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Hindalco Industries, an Aditya Birla Group company, plans to acquire Ohio-based aluminium maker Aleris Corp. It is expected to speed up the company’s target to double production of value added products, while stretching the company’s balance sheet over the next two fiscals.
The company plans to fund the $2.5-billion deal through Novelis and its new subsidiary company to be formed, sources said. The acquisition, if it sails through, will add 1 million tonnes to Novelis’ 3.6 million tonne downstream capacity.
Given its consolidated net debt of ₹43,227 crore and EBITDA of ₹15,025 crore, Hindalco’s debt to EBITDA stands at 2.8 times as of March. If it acquires Aleris for $2.5 billion (about ₹15,800 crore), net debt will increase to ₹59,000 crore for an EBITDA of ₹17,976 crore. This will take the net debt to EBITDA to 3.3 times against the industry’s average at 3 times, said an analyst.
In the calendar year 2017, Aleris clocked an EBITDA of $201 million and had debt of $1.8 billion in its books. Incidentally, Novelis, which also in the midst of expansion, refinanced $1.8 billion of its term loans in January.
Satish Pai, Managing Director, Hindalco, in a recent presentation said the product mix of Novelis has been changed with the focus on value added product, while closing down loss-making units and discontinuing production of less profitable products.
For instance, he said Novelis stopped producing foils which contributed 24 per cent of the revenue in FY09 and shifted focus on producing auto grade aluminium whose share has increased from 4 per cent to 20 per cent boosting the EBITDA to $1.21 billion in FY18 from $0.5 billion.
Aleris makes rolled fabricated aluminium products and has 13 manufacturing facilities across North America, Europe and China. It caters to different sectors, including aerospace, automotive, defence, building and construction, transportation, packaging and consumer goods.
Riding on the US President Donald Trump’s tariff on aluminium imports, Aleris recently commissioned a $425-million automotive body sheet unit in Kentucky and has already started shipping products from the new facility.
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