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Nalco: Margin expands further - Views on News from Equitymaster
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Nalco: Margin expands further
Aug 17, 2010

Nalco has announced its 1QFY11 results. The company has reported a 40% YoY and 125% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 40% YoY during 1QFY11.
  • EBITDA margin expands to 30% during 1QFY11, up from 18% in 1QFY10 due to lower raw material, power and manufacturing cost (as a percentage of sales).
  • Other income declines by 11% YoY.
  • Bottomline grows 125% YoY for the quarter due to topline growth and higher margins.


Financial snapshot
(Rsm) 1QFY10 1QFY11 Change
Net sales 9,353 13,081 39.9%
Expenditure 7,679 9,143 19.1%
Operating profit (EBDITA) 1,674 3,938 135.2%
EBDITA margin (%) 17.9% 30.1%  
Other income 1,012 897 -11.3%
Interest 11 (0) -103.6%
Depreciation 756 916 21.1%
Profit before tax 1,918 3,919 104.3%
Tax 654 1,079 65.0%
Profit after tax/(loss) 1,264.5 2,840.5 124.6%
Net profit margin (%) 13.5% 21.7%  
No. of shares (m)   644  
Diluted earnings per share (Rs)* 15    
Price to earnings ratio (x)*   28.1  
* On a trailing 12-months basis

What has driven performance in 1QFY11?
  • Nalco reported a growth in topline of 40% YoY during 1QFY11. This was due to higher London Metal Exchange (LME) prices and production volumes. On the production front, the company recorded a higher bauxite production at 1.1 m tonne, against 0.8 m tonne in 1QFY10. Aluminium production increased to 0.11 m tonnes during 1QFY11 up from 0.1 m tonnes in the corresponding quarter previous year.

  • The company’s operating margin expanded to 30% during 1QFY11, up from 18% in 1QFY10 due to lower raw material, power and manufacturing cost (as a percentage of sales).

    Cost break-up
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials 1,255 946 -24.6%
    % sales 13.4% 7.2%  
    Power and manufacturing cost 3,958 5,250 32.6%
    % sales 42.3% 40.1%  
    Staff cost      1,685 2,183 29.5%
    % sales 18.0% 16.7%  
    Other expenditure 781 765 -2.0%
    % sales 8.3% 5.8%  
    Total cost 7,679 9,143 19.1%
    % sales 82.1% 69.9%  

  • During 1QFY11, Nalco’s other income declined by 11% YoY. At the bottomline level, the company registered a growth of 125% YoY for the quarter due to topline growth and higher margins.

What to expect?
World aluminium consumption is projected to grow at around 9% in 2010. Within India, the demand for aluminium continues to be strong from all the major consuming sectors, including electrical, transportation, buildings and construction sectors. At the current price of Rs 423 per share, Nalco is trading at 2.4 times our expected FY13 book value per share. At this juncture prices fully reflect the underlying asset value leaving little room for a bargain for investors

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