The Hindu Business Line : Divestment interest in Nalco looks strong

IS the scrip of National Aluminium Company (Nalco) undervalued? The scrip, which has become upwardly mobile since January 30, in the wake of the proposed divestment, closed at around Rs 76 in the major bourses on Thursday. In the last fortnight, it had fluctuated between Rs 53 and Rs 85.

The forthcoming divestment would be through offloading 25 per cent of Government stake via ADR/GDR route and the 5 per cent in the form of a public float through the book-building route in the domestic market. However, the Government is yet to indicate the timing of the ADR/GDR issue.

According to analysts in the stock and metal markets, the valuation will be inextricably linked to the prevailing aluminium outlook on the London Metal Exchange. Current LME price trends show a flattish movemenet. The alumina price at LME is currently hovering just above the 50-day moving average of $1,382 a tonne and below the 200-day moving average of $1,405. However, internationally there was no production cutback in place. In the past 52 weeks, the average price was $1,431.5, while the low was $1,259 and the high $1,608.

Brokers pointed out that Nalco saw its recent bottom at Rs 37 on October 5, while Hindalco witnessed the trough at Rs 500 on September 26. Indian aluminium majors touched recent lows almost at the same time as LME alumina/aluminium prices hit their bottom.

``Going by the price spurt from the recent respective bottoms of Nalco and Hindalco, one feels the divestment expectation has been driving up the prices of the Nalco stock more than the Hindalco stock, which has the buyback trigger'', Mr Ajay Jaiswal of Lohia Securities observed. Hindalco is currently ruling around the level of Rs 755.

Nalco's EPS for 2000-2001 stood at Rs 10.18, while Hindalco's at Rs 91.05.

``Considering the capital employed factor in Nalco and Hindalco, the recovery in stock prices of the companies is slightly disproportionate in Nalco's favour,'' Mr Jaiswal pointed out. Nalco has an equity capital of Rs 644.31 crore, while Hindalco Rs 74.47 crore.

The current market capitalisation of Nalco is around Rs 4867.76 crore, while Hindalco's is about Rs 5521.35 crore. Interestingly, Balco's divestment was valued around Rs 1,100 crore. Considering that Nalco's capacities are significantly higher than that of Balco, the current market capitalisation of Nalco is marginally higher than Balco's valuation.

``Balco's valuation co-relatives could only serve as the lowest minimum benchmark for Nalco. There will be room for higher valuation if one takes into account that ADR/GDR issue is expected to be few months down the line, when LME prices may firm up. Moreover, the total divestment in Nalco would be spread out over the 2002-2003 fiscal and markets would tend to take stock of the prevailing realities vis-a-vis the Nalco scrip,'' a market analyst pointed out.

According to indications, after the ADR/GDR and home floats, the Government would make further divestment to a strategic investor, which would then be followed by a 20-per cent open offer.

The market expects both the scrips to move up in the near future with the likely improvement in the global aluminium sector.

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