Hindalco gains 7% as arm Novelis to buy Aleris

Shares of Hindalco Industries were up 7% at Rs 220 per share on the BSE in early morning trade after the company announced the acquisition of a global aluminium rolled products major Aleris at an enterprise value of US $ 2.58 billion.

The acquisition will be made through the Hindalco’s wholly owned subsidiary, Novelis Inc. Aleris has a global footprint with manufacturing facilities in Europe, the U.S. and Asia.

“The acquisition strengthens Novelis’ leadership position in the fastest growing automotive segment with best in class assets in Lewisport, U.S. and Duffel, Belgium. It marks Novelis’ entry into the high-end aerospace segment, with technological capabilities in manufacturing and research & development in Aleris’ facility in Koblenz, Germany,” Hindalco Industries said in a press release.

“Aleris reported US$ 201 million adjusted EBITDA in CY17. The long term debt/adjusted EBITDA stand at 8.1x. Hindalco expects EBITDA to improve to US$ 360 million due to as outage related damage (US$38 million) is resolved and another US$ 120 million benefit coming in due to ramp up in ongoing projects. The deal in this ways is worked out to be 7.2x EV/ EBITDA,” analysts at Emkay Global Financial Services said in event update.

Given the current metals market situation globally, the analysts feel the valuation is on the higher side, however, synergy benefit if any is not considered. On a longer term strategic view, the deal looks beneficial for Novelis due to better market penetration and product mix, it added.

The stock of Hindalco hit a 52-week low of Rs 192 on Monday, July 23, 2018 on the BSE in intra-day trade. Thus far in the calendar year 2018, the stock underperformed the market by falling 25% as compared to 8.6% rise in the S&P BSE Sensex till Thursday.

At 10:23 am; Hindalco was trading 4% higher at Rs 215 against 0.87% rise in the benchmark index. A combined 13.23 million equity shares changed hands on the counter on the NSE and BSE so far.