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Indal: Quality of earnings improve - Views on News from Equitymaster
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  • May 25, 2000

    Indal: Quality of earnings improve

    Indian Aluminium (Indal) has posted a 200 basis point improvement in margins during the fiscal year ended 31st March 2000. The company benefited from higher alumina prices in international and domestic markets. Among the other factors that contributed to this were the sharp rise in exports (up 40% YoY), which generally command better realisations.

    (Rs m) FY99 FY00 Change
    Net Sales 10,216 10,497 2.7%
    Other Income 120 55 -54.0%
    Expenditure 8,497 8,527 0.3%
    Operating Profit (EBDIT) 1,719 1,970 14.6%
    Operating Profit Margin (%) 16.8% 18.8%  
    Interest 397 367 -7.6%
    Depreciation 519 565 8.7%
    Profit before Tax 922 1,093 18.5%
    Other Adjustments 24 113 374.8%
    Tax 135 141 4.4%
    Profit after Tax/(Loss) 764 839 9.9%
    Net profit margin (%) 7.5% 8.0%  
    Earnings per share 10.7 11.8  

    Among the other factors contributing to the company's performance were a decline in interest expenditure. It is important to note that the rise in PAT has come despite a sharp drop in other income, implying that the quality of earnings has improved during the year.

    The current management of Indal, Alcan Aluminium Limited (US), had earlier proposed to sell off their holding in the company to Hindalco Limited, India's leading aluminium company. The move is likely to bring significant benefits to Indal, which is alumina surplus and aluminium deficient. Post acquisition the company is likely to benefit as it could then source its alumina smelted at Hindalco, bringing in significant cost savings (currently the company enters into agreements with other smelters). Other benefits in terms of exploiting supply chain synergies are expected to improve the profitability of the company.

    However, the recent downturn in metal prices in international markets has cast a shadow over the prospects of a sustained recovery in the sector.

    The stocks currently trades at Rs 165, implying a P/E multiple of 14, which is in line with the ratio recorded over the last two years.



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