HINDALCO – NOVELIS ACQUISITION

PRESENTED BY: ROLL NO:

(MMS)
SNEHAL 01-A
RUPALI 14-A
ANUSHRI 31-A
KIRAN 32-A
SHWETA 59-A
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 HINDALCO – NOVELIS ACQUISITION:
“Creating An Aluminium Global Giant”

“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
of Novelis is a step in this direction”

-K.M. Birla, Chairman, Hindalco Industries

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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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 NOVELIS
 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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 THE ACQUISITION

 In 2003, Alcan won a hostile takeover of French aluminium company

Pechiney.
 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 the

buying 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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 FACTS ABOUT DEAL

 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.

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 FACTS ABOUT DEAL

 The debt component of Novelis stood at US $2.4 billion and

additional 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 Novelis’s 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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 HINDALCO’S 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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 POST ACQUISITION BENEFITS

 Combination of Hindalco and Novelis established integrated producer

with low-cost alumina and aluminium facilities combined with high-
end rolling capabilities and a global footprint.

 Joint entity became insulated from fluctuation of Aluminium prices.

 Deal gave Hindalco a strong presence in recycling of aluminium

business.

 Strong technology of Novelis benefited Hindalco.

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 VALUATION FOR ACQUISITION

 Analysts believe the Birla's are paying too high a price for a
company 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-making
company.

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 VALUATION FOR ACQUISITION

 The valuation for the enterprise value for the deal works out
to around 11.4 times the company’s EBITDA, and this is a
higher compared to global peers.
 Total enterprise value of US $ 6 billion, Novelis is nearly

50 % larger than Hindalco’s current market capitalisation .

 Hindalco’s EPS will be diluted by 18 %.

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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 company’s

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!!
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