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Plant visit takeaways
Key takeaways from our visit to Hindalco’s Mahan and Renukoot facilities are
– (1) Commissioning of Mahan smelter and CPP (Unit 1) are targeted for Dec-
11, though we see some risk of delays in the CPP, (2) Hindalco is hopeful of
getting approval for Mahan coal block in the 9-Oct GoM meeting but mine
development will take ~15 months and full benefit of captive coal will come
only by FY15, (3) Multiple initiatives are underway at Renukoot to increase
productivity and lower costs, (4) Hindalco has undertaken commendable CSR
initiatives, and (5) The visit helps us better appreciate the infrastructural
challenges (e.g. bad roads) hurting new projects of firms such as Hindalco.
Mahan – project execution and resource linkage are key
Hindalco is aiming to start progressive commissioning of Mahan smelter by Dec-
11 and fully commission the project by Mar-13. It also expects to start the first
150MW unit of the CPP in Dec-11 (we see risk of some delays here) and the entire
900MW by Jun-12. Hindalco is targeting 200kt aluminium production from Mahan
in FY13 (we are building 144kt). We think that Hindalco’s decision to choose a
superior technology (AP36S) and a reputed power plant vendor (BHEL) will make
ramp-up and long-term operations easier. Hindalco is hopeful of getting approval
for the Mahan coal block in the 9-Oct GoM meeting. However even if this happens,
mine development will take ~15m and Mahan will have to depend on taperinglinkage/
e-auctions/imports for FY13 and part of FY14 as well. In the absence of
captive coal and alumina, Mahan is unlikely to make any profits in FY13.
Renukoot – productivity & cost reduction initiatives underway
Hindalco has multiple productivity enhancement and cost reduction initiatives
underway at Renukoot and is planning to increase production from the smelter by
~10kt each year. Renukoot receives 70% of its bauxite from captive mines.
Although the captive mines still have remaining life of ~15 years, the quality of
bauxite has deteriorated over the years. We see some risk of higher dependence
on external bauxite which could lead to higher costs. Hindalco has applied for new
bauxite mines, which are in various stages of approval and can add ~25 years to
mine life. A new mine allocation will be a long-term positive.
CSR initiatives commendable; visit helps us appreciate infra challenges
We return impressed by the CSR initiatives undertaken by Hindalco at Renukoot
which include operating a hospital, a school, and a training centre. Hindalco is also
supporting local farmers and promoting computer literacy among children. The
housing colonies for displaced people at Mahan are also impressive. Our visit has
also helped us better appreciate the severe infrastructural challenges (extremely
bad roads) that companies such as Hindalco face in developing new projects in
remote areas, and has made us view project execution delays in that perspective
Maintain U-PF on the stock
Despite recent stock correction, we maintain U-PF as we see downside risk to our
FY12-13 estimates given spot aluminium prices are 14-20% below our forecasts.
Other takeaways from Mahan plant visit
Technology: The Mahan smelter is based on AP36S technology from Rio
Tinto Alcan – one of the most advanced smelting technologies currently and
superior to Chinese GAMI technology. AP36S entails ~US$200-300/t higher
capital investment than GAMI, but has higher pot productivity (higher current
rating), supports higher automation and is easier to stabilize. Mahan smelter
will also have lower fixed costs than Renukoot smelter as it will require ~1/6th
workforce despite similar smelting capacity.
Mahan coal block: Mahan coal block was categorized as under ‘No-Go’ area
by the earlier environment minister and was denied forest clearance. However,
the new environment minister has ruled against a blanket ban policy and has
agreed to consider projects, even in dense forest areas, on a case by case
basis. Hence, Hindalco is hopeful that Mahan coal block may get clearance in
the next GoM meeting scheduled on 9-Oct. However even if this happens,
mine development will take ~15 months and Hindalco will have to depend on
Coal India for a 'tapering linkage' in FY13. Given Coal India's production woes,
it is quite likely that Hindalco might have to depend on e-auction / imported
coal in FY13, which will impact costs. Even in FY14, captive mine will not
produce more than half of the total coal requirement of the smelter and the
full benefits will be achieved only by FY15 at the earliest. Moreover, Mahan
CPP is designed for lower calorific value (CV) domestic coal and can use
2,800-4,500 kcal coal. The management mentioned that even if the company
imports coal in the interim period it will still need a source of domestic coal to
blend higher CV imported coal.
Alumina: Utkal refinery, which will supply alumina to the Mahan smelter, is
also facing project delays and is now expected to come up by FY14. In the
meantime, Hindalco plans to use some of its surplus alumina (~190kt) from
Renukoot and Muri. Any alumina requirement over and above this might have
to be imported.
Commissioning: The smelter has 360 pots of which 40 pots are expected to
be commissioned by Dec-11 and the full 360 by Mar-13. As per the company,
a pot requires about 3 months to ramp up after commissioning.
Future plans: Hindalco has sufficient land at Mahan to double the smelting
capacity at the plant – positive given that land acquisition is one of the
biggest challenges in setting up a greenfield project. The company is also
evaluating adding downstream facility such as wire rods at the Mahan facility.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Plant visit takeaways
Key takeaways from our visit to Hindalco’s Mahan and Renukoot facilities are
– (1) Commissioning of Mahan smelter and CPP (Unit 1) are targeted for Dec-
11, though we see some risk of delays in the CPP, (2) Hindalco is hopeful of
getting approval for Mahan coal block in the 9-Oct GoM meeting but mine
development will take ~15 months and full benefit of captive coal will come
only by FY15, (3) Multiple initiatives are underway at Renukoot to increase
productivity and lower costs, (4) Hindalco has undertaken commendable CSR
initiatives, and (5) The visit helps us better appreciate the infrastructural
challenges (e.g. bad roads) hurting new projects of firms such as Hindalco.
Mahan – project execution and resource linkage are key
Hindalco is aiming to start progressive commissioning of Mahan smelter by Dec-
11 and fully commission the project by Mar-13. It also expects to start the first
150MW unit of the CPP in Dec-11 (we see risk of some delays here) and the entire
900MW by Jun-12. Hindalco is targeting 200kt aluminium production from Mahan
in FY13 (we are building 144kt). We think that Hindalco’s decision to choose a
superior technology (AP36S) and a reputed power plant vendor (BHEL) will make
ramp-up and long-term operations easier. Hindalco is hopeful of getting approval
for the Mahan coal block in the 9-Oct GoM meeting. However even if this happens,
mine development will take ~15m and Mahan will have to depend on taperinglinkage/
e-auctions/imports for FY13 and part of FY14 as well. In the absence of
captive coal and alumina, Mahan is unlikely to make any profits in FY13.
Renukoot – productivity & cost reduction initiatives underway
Hindalco has multiple productivity enhancement and cost reduction initiatives
underway at Renukoot and is planning to increase production from the smelter by
~10kt each year. Renukoot receives 70% of its bauxite from captive mines.
Although the captive mines still have remaining life of ~15 years, the quality of
bauxite has deteriorated over the years. We see some risk of higher dependence
on external bauxite which could lead to higher costs. Hindalco has applied for new
bauxite mines, which are in various stages of approval and can add ~25 years to
mine life. A new mine allocation will be a long-term positive.
CSR initiatives commendable; visit helps us appreciate infra challenges
We return impressed by the CSR initiatives undertaken by Hindalco at Renukoot
which include operating a hospital, a school, and a training centre. Hindalco is also
supporting local farmers and promoting computer literacy among children. The
housing colonies for displaced people at Mahan are also impressive. Our visit has
also helped us better appreciate the severe infrastructural challenges (extremely
bad roads) that companies such as Hindalco face in developing new projects in
remote areas, and has made us view project execution delays in that perspective
Maintain U-PF on the stock
Despite recent stock correction, we maintain U-PF as we see downside risk to our
FY12-13 estimates given spot aluminium prices are 14-20% below our forecasts.
Other takeaways from Mahan plant visit
Technology: The Mahan smelter is based on AP36S technology from Rio
Tinto Alcan – one of the most advanced smelting technologies currently and
superior to Chinese GAMI technology. AP36S entails ~US$200-300/t higher
capital investment than GAMI, but has higher pot productivity (higher current
rating), supports higher automation and is easier to stabilize. Mahan smelter
will also have lower fixed costs than Renukoot smelter as it will require ~1/6th
workforce despite similar smelting capacity.
Mahan coal block: Mahan coal block was categorized as under ‘No-Go’ area
by the earlier environment minister and was denied forest clearance. However,
the new environment minister has ruled against a blanket ban policy and has
agreed to consider projects, even in dense forest areas, on a case by case
basis. Hence, Hindalco is hopeful that Mahan coal block may get clearance in
the next GoM meeting scheduled on 9-Oct. However even if this happens,
mine development will take ~15 months and Hindalco will have to depend on
Coal India for a 'tapering linkage' in FY13. Given Coal India's production woes,
it is quite likely that Hindalco might have to depend on e-auction / imported
coal in FY13, which will impact costs. Even in FY14, captive mine will not
produce more than half of the total coal requirement of the smelter and the
full benefits will be achieved only by FY15 at the earliest. Moreover, Mahan
CPP is designed for lower calorific value (CV) domestic coal and can use
2,800-4,500 kcal coal. The management mentioned that even if the company
imports coal in the interim period it will still need a source of domestic coal to
blend higher CV imported coal.
Alumina: Utkal refinery, which will supply alumina to the Mahan smelter, is
also facing project delays and is now expected to come up by FY14. In the
meantime, Hindalco plans to use some of its surplus alumina (~190kt) from
Renukoot and Muri. Any alumina requirement over and above this might have
to be imported.
Commissioning: The smelter has 360 pots of which 40 pots are expected to
be commissioned by Dec-11 and the full 360 by Mar-13. As per the company,
a pot requires about 3 months to ramp up after commissioning.
Future plans: Hindalco has sufficient land at Mahan to double the smelting
capacity at the plant – positive given that land acquisition is one of the
biggest challenges in setting up a greenfield project. The company is also
evaluating adding downstream facility such as wire rods at the Mahan facility.
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