Indo-Gulf investors can expect better fortunes

Indo-Gulf Corp began the millennium with a bang by reviewing its business strategies after having begun its operations in fertilisers.

The firm reduced its dependence on urea to less than 25 per cent of annual sales so that any setbacks the urea industry might have had to suffer due to the government hardening its stand on subsidies did not effect the company so much.

Another factor which went in favour of the firm was that it has now diversified into metals and is doing pretty well.

To the uninitiated, Indo-Gulf initially started its operations in nitrogenous fertilisers, from a place near Jagdishpur in UP.

And now that the firm has diversified into metals it has set up a 100,000 tonnes per annum (tpa) copper smelter to produce cathodes.

Not only this, another factor that has gone in the company's favour is that its 100 per cent subsidiary, Dahej Harbour and Infrastructure Ltd, owns the jetty of Birla Copper.

This jetty handles cargo and is literally minting money for the firm. Not stopping at this, the company also started hedging activities by setting up its precious metal refinery.

The idea behind Indo-Gulf's diversification into metals was to ensure that its growth and profitability were not unduly affected by change in government policy and the seasonality factor, as these tend to disturb the equilibrium.

To a large extent, the company has been able to achieve this aim over the past couple of years. The metals business, which constituted a little over 77 per cent of the aggregate turnover in 2001, has moved up further since then.

While improved volumes and growth of power and telecom sectors were partially responsible for this upward push, it may be recollected that international copper prices too went up.

Thus, this helped push up sales realisations. Therefore, the company's metal operations made up for the slowdown in its fertiliser operations.

As mentioned earlier the company has also started hedging through precious metals such as gold and silver. This is being done after the company has set up its own precious metal (gold and silver) refinery, which went on stream in 2000.

As the firm has a very good business sense, it realised that copper is a commodity business which largely follows cyclical fortunes, so now it is focusing on building up volumes in the metal. It has expanded its copper smelter.

Considering that in India demand for copper continues to exceed supplies even now, more supplies will be absorbed without much ado.

Hence, the company is all set to go full steam ahead and it and its investors can look forward to better fortunes and a bright future even though their fertiliser operations may not look very convincing.

The stock is worth holding, so just hang in there.

R. Dyes is a journalist based in New Delhi.