining power.
Integrated aluminum operations
The aluminum business of Hindalco is integrated with its own mining and captive power generation capacities. The company is the largest vertically integrated aluminum company in India. It engages in all aspects of the value chain from bauxite mining, alumina refining, and aluminum smelting to downstream rolling, extrusions, and recycling. Hindalco operates an integrated complex at Renukoot, in Uttar Pradesh, India. The complex comprises an alumina refinery, an aluminum smelter, and facilities for the production of semi-fabricated products. The unit receives power from the captive power plant located at Renusagar, Uttar Pradesh, with 10 power generating units. The power plant has a current generation capacity of 742 MW. The integrated complex also operates a co-generation plant with a capacity of 37.5 MW. Another co-generation plant with a capacity of 41 MW has been commissioned to meet the requirements of the enhanced post-expansion capacities. The integrated aluminum operations make the company one of the most cost-effective aluminum manufacturers in the country and worldwide.The Indian operations being one of the most competitive assets in the company’s business portfolio offer a competitive advantage with a leading market position in the country. A strong presence across the value chain and synergies between operations has given Hindalco a dominant share in the value-added products market.
Extensive product portfolio
Hindalco offers an extensive product portfolio through its two segments, aluminum and copper. The aluminum segment engages in the production of rolled products, extrusions, ingots, billets, wire rods, slabs, foil, roofing sheets, and waterproofing membrane sheeting. The copper segment produces continuous cast copper rods, copper cathodes, di-ammonium phosphate (dap), phospho-gypsum, phosphoric acid, precious metals, and sulfuric acid.
In FY2011, copper cathodes accounted for 32% of net sales, concast copper rods accounted for 24%, aluminum ingots and billets 10%, SAP, DAP and complexes, precious metals and others 11%, rolled products 11%, conductor and redraw rods 5%, hydrate and alumina 3%, aluminum foils and others 2%, and extrusions 2%.
The company’s products find wide application in various segments, such as automotive, building and construction, printing, packaging, transportation, electrical, industrial products, defense, and general engineering applications. An extensive product portfolio provides for a diversified and extensive customer base avoiding dependence on any single customer industry for revenues. This in turn creates financial stability for the company.
Weaknesses
Reducing treatment charges/refining charges
Treatment charges/refining charges (Tc/Rc) are the fees paid to smelters by mines and traders to refine copper concentrates into metal, and forms an important part of a copper smelting industry's income. Currently the smelter capacity is larger than concentrate output, forcing smelters to compete
for available concentrate supplies. The shortfall in concentrates is expected to continue till 2012 and
beyond as planned smelter expansion outpaces new mine developments. Globally the Tc/Rc in dropping due to the lack of adequate mine supplies. In such a scenario, Hindalco is expanding its Hirakud smelter from 155,000 tpa to 213,000 tpa by 2012. It further plans to expand the smelting capacity at Hirakud from the proposed 213,000 tpa to 360,000 tpa.
for available concentrate supplies. The shortfall in concentrates is expected to continue till 2012 and
beyond as planned smelter expansion outpaces new mine developments. Globally the Tc/Rc in dropping due to the lack of adequate mine supplies. In such a scenario, Hindalco is expanding its Hirakud smelter from 155,000 tpa to 213,000 tpa by 2012. It further plans to expand the smelting capacity at Hirakud from the proposed 213,000 tpa to 360,000 tpa.
The copper concentrate supplies from mines are not adequate enough to meet smelter requirements. This deficit may adversely impact the operating profits that are expected from expanded smelter operations.
Opportunities
Growing demand for aluminum
China continued to be the driving force behind this demand growth, growing at 21% and contributing
to over 41% of global aluminum demand in 2011. Globally, aluminum production also, increased as
the producers restarted their capacities. Further, the Indian domestic demand continued to be robust
in line with the strong industrial growth. Strong growth in the end user segments such as automobiles,
industrial, and infrastructure, and the drive for power sector growth, propelled the aluminum demand
further which grew at 14% in 2011.
The demand for aluminum is expected to remain strong and is estimated to increase by approximately
9% reaching to almost 45 million tons in the short term. The Chinese demand for aluminum, which is expected to rise by 11% in the short term, and also the anticipated recovery in the US and EU will
contribute to the strong demand momentum.
Hindalco, which is engaged in the production of aluminum serving customers in more than 50 countries, is better positioned to benefit from the positive outlook for the global aluminum industry.
Investments to expand aluminum operations
Hindalco is undertaking several projects to expand its aluminum operations. For instance, the company is currently involved in the construction of an alumina refinery along with a 90 MW captive co-generation plant at Orissa (the Utkal Alumina refinery project).The company is further developing
the Mahan Aluminum Project which is expected to be completed by FY2012. Mahan Aluminum is a
smelter-power plant complex with a 359,000 tpa aluminum smelter and a 900 MW captive thermal
power plant in Madhya Pradesh.
the Mahan Aluminum Project which is expected to be completed by FY2012. Mahan Aluminum is a
smelter-power plant complex with a 359,000 tpa aluminum smelter and a 900 MW captive thermal
power plant in Madhya Pradesh.
Further, Hindalco is developing the Aditya Aluminium project in Orissa, which includes a 359,000
tpa aluminum smelter and a 900 MW captive power plant. The project is slated for completion in
2013.The company is also developing a 359,000 tpa aluminum smelter along with a 900 MW captive
power plant in Jharkhand. Additionally, in May 2011, Novelis announced plans to invest approximately
$400 million to expand the aluminum rolling and recycling operations in South Korea, in response
to the growing demand in Asia and the Middle East. The expansion will increase Novelis’ aluminum
sheet capacity in Asia by more than 50% and is expected to be commissioned in 2013.
These projects will significantly enhance the scale of operations of Hindalco and will enable the
company to sustain its leading position in the aluminum industry in India.
Threats
Mining and production risks
Hindalco is subject to operating risks in its mining and production activities. Due to these risks, the company is liable to incur higher mining, transportation, or production costs, disrupt or halt operations
at its mines and production facilities permanently or for varying lengths of time, or interrupt the transport of its products to the customers. The company’s aluminum smelters are particularly vulnerable to disruptions in the supply of power which could cause the contents of the furnaces or cells to solidify, which would necessitate a plant closure and a shutdown in operations for a significant period, as well as involve expensive repairs. For example, in February 2011, Hindalco declared a lock out at its Alupuram plant due to indiscipline by workmen. This interrupts the production, and increases the operating costs and other expenses. These risks would increase the operating costs of Hindalco which would have a material effect on the company’s profits.
at its mines and production facilities permanently or for varying lengths of time, or interrupt the transport of its products to the customers. The company’s aluminum smelters are particularly vulnerable to disruptions in the supply of power which could cause the contents of the furnaces or cells to solidify, which would necessitate a plant closure and a shutdown in operations for a significant period, as well as involve expensive repairs. For example, in February 2011, Hindalco declared a lock out at its Alupuram plant due to indiscipline by workmen. This interrupts the production, and increases the operating costs and other expenses. These risks would increase the operating costs of Hindalco which would have a material effect on the company’s profits.
Intense competition
There is substantial competition in the copper and aluminum industries, both in India and internationally.The company’s competitors in the copper and aluminum markets outside India include
major international producers. Certain of these international producers have significantly larger scale
of operations, greater financial resources and manufacturing and technological capabilities, more established and larger marketing and sales organizations, and larger technical staffs. In the Indian copper market, the company competes primarily against Sterlite Industries, Hindustan Copper, and imports. In the Indian aluminum market, it competes primarily against National Aluminum Company (NALCO), Bharat Aluminium Company (BALCO), Pennar Aluminium Company, Sterlite Industries, and imports. Many of the company’s competitors are also expanding their production capacities. If domestic demand is not sufficient to absorb these increases in capacity, its competitors could reduce their prices, which may force the company to do the same or cause the company to lose market share or sell its products in overseas markets at lower prices. Such an intense competition threatens to erode the market share of the company.
major international producers. Certain of these international producers have significantly larger scale
of operations, greater financial resources and manufacturing and technological capabilities, more established and larger marketing and sales organizations, and larger technical staffs. In the Indian copper market, the company competes primarily against Sterlite Industries, Hindustan Copper, and imports. In the Indian aluminum market, it competes primarily against National Aluminum Company (NALCO), Bharat Aluminium Company (BALCO), Pennar Aluminium Company, Sterlite Industries, and imports. Many of the company’s competitors are also expanding their production capacities. If domestic demand is not sufficient to absorb these increases in capacity, its competitors could reduce their prices, which may force the company to do the same or cause the company to lose market share or sell its products in overseas markets at lower prices. Such an intense competition threatens to erode the market share of the company.
