Novelis postpones its IPO amid a major rolling and recycling investment program
Novelis paused a planned sale of Hindalco-held shares as its global aluminum business expanded customer contracts and invested in rolling and recycling.
Hindalco’s planned sale of a minority interest in Novelis stalled in June 2024 when the aluminum producer postponed its initial public offering. The proposed transaction had targeted a valuation of up to $12.6 billion. At the top of the indicative range, Hindalco’s subsidiary could sell $945 million of stock before costs. Hindalco shares fell as much as 6.5% after the delay became public, before trimming their decline to 1.8%; India’s Nifty 50 index was up 0.7% at that point. Sneha Poddar, associate vice president at Motilal Oswal Financial Services, expected a short-term adverse effect on Hindalco, while retaining a favorable view of its domestic and American businesses following their recent results. AJ Bell analysts had identified unpredictable commodity prices as a possible difficulty in selling the flotation.
Novelis announced the postponement on June 4, 2024, citing market conditions. It gave no replacement date and said it would keep assessing when to proceed. In a separate media statement accompanying the announcement, the company described investor interest and support for its growth plans but said market conditions had prevented the premium outcome it sought. Novelis remained a subsidiary of Hindalco Industries, the aluminum and copper business within Mumbai-based Aditya Birla Group. Its industrial customers spanned aerospace, automotive production, beverage packaging and specialty applications across North America, South America, Europe and Asia. The postponement announcement did not disclose a new offering size or a revised price range.
The proposed ownership transaction
The roadshow had begun on May 28, 2024. The proposed offering comprised 45 million existing common shares held by Novelis’ sole shareholder, a wholly owned Hindalco subsidiary, at an indicative price of $18–$21 each. Novelis would receive no proceeds from that shareholder’s sale. It had applied for a New York Stock Exchange listing using the symbol NVL. The proposed terms also allowed the selling shareholder to give underwriters a 30-day option to purchase another 6.75 million shares for over-allotments, measured from the final prospectus date.
Under the base offering, Hindalco’s subsidiary would retain 555 million shares, equivalent to 92.5% of the outstanding common shares. Full exercise of the additional-share option would reduce its retained percentage to 91.4%. The announced terms covered existing shareholder stock.
- Lead book-running managers: Morgan Stanley, BofA Securities and Citigroup.
- The registration statement was filed but not yet effective at the roadshow launch.
Earnings and investment before the flotation
Novelis entered the proposed flotation after a fiscal year of lower sales but higher adjusted EBITDA. For the year ended March 31, 2024, net sales fell 12% to $16.2 billion, while flat-rolled shipments declined 3% to 3.673 million tonnes. Lower aluminum prices and reduced shipments contributed to the revenue decline. Beverage customers’ inventory reductions weighed on first-half demand, while specialty products faced weaker economic conditions; stronger automotive shipments provided a partial offset. Net income attributable to the common shareholder declined 9% to $600 million, and adjusted EBITDA increased 3% to about $1.9 billion. Capital expenditure rose 73% to $1.4 billion. Operating cash flow from continuing operations reached $1.3 billion, compared with $1.2 billion a year earlier. Adjusted free cash flow moved from a $431 million inflow to a $75 million outflow. At March 31, liquidity totaled $2.3 billion, comprising $1.3 billion of cash and cash equivalents and $1 billion available under committed credit facilities. Net leverage was 2.3 times trailing adjusted EBITDA. Fourth-quarter net income reached $166 million, up 6%, while shipments increased 2% to 951,000 tonnes.
The preceding quarter had already combined improved margins with heavy construction spending. In the fiscal third quarter ended December 31, 2023, shipments were 910,000 tonnes, against 908,000 tonnes a year earlier. Net sales decreased 6% to $3.9 billion, principally because average aluminum prices were lower. Adjusted EBITDA rose 33% to $454 million, or $499 per tonne shipped; net income attributable to the common shareholder reached $121 million, compared with $12 million. For the first nine months of that fiscal year, operating cash flow was $420 million and adjusted free cash flow was a $517 million outflow, alongside $960 million in capital expenditure. In the same February 12, 2024 update, Novelis put the Bay Minette rolling and recycling project’s expected cost at $4.1 billion and targeted commissioning in the second half of calendar 2026. Its planned initial output capacity was 600,000 tonnes annually for North American beverage packaging and automotive customers.
A global rolling and recycling network
At March 31, 2024, Novelis operated 32 manufacturing facilities in nine countries across four continents. Fourteen facilities had recycling operations handling both used consumer products and industrial scrap. Its investment program included additional facilities for recovering metal as well as increasing finished-sheet output. A recycling center beside its automotive finishing plant in Guthrie, Kentucky, had a planned investment of approximately $365 million and expected annual casting capacity of 240,000 tonnes of sheet ingot. Construction had begun in May 2022. Novelis expected the Guthrie development to reduce annual company carbon emissions by more than one million tonnes when operating. Another recycling and casting center was planned at the UAL joint venture in South Korea. Novelis was funding that $65 million investment, with intended annual casting capacity of 100,000 tonnes. Both developments were described as capacity investments in the company’s May 2024 annual filing. The Guthrie project served the automotive operation, while the South Korean project expanded recycling and casting at the joint venture. Their stated capacities referred to sheet ingot, rather than the finished goods capacity planned for Bay Minette.
Recycled metal already accounted for most of the content in Novelis’ products during fiscal 2023. For fiscal 2023, covering April 1, 2022 to March 31, 2023, the company reported average recycled content of 61% across its global product lines. It recycled 2.3 million tonnes of aluminum during that period, including more than 82 billion used beverage cans. Absolute carbon emissions were 14% below the fiscal 2016 baseline across scopes 1, 2 and 3, against a company target of a 30% reduction by 2026. Emissions intensity had fallen 17% from the same baseline. Waste sent to landfill per unit of output was down 10% against fiscal 2020. Steve Fisher, president and chief executive, identified expanded customer recycling partnerships, additional recovery capacity and changes to alloys and processing as elements of the company’s approach. These were company-reported historical metrics and management’s stated initiatives; the 2026 reduction remained a target.
Beverage contracts and the return of manufacturing scrap
On June 1, 2023, Novelis announced a long-term agreement with Coca-Cola Bottlers’ Sales & Services Company, the contracting agent for Coca-Cola’s authorized North American bottlers. Those bottlers committed to a confidential volume of aluminum can sheet over several years, including supply from the planned Bay Minette facility. The agreement also covered closed-loop recycling: Novelis would take back scrap from can manufacturing, recycle it and turn it into sheet for new cans. The contract built on a relationship that had lasted decades. Dan Coe, Coca-Cola’s chief procurement officer, linked the arrangement to developing a resilient domestic supply chain. At the announcement date, Novelis said most of Bay Minette’s beverage-can capacity was already under contract. In that June 2023 announcement, Novelis forecast compound annual growth of 3% in beverage-can sheet demand from 2022 to 2031. The company then expected commissioning in 2025; its later February 2024 project update revised that target to the second half of 2026.
Ball Corporation was another anchor customer for the Alabama investment. Novelis announced the agreement on September 11, 2023, stating that it had been signed earlier that year. It covered sheet supply to Ball’s North American can-making plants and included manufacturing-scrap recovery and joint work on beverage-can recycling. Novelis said this agreement and other commitments had secured all of the new plant’s beverage-can capacity. That statement concerned the beverage portion of a plant also intended to serve automotive markets. The companies’ existing collaboration extended to the Ball Aluminum Cup, made exclusively with Novelis-supplied aluminum and containing 90% recycled material as of 2022. Through the closed-loop arrangements, factory scrap returns directly to Novelis for conversion into fresh can sheet. Used beverage cans form a separate stream of recovered material alongside that industrial scrap. The new agreement extended a partnership spanning several decades, with the contract announcement connecting additional sheet supply to the recycling provisions.
Additional can-sheet demand
Novelis added Ardagh Metal Packaging USA to its North American contract announcements on January 29, 2024. The new agreement covered beverage-packaging sheet for Ardagh’s metal-production facilities in the region. Novelis counted the deal as its third major North American beverage-packaging contract in fewer than seven months. Steve Fisher attributed customer interest to demand for more sustainable packaging and the ability to recycle cans into the same type of product. Ardagh chief executive Oliver Graham described Novelis as a partner dating to Ardagh Metal Packaging’s founding and linked the planned Alabama plant with future growth. Novelis’ January forecast put worldwide demand growth for aluminum beverage-packaging sheet at a compound annual rate of 4% between 2023 and 2031. The company associated that forecast with a wider variety of can sizes and drinks, including water, energy drinks, beer, wine and ready-to-drink cocktails. The growth rate was the producer’s forecast for that period, rather than a measured sales increase.
Aerospace involved a different set of products and production sites. On October 12, 2023, Novelis renewed its supply agreement with Airbus, extending a relationship of more than 30 years. The contract covered plates, sheets and wing skins, particularly for the A320 aircraft family, supplied from Koblenz in Germany and Zhenjiang in China. Wing skins require special alloys and machining for long components. Johan Petry, Novelis’ vice president for aerospace and industrial plate, identified Zhenjiang’s materials and precision-machining capabilities alongside the expertise at Koblenz as resources for fulfilling the contract. Both sites held the certifications needed to supply the aviation industry.
Certification and energy projects
The automotive manufacturing network also expanded its certification coverage. On December 12, 2023, Novelis announced Aluminium Stewardship Initiative Performance Standard certifications for Guthrie in Kentucky, Oswego in New York and Kingston in Ontario. The facilities’ capabilities extended from remelting and recycling to cold rolling and finishing, with production directed primarily toward automotive customers. The three certifications followed those achieved at Berea, Kentucky; Greensboro, Georgia; and Warren, Ohio, in 2022. Novelis had supplied ASI-certified material in Europe, South America and Asia since August 2021. The Performance Standard addresses environmental, social and governance principles in aluminum production. ASI chief executive Fiona Solomon welcomed the additional North American certifications and described them as an expansion of the company’s certified footprint. Novelis said its regional certification programs were tailored to customer requirements.
For Bay Minette, Novelis and Southern Company announced an energy partnership on October 9, 2023. Novelis planned to obtain renewable electricity through Southern subsidiary Alabama Power, using its Renewable Subscription Program. The arrangement would support two new solar generating plants in Alabama, each rated at 80 megawatts. Novelis expected those plants to cover more than half of Bay Minette’s renewable-energy requirements and avoid 192,000 tonnes of carbon dioxide emissions annually. Those were planned supply and emissions outcomes. The broader partnership targeted technologies for direct emissions as well as purchased electricity: hydrogen fuels, carbon capture, energy storage and electrification of thermal processes were among the areas under examination. Corporate venture and research teams from both companies were exploring projects for Bay Minette and other North American Novelis sites. The Alabama plant’s stated carbon-neutrality ambition covered scope 1 and scope 2 emissions. Suzanne Lindsay-Walker, Novelis’ vice president of sustainability, described the partnership as part of its emissions-reduction program.
Furnace trials in the United Kingdom
A separate initiative addressed remelting fuel at Latchford in Warrington, United Kingdom. On June 28, 2023, Novelis announced a £4.6 million government award for hydrogen-burning trials, within the £55 million Industrial Fuel Switching Competition and the broader Net Zero Innovation Portfolio. It planned a demonstration on one recycling furnace in 2024 with Progressive Energy. The conversion required burners and regenerators capable of using hydrogen or a hydrogen-and-gas blend, together with a replacement furnace lining suitable for hydrogen. Depending on the final configuration, Novelis estimated that replacing natural gas could cut the furnace’s carbon-dioxide-equivalent emissions by up to 90% compared with the same quantity of natural gas. That estimate applied to the proposed furnace fuel switch. Latchford had recycling capacity of up to 195,000 tonnes a year. Its automotive closed-loop operation included a dedicated rail link with Jaguar Land Rover’s production network. Novelis had participated in the regional HyNet project since 2017. Its research teams were also investigating plasma, electricity and biomass as potential energy sources for manufacturing operations.
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