In tune with global sentiments, Indian investors, too, are pushing both Indo Gulf Corporation Ltd (IGCL) and Sterlite Industries (India) Ltd to their respective 52-week peaks. Between these two Indian copper manufacturers, however, the gain on the IGCL counter has been more pronounced, with the scrip nearly trebling from its all-time low of Rs 18 in April this year to the present Rs 53 a piece. On the volume front too, the IGCL scrip has witnessed hectic trading in the last two months.

Significantly, during the period between October 1998 and April 1999, the scrip had only moved in a narrow range between a high of Rs 31.70 and alow of Rs 18 per share. In the 7-month period, the IGCL scrip notched up a cumulative volume of 143.53 lakh shares in 25,938 trades over 138 trading days on BSE, at an average of 1.04 lakh shares a day.

Come May 1999. In just two months, IGCL's market price more than doubled. Volumes also surged. In this period, the IGCL scrip recorded a cumulative volume of 223.08 lakh shares in 29,460 trades spread over just 43 trading days. The resultant average volume per day in this 2-month period stood at a whopping 5.19 lakh shares! And, in June, the aggregate volume almost eclipsed the cumulative volume for the 7-month period ending April 1999!It cannot be missed that the sudden surge in price and volume has come in the wake of IGCL announcing the commissioning of its Rs 1,850 crore copper smelter in March this year, within just 28 months from the zero-date, that too, reportedly without any cost overrun! The company's operational data for fiscal 1999 has reflected the contribution of copper manufacturing activity,with turnover leaping to Rs 1559 crore from Rs 637 crore in the previous year.

Though the growth in bottom line was only 16 per cent to Rs 164 crore, it was understandable as it was only the first year of operation of the smelter. Before the copper smelter came along, urea manufacturing was the mainstay of IGCL since 1988, when it implemented the fertiliser project at a cost of Rs 720 crore. Because of the strategic importance of the fertiliser industry in the Indian economy, it has always remained within the clutches of governmental regulation. So much so, that IGCL's capacity for the manufacture of ammonia and urea stayed put at 1,350 tpd and 7.6 lakh tpa respectively for the last ten years.

Though IGCL's fertiliser capacity did mean a world-scale plant, ideally, the company would have liked an expansion in the same. However, given the erratic supply of natural gas, the main feed stock for fertiliser production, even after factoring in the upgradation of its plant to handle naptha as an alternativefeedstock, expansion was not a viable proposition for the company. And, there were other irritants as well. For one, because it is a politically sensitive subject, there was, and is, no clarity in government policy on the deregulation of urea. For another, the norms for Retention Pricing Scheme (RPS) on urea are not well-defined.

Therefore, when IGCL charted out its diversification plans into the copper industry in i996, it was more out of frustration than due to the prevailing demand-supply gap in copper. Now, however, with IGCL having built up impressive capacities in copper and by products, its copper division is all set to engulf the fertiliser division by the sheer size of operations. At last count, the company has an installed capacity to manufacture 1 lakh tpa copper cathodes, 1 lakh tpa cast copper rods, 2.85 lakh tpa sulphuric acid and 1 lakh tpa phosphoric acid.

While the continuous cast copper rod plant and refinery were commissioned in fiscal 1998, and the smelter just three months ago, IGCLcommitted a major goof-up in respect of its phosphoric acid plant. In October 1998, while announcing its unaudited financial results for the quarter ended September, IGCL stated that the "phosphoric acid plant has gone on stream in the second half of October 1998". However, only months later, when the company's next quarter results came along in January 1999, the phosphoric acid plant that had "already gone on stream" was stated to be "under commissioning"! Our efforts to ascertain the correct position from the company did not bear fruit. Coming as it did from one of the flagships of the highly rated Aditya Birla group, the faux pas stood out like a sore thumb!

As for the future, IGCL has plans on the anvil to up the copper capacity by another 50,000 tpa in fiscal 2001 at an estimated cost of Rs 350 crore. However, this will depend on the increase in demand for copper by that time. In turn, the growth in the telecom and power sectors would largely determine the future of copper.

For the moment though,IGCL's shareholders can look forward to ride on the copper card. On an equity of Rs 206 crore, its EPS for fiscal 1999 works out to Rs 7.50. With IGCL's copper plant slated to operate at a higher capacity in the current fiscal, there is enough hope for a higher bottomline. On the basis of IGCL's shareholding pattern, with the promoters (including PICUP), financial institutions and GDR holders accounting for a cumulative 65 per cent, the floating stock works out to around 35 per cent, half of which is held by FIIs. Though present volumes in the IGCL counter have been on the increase, in the backdrop of the huge equity base and an acceptable floating stock, the price rise cannot be entirely put down to speculative activity.

In fact, in recent times, the foreign institutional investors are reported to have stepped up their purchases based on their `re-rating' of the scrip. While nothing can be said as to how long the party would go on, as long as it does, it can only mean good to the company'sshareholders.

(E-mail feedback to investar@bol.net.in) (Arranged by Investar - The Aarthik News & Research Syndicate)