Indian primary aluminium manufacturers are projected to experience over 25% operating margin growth in the current fiscal year, attributed to sustained healthy demand, improved realizations, and a probable reduction in production costs due to cheaper energy and alumina, according to a report by CRISIL. This forecasted growth surpasses the approximately 20% growth seen in the previous fiscal year.

The aluminium industry, known for being capital-intensive and requiring significant upfront capital expenditure, often experiences volatile operating profitability. An increase in operating profit is expected to reduce reliance on debt for funding ongoing capital expenditures, such as capacity expansion and the production of value-added products, thereby supporting better credit metrics.

CRISIL Ratings based its analysis on three domestic primary aluminium producers that account for roughly 90% of India's 4.1 million tonnes (MT) of domestic capacity. The previous fiscal year saw an improvement in operating margins primarily due to a more than 30% decline in power costs, as domestic coal and energy prices stabilized following a significant rise in fiscal 2023 caused by geopolitical uncertainties. This cost reduction offset a more than 10% decrease in aluminium prices while demand remained strong.

For the current fiscal year, CRISIL anticipates an improvement in operating margins due to robust demand both domestically and in export markets, better realizations, and a potential decrease in production costs.

"Domestic demand, which constitutes almost half of the domestic primary aluminium sales volume, increased by approximately 10% over the past two fiscals and is expected to grow by 7-9% this fiscal year. This growth will be driven by the increasing adoption of aluminium in the automotive sector, as well as healthy growth in the power and construction sectors. Export demand is also projected to remain strong as there are signs of economic recovery in the US and Europe. Additionally, increasing demand in China, particularly in the automotive and energy transition segments, will further boost demand in the calendar year 2024, following a slowdown over the past two years," explained Ankit Hakhu, Director at CRISIL Ratings.