HINDALCO’S

ACQUISITION OF
NOVELIS

THE MAKING OF A GIANT

 Hindalco

– An aluminium manufacturing giant established in YEAR 1958 headquartered

in MUMBAI, MAHARASHTRA.
– Prior to the acquisition deal, Hindalco had posted consistently INCREASING
PAT along with the fact that its ACTUAL PRODUCTION EXCEEDED ITS
INSTALLED CAPACITY.
– It represents two strategic arms of the company managing two strategic
business of ALUMINIUM AND COPPER and is regarded as one of the
LARGEST ALUMINIUM ROLLING COMPANIES in the world.
– The aluminum division's product range includes ALUMINA CHEMICALS,
PRIMARY ALUMINIUM INGOTS, AND BILLETS, WIRE RODS, ROLLED
PRODUCTS, EXTRUSIONS, FOILS AND ALLOY.
 NOVELIS

– Novelis Inc. is an industrial ALUMINUM COMPANY, headquartered

in ATLANTA, GEORGIA, UNITED STATES.
– Novelis is a leading producer of ROLLED ALUMINUM and the global leader in
BEVERAGE CAN RECYCLING.
– The company serves customers in sectors including BEVERAGE CANS,
AUTOMOTIVE, CONSUMER ELECTRONICS, CONSTRUCTION, FOIL AND
PACKAGING.
– In year 2007 it was acquired by Hindalco for an estimated cost of USD 6
BILLION.
 Nature of Acquisition of Novelis by
Hindalco
– The acquisition of Novelis took Hindalco onto the GLOBAL STAGE
– It has made Hindalco the WORLD’S LARGEST ALUMINUM ROLLING COMPANY
and one of the BIGGEST PRODUCERS OF PRIMARY ALUMINUM IN ASIA.
– The root cause of the acquisition of a global heavy-weight, Novelis Inc in year
2007 was the substantial loss incurred by the company.
– Hindalco’s PAT INCREASED from Rs. 686 crore in year 2002 to Rs. 2564
crore in year 2007.
– The two contrasting positions of two competitors offered an attractive option
to Hindalco Industries Ltd to make a global imprint by acquiring Novelis Inc.
in year 2007.
 GLOBAL
MARKET
ENTRY
STRATEGIES
 Market Entry Strategy

– Riding Downstream – By acquiring Novelis, Hindalco did horizontal

integration to enter the global market as it acquired a competitor which was
known in the global market.
– Through Novelis, Hindalco was looking at a BIG PUSH into the aluminium
cans market and into automotive white sheets.
– Immediate global reach and scale along with technological experticse.
 OPPORTUNITIES THREATS

1. Customer preferences are fast

changing
2. Lowering of the cost of new
product launches
3. Opportunities in Online Space
4. Lower inflation rate
5. Government regulations - ease in
trade
6. Accelerated technological
innovations and advances
1. Shortage of skilled human
resources
2. Commoditization of the product
segment
SWOT
3. Trade Relation between US and
China
4. Changing political environment
ANALYSIS
5. Saturation in urban market and
stagnation in the rural
 STRENGTH WEAKNESS

1.
2.
3.
4.
Success of new product mix
First mover advantage
Talent management
Diverse Revenue models
1. Low investments into Novelis
Hindalco's customer oriented
services
2. Niche markets and local
SWOT
5.
6.
7.
High margins
Track record of innovation
Loyalty among suppliers
monopolies
3. Declining market share
4. High cost of replacing existing
ANALYSIS
experts
 Porter’s Five Forces

1. Threat of new entrants - Low as it needs huge investments.

2. Bargaining power of suppliers - Low as Hindalco Novelis is the biggest player
in the global market.
3. Threat of substitute products and services - Moderate as the product line of
hindalco has products that could be REPLACED BY OTHER PRODUCTS.
4. Bargaining power of buyers – Moderate as there are other players in the
market who will grab the consumer once Hindalco doesn't provide them the
needed.
5. Rivalry among existing players – There is moderate rivalry & not many
players are in competition in market.
 Global Product Strategy

– Philip Martens, president and chief executive officer of Novelis, said, “The foil
operations are well-established businesses with strong customer bases.”

– Novelis is focused on growing the higher-volume, premium markets of

beverage cans, automobiles and speciality products.

– With an expansion underway in Korea, combined with their move into China,
they can better serve rapidly growing consumer demand in Asia for high-
margin can, automotive and specialty products.
 Integration Process

– Hindalco’s management allowed the post merger process to

take place naturally and rarely intervenes

– Four step Process: 1. Financial, 2. Organizational, 3. Business

Process & 4. Markets.
 Financial Integration

– Same Financial Language

– Standardization : Prior to June 2007 , Hindalco’s financial year
ended on March, 31st, whereas Novelis’ period ended on
December, 31st
– Guidelines of SEBI & SEC were met.
– Plan to optimize tax bills of both countries.
– Sharing best practices.
 Organizational Integration

– Existing management structure ,system ,people (Job Roles ) left

undisturbed.
– In the first six months after the take over Hindalco deputed just
two of its own executives to Novelis: it sent an expert from its
copper division to institutionalize a risk-management process
and installed a senior executive in Novelis ’logistics department
to help improve its global supply chain
– No Layoffs ,however hiring activities were kept on hold for
sometime.
 Business Process Integration

– Plain and simple techniques to manage business.

– It set up a company to manage IT functions of Novelis due to
availability of inexpensive engineers.
– Hindalco has set Novelis a target of seven to 12 stock turns per
year by 2010,which could free around $300 million in working
capital
 Market Integration

– India’s demand for aluminium products is projected to double

from 1 million tones in 2007 to almost 1.9 million tones in
2012, and half of that increase will be for the kind of flat-rolled
products Novelis produces. Thus, India could absorb a third of
the North American company’s output in three years’ time
1. This acquisition of Novelis by Hindalco established the latter as a
global integrated aluminium producer with low-cost alumina and
aluminium production facilities combined with high -end aluminium
rolled product capabilities.
Strategic Benefits to
Hindalco & Novelis
2. Novelis gave Hindalco an entry into the down-stream value
addition business of rolled aluminium products. Earlier, Hindalco was
Post-acquisition
limited to the upstream business of mining bauxite and converting it
into alumina, and then smelting it into aluminium
3. Novelis was the global leader in aluminium rolled products and
especially, aluminium can recycling, with a global market share of
about 19%. The deal gave Hindalco a strong presence in the
business of aluminium recycling as it is infinitely recyclable and Strategic Benefits to
requires only 5% of the energy needed to produce primary
aluminium. Hindalco & Novelis

Post-acquisition
4. Thus Novelis acquisition helped Hindalco gain quick access to new
technologies and large production capacities without having made
the efforts towards time-consuming R&D.
1. Novelis profitability was significantly affected by the inability to
pass through metal price increases due to metal price ceilings in
certain of the company’s sales contracts till 2009. But by
January 2010, all the sales contracts got expired and profitability Challenges to
will increase substantially from then onwards, due to new
contracts Hindalco & Novelis

Post-acquisition
2. The debt component of Novelis stood at US $2.4 billion and
additional US $2.8 billion was taken by Hindalco to finance the
deal. This will put tremendous pressure on profitability due to
high interest burden, in light of Hindalco’s expansion plans
consisting of various Brownfield & Greenfield projects costing Rs.
25,000 crores.
 Value addition

NOVELIS HINDALCO
– It reported a net income of USD 25 – Its net sales increased by 213%
million for the first quarter of 2009
– Access to advanced technology
– It reported a pre-tax income of $62
million on sales of $3,103 million – Increased global footprint
for the same period
– Benefits of vertical integration
– Thus, it indicated an improvement
of $176 million in the pre-tax – Increased clientele
income for the next year
– Broader market segment to cater to
– Reduction in $15 million in selling,
general expenses • Interest – Increase in shareholder’s value
expense lowered by $11 million
– Product mix improvements
 Conclusion

– The acquisition has helped Hindalco to shorten the learning curve for
technology, which was a need for Hindalco.
– Hindalco has strong presence in upstream and metal businesses, while
Novelis is a world leader in downstream businesses.
– According to Hindalco's Bhattacharya, the deal made strategic sense. "THE
NOVELIS ACQUISITION WILL GIVE US IMMEDIATE SCALE AND A GLOBAL
FOOTPRINT," he said.
 Suggestion and Recommendations

– After the acquisition of novelis. Hindalco has made it a success but yet not
investing as per the requirement. So it should try investing more in Novelis to
get more fruitful result.
– Hindalco should focus more on R&D as there are technological innovations in
this sector and Hindalco should cope with them at a competitive pace
– As hindalco has a diverse revenue model it should try to harvest/divest in the
projects where the capital is stagnant or going down and should try to invest
in the companies with great opportunities ahead.
– Hindalco now after gaining a good success in the global market should try to
capture the other potential market available