Nalco expects its alumina output to rise by 1 million tonne in next 4.5 years, of which 21.8 lakh tonne can be obtained in FY16, NR Mohanty, CMD, Nalco told CNBC-TV18.
Nalco made a record profit of Rs 1322 crore last year but now the market is crashing due to Chinese dump entering the aluminum market, he said.
The company expects the 3 million tonne Pottangi bauxite mine to be alloted by FY17. There are talks of state government introducing new Corporate Social Responsibility (CSR) policy for the mines located in this region, he said. As of now, the company contributes 2 percent of its profits as CSR for District Mineral Fund (DMF).
Meanwhile, the un-auctioned Utkal-D and Utkal-E coal blocks are likely to be re-allocated to Nalco soon.
Below is the edited transcript of NR Mohanty’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.
Sonia: The big trigger that most analysts are awaiting is your Pottangi mine lease which is critical for your refinery expansion. Can you give us more details of when you expect the grant for this three million tonne mine lease to come though and when could we expect it finally to come on stream?
A: For Pottangi mines, government had imposed certain conditions like Corporate Social Responsibility (CSR), etc. in the region where the mine is located and we have met all the conditions and written to State Government. So, we hope that soon state government may recommend this lease to central government, which is the requirement.
Sonia: So, do you think that by FY17, the refinery could come on stream or would you have to wait longer?
A: It will come on stream by FY17, because construction itself takes around four to four and half years. So, we have at last taken the investment decision based on Pottangi and we are going to add the management clearance and other things. We are expecting that Pottangi will be alloted within one year.
Latha: Since you spoke about CSR, let me just finish that part of my questions. What is the potential hit that Nalco will get because of the contribution to the District Mineral Fund (DMF) and what was the amount you had to give in FY15?
A: As per the present policy, we are contributing two percent of our profit to CSR funds. And we are operating through district administration, that is Rehabilitation and Peripheral Development Advisory Committee (RPDAC), where Nalco foundation spends one percent in the peripheral areas. But as and when the DMF comes up, we will contribute to DMF.
Latha: No idea? Not even a ballpark figure for current year?
A: Current year, DMF is not yet decided, but we are contributing two percent of profit as usual.
Sonia: Can you just give us more details on the alumina refinery expansion? Currently you sell about 66 percent of your output in the open market. Once your expansion plans get completed? How much will your alumina output go up by?
A: By one million tonnes.
Latha: And when will that happen?
A: That will happen around four and a half years from now.
Latha: So, you will need coal linkages for that, is it not? You will need electricity basically.
A: Not much coal linkage is needed for the refinery does not consume much coal. We can survive by purchasing from open market as well because they are not giving aluminium sector priority for coal linkages.
Sonia: That is true. By one million tonne, you said that it will go up by. So, what will the total capacity be of production by FY16 end?
A FY16 end, it will be 21.8 million tonne. That memorandum of understanding (MoU) I have signed with the Government of India. It will be 21.8 lakh tonnes.
Latha: What are your margins on alumina and what are your margins on aluminium at this point in time and how does it compare to say a year ago levels?
A: I cannot disclose the exact figures of margins but it is good that is why we have made a record profit of Rs 1,322 this year, almost more than double the last year’s profit. London Metal Exchange (LME) is falling because of China’s dumping of Aluminium into the market. Now, LME is falling, so prices are falling. Results may not be as good next year.
Latha: So, on a base of Rs 7,400 crore of turnover in FY15, how much could your turnover be in FY16?
A: It will be around more than Rs 8,000 crore.
Sonia: You were telling us about the Pottangi mining lease. What about the Utkal-E coal block? Could we expect that in current fiscal as well?
A: Yes, we heard that government is taking a decision regarding these blocks within a month or two. Utkal-D, which was de-allocated by Supreme Court, has not yet been auctioned for it was kept for government companies. So, we expect that Utkal-D and E will be reallocated to Nalco.
Sonia: So when could it be re-allocated and if and when it is done, how much could it aid your margins?
A: Within another two months, we expect that a decision will be taken by the coal ministry for allocation.
Latha: You said that now, prices are crashing and margins therefore will be under pressure, even if you do not give me segment wise, last quarter when you reported, your operating margins were at 23.8 percent which was much better than the previous year’s less than 17 percent. How much will 24 percent fall to?
A: If you see the quarter results, then last quarter ending March was 16.69 percent in 2014 and this year it has become 14.17 percent.
Latha: So, in FY16 it might be 14, is what you are saying?
A: Yes, FY16, we hope to maintain almost the same.
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