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Nalco: Improved operating performance - Views on News from Equitymaster
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Nalco: Improved operating performance
Jun 6, 2011

Nalco has announced its results for the quarter and financial year ended March 2011. The company has reported a rise of 18% YoY and 31% YoY in annual sales and net profits respectively. Here is our analysis of the results:

Performance summary
  • Topline grows by 11% YoY during the quarter ended March 2011.
  • Operating profits decrease by 9% YoY during the quarter owing to a substantial increase in operating cost. EBITDA margins decline from 28.6% in 4QFY10 to 23.3% in 4QFY11.
  • Net profits drop by 18% YoY on account of higher operating expenses and depreciation charges.
  • Net profit margins decline from 23.3% in 4QFY10 to 17.1% in 4QFY11.


(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 16,036 17,875 11.5% 50,547 59,590 17.9%
Expenditure 11,443 13,717 19.9% 40,712 44,710 9.8%
Operating profit (EBITDA) 4,593 4,158 -9.5% 9,836 14,880 51.3%
EBITDA margin 28.6% 23.3%   19.5% 25.0%  
Other income 1090 1352 24.0% 4930 4,585 -7.0%
Interest 2 0 - 23 1 -97.8%
Depreciation 884 1,319 49.2% 3,194 4,217 32.0%
Profit before tax/(loss) 4,797 4,190 -12.6% 11,549 15,247 32.0%
Tax 1066 1138 6.7% 3406.4 4,554 33.7%
Profit after tax/(loss) 3,731 3,053 -18.2% 8,142 10,693 31.3%
Net margin 23.3% 17.1%   16.1% 17.9%  
No of shares (m)         2577.2  
Diluted EPS (Rs)*         4.1  
P/E ratio (x)*         21.7  
* On a trailing 12 months basis

What has driven performance in FY11?
  • Nalco reported a topline growth of 17.9% YoY during the financial year ended March 2011. The growth was led by the company's aluminium and electricity segment which grew by 17.9% YoY and 21.4% YoY respectively. On the other hand, the chemical business registered a modest growth of 6.4% YoY.

  • Though the company's operating margins declined during the quarter, for the full financial year the margins improved significantly from 19.5% in FY10 to 25% in FY11. Operating profits grew at a robust rate of 51.3% YoY during the period. The improvement could be attributed mainly to lower costs of raw material and power & fuel (as a percentage of net sales).

    Cost break-up
    (Rs m) FY10 FY11 Change
    Raw materials 8,076 7,760 -3.9%
    % sales 16.0% 13.0%  
    Power and fuel 16,169 17,789 10.0%
    % sales 32.0% 29.9%  
    Staff cost 8,135 9,881 21.5%
    % sales 16.1% 16.6%  
    Repair & Manufacturing 5,071 5,970 17.7%
    % sales 10.0% 10.0%  
    Other expenditure 3,262 3,310 1.5%
    % sales 6.5% 5.6%  
    Total cost 40,712 44,710 9.8%
    % sales 80.5% 75.0%  

  • Robust operating performance led the bottomline to rise by 31.3% YoY during the year. Net profit margins improved from 16.1% in FY10 to 17.9% in FY11.

  • The company's board has recommended a final dividend of Rs 0.5 (10% on face value of Rs 5 each) per share on the revised equity capital.

What to expect?
During the financial year 2010-11, the company's aluminium business reported a robust performance on the back of significant improvement in LME aluminium prices. Going forward, metal prices are expected to remain firm. This will augur well for the company. At the current price of Rs 90, Nalco is trading at 21.7 times its trading twelve month earnings. We shall soon update our research report with the FY14 estimates.

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