• AUGUST 12, 2008

NALCO: A peep into past IV

In the last article, we saw the performance of balance sheet of Nalco between the period 1999 and 2003. Now let us track the performance of the same between the period 2003 and 2007.

Let us first consider the assets side of the company. Net fixed assets of the company declined at a CAGR of 2.4%. This was due to no major capex taking place and continuous depreciation of assets. The average capex for the period stood at Rs 3.3 bn, lower than the average depreciation for the period, which stood at Rs 3.9 bn. The investments of the company declined from Rs 2 bn m in FY03 to nil in FY05. This was because the company seemed to have sold of its investments and increased its cash balance.

The working capital of the company increased from negative Rs 5.8 bn in FY03 to Rs 31bn in FY07. But if we were to exclude cash from the working capital, then the company still worked with a negative working capital. The inventory days declined from 62 in FY03 to 35 in FY07 and debtors days from 13 in FY03 to 2 in FY07.

On the liabilities side, the company showed an excellent performance and made the company debt free by FY05. The company paid back the total debt of Rs 13 bn that resided on its balance sheet as at the end of FY03, within two years. The fact that the company did not have to undertake significant capex and also reduced its working capital needs helped it repay debt in such a quick time.

The net worth of the company grew at a CAGR of 23%. This can be owed to the huge profits generated by the company during the period under consideration. Since the company entered the period under consideration with a moderate RONW of 16%, the growth in net worth remained lower than the overall PAT growth of 46% despite a drastic reduction in dividend payout. However, it should be noted that by FY07, the company's RONW had improved to a strong 31%.

Thus, as can be seen from the above paragraphs, the company remained a huge cash-generating machine between FY03 and FY07. It not only managed to grow its profits at a rapid pace, lower working capital and virtually no capex ensured a hefty cash balance at the end of FY07. Just to put things in perspective, the company's cash and equivalents grew an astounding 59 fold between FY03 and FY07! No wonder, the markets rewarded the company handsomely as its stock price gave compounded returns of 26% between 2003 and 2007.

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