Birlas plan to bring Novelis units to India

The Aditya Birla group flagship Hindalco and its Canadian subsidiary, Novelis are planning to relocate some of its European plants to India. Rising cost of operations and declining sales in Europe and a booming Indian market for Novelis��� products are driving the relocation initiative. (Watch)

A top Hindalco official said ���meticulous plans��� have been made to relocate one of Novelis��� closed plant from Europe to India. The company is also considering to drastically cut costs and inventories and manage cash better in Europe. Novelis had closed a plant in Britain in March this year which resulted in 440 employees losing their jobs. Another UK plant has also been closed.

The official asked not to be quoted due to the sensitivities involved over job losses in Europe. It���s not absolutely clear whether the British plant would be relocated. However, the UK plants are the only ones which are closed. Novelis has functioning plants in Switzerland and Germany.
The official spokesperson of the Birla group declined to comment.

Giving reasons for the relocation, the official said Novelis��� European units have to import raw materials from various parts of the world including from Hindalco in India. The aluminium sheets made by Novelis are then sold to can-makers, which are shipping these cans to emerging markets including India.

���This becomes a vicious cycle with costs going up in every stage. We want to turn this vicious cycle into a virtual cycle,��� the official said.

With Novelis relocating plants to India, Hindalco will cut down on freight costs and supply aluminium to Novelis���s India unit. Novelis, in turn, will sell the aluminium sheets to can- makers in India. The official said Hindalco and Novelis are in talks with five leading can-makers to supply aluminium sheets. This includes Polish firm Rexam, which is setting up a unit near Mumbai and British firm Can Pac, which is setting up a plant to make one billion cans a year in India. Hindalco is also talking to the UB group which is interested in a can making facility. These Indian can-making plants would import aluminium sheets from a Novelis plant from Korea till its own plant begins production in India.

This will be a win-win deal for both Hindalco and Novelis as both companies will be able to cut costs drastically. Novelis is in the midst of a massive cost-cutting drive, as its global peers are filing for bankruptcy protection.
Hindalco��� MD Debu Bhattacharya said on Tuesday that the industry is going through a difficult patch because of external factors. He said Hindalco is optimistic about India. Mr Bhattacharya said in a news conference on Tuesday that Hindalco has taken definite steps to improve cost structures, including restructuring which should be able to reduce substantial costs for Novelis.

The Aditya Birla group had acquired Novelis in 2007 for a whopping $6 billion. Since then, due to global recession and the crash in metals prices, the valuation of the company has come down drastically leading to a $1.5- billion goodwill write off in fiscal 2009. Last year, European units contributed $4.3 billion to Novelis��� total sales of $ 11.2 billion.

The high cost of operations in Europe has also hit other Indian companies which have gone for ambitious acquisitions. Tata-owned Corus has to close down its Teeside steel plant after orders dried up. Tata Motors Jaguar Land Rover announced this Sunday that the may have to go for plant closures in UK as its sales fell due to the financial meltdown.