Mumbai: With the continuing worldwide economic slowdown, Indal, an Aditya Birla group company, faced an extremely challenging third quarter with lower export realisations, a fall in sales of rolled products due to lack of demand growth and the impact of higher energy costs.

As a result, the company's net sales or income from operations for the third quarter stood at Rs 3,150 million, vis-à-vis Rs 3,308 million in the corresponding quarter of last year. While profits were lower, with the net profit at Rs 288 million (Rs 301 million), exports improved by 12 per cent at Rs 867 million (Rs 772 million).

The impact of an increasingly competitive semifab market and rising costs of power were partly overcome through various measures, such as improved production from alumina plants, record captive power generation and commissioning of new smelter pots at Hirakud ahead of schedule. Enriched product mix was a key value driver across all of Indal's operating units, with improved efficiencies and lower costs of production.

Nine months (April-December 2002)
While net sales and the operating revenue remained flat at Rs 9,948 million (Rs 9,980 million) for the nine months ended December 2002, exports grew by 14 per cent at Rs 2,852 million compared to Rs 2,493 million for the corresponding period last year. The net profit stood at Rs 843 million compared to Rs 895 million recorded for the same period during 2001-02.

Operational highlights:
Nine months: April to December 2002

Chemicals
Both the alumina plants delivered a record output, totalling 358,050 tonnes for the nine month period, an increase of 6 per cent (338,450 tonnes), with a 17-per cent increase in output of speciality alumina. While the company was able to improve operational efficiencies, enhance product-mix and achieve a lower cost of production, external factors such as low international price of alumina, impacted performance.

Increased output of speciality alumina from Belgaum helped in increasing overall chemicals sales by 19 per cent at 241,821 tonnes (203,101 tonnes). A 30-per cent increase in export volumes of standard alumina and hydrate at 132,151 tonnes (101,643 tonnes), helped maintain revenues in the face of falling prices.

Aluminium
Commissioning of the expanded facilities at Indal's Hirakud smelter ahead of schedule contributed to higher metal output at 34,726 tonnes (33,386 tonnes), thereby bridging some of the earlier production shortfall caused by disruption in operations due to the cyclone which hit the plant in the first quarter.

The company's captive power plant at Hirakud registered a strong performance during the third quarter, helping it achieve an average PLF of 86.4 per cent for the nine months, with power generation of 384.7 MU (408.8MU). With the continuing capacity overhang in the domestic semifab market, Indal's sheet plants at Belur and Taloja recorded a lower output of 49,440 tonnes versus 53,267 tonnes in the same period last year.

The fierce competition held back domestic sheet sales at 28,532 tonnes (36,373 tonnes), though realisations could be maintained through enriched product-mix. The conscious thrust on exports gained further momentum with volumes rising a significant 40 per cent at 11,628 tonnes (8,294 tonnes) and 36 per cent increase.

The combined foil output from Kalwa and Kollur stood at 6,809 tonnes. Kalwa's production in million square metres registered a 27-per cent increase, reflecting the strategic focus on high value products with an improved mix and realisation. Overall sales improved by 29 per cent with the inclusion of Annapurna Foils. However, severe price erosion in some critical user segments impacted the Kalwa plant output and profitability.

The performance of the extrusions unit at Alupuram has been noteworthy. Production improving at 6,935 tonnes is up by 15 per cent (6,056 tonnes), backed by better product-mix, improved plant efficiencies and lower cost of production. Domestic sales improved both on volume and realisation at 6,598 tonnes (5,176 tonnes) with a 25-per cent increase in exports at 561 tonnes (450 tonnes).

Outlook
Global economies of the US and Europe have initiated steps through financial packages and interest rate cuts to facilitate economic recovery. Some marginal growth has been recorded in Japan, while the Chinese economy has faired reasonably well.

With international aluminium prices bottoming out at $1,330 per tonne during December 2002, and currently ranging around $1,350 per tonne, analysts do not foresee any significant growth in global aluminium consumption till mid-2003. Recent strikes at the Venezuela alumina refinery along with a return of Chinese buyers, has reflected in some rise in alumina prices, currently ranging around $170-180 per tonne.

On the domestic front, earlier fears of drought affecting the domestic market have since been allayed and analysts expect a gradual and steady recovery of the domestic industry from April 2003. Taking the global scene into account, the domestic industrial sector is expected to post a growth of around 4-5 per cent during 2002-03. In tandem, the domestic aluminium consumption is expected to record growth of around 4 per cent during this fiscal.

The Indian government, however, has been a bit more optimistic and the midterm review of the Monetary & Credit Policy by the Reserve Bank of India (RBI) has indicated a gross domestic product (GDP) growth of around 5 to 5.5 per cent during 2002-03.

Brownfield expansions among most major domestic producers will reflect in higher production during this fiscal. However, continuing slow consumption growth on the domestic front has diverted Indian aluminium producers towards higher exports which are likely to rise by around 25 per cent by the end of this financial year.

Notes:
1 (a) The results for the nine months ended 31 December 2002 include the operations of the erstwhile Annapurna Foils Limited (AFL) consequent to its merger with the company with effect from 1 April 2002, in terms of the order dated 8 March 2002 (the order) passed by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). The available carry-forward tax allowance of AFL has been considered for tax provision.

(b) Pursuant to the order sanctioning the scheme of merger of the erstwhile AFL with the company, 145,149 ordinary shares of Rs 10 each were issued to shareholders of the erstwhile AFL who had exercised the option for the allotment of shares of the company. Further cash payment of Rs 2 per share of AFL has been made: (i) towards resultant fractional shares (ii) to shareholders opting for cash and (iii) to shareholders not exercising any option.

(c) At the hearing held on 24 December 2002, the AAIFR noted that the merger of the erstwhile AFL with the Company had been fully implemented.

2. Expansion of smelting capacity at Hirakud, Orissa, by transfer of electrolytic pots from Belgaum, Karnataka, is progressing in stages as per schedule.

3. Work on expansion of power generating capacity at Hirakud, Orissa, together with developing a coal mine near Hirakud for captive use is also progressing in stages as per schedule.

4. The other income includes a sum of Rs 29.2 million being compensation awarded by the National Highways Authority of India for acquiring some land at Belgaum, Karnataka, for widening the National Highway 4 under the National Highway Act.

5. Hindalco Industries (Hindalco) along with its subsidiary, Renukeshwar Investments & Finance, acquired 13,902,761 ordinary shares during the period October-December 2002. These shares were acquired pursuant to an open offer and open market purchases in terms of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997. Consequently, the promoter shareholding in the company stands increased to 67,631,212 ordinary shares representing 94.91 per cent of the company's paid-up share capital.

The above results for the nine months ended 31 December 2002 have been approved by the board of directors at their meeting held on 23 January 2003.