Slump In Metal Prices To Affect Hzl, Hcl Valuation
The downturn in the international metals market is likely to affect the divestment process of Hindustan Zinc Ltd (HZL) and Hindustan Copper Ltd (HCL). The slump in international prices has affected domestic prices thereby affecting the profitability of these companies, analysts said.
Last year, when the government started the disinvestment process, metal prices were ruling at modest levels. In the current fiscal, when the privatisation of HZL is likely to be completed, the metal market has seen a downturn.
While the intrinsic value of the companies will not be effected, the valuation by the bidders will be at least partially affected by the market conditions at the time of sale. This means that the government may realise a lower amount from selling its stake in these companies.
HZL, where the privatisation process is in a fairly advanced stage, is expected to report losses for the current financial year on account of a sharp fall in domestic zinc prices. HZL has been reporting an annual profit of over Rs 70 crore between 1997 and 2000.
In 1999-2000, the company reported a net profit of Rs 90.42 crore. HCL, which has been incurring losses for the past few years due to a sharp fall in copper prices, will also be adversely affected. In 1999-2000, the company reported a loss of Rs 147.46 crore.
The slowdown in the US, the recession in Japan and the inflationary jitters in the European Common Market have resulted in a multi-year low index in the London Metal Exchange (LME) which is the bell-wether of the global metal trade.
Copper prices have touched a two-year low while prices of zinc and tin are currently quoting at eight-year lows on the LME. Copper prices had plummeted from an all-time high of around $2,500 per tonne on the LME in 1995 to around $1,300 per tonne in 1999.
They are currently ruling in the range of $1,200-1,250 per tonne.
The slowdown in the Indian economy too has led to a fall in domestic demand for base metals. While zinc production has fallen by 51 per cent in April 2001 as compared to March 2001, copper production has dropped by 15 per cent over the same period. Currently, the domestic price for copper is Rs 119 per kg and for zinc Rs 78 per kg.