Mumbai: The $30 billion (Rs1.4 trillion) aluminium to mobile telephony Aditya Birla Group will raise its stake in aluminium maker Hindalco Industries Ltd from the current 36%, “because this is the best investment we can make as promoters”, chairman Kumar Mangalam Birla told shareholders at the 51st annual general meeting of the company.
“We will be constantly looking to increase holding this year. Having said that, we are comfortably placed with 36% and there is no threat of becoming an acquisition target,” Birla said. He didn’t elaborate on the stake purchase plan.
He was replying to a shareholder query on why the company was not looking at increasing its stake as protection from potential hostile bids.
Institutional investors such as mutual funds, insurance firms, banks and foreign investors control 33% of the company. The Birlas control Hindalco shares through various firms or in their personal capacity.
For example, Birla-controlled Grasim Industries Ltd and Aditya Birla Nuvo Ltd own 2.85% and 1.75% of the shares, respectively. Birla holds 0.05% while his son Aditya Vikram owns 0.03% and wife Neerja Birla has 0.01%.
Naveen Vora, partner (metals and mining) at audit and consulting firm Ernst and Young (E&Y), said increasing stakes in Hindalco makes “strategic sense for the Birlas”.
“By increasing stake, they are reiterating the strategic value of the company. India is one of very few aluminium markets where companies have integrated bauxite, power and refinery, which is a big problem to get for companies today,” Vora said.
Increasing stake in Hindalco will also help the Birlas tighten their grip on US-based, flat-rolled aluminium maker Novelis Inc., which it bought for $6 billion in 2007.
The timing of the move is also significant because of Novelis’ strong results in the quarter ended June. Earnings before interest, taxes, depreciation and amortization rose 55% in the quarter to a record $754 million. Cash flow turned around to $355 in 2009-10 from a negative of $352 million the previous year.
“This was a direct result of a stronger performance, good working capital management and controlled capex levels. Novelis today is a leaner and more nimble entity,” Birla told shareholders.
Hindalco managing director Debu Bhattacharya said Novelis is well placed because of its expertise in cans and cars. “Because of the increased demand for low carbon emitting vehicles, aluminium becomes a natural choice for car manufacturers. Also, we have seen that the can industry like the FMCG (fast moving consumer goods) sector has defied the global meltdown. I would be surprised if there is a reduction in aluminium prices,” he said.
E&Y’s Vora said Novelis’ turnaround gives the Birlas another reason to increase their stake in Hindalco and possibly raise funds for expansion.
Hindalco has a capex plan of Rs40,000 crore to increase capacity between now and 2014.