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HOME   >  CORPORATE INFO >  MANAGEMENT DISCUSSION
Management Discussion      
National Aluminium Company Ltd.
BSE Code 532234
ISIN Demat INE139A01034
Book Value 86.33
NSE Code NATIONALUM
Dividend Yield % 1.40
Market Cap 392212.72
P/E 12.38
EPS 17.25
Face Value 5  
Year End: March 2015
 

Management Discussion & Analysis Report

1. INDUSTRY STRUCTURE & DEVELOPMENTS

Aluminium is third most available element in the earth constituting almost 7.3% by mass. Currently it is also the second most used metal in the world after steel. The consumption of aluminium in India is dominated by the industries like power, infrastructure, transportation and packaging etc.

India is world's fifth largest aluminum producer with an aluminum production of around 2.0 million tonnes, accounting almost 3.7% of the total aluminum production in the world. India is also a huge reservoir of Bauxite with a Bauxite reserve of 3 billion tonnes.

Development in the Alumina and Aluminium industry during the year 2014-15 are detailed below:

Alumina

The world alumina production grew by 4.8% during 2014 to reach a level of 106.26 million tonnes against 101.39 million tonnes in 2013. Correspondingly, world alumina consumption grew during the same period by 7.0% reaching 105.44 million tonnes in 2014 from 98.65 million tonnes in 2013. This has led to a global surplus of about 0.82 million tonnes in the year. China continued to be the world leader in both production and consumption of metallurgical grade alumina during the year, accounting for about 49% of global production and 53% of global consumption. Besides China, highest demand growth of more than 20% y-o-y has been seen in Middle Eastern countries.

World ex-China metallurgical grade alumina (MGA) production is estimated to reach 56.5 million tonnes in 2015 while production from China is expected to reach about 56.0 million tonnes in the year. Thus, total world production of alumina during 2015 is expected to reach 112.5 million tonnes, recording an annual growth rate of 5.9%.

Although Chinese alumina demand is likely to remain strong in 2015, prices of alumina are expected to be under downward brssure, due to weaker Chinese economic activity and falling aluminium prices.

Despite these developments, demand for metallurgical grade alumina (MGA) is expected to increase during 2015, primarily on the back of strong demand for alumina in Middle East & China.

Aluminium

The global economy grew by 2.6% in 2014, marginally better than 2.5% in 2013. The global economy was affected by the slowdown in emerging economies e.g. China, Brazil, Russia and the persistent sluggishness in Europe and Japan. The global economy is expected to grow by 2.8% in 2015 before strengthening moderately to 3.2% in the 2016-2017 period.

Global aluminium production grew by 6.9% from 50.59 million tonnes in 2013 to 54.11 million tonnes in 2014 while global consumption grew by 7.4% from 50.26 million tonnes in 2013 to 53.97 million tonnes in 2014. The aluminium market, thus, recorded a marginal surplus of 0.14 million tonnes in 2014. China continued to be the world's largest producer and consumer of aluminium with a production level of 28.3 million tonnes, constituting roughly 52% of total global output and consumption level of 27.2 million tonnes, constituting roughly 50% of world consumption.

Growth of production in China during 2014 was about 14% while that in the rest of the world was 0.4%. Similarly, growth in consumption of primary aluminium was recorded at 12% in China and 3% in the world ex-China during 2014.

Global demand appears to have entered a period of flux, with large variations seen in off-take of different regions. Macroeconomic indicators suggests that the Chinese economy has slowed significantly. Slowing demand from the construction sector, which accounts for nearly one-third of total demand for aluminium in China is likely to have a significant impact on aluminium demand. However, North American demand growth is expected to be high in 2015, considering the improving economy and increasing intensity of usage of aluminium in the transport sector.

The LME aluminium prices have been highly volatile throughout the year fluctuating between a low of USD 1641.5 in Feb'14 (which was the lowest level for the last 5 years) to a high of USD 2099 in Nov.'14. Aluminium metal prices declined during the 1st Qtr of 2014 and increased during the 2nd Qtr with increased demand and market deficit in the World ex-China. Prices again declined in the 4th Qtr due to the slump in oil prices as well as strengthening of the US Dollar.

The LME cash settlement price average for 2014 was USD 1866 and average prices are expected to remain at similar levels during 2015. Bearish commodity prices, export of Chinese surplus stocks and a strong USD are expected to put brssure on aluminium prices in 2015.

2. OPPORTUNITIES AND THREATS:

Opportunities

The demand for aluminium wire rods in the country is likely to show a higher growth with increased Governmental investment in the power transmission sector. Packaging and Industrial machineries, particularly the automobile sector are also expected to show growth. Opportunities also exist in the downstream and value-added product segment e.g. sheets, extrusions and castings. R&D efforts to bring in new usages and applications, exploration and collaboration with other industries where aluminium could substitute other materials, development of alloys to suit the requirements of various industries, changing the design pattern with a view to improving the functionalities of different products etc. may be attempted. Opportunity continues to exist in the domestic market as per capita consumption of aluminium in India is among the lowest in the world, standing at 1.4 kg as compared to the world average of 8 kg.

Threats

Global prices of aluminium have remained under brssure on account of a number of factors including the high global inventory of the metal, concerns about the performance of the Chinese economy, the apbrciation in the USD etc. Prices of aluminium are generally expected to remain low in the near-term due to the subdued global demand for the metal, as well as the uncertain macro-economic environment brvailing globally. LME cash prices are expected to average around USD 1,875 during 2015.

Although demand growth has been lower than expected in China - the world's largest producer and consumer of the metal, apbrhensions of oversupply remain, as many Chinese primary producers have been ramping up smelting projects.

Overall, the growth rate of primary metal supply in India is higher than the demand growth for the primary metal which may lead to a widening of the surplus.

Power is one of the major inputs for aluminium production, constituting roughly 40% of the production cost. Substantial increase in cost of coal in recent past has put additional cost brssure on aluminium producers in India. On the other hand, the availability of low-cost aluminium from smelters in West Asia is expected to impact Indian smelters, where production capacity has increased considerably in the past decade due to cheap gas from oil refineries making the region ideal to set up aluminium plants.

Other threat perceptions for the Indian aluminium industry includes competition from large scale scrap imports, large scale availability of substitute materials particularly plastics and increasing input costs.

3. OUTLOOK FOR FUTURE

International Outlook

In 2015, after China, India is expected to register the highest increase in production considering the greenfield and brownfield expansion plans of Indian primary producers. Although, production in India and Western Europe is expected to be strong in the near term, it is expected that factors such as a lower global prices and higher Chinese exports may lead to curtailments and capacity closures and also hinder the development of new projects and restarts in the rest of the world. However, the production losses so entailed are expected to be offset by the continuous growth in output from China.

The main sectors expected to drive global demand for the metal are aerospace, automotive, packaging and commercial construction.

Domestic Outlook

The Indian economy grew at 7.4% during 2014-15, compared to 6.9% in 2013-14, due to a pickup in the manufacturing sector. India's GDP growth is expected to strengthen to 7.5% in 2015-16, as a consequence of policy reforms and a pickup in investment.

The total domestic production of aluminium metal during FY 14-15 grew by 18.3% y-o-y from 1.73 million tonnes in 2013-14 to 2.05 million tonnes in 2014-15. Total domestic consumption of primary metal during 2014-15 remained practically flat with respect to 2013-14 levels at 1.58 million tonnes. Primary aluminium exports by Indian producers also registered an imbrssive 58% growth from 0.49 million tonnes in 2013-14 to 0.77 million tonnes in 2014-15.

Indian aluminium production is expected to rise further in 2015-16, as the operating capacity of primary producers increases further. However, availability of coal and coal prices are major limiting factors. Production level of primary aluminium in the country is estimated to reach around 2.4-2.5 million tonnes in 2015-16.

With increasing investment by the Central Government in the power transmission sector during 2014, India has seen improved demand growth from the electrical sector, which is likely to continue through 2015. Demand growth is likely to be highest in transport, building and construction sectors, but other sectors are also expected to grow simultaneously.

Future growth prospects for aluminium in the country are seen in products like beverage cans, alloy wheels, automobile bodies, railway coaches etc. Growth is also being seen in use of aluminium in the housing sector, in view of the growing emphasis on protection of environment and curtailment of deforestation.

4. RISKS & CONCERNS

Aluminium industries would be adversely affected by the increase in cost of coal as CPPs are not high in the priority in matter of coal blocks / coal linkage allocation. As per the brsent policy of Govt. of India for allotment of coal mines to Government companies, NALCO will be eligible for allotment of coal mines earmarked for CPP only. Govt. of India is yet to notify such allotment of coal mines.

Availability of new bauxite mines particularly Pottangi mines, improvement of ground situation in the mining area in Andhra Pradesh and allocation of captive coal block may affect its growth plan.

Further, the cancellation of allocation of Utkal-E coal block in view of the order of Hon'ble Subrme Court has an adverse impact on availability of coal to CPP. The Company, however, is pursuing with Govt. of India for re-allocation of coal block under the allocation route as the end use investment is already made.

Poor quality of coal being received, higher reactive silica content in the bauxite, resulting in higher consumption of caustic soda. Volatility in LME prices, declining export brmiums, fluctuations in US Dollar exchange rates, rising raw material costs - particularly coal prices, slowdown in the global economy and growing competition from secondary producers in the domestic market continue to remain causes of concern.

5. RISK MANAGEMENT

The company has a risk management policy in place, which inter-alia incorporates guidelines issued by Govt. of India from time to time. Risk Management is undertaken as a part of normal business practice and that as separate tasks at set times.

The company has a Risk Management Committee at Board level. The Committee reviews the exceptional Risk Reports and advise remedial measures from time to time. The risk mitigation measures are periodically reviewed to ensure that executive management controls risks through means of a properly defined frame work. Periodical review is made to identify new risk areas along with mitigation plans. For the identified risks the nominated risk officers maintain risk registers in brscribed format which are also overviewed by internal auditors of the company as well as at senior management level. Deviations, if any, are reported to the Audit Committee and Risk Management Committee.

6. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The company's internal financial control mechanism for financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the brparation of financial statements in accordance with generally accepted accounting principles. This includes the policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit brparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company. The Company has a defined delegation of power with financial limits for approving revenue as well as expenditure.

Besides, the Company has well established internal control systems, commensurate with the nature and size of its operations. The Company has entrusted its internal audit function to eight well experienced external Chartered Accountants' firms for objective and impartial assessment of its financial and non-financial transactions carried during the year under report including assessment of Statutory Compliances and reviewing risk management practices. The internal audit reports submitted by the auditors are discussed at functional directors level in the first instance and then material observations are submitted to the Audit Committee for its review, analysis and advice to further strengthen the internal control systems covering all functional areas. The company also facilitates interaction among Statutory Auditors, Cost Auditors & Internal Auditors at regular intervals to discuss various issues involving internal controls and measures to be taken for improvement. Action taken report on the observations of Audit Committee on internal audit reports are regularly submitted to the Audit Committee.

7. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT INCLUDING NUMBER OFPEOPLE EMPLOYED

Training

Human Resources Development is the key for the success of our organization. Keeping this in mind and the targets set, functional and developmental training needs are identified from multiple sources, primary being, the competency related needs, secondly,needs arising from organizational requirements and finally departmental / sectional imperatives. Emphasis is being placed on specific position related training needs and there is an attempt to customize programmes, to the extent possible. Training effectiveness evaluation is also carried out in line with the requirement of quality management systems, to measure the benefits emanating from the action.

8. CORPORATE PLAN AND BUSINESS DEVELOPMENT

The Company has adopted vision 2020 to become a reputed global company in metals and energy sectors. The Corporate Plan drafted in 2009 enumerates the Company’s plans to expand in alumina and aluminium sectors in India and abroad, to diversify into power sector and to look for business opportunities in other metals. However, in the backdrop of continuing uncertainties in the global business environment coupled with the changing landscape of business, industry and regulatory framework within the country, the company will revisit its strategies for growth and sustainability. A new Corporate Plan, spanning a horizon of 10 years is envisaged with the support of a consultant of global repute. The plan is proposed to be robust yet flexible to meet the challenges of the evolving future.

l Alumina Refinery Project in Gujarat

NALCO is pursuing to set up 1 MTPA Alumina Refinery in Kutch district of Gujarat based on supply of bauxite from GMDC’s mines. Detailed Project Report (DPR) for the project has been brpared. The Company is in discussion with GMDC for establishing the availability of bauxite for the project.

Nuclear Power Plant in JV with Nuclear Power Corporation of India Ltd. (NPCIL)

JV Company NPCIL- NALCO Power Company Ltd "NNPCL" has been incorporated in March, 2012. Kakrapar Atomic Power Project (3&4) has been selected as the first project for the JVC of NPCIL & NALCO. Rs. 2.6 lakhs paid to the JV Company in Mar, 2013 towards initial paid-up capital. Further equity infusion would be made after approval of Govt. of India for establishment of the project in JV mode.

14 MW Wind Power Plant at Damanjodi

The Company is planning to set up a 14 MW Wind Power Project in mined out area of its bauxite mines in Damanjodi. Detailed Feasibility Report (DFR) has been brpared which is under examination.

100 MW Wind Power Plant

NALCO plans to set up 100 MW Wind Power Project at suitable location(s) in India at an estimated investment of Rs. 660 crore. Selection of wind firm developer is underway.

Solar Power Projects

The Company plans to set up 20 MW scale Solar Power Plant at a suitable location in India to meet its solar Renewable Purchase Obligation (RPO).

NALCO commissioned 260 KWp roof-top Solar Power System at its Corporate office and township buildings at Bhubaneswar. The Company also plans to establish 3.8 MW rooftop solar projects at various buildings at CPP and Smelter at Angul & NALCO Research & Technology Centre (NRTC) at Bhubaneswar under MNRE subsidy scheme.

Caustic Soda Project

NALCO plans to set up 2.7 Lakh TPA Caustic Soda Plant along with 100 MW Captive Power Plant at Dahej in Gujarat at an estimated investment of Rs. 1789 crore in JV with M/s GACL for which JV-cum-Share Holder's Agreement has been signed on 23rd June, 2015. Detailed Project Report (DPR) for the project has been brpared.

Titanium Slag Project

NALCO has revived the MOU with IREL in July, 2014 for development of 1 LTPA Titanium Slag Project at Chhatrapur in Odisha in JV. Pre-feasibility Report for the project is being brpared.

Overseas Smelter

NALCO is exploring the opportunity to set up a Greenfield aluminium smelter in a country where energy would be available at a competitive price. Based on a study carried out by the consultants two countries have been identified to pursue further.

Alumina Refinery- 3rd Expansion

Board has accorded approval for setting up of 5th Stream of 1 MTPA capacity in existing Alumina Refinery at Damanjodi at an estimated CAPEX of Rs. 5,540 Crore. The project is envisaged with Medium Pressure Digestion Technology. Sourcing of the Bauxite is planned from Pottangi Mines, for which matter is being perused with Govt. of Odisha. However, pending the same, br-project activities have been initiated considering sourcing of Bauxite from existing Panchpatmali deposits.

220 KV Transmission Line Project from Laxmipur to Damanjodi

For stable and reliable grid connectivity and for uninterrupted power supply to its Alumina Refinery, construction of 220 KV transmission line from Laxmipur to Damanjodi of about 38 KM and up-gradation of brsent Sub-station at Damanjodi at a capital outlay of Rs. 95 Crore is under implementation.

Back Pressure Turbo-Generator

Another Back Pressure Turbo-Generator (BPTG) having rated capacity of 19.5 MW is being installed at Steam-cum-Co-Generation Power Plant of Alumina Refinery complex at a capital outlay of Rs. 42 Crore to augment its captive power source. The project is likely to be completed by Sept' 15.

9. ANCILLARY DEVELOPMENT

In line with Government Policies, the Company continued its efforts for promotion of Ancillary Industries. The "Best Mother Plant" award given to the Company during Odisha MSME Trade Fair 2015 for maximum purchases from MSE industries, stands ample testimony for the efforts made by the Company in this direction.

Major initiatives taken during the year for development of ancillary industries are as follows:

• Two more vendors from Odisha were accorded Ancillary status. With this, the total number of Ancillary units of the Company has now increased to 59.

• The procurement of Goods and Services from MSE (Micro and Small Enterprise) units of Odisha including Ancillary Units for the financial year 2014-15 stands at Rs. 270.18 crores. The total procurement of Goods and Services from MSE units (including those from outside Odisha) stands at Rs. 350.01 crores during financial year 2014-15 as compared to Rs. 294.41 crores during financial year 2013-14 which shows an increase of 18.89%.

• A Booklet titled as "Micro and Small Enterprise Product Profile" on products to be developed by MSEs for Smelter and Power Complex published during the year was apbrciated by MSME Industry Associations and Entrebrneurs.

• The 19th PLAC (Plant Level Advisory Committee) Meeting was held at Bhubaneswar on 25.08.2014. The PLAC Sub-Committee meetings was also held at S&P Complex in February, 2015.

• Besides, Buyers and Sellers interaction meetings and various training programmes were conducted at the Company's Training Institute at S&P Complex, Angul.

• Entrebrneurs week was also organized at M&R Complex, Damanjodi. Since the Company has adopted e-procurement process, as per Govt. of India guidelines, emphasis was given to facilitate and enable the MSE vendors by way of training support and hand holding support to participate in the e-procurement processes of the Company.

• Participated in various MSME exhibitions like "MSME Expo Odisha 2014" organized by MSME, Director of Industries, Cuttack, Odisha from 11.12.2014 to 14.12.2014 and "Odisha MSME Trade Fair 2015" organized by the Ministry of MSME, Govt. of Odisha.

10. SAFETY, OCCUPATIONAL HEALTH & ENVIRONMENT

As a Responsible Corporate entity, NALCO is committed for a cleaner, greener and safe working environment in all its production units. All production units are certified to International Standards, on Environmental Management Systems (ISO 14001) as well as Occupational Health and Safety Management Systems (OHSAS 18001).

Nalco proactively takes steps to meet the challenges of upcoming stringent statutory regulations from time to time.

For developing awareness on environment, Safety and Health, NALCO imparts internal as well as external training to its employees, contractor workers, celebrates Environment, Safety and Health functions like World Environment Day, Vanamahotsav, Chemical Disaster Prevention Day, Ozone Day, National Safety Day/Week, Electrical Safety Week, Road Safety Week and continuously publication of Bulletins, Newsletter and Annual journal.

NALCO's overall efforts and achievement towards Environment, Safety and Health related issues during the Financial Year 2014-15 are briefed below:

Sustainable Mining

Reclamation and rehabilitation of mined out area are carried out as per progressive Mine Closure Plan, approved by IBM. The reclaimed area is biologically rehabilitated by carrying out plantation of suitable species. During 2014-15, 20.38 Ha of mined out areas were reclaimed, with total cumulative area reclaimed and rehabilitated in Mines as on 31.3.15 being 263.30 Ha. 30,89,853 nos. of trees belonging to about 66 different species are planted in and around Mines. Peripheral barrier of more than 7.5 mt. width is left all along the mined-out area with green belt developed over it. Garland drains around the mining area are maintained to drain surface run-off water following natural gradient. Dust supbrssion in mining area is being carried out by water sprinkler using mobile tankers and auto sprinkler system along the central haul road.

Environment Management

• All operating units of your Company are operated with valid "Consent to Operate" under Water (PCP) Act, 1974 & Air (PCP) Act, 1981, valid authorizations under Hazardous Waste Management and Handling Rules, Municipality Solid Waste Management Rules, Biomedical Waste Management and handling Rules & valid licenses under Factories Act, Explosive Act etc. applicable to the organization.

• All operating units of your Company have adopted Zero Discharge with respect to their waste water management as well as sewage waste water management. The treated waste water were recycled and reused in the process/ horticulture purposes.

• Company has adopted rooftop rain water harvesting, surface run off rain water harvesting systems at its different operating units during the year.

• The hazardous waste, Bio-medical waste and the municipality solid waste are disposed off in line with the authorization conditions and concerned regulations.

• For monitoring waste water quality, stack emission, ambient air quality laboratory facilities along with installation of monitoring equipments associated with Laboratory testing facilities have been provided in all its operating units.

The improvements taken up in the field of Environment Management at different units of your Company during the year are:

Bauxite Mines

• 1,00,343 nos. of trees were planted at Mines.

• Stage-II Forest clearance has been granted by MoEF& CC, GOI during 15th September 2014 for the 1st Renewal of Mining Lease of North & Central Block of Panchpatmali Bauxite Mine.

Smelter Plant

• Online monitoring system at the Fume Treatment Plant stacks, online effluent monitoring system at the Effluent Treatment Plant installed to monitor continuously the discharge data.

• To control air pollution with latest dry scrubbing technology, erection and commissioning of Fume treatment centre at Bake oven-I completed on 31.12.2014.

Captive Power Plant

• To further reduce stack emission, the project of retrofitting of Electro Static Precipitators by installing an additional pass and revamping of exiting old ESPs (Unit-1,2,3,4,5,& 6) has been completed.

• Installation of 4 Nos. of Continuous Ambient Air Quality Monitoring Station for ambient air quality monitoring with digital display & transmission of data to OSPCB through GPRS has been completed. Regarding transmission of stack data to OSPCB, Unit-9 has already been connected with the server of OSPCB. Connectivity of rest of the Units is under way.

• To control fugitive dust at CHP-II crusher house, DE system has been installed which is controlling fugitive coal dust emission in that area.

• On line effluent monitoring system with provision of data transmission has been installed at the outlet of Industrial Drain Recycling System.

• Ash utilization for the year 2014-15 is 23.78%. Efforts are on to complete the lean slurry project to achieve 100% ash utilization.

• During the year 2014-15 around 15,000 nos. of trees were planted inside Plant brmises.

Safety Management specific to Units

Bauxite Mines

• Training on "Safe use & Handling of Explosives" was imparted to blasting crew members during the year.

• Dust, Noise and Equipment Vibration Survey by National Institute of Miners Health (NIMH), Nagpur was carried out during the year. All the parameters are within brscribed norms.

• There were no fatal, serious, reportable and minor accidents at Mines during the year.

Refinery Plant

• All fire management activities were carried out and there was no major fire incidence during the year.

• There was no reportable Industrial Accident during the year.

Smelter Plant

• There were 4 nos. of reportable Industrial Accident during the year. Corrective & Preventive actions are taken based on the cause analysis.

Captive Power Plant

• In order to make aware on hazard & risk involved on daily activities, "TOOL BOX" talk / meeting started in all the departments on regular basis.

• For the first time 'Safety Report' has been brpared by Safety department for submission to DoFB, Odisha.

• There was 1 no. of reportable Industrial Accident during the year.

• During the year 592 nos. of employees and 7,057 nos. of contractual workers in the Company had undergone PME. No cases of occupational diseases were reported.

Occupational Health Management

• Company has provided Occupational Health Centre (OHC) at its S&P Complex as well as its M&R Complex. Both the OHC are provided with qualified Doctors, qualified Technical staffs associated with all modern testing facilities.

• Periodical Medical Examination (PME) for all employees of your Company as well as Contractor Workers are carried out at regular interval as per statute. No Occupational Diseases observed in both the complexes.

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