The impact of higher realisation is reflected in their rising bottomline, and with prices remaining firm, this trend is likely to continue. And the stock market have no option but to follow the rising profit charts, and act accoringly. Two weeks ago, the share prices of main players - Hindalco, and National Aluminium touched their all-time high.

Hindalco as well as Nalco have been able to encash the boom in aluminium prices well. For example, for the second quarter, July-September 1999 period, Hindalco has achieved a sales of Rs 515.7 crore - highest ever sale in a quarter, which was up by 15 per cent from Rs 445.6 crore achieved in the corresponding period in the previous year. Over its immediate quarter (April-June 1999), sales have shown a 7.79 per cent growth. At the same time, there has been an impressive growth in operating profit margins. During the first quarter, OPM stood at 44.56 per cent. This has further improved to 45.97 per cent during the second quarter.

For the year ended March 1999, the company had showed a sales of Rs 1767 crore, and OPM was at 44 per cent. With an average jump of over 15 per cent in realisation, the figures are expected to be very impressive in the near future. Besides rising realisation, higher value-addition has also helped Hindalco to improve quality of earnings. Lower interest burden also provided a boost to its bottomline.

For Nalco, the position was equally impressive. The sales figure recorded a jump of 44 per cent to Rs 1455 crore during the first nine months of 1999-2000. At the same time, the net profit showed a jump of 106 per cent to Rs 335 crore crore as against Rs 162 crore in the corresponding period in the previous year. The jump in net profit was certainly impressive if one were to compare a drop in other income which dipped from 96.28 crore to Rs 86.18 crore. As percetage of PBT, the share of other income has fallen from 41.67 per cent to 19.32 per cent, indicating a major improvement in quality of earnings from the main opeartions.

Apart from rising aluminium prices in international as well as domestic markets other things also favoured these two players. For Hindalco, last year, the company decided not to go ahead with its Aditya Aluminium project, a Rs 8000 crore greenfield project. This eliminated fears of an equity dilution by the company.

For Nalco, the good news was in a form of financial re-structuring. The company has converted its 50 per cent equity (Rs 644.31 crore) into debt, reducing the equity to more managable level of Rs 644 crore. This has provided a major boost to its market discounting, besides helping market sentiment for the stock.

As for future, the outlook for both these companies is bright. The demand from the automobile sector will continue to keep aluminium prices up in both international as well as in the domestic market. Besides, being cost competitive players would also come in very handy for both these players to take full advantage of rising realisation, and higher offtakes.

In the case of Hindalco, expectation of a bonus issue or a buy back would be fair especially when the company is doing extremely well, and the prospects for the aluminium sector is bright. The company has a strong book value of Rs 437. The last time the company issued a bonus was in 1996. As for discountings, on the latest earnings, the earnings per share stads at Rs 80 (annualised) which gives the scrip a price multiple of just 10. While this discounting may be fair for a commodity stock, Hindalco which is one of lowest cost producer in the world, certainly deserves a better discounting.

Overall, its a good stock. While fundamentals favour both these companies, from technical point of view, Nalco is better placed than Hindalco. The stock has a good support at Rs 70 which can be used as a reference point by medium term players. If it dips below this level, the short-term player can think of getting out. As for Hindalco, the stock has a support at Rs 760, and below this level, the short term players should make an exit.