INDIA BUSINESS WORLD - JULY 2006
THE MONTH THAT WAS...

HINDALCO PROMOTERS TO INCREASE HOLDING 5%

THE PROMOTERS of Hindalco, Kumar Mangalam Birla, his family and associates, will hike their stake in the company by 5% as low share prices and the fear of hostile raids spur promoters across the country into adopting defensive strategies.

 “On whether the promoters are planning to increase their stake, I would say, yes...through the creeping acquisition route,” Mr Birla said while answering a shareholder's query at Hindalco's annual general meeting in Mumbai on Friday. “We plan to continue our method of increasing (promoter) stake for the next two to three years,” he added.

The Birla family now own 25.9% in Hindalco , India 's largest metals producer which also has considerable interests in mining in the country and overseas.

Assuming the current rates and the existing valuation of 12 times, the promotes may have to pay about Rs 2,700 crore for the next three years to shore up their holding in the company. However, this figure can change if share prices and valuation fall further.

Regulations stipulate that promoters can buy shares of their companies from the open market only to a limit of 5%, in a year. Mr Ratan Tata, chairman of the Tata group, recently said the Tata family plans to increase its holding in Tata Steel to thwart any threat of a hostile takeover. The Tata group, like the AV Birla group, has traditionally held low stakes in its group companies.

Many Indian business families are taking wary look at their stakeholdings in key group companies. A combination of low share prices and the hostile intentions of predators could prove lethal to their interests, they feel.

“It is better to be safe than sorry,” Sajjan Jindal, vice-chairman and managing director of JSW Steel, India's thirdlargest steel maker, said recently, while announcing plans to increase family holding in JSW Steel to 49% from about 45%. Mittal Steel's takeover of Arcelor has added to the nervousness of promoters, especially in the steel sector.

Hindalco, posted a 59% jump in net profit for the quarter to Rs 601.5 crore helped by expanded volumes and sales. Revenue soared 94% to Rs 4,273 crore. The aluminium business of the Aditya Birla group company recorded Rs 712.5 crore in profits, and the copper unit tripled revenues to Rs 2,621.7 crore. “Copper gained on account of higher TC/RC (treatment and refining charges) and expanded volumes, though sustained high energy prices continue to be a constraint,” said a company statement.

The company is currently expanding its manufacturing capacity and also looking for acquisition opportunities, especially in mines, in a bid to control its raw material costs. “We would like to own 40% of our raw material costs,” said Kumar Mangalam Mr Birla. The company currently owns about 25% of its raw material requirements..