A13 Non Ferrous Metals

Group Members:




Space for evaluation and remarks by Faculty


Remarks
Hind Zinc and Gujarat Introflux show outlier interest rate position needs recheck or explanation of
the phenomenon.

Focus is conservative, the way it needs to be.

Marks/Grade Assigned









Signature of Faculty



A13 Non Ferrous Metals

Industry Rating: Non Ferrous Metals
Factor Score Rationale
Demand Supply Gap 4
Demand growth stable and high, but strongly linked with economic
growth
Government Policy 4
100% FDI, Low Production efficiency
Extent of Competition 5
Highly concentrated, monopolistic industry eg Hindalco, Sterlite,
Nalco
Supply Side risks 2
Scarce input availability and mining related risks
Return On Capital Employed 3
Average RoCE is 17.62%
Operating margins 6 Average Op. Margin is 31.8%
Variability of operating margins 5.5
Volatility is 5.3
Growth in Operating Margins 2
Avg. growth in operating margin is -0.79%
Rating 3.9375 Marginally Favourable
Qn1 Workings:
MyCRA Industry
Rating.xls

Key Characteristics & Risk Factors: The most important environmental factors affecting the industry
favourably and adversely
Cost of undertaking trade and retaining profits: The rising burden on costs is mainly due to the higher wages
due to pay revision of Public sector workers and employing and retaining talent for the private sector has had its
effects on the bottom line. Increase in land acquisition costs, royalty rate and inefficient system of operation are
all adding up to the reduced profit level.
Global context: Certain global challenges laid out are imposing super profit taxes, resource rents, fees of
licensing, levies on environment and certain quotas have left the non-ferrous metal industry in disorder.
Shortage of qualified professionals in this industry is also a major cause of concern. This global context affects
the industry in an adverse way.
Regulatory pressure: Certain important regulations that come into play are due to the land acquisition bill,
MMDR amendment bill and the relief and rehabilitation bill. All these levy heavy pressure on the regulatory norms
surrounding the non-ferrous metal industry.
Growth of other emerging countries: The growth of other emerging economies with lower energy prices, lower
social and lower environmental costs have become a huge factor of competition. India is constrained by the
regulatory factors and also the availability of abundant resources in this industry and this is the turn of certain
other economies to capitalize on these gains that they possess.
High local demand: The main forte of the non-ferrous metal industry has been the high local/domestic demand
that has been generated by the usage. This has led to the companies in the industry overcome various
A13 Non Ferrous Metals

regulations to produce such metals. The per capita consumption of Aluminium has improved from 0.5 kg to 1.3
kg presently.
Advancement by Indian companies: Certain parameters that contribute in this front are the rapid capacity
expansion of input minerals, emerging indigenous industrial expertise and also effective cost reduction
techniques. These contributes to the heavy competition in the industry. In addition, this segment is seen as a
potential for heavy investment and good returns by many private players who have begun investing in this
industry.
Past performance Recent Developments and Trends and outlook: short (one year) and medium (two to
three years) term outlook for industry.
The heavy regulations of the government has laid heavy constraints on the different companies (public and
private). Though the per capita consumption has increased for these metals, in comparison to the global
scenario it is on a miniscule level. This does not provide high demand from the local market. The production of
non-ferrous metals have fluctuated in spite of a heavy demand in the local market. This has led to the decrease
in the growth pattern of the various companies. One of the important concept that has played a major role in this
industry is recycling. The advantage of the non-ferrous metals is their ability to be recycled. A large number of
new players are beginning to set up units in order to capitalize on this opportunity. Scraps are being considered
as the input for these companies. This is an emerging trend in this industry which further supplements the
industry. Certain important parameters that will gain importance over the next three years are: maturity of the
industry and the value chain, high rate of recovery from scrap, high skilled force, development of technology etc.
Main locations in India for the industry.
Hindalco: Mumbai, Aluminium and Copper
Nalco: Orissa, Aluminium
Sterlite: Tamil Nadu, Copper
Vedanta: Mumbai, Aluminium, Copper and zinc


Identify top and bottom (three to five) companies in the industry on the basis of observed financial
parameters. ((Tol/TNW, CR, NCFO/Total outside liabilities, Bank Borrowing, Average Interest Rate,
Commission etc. paid to banks, Ratings if available)
Top 3 Companies TOL/TNW CR NCFO/TOL Bank
Borrowing
Average
Interest Rate
Hind Copper 0.322 2.24 0.761 0 0
Hind Zinc 0.0988 3.56 1.49 0.39 74.61
Gujarat Introflux 0.375 2.988 0.431 1.87 29.94

Bottom 3
Companies
TOL/TNW CR NCFO/TOL Bank
Borrowing
Average
Interest Rate
Nissan Copper 0.50 3.53 0.04 180.02 13.67
BilPower 1.38 2.62 -0.04 96.38 20.31
Baroda Extrusion 3.23 0.72 -0.555 41.83 14.53
A13 Non Ferrous Metals

Focus for your bank total quantum of financial exposure proposed: Identify companies (at least one
per group member) other than the ones mentioned above that can be good target market for the bank
and their financial requirements. Based on this, how much financial exposure your bank can budget for
the current year, what other business opportunities you can foresee and what revenue do you expect to
generate from the identified companies.
Assumptions:
Total Advances and deposits will grow at the same rate as the previous years
Average Lending Rates will remain around 13.2%, maintaining the same spread above PLR
Non-Interest Income-to-Total Income remain around 10% for the bank

Projected Total Advances for F.Y 20X2 : 13800 Crores (@20% growth in total advances)

As the industry is cyclical in nature and the demand is stable with the growth tied to growth in the economy, the
short term to medium term outlook of the industry is only marginally positive. The total quantum of exposure for
this sector should be around 3% of total expected advances as there could be other profitable industries that
could require growth funding.

Since the industry risk rating is only marginally positive, the bank should focus on lending
To individual companies having favourable credit ratings/risk ratings of more than 4
For a period not exceeding 3 years
No individual company should get more than 25% of the budgeted sectoral exposure on account of
average industry outlook, with the exception of companies showing highly favourable individual risk
ratings.

Hence, total sectoral exposure budgeted for the following financial year 20X2 is, 3% of total expected advances,
which is 414 Crores

Exposure for individual companies targeted in the sector is allocated proportional to its risk rating. The table
shows the budgeted exposure for some select companies in the sector.

S.
No
Company Name Risk Rating Maximum Exposure
favourable for bank

(a) In Crores
Maximum Feasible
Borrowing for
Company
(b) In Crores
Budgeted
Exposure

Min (a,b) In
Crores
1 Hind Zinc 5.43 89.26 113.86 89.26
2 Guj Intrux 4.53 74.39 24.54 24.54
3 Cubex Tubings 4.1 67.2 88.04 67.2
4 Sterlite 3.9 64.12 27882 64.12
5 Precision Wires 3.875 63.67 410.17 63.67
6 RamRatna 3.375 55.41 22.824 22.82
7 Others NA 40 - 40
8 Estimated Interest Income (@13.2% of Advances) 43.77
9 Estimated Non Interest Income (10% of Interest Income) 4.377
10 Estimated Total Revenues from the sector 48.15
Qn 5& 6 Workings:
Financial Risk
Assessment.xlsx