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Mr Kumar Mangalam Birla, Chairman, Aditya Birla group, and Mr A.K. Agarwala, Director (whole-time), Hindalco Industries Ltd, at a press conference in Mumbai on Sunday.

MUMBAI, July 21

IN a bid to propel Hindalco Industries Ltd on to the global non-ferrous metals arena, the Aditya Birla group today decided to merge Indo Gulf Corporation Ltd's (IGCL) copper business with Hindalco.

Size and higher earnings potential were the guiding factors towards this move, Mr Kumar Mangalam Birla, Chairman, Aditya Birla group, said.

IGCL will retain the fertiliser business.

The boards of both the companies, which approved the decision today, decided on a swap ratio of one equity share of Hindalco for every 12 equity shares in Indo Gulf. Besides, Indo Gulf shareholders will get one equity share of the new Indo Gulf company for every five shares held in the company. Hindalco's holding of 8.7 per cent in Indo Gulf will be transferred to a trust. The share exchange ratio was based on a joint valuation report of CC Choksi and Co and Ernst and Young.

Simultaneously, Hindalco will make an open offer to the shareholders of Indian Aluminium Company Ltd (Indal) to acquire the remaining 26.5 per cent stake held by outsiders at a price of Rs 120 per share. This will require a total outlay of Rs 218 crore. Currently, Hindalco holds 74.5 per cent stake in Indal.

In the event the open offer goes through successfully, the group will eventually delist Indal's stock from the bourses, Mr Birla said.

The main rationale of this merger is to create a non-ferrous metal powerhouse in India, Mr Birla said. The non-ferrous metal sector is integral to the group's future growth plans, he said.

"The restructuring will enhance Hindalco's earnings momentum, provide balance sheet strength, boost access to global opportunities as well as investor interest," Mr Birla said.

Post-restructuring, Hindalco's revenues will triple within five years and EBIDTA (earnings before interest, depreciation, tax and amortisation) will grow by 250 per cent, Mr Birla said.

In the new entity, aluminium will account for 62 per cent of the revenue mix and copper 38 per cent. In terms of EBIDTA, aluminium will account for 70 per cent and copper 30 per cent. Mr Birla ruled out plans to rename Hindalco at this juncture.

Hindalco's risk-taking opportunities will receive a boost. "This move will help us to pursue any opportunities globally," Mr Birla said. However, he clarified that the current amalgamation process does not give Hindalco a global ranking. "We have a long way to go but this process gives us a much wider canvas," Mr. Birla said. Post-restructuring, Hindalco's rank in terms of market capitalisation on Indian bourses goes up to 12 from 16, in terms of sales up to 7 from 19 and in terms of net profit to 5 from 7.

Size, according to Mr Birla, is an important criterion for the stock markets. Both Hindalco and Indo Gulf are traded at 30-50 per cent discounts to their true value, he said. "We are trying to address this issue through this restructuring. Lack of size is a determining factor in the valuation process," he said. Mr Birla reiterated that the group remains committed to fertilisers. The fertiliser company will benefit from the ensuing clarity and focus, he said. According to him, in an agrarian economy of India, fertilisers continue to provide promising growth prospects.

"Fertiliser business was not getting the kind of leverage it should get. Under this new structure, it will get focussed attention and we expect it to grow," Mr Debu Bhattacharya, Managing Director, IGCL, said.

The need to merge the two non-ferrous metal businesses also stemmed from the fact that they are similar in terms of requirements, operations and the need for integration. The Return on Capital Employed is not different in both aluminium and copper. The amalgamation will enhance value-adding opportunities in copper as in aluminium, Mr Bhattacharya said.

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