Novelis recovery unlikely in 2 years: experts

Mumbai: Hindalco’s 100% subsidiary Novelis is unlikely to witness a turnaround for 1-2 years, as a persistent fall in aluminium prices, a dip in demand, its derivatives position and a beating on its margins may not put the company on a recovery path in the near future, feel experts. According to industry watchers, Novelis shipments are likely to fall further, as currently, aluminium demand is not on a high. The company’s shipments of flat-rolled aluminum products decreased 20% to 605 ku during the fourth quarter. Shipments to automotive, construction and industrial markets were significantly impacted by the economic downturn. Can sheet shipments were flat as compared to the fourth quarter of 2008 and higher on a year-to-date basis. Novelis, while announcing its Q4 results, had said, “Rapidly declining aluminum prices during the second half of fiscal 2009 increased the effect of timing differences between our settlement of aluminum forward contracts and cash collection from customers.” Novelis sales during the fourth quarter ended March 31, 2009, declined 32% to $1.94 billion as a result of lower volumes and decreased metal prices. For the fiscal year 2009, the company recorded a net loss of $1.9 billion. Experts further believe Novelis derivatives position is also a matter of concern, as Hindalco’s derivates loss in FY09 increased to Rs 2,381 crore ($519 million) against just Rs 12 crore ($3 million) in FT08. Hindalco Industries shares on Thursday were up 1.38% to close at Rs 84.55 on the Bombay Stock Exchange. Hindalco acquired Canadian aluminium product maker Novelis for $5.9 billion in 2007 in an all-cash transaction which also included a debt of $2.4 billion. The company on Thursday announced that it has reached an agreement and received lenders consent on revised terms including covenant relaxations relating to the $ 982 million bank loan. “The new terms allow the company significant flexibility to plan its future business and pursue its capital expenditure plans. Under the new agreement, banks have agreed to waive requirement to test covenants on consolidated financials,” Hindalco said in a statement to the BSE. According to a Mumbai-based analyst, “Hindalco has been in talks with lenders to ease the covenant. But this does not bring any relief to Hindalco as its debt position remains the same. These covenants were set by the bankers when the things were good. Now they have got a relaxation on the covenant end.” Dipesh Dipu, principal consultant, metal and mining, PWC, said, “Situations with metal companies tend to get better depending on how fast the economy reconciles. The metal companies must focus on cost-cutting measures and sales in the domestic market to ensure profitability.” For the full year ended March 31,2009, the consolidated net profit of the company was Rs 485.3 crore, a fall of 77.87% against Rs 2,193.3 crore in FY08. Net sales during the year, however, grew 9.35% to Rs 65,625.2 crore against Rs 60,012.8 crore in FT08. Profits dipped due to a non-cash unrealised derivatives loss of Rs 2,381 crore during the year. ...