hindalco novelis final

8/7/2019 Hindalco Novelis FINAL

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HINDALCO NOVELIS ACQUISITION:

We look upon the aluminium business as a core business that has

enormous growth potential in revenues and earnings,' 'Our vision is to be

a premium metals major, global in size and reach .... The acquisition ofNovelis is a step in this direction

-K.M. Birla, Chairman, Hindalco Industries

Creating An Aluminium Global Giant


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INDIAN ALUMINIUM INDUSTRY

Highly concentrated industry.

Large integrated players : Hindalco and Nalco.

Controlled by two private groups & one public sector unit.

The 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.


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HINDALCO INDUSTRIES LIMITED

Established in 1958.

A flagship company of the Aditya Birla Group.

Commenced its operations in 1962 with an aluminium facility at

Renukoot in U.P.

It is structured into two strategic businesses aluminium and copper.

Today it is the country's largest integrated aluminium producer and

ranks among the top quartile of low cost

producers in the world.


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N O V E L I S

Formed in January 2005.

Was a result of a forced spin-off from its parent, aluminium giant

and Canada-based Alcan Inc.

World leader in aluminium rolling, producing an estimated 19 % of

the world's flat-rolled aluminium products.

World leader in the recycling of used aluminium beverage cans.

The company had 36 operating facilities in 11 countries.


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T H E A C Q U I S I T I O N

In 2003, Alcan won a hostile takeover of

F

rench aluminium companyPechiney.

Result : NOVELIS

Novelis : Always a problem child

In 2007, Hindalco acquired Novelis, making it a wholly owned

subsidiary of the company.


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ACQUISITION

An acquisition, also known as a takeover or a buyout, is thebuying of one company (the target) by another.

An acquisition may be friendly or hostile.

Acquisition usually refers to a purchase of a smaller firm by

a larger one.


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REASONS FOR ACQUISITION

Increased market power

Learning and Developing new capabilities

Overcoming the new entrants into the industry.

Cost of new product development

To avoid excessive competition


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The acquisition of Novelis by Hindalco was in a cash transaction.

Global integrated aluminium producer with low-cost alumina and

aluminium production facilities.

Biggest rolled aluminium products maker and fifth largest integrated

aluminium manufacturer in the world.

Globally positioned organization.

Hindalco is the lowest cost producers of primary aluminium in the

world.

FACTS ABOUT DEAL


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FACTS ABOUT DEAL

The debt component of Novelis stood at US $2.4 billion andadditional US $2.8 billion taken by Hindalco to finance the

deal.

Debt and interest burden of the company has increased.


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FUNDING STRUCTURE FOR DEAL

Hindalco acquired Novelis : $6 bn.

Novelis Debt-Equity ratio 7.23:1

To buy the $3.6 bn worth of Noveliss equity, Hindalco

borrowed $2.85 bn.

Balance $300 mn was raised as debt from group companies

and $450 mn was mobilised from cash reserves.


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HINDALCOS RATIONALE FOR ACQUISITION

Good strategic move from Hindalco Increasing scale of operation

Entry into high-end downstream market

Enhancing global presence

Novelis a Global leader (in terms of volume)

Access to customers such as General Motors Corporation and Coca-

Cola

Superior Technology


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VALUATION FOR ACQUISITION

Analysts believe the Birla's are paying too high a price for acompany that incurred a loss of US $170 million for the 9

months ended 30 September 2006.

Novelis share prices never crossed US $30 during 2005 and

2006.

Hindalco paid US $44.93 a share for a loss-makingcompany.


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FINANCIAL CHALLENGES FOR THE ACQUISITION

Increase the debt and erode its profitability.

Expansion plans may get affected.

Some of the customers of Novelis are significant to the companys

revenues.

Novelis profitability could be adversely affected by the inability to

pass through metal price increases.

Adverse changes in currency exchange rates.

Novelis ability to take advantage of new business opportunities.


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FUTURE OUTLOOK

Three Companies plans to increase Capacities.

Investment in hand in the aluminum anti aluminum products sector.

Projects are successfully implemented.

Hindalco has undertaken aggressive plans to increase its capacities.

Domestic alumina capacity is set to increase by 9.5 million tonnes.


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Thank You!!Thank You!!

hindalco novelis final

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