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Indal: Holding ground

Apr 25, 2003

Indian Aluminium Company Ltd. (Indal), the subsidiary of the A.V.Birla flagship company Hindalco, announced its 4QFY03 and FY03 results. The company has posted a marginal 2% rise in topline for the fourth quarter ending March 2003. However, its bottomline has grown by 25%. For the full year FY03, the company’s topline has remained flat while its bottomline registered a growth of a mere 1% YoY. The company’s 4QFY03 bottomline performance has been better than the previous quarter.

(Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
Net Sales 3,704 3,763 1.6% 13,684 13,710.4 0.2%
Other Income 121 130 6.9% 353 492.5 39.4%
Expenditure 3,192 3,280 2.8% 11,466 11,819.6 3.1%
Operating Profit (EBDIT) 512 483 -5.7% 2,217 1,890.8 -14.7%
Operating Profit Margin (%) 13.8% 12.8%   16.2% 13.8%  
Interest 87 60 -30.6% 351 265.9 -24.3%
Depreciation 147 187 26.9% 622 702.0 12.9%
Profit before Tax 399 366 -8.5% 1,598 1,415.4 -11.4%
Extraordinary items (19) (5) -72.0% (72) (24.1) -66.4%
Tax 105 17 -84.3% 355 205.0 -42.3%
Profit after Tax/(Loss) 276 344 24.8% 1,171 1,186.3 1.3%
Net profit margin (%) 7.4% 9.1%   8.6% 8.7%  
No. of Shares 71.1 71.3   71.1 71.3  
Diluted earnings per share       16.4 16.6  
P/E Ratio         7.2  

The company’s performance at the operating level has been poor in 4QFY03. This is evident from the fact that there is a fall in margins of 100 basis points at the operating level. Total expenses as a percentage of sales have increased sharply from 75% in 4QFY02 to 83% in 4QFY03. The key contributors to the rise in expenses were staff costs and power, which rose 46% and 44% respectively YoY. However, this increase must be considered in the backdrop of the fact that the effect of the merger of Annapurna Foils has been incorporated into the results. The figures of the full year have also to be viewed in this context.

  4QFY02 4QFY03 Change FY02 FY03 Change
Raw Materials 1,034 914 -11.6% 4,802 4,345 -9.5%
(% of sales) 27.9 24.3   34.8 31.7  
Staff Cost 337 493 46.2% 1,287 1,632 26.8%
(% of sales) 9.1 13.1   9.3 11.9  
Power and Fuel 672 968 44.0% 2,755 3,466 25.8%
(% of sales) 18.1 25.7   20.0 25.3  
Other Expenditure 732 763 4.3% 2,794 2,646 -5.3%
(% of sales) 19.8 20.3   20.2 19.3  
Total (% of sales) 74.9% 83.4%   85.0% 88.2%  

However, the operating margins could have been worse, but for a fall in raw material expenses by 12% and 10% in 4QFY03 and FY03 respectively when compared with last year saved the day for the company. Another expense where the company managed to save was on the interest expenses front. This could be due to the company re-financing its high cost debt and reducing its average cost of debt. However, the higher depreciation could be factor of its smelting capacity expansion from 37,000 MTPA to 57,200 MTPA at Hirakud, Orissa. The company has further commenced work on expanding its smelting capacity by another 7,800 MTPA. The company is also working on expansion of power generating capacity and development of coal mine. Extra-ordinary items, which pertain to expenses towards VRS, have also fallen by 66%, which assisted the company to keep its bottomline in the black.

Indal’s merger with its parent, Hindalco, has been put-off for sometime. Hindalco has a 95.5% control over Indal post the conclusion of its open offer in November 2002.

At Rs 120, the company is trading at P/E multiple of 7.2x FY03 earnings. Going forward, the company’s smelter capacity expansion, benefits of captive power and venturing into downstream products will add to its profitability. Alumina prices have been ruling strong since a few months. Indal, being a significant player in the alumina segment, is likely to reap the advantage from any upturn in demand. Moreover, the benefits of the synergies shared with its parent company will start to reflect soon. However, the broader concern of depressed growth in major world economies, which could affect aluminium prices, continues to remain.

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