Hindalco Catherine Carty, Mathew Fogel, Patricia Leva, Hanul Moon, Gianna Riccoboni, Joseph Shocker Eagle Rock Consulting Group

Strategic Problem Hindalco needs to grow in the secondary aluminum industry, specifically in flat rolled aluminum products. -which is the producing of aluminum in rolls and creating products such as cans -they are currently the leader in the primary aluminum industry

Effects on the Company Positives One of the low-cost leaders in primary aluminum production India’s largest aluminum producer Strong international presence Negatives Lack of economies of scale Increase in competition Costly to implement techniques to improve market share in the secondary aluminum industry

Strategy Low-Cost Broad Strategy Firm Specific Strategy: Acquisition-Led Strategy for top line growth and forward and backward integration. Increase Market Share Lower Costs Improvement in Quality Economies of Scale Core Competencies: Lowest Cost Provider Integrated Facilities Presence across value chain Balanced diverse product mix Acquiring competition alleviate deficits value added products customer solution breakthroughs Low-Cost Broad Strategy

Customer Segmentation Construction/Building Transportation Packaging Automotive Electrical Durables Printing Other

SWOT Analysis Strengths Global Expansion Entrance into new markets Increase in market share Widespread Distribution Network Aditya Birla Group Presence in 20 countries Cost Effective Producer Low cost Improvement in quality

SWOT Analysis Weaknesses Less advanced technology as compared to competitors Present production capacity may not be able to keep up with the growing demand for aluminum Integration The acquisition of subsidiaries by Hindalco institutes a merging of many diverse cultures across various levels of the organization This may affect organizational goals May not be able to work as a united firm

SWOT Analysis Opportunities & Threats Growth in demand for aluminum Access to a new realm of customers through acquired firm’s existing contracts Threats Disruption in production due to external factors could hinder the company’s reputation for quality Prices of aluminum are highly volatile

Industry and SIC Primary Aluminum Industry Aluminum mining and creation of products Integrated from start to finish Aluminum Foundries- 3365 Aluminum Sheet, Plate, Foil- 3353

Availability of Substitutes (3) Weighs one third as much as steel and copper Malleable, alloyed with other metals Uses exceed every metal besides iron Diverse application Highly valuable and used in electricity sector, transportation sector, packaging, and construction

Existing Competition (3) Primary industry in India has only four big players Government regulated-licensing controls until 1989 Hindalco acquires firms that pose a large competitive risk High capital cost and high capital intensity Restricted access to technology

Bargaining power of suppliers (2) Hindalco supplies all the raw materials Performs all the value chain activities for aluminum (Bauxite mining, Aluminum refining, Aluminum smelting, and Fabrication) Technology is outsourced, machinery and things of that nature They own their own power plants to run all their operations, including coal mines for the fuel

Bargaining power of buyers (2) Four main producers in India, all with similar functions Internationally and in the US, set contracts Somewhat standardized pricing for products and raw aluminum

Threat of new entrants (3) Government regulation of the number of producers Global competition more concerning than domestic Hindalco is global, already dominates the Indian market Direct market entrants less likely The mining and production of aluminum in India has high barriers to entry Restricted access to technology

Industry Attractiveness They hold a strong market position, entering the market before it was an open market They have perfected their process Expand within the industry Attractive Market Total Score 13 out 25

Alternative #1 Develop technology and products in-house Pros (8) Do not have to acquire a company’s debt in order to grow in secondary aluminum industry 4 Will have more centralized decision making 2 May eventually gain market share and future growth will be less costly

Alternative #1 Develop technology and products in-house Cons (-13) Very costly to develop improved technology -5 Would take 10 years to cultivate and implement May still lack access to global rolled products segment -3 Total for alternative 1 (-5)

Alternative #2 Create a Licensing Agreement with Novelis Pros (12) Could take advantage of Novelis’ products and technology 5 Would generate a new customer 3 Could potentially increase global secondary product market share 4

Alternative #2 Create a Licensing Agreement with Novelis Cons (-12) Would not gain access to Novelis’ highly profitable contracts -5 Would have to provide inputs for a lower price -3 Subject to strict contract terms and limited timelines -4 Total for Alternative 2 (0)

Alternative #3 Acquire Novelis Pros (14) Economies of Scale 4 Price discrimination through vertical integration 5 Gain contracts with American companies for recycling

Alternative #3 Acquire Novelis fully Cons (-7) Become responsible for Novelis’ debt -3 Have to internally raise debt in order to purchase Novelis Inherit Novelis’ troubles with currency volatility -1 Total for Alternative 3 (7)

Recommendation Acquire Novelis fully Economies of scale Lucrative recycling contracts Monopolization of Aluminum in India High profit, low risk investment See exhibit 7, 8, 9

Exhibit 7 Hindalco’s Consolidated Profit and Loss Statement March 2005-March 2008

Exhibit 8 Novelis’ Balance Consolidated Balance Sheet 2007-2008 Long Term Debt

Exhibit 9 Novelis’ Consolidated Balance Sheet 2005-2006

Implementation The acquisition of Novelis was broken into two parts: the purchasing of Equity and the Debt First, Hindalco purchases Novelis’ equity for $44.93 dollars per share at a total of about $3.6 Billion Second, Novelis’ debt was approximately $2.4 Billion Gain access to Novelis’ contracts and secondary rolling plants February 2007 Purchase of Novelis’ stock and Debt 2008 re-evaluation of stock rights 2009 Hindalco hope to recover some of the liabilities Novelis incurred 2009 Hindalco and Novelis will continue to operate as separate entities and gain global market share Hindalco receives Novelis contracts, and Novelis immediately starts to supply Hindalco with aluminum. In 2008 we recommend that hindalco has a rights issue of 1 to 3 to help pay off the debt of the purchase of novelis. 2009- this is one of the consequences of acquiring novelis debt. looking toward the future we think hindalco will have an increase in market share by 20% in the next 5 years.

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