Nalco may be taken out of disinvestment calendar

Government of India may take out state-owned aluminium major Nalco from the disinvestment calendar for the current fiscal over fears that a volatile capital market coupled with sluggish commodity prices may sharply erode the Centre’s earnings from the proposed 10 per cent stake sale in the company.

Highly placed sources in the mines ministry said that the department of disinvestment has been told that the current conditions would not fetch a good valuation for the company and the issue should be deferred to next year.

Government has included Nalco among a list of about 20 companies for disinvestment in current financial year to raise a targeted INR 41,000 crore.The decision to defer the issue has been taken in the wake of a sharp erosion in the value of shares on bourses. The company’s share price has fallen from a level of INR 68.80 a piece in September last year to INR 33.55 on BSE at the close of market hours on Monday. At current rates, the Nalco disinvestment would fetch the exchequer a mere INR 865 crore, or roughly half of what it would have got in September, 2014.

The company, which has reported a 40 per cent decline in its net profit at INR 163.44 crore for the quarter ended June 30, 2015, has also witnessed in market capitalization eroding sharply over the last one year from a level of INR 17,731 crore in September last year to just about INR 8,647 crore at close of market hours on Monday.

The government’s plan to defer Nalco share sale comes at a time when the aluminium sector in India is facing one of its worst crises. Anil Agarwal-controlled Vedanta Resources has already initiated the process to shut down its one-million tonne a year alumina refinery at Lanjigarh to prevent the unit from becoming a dead asset.

“The global meltdown of aluminium prices has also made domestic operations unprofitable with producers losing $ 200 per tonne on production of aluminium. This is becoming unsustainable,” said Abhijit Pati from Aluminium Association of India (AAI).

Domestic producers, Vedanta, Hindalco and Nalco are also facing erosion in their margins in the wake of a depressed aluminium market and the onslaught of cheap imports. The capacity utilisation by the industry is just 50 per cent with production touching just 2 million tonnes (mt) in financial year 2014-15 though an installed capacity 4.1 mt exists. In the last three years, aluminium prices on the London Metal Exchange have come down by 35 per cent to $1,660 per tonne in June, 2015 from a peak of $2,555 per tonne witnessed in June 2011.

Government officials quoted earlier said that along with Nalco, department of disinvestment (DoD) may consider postponing its divestment plans in a few other metal and mining companies such as SAIL, MMTC, NMDC and Hindustan Copper in wake of sharp erosion in their share prices and an overall deterioration in their financial performance. The DoD is, however, betting on disinvestments in NTPC and Coal India to reach closer to the targeted earnings for 2014-15.