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Nalco: Hurt by lower realisations - Views on News from Equitymaster
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Nalco: Hurt by lower realisations
Oct 30, 2009

Performance summary
  • The topline declines by 25.6% YoY mainly on account of lower realisations due to weak LME prices.
  • Operating profits declines by 83.5% YoY led by higher operating costs coupled with lower realisations, thus EBITDA margins slump by 32.5% during the quarter.
  • Net profits decline by 64.1% YoY, lower than operating profits mainly on account of higher other income.
  • Half yearly bottomline declines by 70.5% YoY on the back of a 31.3% YoY decline in topline.


Financial snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 15,364 11,431 -25.6% 30,039 20,646 -31.3%
Expenditure 8,957 10,374 15.8% 16,263 18,053 11.0%
Operating profit (EBDITA) 6,408 1,057 -83.5% 13,776 2,593 -81.2%
EBDITA margin (%) 41.7% 9.2%   45.9% 12.6%  
Other income 1,181 1,762 49.2% 2,443 2,911 19.2%
Interest (net) 1 8 730.0% 5 19 321.7%
Depreciation 696 764 9.8% 1,375 1,521 10.6%
Profit before tax 6,892 2,046 -70.3% 14,840 3,965 -73.3%
Tax 2,447 451 -81.6% 5,142 1,105 -78.5%
Profit after tax/(loss) 4,444 1,595 -64.1% 9,698 2,859 -70.5%
Net profit margin (%) 28.9% 14.0%   32.3% 13.8%  
No. of shares (m)       644.3 644.3  
Diluted earnings per share (Rs)*         9.1  
Price to earnings ratio (x)**         39.5  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 2QFY10?
  • The company has continued to face pressure on realisations mainly due to subdued LME prices during the quarter under consideration. Revenues from the alumina segment declined by 32.7% YoY while the same from aluminium declined by 15.8% YoY. However, revenues from electricity business grew by 98.7% YoY. Hence everything put together, the topline has shrunk 25.6% YoY during the quarter.

  • On the operating front, operating profits declined by 83.5% YoY mainly on account of lower realisations. Furthermore, operating expenses grew by 15.8% YoY during the quarter. All this put together led to a fall in EBITDA margins from 41.7% in 2QFY09 to 9.2% in 2QFY10.
    Cost break-up…
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Raw materials 1,658 1,709 3.1% 2,848 2,963 4.1%
    % sales 10.8% 14.9%   9.5% 14.4%  
    Power and fuel 3,974 4,845 21.9% 6,699 7,697 14.9%
    % sales 25.9% 42.4%   22.3% 37.3%  
    Staff cost 1,579 1,800 14.0% 3,109 3,486 12.1%
    % sales 10.3% 15.7%   10.4% 16.9%  
    Other expenditure 1,746 2,020 15.7% 3,607 3,908 8.3%
    % sales 11.4% 17.7%   12.0% 18.9%  

  • Net profits declined by 64.1% YoY lower as compared to operating profits mainly on account of higher other income coupled with lower tax outgo. However, the growth in depreciation cost has impacted the bottomline adversely.

What to expect?
At current price of Rs 361 the stock is trading at a multiple of 39.5x its trailing twelve month earnings. We will soon update our view on the company.

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