HINDALCO - NOVELIS

ACQUISITION
 Features of Indian Aluminium Industry

• Highly concentrated industry with only five primary

plants in the country.

• Bayer-Hall-Heroult technology used by all producers.

• Energy cost is 40% of manufacturing cost for metal and

30% for rolled products.

• High cost of technology is the main barrier in achieving

high energy efficiency.

• Energy conservation and reduced consumption is main

motive.
Pre-acquisition
 HINDALCO INDUSTRIES LIMITED

• ‘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’
-Kumar Mangalam Birla, Chairman, Hindalco Industries.
• structured into two strategic businesses aluminium and copper.
• annual revenue of US $14 billion. market capitalization in excess
of US $ 23 billion.
• The aluminium division's product range includes alumina
chemicals, primary aluminium ingots, and billets, wire rods, rolled
products, extrusions, foils and alloy wheels.
 Novelis
• Novelis is the world leader in aluminium rolling,
producing an estimated 19 percent of the world's flat-
rolled aluminium products.

• The company recycles more than 35 billion used

beverage cans annually.

• industry-leading assets and technology.

• Alcan cast out its rolled products business to form

Novelis.
• Novelis ended up inheriting a debt mountain of almost $2.9
billion on a capital base of less than $500 million.

• debt-equity ratio of 7.23:1.

• promised four customers not to increase product prices even

if raw material aluminium prices went up beyond a point.

• Loss of $350 million.

• The company reported net sales of US $7.4 billion and net

loss of US $170 million in nine months during 2006
 IMPORTANT FACTS ABOUT DEAL
• an all-cash transaction, enterprise value of approximately US $6.0
billion, including approximately US $2.4 billion of debt.
• By January 1, 2010, all the sales contracts will get expired.
• Hindalco shipped primary aluminium to Novelis for downstream
value addition.
• The debt component of Novelis stood at US $2.4 billion and
additional US $2.8 billion will be taken by Hindalco to finance
the deal.
• CRISIL placed its outstanding long-term rating of ‘AAA/Stable’
on Hindalco.
• paying US $44.93 a share.
 FUNDING STRUCTURE FOR THE
DEAL
• With a debt-equity ratio of 7.23:1, Novelis couldn't borrow
any more.

• borrowed $2.85 billion, $300 million raised as debt from

group companies and $450 million mobilised from its cash
reserves.

• That is almost a third of the Rs 2,500 crore net profits

Hindalco estimated to post in 2006-07.

• The second part of the deal is the $2.4-billion debt on

Novelis’s balance sheet.
 STRATEGIC RATIONALE FOR ACQUISITION

• Hindalco will be able to ship primary aluminium from India and

make value-added products.

• low-cost alumina and aluminium facilities combined with high-end

rolling capabilities.

• increasing scale of operation, entry into high—end downstream

market and enhancing global presence.

• access to customers such as General Motors Corp. and Coca-Cola

Co.

• world's leading aluminium maker.

The benefits from this acquisition
• the company will get a strong global footprint.

• joint entity will become insulated from the fluctuation of

LME Aluminium prices.

• will give Hindalco a strong presence in recycling of

aluminium business.

• recycling it requires only 5% of the energy needed to

produce primary aluminium.

• Novelis has a very strong technology for value added

products and its latest technology ‘Novelis Fusion’ is very
unique one.
• target of doubling its turnover to $ 20 billion three years in advance.

• Any change in the raw material price is directly passed on to the

customers who range from coca cola to automobile companies like
Aston martin.

• It would have taken a minimum 8-10 years & US $12 billion to

Hindalco for building these facilities, if Hindalco takes organically
route.

• Novelis is in leader in rolling business with a market share of 20%.

• Hindalco was dependent on the aluminium prices and when the prices
are high they make a larger margin, this not the case with rolling
business which usually has a constant margin.
 VALUATION FOR ACQUISITION
• too high a price for a company that incurred a loss of US $170
million for the nine months ended 30 September 2006.

• its share prices never crossed US $30 in 2005-06.

• target of doubling its turnover to $ 20 billion three years in

advance.

• Novelis management has indicated a pre-tax profit of US $35

million-100 million for 2007, Hindalco was being optimistic.

• Novelis nearly 50% larger than Hindalco’s current market

capitalization.
Post acquisition
results
 (Rs. Crores) (Bn US$)

Results FY FY FY FY
2006-07 2007-08 2006-07 2007-08

Net Sales 19,316 60,013 4.2 14.8

EBITDA 4,840 7,291 1.1 1.8
EBIT 3,975 4,835 0.9 1.2
Profit before 3,662 2,986 0.8 0.7
Tax
Net Profit 2,686 2,387 0.6 0.6
Capital 23,285 56,266 5.4 14.1
Employed
Net Worth 12,814 17,346 2.9 4.3
Free cash Flows improved by $ 164 Mn
• Hindalco is now a global player with a strong presence in
five continents.

• product portfolio which is a natural hedge against the

volatility of aluminium prices.

• Novelis has reported a net profit of USD 28 million (under

US GAAP) for the period 16 May 2007 to 31 March 2008
vis-à-vis a loss of USD 265 million (under US GAAP) in
FY2007.

• Total shipments increased from 3113 kt to 3150 kt.

• Novelis Reported revenue of US$10.2 billion in its 2009

fiscal year.
conclusion
Thank You