Aditya Birla group flagship firm Hindalco Industries has decided to trim its overseas operations and is restructuring its capital expenditure in India in an effort to stabilise operations. As part of this overall plan, Novelis, which Hindalco acquired for $6 billion in 2007, is closing its sheet mill at Rogerstone in the UK, involving 440 job losses.
Sunirmal Talukdar, Hindalco's chief financial officer, confirmed the closure, saying the decision was forced by falling demand.
Other company sources said two Novelis mills in Canada were also facing closure.
Earlier this year, slumping copper prices and demand forced Aditya Birla Minerals, another Hindalco subsidiary, to close its Mount Gordon copper mine at Queensland in Australia.
Company sources said the factory at Mount Gordon would continue to process stockpiles of ore and was likely to produce 1,800 tonne of copper concentrate per month for about 12 months.
Novelis' net loss widened to $1.91 billion in 2008-09 from $117 million in 2007-08, primarily on account of $1.5 billion impairment charges and unrealised mark-to-market losses of $519 million. The company's net sales dropped 9.5 per cent to $10.18 billion in the same period.
Mumbai-based analysts said Novelis' near-term profits were also under pressure from cyclical weaknesses in North America and Europe, which accounted for 70 per cent of its sales.
Can-sheets and foils and packaging, which together account for 60 per cent of Novelis's business, are also in the shadow of a downturn, especially after customers like Ball and Rexam closed their units.
Meanwhile, Hindalco is expecting to recast it capital expenditure of Rs 25,000 30,000 crore over the next four years. "Since capital goods prices have come down, the company is expecting a savings of 15 to 16 per cent on its capex. But it is not reducing the capex, instead it is planning additional capacity with the same capex," said Hindalco Managing Director Debu Bhattacharya.
The company, which plans to raise Rs 2,400 crore through a qualified institutional placement (QIP), has tied up for funds for its prestigious Rs 5,300-crore Utkal Alumina project. Bauxite mining for the Utkal project, however, has been delayed six months for want of funds.
Jharkhand Aluminium, another greenfield project, has also been delayed a year owing to financing issues.
Hindalco is now looking for a joint debt raising programme for its greenfield projects, said company officials.
Talukdar said the cash and cash equivalents of Rs 5,000 crore on the books would help the company to execute projects on time.
Analysts, however, feel that Hindalco and Novelis would be stretching the balance sheet if they draw up further fund-raising plans. The group already has a consolidated debt of $5.2 billion (about Rs 25,000 crore), of which Novelis alone accounts for $2.4 billion (about Rs 11,500 crore).
Hindalco alone has Rs 13,000 crore of debt, of which about Rs 4,800 crore is due in four years and Rs 5,000 crore is being paid in installments till 2013-14. The remainng debt is for working capital.
Hindalco shares were down 3.53 per cent at Rs 83.40 on Wednesday, when the Sensex gained over 1 per cent.