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Hindalco Industries Limited
Hindalco Industries Limited
of acquisitions post 1991 in metal industry initiated by Mittal- Arcelor followed by Tata-Corus .
Process
extended by Indian aluminium giant Hindalco acquiring Atlanta based company Novelis Inc.
Acquisition
enormous growth potential in revenues and earnings, Our vision is to be a premium metals major, global in size and reach .... The acquisition of Novelis is a step in this direction
-Kumar
The combination of Novelis's world-class rolling assets with Hindalco's growing primary aluminum operations and its downstream fabricating assets in the rapidly growing Asian market is an exciting prospect.
- Ed Blechschmidt, Acting Chief Executive of Novelis, in February 2007
Novelis: a world leader in manufacturing flat rolled aluminium products and sheet mills
Increased use of automobiles expected to demand growth of aluminium over 5% Asia: highest consumption area led by China Power, infrastructure, transportation account for almost 3/4th of domestic aluminium consumption Government focus towards higher GDP growth rate: positive impact on aluminium consumption
Lowering of duties (5% customs and additional surcharge 3% of customs duty) reduces net tariff protection for domestic aluminium producers
Reduction in import duties: aluminium majors Hindalco & Nalco under pressure
Highly
concentrated industry with only five primary plants in the country: Hindalco, Nalco, Indal (now merged with Hindalco), Balco & Malco
Controlled Per
capita consumption of aluminium in India is only 0.5 kg as against 25 kg in USA, 19kg in Japan and 10 kg in Europe
Energy
management is a critical focus in all the plants: energy cost is 40% of manufacturing cost for metal and 30% for rolled products
High
Production Capacity (lac tonne) utilization (%) 0.96 90 2.49 0.44 0.02 2.13 6.03 103 37.18 0.06 97.56 85.92
Company name
Sales
Rank
PAT
Rank
110807.8
16555.5
197576.78 1
15622
167520.5
831.35
9585
4 5
43.58 17.3
5 6
2130.09 0
4 5
Figures in Mn
Has an annual Revenue of $14 Billion & market capitalization in excess of US $ 23 billion.
The country's largest integrated aluminium producer and ranks among the low cost producers in the world.
The product range includes alumina chemicals, primary ingots, wire rods, rolled products, extrusions, foils and alloy wheels.
aluminium
Canadian Company formed in early 2005 as a result of a forced spin-off from its parent Company Alcan. World leader in aluminium rolling, producing an estimated 19 percent of the world's flat-rolled aluminium products.
Also it is the world leader in the recycling of used aluminium beverage cans.
The company produces aluminium sheet and foil products for customers in high -value markets including automotive, transportation, packaging, construction and printing. Key customers : Coca-Cola, Crown Cork & Seal, Ford, General Motors, Alcan, Kodak, Tetra Pak,
Number one rolled product supplier in the world #1 in Europe #2 in North America #1 in Asia-Pacific #1 in South America Leading market positions in chosen regional and global segments #1 in can, auto, litho and foil Leading recycling position Leader in rolling technology Leader in continuous casting technology Industry position enables Novelis to participate in industry consolidation
The deal was in an all-cash transaction, which values Novelis at enterprise value of approx US $6.0 billion, including approx US $2.4 billion of debt. Hindalco - Novelis - Worlds Largest Aluminium Rolling Aluminium Recycling, Aluminium Foil Packaging Company and fifth -largest integrated aluminium manufacturer in the world. The Novelis acquisition will give the company immediate scale and strong a global footprint. The company reported net sales of US $7.4 billion and net loss of US $170 million in nine months during 2006, on account of low contract prices.
By January 1, 2010, all the sales contracts will get expired and profitability will increase substantially from then onwards. Novelis will work as a forward integration for Hindalco as the company is expected to ship primary aluminium to Novelis for downstream value addition. Novelis has a rolled product capacity of approximately 3 million tonne while Hindalco at the moment is not having any surplus capacity of primary aluminium. Hindalcos greenfield expansion will give it primary aluminium capacity of approximately 1 million tonne in 3-4 years. Hindalcos profitability is expected to remain under pressure and this will bounce back in 2009-10. The rofitability will be accretive only in 2010-11.
In
May 2007, Hindalco acquired Novelis for US$6 billion rationale: Increasing scale of operation, entry into highend downstream market:: Novelis, the global leader in rolled products has an annual production capacity of 2.8 million tonnes and a market share of 19 per cent - presence in 11 countries and provides sheets and foils for varied purposes Enhancing global presence: access to customers such as General Motors Corp. & Coca-Cola Co After full integration, the joint entity will become insulated from the fluctuation of LME Aluminium prices
The
enables it to produce 3 million tonne of flat rolled products compared to Hindalcos 220,000 tonnes a year- Hindalco plans to triple aluminium output to 1.5 million metric tonne by 2012 Increasing rolling capabilities through mill upgrades and innovative practices Leverage on first mover advantage in high value added product segments in India Thrust on recycling capacities recycling needs just 5% of that of producing primary aluminium Deal worth for Hindalco: the replacement value of the Novelis is US $12 billion (as per company details)
On
May 15, 2007, the Company acquired Novelis Inc., Canada through its indirect wholly-owned subsidiary AV Metals Inc. pursuant to a plan of arrangement entered into on February 10, 2007 and approved by the Ontario Superior Court of Justice on May 14, 2007
On
October 5, 2007 the Company acquired shareholding of Alcan Inc. consisting of 78,564,384 equity shares of Rs 10/- each in Utkal Alumina International Limited (Utkal)
Pursuant
to a scheme of amalgamation, Indian Aluminium Company Limited (INDAL), an existing subsidiary was amalgamated with the Company effective April 1, 2007
Two
new subsidiaries Tubed Coal Company Limited (with Tata Power as the other JV partner) and East Coast Bauxite Mining Company Private Limited (with Orissa Mining Corporation as the other JV partner) have been formed.
a cause of concern for Novelis acquisition In 2005, Novelis net profit was S$ 90 million; share prices never crossed US$ 30 Novelis management indicated a loss of US$ 240-285 million in 2006 Immediate effect: Hindalco would achieve turnover of US$ 20 billion Perfect fit for long term goal a step ahead towards Hindalcos goal of becoming a leading producer of aluminium and copper Novelis is nearly 50% larger than Hindalcos current market capitalization: concern for severity and value dilution
Valuation
Hindalcos
exposure to a weaker balance sheet Company will move from high margin metal business to lowmargin downstream products business Greater debt and erosion of profitability, although Hindalcos revenues shall be tripled Decreased profits for Novelis - metal price increase due to metal price ceilings in certain companys sales contracts Change in currency rates can negatively impact the financial results and competitiveness of aluminium compared to other metals Companys agreement of not to compete with Alcan in certain end-use markets may hinder Novelis ability to take advantage of new business opportunities
Integration:
Integration of companies with diverse cultures, nationalities across various levels and functions Retaining cutting edge: Spirit and capability of innovation, key customer relationships, people skills to be expanded across greater Hindalco Identifying and realising synergies: IT and risk management skills, jointly realising downstream vision, and international marketing Improving Novelis financial performance: focus on costs, operations, pricing and working capital End-use markets for certain of Novelis products are highly competitive - customers can accept substitutes for the same Many customers of Novelis significant to the companys revenues - adversely affected by changes in the business
An
aggressive growth plan by Hindalco, a combination of organic & inorganic growth Upstream growth through organic route; a prudent mix of Brownfield & Greenfield expansions
Downstream
PRIORITIES
Progress on Planned Continued stress on Financial turnaround & Greenfield projects and Operational excellence Leverage on technology deliver on time
High
prices and buoyant demand outlook in the domestic as well as international markets: expansion plans by aluminium majors At January 2007 end, aluminium products sector amounted to Rs.59,81800 million and are spread across 35 projects Aluminium smelting capacity will increase from 11.8 lac tonnes to 18 lac tonnes by 2010 Hindalco increased its capacity at Hirakud plant by 35,000 tonnes to one lac tonne Domestic alumina capacity is set to increase by 9.5 million tonnes on completion of outstanding projects
Surplus
production set to be exported to lucrative markets increased usage in automobiles is expected to keep the demand growth for aluminium over 5% in the long-term.