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Nalco: Lower realisations take toll - Views on News from Equitymaster

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Nalco: Lower realisations take toll
Jul 31, 2009

Performance summary
  • The topline declines by 36.3% YoY mainly on account of subdued LME prices of aluminium.
  • Operating profits declines by 77.3% led by higher operating costs coupled with lower realisations, thus EBITDA margins slump by 32.3% during the quarter.
  • Net profits decline by 75.9% YoY mainly on account of fall in operating profits as well as subdued other income.


Financial snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 14,675 9,353 -36.3%
Expenditure 7,307 7,679 5.1%
Operating profit (EBDITA) 7,368 1,674 -77.3%
EBDITA margin (%) 50.2% 17.9%  
Other income 1,262 1,012 -19.8%
Interest (net) 4 11 177.5%
Depreciation 679 756 11.4%
Profit before tax 7,948 1,918 -75.9%
Extraordinary income/(expense)      
Tax 2,694 654 -75.7%
Profit after tax/(loss) 5,253 1,265 -75.9%
Net profit margin (%) 35.8% 13.5%  
No. of shares (m)   644.3  
Diluted earnings per share (Rs)   13.6  
Price to earnings ratio (x)**   22.9  
( ** on trailing twelve months earnings)

What has driven performance in 1QFY10?
  • The topline declined by 36.3% YoY mainly led by subdued LME prices of aluminium during the quarter. It may be noted that the LME prices declined by around 50% YoY during the quarter as compared to corresponding quarter last year, thus resulting in a substantial fall in realisations. However, the aluminium sales volumes grew by 10.7% YoY on the back of two fold jump in exports. Interestingly, Nalco had been able to grow its exports despite the subdued market conditions, presumably due to being among the lowest cost producer in the world. Moreover, weaker rupee also arrested a further decline in the topline.

  • On the operating front, the operating profits declined by 77.3% YoY mainly on account of lower realisations. Furthermore, operating expenses grew by 5.1% YoY during the quarter. All this put together led to a fall in EBITDA margins from 50.2% in 1QFY09 to 17.9% in 1QFY10.

    Cost break-upů
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 1,190 1,255 5.4%
    % sales 8.1% 13.4%  
    Staff cost 1,530 1,685 10.1%
    % sales 10.4% 18.0%  
    Power and fuel 2,725 2,851 4.6%
    % sales 18.6% 30.5%  
    Other expenses 1,861 1,888 1.4%
    % sales 12.7% 20.2%  

  • Net profits declined by 75.9% YoY mainly on account of fall in operating profits as well as subdued other income. Also, the rise in depreciation charges has impacted the net profits negatively.

What to expect?
At the current price of Rs 330, the stock of Nalco is trading at 24x its trailing twelve months earnings. We will soon update our view on the company.

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