Hindalco rallies after completion of Aleris acquisition

Hindalco Industries jumped 7.95% to Rs 122.85 after completion of acquisition of US-based Aleris Corporation by Hindalco through its wholly-owned subsidiary Novelis Inc.

The acquisition of the US-based rolled products major, Aleris Corporation, positions Hindalco as one of the world's largest aluminium companies, with a global footprint spanning 49 manufacturing facilities in North America, Europe and Asia.

With the addition of Aleris' operational assets and workforce, Novelis is poised to more efficiently serve the growing Asia market by integrating complementary assets in the region including recycling, casting, rolling and finishing capabilities.

Beyond its many strategic benefits, the acquisition will generate approximately $150 million in synergies and creates a strong financial profile. In addition, combined net debt to adjusted EBITDA of approximately 3.3x is within the recently updated guidance of below 3.5x and well below the initial outlook of below 4x at transaction announcement.

The closing purchase price of $2.8 billion consists of $775 million for the equity value, as well as approximately $2 billion for the assumption or extinguishment of Aleris' current outstanding debt and a $50 million earn-out payment. Legacy Aleris debt levels have increased since the initial acquisition announcement due to rise in working capital to support the ramp up of operations, while the earn-out is related to stronger than expected performance by Aleris' US business. On a trailing twelve-month basis ending 31 December 2019, legacy standalone Aleris adjusted EBITDA stood at $388 million, higher than that estimated at the time of deal announcement. Despite the increase in legacy Aleris debt, the implied enterprise value multiple of 7.2x, is in line with our acquisition case, on account of better EBITDA performance.

Novelis will acquire Aleris' 13 plants across North America, Europe and Asia; however, to satisfy regulatory conditions, the company is required to divest Aleris' plants in Lewisport, Kentucky, U.S.A., and Duffel, Belgium, as announced earlier.

The announcement was made on Tuesday, 14 April 2020. The stock exchanges were closed on Tuesday on account of Ambedkar Jayanti.

Hindalco Industries' consolidated net profit tanked 23.64% to Rs 1,065.26 crore on a 12.09% decline in net sales to Rs 29,197 crore in Q3 December 2019 over Q3 December 2018.

Hindalco Industries is engaged in the production of aluminium and aluminium products, and copper & copper products. The company's segments include aluminium, which includes hydrate and alumina, aluminum and aluminum product, and copper, which includes continuous cast copper rods, copper cathode, sulfuric acid, di-ammonium phosphate (DAP) and complexes, and gold & silver products.

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