Hindalco: A peep into past III

In the last two articles on Hindalco, we tracked the movement in the company's P&L statements in two periods viz. 1999 to 2002 (Pre-merger of copper division) and 2003 to 2007 (Post merger of copper division). Now let us have a look at the standalone balance sheet of the company and how has it changed between the period 1999 and 2002. Let us first consider the asset side of the balance sheet. The net fixed assets of the company grew at a CAGR of 2.3%. This was mainly contributed by growth in FY02, on account of production capacity expansion of primary aluminium from 242,000 tonnes in FY01 to 275,000 tonnes in FY02. The investments grew at a CAGR of 23% as the company generated huge cash from operations and invested the same in acquiring Indal. The working capital of the company grew at a CAGR of 13.8%. But if we were to exclude cash, then it grew at a CAGR of 6% only, lower than the topline growth for that period. The increase in working capital was mainly on account of increased days in inventory from 57 in FY99 to 67 in FY02 and increase in debtor days from 30 in FY 99 to 37 in FY02.

On the liabilities side, the total debt of the company grew at a CAGR of 11.7%. This was mainly due to 34% increase in debt in FY02 on a YoY basis. The networth of the company grew at a CAGR of 5.7% during the period under consideration. There was a marginal change in debt equity ratio from 0.1 in FY99 to 0.2 in FY02. This was due to the huge internal accruals and the company was able to maintain the ratio lower even when it increased the debt.

From the above paragraphs, it could be inferred that the period under study was a quiet one as far as capital expenditure was concerned, as there was only a small growth in the company's fixed assets. Not surprisingly then, the company decided to divert its strong cash accruals towards making acquisitions as was evident from the acquisition of Indal. Furthermore, the company also bought back some of its shares, which we believe is one of the best uses that cash flows could be put to.

In the next article, we will track the change in the balance sheet of the company between the period 2003 and 2007, when its business model underwent a change and it merged copper business of Indo Gulf with itself.