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Nalco: Improved all-round performance - Views on News from Equitymaster

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Nalco: Improved all-round performance
Aug 20, 2011

Nalco has announced its results for the quarter ended June 2011. The company has reported a rise of 34% YoY and 33% YoY in net sales and net profits respectively during the quarter. Here is our analysis of the results:

Performance summary
  • Topline grows by 34% YoY during the quarter ended June 2011 on account of healthy growth across all the three divisions: chemicals, aluminium and electricity.
  • Operating profits increase by 33% YoY during the quarter owing to higher sales. EBITDA margins remain flat on a year-on-year comparison basis at 29% during the period.
  • Net profits increase by 33% YoY on account of healthy operating performance.
  • Net profit margins remain almost flat around 22%.


Financial performance snapshot
(Rs m) 1QFY11 1QFY12 Change
Net sales 12,917 17,331 34.2%
Expenditure 9,143 12,327 34.8%
Operating profit (EBITDA) 3,774 5,004 32.6%
EBITDA margin 29.2% 28.9%  
Other income 1061 1560 47.0%
Interest 0 0 -
Depreciation 916 1,019 11.3%
Profit before tax/(loss) 3,919 5,545 41.5%
Tax 1079 1776 64.6%
Profit after tax/(loss) 2,841 3,768 32.7%
Net margin 22.0% 21.7%  
No of shares (m)   2577.2  
Diluted EPS (Rs)*   4.5  
P/E ratio (x)*   13.3  
* On a trailing 12 months basis

What has driven performance in 1QFY12?
  • Nalco reported a topline growth of 34.2% YoY during the quarter ended June 2011. The rise was on account of healthy growth across all the three divisions. While the chemicals division led with whopping 60.3% YoY growth, aluminium and electricity segments also grew substantially, registering a growth of 20.9% YoY and 32.6% YoY respectively.

  • Operating profits grew at a robust rate of 32.6% YoY during the period. Operating margins were almost flat, declining marginally from 29.2% in 1QFY11 to 28.9% in 1QFY12.

  • Other income was higher by 47% YoY during the quarter. However, the effective tax rate was higher by 4.5% YoY during the quarter.

  • Robust operating performance led the bottomline to rise by 32.7% YoY during the year. Net profit margins remained almost flat at 21.7%.

What to expect?
Though on a year-on-year basis aluminium prices have been higher, they have corrected to an extent from the recent high. The main reason for this is the economic turmoil in the developed countries and the resulting uncertainty. The emerging markets too are facing concerns of high inflation and slowing growth rates. As a result, the stock prices of metal have fallen significantly. At the current price of Rs 60, Nalco is trading at FY14 forward price to book value of 1.1 times. Another 15%-20% fall from the current levels could make the stock an attractive proposition from a medium term perspective.

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