Business Daily from THE HINDU group of publications
Tuesday, Feb 13, 2007
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Business Daily from THE HINDU group of publications Tuesday, Feb 13, 2007 ePaper |
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Markets
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Stocks Agri-Biz & Commodities - Aluminium
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Hindalco will pay $3.5 billion in cash and take on debt of $2.4 billion. Analysts are betting on the long-term benefits of the deal, stating that it is a good one and will benefit the company and investors in the long term. "It is a good deal from the strategic point of view and is similar to the Tata-Corus deal. Because of debt, however, the financials will be under pressure for the next 12-18 months," said Mr Hitesh Agarwal, Metals Analyst, Angel Broking. "In the long run, the deal makes a lot of sense," said Mr Vishal Chandak, Metals Analyst, Emkay Shares and Stock Brokers. "By 2009-10, we will be able to see the results. However, for the next 18-24 months, there will be a margin pressure on the performance of the company." Analysts have, however, termed the deal as very expensive. Hindalco has offered $44.93 for each share in Novelis, about 17 per cent more than the stock's closing price on February 9. "The $2.8-billion debt will affect the company's bottomline for the next two years," said Mr Agarwal. Novelis, which was spun off from Canadian aluminium giant Alcan Inc two years ago, has struggled ever since it became a standalone company as it does not produce aluminium and its contracts limit passing on costs to customers. These contracts expire by 2010, after which the deal would boost Hindalco's earnings. The company had announced a major expansion plan earlier this year, which would take its aluminium smelting capacity from 4.3 lakh tonnes to 1.5 million tonnes in the next few years. "Novelis has a capacity that is 5-6 times the existing capacity of Hindalco. On a standalone basis, Hindalco will be in a position to supply only after their expansion," said Mr Jimesh Sanghvi of HDFC Securities. "Now that Hindalco has announced expansion, they can export metals. This will reduce operating costs and shore up operating margins," said Mr Agrawal. Acquiring Novelis will provide Hindalco with access to US customers such as General Motors Corp and Coca-Cola Co. On Monday, the BSE's metal index closed at 8,6161.43, down 5.46 per cent.
More Stories on : Stocks | Aluminium | Hindalco Industries Ltd
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