Novelis to Make Big Con­tri­bu­tion to Ease Hin­dalco’s Debt Pain

To pay .` 1,470-crore div­i­dend to par­ent com­pany this year

The Economic Times - - Companies - MEGHA MANDAVIA

Hin­dalco’s US sub­sidiary Novelis will play a sig­nif­i­cant role in re­duc­ing the par­ent’s mas­sive debt go­ing for­ward as it trims its cap­i­tal ex­pen­di­ture and gen­er­ates cash on back of bet­ter sales vol­ume. Novelis, the world’s big­gest maker of flat-rolled alu­minum used to make bev­er­age cans, de­cided to pay a div­i­dend of $250 mil­lion (.`1,470 crore) to the par­ent com­pany this year. This is a huge con­tri­bu­tion from Novelis, con­sid­er­ing it gen­er­ated $254 mil­lion in cash be­tween fis­cal 2008 and 2014 cu­mu­la­tively and its debt be­ing un­der re­view for a pos­si­ble de­fault by Moody’s. Novelis has been neg­a­tively im­pacted due to scarcity of scrap alu­minium and ris­ing pre­mi­ums on the metal. But most an­a­lysts are not wor­ried about Novelis’ debt and ex­pect busi­ness to get bet­ter for the com­pany, as it shifts fo­cus to higher-mar­gin au­to­mo­tive mar­ket from the sub­dued can mar­ket in Asia and Amer­ica. “The use of re­cy­cled metal and higher au­to­mo­tive sales share and vol­umes from fis­cal 2015 are likely to boost the ad­justed earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion (EBITDA), off­set­ting any ad­verse price pres­sure im­pact in Asia,” said an­a­lyst Jimesh Sanghvi of IL&FS Broking ser­vices. The com­pany ex­pects vol­ume growth to be 10% in the cur­rent fis­cal. Hin­dalco had a to­tal debt of .` 25,682.93 crore as on Septem­ber-end 2013 on a stand­alone ba­sis. It has sky­rock­eted due to in­vest­ment in ca­pac­ity-build- ing in In­dia. Novelis, which was ac­quired for $6 bil­lion in 2007, paid a div­i­dend of $1.7 bil­lion in 2010.

“Novelis has now passed the in­flec­tion point with the path set for growth as ben­e­fits of the $2-bil­lion capex have started to kick in,” wrote Motilal Oswal an­a­lyst San­jay Jain. “Novelis has turned into a cash cow,” he added. The man­age­ment of Novelis ex­pects the share of auto seg­ment in prod­uct mix to in­crease from 9% last year to 20% in fis­cal 2017. An­a­lysts ex­pect div­i­dend pay­ment to Hin­dalco to be­come an an­nual ex­er­cise con­sid­er­ing the liq­uid­ity po­si­tion of the com­pany.

“There is an ex­pec­ta­tion is that the vol­ume im­pact of the com­pany’s in­vest­ment will be vis­i­ble go­ing for­ward and cash gen­er­a­tion at the com­pany will get bet­ter,” said Goutam Chakraborty, an an­a­lyst with Emkay Global. Novelis, which gets a ma­jor­ity of its rev­enue from the can mar­ket, un­der­took an ag­gres­sive ex­pan­sion plan and spent on grow­ing global rolling, fin­ish­ing and re­cy­cling fa­cil­i­ties. Cap­i­tal ex­pen­di­ture will be on a down­ward trend start­ing this year, help­ing it pre­serve more cash. It is also go­ing to sell non-core as­sets this year, pos­si­bly giv­ing $110 mil­lion in cash.



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