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Indal: Pulling through - Views on News from Equitymaster
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  • Oct 30, 2001

    Indal: Pulling through

    Considering the difficulty prevailing in the aluminium industry, both globally and domestically, Indian Aluminium Ltd. (Indal) has posted results in line with expectations. The company has salvaged quarterly financial performance through better utilisation of assets, higher sales volumes and increased focus on downstream businesses.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Sales 3,309 3,426 3.6% 6,161 6,785 10.1%
    Other Income 26 3 -86.9% 37 14 -63.2%
    Expenditure 2,623 2,764 5.4% 4,890 5,498 12.4%
    Operating Profit (EBDIT) 685 663 -3.3% 1,271 1,287 1.3%
    Operating Profit Margin (%) 20.7% 19.3%   20.6% 19.0%  
    Interest 103 94 -9.2% 195 185 -4.9%
    Depreciation 162 163 0.4% 315 318 0.9%
    Profit before Tax 395 392 -0.9% 731 763 4.4%
    Extraordinary items (51) (18) -64.7% (68) (35) -48.4%
    Tax 110 85 -23.2% 190 169 -11.1%
    Profit after Tax/(Loss) 285 307 7.7% 541 594 9.8%
    Net profit margin (%) 8.6% 9.0%   8.8% 8.8%  
    No. of Shares (eoy) 71 71   71 71  
    Diluted Earnings per share 16.0 17.3   15.2 16.7  
    P/E Ratio   4.5     4.7  

    Indal is feeling the heat of the slowdown. Topline YoY growth, which for the past two quarters has been well into double digits, dropped to 3.6% in 2QFY02. Sales seem to be lifted by higher business volumes but could not be significantly increased due to pressure on realisations. The financial performance seems to be driven by a significant improvement in the sheets business.

    Lower realisations without a corresponding reduction in operating costs have eaten into the company's margins. The OPM has declined by 140 and 160 basis points for the quarter and half year ended September '01. That said, the company seems to have managed to reign in costs, as margins have improved by 70 basis points QoQ. Besides realisation blues the company faced stiff domestic competition in the downstream aluminium foil business. The chemical business was affected by higher caustic soda prices, which pulled down profitability of the division.

    Interest costs continue to decline, as the company refinances high cost debt with low cost borrowings. Other income of the company has fallen sharply for the reported quarter. This is primarily due to a non-recurring item of income accounted for in the previous year. Also, the company has taken an estimated hit of Rs 8 m from mark to market of its investment portfolio, which seems to have been adjusted in other income.

    Extraordinary items is towards payment under voluntary retirement scheme (VRS). The Appellate Authority for Industrial & Financial Reconstruction (AAIFR) has approved the rehabilitation scheme for Annapurna Foils Ltd. (AFL). In accordance with the scheme, Indal acquired an additional 24.1% stake form the promoters of AFL, raising their aggregate holding to 51%. It is likely that Indal will pump more cash into AFL to revive its operations.

    At Rs 78 the scrip trades on a multiple of 4.7x 1HFY02 annualised earnings. The valuations have decreased from an estimated 6x at the beginning of the fiscal. This, however, is due to the weakening aluminium industry fundamentals.



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