Hindalco may double sales in five years on Audi, Jaguar Orders

Hindalco Industries Ltd. (HNDL), the world’s biggest supplier of aluminum to carmakers, may double group sales to $33 billion in five years as Audi AG (NSU) and other European carmakers swap steel with the lightweight metal.

“Automobiles are a huge prospect,” Debnarayan Bhattacharya, managing director of India’s second-largest producer of the metal, said in an interview. “The European auto market is booming. New environmental norms are an opportunity for aluminum makers.”

Billionaire Kumar Mangalam Birla’s flagship, contending with falling metal prices and rising costs, is betting regulation to cut carbon emissions and improve fuel efficiency in the U.S. and Europe will prompt carmakers to use more aluminum. Jaguar Land Rover plans to start selling its first all-aluminum Range Rover SUV next month, reducing the car’s weight by 39 percent, while Daimler AG’s Mercedes is using the metal for its 93,534-euro ($114,800) SL model.

Carmakers use about 50 million metric tons of steel a year globally, equivalent to the world’s total aluminum capacity, Bhattacharya, who’s also the vice chairman of Hindalco’s Atlanta-based unit Novelis Inc., said in his office in Mumbai. Stricter carbon emission norms in Europe are bound to lift aluminum demand, he said.

Hindalco’s shares have fallen 19 percent in the past year, compared with a 5.5 percent gain in the benchmark BSE India Sensitive Index. The stock dropped 2.8 percent to 116.7 rupees in Mumbai yesterday.

The European Union renewed its crackdown on carbon-dioxide emissions from cars by seeking a binding target for 2020 that’s 27 percent below the existing limit. The European Commission on July 11 proposed to cap average emissions by passenger vehicles in the EU at 95 grams a kilometer in 2020 through varying targets for individual manufacturers ranging from Volkswagen AG to General Motors Co.

Aluminum content in Europe will rise by more than 25 kilograms per vehicle by 2025, Novelis, which supplies Jaguar Land Rover (TTMT), Bayerische Motoren Werke AG, Daimler AG’s Mercedes- Benz and Audi among others, said in June. Audi, owned by Germany’s Volkswagen AG, registered a 12.4 percent gain in sales in the seven months to July, while BMW posted a 7.6 percent rise in the same period.

Hindalco, which bought Atlanta-based Novelis in 2007 to gain 20 percent of the high-end aluminum market and customers including Coca-Cola Co., reported its biggest profit drop in three years in the three months ended June 30 at its Indian operations due to lower prices on the London Metal Exchange and higher costs, according to a statement to exchanges on Aug. 14.

“At present we supply from our European unit,” Bhattacharya said. “With rising demand in both the regions we have decided to set up a new unit,” in China.

Hindalco is boosting capacity at home to meet rising demand. It is spending 270 billion rupees ($5 billion) by fiscal year 2015 that will almost triple its domestic capacity to 1.7 million tons helping boost revenue.

The company aims to secure raw material supplies including bauxite and coal to fire its projects, Bhattacharya said. The two materials account for 60 percent of the cost of producing the metal.