Nalco – 2QFY2011 Result Update Angel Broking

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Nalco – 2QFY2011 Result Update

Angel Broking maintains a Sell on Nalco with a Target Price of Rs316.

Nalco’s 2QFY2011 net revenue came in at `1,455cr, in line with our estimate of

`1,394cr. However, net profit at `224cr was below our estimates of `284cr

largely on account of the higher-than-expected power and fuel costs.

Mixed performance: Top-line grew 27.3% yoy to `1,455cr mainly on account of:

a) higher alumina sales, and b) increased realisations. While alumina production

for the quarter came in lower at 354kt, alumina sales increased 38.1% yoy to

226kt. Alumina realisation for the quarter increased by 57.9% yoy to

US $355/tonne. While aluminium realisation increased 15.7% yoy to

US $2,199/tonne, aluminium sales volume grew 2.7% yoy to 109kt (106kt).

EBITDA margin expanded by 1,150bp yoy to 23.9% because of declines in: a)

power cost (as a % of net sales from 42.4% in 2QFY2010 to 34.1% in

2QFY2011), b) staff cost (as a % of net sales from 15.7% in 2QFY2010 to 13.9%

in 2QFY2011), and c) other expenses (as a % of net sales from 17.7% in

2QFY2010 to 14.3% in 2QFY2011). Consequently, EBITDA grew by 145.4% yoy

to `348cr. While depreciation expenses increased 24.5% yoy to `95cr, other

income declined by 39.1% yoy to `85cr. The effective tax rate came in at 33.7%

(22.1% in 2QFY2010). Thus, net profit grew 40.5% yoy to `224cr.

Outlook and Valuation: Nalco continues to trade at rich valuations of 14.8x

FY2011E and 11.5x FY2012E EV/EBITDA, as compared to peers Hindalco and

Sterlite, which are trading in a band of 5–7x FY2011E and FY2012E EV/EBITDA.

We maintain a Sell on Nalco, with a Target Price of `316.