Hindalco lines up at least $3 bn for overseas buys
Company looks to focus more on downstream products
MUMBAI: Aditya Birla Group has earmarked at least $3 billion for acquisitions in its aluminum business Hindalco Industries Ltd, at least two people aware of the development said.
The funds will be used to acquire assets in the aluminium space with an eye on increasing focus on downstream sector, in a shift from the midstream business that Hindalco operates in, said one of the two people cited above, requesting anonymity as the talks are private.
“The company has started scouting for assets in developed markets such as Europe and the US. They could end up spending around $3-5 billion if they find the right assets. They want to add more value-added products to their portfolio as they plan to increase focus on downstream products,” he added.
The move will also boost Hindalco’s overseas business, he said.
In 2007, Hindalco made its biggest downstream bet when it acquired US-based aluminum cans and packaging material maker Novelis Inc for $6 billion.
On August 31, Bloomberg reported that the Kumar Mangalam Birla controlled group is evaluating possible bids for Constellium NV and Aleris Corp as the conglomerate seeks to grow its aluminum operations overseas.
Constellium sells aircraft parts, industrial coil, window frames and car bodies to aerospace, automotive and packaging customers around the world, while Aleris makes rolled aluminum sheet products at manufacturing sites in North America, Europe and China, according to its website.
In an interview with Mint on Friday, Birla, while declining to comment on specific assets, said that Hindalco is open to looking at acquisitions.
Earlier in March, Hindalco Industries Ltd raised around ₹3,300 crore (approximately $500 million) through a qualified institutional placement (QIP) offering, which it planned to use for acquisition opportunities and for debt repayment.
A turnaround in global aluminum price has aided strong performance of both Hindalco and it’s American business Novelis. In the last 12 months, the global price of aluminum has increased by 17.5% to $1,927 per tonne.
Hindalco in its latest investor presentation said that aluminum has been the strongest performing metal on the London Metal Exchange, the leading global commodity exchange. “Buoyant demand outlook, lower inventory base and week US dollar are expected to support price outlook for Aluminium.”
Initiation of production cuts in China too have aided the price of the metal, it added.
Hindalco’s US business Novelis saw record shipments in the quarter ended June 30 with shipments increasing by 4% to 785 thousand tonnes.
The performance was driven primarily by growth of the automotive shipments, which grew 16% from a year earlier.
Novelis also reported a record earnings before interest, taxes, depreciation and amortisation (ebitda) per tonne at $368 in quarter ended June, against $354 a year ago.
Continued ramp up of automotive capacity, improvement in operational efficiencies and favourable metal cost boosted Novelis performance, said Hindalco.
The strong performance has also boosted the stock price of Hindalco. Since, the start of 2017, shares of Hindalco Industries Ltd have gained more than 50%. On Friday, the stock ended trading at ₹243.40 on BSE.