• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Krishnan Thiagarajan

SHAREHOLDERS of The Madras Aluminium Company (Malco) may bid at an indicative price band of Rs 260 per share to Twinstar Holdings offer to buy out the equity held by non-promoters and voluntarily delist the equity shares from the BSE.

It will be prudent for retail investors to put in their bids nearer the bid closing date of March 18, as domestic and foreign institutional investors together hold 15 per cent of the 20 per cent equity held by non-promoters. This will help them monitor their levels of participation in the bidding process to be held between March 14 and 18, which will be available on the BSE Web site.

Rationale for pricing: At the indicative price of Rs 260, the valuation of Malco works out to 13 times its annualised per share earnings (adjusted partly for deferred tax) of Rs 21 for 2004-05. This price factors in an earnings growth of about 20 per cent for Malco over the next two years. This growth rate appears reasonable as the firm international price trends for aluminium and robust volume growth will keep the operating margins of Malco above 25 per cent.

The average aluminium realisation in 2004-05 is likely to be higher, as international aluminium prices have remained above $ 1,800 per tonne compared to $1500 a year ago.

This valuation is also justified as it falls at the upper end of the price-earnings multiple band of a pure aluminium company such as National Aluminium Company. Based on the current market price of Rs 230, the indicative premium works out to about 12.5 per cent. The market price is also substantially higher than the floor price of Rs 181 set by the company.

Background: Malco is a part of Vedanta Resources Plc. Group. Vedanta Resources Plc. is listed on the London Stock Exchange. This reverse book-built offer follows the group's desire to consolidate the group structure (which includes Sterlite Industries and Hindustan Zinc) by increasing ownership in its underlying businesses.

Operating out of Tamil Nadu, Malco has aluminium smelting capacity of 40,000 tonnes and refining capacity of 80,000 tonnes. For the half-year ended December 31, 2004, Malco reported revenues of Rs 168 crore and post-tax earnings of Rs 16.8 crore (including a deferred tax component of Rs 10.7 crore.

If the public shareholding falls below 10 per cent, Twinstar Holdings (part of Vedanta Resources Plc.) proposes to apply for delisting the shares of Malco.

The price discovery to arrive at an exit price will be done using the "reverse book-building" process mandated by SEBI. The exit price will be the price at which the greatest number of shares is tendered.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Madras Aluminium: Bid at Rs 260

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line