Mumbai, June 1: Aluminium majors are expected to do better in the current half, thanks to firming metal prices coupled with the increase in import duty to 20 per cent. The effect of firming metal prices on the London Metal Exchange (LME) followed by an upward revision in prices by Indian corporates is only partially reflected in the full year performance.On a rough reckoning, therefore, both Hindalco and Nalco would gain about 25 per cent and 18 per cent in their earnings right in the first half of 1997-98. Based on an average LME aluminium price of $1800, Hindalco may post a net profit of Rs 245 crore on a projected sales turnover of Rs 980 crore during April-September 1997.

Nalco may end up the same first half with a turnover of Rs 1,130 crore and net profit of Rs 285 crore.Aluminium companies have reportedly revised the prices upwards by Rs 4000 to Rs 5500 per tonne across the product range. Besides, the companies are doing away with the discounts offered last year. Nalco raised prices for all aluminium products by Rs 5,300 per tonne. Hindalco withdrew 3.5 per cent discount offered since last year and also hiked the prices by Rs 4000 on an average. Bharat Aluminium (Balco), too, gained by Rs 5000 per tonne following the price rise and withdrawal of discount and credit facilities. Madras Aluminium raised its aluminium rod prices by Rs 5,500 per tonne and discontinued the Rs 1500 discount.Aluminium companies' gain on the price front is further aided by the increase in import duty on aluminium to 20 per cent from 10 per cent. Till last year, the price differential between domestic price and rupee equivalent of the London Metal Exchange (LME) price worked out to 20 per cent which included 10 per cent import duty, freight and insurance.

This differential could widen to 30 per cent at least, say aluminium analysts. Even after the recent increase in domestic aluminium prices, the Indian metal works out cheaper than the imported one.The better price realisation would pull up earnings per share of Hindalco from Rs 52.50 in 1996-97 to an annualised Rs 65.50 for the first half of 1997-98. The same for Nalco would improve from Rs 3.72 to Rs 4.39.After last year's gloomy situation of falling prices, high inventories and increase in cheaper imported material, Indian producers now face a bright outlook with prices firming up and Nalco's stocks falling to just 700 tonnes because the importers cancelled their orders placed abroad and lifted National Aluminium (Nalco) metal. This year, however, Nalco is reportedly increasing its aluminium exports, meaning further shortage of white metal at home and Nalco's customers going to Hindalco.Nalco, however, is saddled with very heavy equity at Rs 1288 crore resulting in an earning per share (EPS) of only Rs 4 though it earns more than Hindalco in absolute terms.

The company, therefore, proposed to halve its equity through conversion of Rs 322 crore into fully redeemable preference shares and another Rs 322 crore into 5-year debt. The public sector unit plans to invest Rs 3,700 crore in expansion of mines, refinery, smelter and captive power plant during the ninth plan and 60 per cent would come from internal generation and the rest through debt.Hindalco and Nalco reported disappointing results for the year 1996-97. The market reacted to this by pulling down Hindalco by 5 per cent to Rs 887 and Nalco by 10 per cent to Rs 46.

Nevertheless, Hindalco was quicker to bounce back to Rs 930 within a couple of trading days whereas Nalco hovers around the same level.The reaction to results proved shortlived because of hardening aluminium prices on LME which recently scaled a level closer to $1700 per tonne from its bottom of $ 1280 in October, 1996. In the face of depletion in LME stocks, it is expected to firm up to an average $1800 per tonne during 1997. Domestic aluminium prices which closely move along the international prices are also expected to follow the suit.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.