Hindalco likely to hike domestic capex in FY24 on robust demand

Company has spent Rs 2,700 crore in India in FY23, MD Satish Pai said; will be higher next year

Aditya Birla group’s flagship firm Hindalco may increase its capital expenditure (capex) outlay in India in the upcoming financial year (FY24) as demand for aluminium remains strong, the firm’s managing director (MD) Satish Pai said in a media call.

"We have spent around Rs 2,700 crore this year (FY23) in India. While next year's capex is still under discussion, it will likely be higher than the current financial year," said Pai.

Sector analysts say the move to increase domestic capex comes amid a spike in public spending by the government as well as an increase in private investment. 

"Demand for aluminium in infrastructure and construction, as well as in sectors such as airports and metros, has been on the rise, prompting an increase in domestic capex for companies such as Hindalco," G Chokkalingam, founder and MD, Equinomics Research, said.

Hindalco's US-based subsidiary Novelis continues to be cautious on future capex amid global volatility. “While the re-opening of China is a positive for both aluminium demand and its price on the London Metal Exchange (LME), the company remains in wait-and-watch mode for now,” added Pai.

"Most of us are hoping that the Chinese economy picks up because half of any metal demand, including aluminium, comes from China. If it does, metal prices have an upside," Pai said.

The benchmark LME aluminium price has fallen off its record high ($4,000 per tonne) in early 2022, sliding 40 per cent to $2,400 per tonne. This is due to factors such as the Russia-Ukraine conflict, recessionary fears in the US and Europe, likely US sanctions on Russian aluminium, and China's Covid-19 challenges.

The volatility in aluminium price and demand, said experts, pushed Novelis to cut its FY23 capex outlay a few months ago to $900 million-$1billion from $1.3-1.6 billion. Pai said that Novelis' volumes also fell sharply in the December quarter, hit by destocking concerns as inventories were too high during the period.

"But the fourth quarter should be better than the third as the demand outlook will likely stabilise," Pai said.

In a call with analysts following Hindalco's Q3 results, Novelis's chief executive officer (CEO) Steve Fisher said that construction was underway at Bay Minette, Alabama for a $2.5-billion aluminium plant, which was expected to be completed by the middle of calendar year 2025. The company is also building an automotive recycling facility in Kentucky for $365 million. This project would be completed by calendar year 2024, he said.

“We will pace our cash flows the best we can on these projects over the next few years. The projects that we'll slow down would be the China integration between the Zhenjiang and Changzhou facilities, and then further expansions that we had anticipated in South America and Europe,” Fisher said.