Hindalco's Novelis targets $6 billion capex for capacity enhancement, sustainability

Hindalco's subsidiary Novelis believes the long-term demand trends for flat-rolled aluminium products remain strong. It has since identified $6 billion of potential organic capital investment opportunities to grow the business through debottlenecking, recycling, and new capacity investments. It is focused on increasing capacity and align with sustainability commitments, says the company in its draft registration statement, which was submitted with the Securities and Exchange Commission (SEC) of the US for review before public offering.

"We are pacing capital investments and prioritising specific investments of approximately $4.9 billion that are already under way," says the Atlanta-based subsidiary. The capital expenditure of the company would be $1.4- 1.6 billion for FY24. It includes maintenance spend of around $300 million.

It intends to maintain a medium-term net leverage ratio around 3 times, and continue to guide 8-10% of post-maintenance capital expenditure adjusted free cash flow to be returned to common shareholder, it adds. On August 1, 2023, the board approved a $100 million return of capital to common shareholder.

"We believe we have adequate liquidity to manage the business with dynamic metal prices. Our cash and cash equivalents and availability under committed credit facilities aggregated to $2.1 billion of liquidity as of December 31, 2023," it says.

Novelis, the world leader in aluminium rolling and recycling, is the wholly-owned subsidiary of Hindalco. The proposed IPO is an offer for sale by the existing promoter Hindalco Industries. So Novelis would not receive any proceeds from the sale. The clearance from SEC is expected to take about 6 months.

At present, Novelis is building recycling and rolling plant in Bay Minette, Alabama. For which, the costs escalated by 65% to $4.1 billion from $2.5 billion. The facility is expected to create up to 1,000 new jobs and will have an initial 600 kilo tonne of finished aluminium goods capacity a year. The plant is mainly to serve the beverage container market, with flexibility for automotive production. It also adds a new recycling centre for beverage cans, increasing the company's recycling capacity by 15 billion cans per year when fully operational.

In December 2023, Novelis had a net debt of $4.6 billion. With its ongoing capex, net debt may rise to $5 billion by FY26-end. The parent Hindalco's consolidated net debt was ₹34,840 crore in December. As on 29 February, Hindalco's market capitalisation stood at ₹1.17 lakh crore.

Hindalco bought Novelis for $6 billion in 2007, and in 2020 Novelis bought Aleris for $2.8 billion. Stung by the market crash during Covid-19 pandemic, Novelis had prioritised reducing long-term debt by $2.6 billion in 2021 after the Aleris acquisition. It wanted to achieve a net leverage ratio of 2.5 times. The company said in its filing that it achieved both targets by the end of FY22 and the priority subsequently shifted to organic growth capital expenditures.