More Profits From Value-Addition

The company in question is Indian Aluminium (Indal), the domestic aluminium heavyweight. Indal is the odd one out in the domestic aluminium sector, because it is the sole concern focusing on secondary or value-added aluminium products. In fact, about 65 per cent of its revenue comes from value-added products while the rest is accounted for by the commodity. This aspect helps Indal keep a sizeable distance from stif competition like market leader Nalco, Balco and Malco.

Despite the focus on secondary products, the exposure to the commodity market itself has dampened the prospects for players in the aluminium sector. With the recent downtrend in aluminium prices on the London Metals Exchange (LME), the prospects for Indian players looked bleak, because they had aligned their prices with that of the LME. But subsequently, with Nalco de-linking the domestic prices with the LME and the others following the move, the relationship has stopped being a straight-line function. Nevertheless, domestic prices continue to be comparable with LME. On the face of it, Indal is more comfortable with LME prices than the basic aluminium producers, because of its focus on value addition. Moreover, market watchers say LME prices

 

have bottomed out, and there should be a northward movement over the next two years, in line with the cyclical swings that is characteristic of commodities.

Given that prices could see some healthier trends, the current expansion will help Indal position itself almost perfectly to seep in the rising demand. Let us take a quick look at how the company is readying itself for the big bang:

First, Indal has signed a joint venture with Norsk Hydro of Norway, a global major in aluminium extrusion, to make and market aluminium extrusions and related systems in India. Beginning this year, this venture intends to pump in between Rs 80 crore and Rs 100 crore to develop facilities in the country. Intially in the western region, investments will come in later in other regions too. Estimated at about 80,000 tpa, the domestic extrusions market is expected to double in the next five years. The catch in the tie-up is that it will focus on product design, range, quality and after-sales service