Strategic Management at Hindalco

Strategic Management at Hindalco

Submitted to: Mr. Hiren PatelPrepared by: Group no.5

13. Pooja Jain14. Soyeb Jindani

15. Divya Joshi

INTRODUCTION

Hindalco Industries Limited, the metals flagship company of the Aditya Birla Group, is an industry leader in aluminium and copper under the chairman of Kumarmangalam Birla and Managing Director Debu Bhattacharya.

Established in 1958, Hindalco commissioned its aluminium facility at Renukoot in Eastern U.P. in 1962.

A metals powerhouse with a consolidated turnover of Rs.600,128 million (US$ 15 billion) on march 2008.

ALUMINIUMKEY PRODUCTS/BRANDS:HINDALCO INDUSTRIES LTD

INDAL(SUBSIDIARY OF HINDALCO)

KEY PRODUCTS ARE:ALUMINA,ALUMINIUM,FOIL AND PACKAGING,WHEELS,WIRE RODS, ROLLED

PRODUCTS, EXTRUSIONS

ALUMINIUMWorld's largest aluminium rolling company

One of the biggest producers of primary aluminium in Asia

One of the lowest-cost producers of aluminium in the world

Over 58 per cent of sales in value-added products.Domestic market share of 42 per cent in primary aluminium, 63 per cent in rolled products, 20 per cent in extrusions, 44 per cent in foils and 31 per cent in wheels.

Fully integrated aluminium plant at Renukoot, UP

Aluminium wheels plant at Silvassa, in Dadra & Nagar Haveli

Foil plants at Silvassa and Kalwa. Foil unit of Indal at Kollur

ISO 9001:2000 and 14001 certified

COPPER BIRLA COPPER(HINDALCO INDUSTRIES LTD.)

HINDALCO INDUSTRIES LTD.(ADITYA BIRLA MINERALS LTD.)

KEY PRODUCTS

SULPHURIC ACID,PHOSPHORIC ACID,GOLD(BIRLA GOLD),SILVER(BIRLA SILVER),POWER,COPPER CONCENTRATE

COPPERIndia's leading copper producer

India's largest copper smelting and refining plant at Dahej, Gujarat,

with two copper mines in Australia

Smelting and refining capacity 500,000 tpa, the largest single

location smelter in the world

Captive jetty (Dahej Harbtheir & Infrastructure Limited, a wholly

owned subsidiary)

ISO 9001,14001 and OSHAS 18001 certifiedRegistered on London

Metal Exchange as Grade A Copper Brand

The Turnover of Birla copper for the year ended in March 2006 was of

Rs 53,800 in Millions.

Market capitalization of Rs. 202599 million as of 31 March 2008.

335,337 equity shareholders as of 31 March 2008.

134,723,182 outstanding GDRs as of 31 March 2008.

Dividend of 185 per cent ( i.e Rs. 1.85 per share) on the paid-up equity share capital as of 31 March 2008.

EPS of Rs. 24.51, No. of employees 19,800.

Aditya Birla Minerals Limited (Hindalco subsidiary) first Indian company to be listed in Australia.

Export accounts for more than 30 percent of total sales.

Stock is publicly traded on the Bombay Stock Exchange, National stock exchange of India Ltd. And Luxembourg stock exchange .

Sulphuric acid1,470,000 tpa (Dahej)

Phosphoric acid180,000 tpa (Dahej)

DAP and complexes400,000 tpa (Dahej)

Gold26 mt (Dahej)

Silver200 mt (Dahej)

Power135 mw (Dahej)

Division Capacity and location

Alumina 700,000 tpa (Renukoot)

350,000 tpa ()

180,000 tpa (Muri)

Aluminium 375,000 tpa (Renukoot)

143,000 tpa (Hirakud)

Extrusions 33,000tpa (Renukoot)

13,000 tpa (Alupuram)

Flat rolled products 100,000 tpa (Renukoot)

57,000 tpa (Belur)

50,000 tpa (Taloja)

30,000 tpa (Mouda)

Redraw rods 75,000 tpa (Renukoot)

Foil and packing 30,000 tpa (Silvassa)

6,000 tpa (Kalwa)

4,000 tpa (Kollur)

Wheels 300,000 pcs (Silvassa)

Captive power 742 mw (Renusagar)

78 mw (Renukoot)

368 mw (Hirakud)

Copper cathodes 500,000 tpa (Dahej)

Continuous cast copper rods 120,000 tpa (Dahej)

Sulphuric acid 1,470,000 tpa (Dahej)

Phosphoric acid 180,000 tpa (Dahej)

DAP and complexes 400,000 tpa (Dahej)

Gold 26 mt (Dahej)

Silver 200 mt (Dahej)

Power 135 mw (Dahej)

HERITAGE

The roots of the Aditya Birla Group date back to the 19th century in the picturesque town of Pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started trading in cotton, laying the foundation for the House of Birlas.

India's arduous times of the 1850s, the Birla business expanded rapidly. In the early part of the 20th century, Group's founding father, Ghanshyamdas Birla, set up industries in critical sectors such as textiles and fibre, aluminium, cement and chemicals.

The principles by which Ghanshyamdas Birla lived were soaked up by his grandson, Aditya Vikram Birla, Group's legendary leader.

Mr. Aditya Birla dared to dream of setting up a global business empire at the age of 24. He was the first to put Indian business on the world map.

In the vibrant and free market South East Asian countries, he ventured to set up world-class production bases. He had foreseen the winds of change and staked the future of his business on a competitive, free market driven economy order.

He put Indian business on the globe, 22 years before economic liberalisation.

He set up 19 companies outside India, in Thailand, Malaysia, Indonesia, the Philippines and Egypt.

Under his stewardship, his companies rose to be the world's largest producer of viscose staple fibre, the largest refiner of palm oil, the third largest producer of insulators and the sixth largest producer of carbon black.

Apart from being a producer of cement, grey cement and rayon grade pulp. The Group is also the largest producer of aluminium in the private sector, the lowest first cost producers in the world.

The Group's revenues crossed Rs.8,000 crore globally, with assets of over Rs.9,000 crore, comprising of 55 benchmark quality plants, an employee strength of 75,000 and a shareholder community of 600,000.

Most importantly, his companies earned respect and admiration of the people, as one of India's finest business houses, and the first Indian International Group globally.

Through this outstanding record of enterprise, he helped create enormous wealth for the nation, and respect for Indian entrepreneurship in South East Asia. In his time, his success was unmatched by any other industrialist in India.

Under the leadership of Chairman, Mr. Kumar Mangalam Birla, the Group has sustained and established a leadership position in its key businesses through continuous value-creation.

Spearheaded by Grasim, Hindalco, Aditya Birla Nuvo, Indo Gulf Fertilisers and companies in Thailand, Malaysia, Indonesia, the Philippines and Egypt, the Aditya Birla Group is a leader in the products like— viscose staple fibre, aluminium, cement, copper, carbon black, palm oil, insulators, garments, financial services, telecom, software and BPO, the Group is today one of Asia's most diversified business groups.

MILESTONES1958- Incorporation of Hindalco Industries Limited.

1962- Commencement of production at Renukoot (Uttar Pradesh) with an initial capacity of 20,000 mtpa of aluminium metal and 40,000 mtpa of alumina.

2000- Acquisition of controlling stake in Indian Aluminium Company Limited (Indal) with 74.6 per cent equity holding.

2003- Hindalco acquires Nifty Copper Mine in March 2003 through Aditya Birla Minerals Ltd. (ABML, formerly Birla Minerals Resources Pty. Ltd.).

ABML acquires the Mount Gordon copper mines in November 2003.

Equity stake in Indal increased to 96.5 per cent through an open offer.

2006Hindalco announces 10:1 stock split. Each share with face value of Rs. 10 per share split into 10 shares of Re 1 each.

Hindalco completes largest Rights issue in the history of Indian capital markets with total size of Rs. 22,266 million.

Equity offering and subsequent listing of Aditya Birla Minerals Ltd. on Australian Stock Exchange.

Signed an MoU with the Government of Madhya Pradesh for a greenfield aluminium smelter in the Siddhi district of the state.

2007Successful acquisition of Novelis, making Hindalco the largest in aluminium rolling and among the global top five metals majors, with a presence in 11 countries outside India.

Acquisition of Alcan's 45 per cent equity stake in the Utkal Alumina project, thereby making Hindalco the 100 per cent project owner.

ACCOLADES2008Greentech Safety Gold Award 2008 for outstanding achievement in safety management in coal based potheyr eector.

Hindalco Hirakud Systems ranked runners up at the state level IT Competition 2008 organised by CII in association with the department of informational technology, Government of Orissa.

Hirakud smelter was awarded the state level safety award for Best Occupational Healthcare 2006 — presented in February 2008 at Bhubaneswar.

2007The Golden Peacock Award 2007 by the World Environment Foundation for its remarkable achievements in occupational health & safety.

Renukoot was selected for the Rajiv Gandhi National Quality Award 2007 – Silver Trophy, presented by the Bureau of Indian Standards, in the large scale manufacturing (metallurgy) category.

Hindalco won the prestigious “D.L. Shah National Award for Economics of Quality” given by quality council of India. Chief manufacturing officer, Mr. R. P. Shah and Mr. Arun Kumar received the award from the President of India, H.E. Dr. A.P.J. Abdul Kalam on 9 February 2007 at New Delhi.

2006 The IT department of Hindalco received prestigious IT certificates BS15000 (IT services), ISO 9001 (Software development) and BS7799 (Information security).

2005Mr. Debu Bhattacharya, Managing Director was conferred with "Asian business leader award for the Asia corporate citizen of the year" by CNBC. The award was conferred in recognition of Hindalco's outstanding contribution to arts, education, the environment and community development.

2000Alumina refinery is named as the 'Best Safety Performing Plant' in the world by the International Aluminium Institute.Safety Performance Benchmarking — 'Joint Best Smelter' by International Aluminium Institute.Annual Report - Best in Asia Winners by CFO Asia.

VISION

To be a premium metals major, global in size and reach, with a passion for excellence.

MISSION

To relentlessly pursue the creation of superior shareholder value by exceeding customer expectations profitably, unleashing employee potential and being a responsible corporate citizen adhering to our values.

VALUESIntegrity Honesty in every action.Commitment Deliver on the promise Passion Missionary zeal arising out of an emotional engagement with work.Seamlessness Thinking and working together across functional silos, hierarchy levels, businesses and geographies.Speed Responding to stakeholders with a sense of urgency.

SWOT ANALYSISSTRENGTHS:Strong brand recognition

Internet sales

Growing international presence

Superior research and development department

Strong financial returns

Strong sense of culture in the working environment

Successful experience being competitive

Effective Leadership

Cost leadership

Prestigious Client Base

Customer LoyaltyTechnological excellence.Good corporate image.

WEAKNESSES:

Complexity of operation

OPPORTUNITIES:

Rapid integration with global economyGrowing e-commerce’s business.

THREATS:

Entry of global playersTake over possibilitiesPolitical threatsThe impact of foreign currency fluctuation and interest rates.Loss of sales to substitutes

STRATEGIES ADOPTED BY HINDALCO

What is Hindalco's strategy to counter the increasing competition in the marketplace?

Mr. Bhattacharya, M.D. of Hindalco answered that ….

CORPORATE STRATEGIES-COOPERATION

Joint venture:o Hindalco in a joint venture with Almex

USA Inc. Hindalco 1 nov 2006 entered into a joint

venture partnership with Almex USA Inc., for the manufacture of high strength aluminium alloys for applications in the aerospace, sporting goods and surface transport industries.

Hindalco has 70 per cent equity participation, with Almex holding the balance 30 per cent in the JV.

The joint venture envisages a capital outlay of Rs.155 crore at a production level of 46,000 tonnes.

Hindalco is India's leading non ferrous metals company, with a turnover of over Rs.11,396.50 crore and net income of Rs.1,655.60 crore in the financial year 2005-06.

Acquisitions strategies:

(1)Hindalco acquires Indal.

(2)Birla Copper acquires the Nifty Copper Mines in Australia:September 23 Hindalco Industries, an Aditya Birla Group company, has made its second acquisition in Australia by entering into a sale-purchase agreement (SPA) for acquisition of mining assets of Mount Gordon copper mines in Australia. The acquisition is for a gross consideration of Australian $21 million and is expected to be completed on October 31, 2003. The group has stated that it is exploring further acquisitions as well.

(3)Indal merged with Hindalco: the Aditya Birla group flagship, 24 august 04 announced a merger with itself of all the businesses of Indian Aluminium Company (Indal), The face value of Indal shares will be reduced from Rs 10 per share to Rs 2. Hindalco has a 97 per cent stake in Indal and will continue to maintain it in demerged Indal. The merger will help Indal take up larger projects. It will help the Birla group save sales tax for inter-company transactions and realise the optimal use of depreciation from large investments

MICHAEL PORTER MODEL

Barriers to entry

1) Economies of scale 2) Capital intensive 3) Higher gestation period 4) Government policies

Bargaining power of suppliers :-The bargaining power of suppliers is low for fully integrated aluminium smelters (upstream) as they have their own mines for key raw material like bauxite. Examples here could be Nalco and Hindalco

Bargaining Power of Customers :-Being a commodity, customers enjoy relatively high bargaining power as prices are determined on demand and supply.

Competition is primarily on quality and price, as being a commodity, differentiation is difficult. However, the recent spate of consolidation has reduced the competitive pressure in the industry. Further, increasing value addition to aluminium products has helped some companies protect themselves from the high volatility witnessed in the industry.

Competition:

Threat of substitutes

On one side, the usage of aluminium is rising continuously in the automobile and construction sector but steel still remains a main substitute because of its relatively lower cost. aluminum’s usage in the power sector due to its higher conductivity. However, with properties like higher strength-to-weight ratio, durability, higher corrosion-resistance and relatively lower cost, aluminium is able to hold its own. Thus the usage of aluminium is likely to increase over a long term period

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