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Nalco: Marred by lower realizations - Views on News from Equitymaster
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Nalco: Marred by lower realizations
Feb 17, 2009

Performance summary
  • Topline declined by 6.6% YoY during 3QFY09 on account of lower realizations and sales volume.
  • A huge 14% drop in operating margins leads to 39.6% YoY fall in operating profits.
  • Net profits shrunk by 33.4% YoY, mainly due to fall in operating profits.
  • For the nine month period, the company’s topline has increased 12.2% YoY while the bottomline has registered a decline of 2.2% YoY.


(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 11,093 10,360 -6.6% 35,827 40,196 12.2%
Expenditure 6,693 7,704 15.1% 19,578 23,967 22.4%
Operating profit (EBDITA) 4,401 2,656 -39.6% 16,249 16,229 -0.1%
EBDITA margin (%) 39.7% 25.6%   45.4% 40.4%  
Other income 1,380 1,133 -17.9% 4,333 3,778 -12.8%
Interest (net) - 6   7 10  
Depreciation 662 642 -3.0% 2,037 2,017 -1.0%
Profit before tax 5,118 3,141 -38.6% 18,539 17,980 -3.0%
Tax 1,824 946 -48.1% 6,381 6,087 -4.6%
Profit after tax/(loss) 3,294 2,195 -33.4% 12,158 11,893 -2.2%
Net profit margin (%) 29.7% 9.1%   33.9% 29.6%  
No. of shares (m)       644.3 644.3  
Diluted earnings per share (Rs)*         24.8  
Price to earnings ratio (x)**         7.7  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 3QFY09?
  • The company witnessed pressure on alumina realizations and sales volumes during the quarter under consideration. Further, given the fact that the company derives a significant portion of its revenues from exports, the slump in global aluminium demand caused a steep decline in LME prices of aluminium and this affected the topline adversely. Also, the slowdown in domestic economy resulted in a lower demand from the domestic markets, further hurting the topline growth.

    Cost break up table
    (Rs m) 3QFY08 3QFY09 Change
    Raw materials 1,195 398 -66.7%
    % sales 10.8% 3.8%  
    Power and fuel 2,505 3,639 45.3%
    % sales 22.6% 35.1%  
    Staff cost 1,265 1,826 44.3%
    % sales 11.4% 17.6%  
    Other expenditure 1,726 1,840 6.6%
    % sales 15.6% 17.8%  

  • On the operating front, operating profits declined by 39.6% YoY on account of higher operating expenditure during the quarter. Operating expenditure increased by around 15% YoY, led by higher power & fuel, staff cost and other expenditure (as % sales) during the quarter. The EBITDA margins stood at around 25.6% during the quarter.

  • The bottomline fell by 33.4% YoY led by fall in operating profits. Furthermore, higher decline in other income also adversely impacted the bottomline.

What to expect?
At current price of Rs 192, the stock is trading at a multiple of 7.7 times its trailing twelve months earnings basis. We are in the process of updating our report on the company and will shortly come out with the same

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