Hindalco, the aluminium company of the Aditya Birla group, has recalibrated its growth capital expenditure to $4.5 billion, to be spent in the next five years, from $7.9 billion announced a year ago, likely marking the first such decision by a major Indian firm.
Hindalco’s management on Tuesday said in an investors' conference that margin headwinds at Novelis, its US subsidiary, are transient and growth projects have been deferred but not cancelled. "We see the cut in growth capex as a sign of low confidence on operating cash flows," a Kotak Institutional Securities report said.
Hindalco said it will spend $3.3 billion in the next five years on Novelis, focusing on greenfield rolling capacity, removing bottlenecks and setting up recycling units.
Novelis has deferred $1.6 billion worth of projects that include rolling capacity in Brazil, Europe and downstream capacity in China. In India, Hindalco remains focused on downstream aluminum capacities, whereas upstream capacities are deferred for the time being.
Hindalco officials told investors that near-term market headwinds will continue to weigh on Novelis’ margins and it expects normalization only by the end of FY2024.
The company plans destocking in the aluminum can segment due to demand weakness linked to consumer consumption patterns changing after the pandemic era. The highlighted the inflationary pressures on various cost items, including European energy, which are likely to continue in 2023, whereas the cost pass-throughs in contracts are witnessing a lag; and challenges in specialty end-market demand due to higher interest rates and weak economic growth in North America and Europe.
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Hindalco’s stock was trading Rs 403.65 on the BSE, slightly up since Tuesday.
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