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National Aluminium Co. (NACL)
Metals & Mining
Earnings miss on spike in power costs. Nalco’s 2QFY12 EBITDA of Rs1.5 bn was
50.3% below our estimate on an increase in raw material costs and higher-thanexpected
power and fuel cost. The aluminium segment reported PBIT loss of Rs0.9 bn.
Profit of chemical and electricity segment declined. We align Nalco’s earnings estimate
with our revised aluminium price forecast and accordingly lower our FY2012-14E
earnings estimates by 7%% and 21%, respectively. We maintain our SELL rating with a
revised target price of Rs55/share.
Increase in costs hurt profitability; aluminium segment reports loss
Nalco’s 2QFY12 EBITDA of Rs1.5 bn was 50.3% below our estimate primarily on higher-thanexpected
power and fuel and increase in raw material costs. Power and fuel costs increased 32.8%
qoq to Rs6.4 bn due to a heavy monsoon, resulting in a shortage in availability and poor quality of
coal which translated into increased reliance on expensive imported coal. We expect this cost to
remain high for the December quarter before reducing in March.
Net income of Rs1.4 bn (-37.8% yoy, -63% qoq) was 39.7% lower than our estimate on
underperformance at the EBITDA level partly negated by lower-than-expected tax outgo during
the quarter. The effective tax rate for the quarter was significantly lower at 16.4% compared to
our estimate of 30.7% and 32% in the previous quarter.
Revision in our estimates, factor in our revised aluminium price forecasts and Re/US$ rate
We align our estimates with our revised aluminium price forecast which we lower for FY2012E to
US$2,275/ tonne from US$2,400/ tonne and maintain FY2013-14E estimates at US$2,400/ tonne
and US$2,450/ tonne, respectively. We believe that the spot aluminum price of 2,120/ tonne has
strong support since more than 30% smelters have operating costs above current LME.
We also factor in a change in our economist’s FY2012-13 Re/US$ forecast to Rs47.3/49.85 from
Rs44.8/45.6 earlier. In addition, we have made marginal changes to our volume and cost
estimates. As a result, we revise our earnings estimate downwards for FY2011E, FY2012E and
FY2013E to Rs3.8, Rs4.2 and Rs4.4 from Rs5, Rs4.8 and Rs4.8 earlier.
Maintain SELL with a revised TP of Rs55
NALCO is currently trading at 6.9X FY2012E and 6X FY2013E EBITDA, respectively. While the
stock has corrected significantly over the past few months, we feel it does not have any
meaningful triggers to warrant a positive view. Maintain our SELL rating with a revised TP of
Rs55/share. We value the core business at Rs36 based on 5.5X FY2013E EBITDA while we expect
NALCO to have net cash of Rs21/share in FY2013E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
National Aluminium Co. (NACL)
Metals & Mining
Earnings miss on spike in power costs. Nalco’s 2QFY12 EBITDA of Rs1.5 bn was
50.3% below our estimate on an increase in raw material costs and higher-thanexpected
power and fuel cost. The aluminium segment reported PBIT loss of Rs0.9 bn.
Profit of chemical and electricity segment declined. We align Nalco’s earnings estimate
with our revised aluminium price forecast and accordingly lower our FY2012-14E
earnings estimates by 7%% and 21%, respectively. We maintain our SELL rating with a
revised target price of Rs55/share.
Increase in costs hurt profitability; aluminium segment reports loss
Nalco’s 2QFY12 EBITDA of Rs1.5 bn was 50.3% below our estimate primarily on higher-thanexpected
power and fuel and increase in raw material costs. Power and fuel costs increased 32.8%
qoq to Rs6.4 bn due to a heavy monsoon, resulting in a shortage in availability and poor quality of
coal which translated into increased reliance on expensive imported coal. We expect this cost to
remain high for the December quarter before reducing in March.
Net income of Rs1.4 bn (-37.8% yoy, -63% qoq) was 39.7% lower than our estimate on
underperformance at the EBITDA level partly negated by lower-than-expected tax outgo during
the quarter. The effective tax rate for the quarter was significantly lower at 16.4% compared to
our estimate of 30.7% and 32% in the previous quarter.
Revision in our estimates, factor in our revised aluminium price forecasts and Re/US$ rate
We align our estimates with our revised aluminium price forecast which we lower for FY2012E to
US$2,275/ tonne from US$2,400/ tonne and maintain FY2013-14E estimates at US$2,400/ tonne
and US$2,450/ tonne, respectively. We believe that the spot aluminum price of 2,120/ tonne has
strong support since more than 30% smelters have operating costs above current LME.
We also factor in a change in our economist’s FY2012-13 Re/US$ forecast to Rs47.3/49.85 from
Rs44.8/45.6 earlier. In addition, we have made marginal changes to our volume and cost
estimates. As a result, we revise our earnings estimate downwards for FY2011E, FY2012E and
FY2013E to Rs3.8, Rs4.2 and Rs4.4 from Rs5, Rs4.8 and Rs4.8 earlier.
Maintain SELL with a revised TP of Rs55
NALCO is currently trading at 6.9X FY2012E and 6X FY2013E EBITDA, respectively. While the
stock has corrected significantly over the past few months, we feel it does not have any
meaningful triggers to warrant a positive view. Maintain our SELL rating with a revised TP of
Rs55/share. We value the core business at Rs36 based on 5.5X FY2013E EBITDA while we expect
NALCO to have net cash of Rs21/share in FY2013E.
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