Guess what is the connection between Soccer World Cup 2014, Olympics 2016 and Hindalco? Well, it is the beer can.

Keeping (also) in mind the two major global sporting events in Brazil, Hindalco’s wholly owned subsidiary, Novelis, is creating large capacities in the South American country, products of which will go into the making of beverage cans.

The 220,000-tonne aluminium rolling facility, which produces sheets of the metal, is expected to be commissioned by the end of this calendar year, but will ramp up production up to 2014. Also coming up in Brazil next year is a recycling plant, which will produce 190,000 tonnes of sheets from recycled aluminium, mostly used beverage cans.

Meaningful contribution

Philip Martens, President & CEO, Novelis, says that the upcoming facility will provide a “meaningful contribution to our fiscal 2014 results.”

“This expansion is coming at a perfect time, ahead of Brazil’s 2014 World Cup and 2016 Olympics, which will drive significant beverage consumption in the region,” Mr Martens told an analysts conference all on Tuesday.

Novelis, a $ 11 billion company, which operates out of 11 countries has a total capacity of 3 million tonnes of aluminium sheets. The company is now expanding mainly in three countries - Brazil, China and South Korea. The 220,000-tonne recycling facility in South Korea is expected to be commissioned next month.

While it is not clear as to what “meaningful contribution” the 220,000-tonne Brazil plant would make to Novelis’ operations, and in turn, to Hindalco’s fortunes, the point about the beverage can underscores the importance of Novelis to Hindalco.

In the first quarter of the current year, the only spot of cheer in Hindalco’s results was the performance of Novelis - ironically because when the North American company was acquired by the Aditya Birla group in 2007, it was neck-deep into debt and saddled with unviable fixed-price contracts.

Novelis is putting up 890,000 tonnes of rolling capacity and 810,000 tonnes of recycling capacity. It has “truly aspirational goal” of coming to a level where 80 per cent of its products are from recycled material.

“Hindalco’s standalone EBITDA disappointed (43 per cent below estimates) due to production issues and sustained cost pressures. Novelis remained the bright spot having posted an EBITDA of $259 million (11 per cent above estimates) and guided for further improvement going forward,” says a recent research report of Edelweiss.

For the quarter Hindalco reported sales of Rs 6,028 crore and net profit of Rs 424 crore, which was down 34 per cent, both compared with the previous quarter and the same quarter last year.

(This article was published on August 17, 2012)
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