BL reported that Novelis Inc, the Canadian subsidiary of HINDALCO Industries plans to increase its flat rolled aluminum capacity in Brazil by 20% to 0.25 million tonnes by 2014 on the back of strong demand in the Asian region. It will invest USD 300 million in a Brownfield expansion project at its Pinda unit in Brazil.
Mr D Bhattacharya MD of HINDALCO said that the company had managed to sustain the growth in Novelis in the Q2 by focusing on high margin products and stiff cost control. Novelis has launched specific projects, including de bottlenecking initiatives in September, to accelerate profitable growth. It recorded USD 1.2 billion including cash of USD 512 million this quarter. Shipments were up 6% at 0.737 million tonnes.
The company registered 45% jump in adjusted EBITDA at USD 290 million against USD 200 million in the same period last year. Net profit was, however lower at USD 62 million in the quarter under review against USD 195 million due to unrealized derivative gain of USD 137 million.
Novelis enters into forward metal purchases in tandem with sales contracts that contain fixed metal prices. These purchases directly hedge the economic risk of future metal price fluctuation associated with these contracts.
The timing difference between the recognition of unrealized gains and losses on metal derivatives and revenue recognition impacts income before income taxes and net income. Gains and losses on metal derivative contracts are not recognized in segment income until realized.
The company said that we settle derivative contracts in advance of billing and collecting from our customers, which temporarily impacts our liquidity position. The lag between derivative settlement and customer collection typically ranges from 30 to 60 days.
Mr Bhattacharya said that Novelis would become value accretive for Hindalco investors over the long term as it enhances production across the country. On the domestic front, there could be cost pressure due to a sharp spike in power and fuel bills. The company has provided INR 22 crore as VRS package for about 300 workers at its foil plant in Kalwa Thane.
He said that we have decided to modernize and shift the 40 year old plant to our existing units as the current set up is highly inefficient due to high production costs.
（Sourced from Business Line）
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