Coal burns profit as well for NALCO : Nirmal Bang

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Coal burns profit as well
NALCO reported dismal 2QFY12 performance, as its EBITDA was 60%/65%
below our/consensus estimates and PAT was 48%/55% below our/consensus
estimates, respectively. This was primarily attributed to coal shortage, which
resulted in production loss as well as higher power costs because of the
usage of grid power. The company commissioned 525,000 tonne alumina
refinery in 2QFY12 and this will improve alumina volume in the coming
quarters. However, despite higher alumina volume, we expect the company’s
financial performance to remain subdued because of higher energy costs
and lower aluminium prices. We currently do not have any rating on the
stock.
Financial performance: NALCO posted 56% YoY and 71% QoQ drop in EBITDA
because of higher energy costs, while PAT declined 38% YoY and 63% QoQ. The
significant erosion in EBITDA was marginally cushioned at the PAT level due to
higher other income and lower tax rate.
Increase in costs across the board: NALCO witnessed 33% QoQ increase in
power and fuel costs, despite lower aluminium production sequentially. This is
largely attributed to lower usage of linkage coal because of heavy rains in the
eastern parts of the country and also usage of grid power. Although, we expect
some moderation in blended coal costs, a part of the increase in costs is
permanent in nature. The company also witnessed a 22% increase in other
expenditure associated with re-starting of aluminium pots that were impacted due
to power shortage.
Expansion projects: The company commissioned 525,000 tonne alumina refinery
in 2QFY12 and we expect the incremental volume to reflect from 3QFY12
onwards.
Cash position: The company is currently sitting on cash surplus of Rs56bn (36%
of current market cap) compared to Rs51bn at the end of March 2011.