SM Case9 Sec B Group 11 Hindalco Novelis

8/9/2019 SM Case9 Sec B Group 11 Hindalco Novelis

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Hindalcos Acquisition ofNovelis:

The making of a giant

Group 11 Sec B

artha ! "ho#dhur$% G&1'&())arvath$ *a+an% G&1'&1((

oo+a un+a,i - G&1'&1(.

Sandesh A - G&1'&1()

Sonia /anglani - G&1'&110


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N2AN A34/N4/ N24ST*5 Aluminum metal is used in transportation

packaging6 ,uilding6 construction6 automo,iles andelectrical conductors

Aluminum industr$ is divided into:

rimar$Aluminum

ndustr$

High capital cost requirements *estricted access to technolog$

Secondar$

Aluminumndustr$

urchase primar$ metals from domesticproducers or imported it and processesfurther at their plants

3o# capital investment and lo#dependence on technolog$

High input cost as it is dependent on

e7pensive imported aluminum


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HN2A3"8 N24ST*9S 3/T92%T/93N9

.(((%Acquired0!;< stake inndal6 a leaderin Alumina andsemi%fa,ricated,usiness!

.((=%Acquired Nift$"opper /ines through

AB/3/a+orit$ stake holder in4tkal Alumina

>? #ith Alcan andincreased its equit$stake in ndal to );!? #ith

Alme76 4SA formanufacture ofhigh strengthaluminum allo$s

/arch .((;:Acquired analuminum rollingmill and #ired

rod facilit$ fromAsset*econstruction"ompan$

/a$ .((;: >?#ith 9ssarGroup todevelop and

operate coalmines at /ahan/


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N8?93S% *8* T8 A"C4ST8N

Dorld leader inAluminumrolling6producingaround 1)< ofthe #orlds Eat%rolled aluminum

products

Dorld leaderin therec$cling ofusedaluminum,everagecans

Highest

qualit$aluminumsheet and foilfor customersin high valuemarketsincluding

automotive6transport6packaging6constructionand printing

"ommittedto provideinnovative6

customer%drivensolutionsand #orldleadingresearch Ftechnolog$

support


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B4SN9SS "8/A*S8N% HN2A3"8AN2 N8?93S

*evenue .!;= ,n )!@0) ,n

BusinessAlumina and Aluminum

production6 ,au7itemining6 "opper mining

Aluminum rolledproduct segment6

rec$cling metal6 highqualit$ aluminum sheet

and foil products

Strengths

3o#est cost producer ofaluminum6 totall$integrated facilit$6

relia,le supplier of qualit$products6 diverse product

mi76 e7tensivedistri,ution net#ork and

customer support

Advanced scientictechniques6 Glo,al

technolog$ organiation forhighest qualit$ products6innovative and customer%

driven solutions

HN2A3"8 N8?93S


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DH5 SH8432 N8?93S A?84* TH9AC4ST8N

1!SuIered a huge loss of 1'( mn in.((; Septem,er!

.! i7ed price contracts hampering itsprot margin=!4nfavoura,le currenc$ movements0!Higher transportation and energ$

costs!A premium of 1;!;< ,eing oIered ,$

Hindalco for its shares


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DH5 SH8432 HN2A3"8 A?84* TH9AC4ST8N

Hindalco

Novelis

deal

S5N9*G9S


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DH5 SH8432 HN2A3"8 A?84* TH9AC4ST8N

1!Technical economies of Scale!.! Administrative economies of scale6 or#ard

integration #ith Novelis=!*eduction in uncertaint$ from Euctuating

Aluminum prices in the 3/90!mproved product qualit$ due to ,etter

technolog$ from Novelis

!rice discrimination through verticaldiscrimination;!Hindalco #ill get a strong Glo,al footprint and

emerge as the largest rolled Aluminum products

maker


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DH5 SH8432 HN2A3"8 A?84* TH9

AC4ST8N

'! The deal #ould give Hindalco a strongpresence in rec$cling of aluminium ,usiness

@! Access to ne# set of customers - "oca "ola6Bud#eiser6 ord6 G/6 Audi6 B/D

)! The replacement value of Novelis #as 4S 1.,illion6 so considering the time required and

replacement valueJ the deal #as #orth forHindalco!


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*824"T8N S5N9*G9S

Hindalco and Novelis: Production/capacity

Hindalco FY 2006 Novelis CY 2005

Capacity of Alumina efinery !!"60"000 !"#5"000

Primary AluminiumProduction $"2%"!$0 !"0%"000

olled products Production !"&&"5&! 2'""000

Primary Aluminium purc(ased ) 22"&$"000

Aluminium ecycled ) %"00"000


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HA2 HN2A3"8 9*8292 TH9 ?A349 T8 TSSHA*9H8329*SK


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HA2 HN2A3"8 9*8292 TH9 ?A349 T8 TS

SHA*9H8329*SK Hindalcos 9S #ill ,e diluted ,$ 1@

.((@M

Though acquisition increased Hindalcos net sales ,$ .1=< over theprevious $ears 6 increased de,t could erode prota,ilit$

Adverse changes in currenc$ e7change rates could negativel$ aIect thenancial results and the competitiveness of compan$s aluminium rolledproducts relative to other materials!

Share price fell L from as high as *s! 1)) to *s! 1.(%1=( M

Acquistion #as done ,ased on Noveliss nancials for .(( and not .((; in#hich it had reported losses

High leverage ma$ aIect Hindalcos e7pansion plans and the deal #ouldcreate value if Hindalco could meet its e7pansion plans and on e7pir$ ofNoveliss 7ed price contracts #hich impacted its a,ilit$ to pass on price riseto customers

Thus the deal appears to ,e over%valued


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HA2 HN2A3"8 9*8292 TH9 ?A349 T8 TSSHA*9H8329*SK

t #ould take Hindalco atleast 1( $ears to create assetcapa,ilit$ on the do#nstream front

Hindalco ,elieved that the acquisition #as a good strategic

t The last of Noveliss 7ed price contracts #ould end ,$ .(1(

The deal #ould put Hindalco amongst the top aluminiumproducers in the #orld

Thus the deal #ould create advantages for Hindalco

But is the premium paid +ustiedK


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Novelis

roduct mi7 improvements

and price increase

Benet on non cashunrealied gains

*eduction in selling6 generaland administrative e7penses

*eduction in e7posure to7ed price contracts

*educed ,orro#ing costs

All these resulted in netincome of . million

Hindalco

Net sales increased ,$.1=

SM Case9 Sec B Group 11 Hindalco Novelis

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