Nalco: A peep into past-II - Views on News from Equitymaster

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Nalco: A peep into past-II

Jul 17, 2008

In last article, we have discussed the performance of the company between the period 1999 and 2003. Now let us see the performance of the company between the period 2003 and 2007. This was the period during which Nalco increased it presence in the domestic market. Let us see the performance of profit and loss account of company between the period 2003 and 2007.

Topline: The topline of the company grew at a CAGR of 24% between 2003 and 2007. The revenues from exports grew at CAGR of 15% and from domestic markets at a CAGR of 33%. Exports contribution to the total revenue declined from 55% in FY03 to 40% in FY07. However the contribution from domestic markets jumped from 45% in FY03 to 60% in FY07. This was mainly on account of greater demand from domestic markets as compared to the international. Moreover, the consumption in the domestic market was growing at a higher rate than the world.

If we were to go by the product wise breakup, the contribution of calcined alumina to total revenues decreased from 29% in FY03 to 22% In FY07. Although the volumes of calcined alumina decreased at a CAGR of 7%, the revenues from calcined alumina grew at a CAGR of 16%. This was mainly on account of higher realizations, which grew at a CAGR of 25%. This can be attributed to increased prices of alumina in international markets. Moreover the supply of alumina in world markets, which was surplus in FY04, had become deficit due to rising demand from China and other western countries.

The contribution of aluminium ingots to total revenues jumped from 54% in FY03 to 75% in FY07. The revenues from it increased at a CAGR of 35% during the period under consideration. This was led by a growth in volumes at a CAGR of 16% and realizations at a CAGR of 16%. The growth in realizations can be owed to higher LME prices of aluminium during that period.

Operating front: The operating profits of the company grew at a CAGR of 33% higher than the revenues growth. The operating profit margins increased from 41% in FY03 to 55% in FY07. The operating expenses showed a marginal growth compared to last period and stood at a CAGR of 14.6%. It should be noted that the company is self sufficient in key raw materials like Bauxite and Coal and hence, when other standalone players were witnessing a steep rise in raw material costs and hence, a possible contraction in margins, Nalco was able to expand the same significantly.

Bottomline: The bottomline of the company grew at a CAGR of 46%, higher than operating profits. The net profit margins of the company jumped from 20% in FY03 to 40% in FY07. This can mainly be attributed to repayment of debts as the company reduced its interest outgo from Rs.1.2 bn in FY03 to nil in FY06. Moreover the depreciation was also reduced at a CAGR of 4%. However the tax outgo increased at a CAGR of 70%.

To conclude, when the aluminium prices were rising, integrated players like Nalco benefited the most as captive mines and power units cushioned it against the rise in raw material costs. Furthermore, higher product prices enabled them to achieve a quantum jump in profits.

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