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Novelis (Hindalco’s subsidiary) has
planned to close its 60,000 tonne
aluminium smelter in Aratu, Brazil,
by December 31, 2010. According to the company, the decision is in response to high
operating and energy costs along with the plant's small scale, outdated technology and
logistical factors affecting its operational efficiency. For the last two years, the plant has
been operating at a loss despite management’s efforts to improve performance.
Management indicated that the plant would remain unprofitable in future. The smelter
closure will affect ~300 employees.
We believe the smelter closure is in line with the company’s strategy of focusing on
downstream products. The smelter closure is likely to impact Novelis’ FY2012E EBITDA
negatively by ~2% (excludes the negative impact of restructuring charges related to
severance package, extended health benefits). We maintain Accumulate on the stock with
a revised SOTP-based Target Price of `245 (earlier `249).
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