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NALCO: A peep into the past - I - Views on News from Equitymaster
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  • Jul 15, 2008

    NALCO: A peep into the past - I

    In last two articles, we have seen the performance of Hindalco during the two periods i.e 1999 to 2003 and 2003 to 2007. Now in next two articles, let us see the performance of its peer, Nalco, which is the largest alumina and second largest aluminium producer in India.

    Let us have the look at the financial performance of Nalco between the period 1999 and 2003.

    The topline of the company grew at a CAGR of 16% between 1999 and 2003. The revenues from domestic market grew at a CAGR of 9% and from exports grew at a CAGR of 24%. Exports contribution jumped from 42% in FY99 and touched nearly 55% in FY03. It should be noted that the company has two major products viz. calcined alumina and aluminium. Aluminium being further down the value chain (smelting of alumina results into aluminium) gets higher realisations than alumina. Infact, aluminium is anywhere between 7 to 10 times more expensive than alumina. Thus, with the company exporting an ever-increasing proportion of aluminium, revenues from exports received a big boost in the period under consideration.

    If one were to consider the product wise break up of revenues, calcined alumina sales grew at a CAGR of 17%. This was mainly due to depreciating rupee, which declined at a CAGR of 4%. Aluminium ingots sales grew at a CAGR of 20%. This was led by volumes, which grew at a CAGR of 18% and realizations at a CAGR of 2%.

    On the operating front, the operating profits of the company grew at a CAGR of 20%, higher than the topline CAGR of 16%. It showed a rising trend except for FY02. Furthermore, the margins of the company jumped by a staggering 8.5% during 2000. This was the period when prices of aluminium on the LME were ruling at high levels and the company was able to capitalise on the same by increasing the sales of aluminium ingots by an astounding 77% as against a decline of 6% in the sales of alumina.

    The bottomline of the company grew similar to the operating profits, a CAGR of 20%. Although the interest expense was growing at a higher rate than operating profit but it was compensated by the benign growth in depreciation and tax outgo. Net profits showed a rising trend except for FY02 where it fell by 38% on YoY basis. The net profit margin also showed a similar trend like the net profits. It declined from 29% in FY01 to 18.4% in FY02. This again was an effect of squeezed operating profits during the year.

    In the next article, we will look at Nalco's performance between the period 2003 and 2007, which was one of the best phases witnessed by the metal industry.



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