What Exactly Happened To Hindalco: Explainer | NDTV Profit
Why did #Hindalco crash today? What went wrong with #Novelis' #BayMinette project?
Tamanna Inamdar explains what exactly happened.
For the latest news and updates, visit: https://ndtvprofit.com
Tamanna Inamdar explains what exactly happened.
For the latest news and updates, visit: https://ndtvprofit.com
Transcript
00:00 The Hindalco stock took a tumble on Tuesday and some of the reasons you've probably heard is something to do with its
00:07 Subsidiary Novelis and bay minute projects capex going up, etc
00:13 But what is that story all about? We're here to explain what exactly has happened
00:19 So Hindalco acquired this company called Novelis. It's an American company in
00:25 2007 of May. Novelis is a world leader in aluminum rolling and flat road aluminum projects
00:32 Now it's an important part of Hindalco because as of the second quarter of FY 24
00:38 Novelis's contribution to Hindalco's revenue is
00:41 60% which is why anything that happens to Novelis
00:46 Impacts Hindalco. Now the Novelis numbers and the quarterly results which were reported on the face of it were pretty good
00:54 So why suddenly this concern?
00:56 It's all about one project of this aluminum company called the bay minute project
01:02 Now Novelis is building a recycling and rolling plant in a place called bay minute in Alabama
01:10 United States of America this plant will make of course aluminum for cans beverage cans
01:17 Electric vehicles, etc
01:19 It aims to be a carbon neutral project for scope one scope two greenhouse gases and to this end
01:26 They've tied up with a lot of partners including companies and that can provide them renewable energy
01:32 It's a large project and one that was expected to contribute a lot to Novelis's
01:38 Revenues now the question is what went wrong?
01:42 And this is what was revealed in the Novelis con call in the Novelis quarterly numbers
01:48 Number one is costs this project which was supposed to cost 2.5 billion dollars will now cost
01:54 4.1 billion dollars that means an increase of
01:59 65%
02:01 Now, how does a project become so expensive?
02:05 The other problem is not just the cost the project will also be delayed
02:09 It will be commissioned in the second half of 2026
02:12 That means a 9 to 12 month delay from the initial period not only is it expensive?
02:18 Not only will it be delayed but it's also going to give lower returns
02:23 Returns expected on the project have been lowered from mid teens to double digits
02:28 So on either end of that spectrum from possible 15% to a 10% at the lower level
02:35 What the street is not liking is what is between the lines?
02:40 Because of these changes was there poor planning in the announcement and execution of the project in the first place
02:47 now look at some of the things that the management is saying as
02:50 Reasons for this change in what happens to this bay minnet project one is low level of engineering
02:58 Underestimating civil and construction requirements and low level of engineering is a term they have used
03:05 They also said that they were over ambitious views on the ability to keep costs low
03:11 they go on to say construction near the coast because that's where their project is and
03:15 Inflation has led to cost increases now
03:19 This is why there is disappointment with the stock and CLSA has a report out on it
03:23 There are questions about what happens to the debt because there is a higher cost now to this project
03:27 CLSA even says that the double digit growth that they are aiming for is a tough task
03:33 But having said that it is a big project and once it comes on track
03:37 The outlook in the long term for the company may improve
03:43 You
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