Hindalco- The Aluminium Giant

December 15, 2021 by Vandana S · 4 min read

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Hindalco, a metal company started its journey in the early stages of independence of India. In the year 1958, it was one of the first industries to boost the industrial sector and vision of India. Established by Aditya Birla group under the leadership of GD Birla. The first establishment- The Hindustan Aluminium Cooperation Limited was set up and an 826. 57MW plant was set up in Renukoot, Uttar Pradesh. In 1962 it began production making 20,000 metric tons of aluminum per year and 40,000 metric tons of alumina. This plant was backed up by a thermal plant in Renusagar. In 1989 it was renamed Hindalco.

Growth

Hindalco grew under the leadership of Aditya Vikram Birla and attained the leadership position of the Aluminum industry. Hindalco became a non-ferrous metal industry focusing on the segments of consolidation of aluminum and copper. This was made possible by Mr. Kumar Mangalam Birla. His vision to merge and acquire companies like Indal (Indian Aluminium Company Limited) in the year 2000, stake in Alcan Inc’s Utkal Alumina Project in Odisha in the year 2007, and Birla Copper. Hindalco also acquired the copper mines in Australia. On 15th April 2020, Hindalco acquired US-based Aluminium rolled manufacturing company named Aleris Corporation. This deal was made for 2.8 billion dollars.

Novelis acquisition

The growth of Hindalco is dynamic. It is one of the leading aluminium companies in the country and the largest producer in Asia. In the year 2007, Hindalco acquired Novelis.Inc, a Canadian company the world’s largest rolling aluminum company for 6 billion dollars. It was one of the largest companies that specialized in recycling aluminium cans. This move made Hindalco rank amongst the top 5 global aluminum industries.

The day after Hindalco announced the acquisition of Novelis, its stock fell by 13% resulting in a 600 million drop in market capitalization. Shareholders criticized the deal but K.M. Birla responded that “When you are acquiring a world leader you will have to pay a premium.” As of 2021, statutory approval of 4 solar projects has been initiated.

Listings

Hindalco is listed in BSE and NSE in India, S&P CNX Nifty and its global depository receipts are listed in Luxembourg Stock Exchange. As of June 2013, Aditya Birla, the promotors hold 33% of the shares, 24% by a foreign institution, Banks and mutual funds hold 11.86%, the general public holds 5% and the rest is owned by financial institutions, foreign promoters, and GDR.

Hindalco- Debt-ridden?

The market capitalization of Hindalco is close to 104075 crores. Hindalco has had constant growth in its CAGR and higher earnings and revenue growth in the past 3 years. Cash Flow from operations has always been positive since 2010, yet stock price has always been a cyclical play. This is due to no correlation between cash flow from operation and stock returns. As the metal sector is purely based on raw material costs impacting the operating margins. It’s the game of demand and supply. Interestingly, Hindalco has always been a debt-ridden company and there is a steady rise in the borrowings over the years. In the year 2020, the debt payable was 253 crores but the market price of Hindalco was at a low the year.

Hindalco has laid out a debt plan to lower its debts significantly by the year 2022 and reducing the leverage peak from 3.8 times to 2.5 times. Its total debt over the years stands at 2.9 billion USD. Amongst the debt, 2.6 billion will be paid by Novelis and 0.3 billion by Hindalco. In 2021, Novelis has paid 1.1 billion, and short-term debt of 900 million is repaid.

Capital Allocation

Hindalco expects to generate $1 billion to $1.2 billion in cash flow a year after normal working capital and maintenance. It targets to allocate $2.5 billion to $3 billion towards growth capital in the next five years.

The allocation of cash flow after normal working capital and maintenance will be divided as for Growth 50%, for Debt Reduction 30%, for Shareholder Returns: 8-10% and the balance to be retained in treasury. This is a major step taken by the company to reward shareholders as Novelis continues to record operating cash flow.

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