Hindalco arm to invest $300 m in Brazil plant

Novelis Inc., the Canadian subsidiary of Hindalco Industries, plans to increase its flat-rolled aluminium capacity in Brazil by 20 per cent to 2.5 lakh tonnes by 2014 on the back of strong demand in the Asian region.

It will invest $300 million （Rs 1,300 crore） in a brownfield expansion project at its Pinda unit in Brazil.

Mr D. Bhattacharya, Managing Director, Hindalco, said the company had managed to sustain the growth in Novelis in the second quarter by focusing on high-margin products and stiff cost control.

“Novelis has launched specific projects, including debottlenecking initiatives in September, to accelerate profitable growth. It recorded $1.2 billion, including cash of $512 million this quarter. Shipments were up six per cent at 7.37 lakh tonnes,” he said.

Performance

The company registered a 45 per cent jump in adjusted EBITDA at $290 million against $200 million in the same period last year.

Net profit was, however, lower at $62 million in the quarter under review against $195 million due to unrealised derivative gain of $137 million （$50 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 unrealised gains and losses on metal derivatives/revenue recognition impacts income before income taxes and net income.

Gains and losses on metal derivative contracts are not recognised in segment income until realised, the company said.

“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,” Novelis said.

“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,” said Mr Bhattacharya.

The company has provided Rs 22 crore as VRS package for about 300 workers at its foil plant in Kalwa, Thane.

“We have decided to modernise and shift the 40-year-old plant to our existing units as the current set up is highly inefficient due to high production costs,” he said.