Consolidation in aluminium industry

By Ramnath Subbu

MUMBAI, AUG. 12. The consolidation process in the aluminium industry which commenced four years ago, crystallised further in 2000-01 with Hindalco acquiring Indian Aluminium (Indal) and Sterlite Industries absorbing Bharat Aluminium Company (Balco).

In the earlier round, Indal acquired Orissa Extrusions and Annapurna Foils, India Foils annexed Light Metal, Century Extrusions took over Sangam Aluminium and Malco Sterlite absorbed India Foils. Now, with the public sector National Aluminium Company up for privatisation, more mergers seem round the corner.

India has large resources of high grade bauxite (the basic alumina ore) deposits placing it fifth in the world after Australia, Guinea, Brazil and Jamaica. Major bauxite reserves are concentrated on the East Coast along Orissa and Andhra Pradesh. Today, India's per capita consumption of aluminium is below 1 kg. And while globally there are about 3,000 applications of aluminium, India has only around 300.The capacity for producing aluminium has increased consistently over the past few years and is now six lakh tonnes a year.

International metal prices are quoting around $1,400-1,500 a tonne. The slowdown in Chinese demand and lower consumption by western world smelters has kept alumina prices depressed, currently hovering below $135 a tonne. It is expected that prices of aluminium will stabilise around $1,550-1,600 a tonne and in the long term rise to $1,750.

The industry is classified into primary or metal producers with the integrated players dominating and secondary producers which convert the metal into semi-fabricated and value added products such as rolls, extrusions and foils.

The main primary players - Hindalco and Nalco - are now expanding capacity. Hindalco has a capacity of 2.42 lakh tonnes annually and Nalco 2.3 lakh tonnes. By picking up Balco, Sterlite has gained access to one lakh tonnes of primary metal capacity. Indal in Hindalco's fold and Malco in Sterlite's control are the other primary producers.

The industry is dominated by Hindalco, Nalco and Sterlite. Hindalco was affected by low sales volume and higher input costs in the first quarter of the current year. This saw a marginal drop in its net profit at Rs. 172 crores (Rs. 176 crores). The company also announced an all-time high dividend of 120 per cent (80 per cent).

Net sales were down at Rs. 549 crores (Rs. 565 crores) but realisations in the first quarter were up 3 per cent. Exports were lower at Rs. 68 crores (Rs. 88 crores). The company had consciously curbed exports due to domestic demand as international prices were weaker at $1,400 a tonne against $1,550 a month ago.

The brownfield expansion at Renukoot, costing Rs. 1,800 crores, is to be completed by 2003. The capex for the current year has been kept at Rs. 820 crores.

Low cost metal will in turn help Hindalco to leverage its market presence in the downstream products segment to improve sales volumes of value-added products. Hindalco's objective is to transform from being a mere `supplier of metal' to a service and solutions provider in the future.

Indal announced a net profit of Rs. 28.66 crores for the quarter ended June 2001 against Rs. 25.57 crores in the corresponding period of the previous year. Net sales for the quarter were Rs. 335.88 crores (Rs. 285.20 crores).

According to the company, improved production from most of the units along with better realisation on domestic sales were the key contributing factors.

A business turnaround resulted in the highest ever first quarter performance in sheet sales, with a 37 per cent increase in export volumes. Alumina production from Belgaum and Muri units increased marginally to 1.08 lakh tonnes (1.07 lakh tonnes) while the output of speciality alumina chemicals was higher at 20,573 tonnes (18,726 tonnes). Although foil production was lower at 1,559 tonnes (1,713 tonnes), export volumes increased by 60 per cent during the first quarter.

The company will expand Hirakud smelter capacity from 30,000 tonnes to 57,000 tonnes, initially based on grid power and shifting part of the closed capacities of the Belgaum smelter. To consolidate its foils business, it plans to raise its equity in Annapurna Foils under a proposed rehabilitation scheme.

Nalco's first phase of expansion of its alumina refinery was completed in June 2000 and capacity enhanced to 1.05 million tonnes from eight lakh tonnes. The final phase of expansion to 1.575 million tonnes was completed recently. The company has already doubled the bauxite mining capacity to 4.8 million tpa.

It is implementing a project to enhance smelting capacity from 2.3 lakh tpa to 3.45 lakh tpa by 2002. Following the capacity expansion, Nalco's alumina (powder) production will go up to 1.14 million tonnes this year from 9.40 lakh tonnes last year.

Nalco is in the process of increasing its coal-based power plant capacity from 720 MW to 960 MW in two phases - 840 MW by July 2002 and 960 MW in the second phase. The project estimated to cost Rs. 2,062 crores is being financed through debt and internal accruals.

During 2001-02, Nalco's capex will be Rs. 1,082 crores including a capex of Rs. 1,006 crores on the expansion projects. Owing to the absence of value added products in its portfolio, Nalco took over International Aluminium Products Ltd. (IAPL), a joint venture promoted by Mukand, FATA Hunter and Global Emerging Markets, and is now working towards amalgamating IAPL with it. IAPL is in the process of setting up a capacity of 50,000 tonnes of sheets in ten different sizes.

Nalco's net profit was Rs. 653.56 crores in 2000-01 against Rs. 511.53 crores in the previous year on a sales of Rs. 2406.04 crores (Rs. 2142.32 crores).

Sterlite's acquisition of Balco in March this year was in the news and the company will pay Rs. 552 crores for 51 per cent stake in the PSE. It is expected that the aluminium business (consisting of Malco and Balco) could be spun off into a separate company. Balco runs a two lakh tpa alumina plant and a one lakh tonne aluminium smelter at Korba, Chhattisgarh. It also has a 600 tonne foil plant and hot and cold rolling mills with a capacity of 3,600 tonnes at Bidhanbag, West Bengal.

Sterlite stands to gain the bauxite reserves of Balco estimated to be around 12 million tonnes and the Korba captive power plant. The acquisition makes Sterlite an integrated player right from bauxite mining (Balco) stage to downstream products such as foils (India Foils).

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