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Indal: A lacklustre show

Krishnan Thiagarajan

BL Research Bureau

INDIAN Aluminium (Indal), the aluminium downstream major belonging to the Aditya Vikram Birla group, has turned in a lacklustre earnings performance for the second quarter ended September 30, 2001.

Despite higher production, improved sales and exports of alumina and downstream products such as sheet, foils and extrusions, Indal has recorded only an 3.56 per cent growth in net sales to Rs 342.60 crore for the second quarter.

On a sustainable basis (excluding compensation under voluntary retirement scheme and writedown of long-term investment), the post-tax earnings has declined by 3 per cent to Rs 32.59 crore. By including these elements, the post-tax earnings has gone up by 8 per cent to Rs 30.74 crore. The operating profit margins in this quarter declined by 1.37 percentage points to 19.34 per cent.

An examination of the two key sources of revenue flows of Indal for the first half (April- September 2001) reveals the following:

* Alumina: The combination of low realisations and rising input costs, particularly of caustic soda appears to have contributed to a sharp drop in the operating profits from alumina sales. As one of the key constituents of Indal's revenues, the alumina p roduction volumes have grown by only 1.56 per cent to 2,27,850 tonnes.

However, the financials have borne the brunt of a sharp downturn in the alumina price levels which crashed to almost half the levels during this period. Indal's attempt to improve the performance by concentrating on export volumes of speciality alumina a nd hydrates have had limited impact.

* Downstream products: On the downstream front, the improvement on the production and sales volume front seem fairly strong. The sharp focus of Indal on its sheet business is beginning to pay off, with a 23 per cent improvement in domestic sales volume a nd 42 per cent rise in exports. Similarly, for extrusions, the domestic and export sales volumes improved by 21 per cent and 11 per cent respectively. However, the foils business segment which enjoys the highest realisation in the industry has suffered a setback on account of severe overcapacity in the industry. Although the domestic sales volume increased by 8 per cent and exports by 35 per cent, the margins have come under pressure.

* Outlook: Going forward, since the alumina prices are likely to remain stable at around the current levels, the operating profits will hinge on the movement in input costs such as caustic soda. The focus on exports of speciality alumina will be only of limited value. To a large extent, the growth of Indal will hinge upon the realisations for sheet, extrusions and foils. If the overcapacity in all these segments persist and demand growth slows down, revenue growth and margins of Indal may come under fur ther pressure. The ability to manage costs and synergise with Hindalco (on sourcing aluminium metal) holds the key to the profitability of Indal in the second half of 2001-02.