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Indal: Pricing pressure trims growth

Jan 21, 2002

Indian aluminium industry continues to suffer from lower price realisations and sluggish volume growth. This is reflected from Indal's financial performance. The company's earnings grew by a marginal 8% on dismal revenue growth of 3% in the third quarter of the current fiscal.

(Rs m) 3QFY01 3QFY02 Change
Net sales 3,327 3,426 3.0%
Other Income 26 3 -86.9%
Expenditure 2,646 2,764 4.4%
Operating Profit (EBDIT) 681 663 -2.7%
Operating Profit Margin (%) 20.5% 19.3%  
Interest 99 94 -5.1%
Depreciation 162 163 0.4%
Profit before Tax 446 410 -8.1%
Extraordinary Adjustments (51) (18) -64.7%
Tax 110 85 -23.2%
Profit after Tax/(Loss) 285 307 7.7%
Net profit margin (%) 8.6% 9.0%  
No. of Shares (m) 71.1 71.1  
Diluted Earnings per share* 16.0 17.3  
P/E Ratio   4.8  

The company's realisations in the current quarter remained under pressure due to comparatively lower aluminium prices in the December quarter (average of about US$ 1,302 / tonne). This impacted Indal's operating margins, which declined by over 100 basis points. On a QoQ basis, the company has however maintained its operating margins at 19.3%. Increased capacities in the world markets is likely to keep prices under pressure in the near term.

A significant drop of 87% in its other income also trimmed the company's earnings growth. Interest cost on the other hand, continued to decline on the back of its efficient working capital management and refinancing high cost debt by low cost borrowings. Its effective tax rate too declined to 22% from 28% in 3QFY01.

At the current market price of Rs 83, Indal is trading at a P/E of 5x 3QFY02 annualised earnings. Weakening aluminium fundamentals have impacted the company's valuations in the last nine months.

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