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National Aluminium’s (Nalco) 2QFY2012 profitability was significantly below our
expectations on account of higher-than-expected raw-material and power and
fuel costs. We have a Neutral view on the stock.
Higher realization leads to net sales growth: For 2QFY2012, Nalco’s net sales
grew by 8.9% yoy to `1,584cr mainly due to increased realization, despite lower
volumes. Realization of alumina and aluminium grew by 29.4% and 23.1% yoy to
US$400 and US$2,599, respectively. However, the company lost production of
atleast 6,000 tonnes of aluminium metal on account of coal supply disruptions by
Mahanadi Coalfields.
Lower domestic coal supplies hit margins: Raw-material cost as a percentage of
net sales stood at 18.7% in 2QFY2012 compared to 15.5% in 2QFY2011.
Further, power and fuel cost as a percentage of net sales stood at 40.3% in
2QFY2012 compared to 34.1% in 2QFY2011. The company had to import coal
on account of lower supplies from Mahanadi Coalfields, which resulted in higher
power costs. Hence, EBITDA decreased by 56.1% yoy to `153cr and EBITDA
margin contracted by massive 1,427bp yoy to 9.6%. Other income grew by
54.7% yoy to `132cr and tax rate stood at 16.4% in 2QFY2012 compared to
33.7% in 2QFY2011. Consequently, net profit decreased by 37.8% yoy to `139cr
(significantly below our estimate of `268cr).
Outlook and valuation: Although Nalco enjoys high levels of backward
integration, the cost of production remains very high for Nalco. Further, there is
lack of clarity over Nalco’s volume growth. At the CMP, Nalco is trading at
valuations of 7.4x FY2012E and 4.5x FY2013E EV/EBITDA, higher than its peers.
Hence, we recommend Neutral on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
National Aluminium’s (Nalco) 2QFY2012 profitability was significantly below our
expectations on account of higher-than-expected raw-material and power and
fuel costs. We have a Neutral view on the stock.
Higher realization leads to net sales growth: For 2QFY2012, Nalco’s net sales
grew by 8.9% yoy to `1,584cr mainly due to increased realization, despite lower
volumes. Realization of alumina and aluminium grew by 29.4% and 23.1% yoy to
US$400 and US$2,599, respectively. However, the company lost production of
atleast 6,000 tonnes of aluminium metal on account of coal supply disruptions by
Mahanadi Coalfields.
Lower domestic coal supplies hit margins: Raw-material cost as a percentage of
net sales stood at 18.7% in 2QFY2012 compared to 15.5% in 2QFY2011.
Further, power and fuel cost as a percentage of net sales stood at 40.3% in
2QFY2012 compared to 34.1% in 2QFY2011. The company had to import coal
on account of lower supplies from Mahanadi Coalfields, which resulted in higher
power costs. Hence, EBITDA decreased by 56.1% yoy to `153cr and EBITDA
margin contracted by massive 1,427bp yoy to 9.6%. Other income grew by
54.7% yoy to `132cr and tax rate stood at 16.4% in 2QFY2012 compared to
33.7% in 2QFY2011. Consequently, net profit decreased by 37.8% yoy to `139cr
(significantly below our estimate of `268cr).
Outlook and valuation: Although Nalco enjoys high levels of backward
integration, the cost of production remains very high for Nalco. Further, there is
lack of clarity over Nalco’s volume growth. At the CMP, Nalco is trading at
valuations of 7.4x FY2012E and 4.5x FY2013E EV/EBITDA, higher than its peers.
Hence, we recommend Neutral on the stock.
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