DEV CHATTERIEE
Mumbai, 20 February
Atlanta-based Novelis Inc, a wholly owned subsidiary of the Aditya Birla group’s Hindalco Industries, on Tuesday announced that it has confidentially submitted adraft registration statement with the Securities and Exchange Commission (SEC) of the United States for an initial public offering (IPO). On successful completion of its IPO, Novelis will be among the few subsidiaries of Indian companies to be listed separately on foreign bourses. Common shares are expected to be offered by Novelis’ shareholders, the company said in a statement. Novelis said it will not receive any proceeds from the sale of common shares by its sole shareholder.
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“Novelis expects to complete the public offering after the SEC completes its review process, subject to market and other conditions,” the statement said. Novelis’ statement came after the market hours of the Indian stock markets. Hindalco shares closed at I511 apiece on Tuesday, giving it a total valuation of %1.15 trillion. Novelis did not give any details on the dilution by its promoter or the proposed valuation of the company. Hindalco had acquired Novelis in 2007 for $6 billion in one of India Inc’s biggest acquisitions then. Later in 2020, Novelis acquired Aleris Corp, a US-based firm, at an enterprise valuation of $2.8 billion. Although things may have changed in the past 7-8 months, in a note dated May 29,2023, on Hindalco after its March 2023 quarter results, analysts at Centrum Broking had arrived at an mcap of%80,121 crore for Novelis, translating into about $9.7 billion at current INR/$ rate of 82.9. Analysts said the move by the Aditya Birla group to list Novelis is a positive step and one has to wait and watch to see how Hindalco plans to use the proceeds. “This will unlock the value for Hindalco shareholders in Novelis as it forms a substantial part of Hindalco,” said an analyst. Novelis has recently revised its capital expenditure in the USto $ 4.1 billion —up 65 per cent — and said the commissioning of the Bay Minette facility is delayed by a year. The Bay Minette facility is now likely to be commissioned in the second half 0f 2026, and would take around 18-24 months to fully ramp up. The management recently cited an increase in civil and structural costs for the rise in capex guidance. At the same time, Hindalco revised the return expectations to lower double-digits when compared to the midteens projected earlier due to the anticipated delay and higher capital costs. There could be a further risk of inflationary pressure, and this capex would be a key monitorable going forward. A vast majority of the capex is expected to be incurred in FY25 and FY26, the company said in the recent earnings call. Novelis’ IPO, however, should fetch Hindalco a handsome amount as the US subsidiary is the biggest component of Hindalco's consolidated business. In the first nine months of FY24, Novelis accounted for 62.7 per cent of Hindalco's consolidated revenue of 1.6 trillion, down marginally from its 654 per cent share in FY23. Novelis reported 1 trillion in revenue in the first nine months of FY24, compared toits full-year revenue of ¥1.48 trillion in FY23. Similarly, Novelis accounted for 56.3 per cent of Hindalco’s consolidated profit before interest and taxes (PBIT) in 9MFY24 worth 19,950 crore, similar to its share in FY23. Novelis reported a PBIT of 11,237 crore during the AprilDecember 2023 period, compared to a full-year PBIT of 14,543 crore in FY23. Novelis also accounted for 62 per cent of Hindalco's consolidated assets and 66 per cent of all its liabilities in 9MFY24. In the past seven years — since Hindalco began to provide separate numbers for Novelis — the company's revenue has grown in line with the rest of Hindalco's business but its earnings and assets have grown at a faster clip. In the past seven years, Novelis’ revenue have grown ata CAGR of 11.1 per centagainst 11.5 per cent growth reported by other segments. In the same period, Novelis’ PBIT and assets have grown at a CAGR of 16.8 per cent and 13.1 per cent, respectively, compared to 15.5 per cent and 6.9 per cent CAGR growth reported by Hindalco's other segments. Novelis' return assets and net worth are, however, on the lower side compared to other segments. The division reported return on equity of 14.4 per cent in 9MFY24 against other segments’ RoE of 16.9 per cent. The RoE calculation is based on PBIT rather than net profit. The lower returns are because Novelis is largely a converter of aluminium into valueadded products. Hindalco on the other hand is among the cheapest producers of the white metal due to captive mines and power.
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