Nalco's 2QFY11 PAT increased 41% YoY::Motilal Oswal

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 Nalco's 2QFY11 PAT increased 41% YoY to Rs2.2b, below our estimates of Rs3.3b due to lower than expected
alumina realizations and higher-than-expected power and fuel costs due to seasonal reasons.
 Net sales increased 25% YoY to Rs14.8b. Production of calcined alumina remained flat YoY at 379,500 tons and
that of aluminum increased 7% YoY to 110,333 tons. Production of hydrate suffered due to a shutdown for four days
to hook-up a new stream of expansion.
 Sales of aluminum increased 3% YoY to 108,515 tons. Though only 170,000 tons were available for sale after
captive consumption, alumina sales increased 38% YoY to 226,032 tons augmented by de-stocking.
 The implied average realization for third party alumina sales at US$316/ton was a tad lower than estimates.
 EBITDA increased 24% YoY to Rs3.5b, below our estimate of Rs4.9b, as the cost of production of aluminum
smelting rose due to the higher cost of coal for captive power generation. Cost of coal increased, because Nalco had
to buy more washed/imported coal as linkage coal supply from Coal India was reduced during the quarter.
Growth projects visibility low; FY11 EPS cut 6%; Maintain Sell




 Alumina refinery expansion to 2.1mtpa from existing 1.6mtpa is expected to be completed by end of FY11. Though
Nalco is trying aggressively for number of expansion projects, actual work on ground is still many years away.
 We have cut FY11 EPS by 6% to Rs18.1 to factor in below expected results. Also, we have changed LME assumption
from US$2,000/ton to US$2,100/ton and US$/INR rate from 46 to 44.5.
 Stock is trading at rich valuations - FY12E P/E of 17.9x and EV/EBITDA of 9.3x. Maintain Sell.