During financial year 2000, this company created new
records in production of bauxite, hydrate and aluminium. It achieved the
highest ever turnover in a year in its eighteen year history. Its export
turnover (50 percent of sales) too was at an all time high. Infact it is
the only domestic Indian company that links its product prices to those
prevailing on the London Metal Exchange (LME).
National Aluminium Company Limited (Nalco), a public
sector company, is India's most efficient aluminium producer. The company,
in its short 18-year history, has grown to become the second largest
producer of primary metal in India. Nalco is currently in the midst of a
large capacity expansion, both upstream and downstream. Simultaneously, it
is also initiating measures to improve its cost efficiencies.
Nalco derives its cost efficiencies from the high level
of integratedness in its operations. The company has captive bauxite
mines, the primary raw material for the manufacture of alumina. It also
has a captive power plant that meets all its consumption needs. Its
alumina output is enough to meet captive requirements of its aluminium
smelter and infact the company is a net seller. Such a structure has
enabled the company to keep a tight grip on its costs. In an attempt to
further cut costs, the company has applied to the government to allot it
coal fields - the raw material for its 720 megawatt power plant.
Nalco's financial performance in financial year 1999 was
marred by a collapse in global aluminium prices, which resulted in a sharp
fall in profitability. However, in financial year 2000, the company has
rebounded. Gross turnover rose 42 percent even as net profits jumped over
100 percent to Rs 5.1 billion. The turnaround was made possible by the
sharp rise in global aluminium and alumina prices. Global demand too grew
by over 4 percent. These two factors, high demand and prices, pushed the
company's performance into record territory.
Riding the upturn
Net profit margin
Nalco has initiated measures to sustain its growth curve
in coming years. Plans are afoot to nearly double the company's calcined
alumina capacity while adding significantly to the aluminium smelting
capacity. Its mining operations too are being stepped up to meet the
enhanced requirements. The company's downstream plans have got a boost
after it got the government's approval to merge International Aluminium
Products Limited (IAPL) with itself. IAPL, which is likely to go onstream
within a year, will add a 50,000 tonnes per annum of cold rolled products
to Nalco's output. IAPL will operate as a 100 percent export oriented unit
The aggressive capacity expansion plans are being
financed from internal resources. Of the total approved capital cost (Rs
41.2 bn) to be incurred by the company, Rs 27.6 bn has already been
committed. In a recent investor conference Nalco indicated that it would
not be taking on debt to meet the remaining expenditure. This strategy
will minimise the cost of expansion and limit the pressure (due to higher
interest costs) on the bottomline of Nalco.
India, a better bet
In recent months, two significant developments have led
to the sharp erosion in Nalco's market capitalisation. First, the
government has decided to withdraw export incentives (with some
exceptions) across most industries in a graded manner from this year
onwards. For a company like Nalco, which exports 50% of its output, the
possibility of higher tax burden dealt a severe blow to sentiment. Next
came the decline in aluminium metal prices. After having peaked at around
US$ 1,700 in December 1999, prices have tumbled significantly. Currently
the price is ruling at approximately US$ 1,500 per tonne. Alumina prices
too have receded from $ 400 in December 1999 and are currently quoting at
US$ 250 per tonne.
Nalco is currently in the process of drafting a 'vision
document' and growth plan for the next 20 years. The plan will enable the
company to identify new businesses (related or unrelated) that will propel
growth in coming years.
Nalco's aggressive attitude belies its public sector
status. In coming years, with increasing competition both in domestic and
international markets, it is this attitude that will hold it in good
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