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Hindalco earmarks $3 billion for overseas acquisitions

LiveMint logoLiveMint 03-09-2017 Deborshi Chaki

Mumbai: Aditya Birla Group has earmarked at least $3 billion for acquisitions in its aluminium 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 the downstream sector—in a shift from the midstream business that Hindalco currently operates in, said one of the two people cited above, requesting anonymity as the talks are private.

“The company has already 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 boost Hindalco’s overseas business, he said.

In 2007, Hindalco made its biggest downstream bet when it acquired US-based aluminium cans and packaging material maker Novelis Inc. for around $6 billion.

On 31 August, 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 aluminium 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 aluminium 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 Hindalco is open to looking at acquisitions.

Earlier in March, Hindalco raised around Rs3,300 crore (approximately $500 million) through a qualified institutional placement (QIP) offering, which it planned to use for acquisition opportunities and debt repayment. A turnaround in global aluminium prices has aided strong performance of both Hindalco and it’s American business Novelis.

In the last 12 months, the global price of aluminium 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 a weak US dollar are expected to support price outlook for aluminium,” the company said. 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 30 June, with shipments increasing by 4% to 785,000 tonnes.

The performance was driven primarily by growth of automotive shipments, which grew 16% from a year earlier.

Novelis also reported a record earnings before interest, taxes, depreciation and amortization (ebitda) per tonne at $368 in the 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 closed at Rs243.40 on BSE.

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