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Corporate - Mergers & Acquisitions


Hindalco to gain from merger in long term

Latha Venkatraman

Mumbai , Aug. 24

THE merger of Indian Aluminium Company Ltd (Indal) with Hindalco Industries Ltd is seen as a logical procedure to its acquisition four years ago and may show very little tangible benefits at the current juncture but could augur well in terms of long-term growth prospects, analysts and industry sources say.

"In terms of cash flow there will none that will come Hindalco's way because of this merger," said an analyst.

As Hindalco already holds nearly 97 per cent stake in Indal it has been able to garner benefits from the subsidiary over the last four years.

While a section of analysts and market players may be sceptical about the benefits this merger will bring to Hindalco, the overwhelming opinion is that there is long-term gain for the aluminium and copper major.

The stock market has seemingly endorsed the merger as is evident in the share price of Hindalco. It ended Rs 20.10 higher at Rs 1148.65 on the Bombay Stock Exchange.

"The move to merge Indal with Hindalco is a prudent decision. Merger definitely allows for better integration of business. Now Hindalco can focus on value addition," said another analyst.

Hindalco Industries had reported a marginal improvement in its net profit at Rs 195.3 crore for the first quarter of 2004/2005 as compared to Rs 193 crore in the year-ago period. The flat growth in bottomline was primarily because of poor performance of its copper business. EBDITA margin for copper fell to 7.4 per cent from 17.7 per cent because of a decline in prices and TCRC as well as reductions in duties.

However, this scenario could change, as copper is poised on an upward growth going forward, an analyst said.

Much of the growth for Hindalco is not merely confined to India but extends to the overseas market, especially the Asian region.

According to Mr Debu Bhattacharya, Managing Director, Hindalco Industries Ltd, the company is now clearly poised to capture the growth in both aluminium as well as copper in the Asian region. "Growth is much closer home for both metals. China is a very big market and then there is West Asia and South East Asia," Mr Bhattacharya said.

"Even if growth were to be a modest 3-3.5 per cent in both these metals there is enough market to cater to," he said. He referred to a study undertaken by the company on the price trend for both copper and aluminium over the last 100 years.

"This 100-year trend clearly shows that a 3-3.5 per cent growth is guaranteed," he said.

Currently, annual aluminium requirement worldwide stands at 30 million tonnes and copper requirement at 16 million tonnes.

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