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Nalco: Low cost drives EBITDA
Jun 5, 2013

National Aluminium Company Ltd (Nalco) has announced its results for the quarter ended March 2013. The company has reported an increase of 4.6% YoY in net sales and 12.8% YoY decline in net profits respectively during the quarter. Here is our analysis of the results:

Performance summary
  • Topline of the company increased by 4.6% YoY.
  • At the operating level, the company reported 37.5% YoY increase in operating profits. Operating margins of the company improved by 5.4% YoY.
  • Net profits decreased by 12.8% YoY. Net profit margins decreased by 2.6% YoY.
  • For the full year ended March 2013, the company has reported an increase of 4.6% YoY in net sales and a decline of31.4% YoY in net profits respectively.
  • The company has recommended a final dividend of Rs 0.5 per share taking the total dividend to Rs 1.25 per share.


Financial performance snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 17,845 18,673 4.6% 66,116 69,165 4.6%
Expenditure 14,779 14,456 -2.2% 54,662 60,096 9.9%
Operating profit (EBDITA) 3,066 4,216 37.5% 11,454 9,069 -20.8%
Operating profit margin (%) 17.2% 22.6%   17.3% 13.1%  
Other income 1,594 1189.7 -25.3% 5,417 5,111 -5.7%
Interest (net) 8     9 75 756.3%
Depreciation 1,232 1360.5 10.4% 4,666 5,054 8.3%
Profit before tax 3,420 4045.5 18.3% 12,197 9,050 -25.8%
Exceptional Item 639     (219) -  
Tax 1,239 1585.2 27.9% 3,483 3,222 -7.5%
Profit after tax/(loss) 2,820 2460.3 -12.8% 8,495 5,828 -31.4%
Net profit margin (%) 15.8% 13.2%   12.8% 8.4%  
No. of shares (m)         2,579  
Diluted earnings per share (Rs)         2.3  
P/E ratio (x)*         14.6  
* On a trailing 12 months basis

What has driven performance in 4QFY13?
  • Net sales of the company increased by 4.6% YoY. Alumina sales improved 46% QoQ to 320k tons. Aluminum production declined 2% QoQ to 98k tons. Aluminum realization increased 1% QoQ to Rs 126,511/ton (US $2,332/ton), while Alumina realization increased 4% QoQ to Rs 18,144/ton (US $341/ton). Aluminum realizations were supported by higher product premium of 16.1% in 4QFY13 against 15.8% in 3QFY13. Aluminum EBIT (full integration basis) improved from Rs 364 m in 3QFY13 to Rs 1.9 bn. Alumina EBIT (external sales) improved from Rs 828 m in 3QFY13 to Rs 1.6 bn.

  • Nalco posted a 6% YoY and 2% QoQ drop in aluminium production due to deliberated cut in output since the company finds its aluminium unviable at current aluminium prices. However, alumina performance remained strong with 11% YoY and 43% QoQ jump in sales volume due to commissioning of a new unit.

  • Nalco reported operating profit of Rs 4.4 bn for 4QFY13, due to sharp reduction in power and fuel cost, aided by better coal availability. Power and fuel cost as a percentage of sales dipped 8.4 percentage points QoQ to 26.2%. Superior 4QFY13 operational performance is unlikely to sustain because coal supply from MCL has been disrupted once again. This will affect metal production and cost in 1QFY14. Alumina refineries, however, continue to operate efficiently.

    Cost break-up
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Raw Materials 2,484 2,960 19.2% 10,308 11,678 13.3%
    % of sales 13.9% 15.9%   15.6% 16.9%  
    Staff costs 2557 2854 11.6% 10345 11539 11.5%
    % of sales 14.3% 15.3%   15.6% 16.7%  
    Power & fuel 5089 4889 -3.9% 21967 24323 10.7%
    % of sales 28.5% 26.2%   33.2% 35.2%  
    Other Expenses 3721 3662 -1.6% 12015 13198 9.9%
    % of sales 20.8% 19.6%   18.2% 19.1%  
    Change in inventories 929 91 -90.2% 27 -643 NA
    % of sales 5.2% 0.5%   0.0% -0.9%  

  • Nalco reported a decline of 12.8% YoY in net profit. Other income declined by 10.5% YoY to Rs 1.2 bn. Net profit margins declined from 15.8% in 4QFY12 to 13.2% in 4QFY13. As on March 2013, company has cash and cash equivalents of Rs 48 bn.

What to expect?
Nalco has been carrying out bauxite mining activity at Panchpatmali on temporary one-year extension since December 2012. The company has shut 25% of its smelting capacity owing to lack of coal supply from Mahanadi Coalfields (MCL). This will impact metal production in 1QFY14. The company commissioned its 50.4 MW wind power plant in Andhra Pradesh in 4QFY13. At the current price of Rs 33, the stock is trading at a multiple of 14.6 times its trailing twelve month earnings. We maintain our Buy view on the stock from a long term perspective.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single mid cap stock comprises more than 3-4% of your portfolio

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