(Aadriti Upadhyay) live project final report

LIVE PROJECT REPORT
(MBA 2019-2020)
On
A COMPARITIVE STUDY ON THE PRE & POST
ACQUISITION OF HINDALCO - NOVELIS
Towards partial fulfillment of
MASTER IN BUSINESS ADMINISTRATION (FINANCE)
(DOON BUSINESS SCHOOL, DEHRADUN)
Guided By: Submitted by:
PROF. Shalini singh Aadriti
0191MBA220

ACKNOWLEDGEMENT
In order to accomplish a task, facts, situations and persons integrate together to form a
background. “Greatness lies in being grateful and not in being great.” This research report is
a result of contribution of the personalities whose guidance here made my effort a productive
one, as “no task is a single man’s effort”.
I would like to express my deep sense of gratitude to the respectable guide distinguished
personalities for their precious suggestions and encouragement during the project. The
experience which is gained by me during this project is essential for me at this turning point of my
career. I am thankful to my project guide Prof. Shalini Singh for kind support and
supervision under whose kind & constant guidance I had the opportunity to expand my
horizons and view the various problems from different prospective. I am also thankful to her
for sparing her valuable time to listen my problems and difficulties faced by me during the
completion of this project report.

TABLE OF CONTENT
S.no Topic Page no.
1 ACKNOWLEDGEMENT
2 OBJECTIVE OF THE STUDY 1
3 SCOPE OF THE STUDY 2
4 EXECUTIVE SUMMARY 3
5 RESEARCH HYPOTHESIS 5
6 RESEARCH METHODOLOGY 6 to 9
7 LITERATURE REVIEW 10
8 INTRODUCTION ABOUT COMPANIES 11-13
9 DATA COLLECTION 14-38
10 DATA ANALYSIS 38-51
11 FINDINGS
52
12 SUGGESTIONS 53-54
13 BIBLIOGRAPHY 55

OBJECTIVE OF THE STUDY
 To study pre & post-acquisition influence on profitability standards of Hindalco
and Novelis.
 To analyze pre & post-acquisition effect on leverage standards of Hindalco and
Novelis.
 To determine pre & post-acquisition liquidity position of Hindalco and Novelis.
 To ascertain pre& post-acquisition improvement in capital market standards of
Hindalco and Novelis.
1

SCOPE OF THE STUDY
This dissertation covers research over two periods-
 At the time the acquisition was announced and at the time when acquisition was
actually completed.
 The study has been made with regard to two companies- Hindalco industries &
Novelis
The study has been done regarding three stages of the Acquisition-
 Pre – Acquisition
 Acquisition process
 Post – Acquisition
2

Executive summary
In the recent past, The Aditya Birla group has been undergoing major changes that have
affected both its structure and the nature of strategic interaction among aluminium industries.
Different strategies have been adopted to tackle the demands of this new operating
environment, one such strategy having been consolidation via mergers and acquisitions. Both
the companies are in favor of this change and consequently arises a desire to study this aspect
in detail. Considering the maturity of certain international markets an attempt would be made
to obtain certain practices from them as well. However the report takes cognizance of the fact
that Mergers and Acquisitions (M&A) is highly environment dependent and hence there is a
constant focus on this aspect while pertaining to practices.
Indian aluminium giant Hindalco acquired Atlanta based company Novelis, a world
leader in aluminium rolling and flat-rolled aluminium products, on May 15, 2007. This
acquisition was done to gain immediate scale and a global footprint. Acquiring Novelis
would also give Hindalco access to sheet mills that supplied to can manufacturers and auto
companies. By investing in downstream Hindalco would go up the value chain and becomes
a world leader in downstream aluminium rolled products. It was already the biggest producer
of primary aluminium in Asia and leader in copper production in India.
This study analyses the acquisition of both Hindalco and Novelis on brief by using
research methodology and short term& long term impact of merger on the shareholders
wealth.
3

Introduction
The term Mergers and Acquisitions (M&A) is a general term used to describe the
amalgamation of companies or assets through various types of financial transactions,
including mergers, acquisitions, consolidations, tender offers, purchase of assets and
management acquisitions.
Mergers and acquisitions becomes the major force in the changing environment. The policy
of liberalization, decontrol and globalization of the economy has exposed the corporate sector
to domestic and global competition. It is true that there is little scope for companies to learn
from their past experience. Therefore, to determine the success of a merger, it is to be
ascertained if there is financial gain from mergers. The main objective of the present study is
to evaluate the post-merger financial performance of the acquirer, Aditya Birla Group.
The study has been done in three steps via:-
 Pre- Acquisition condition of both companies (Novelis & Hindalco)
 Acquisition process involved
 Post- Acquisition performance of acquirer
4

RESEARCH HYPOTHESIS
1. H0: Pre &Post Acquisition, there is no significant improvement in profitability
standards of the surviving company in Hindalco & Novelis.
2. H0: Pre & Post Acquisition, there is no significant improvement in leverage
3. H0: Pre & Post Acquisition, there is no significant improvement in liquidity
position of the surviving firm in Hindalco & Novelis.
4. H0: Pre & Post Acquisition, there is no significant improvement in capital market
5

RESEARCH METHODOLOGY
In this report I have tested influence of Acquisition on the financial performance of the
surviving company by considering Pre and Post Acquisition financial ratios for the entire set
of sample firms. For the present study relevant financial ratios are identified and categorized
into four broad groups. Each group is further classified into various important ratios for pre &
post-performance analysis and they are shown as follows:
Table 1 Profitability Standards
RATIO DESCRIPTION STANDARD
GROSS PROFIT MARGIN
%
(SALES-COGS)/SALES HIGH
NET PROFIT MARGIN % NPAT/SALES HIGH
RETURNON
INVESTMENT%
(NPAT/ Average Total
Assets)
HIGH
Return on Equity (%) (NPAT –Preference Dividend
/ Average Shareholders
Fund)
HIGH
Return on Capital Employed
(%)
EBIT / Avg. total Capital
employed
HIGH
Table 2Financial Leverage Standards
Debt-to-Equity (Total Debt / Equity Share
Capital)
LOW
Total Capitalization (Total Debt / Total Capital) LOW
6

Table 3Liquidity Standards
Current Ratio (Current Assets / Current
Liabilities)
HIGH
Acid-Test Ratio (Quick Assets /Current
Liabilities)
HIGH
Interest Coverage (EBIT / Interest Charges) HIGH
Table 4 Capital Market Standards
RATIO DECRIPTION STANDARD
Earnings Per Share (PAT / No. of Equity Share) HIGH
Price/Earnings Ratio (Avg. stock price / EPS) HIGH
Price-to-Book Ratio (Avg. Stock Price / BV per
share)
HIGH
Market Capitalization Avg. Stock Price x
Outstanding shares issued
HIGH
SAMPLING TECHNIQUE-
Convenience sampling has been employed to select the sample companies for the study.
Such a selection is undertaken as these units represent the sample in a better way and reflect
better relationship with the other variable.
SAMPLE SELECTION –
To perform the research study, we have selected a sample of two companies i.e. Hindalco &
Novelis. The sample units have been taken form Aluminium Industry. Further, we have
analyzed 3 year data for both Pre and Post-merger performance analysis.
DATA COLLECTION –
The secondary data has been collected through the annual reports as well as research papers
and also through web results.
7

SAMPLE DESIGN-
As Hindalco had acquired Novelis in year 2007 so the data taken for research is from 2004
till 2007 march.
DATA ANALYSIS-
Pre and post-Acquisition performance ratios are computed for the entire set of sample
companies, which have gone through the acquisition during the selected period. The pre and
post-acquisition performance ratios are compared to see if there is any statistically significant
change in performance of acquirer firm after acquisition, using “paired sample t-test” at
confidence level of 0.01 or 99%. Also Pearson Correlation coefficient test has been employed
to assess the significance level.
STATISTICAL TOOLS-
To analyze the data collected from sources and to prove hypotheses, various statistical
tools and techniques have been applied in this study. The hypotheses are tested using
Pearson Correlation, Paired Sample t-test, and regression. The data has been analyzed
with the help of SPSS and MS-Excel for interpretation of data more accurately.
LIMITATIONS OF THE STUDY-
In order to present a true and valid picture about the topic it is essential to include and
disclose the limitations of this research study. The various limitations were
1. There were very few academic journals available regarding my research.
2. Not all information was available on my sample study.
3. It was very difficult to find data about novelis & hindalco which do not exist at present.
8

4. Many accounting fundaments such as EPS, Return of Equity, d/e ratio do not give a clear
understanding of the major variables which are the value drives .These all ratios are prone to
window dressing by the mischievous management .Also these measures use the historical
data to arrive at the conclusions.
5. Financial and time constraints were also a limitation.
6. The analysis of project was based on observations and interpretation on the basis of sample
survey. Hence they could be slightly biased due to my inability to extract all possible facts
despite all efforts.
9

LITERATURE REVIEW-
Studying acquisition performance has been the focus of multiple disciplines including, but
not limited to, Corporate Finance and Strategy. Multiple approaches have been used to assess
the
Performance of different mergers and acquisitions. Zollo and Singh (2004) asserted that
amount of Zollo and Singh (2004) asserted that amount of approaches to measuring it has
been tremendous. Zollo& Meier identified close to twelve different approaches used by
researchers to assess the performance of Acquisition between 1970 and 2006. These
approaches vary along different parameters.
These studies raise the question whether the acquisition on an average has benefited the
shareholders of acquiring companies? Several studies have shown that the Target firms' share
holder benefit the maximum from merger gains. Unlike other capital investment decisions
acquisitions create immediate impact on shareholders' value. The objective of the Capital
Employed can be calculated using the paper is to develop a methodology to forecast and
evaluate operating performance post-acquisition.
One of the fundamental problems in developing a method to assess the actual synergies has
been the absence of basis against which the post-merger operating performance shall be
compared. Only
When the improvement in performance of combined entity is more than the acquisition
premium the investment is justified. Till date most of the studies have used return on stocks
or accounting returns as the performance indicators. Further studies linking the short-term
market reaction and long term stock performance indicated that market reaction gives an
unbiased measure of long rum impact on value of acquiring firm.
Other studies have focused on return matrices such as return on sales, return on assets and
compared them before and after the acquisition assuming past performance as the benchmark
for future performance. Shareholders have the options of investing in the stock of two
independent entities themselves and therefore any acquisition must be justified by improved
performance over and above what in already reflected in the market prices of two stocks.
Therefore, any performance benchmark shall be able to exclude performance reflected in the
stock prices of independent firms. Therefore, rather than the past performance the
performance expected by firm (as reflected in stock market prices) shall be the basis for
bench marking. To do that a valuation model linking current market value to performance
parameters was employed. A method that separates known component of market values from
expected one.
10

Background
Hindalco Industries Limited:
Started in 1958 and commissioned its first aluminum facility at Renukoot in Uttar Pradesh in
1962. Based in Mumbai, India, Hindalco (a part of Aditya Birla group) recorded revenues of
approximately US $4.3 billion for the fiscal year ended March 31, 2007. Its products ranged
from primary aluminium to downstream roll products and diversified products like alloy-
wheels and foils. The company launched, The Aluminium Store all across India for retail
customers and launched new products like Aura for wheel solutions, Fresh wrap for kitchen
foils, and everlasting for roofing solution. Being a domestic leader, its primary aluminium
was traded in London Metal Exchange (LME) and exported to nearly 30 countries covering
North America, Western Europe and Asian region. Hindalco’s integrated operations and
operating efficiency positioned the company among the most cost-efficient aluminium
producers globally. Its profit after tax (PAT) had been continuously increasing and actual
production exceeded installed capacity in 2006 Hindalco’s stock was publicly traded on the
Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) of India Limited and
the Luxembourg Stock Exchange.
11

Hindalco Growth Path 2000-2008
Year Expansion, Acquisition and Others
2000
2001



2002
2003
2004
2005
2006
2007
2008
Majority stake in Indal through largest all cash acquisition in India.
Copper business acquisition and expansion to 250,000 tpa.
Acquisition of Nifty & Mt. Gordon Copper Mines.
Aluminium Expansion at Renukoot to 342,000 tpa, Hirakud to 65,000 tpa.
Doubling of copper capacity to 500,000 tpa. Listing of Aditya Birla Minerals
Ltd. on Australia Stock Exchange and raising AUD 299 million. Increase
stake in Utkal from 20% to 55%. Further increased to 100% in 2007.
JV agreement signed with Almex for aerospace alloys.
Acquisition of Novelis. Doubling of Hirakud Smelter capacity to 143,000 tpa.
Alumina Expansion at Muri.
12

Novelis:
Headquartered at Atlanta, Georgia, was formed as a Canadian corporation to acquire and
independently carry on most of the aluminium rolled products business operated by Alcan.
Novelis was then spun off by Alcan on January 6, 2005 and mainly concentrated on
production of aluminium rolled products and aluminium can recycle. The company had been
supplying aluminium sheet and foil to the automotive and transportation, beverage and food
packaging, construction and industrial, and printing markets. The company’s customers
included major brands such as Agfa-Gevaert, Anheuser-Busch, Ball, Coca-Cola, Daching
Holdings, Ford, General Motors, Lotte Aluminium, Kodak, Pactiv, Rexam, Ryerson Tull,
Tetra Pak and ThyssenKrupp. Novelis operated in four continents including North America,
South America, Asia and Europe, through 36 operating plants including three research
facilities in 11 countries as on December 31, 2005. The company had been managing its
activities on the basis of geographical areas and its activities were organized under four
operating segments: Novelis North America (NNA), Novelis Europe (NE), Novelis Asia
(NA) and Novelis South America (NSA). Shares of the company‟s common stock were
traded on the New York Stock Exchange (NYSE) and on the Toronto Stock Exchange (TSE)
under the symbol NVL. The company suffered a net loss of US $275 million in 2006 as
compared to a net income of US $90 million in 2005 (Refer to Exhibit 2). This loss was
mainly on account of 39 percent increase in aluminium prices (between September 30, 2005
and 2006), which it was unable to pass on to its customers as per an earlier contract. On
February 10, 2007, Novelis and Hindalco entered into a definitive agreement for Hindalco to
acquire Novelis.
13

DATA COLLECTION-
HINDALCO
Financial Health of Hindalco before Acquisition:-
Table 1(a)
2004-2005 2005-2006 2006-2007
D/E 0.64 0.67 0.66
ROE 16.79 16.85 20.96
CURRENT
RATIO
1.77 2.01 1.93
EPS 13.03 16.02 26.73
14
0
5
10
15
20
25
30
D/E ROE CURRENT
RATIO
EPS
2004-2005
2005-2006
2006-2007

TESTING OF HYPOTHESIS
To test the hypotheses, Pre and Post Acquisition financial performance standards of surviving
firms are compared to see if there are any statistically significant changes in the financial
performance after M&A, using “paired sample t-test” at confidence level of 0.01 or 99% (df
=1, t tab = 63.65 {2-tailed}) and also descriptive statistics analysis has been performed to
ascertain the mean difference. The results are shown in the following tables related to the
sample firms.
ANALYSIS OF PROFITABILITY STANDARDS
Pre Mar-07 Mar-06 Mar-05 Mar-04
NET PROFT MARGIN 14 14.57 13.95 13.51
Gross profit margin 23.09 24.41 26.63 27.52
ROA 10.25 8.75 8.79 7.29
ROE 20.65 17.23 17.33 12.23
ROCE 12.79 11.99 10.99 8.54
Paired Samples Test
Paired Differences
t df
Sig. (2-
tailed)Mean
Std.
Deviation
Std.
Error
Mean
95% Confidence
Interval of the
Difference
Lower Upper
Pair 1 NetProfitMargin -
GrossProfitMargin
-
11.40500
2.32523 1.16262 -
15.10496
-7.70504 -9.810 3 .002
Pair 2 GrossProfitMargin
– NetProfitMargin
11.40500 2.32523 1.16262 7.70504 15.10496 9.810 3 .002
Pair 3 ROE – ROCE 5.78250 1.76065 .88033 2.98091 8.58409 6.569 3 .007
Pair 4 ROA – ROE -8.09000 2.28132 1.14066 -
11.72008
-4.45992 -7.092 3 .006
Pair 5 ROCE – ROA 2.30750 .82734 .41367 .99102 3.62398 5.578 3 .011
INTERPRETATION-
 Profitability ratios reflect the Hindalco ability to deliver aluminums, mining service at
a high cost or a low price. All profitability ratios have increases pre-acquisition except
the gross margin ratio. Demonstrating positive impact of operating performance and
higher overall yield.
 Pre-acquisition ROE has been negative which reflects greater financial leverage
practices. Higher debt component in capital structure resulted into greater financial
charges, expropriating shareholders’ value.
15

post Mar-
17
Mar-
16
Mar-
15
Mar-
14
Mar-
13
Mar-
12
Mar-
11
Mar-
10
Mar-
09
Mar-
08
NET PROFT
MARGIN
4.21 1.61 2.67 5.07 6.52 8.41 8.95 9.84 12.28 14.96
gross profit
margin
15.75 12.62 12.45 12.98 12.16 13.98 14.67 17.91 19.62 19.83
ROA 1.79 0.68 1.21 1.91 2.55 4.02 4.59 4.57 6.15 9.23
ROE 3.28 1.3 2.48 3.84 5.08 7.1 7.19 6.86 9.38 16.54
ROCE 6.46 0.81 1.47 2.3 2.98 4.9 5.82 5.54 7.14 11.36
Paired Samples Test
Paired Differences
t Df
Sig.
(2-
tailed)Mean Std. Deviation
Std.
Error
Mean
95% Confidence
Interval of the
Difference
Lower Upper
Pair
1
NetProfitMargin –
GrossProfitMargin
-
7.74500
2.38114 .75298 -
9.44836
-
6.04164
-
10.286
9 .000
Pair
2
GrossProfitMargin
– NetProfitMargin
7.74500 2.38114 .75298 6.04164 9.44836 10.286 9 .000
Pair
3
ROE – ROCE 1.42700 2.05751 .65064 -.04486 2.89886 2.193 9 .056
Pair
4
ROA – ROE -
2.63500
1.83395 .57995 -
3.94693
-
1.32307
-4.544 9 .001
Pair
5
ROCE – ROA 1.20800 1.34920 .42665 .24284 2.17316 2.831 9 .020
Interpretation:
 Post-acquisition GPM has declined by 20% approx. indicating inability of the
management to control the COGS and unfavorable purchasing policies of the
material. Major contributing factor for lower gross profit is attributed to rising
aluminum prices
 Post-acquisition period Hindalco had shown all the profitable ratios of the company
declined that shows the negative impact on operating performance of the Hindalco
after acquisition with novelis.
16

 Positive Mean difference value of ROA/ROI indicates destruction of shareholders’
funds by bad management policy. Company did not utilize its assets to the full extent
to generate higher sales revenue in spite of increased fleet size post-merger period.
 Post -merger ROE has been negative which reflects greater financial leverage
practices. Higher debt component in capital structure resulted into greater financial
charges, expropriating shareholders’ value.
17
 The analysis reveals the negative relationship between profits actually earned and
capital actually employed. ROCE had shown positive return over the years due to
strategic investment decisions. Top management take strict measures to control the
budgetary system that lead to perfect borrowing policies.
 Based on the results of the paired sample t-test analysis at 99% is (3.365) confidence
level,
The Hypothesis H0: “Post-Merger and Acquisition, there is no significant
improvement in profitability standards of the company was not rejected, since paired
sample t-test failed to reveal a statistically reliable difference between the pre & post
M&A mean values, SD, tcal ( all ratios ) value <t tab(3.35)
H0 (null hypothesis is rejected and H1 alternative hypothesis is accepted.
ANALYSIS OF FINANCIAL LEVERAGE STANDARDS
pre Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-02
debt equity ratio 1.22 1.12 1.03 1.06 1.2 1.76
capitalization 0.66 0.73 0.58 0.83 1.04 1.6
Paired Samples Test
Paired Differences
t Df
Sig.
(2-
tailed)Mean
Std.
Deviation Std. Error Mean
95% Confidence
Interval of the
Difference
Lower Upper
Pair
1
debtEquityRatio
- Capitalization
3.00333 16.44465 6.71350 -
14.25427
20.26094 .447 5 .673
Pair
2
Capitalization -
debtEquityRatio
-
3.00333
16.44465 6.71350 -
20.26094
14.25427 -.447 5 .673
17

Interpretation:
 Pre-merger D/E ratio has doubled indicating the higher leverage policy employed by
the company instead of infusing more equity funds in its capital structure. Hindalco
cannot access the capital markets for fund raising purpose on account of being a PSU.
 Amount had increased on account of inefficient borrowing policies and at the same
time low operating probability contributed limited funds to service the debt and
amortization of the same. The analysis indicates that the claims of outsiders are more
than the owner, lenders interests are not safe & they have to bear the probable future
losses.
 Over the years total capitalization had shown increasing and also decreasing trend on
account of moderate debt addition to the capital.
 Based on the results of the paired sample t-test analysis at 99% confidence level,
The Null Hypothesis H0: “Pre-Merger and Acquisition, there is no significant
improvement in leverage standards of the surviving company in Indian Airline
industry” was not rejected,
t cal (0.673) < t tab(3.36) value and p value > α = 0.01 for all the select leverage
standards.
Post Mar-
17
Mar-
16
Mar-
15
Mar-
14
Mar-
13
Mar-
12
Mar-
11
Mar-
10
Mar-
09
Mar-
08
debt equity
ratio
0.48 0.67 0.77 0.72 0.72 0.46 0.3 0.23 0.35 0.48
capitalization 3.28 1.3 2.48 3.84 5.08 7.1 7.19 6.86 9.38 16.54
Analysis:
Based on the results of the paired sample t-test analysis at 99% confidence level, the Null
Hypothesis H0: “Post-Merger and Acquisition, there is no significant improvement in
leverage standards of the surviving company in Indian Airline industry” was not rejected,
since paired sample t-test failed to reveal a statistically reliable difference between the pre &
post M&A mean values, SD, tcal(0.003) value < t tab(3.365) value for all the select leverage
standards in sample companies under study.
18
Lower Upper
Pair 1 debtEquity
Ratio -
Capitalizati
on
-5.78700 4.47207 1.41419 -8.98612 -2.58788 -4.092 9 .003
Pair 2 Capitalizati
on -
debtEquity
Ratio
5.78700 4.47207 1.41419 2.58788 8.98612 4.092 9 .003
Paired Samples Test
Paired Differences
t df
Sig. (2-
tailed)Mean
Std.
Deviation Std. Error Mean
95% Confidence
Interval of the

ANALYSIS OF LIQUIDITY STANDARDS
pre Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-02
current ratio 1.22 1.12 1.03 1.06 1.2 1.76
Quick Ratio 0.66 0.73 0.58 0.83 1.04 1.6
interest coverage
ratio
20.9 11.37 11.83 8.87 9.36 18.47
Interpretation:
Pre- acquisition Hindalco current ratio and quick acidic ratio decline but the interest coverage
ratio of the company increases pre-acquisition than post- acquisition that one also start
declined.
post Mar-
17
Mar-
16
Mar-
15
Mar-
14
Mar-
13
Mar-
12
Mar-
11
Mar-
10
Mar-
09
Mar-
08
current ratio 1.06 1.24 1.13 1.11 1.26 1.01 1.25 1.02 1.2 1.08
Quick Ratio 0.78 0.95 0.9 0.71 0.91 0.55 0.9 0.39 0.88 0.53
interest
coverage ratio
1.89 1.27 2.11 3.92 5.69 10.22 10.96 4.3 10.43 13.63
19
Lower Upper
Pair 1 cureentrati
o -
quickratio
.32500 .16646 .06796 .15031 .49969 4.782 5 .005
Pair 2 quickratio -
cureentrati
o
-.32500 .16646 .06796 -.49969 -.15031 -4.782 5 .005
Pair 3 interestcov
erageratio -
quickratio
12.56000 4.92684 2.01138 7.38959 17.73041 6.244 5 .002
Pair 4 cureentrati
o -
interestcov
erageratio
-12.23500 4.85055 1.98023 -17.32534 -7.14466 -6.179 5 .002
Pair 5 quickratio -
interestcov
erageratio
-12.56000 4.92684 2.01138 -17.73041 -7.38959 -6.244 5 .002
Pair 6 interestcov
erageratio -
cureentrati
o
12.23500 4.85055 1.98023 7.14466 17.32534 6.179 5 .002
Paired Samples Test
Paired Differences
t df
Sig. (2-
tailed)Mean Std. Deviation Std. Error Mean
95% Confidence
Interval of the

Interpretation:
 Post-merger current ratio decreased that indicating scarcity of resources to pay its
debts over the short-term period and difficulty meeting current obligations. Over the
year’s relative increase in current liabilities is lesser than the current ratio suggesting
current assets are highly dependent on inventory & sundry debtors.
 Over the years interest coverage had shown decreasing trend.
 A falling acid-test ratio indicates worsening liquidity positions of Hindalco and failure
to meet immediate current liabilities. It is also observed that acid-test ratio is much
five years. Post-merger the interest coverage had lowered its decreasing trend on
account of negotiation with creditors.
 Based on the results of the paired sample t-test analysis at 99% confidence level,
The Null Hypothesis H0: “Post-Merger and Acquisition, there is no significant
improvement in liquidity position of the company was not rejected, since paired
sample t-test failed to reveal a statistically reliable difference between the pre & post
M&A mean values, SD,
tcal (0.005,0.003) value < t tab(3.365) value and p value > α = 0.01 for all the select
leverage standards.
20
Lower Upper
Pair 1 cureentrati
o -
quickratio
.38600 .12642 .03998 .29556 .47644 9.655 9 .000
Pair 2 quickratio -
cureentrati
o
-.38600 .12642 .03998 -.47644 -.29556 -9.655 9 .000
Pair 3 interestcov
erageratio -
quickratio
5.69200 4.53107 1.43285 2.45067 8.93333 3.972 9 .003
Pair 4 cureentrati
o -
interestcov
erageratio
-5.30600 4.47458 1.41499 -8.50692 -2.10508 -3.750 9 .005
Pair 5 quickratio -
interestcov
erageratio
-5.69200 4.53107 1.43285 -8.93333 -2.45067 -3.972 9 .003
Pair 6 interestcov
erageratio -
cureentrati
o
5.30600 4.47458 1.41499 2.10508 8.50692 3.750 9 .005
Paired Samples Test
Paired Differences
t df
Sig. (2-
tailed)Mean Std. Deviation Std. Error Mean
95% Confidence
Interval of the

NOVELIS-
Financial Health of Novelis before Acquisition
Table 2(a)
2004-2005 2005-2006 2006-2007
D/E 4.41 6.00 1.08
ROE 0.09 0.19 -1.41
CURRENT
RATIO
1.44 1.67 1.38
EPS 0.10 0.21 -1.41
21
-2
-1
0
1
2
3
4
5
6
7
2004-2005
2005-2006
2006-2007
D/E ROE CURRENT
RATIO
EPS
Series1
Series2
Series3

TESTING OF HYPOTHESIS
To test the hypotheses, Pre and Post Acquisition financial performance standards of surviving
firms are compared to see if there are any statistically significant changes in the financial
performance after M&A, using “paired sample t-test” at confidence level of 0.01 or 99% (df
=1,t tab = 63.65 {2-tailed}) and also descriptive statistics analysis has been performed to
ascertain the mean difference. The results are shown in the following tables related to the
sample firms.
T-test
Paired Samples Correlations
N Correlation Sig.
Pair 1 ROE & EPS 3 1.000 .003
Pair 2 CURRENTRATIO
& DE
3 .864 .336
INTERPRETATION-
 In the paired sample correlations PAIR 1 ROE & EPS=1 that means it has positive
correlation and in PAIR 2= CURRENT RATIO & DE have strong positive correlation.
 The significant level for pair 1 is greater than .225> 0.05 so the hypotheses is rejected that
shows non-significant performance of the company.
 The significant level for pair 2 is also greater than .232>0.05 so the hypothesis is rejected.
 Hence, in both the cases null hypothesis is rejected. 22
Mean N
Std.
Deviation
Std. Error
Mean
ROE -.3767 3 .89629 .51747
EPS -.3667 3 .90523 .52263
CURRENT
RATIO
1.4967 3 .15308 .08838
DE 3.8300 3 2.51076 1.44959
Paired Samples Statistics
Pair 1
Pair 2
Lower Upper
Pair 1 ROE -
EPS
-.01000 .01000 .00577 -.03484 .01484 -1.732 2 .225
Pair 2 CURRENT
RATIO -
DE
-2.33333 2.37975 1.37395 -8.24497 3.57831 -1.698 2 .232
Paired Samples Test
Paired Differences
t df
Sig. (2-
tailed)Mean
Std.
Deviation
Std. Error
Mean
95% Confidence
Interval of the

Novelis’s Valuation as Compared with a Peer
All figures are in US $million & pertain to year ended December
Novelis Novelis Corus Aluminium
2005 actuals 2007 guidance* 2005 actuals
Assets 5,476 Not Available 1,328
Sales 8,363 Not Available 1,832
PBT 197 100 55
Market Cap 3,600 3,600 980**
Market Cap/PBT*** 18.27 36 17.81
EBITDAof Novelis
2004 2005 2006
Net income (loss) 55 90 -275
Provision (benefit) for taxes on income (loss) 166 107 -4
Minority interests‟ share -10 -21 -1
Interest expense and amortization of debt issuance costs
– net
48 194 206
Depreciation and amortization 246 230 233
EBITDA* 505 600 159
The World of Novelis
All figures are in US $million & for nine months ended 30th September 2006
N. America S. America Europe Asia
Assets 1,487 814 2,392 1,021
Net Sales 2,841 626 2,688 1,235
Regional Income 64 122 208 70
Description of
assets*
10 plants, 2
recycling facilities
2 plants, 2 smelters,
1 refinery, 2 bauxite
mine
14 plants, 1
recycling facility
3
plants
23

Rationale for Acquisition:-
Hindalco Industries Limited, based in India, was the highest domestic producer of
aluminium and had highest domestic market share during FY2005 – FY2006. Its profit after
tax (PAT) had continuously increased from Rs.686 crore in FY2002 to Rs.2564 crore in
FY2007. With accelerating domestic growth Hindalco always looked for overseas options
through which it could increase their production capacity and explore some new markets for
their products. Thus, its main objectives were to increase scale of operation, entry into high-
end downstream segment of aluminium, and make a mark on global metal market (i.e., to
follow an inorganic growth strategy). When looking for opportunities overseas they usually
had two options, i.e. either set up a new plant or extend its business by acquiring a foreign
firm. Setting up a new plant option was not suitable due to the very nature of metal business
which would require huge investment and more time. Thus acquiring a company like Novelis
became the preferred option.
The main attractions were the strength of Novelis in its scale of operation and technological
superiority. Novelis had a presence in 11 countries and enjoyed a global market share of 19
percent in FRP segment, making it a leader. Its client list was quite impressive ranging across
different industries like automobile (Ford, General Motors) to construction (ThyssenKrupp)
to beverages (Coca-Cola, Anheuser-Busch) to printings (Agfa-Gevaert, Kodak) and others.
Analysts believed that Hindalco would capture the total value chain in the aluminium
business after acquiring Novelis. For Hindalco’s investors the advantage is that revenues and
share price, is expected to be less vulnerable to aluminium price fluctuations on the London
Metal Exchange (LME). Hindalco share price currently has a strong correlation with
aluminium prices and they directly track the LME metal price.
24

This is because 83 percent of its EBITDA (earnings before interest, taxes, depreciation and
amortization) is sourced from the aluminium business. Experts say the Hindalco-Novelis deal
makes sound sense.
Novelis had 2,960,000 tonnes of actual production whereas Hindalco had only 211, 88 tonnes
in 2006 . Hindalco was also in the process of a massive expansion and its capacities were
expected to touch 1.5 million tonnes by 2012 to become one of the world’s five largest
producers from its 13th position in the early 2007.10 This expectation of Hindalco could
certainly take shape only with the acquisition of Novelis. With this acquisition, Hindalco’s
combined revenues would be in excess of US $10 billion, which would help Hindalco to
enter the Fortune-500 listing by sales revenues. It would get an entry into Global Leaders
Club and also become a leader in 4 continents Asia, Europe, North America and South
America (Novelis was already either on top or among top 5 in all continents).
The Hindalco-Novelis combine, which would have a current market capitalization of over US
$7.5 billion, would propel Hindalco to become world’s largest aluminium rolling company,
one of the biggest producer of primary aluminium in Asia and India’s leading copper
producer.11 Novelis with its value added products and a global leader, makes a perfect fit for
Hindalco.
The Company’s position is one of the lowest-cost producers of primary aluminium in the
world can be leveraged to make us into a globally strong player. Enormous geographical
market and product synergies accrue from this combination. also like to point out that
primary metal which constitutes almost 50 percent of Hindalco’s produce is exposed to the
vagaries of the price movement on the London Metal Exchange. Novelis with its value added
downstream products is by and large free from such vulnerabilities.
25

I believe the Novelis acquisition gives the Company an instant leg-up with its technological
sophisticated aluminium product’s capability apart from a scale and global footprint.
Globally Novelis is the best asset as far as flat-rolled aluminium products are concerned. It
would have taken your Company over a decade to set up such facilities on its own. The
quality of its people, several of whom I have interacted with, is excellent. I do realize that in
the short-term it does cause a strain on your Company’s Balance Sheet. However, if you look
at the bigger picture, this is one of the most striking acquisitions and over the long-term will
undeniably create enormous shareholder value.
The Deal :-
On May 15, 2007, Novelis was acquired by Hindalco through Acquisition Subsidiary (i.e.,
AV Metals) pursuant to the Arrangement entered into on February 10, 2007 and approved by
the Ontario Superior Court of Justice on May 14, 2007. As a result of the Arrangement,
Acquisition Subsidiary (i.e., AV Metals) acquired all of the Novelis outstanding 75,415,536
common shares at a price of US $44.93 per share, and all outstanding stock options and other
equity incentives were terminated in exchange for cash payments.
The aggregate purchase price for the Novelis common shares was US $3.4 billion [(Cost of
Common Shares = US $3,388 million (75,415,536 × US $44.93) + Direct transaction costs
incurred by Hindalco = US $17 million] . Immediately following the Arrangement, the
common shares of Novelis were transferred from Hindalco’s Acquisition Subsidiary (i.e., AV
Metals) to its wholly-owned subsidiary AV Aluminium Inc. (i.e., AV Aluminium). Hindalco
also assumed US $2.8 billion of Novelis debt for a total transaction value of US $6.2 billion
(Aggregate Purchase Price for Novelis common shares of US $3.4 billion + Novelis Total
Debt of US $2.8 billion). 26

On June 22, 2007, Novelis issued 2,044,122 additional common shares to AV Aluminium for
US $44.93 a share resulting in an additional equity contribution of approximately US $92
million. This contribution was equal in amount to certain payments made by Novelis relating
to change in control compensation to certain employees and directors, lenders fees and other
transaction costs incurred by the Company. As this transaction was approved by the
Company and executed subsequent to the Arrangement, the US $92 million was not included
in the determination of aggregate purchase price (total consideration) Justice, Canada gave
the consent in favour of acquisition on May 14, 2007. The European Union also gave its
approval for the acquisition and found nothing monopolistic and restrictive about the
acquisition deal.
27

After The Deal:-
Deal Financing-
As per Canadian Law, for acquisition of a company, the bidder had to submit its
commitments from international financial institutions of repute to show that the finances
necessary for paying off the shareholders as well as the existing secured lenders were
available with it. This commitment had to be submitted by the bidder to the Board of
Directors of the bidding company.
To fulfil this commitment, Hindalco arranged a loan facility from international financial
institutions of repute viz. ABN AMRO, Bank of America After getting an approval from
99.8 percent of shareholders of Novelis on this merger deal on May 15, 2007. Novelis
annual report, Form 10-K filed for the fiscal year ended March 31, 2008. These commitments
were presented to the Novelis Board and Hindalco was adjudged the successful bidder
amongst other bids received by Novelis. As soon as the shareholders, Canadian regulators
and other respective regulators approved the acquisition deal, the funds required to pay off
the shareholders were drawn down on 11th May 2007 through its wholly-owned subsidiaries
AV Minerals (Netherlands) and AV Metals Inc. (i.e., Acquisition Subsidiary).
After that the common shares of Novelis were transferred from Acquisition Subsidiary to
Hindalco’s wholly-owned indirect subsidiary AV Aluminium Inc. (i.e., a company
established in Canada for this purpose). AV Aluminium Inc. was a wholly owned subsidiary
of AV Metals Inc. which in turn was a wholly owned subsidiary of AV Minerals
(Netherlands) B.V. Out of US $6.2 billion (i.e., total acquisition value), a total of US $3.48
28

billion payment was arranged. In this US $3.48 billion, consortium of banks underwrote the
amount of US $3.03 billion at the recourse leg and remaining amount of US $450 million was
taken from treasury operations of Hindalco Ltd.
“A US $3.03 billion bridge loan for AV Minerals (Netherlands) and AV Metals, which were
wholly-owned subsidiaries of Hindalco Industries, was closed on August 16, 2007 via a
consortium of 17 mandated lead arrangers (Refer to Exhibit 9). Original lead arrangers and
book-runners ABN AMRO, Bank of America and UBS (Singapore Branch) funded the deal
in May 2007. The dual-tranche facility was split between the two subsidiaries with a US $2.2
billion financing for AV Minerals and a US $900 million portion for AV Metals, both with a
tenor of 18 months. Pricing was offered on two levels, 30bp for the first year and 80bp over
the London Interbank Offered Rate (LIBOR) for the remaining 6 months. Existing bank loans
of US $1.2 billion refinanced through Asset-Based Lending (ABL), term loan. Existing US
$1.4 billion notes continue.
Stock Market Reaction:-
Kumar Mangalam Birla announced the deal on February 11, 2007 evening. On February 12,
2007 investors dumped almost 7.3 million shares of Hindalco (the highest in nine months) on
the Bombay Stock Exchange (BSE). The stock went into a free fall to Rs.17,325.28 crore in
market capitalization on February 12, 2007, losing Rs.2,759 crore as compared to February 9,
2007.17 However, Novelis share price hit a new 52-week high of US $44.01, gained US
$5.46, or 14.2 percent, in midday trading on New York Stock Exchange (NYSE) on February
12, 2007.18 During a month after the announcement of the deal, Hindalco reacted negatively
and its share price decreased by 28 percent from Rs.180/- to Rs.130/- 29

This was something of a surprise taking into account the fact that there were not any major
changes in the fundamentals of the company.
This fall in stock prices was on account of concerns over the highly leveraged buyout of
Novelis (debt funded to the tune of US $2.85 billion). Information which was discounted in
share price decrease was that though acquisition claims to be strategic in nature but neither
party was going to benefit immediately. Most research houses downgraded the Hindalco
stock to sell. DSP Merrill Lynch report stated that Novelis valuation was unjustified and the
deal was earnings per share (EPS) dilutive. Karvy Stock Broking warned that the acquisition
could bring down Hindalco’s FY2008 consolidated EPS by at least 25 percent to Rs.16.50
from Rs.22/-.
While the acquisition could enlarge Hindalco’s revenues on a global scale, the valuation was
steep (double Hindalco’s current enterprise value (EV)/EBITDA multiple) for an inferior
business”, argued an Enam Securities report. On June 14, 2007, Crisil downgraded its long
term rating on Hindalco’s non-convertible debentures (NCD) to AA/Stable from AAA/Rating
watch with negative implications. The next day, it also downgraded its rating on Essel
Mining’s NCD to AA-/Negative from „AA/Rating watch with negative implications‟ due to
deterioration in Essel Mininig’s financial risk profile subsequent to additional borrowings of
Rs.1500 crore to invest in the equity of group company Hindalco. The downgrade was largely
due to the high-debt taken for acquisition. Crisil remarked that Hindalco’s debt protection
measures were expected to remain below par for the rating category over the next 3 years and
expected that over the next 18 months, Hindalco would replace part of debt taken for the
acquisition with equity. Raman Uberoi, Senior Director, Crisil said, you will see a
deterioration in Hindalco’s capital structure, interest cover and, ultimately, profitability.
30

Valuation Concerns
The analysts voiced two concerns. First, the price Hindalco finalized to pay for Novelis was
high. Second, the manner in which the deal was being funded might have harmed Hindalco.
As a part of the deal Hindalco’s AV Metals had acquired all of the Novelis outstanding
75,415,536 common shares at a price of US $44.93 per share, and all outstanding stock
options and other equity incentives were terminated in exchange for cash payments. The
quoted price of US $44.93 per share was 16.6 percent premium over the stock’s closing price
on February 9, 2007. 23 The funding structure of this deal was remarkably different from the
leveraged buyout model that Tata Steel used to fund the Corus buy. Tata was to buy 100
percent of Corus‟ equity for US $12.1 billion. Only US $4.1 billion of this was being raised
by Tata. The remaining US $8 billion were raised (as debt) and repaid on the strength of the
Corus balance sheet. Effectively, Tata was paying only a third of the acquisition price. This
was possible because Corus had relatively low debt on its balance sheet and was able to
borrow more.
However, that was not the case with Novelis. With a debt-equity ratio of 5.03:1 (as on March
31, 2007), it could not borrow any more. So, Hindalco was unable to do a leverage buyout
because of US $2.4 billion debt on Novelis balance sheet. Hindalco would have to refinance
these borrowings, though they would be repaid with Novelis cash flows. Thus, leveraged
buyout could not be applied in this case of acquisition because here Novelis was already debt
ridden and most of the debts were raised with high interest cost.
31

Secondly, the option of replacement of old loan with a new loan might raise its interest
burden further. Analysts believed that Hindalco was paying too high a price for Novelis that
incurred a net income loss of US $275 million in 2006. Even in 2005, when Novelis had
made a US $90 million net profit, its share price never crossed US $30. So, why was
Hindalco paying US $44.93 per share for a loss-making company? In its guidance, the
Novelis management had indicated a pre-tax profit (PBT) of US $35 million – US $100
million for 2007. Going by the optimistic end of the guidance, the price Hindalco paid
translated to a market capitalization/profit before tax (PBT) multiple of 36 on Novelis 2007
forecast . This was very high. It is pertinent to make another comparison with Corus here. In
March 2006, Corus sold its aluminium rolled products business to Aleris. The business, with
revenues of US $1.83 billion and a PBT of US $55 million, was sold for US $980 million –
or a market capitalization/PBT multiple of only 18. But Hindalco paid double that.
Hindalco’s bidding price was also quite high as evident from the multiple (enterprise value/
EBITDA). The multiple was 38.99 when taken the enterprise value as US $6.2 billion and
21.38 when taken the enterprise value as US $3.4 billion (i.e., value of only equity) in 2006
This was a clear case of overbidding.
32

Due Diligence:
There was some interest of Rusal of Russia and Aleris of USA into Novelis business.
However, the details of the proposal from Rusal and Aleris were not known. Hindalco made
the Novelis board sign a US $100 million break fee, the price Novelis had to pay if it found
another buyer. It also made the board agree on a „new buyer premium‟ of a „few dollars per
share‟ over the US $44.93 per share – only at that price could Novelis entertain a fresh rival
bid. As a result, should a new bidder enter the fray, it would have to pay at least US $5 per
share more than what Hindalco had agreed (i.e., it would have to pay around US $50 per
share). These conditions ruled out last minute surprises and inevitably sealed the Hindalco-
Novelis deal. Besides, Novelis shareholders approved the transaction (i.e., Novelis
shareholders would receive US $44.93 in cash for each outstanding common share) by an
overwhelming majority (99.8 percent) in a special meeting on May 10, 2007.24 In case of
acquisition by foreign players there were chances of foul play for which every sovereign
body was concerned. In case of acquisition of Novelis by Hindalco the Ontario Superior
Court of Justice, Canada gave the consent in favour of acquisition on May 14, 2007. The
European Union also gave its approval for the acquisition and found nothing monopolistic
and restrictive about the acquisition deal.
33

Sources of Funding
Sl. No. Source US $million
1 ABN AMRO 384.64
2 Bank of America 280.63
3 UBS (Singapore Branch) 280.00
4 Bank of India 185.53
5 ICICI Bank 180.26
6 Mizuho Corporate Bank 180.26
7 Deutsche Bank (Singapore Branch) 178.16
8 Citibank (Bahrain Branch) 175.00
9 Standard Chartered Bank 175.00
10 Sumitomo Mitsui Banking Corp 175.00
11 State Bank of India 170.00
12 Bank of Tokyo-Mitsubishi UFJ 150.00
13 BNP Paribas 135.53
14 HSBC 125.00
15 Rabobank 105.26
16 Calyon 100.00
17 Commonwealth Bank of Australia (Singapore Branch) 50.00
Total 3,030.27
34

Post-Acquisition Strategic Benefits to Hindalco & Novelis:-
 This acquisition of Novelis by Hindalco established the latter as a global integrated
aluminium producer with low-cost alumina and aluminium production facilities combined
with high -end aluminium rolled product capabilities. Hindalco emerged as the leading
rolled aluminium products maker and the fifth -largest integrated aluminium
manufacturer in the world. Acquiring Novelis also provided Hindalco ready access to its
existing customers such as General Motors Corp., Aston Martin, Coca-Cola Co., etc.
 Novelis gave Hindalco an entry into the down-stream value addition business of rolled
aluminium products. Earlier, Hindalco was limited to the upstream business of mining
bauxite and converting it into alumina, and then smelting it into aluminium. Also,
Novelis had built a unique fusion technology that helped in increasing the formability of
aluminium and products like sheet metal. The low weight –to-strength ratio had many
applications in the auto industry, which was now advantageous to Hindalco.
 About 35 mT of aluminium was consumed in 2006. About 40% of this was rolled
aluminium products, where Hindalco had no presence. However, Novelis had a 19%
world share, which was now acquired by Hindalco. It would have costed Hindalco US
S$12 billion to build assets that match Novelis’ s 29 plants in 4 continents with current
production of 3.3 mT in 10 years, if Hindalco had taken the organic growth route.
 Thus Novelis acquisition helped Hindalco gain quick access to new technologies and
large production capacities without having made the efforts towards time-consuming
R&D.
35

 Novelis formed a natural hedge for Hindalco. The latter was charging a higher profit
margin when aluminium prices were high on the LME and vice-versa. Thus, Hindalco’s
rise and fall in profits depended directly on the aluminium prices on the LME. This was
not the case with the aluminium rolling business of Novelis, which usually has a constant
margin. After its loss-making can contracts expired in 2010, the Novelis business model
and profitability became LME independent and a steady cash flow was earned.
 Novelis was the global leader in aluminum rolled products and especially, aluminum can
recycle, with a global market share of about 19 %. The deal gave Hindalco a strong
presence in the business of aluminium recycling as it is infinitely recyclable and requires
only 5% of the energy needed to produce primary aluminium.
36

Integration of Opportunities and Challenges:-
Hindalco wanted to acquire Novelis in spite of financial numbers showing that it was not a
good choice for it. This was because of the following possible reasons:
AV Birla Group, where Hindalco is a flagship company, achieved its target of doubling its
turnover to US $20 billion three years in advance. Novelis would also give Hindalco an entry
into the down-stream business of rolled aluminium products. At that moment, Hindalco was
limited to the upstream business of mining bauxite and converting it into alumina, and then
smelting it into aluminium.
Globally, about 35 million tonnes of aluminium was consumed in 2006. About 40 percent of
this was rolled products, where Hindalco had no presence. However, Novelis had a 19
percent world share. In India, the rolled products market was expected to grow from 220,000
tonnes to a million tonnes in a few years. China already consumed 2.5 million tonnes of
rolled products.
Novelis had built a new fusion technology that helped in increasing the formability of
aluminium and making it more suitable for products like sheet metal. This helped to build
cars with more curves. Besides, the low weight of aluminium in relation to its strength would
help in many new applications in the auto industry. It would take 10 years for Hindalco to
develop such a technology on its own.
Hindalco’s finished product was aluminium. That is the raw material Novelis used to make
stock for cans, auto parts, etc. On the face of it, this seemed like a perfect synergy. But it
wasn’t. Hindalco’s aluminum capacities were all committed to its existing customers.
Similarly, Novelis had tied up its raw material supplies from sources with geographical
proximity. 37

Company officials said they wouldn’t upset these contracts. Thus, it was clear that both
companies would not gain much till the end of the year 2010 (i.e., the period when the
contract would be over). Only from the year 2011, it was possible for Hindalco to supply
aluminium to Novelis at lower cost. Novelis would form a natural hedge for Hindalco. The
latter was charging a higher profit margin when aluminium prices were high on the LME and
vice-versa.
Thus, Hindalco rise and fall in profits depended directly on the aluminium prices on the
LME. However, this would not be the case for Novelis after its disastrous can contracts
expired in 2010. After 2010, Novelis business model and profitability would be LME
independent and it would earn a steady cash flow. That was the perfect hedge for Hindalco.
But analysts disputed this. Although Novelis had a leading share in the global rolled
aluminium, it had limited pricing power”, said a DSP Merrill Lynch note issued soon after
the deal was announced.
This was because the rolled products business was quite competitive. There were a few
strong players like Alcoa (16 percent market share), Norsk Hydro (6 percent), Alcan (6
percent), Aleris (6 percent) besides leader Novelis (19 percent). Together they controlled 53
percent of the market. The balance 47 percent was controlled by many smaller players. Often
companies sacrificed profits to grow market share.
38

DATA ANALYSIS-
Post-Acquisition Performance of Hindalco:-
Table 1(b)
2006-2007 2007-2008 2008-2009 2009-2010
D/E RATIO 0.66 1.87 1.8 1.11
EPS 26.73 17.04 3.21 22.17
ROE 20.96 13.76 3.07 18.22
CURRENT
RATIO
1.93 2.07 2.9 1.44
39
0
5
10
15
20
25
30
2006-2007 2007-2008 2008-2009 2009-2010
D/E RATIO
EPS
ROE
CURRENT RATIO

Post-Acquisition Performance of Novelis:-
Table 2(b)
2006-2007 2007-2008 2008-2009 2009-2010
D/E RATIO 13.14 0.73 1.8 1.4
ROE -141 -3.32 -134 21.66
CURRENT
RATIO
1.2 1.3 1.1 1.5
40
-160
-140
-120
-100
-80
-60
-40
-20
0
20
40
2006-2007 2007-2008 2008-2009 2009-2010
D/E RATIO
ROE
CURRENT RATIO

Comparison of Pre-Acquisition and Post-Acquisition
Periods:-
HINDALCO
Table 1(c)
Pre-Acquisition (Rs. Crores) Post-Acquisition(Rs.Crores)
2004-
2005
2005-
2006
2006-
2007
CAGR 2007-
2008
2008-
2009
2009-
2010
CAGR
ROE 16.79 16.85 20.96 7.67 13.76 3.07 18.22 9.81
NET
SALES
10105 12120 19316 24.11 60013 65963 60722 0.99
NET
PROFITS
1285 1580 2686 27.86 2387 484 3925 18.09
41

Interpretation & Analysis-
 The data of Hindalco in pre and post shows that the ROE is decreasing in year 2006-
2007 that means the company was not efficient in making profit in the pre-acquisition
period and in year 2010 ROE is increasing that means the company was able to earn
profit .
 In pre- acquisition period the year 2006-2007 company’s net sales was decreasing at a
low of value of $19316 but in post-acquisition period in the year 2010 the net sales were
increasing at a value of $60722.
 Hence, both pre-post analysis shows that company was not so efficient in making profit
therefore hindalco took a step to acquire Novelis in order to earn more profit in the
aluminium sector.
42

Regression analysis: HINDALCO
Pre-acquisition
INTERPRETATION-
 The significance level in pre-acquisition is .022b<0.05
 It shows that the level of null hypothesis is rejected.
 Hence the result is statistically significant.
43
R Square
Change F Change df1 df2
Sig. F
Change
1 1.000a 1.000 .999 297.81339 1.000 1071.736 2 1 .022
a. Predictors: (Constant), ROE, profit
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
Sum of
Squares df Mean Square F Sig.
Regression 190110577.149 2 95055288.574 1071.736 .022b
Residual 88692.815 1 88692.815
Total 190199269.964 3
ANOVAa
Model
1
a. Dependent Variable: sales
b. Predictors: (Constant), ROE, profit
Standardized
Coefficients
B Std. Error Beta
Lower
Bound
Upper
Bound
(Constant) -2854.543 1123.011 -2.542 .239 -17123.748 11414.661
profit 5.474 .651 .751 8.408 .075 -2.798 13.747
ROE 360.431 126.698 .254 2.845 .215 -1249.420 1970.282
1
Coefficientsa
Model
Unstandardized
Coefficients
t Sig.
95.0% Confidence
Interval for B

Post-Acquisition
INTERPRETATION-
 The significance level in pre-acquisition .502b>0.05.
 Hence, we fail to reject the null hypothesis.
 The result is statistically non-significant.
44
R Square
Sig. F
Change
1 .865a .748 .243 29548.71106 .748 1.483 2 1 .502
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate
Change Statistics
a. Predictors: (Constant), ROE, profit
Sum of Squares df Mean Square F Sig.
Regression 2589319617.490 2 1294659808.745 1.483 .502b
Residual 873126325.195 1 873126325.195
Total 3462445942.685 3
ANOVAa
Model
1
b. Predictors: (Constant), ROE, profit
Standardized
Coefficients
B Std. Error Beta
Lower
Bound
Upper
Bound
(Constant) 72147.967 37664.394 1.916 .306 -406423.537 550719.471
profit 30.863 18.133 1.636 1.702 .338 -199.540 261.266
ROE -8071.856 5082.292 -1.527 -1.588 .358 -72648.504 56504.791
Model
Unstandardized Coefficients
t Sig.
95.0% Confidence
Interval for B
1
Coefficientsa

NOVELIS-
Table 2(C)
Pre- Acquisition (Rs. Crores) Post-Acquisition (Rs. Crores)
2004-
2005
2005-
2006
2006-
2007
CAGR 2007-
2008
2008-
2009
2009-
2010
CAGR
ROE 8 19.4 -141 -
360.24
-3.32 -134 21.66 -
286.96
NET
SALES
33976 37678 43694 8.32 39730 51851 39149 -0.49
NET
PROFIT
214.8 378.5 -
1212.9
-
277.71
-467 -9731 182 -
179.04
Interpretation & Analysis-
 The data of Novelis in pre-acquisition shows that the ROE is decreasing in year 2006-
2007 that means the company was not efficient in making profit in the post-acquisition
period in the year 2010 ROE is increasing that means the company was able to earn
profit .
 In pre- acquisition period the year 2006-2007 company’s net sales was increasing at a
value of $43694 but in post-acquisition period in the year 2010 the net sales were
decreasing at a value of $ 39149.
45

 Hence, both pre-post analysis shows that company was not so efficient in making profit
therefore Novelis agreed to get acquired by Hindalco in order to earn more profit in the
aluminium sector.
Regression analysis
Pre-acquisition
INTERPRETATION-
 The significance level in pre-acquisition 0.
 Hence, the null hypothesis is rejected.
46
R Square
Sig. F
Change
1 1.000a 1.000 1.000 2 0
a. Predictors: (Constant), profit, ROE
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
Sum of
Regression 48112194.667 2 24056097.333 .b
Residual 0.000 0
Total 48112194.667 2
ANOVAa
Model
1
b. Predictors: (Constant), profit, ROE
Standardized
Coefficients
B Std. Error Beta
Lower
Bound
Upper
Bound
(Constant) 23222.474 0.000 23222.474 23222.474
ROE -847.288 0.000 -15.461 -847.288 -847.288
profit 81.619 0.000 14.567 81.619 81.619
1
Coefficientsa
Model
Unstandardized
Coefficients
t Sig.
95.0% Confidence
Interval for B

Post-Acquisition:
INTERPRETATION-
 The significance level in pre-acquisition 0.
 Hence, the null hypothesis is rejected.
47
R Square
Sig. F
Change
1 1.000a 1.000 1.000 2 0
Model Summary
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
a. Predictors: (Constant), profit, ROE
Sum of
Regression 102865668.667 2 51432834.333 .b
Residual .000 0
Total 102865668.667 2
ANOVAa
Model
1
b. Predictors: (Constant), profit, ROE
Standardized
Coefficients
B Std. Error Beta
Lower
Bound
Upper
Bound
(Constant) 39063.610 0.000 39063.610 39063.610
ROE 16.945 0.000 .198 16.945 16.945
profit -1.547 0.000 -1.197 -1.547 -1.547
Model
Unstandardized
Coefficients
t Sig.
95.0% Confidence
Interval for B
1
Coefficientsa

Financial Statements for the Year Ended 31st
December
($ in million, except per
share data)
Production Capacity in Hindalco vis-à-vis Novelis
2005 (in tonnes) 2006 (in tonnes)
Hindalco 190,581* 211,088*
Novelis 2,873,000** 2,960,000**
* Actual production of rolled products against installed capacity of 200,000.
** Shipments of rolled products.
48
Results 2005* 2006
Net Sales $ 8,363 $
9,849
Net Income (Loss) 90 (275)
Total Assets 5,476 5,792
Long-Term Debt (including current portion) 2,603 2,302
Other Debt 27 133
Cash and Cash Equivalents 10
0
73
Shareholders‟/ Invested Equity 43
3
195
Earnings (Loss) Per Share:
Basic:
Income (loss) before cumulative effect of
accounting change
$ 1.29 $
(3.71)
Cumulative effect of accounting change – net of
tax
(0.08) ---
Net income (loss) per share – basic $ 1.21 $
(3.71)
Diluted:
Income (loss) before cumulative effect of
accounting change
$ 1.29 $
(3.71)
Cumulative effect of accounting change – net of
tax
(0.08) ---
Net income (loss) per share – diluted $ 1.21 $
(3.71)
Dividends Per Common Share $ 0.36 $ 0.20

Exhibit 4: Financial Statements of Hindalco Industries Ltd. (March 2002
– March 2007)
(Figures are in Rs. Crore (non-annualized) & pertain to financial year
Key Indicators Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007
Total income 2873.11 5734.69 7064.82 10815.59 12772.55 20262.90
Sales 2663.11 5499.02 6821.23 10465.17 12485.92 19882.19
Income fromfinancialservices 198.88 205.47 238.84 163.47 200.05 281.74
Total expenses 2206.41 5176.23 6327.83 9741.88 12153.3 18142.45
Raw material expenses 562.41 2522.68 3282.45 4900.53 6906.38 11471.87
Pow er, fuel& w ater charges 428.50 666.46 935.70 1534.79 1820.32 1848.62
Compensation to employees 233.37 297.46 325.27 419.19 593.18 523.60
Indirect taxes 329.09 518.17 614.09 960.44 1091.09 1618.69
Selling & distribution expenses 69.19 165.70 142.51 238.85 249.62 293.83
PBDITA 1249.22 1348.06 1749.58 2638.21 2822.47 4353.70
PBDTA 1159.46 1168.06 1563.12 2439.01 2622.38 4057.43
PBT 1005.00 899.39 1245.67 1975.75 2105.70 3504.63
PAT 686.00 582.14 838.93 1329.36 1655.55 2564.33
Net worth 5717.38 6191.09 6857.90 7666.59 9606.26 12418.04
Paid up equity capital(net of
forfeited capital) 74.46 92.46 92.47 92.78 98.57 104.33
Reserves & surplus 5642.92 6098.63 6765.42 7573.81 9507.69 12313.71
Total borrowings 957.73 2395.03 2564.60 3800.00 4877.28 7359.24
Current liabilities & provisions 354.06 854.03 1075.70 2518.2 3178.89 4036.90
Total assets 7489.84 10299.24 11497.00 15114.49 18908.11 25007.81
Gross fixed assets 6316.75 6470.39 7126.17 10016.51 11146.79 12539.47
Net fixed assets 3830.93 4863.40 5207.88 6926.51 7615.71 8483.14
Investments 1985.27 2648.43 3377.21 3702.15 3971.30 8804.78
Current assets 1249.30 2348.91 2638.91 4350.41 7114.94 7470.77
Loans & advances 407.99 428.45 269.34 126.03 187.84 178.12
49

Trends of Hindalco’s stock price traded in BSE
(February 1, 2007 – January 11, 2008)
Source: CMIE, Prowess
EBITDAof Novelis
2004 2005 2006
Net income (loss) 55 90 -275
Provision (benefit) for taxes on income (loss) 166 107 -4
Minority interests‟ share -10 -21 -1
Interest expense and amortization of debt issuance costs –
net
48 194 206
Depreciation and amortization 246 230 233
EBITDA* 505 600 159
50
StockPrice(Rs)
1-Feb-07
1-Mar-07
1-Apr-07
1-May-07
1-Jun-07
1-Jul-07
1-Aug-07
1-Sep-07
1-Oct-07
1-Nov-07
1-Dec-07
1-Jan-08

Consolidated Financial Highlights
(Rs. Crore) (Billion US$)
Results FY 2006-07 FY 2007-08 FY 2006-07 FY 2007-08
Net Sales 19,316 60,013 4.2 14.8
EBITDA 4,840 7,291 1.1 1.8
EBIT 3,975 4,835 0.9 1.2
Profit before Tax 3,662 2,986 0.8 0.7
Net Profit 2,686 2,387 0.6 0.6
Capital Employed 23,285 56,266 5.4 14.1
Net Worth 12,814 17,346 2.9 4.3
51

Findings:
 It was an all-cash deal (hence, no Exchange Ratio).
 Hindalco’s AV Metals had acquired all of the Novelis’ outstanding 75,415,536 common
shares at a price of US $44.93 per share .
 Thus, Novelis equity was acquired for a sum of $3.6 billion against a book value of $195
million (= $0.195 billion).
 Out of $3.6 billion, $2.85 billion was raised by borrowing, $300 million as debt from
group companies and $450 million from cash reserves.
 The other leg of the transaction entailed paying a debt of $2.4 billion which existed in the
B/S of Novelis. For this, Hindalco’s Dutch subsidiary, AV Minerals, raised bridge loan of
$2.13 billion and $900 million.
52

SUGGESTIONS-
 A strategic acquisition can be the most important means of growth for a business; in case
of Hindalco-Novelis both cons & pros of acquisition are learned.
 The acquisition of Novelis gave combined company significant synergy in supplying
novelis customer which spread across 11 countries. Hence the acquisition was good move
for hindalco industries in terms of globalization and a huge step in expanding itself as an
MNC in Aluminium production.
 It put Hindalco among the top five aluminium producers in the world and also propel
Hindalco’s parent company The Aditya Birla Group to have the elite fortune of having
500 lists of global companies which is based on revenues.
 Post – acquisition share prices of Hindalco decreased by 28% which was something
surprising as the company’s fundamentals has not changed.
 The study suggests that though the acquisition claimed to be strategic in nature but
neighter party was benefited from it immediately.
 CRISIL downgraded its long-term rating on Hindalco’s non-convertible debentures with
negative implications.
 Essel minings which gave funds into acquired Novelis also faced negative ratings which
were a negative impact of acquisition the company.
 The study suggest that Hindalco’s profit increased when it boosted its flagship profibility
by setting a plan reallocated from Novelis UK unit in Hirakund Orissa where it was
planning to manufacture cans or beverages major such as Pepsi & Coke in India.
53

 The thin aluminium sheets which are used in packaging of beverage product accounted
for 50-55% of Novelis annual shipment and were priced 30-40% above the base grade
aluminium products.
 This technology was limited to the top global 4 aluminium producers with Novelis
leading the brackets. Thus, Hindalco paying $ 6 billion to acquire Novelis gained at this
technology resulting in the extend in its market.
 Hence, this acquisition was profitable for Hindalco in long run.
54

BIBLIOGRAPHY-
WWW.INVESTOPEDIA.COM
WWW.HINDALCO.COM
WWW.NOVELISINC.CO.IN
WWW.RESEARCHPAPERS.COM
WWW.MONEYCONTROL.COM
55

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