News that India’s largest aluminum maker Hindalco plans to raise $1.1b via a rights issue yesterday comes as no surprise and should not be seen as the company joining the ranks of major banks needing to raise capital. Last year Hindalco purchased Novelis, the rolled products business previously owned by Alcan until 2005. Hindalco has been carrying a bridge loan raised to complete the purchase ever since. A rights issue was always on the cards as a more efficient way of funding the debt. At the time, many thought Hindalco may have bitten off more than it could chew in buying Novelis a company with $11.2b in revenues and 12,700 employees in 11 countries. It’s not due to the size, the Aditya Birla Group of which Hindalco is the flagship company employs some 86,000 people, but more because of the global spread of Novelis operations. Novelis has some 19% of the world flat rolled products market for aluminum. The combined businesses make Hindalco the largest rolled products manufacturer in the world.
The takeover went relatively smoothly and now Novelis has launched a new casting technology called Fusion that essentially allows the production of multi layer sheet rolled from one rolling slab, as opposed to the current method which is to roll bond material from different slabs to form clad sheets. To quote from Novelis website:
Three layers of aluminum are cast simultaneously into one homogenous ingot. This ingot consists of a core and two outer layers. Once the ingot has set, it is rolled. The two outer layers are tailored to provide the specific properties needed. For example, it’s possible to combine and achieve high-strength, excellent bendability and corrosion resistance at the same time.
One has to admire the company bringing to market what is a simple idea but technically difficult to achieve. If the cost of production is as low as suggested, it does open the door for aluminum sheets with, for example, high strength 5456 alloy cores but corrosion resistant and more flexible 5005 alloy outer layers. This achieves the best of both worlds but without the cost and boundary issues associated with conventional roll clad products.
Novelis has rolled out (no pun intended) the technology to plants in Switzerland, Korea and shortly South America in addition to North America. They say the technology will allow them to compete in different market segments in different continents, for example auto brazing quality fin-stock in Korea which is currently supplied as a roll clad imported product. The firm believes there will be many gauge reduction opportunities even for conventional sheet applications. It will be interesting to see to what extent manufacturers take up the new product and design it into upgrades and new products. The benefits appear significant and you can be sure Novelis will position this as a value add product. The deciding factor may be the premium Novelis will look to achieve in an increasingly cost conscious market.