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BALCO sale to sharpen competition

The government's decision to sell a majority stake in aluminium maker Bharat Aluminium Co (BALCO) will sharpen competition among the country's three major metal producers, but will not impact aluminium output near term, analysts and officials said on Thursday.

The government on Wednesday sold off a 51 per cent controlling stake in BALCO to private copper and aluminium maker Sterlite Industries for Rs 5.51 billion, wrapping up this year's first big-ticket privatisation.

"This move will sharpen competition and if Sterlite can put some money for modernisation they can give the others a run for their money," A C Wadhawan, former chairman of state-run Hindustan Zinc Ltd, said.

India is almost self sufficient in aluminium with domestic production of nearly 618,000 tonnes a year.

BALCO, whose equity capital stands at Rs 2.44 billion, has its own mines, smelter and refinery and produces about 15 per cent of India's aluminium output.

Following the acquisition, Sterlite is set to become India's third-largest aluminium producer after Hindalco and state-run National Aluminum Company Ltd.

It is also set to nearly quadruple its capacity to 130,000 tonnes, behind Hindalco's 242,000 tonnes and NALCO's 230,000 tonnes.

BALCO runs a 200,000 tonne per annum alumina plant and a 100,000 tonne aluminium smelter at Korba in central India.

NO IMPACT ON OUTPUT

Analysts said BALCO's change in ownership would not affect total output because the company was producing to full capacity and profit-wise was performing reasonably well.

"Overall production will remain the same", said Prem Nath, manager, base metals, at the Bank of Nova Scotia.

S B Naik, director (production) at NALCO, said both BALCO and Hindalco would not be able to compete with NALCO because of their high cost of production due to raw material and logistical problems.

But a director of Sterlite said BALCO filled a gap in the group's aluminium product portfolio.

"BALCO fills in the gap in the Sterlite Group's aluminium product portfolio with regard to certain varieties of rolled products," Navin Agarwal, director of Sterlite Industries, said in a statement.

"With this the value chain from bauxite to high value added foils is complete," said Tarun Jain, the firm's finance director.

Sterlite had in 1995 acquired Malco, a primary integrated aluminium producer, and India Foils Ltd which produces value-added foils. Sterlite also has its won foils and conductor business.

METALS PLAYER

A business daily quoted Sterlite Group chairman Anil Agarwal as saying that the acquisition would serve the companies long-term strategies to be a significant player in metals.

The company already has interests in copper and has bid for a 26 per cent stake in Hindustan Zinc Ltd, one of the firms in which the government wants to divest its stake.

Analysts said Sterlite will have to infuse funds to modernise Balco's operations and emerge as a market leader.

"BALCO's technology is very old, they need to upgrade it and need to shed excess manpower," said Prem Nath at the Bank of Nova Scotia.

He said the acquisition was in line with the worldwide trend of consolidation in various businesses.

Nath said Sterlite had turned around the loss-making Malco within a year of taking it over and had the funds to make investments in BALCO because it was a cash-rich company.

Wadhawan said Sterlite will have to develop BALCO's bauxite mines, modernise the smelter and go for value addition.

"Sterlite had hiccups when they started with their copper plants. They have now steadied their operations and have managerial competence," he said.

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