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2QFY11 below consensus estimates
Alumina segment boosts top-line: Net sales grew 24% YoY to `14.8bn
primarily due to a 71% YoY increase in alumina segment revenues to `3.3bn.
Alumina segment revenues (adjusted for inter-segment sales and electricity
revenues) grew due to c.24% rise in rupee realisations and 38% YoY increase
in volumes to 226ktons. Aluminium segment revenues increased 18% YoY to
`11.2bn due to 12% increase in volumes to 119ktons and 6% YoY increase in
blended rupee realisations to `94,273/ton.
EBITDA margins improve c.11pp YoY: EBITDA increased c.2.4x YoY to
`3.5bn on higher realisations and lower power and fuel costs. Aluminium
price averaged US$2,110/ton for the quarter, up 15% YoY, and alumina price
averaged US$317/ton, up 18% YoY. Margins improved c.11 pp YoY to 23.5%
due to lower raw material and power and fuel costs YoY. Net profit of `2.2bn
was below Bloomberg consensus estimate of `3bn.
Trading at 12.8x FY11 EV/EBITDA; not-rated: The company continues to
produce c.1mn tons of bauxite every quarter from its captive mines at
Panchpatmali Hills of Koraput. Aluminium is currently trading at US$2,316
/ton on the LME. Base metal prices increased c.25% during 2QFY11 on the
back of 7% depreciation in dollar index. We believe any further rally in base
metal prices, in the absence of fresh triggers from China, would be driven
primarily by movement in the dollar index. High levels of aluminium inventory
and recent credit tightening measures by China will cap any significant run up
in prices in our opinion. Nalco continues to be amongst the most costefficient
producers globally with operating cash costs in the lowest quartile of
the cost curve. At CMP of `402 the stock trades at c. 12.8x FY11E EV/EBITDA.
The stock is not in our research coverage.
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