Kumar Mangalam Birla to raise Hindalco stake to 37%

Kumar Mangalam Birla, the chairman of Aditya Birla Group, will invest INR 2,165 crore by October to raise his stake by 5% to 37% in Hindalco Industries by converting 15 crore preferential warrants into equity shares, a group executive with direct knowledge of Birla's plans said.

The company, India's largest aluminium producer, had issued warrants to Birla in March 2012 with a conversion price of INR 144.35 a piece, a 54% premium to Wednesday's closing price of 93.35.

Birla, who has already paid INR 541 crore in March 2012 to convert 10% of the preferential warrants, will lose the initial deposit if he does not convert all the warrants.

"Birla will convert the preferential warrants into equity shares," another group executive confirmed. Birla, who owned only 17% of the company a decade ago, has been raising his stake in Hindalco after it transformed itself into the world's largest supplier of aluminium to global can makers following the purchase of Canada's Novelis in 2007.

Birla converted a part of the preferential warrants in 2007, and a year later purchased unsold shares in the rights issue to raise INR 5,048 crore to repay a part of the INR 14,000-crore debt for the Novelis deal. The conversion signals Birla's bullish outlook on Hindalco, which invested $2.6 billion in the past fiscal to expand capacities in India and emerging markets such as Brazil and China.

Analysts said the capital infusion will also reduce Hindalco's leverage, or debt-to-equity ratio. "The company is sitting on a huge pile of debt. The conversion will help bring down the debt-to-equity ratio," said an expert who tracks conglomerates.

"These investments will not only propel us towards the growth trajectory planned for the metals business, but also create the lowest-cost production bases on the global cost curve - ones that can withstand any phase of the business cycle," Birla told shareholders at the company's annual general meeting.

Hindalco has invested heavily to expand capacities in the past three years. Novelis, for instance, has commissioned a new cold mill at the Pinda plant in Brazil and started an auto finishing line in China.

The company reported an 11.5% rise in net profit at INR 474 crore during the first quarter, compared with a net profit of INR 425 crore in the year-ago period. Its sales fell 3% to INR 5,766.69 crore during the period.