FINANCIAL RE-ENGINEERING

Presentation By:-
MANISH KHATRI
What is Re-engineering ?

Re-engineering is the radical

redesign of business processes and
organisational structure in order to
achieve significant improvements in
performance, such as productivity,
cost reduction, cycle time, and
quality.
 Financial Re-engineering

Financial Re-engineering is the recementing or

changing of products, systems, people, brands
and technology which has to be done with
financial restructuring and financial
requantification of every qualitative business
variable.
Objectives of Financial Re-engineering
• Facilitation of the New Budget Framework.
• Improve the efficiency and accuracy of financial data
capture.
• Reduce the number of cost centre’s in the General
Ledger.
• Introduce structures to facilitate future introduction of
project costing.
• Identification, review and improvement of key
process controls.
Benefits of Financial Re-engineering

• Ease of Access Benefit.

• Ease of Analysis Benefit.
• Better Decision Making Benefit.
• Research Reporting Benefit.
• Risk Management Benefit.
• Continuous Improvement Benefit.
 Holistic Approach to Innovative
Financial Engineering
• Benchmarking of the earning-expectations.
• Product and process choices.
• Funding structure (variations, costs and flexibility).
• Fund-deployment strategies.
• Monitoring and assessment systems.
• Programmes and policies to reward various
stakeholders.
• Satisfaction of the shareholders.
• Perpetual sustenance of the financial and real growth
of the business enterprise .
Holistic Approach to Innovative
Financial Engineering
Various Forms of Financial Re-engineering

• Financial Restructuring
• Corporate Restructuring
–Mergers /Acquisitions
–Divestitures
–Demergers
 Financial Restructuring

Financial Restructuring is a
process to re-arrange, re-build or
construct or form a new financial
structure.

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 Corporate Restructuring

Corporate Restructuring is a
conscious effort to restructure
policies, programmes, products,
processes and people, to serve the
redefined purpose on a sustainable
basis.
 Merger
A transaction where two firms agree to
integrate their operations on a relatively
coequal basis because they have
resources and capabilities that together
may create a stronger competitive
advantage.
 Acquisition

A transaction where one firm buys

another firm with the intent of more
effectively using a core competence by
making the acquired firm a subsidiary
within its portfolio of businesses.
 Reasons for Acquisitions
• Increased market power.
• Overcome entry barriers.
• Cost of new product development.
• Increased speed to market.
• Lower risk compared to developing new
products.
• Increased diversification.
• Avoid excessive competition.
 About Novelis
 Novelis is globally positioned and operating in 11
countries with approximately 12,900 employees.
 The world’s leader in producing (19%) flat-rolled
aluminum products.
 No. 1 in rolled products producers in Europe, South
America and Asia.
 No. 2 in rolled products producers in South America.
 World leader in the recycling of used aluminum
beverage cans.

• the world
  The company caters to markets like:
• Building and construction.
• Cans and closures.
• Flexible and semi-rigid packaging.
• Printing and Lithography.
• Specialty Consumer and Industrial.
• Automotive and Transportation.
• Distribution Services.
• Technology sales.

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 About Hindalco
 It is the flagship company of the Aditya Birla Group.
 Based in Mumbai, India.
 One of the most cost-efficient aluminum producers
globally.
 Hindalco’s Stock Traded on-
• Bombay Stock Exchange.
• National Stock Exchange.
• Luxembourg Stock Exchange.

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 Synergy: Reason behind merger
• The combination of Hindalco and Novelis will establish a
global integrated aluminum producer with low-cost alumina
and aluminum production facilities combined with high-end
aluminum rolled product capabilities .
• Present leaders in their respective markets.
• Novelis was to procure raw material from the market, which it
converts into value-added products at the most reasonable
prices.
• Hindalco’s motive was to cover the major market share that
Novelis possesses.
• Provide a strong platform for sustainable growth and ongoing
success..

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 Risk Associated
• Novelis has a high amount of debt.
• Hindalco will gain but Novelis will be at
a loss.
• Hindalco is getting a ready-made market.
• The performance of the two companies
may be completely opposite to each
other.
 The Deal
• Hindalco has acquired Novelis in an all-cash transaction
at approximately US$6 billion, including approximately
US $2.40 billion of debt.
• AV Metals — the A V Birla group's will infuse US$ 3.5
billion to finance Hindalco's proposed acquisition.
• AV Metals will take loans worth US$ 2.8 billion from
three financial institutions, namely UBS, ABN Amro and
Bank of America.
• Essel Mining & Industries, a closely held company of the
group, will bring in US$ 300 million while Hindalco will
mobilize US$ 450 million from its treasury operations.
 The Outcome
• The Novelis acquisition will give immediate scale and a
global footprint.
• Overseas operations already account for nearly 30 per
cent of the group's revenue now and the Novelis
acquisition would increase it to 40 per cent in three years.
• The acquisition will help Hindalco to shorten the learning
curve for technology.
• The group would now have operations in 14 countries.
• The group would become the world's largest player in the
downstream aluminum.
 Recommendation
• Growth of M & A activity in the commodities sector was
due to some factors.
• Hindalco should have before acquiring the company seen
whether the operations of the other company is going in
the feasible direction.
• The deal showed losses at the earlier stage, it proved to be
of strategic value in the long run.
• For Hindalco, technology and process leadership, cost-
effective manpower and ready market will help
rationalize the cost structures and balance the pressure on
the bottom lines
THANK YOU