Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indal joins the expansion bandwagon - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 21, 1999

    Indal joins the expansion bandwagon

    The Indian Aluminium Company (Indal) has announced an ambitious plan to expand its alumina capacities, enhance it captive power capacity and set up a new aluminium plant at a cost of Rs 8 bn. The news of Indal’s expansion plans incidentally comes just after a week of the announcement made by Hindalco of its intentions to set up a brownfield aluminium plant at a cost of Rs 25 bn.

    Indal (FY99 Sales Rs 11.4 bn), a 51% subsidiary of Alcan, Canada is primarily engaged in the production of value-added aluminium products like aluminium sheet (52% of sales), special grade chemical alumina (25%) and aluminium foils (15%). The company is unable to meet all its requirements for aluminium metal in-house and makes up the shortfall through open market purchases. This makes the profitability of the company more susceptibe to the volatility in aluminium prices.

    The company now proposes to:

  • step up alumina (main raw material for manufacture of aluminium metal) capacity to 510,000 tonnes per annum at its Belgaum plant in Karnataka at an estimated cost of Rs 4 bn
  • enhance alumina capacity to 300,000 tonnes per annum at its Muri plant in Bihar
  • commssion a new captive power plant at Hirakund (Orissa)
  • set up a greenfield alumina project in Orissa in partnership with Alcan and Hydro Aluminium of Norway.

    The company’s move to increase it alumina capacities is indicative of its focus towards the alumina and alumina chemicals business. The enhanced capacities will help it achieve a higher level of backward integration, thus improving the prospects of earning higher margins in the future. During FY99, Indal sourced 17% of its aluminium requirements from tolling of alumina (tolling refers to contracting the conversion of alumina into aluminium to thrid parties). The increased production of alumina will see the share of tolled aluminium to total aluminium increase in the future. Besides the export of surplus alumina will anable it to earn valuable foreign exchange to funds it duty free imports of aluminium metal.

    The expansion plan, expected to be completed over a period of three years, is likely to improve the company’s bottomline. A key contributor to the improved performance will be the captive power plant. In the aluminium business, power is a critical component and accounts for almost 40% of the cost of production. Besides, it is seen that power generated internally is at least 3 times cheaper than purchasing power from the state grid. In the past Indal has had to operate it aluminium smelters at lower than 100% capacity due to lack of cheap and regular power. With its enhanced power generating capacity, Indal may well see the benefits of cheaper and more competitive cost of production.

    The demand for aluminium in the domestic market has been on the rise after a period of two years, during which the industry was suffering from high inventory levels and low metal price. This improvement in the domestic market has been assisted by an up trend in global demand and prices. Asia region is a major consumer of aluminium and almost 30% of demand for the metal arises in this region. The improved economic conditions in the Southeast Asian countries have increased the demand for the aluminium in this region. The price of aluminium has consequently moved up by 11% at the LME since April 1999.

    However, it should be borne in mind that these plans are to be executed over a three year period, by when the situation could turn for the worse, as fresh capacities go on stream. Already there are global majors like Kaiser (USA) who have announced their plans to restart their alumina capacities early next year.

    Market View:

    The stock has been rated as a ‘HOLD’ by the analysts, who prefer the lower cost aluminium producers, Hindalco and Nalco.



    Equitymaster requests your view! Post a comment on "Indal joins the expansion bandwagon". Click here!


    More Views on News

    Hindalco Industries: Deleveraging Kicks in, One-Offs Hurt the Bottomline (Quarterly Results Update - Detailed)

    Aug 22, 2017

    Hindalco Industries has reported a healthy growth in the topline on the back of Higher volume and realisation for both Aluminium and Copper segments. However, the bottomline declined marginally primarily on the back a provision of Rs 1.04 billion.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms