Canadian subsidiary of HINDALCO Industries, Novelis Inc. is keen on increasing its flat rolled aluminum capacity in Brazil by 20 per cent, reported Brazilian newspaper BL. According to the report, the increase will see Novelis Inc’s production peak at 0.25 tons by the year 2014. The investment is mainly targeted at meeting the growing strong demand in the Asian expanse, said the firm.

Under the plans, Novelis Inc will reportedly invest around $300 million in a Brownfield expansion project at its existing Pinda unit in Brazil. HINDALCO Industries managing director Mr. D. Bhattacharya was quoted saying the company had managed to sustain the growth in Novelis in this year’s second quarter by focusing on high margin products and stiff cost control. Novelis has launched specific projects, including de-bottlenecking initiatives in September, to accelerate profitable growth.

The firm registered profits of $1.2 billion including cash of $512 million this quarter, with its Shipments having increased by 6 per cent at 0.737 million tons. Other than that, Novelis had a 45 per cent hike in adjusted earnings before interest, tax, depreciation and amortization at $290 million against $200 million in the same period last year. Net profit was, however lower at $62 million in the quarter under review against $195 million due to unrealized derivative gain of $137 million.

Novelis enters into forward metal purchases in tandem with sales contracts that contain fixed metal prices. These purchases directly hedge the economic risk of future metal price fluctuation associated with these contracts. He said the firm has decided to modernize and shift the 40 year old plant to its existing units as the current set up is highly inefficient due to high production costs.

Mr. Bhattacharya said that Novelis would become value accretive for Hindalco investors over the long term as it enhances production across the country. On the domestic front, there could be cost pressure due to a sharp spike in power and fuel bills. The company has provided INR 22 crore as VRS package for about 300 workers at its foil plant in Kalwa Thane.

Novelis settles derivative contracts in advance of billing and collecting from its customers, which temporarily impacts its liquidity position. The lag between derivative settlement and customer collection typically ranges from 30 to 60 days, Novelis said.

15 Nov 2010.