Group 1

Ajay Kumar (1411211)

G Nitin (1411224)
Krubakar M (1411237)
Nikhil Kumar Choudhary (1411251)
Shipra Agarwal (1411265)

Table of Contents
ALUMINIUM INDUSTRY IN INDIA
HINDALCO COMPANY OVERVIEW
RESOURCE BASED VIEW
RESOURCES
CONTROL ACROSS VALUE CHAIN
BRANDS
FINANCIAL STRENGTH
GLOBAL PRESENCE
CAPABILITIES
INBOUND AND OUTBOUND LOGISTICS
INTERNATIONAL MANAGEMENT
OPERATIONS
TECHNOLOGY AND R&D
VRIN ANALYSIS AND COMPETITIVE ADVANTAGE
CURRENT STRATEGY
OPPORTUNITIES AHEAD
LIGHT-WEIGHTING
APPLICATIONS IN AUTOMOBILE
MISCELLANEOUS APPLICATIONS
IMPLEMENTATION
RECYCLABILITY
IMPLEMENTATION
COST REDUCTION
IMPLEMENTATION

10

CONCLUSION

11

EXHIBITS

12

Aluminium Industry in India

India, with a population of over one billion consumed 1.7 million tonne of primary aluminium in
2013, while the world consumed 50 million tonne of primary aluminium the same year 1. 17 percent
of the world population consumed 3.4 percent of the worlds primary aluminium.
1 http://mines.gov.in/writereaddata/Contentlinks/442b759fc59c4445a95c6aa3c8dfe3fa.pdf, slide 5
1

We identified some of the key forces in play and the emerging trends that we believe will drive the
future growth of the industry.

The aluminium industry in India is an oligopoly. There are three major players with similar
market share. The main product, primary aluminium, is undifferentiated. The tiff is based on
price and quality, and the main contributing factor to bottom-line is the cost of production.

It is a highly capital intensive industry, as one needs to establish a number of facilities starting
from mining to smelters. The incumbents enjoy economies of scale and also have installed
capacity to retaliate against any new entrant and force him out of the market.

Bauxite and coal (power) are the two major raw materials for this industry. All incumbents
operate captive bauxite mines. Coal mining license or power is completely under control of the
government of India. Given the recent deregulation of coal sector and further upcoming
auctions, self-mining of coal will further reduce cost.

The major user segment for aluminium in India are electrical (48%), transport (15%),
construction (13%), packaging (4%), consumer durable (7%), machinery and equipment (7%)
and others (6%).2

Aluminium being a lightweight metal is going to have increased demand in the automotive,
consumer durable and packaging sectors.

The recyclability of aluminium will be a key growth driver for the industry in the future.
Producing secondary aluminium requires only 5 percent of energy and releases 5 percent of
Green House Gases in contrast to primary aluminium. This will substantially reduce the
production cost and any further upcoming carbon tax.

(Based on Submission 1)
Hindalco Company Overview
Established in 1958, Hindalco, part of the Aditya Birla Group, is a leading aluminium and copper
producer in India. Its first production facility was commissioned in Renukoot in Uttar Pradesh in
1962. It has grown rapidly since then and currently operates four plants producing primary
2 http://mines.gov.in/writereaddata/Contentlinks/442b759fc59c4445a95c6aa3c8dfe3fa.pdf, slide 78
2

aluminium, five for flat rolled products, two for extrusions, one for foils and one copper unit in
India.
Till 2003 Hindalco was an upstream player
focusing on primary aluminium as its major
product. Post 2003 it added downstream
operations to its portfolio, converting primary
aluminium to a number of value added
products. This was in part achieved through
mergers and acquisitions, the biggest being
Indal in India and Novelis in North America.
In 2013, 46% of Hindalcos revenue was from
the sale of primary aluminium and 54% from
value added (downstream) products3.
Three major players, Hindalco, Nalco and Vedanta (Sterlite) Industries, dominate aluminium
industry in India, with Hindalco capturing the highest market share of 39%4.

3 Hindalco_Annual_Report_2013-14
4 http://aluminium-india.org/Worldscenario.php
3

Resource Based View

Resources
We identified four key resources that act as a source of competitive advantage for the firm. They
are control across value chain, products and brands, Financial Strength and Global presence.

Control across value chain

Starting from bauxite mining to primary aluminium, Hindalco is present in every part of the value
chain including captive power plants. It is also the only aluminium producer in India that owns a
captive coal mine which is used for producing electricity in its power plants. Hindalco also
manufactures its own carbon anode to be used in the smelting process. Such a vast control over the
value chain enables Hindalco to be one of the lowest cost producers of aluminium globally.5
Brands
The final products fall into two categories primary aluminium in the form for ingots and billets,
and value added products like automobile bodies, roofing structures, extrusions, windows, foils etc.
5 http://emkayglobal.com/Uploads/EmkayResearch/Hindalco%20Industries%20Initiating
%20Coverage.pdf page 1
4

The value added products are sold as brands of Hindalco, which acts as a strong source of stable
revenue and sustained competitive advantage. Some of the major brands are shown below.

Financial Strength
Hindalco, backed by the conglomerate Aditya Birla group, has a global turnover of $14.5 billion 6.
It has invested over INR 30,000 crores in its Greenfield and Brownfield projects in India in the last
two years. It has a P/E ratio of 28, which is much higher than the industry average of 20 and this
displays the positive investor sentiment towards Hindalco.
Global Presence
Hindalco is the only Indian metals producer to be present in 11 countries. It operates 51 units with
a workforce of 34,000 from 15 nationalities. 30 percent of the company revenue comes from
exports7.

6 Hindalco_Annual_Report_2013-14
7 http://www.bseindia.com/bseplus/AnnualReport/500440/5004400314.pdf, page 2
5

Capabilities

Inbound and Outbound Logistics

Due to the control that Hindalco enjoys across the value chain, most of its facilities are located
within close proximity thereby minimizing the logistic costs. For instance, the power for the
Renukoot plant is sourced from their Renusagar captive power, which is situated 40 Km away. The
plant at Hirakud has attached facilities for producing downstream products like extrusions and flat
rolled products. Hindalco owns and operates a dry cargo handling facility in Dahej ( Dahej
Harbour and Infrastructure Limited) in the west coast of India.
International Management
Hindalco has grown through acquisitions post 2003. It manages Novelis in an ambidextrous
manner with local management having all the freedom and monetary support they need but
connected at the top. The equipment for three new Greenfield plants in India had been shipped
from idle plants of Novelis in North America, which reduced the costs of establishing the plant
substantially.
Operations
Being the single largest vertically integrated aluminium producer, it enjoys huge economies of
scale. As a result it is in the top quartile of low cost aluminium producers in the world 5. Over the
years, it has developed operational capabilities across the value chain starting from mining to
production of downstream value added products.

Technology and R&D

Hindalco has two dedicated R&D centers in India along with one in each of its plant to focus on
process improvement and new product development. It also invested in a joint venture with Almex
aerospace to develop lightweight applications of aluminium in aerospace applications. There was
60%8 increase in the number of patent applications last year.
VRIN Analysis and Competitive Advantage
Exhibit 1 shows the VRIN analysis performed on the firms key resources. The strong brands of
Hindalco and the technology and research and development capabilities developed over the years
act as the source of sustained competitive advantage.
Current Strategy
The aluminium industry encompasses four
types of companies: Companies such as Dubal
have access to cheap power and they buy
alumina from third party manufacturers to
smelt it and produce aluminium9. Miners such
as Rio Tinto extract alumina and manufacture
primary aluminium. Downstream producers
such as Sapa buy aluminium traded on London
Stock Exchange and convert it into aluminium
products for industrial uses. And there are
integrated giants such as Alcan that combine
upstream and downstream operations.
Till 2003 Hindalco was only in the upstream business of extracting alumina and producing primary
alumina. Companies that focus on upstream businesses have high margin intensity and suffer from
high volatility of revenues. This is on account of speculations that lead to fluctuations of prices on
metal stock exchanges. As a diversification strategy for steadier revenues and not to remain
bounded in commodity business Hindalco started to acquire downstream companies. The current
ideology of Hindalco is to have a balance between high-margin upstream products and steadier low
margin downstream portfolio.
For upstream production the willingness to pay is determined by the price quoted on commodity
exchanges and the factor that distinguishes profitability of one firm from another is the cost of
production. Cost competitiveness improves through operational efficiency, control of key resources
such as bauxite and coal mines, smelting, power plants and reaping the benefits of economies of
scale.
For downstream production acquisitions post 2003 and the running them as an ambidextrous unit
of Hindalco has helped Hindalco be both a cost leader and differentiator. Novelis has the freedom
8 Hindalco_Annual_Report_2013-14
9 https://www.dubal.ae/who-we-are/our-history/a-30-year-heritage.aspx
7

to develop its own capabilities when it comes to downstream products; Erstwhile Indal, has its own
FRP plant, and destination plants for producing extrusions and other downstream products
Opportunities Ahead
There are times when a leader must move out ahead of the flock, go off in a new direction,
confident that he is leading his people the right way. - Nelson Mandela
From our analysis of the industry we identified three key trends that will shape the industry future.
Based on our analysis of the Firm, we have discussed how Hindalco can use its biggest strengths to
make the best use of these opportunities emerging in the industry.
Light-weighting
At 2700 Kg/m3 aluminium is one-third denser than steel10 . However to maintain the same strength
one-third reduction in weight is seldom achieved. In structural applications 1.5 is the most
frequently encountered thickness ratio of equipment using aluminium instead of steel. This directly
translates to a weight saving of almost 50 percent.
Applications in Automobile
Automobile Industry is evolving. The governments all over the world are imposing tougher and
tougher carbon-dioxide emission standards. European vehicles have been mandated to decrease
carbon-dioxide emission to 95 g/Km by 2020, equalling a CAGR of -3.9% per year11.
Exhibit 2 gives a fair representation of the life time carbon-dioxide saving that can be achieved on
account of light-weighting. On the fuel part, Christop Koffler has shown in his paper 12 that the fuel
consumption in order to move a mass of 100 kg over 100 Km amounts to 0.12 litre of diesel and
0.15 litre of petrol respectively. So over the last three years Mahindra has effectively increased the
mileage of XUV 500 by 5.1 percent on account of reduction of weight by 250 Kg.13
Aluminium on account of its light weight property has been finding application in vehicles since
1975. However, the growth over the last decade and the upcoming decade is going to be
phenomenal. Exhibit 3 gives the growth of aluminium usage in vehicle. In 2014 the average
aluminium used per car is 160 Kg and it is expected to rise to 250 Kg in the next decade. The
10 http://aluminium.matter.org.uk/content/html/eng/default.asp?catid=217&pageid=2144417130
11 http://www.alueurope.eu/wp-content/uploads/2013/10/EAA-Aluminium-in-Cars-Unlocking-thelight-weighting-potential_September2013_03.pdf, pp 3
12 On the calculation of fuel savings through lightweight design in automotive life cycle
assessments, Christoph Koffler & Klaus Rohde- Brandenburger. International Journal of Life
Cycle Assessment (2010), pp 8
13 http://articles.economictimes.indiatimes.com/2011-10-18/news/30295686_1_fuel-efficiencycar-makers-cheaper-cars
8

annual consumption of aluminium by the automobile industry globally is expected to rise by 170%
to 37.8 Million tonne (Exhibit 4).
In 2013 the total consumption of aluminium by the automobile industry was 28 percent 14, and
Hindalcos share in revenue from shipment to automobile had been just a mere 9 percent. There
has to be a three times production increase to have a 25 percent share of revenues from automobile
sector.
Miscellaneous applications
There are more than three thousand applications of aluminium in the world and India has less than
three hundred applications of aluminium. Hence it comes as a no shocker than Indias aluminium
per capita consumption is far below than its counterparts (Exhibit 5). The gamut of aviation,
machinery and equipment, electronics and defence is entirely underdeveloped in India. With rising
income an increase of 1 Kg per capita will lead to an increase of 1.2 MT in demand.
Implementation
Hindalco currently operates only one plant in Alupuram that manufactures aluminium for
automotive applications. This is also the house of the Maxloader brand of aluminium truck
bodies.
Novelis, acquired by Hindalco in 2007, is the worlds leading supplier of automotive sheet metal 15.
They have a specialized R&D team focusing on aluminium alloy solutions that can be applied in
hoods, trunks, doors, fenders, outer body panels etc. Novelis also pioneers Aluminium Vehicle
Technology (AVT) that enables volume production of aluminium vehicle structures. These
capabilities of Novelis can be used to set up plants in India that specialize on manufacturing
automotive components for OEMs in India.
Recyclability
The life cycle of aluminium products are an exception to the traditional life cycle of any productbirth-to-death. Aluminium products traverse their life cycle from birth-to-birth; this is because
aluminium has the property of infinite recyclability without any loss in its properties. Compared to
the production of primary aluminium, secondary aluminium needs 5 percent energy and energy
forms 40 percent of production cost for primary aluminium. The world average of recyclability of
aluminium is 32 percent16 with the majority of European and American countries having a
recycling rate of more than 50% (Exhibit 6). India produces a shoddy picture when it comes to this
business. The only recycling unit catering to corporate needs is a minute 25000 Tonne per Year 17
facility owned by Hindalco which was added to its portfolio when it acquired INDAL in 2004.
Majority of the secondary aluminium production in India happens in the unorganised sector taking
14 http://www.world-aluminium.org/statistics/#data; total production 50,602 metric tonne; automobile
consumption of aluminium 13,970 metric tonne (exhibit 3)

15 http://www.novelis.com/en-us/Pages/Innovation-Capabilities-Automotive.aspx
16 http://mines.nic.in/writereaddata%5CContentlinks
%5Ca828d40cf5dc4f3db8b7f73ee2d9548b.pdf, page 10
9

the net contribution of secondary aluminium to 20 percent (Exhibit 6). This is a vast opportunity
for inching the recyclability percent of India towards the western average.
Implementation
The recycling intensity of a country is a function of market maturity, consumption profile,
recycling institutions and infrastructure, and R&D efforts of user industry. The average
consumption per capita of aluminium in India is 2.2 Kg and as the economy develops this average
is going to rise closer to world average of 8 Kg. Strengthening the recycling institution and
infrastructure requires development of backward infrastructure and smelting capabilities.
Developing of recycling institution and infrastructure requires a six step approach depicted
graphically in Exhibit 7. Collectors, dismantlers, metal merchants and scrap processors form the
backward infrastructure required to build the recycling industry. Hindalco needs to get in
collaboration with NGOs, municipal boards, social entrepreneurs and engineering institutes to
develop these four stages. The last two stages -Refiners and re-smelters will be a result of
Hindalcos Research and Development efforts. Novelis, a subsidiary of Hindalco, is a state of the
art company in recycling beverage cans for the American and European markets. It recycles 50
billion18 beverage cans annually and Hindalco can leverage the technology of Novelis to develop
recycling facilities in India.
Cost Reduction
Alumina, power and labour constitute 80% of the total production cost for primary aluminium.
Hence, the two key factors that will decide the location of new smelters are

Bauxite availability key for alumina production

Power costs

There is strong trend of eastward shifting of aluminium smelting plants due to rising power costs,
stagnating demand and falling grades of bauxite reserves in the west. To add to that are the rising
carbon costs and carbon import tax in Europe, which further makes smelting more expensive in the
west.
Asias share of global aluminium production increased from 20% in 2000 to 54% in 2010 and the
trend is expected to continue, the major driver being alumina prices and cheap logistics.
India accounts for 5% of world bauxite reserves. But still power is quite expensive in India and
accounts for almost 40% of the production cost. India also has a tough local environment, which
causes long delays in land acquisition and obtaining clearances. Currently, Middle East contributes
6% towards the world aluminium production without any availability of local alumina and bauxite,
the major reason being cheap and abundant energy available in the Middle East.

17 http://www.metalworld.co.in/newsletter/jan12/5coverstory0112.pdf, page 46
18 http://blog.novelis.com/
10

Industry experts expect that 90% of the new capacity addition globally from 2010-2016 is going be
from China, Middle East and India 19. Based on the expected growth in mine production in China,
its reserves of bauxite are expected to last only 6-8 years. This presents a great opportunity for
Indian companies like Hindalco to acquire or enter into joint venture agreements with firms in the
Middle East, as India has a good reserve of bauxite and countries like Dubai have cheap energy for
smelting.
Implementation
Middle Easts capacity of primary aluminium is expected to grow to 5 million tonnes by 2015
which was only 3.7 million tonnes in 201220. Some of the potential firms are listed below along
with their capacity details13.

Dubai Aluminium (Dubal) 1,061 Ktpa

Aluminium Bahrain (Alba) 890 Ktpa

Emirates Aluminium (Emal) 800 Ktpa

Qatar Aluminium (Qatalum) 627 Ktpa

Sohar Aluminium 360 Ktpa

Aluminium Co of Egypt (Egyptalum) 310 Ktpa

Iranian Aluminium ( Iralco) 120 Ktpa

Almahdi Aluminium Co 110 Ktpa

Eti Aluminium AS 62 Ktpa

Dubal and Emal are both owned by Emirates Global Aluminium PJSC and their end user products
are foundry alloy for automotive applications, extrusion billet for forging in automotive industries
and high purity aluminium for electronics and aerospace applications, which are the major sectors
consuming aluminium in India21. Also, Asia is their major export market with a share of 39% 22.
Dubal, Hindalco and Hydromine Inc. of USA formed into a joint venture in 2008 to develop a
bauxite mining and alumina refining facility in Cameroon23. We believe a further extension of this
19 http://aluminium-india.org/Worldscenario.php
20 http://www.mbdatabase.com/middleeast
21 http://mines.gov.in/writereaddata/Contentlinks/442b759fc59c4445a95c6aa3c8dfe3fa.pdf
22 http://www.mbdatabase.com/Basic-Information/DUBAL-Dubai-Aluminium-Co-Ltd/1054?
lastSearchId=59485
23 https://www.dubal.ae/our-investments/upstream-investments.aspx
11

relationship between Emirates global aluminium and Hindalco to develop mining facilities in India
with corresponding smelting plants in Dubai will be a mutually beneficial relationship.
Conclusion
India is stepped onto the world stage now, with the fate of over a billion people in our hands.
Construction of bridges, houses, towers, growth in demand of automobiles, beverages to be
imbibed and canned food to be eaten are going to rise meteorically. For long India has been
shunning and postponing the inevitable development of India as a manufacturing hub. However the
question remains- for how long? We are a two trillion dollar economy as of date and it took us 60
years to be a trillion dollar economy and another 5 years to be a two trillion dollar economy. The
consumption of aluminium has just scratched the surface. Drivers namely stricter environmental
policies, miniaturization, focus on energy efficiency, globalization, development of new
applications will drive up the use of aluminium at a faster rate than expected. What lies ahead of us
is- the white metal rush!

12

Exhibits
Exhibit 1

Resource/Capabilities

Valuable

Rare

Inimitabl
e

NonSubstitutable

Implication

Control across Value

Chain

Yes

Yes

No

No

Temporary
Advantage

Brands

Yes

Yes

Yes

Yes

Sustained
Advantage

Financial strength

Yes

Yes

No

No

Temporary
Advantage

International Mgmt.

Yes

Yes

No

No

Temporary
Advantage

Technology and R&D

Yes

Yes

Yes

Yes

Sustained
Advantage

Operations

Yes

Yes

No

No

Temporary
Advantage

Exhibit 2

13

Exhibit 3

Exhibit 4
Year

Production

Aluminium
car (Kg)

per Total Aluminium

consumption
(MT)
14

2013

87,354,00324

160

13.97

2025

151,2933,99325

250

37.8

Exhibit 5

https://www.alcoa.com/alumina/en/pdf/2011_01_Platts_San_Diego_Reyes_FINAL.pdf

Exhibit 6

Exhibit 7

24 http://www.oica.net/category/production-statistics/2013-statistics/
25 Average percent increment in production in 2009-2013 had been 5.12%
15

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16