Our Bureau

Kolkata, Aug. 18

Hindalco Industries finished down 4.53 per cent with surge in traded quantity. Other base metal players, such as Nalco, closed flat, while Sterlite declined by 1.5 per cent.

According to market sources, the equity dilution plan through rights issue at a discounted price of Rs 96 per share in the ratio of three shares for existing seven has exerted pressure on the counter. The stock closed at Rs 129.65 on the BSE with a traded volume of over 19 lakh shares against the fortnightly average of around 8 lakh shares.

According to analysts, considering the ratio, the actual valuation per rights shares comes to around Rs 108.

Analysts pointed out that the current decline in valuation is short term and to an extent specific to the rights valuation also. “Fundamentally, the base metals, particularly aluminium, are also facing a slowdown in global demand and a downward correction in prices. But this is temporary in nature. Historically, we have found that around the time of Olympics, profit-booking causes slide in commodities. Currently, liquidity is flowing into other assets, including some bets on Olympics events,” said Mr Ajay Jaiswal of Microsec.

According to Mr Gul Teckchandani, an equity strategist, at the macro level, the present weakness in aluminium is short-term and provides long-term opportunity in the base metal stocks.

Grasim tunrs weak

Grasim Industries, which has 2.39 per cent stake in Hindalco, lost 4.68 per cent. According to market sources, decline in Grasim, a cement player of the group, was in line with the overall negative sentiment witnessed in the market for cement stocks on Monday. Ambuja Cement lost 5.32 per cent, India Cements declined by 4.41 per cent, Prism by 5.39 per cent, Mysore by 3.99 per cent and ACC by 2.5 per cent.

Interestingly, Aditya Birla Nuvo, which has 1.68 per cent stake in Hindalco, finished in the green.

According to analysts, the Hindalco rights issue subscription would cost Grasim around Rs 120 crore, which could be seen as positive from the long-term investment perspective.

According to sources, Edelweiss recent exit recommendation for the cement sector and recent slump in demand from the real estate and infrastructure sector has lent weakness to the cement stock.

According to Indiabulls, outlook for the company’s core segments — Cement and VSF — is not very optimistic. Demand for VSF has reduced due to higher prices and sluggishness in textile demand from the US. For cement, the Government’s price control policies and an expected excess supply scenario are likely to continue pressurising the realisation rates. Moreover, with increasing raw material and fuel costs, cement margins are likely to reduce further.

“All told, we anticipate the company’s margins to remain under pressure in the short-to-medium term. However, the new captive thermal power plants and conversion of the paper-based pulp plant to rayon-based pulp is expected to stem the fall in margins to some extent,” according to Indiabulls.

(This article was published in the Business Line print edition dated August 19, 2008)
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