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Q3FY11 results significantly below expectations
National Aluminium Company (NALCO) reported Q3FY11 net revenues of INR
14.4 bn, below our and consensus’ estimates of INR 15.9 bn and 16.2 bn,
respectively. Aluminium production, at 108 kt, was largely in line with our
estimates but alumina production, at 398 kt, was below our estimate of 416 kt.
Aluminium premium may have declined and electricity segment revenues were
lower than estimated. PAT was at INR 2.6 bn (our estimate: INR 3.5 bn,
consensus: INR 3.1 bn).
Costs increase by INR 6,000/t Q-o-Q
EBITDA, at INR 3.9 bn, was ~29% below our estimate of INR 5.5 bn, largely due
to lower revenues. Aluminium cash cost is estimated higher, at ~INR 6,000/t Qo-
Q, largely due to increase in raw material costs and repairs & maintenance
expenses (up 24% Q-o-Q and 35% Q-o-Q, respectively). Power costs have,
however, declined 10% Q-o-Q. Power segment EBIT was surprisingly negative at
INR 1.26 bn.
Proposed bonus and stock split
NALCO has proposed bonus of 1:1 and stock split of 1:2. Current FV is INR 10.
Outlook and valuations: Expensive; maintain ‘REDUCE’
We are cutting our FY11 and FY12 EBITDA by ~7% and ~5% respectively to
factor in lower premiums/realisations and increased costs for the company. We
introduce FY13 estimates in this update. For FY13, we see alumina production
increasing 7% Y-o-Y and aluminium prices rising to USD 2,700/t, leading to 15%
Y-o-Y increase in EBITDA. We cut our fair value to INR 327/share from INR
341/share and maintain ‘REDUCE/Sector Underperformer’ recommendation
on the stock.
Company Description
NALCO, an 87% government-owned company, is the leading producer of alumina and
aluminium in India, with alumina refining capacity of 1.6 mtpa and aluminium smelting
capacity of 0.46 mtpa. The company is backward integrated with captive bauxite mines
and a coal-based power plant of 1,080 MW. NALCO plans to enhance capacity for its
bauxite mines to 6.83 mt and for alumina to 2.28 mt. Additionally, it has signed a MoU
with the Government of Indonesia to set up a 0.5 mt aluminium smelter and 1,250 MW
captive power plant.
Investment Theme
Alumina and aluminium prices have recovered from its lows and continue to show
increasing trend, albeit with quarterly volatility. However, the company has not been
able to bring its costs under control thus, affecting margins.
Key Risks
• Higher than estimated aluminium prices likely to boost earnings.
• Significant decline in input costs may to improve profitability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q3FY11 results significantly below expectations
National Aluminium Company (NALCO) reported Q3FY11 net revenues of INR
14.4 bn, below our and consensus’ estimates of INR 15.9 bn and 16.2 bn,
respectively. Aluminium production, at 108 kt, was largely in line with our
estimates but alumina production, at 398 kt, was below our estimate of 416 kt.
Aluminium premium may have declined and electricity segment revenues were
lower than estimated. PAT was at INR 2.6 bn (our estimate: INR 3.5 bn,
consensus: INR 3.1 bn).
Costs increase by INR 6,000/t Q-o-Q
EBITDA, at INR 3.9 bn, was ~29% below our estimate of INR 5.5 bn, largely due
to lower revenues. Aluminium cash cost is estimated higher, at ~INR 6,000/t Qo-
Q, largely due to increase in raw material costs and repairs & maintenance
expenses (up 24% Q-o-Q and 35% Q-o-Q, respectively). Power costs have,
however, declined 10% Q-o-Q. Power segment EBIT was surprisingly negative at
INR 1.26 bn.
Proposed bonus and stock split
NALCO has proposed bonus of 1:1 and stock split of 1:2. Current FV is INR 10.
Outlook and valuations: Expensive; maintain ‘REDUCE’
We are cutting our FY11 and FY12 EBITDA by ~7% and ~5% respectively to
factor in lower premiums/realisations and increased costs for the company. We
introduce FY13 estimates in this update. For FY13, we see alumina production
increasing 7% Y-o-Y and aluminium prices rising to USD 2,700/t, leading to 15%
Y-o-Y increase in EBITDA. We cut our fair value to INR 327/share from INR
341/share and maintain ‘REDUCE/Sector Underperformer’ recommendation
on the stock.
Company Description
NALCO, an 87% government-owned company, is the leading producer of alumina and
aluminium in India, with alumina refining capacity of 1.6 mtpa and aluminium smelting
capacity of 0.46 mtpa. The company is backward integrated with captive bauxite mines
and a coal-based power plant of 1,080 MW. NALCO plans to enhance capacity for its
bauxite mines to 6.83 mt and for alumina to 2.28 mt. Additionally, it has signed a MoU
with the Government of Indonesia to set up a 0.5 mt aluminium smelter and 1,250 MW
captive power plant.
Investment Theme
Alumina and aluminium prices have recovered from its lows and continue to show
increasing trend, albeit with quarterly volatility. However, the company has not been
able to bring its costs under control thus, affecting margins.
Key Risks
• Higher than estimated aluminium prices likely to boost earnings.
• Significant decline in input costs may to improve profitability.
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