BackNo clarity on Mahan pushes Hindalco to import coal
Analysts say imported coal will shrink Hindalco's profit margin, but currently aluminium's price is rising, which may soften the blow
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Mumbai: Hindalco Industries Ltd is importing coal for its aluminium plants amid lack of clarity on when the controversial Mahan coal project in Madhya Pradesh may be cleared, showing the government’s inability to fast track projects and pushing companies to resort to costly imports.
“Our problem is that we are away from the ports, but it has come to the point now that we are resorting to imports and it may not be a terribly bad news," Debu Bhattacharya, managing director of Hindalco, said in an interview. “We have already bought something... that gives both the quantity and in some cases, a landed cost which is not too bad," he added, not commenting on how much the company has contracted to import and at what price.
A few quarters ago, Bhattacharya had talked about the futility of imports as their Mahan aluminium smelter was land-locked.
Hindalco produces aluminium and copper and since 2009 has invested $5.5 billion (around ₹ 33,000 crore) in setting up new aluminium smelters in Mahan and Lapanga in Odisha and a new alumina plant in Rayagada in Odisha that has pushed its aluminium capacity to 1 million tonne (mt). Hindalco’s main coal project in Mahan, a joint venture with Essar Power, has been embroiled in controversy since 2006, when it was conceived, as building a mine in the area would mean cutting down a forest.
As matters stand, Amelia village, closest to the project site, has to have a village council that will vote on whether the villagers want the coal mine to come up and if they are willing to give up their forest rights for it and, if so, what could their compensation package be from the companies.
Amelia has lately been a centre of a strife between activist group Greenpeace, which is opposing the project, and those that want the coal mine to come up. In the middle of it all is the district administration, which is trying to facilitate the village’s vote.
Last week, district collector and magistrate of Singrauli M. Selvendran, who was to oversee the village meeting, was transferred just as he was on the verge of announcing a date of the meeting in Amelia.
“A date has been agreed upon for a gram sabha for all the villages on a fixed date every month," said Raghuraj M.R., the new district collector and magistrate, not specifically referring to Amelia.
“The agenda needs to be finalized and further firmed up. Any matter of importance for the villages can be discussed," Rahuraj said, adding the schedule will be made public soon. Imported coal will shrink Hindalco’s profit margin, but currently aluminium’s price is rising, which may soften the blow, analysts said.
“Now that aluminium prices are above $2,000 a tonne, Hindalco might want to run its Mahan plant at higher capacity utilization as the smelter would be cash positive even with imported coal," said Chirag Shah, director, equity research, head analyst, building materials, metals and mining, at Barclays Capital.
Speaking on other matters, Bhattacharya said the company’s upcoming fund raising of up to ₹ 5,000 crore would be used for general purposes and could be raised via any instrument within 12 months.
“The instruments could include anything under the sun including QIP (qualified institutional placement). The board has authorized us to secure funds not exceeding ₹ 5,000 crore, employing any of the instruments that the management feels is the best," he said.
Hindalco reported a 31% drop in net profit to ₹ 327.5 crore for the first quarter of the current fiscal 2014-15 compared to the same period a year ago last week owing to high costs on fuel, raw material and finance.
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