IIFL recommends buy on NALCO post Q1 FY14 results

IIFL has maintained its buy recommendation on National Aluminium Company post the latter's Q1 FY14 results. It has a target of INR 32, an upside of 24.3% from its current market price of INR 26 per share.

Analysing the numbers, the brokerage said, "Q1 FY14 results were below our estimate due to a jump in power costs and higher employee costs. Power costs increased sharply on account of lower supply of linkage coal. The company had to shutdown pots due to lower availability of coal, leading a sharp decline in aluminium production. The company reported a 10.7% year-on-year de-growth in topline to INR 15.6bn due to lower metal realisations and a decline in aluminium production. Operating profit stood at INR 1.5bn, lower by 49.7% YoY and 63.7% QoQ and is also lower than our estimate of INR 2.4bn. The decline in operating profit was due to jump in power costs and lower metal sales."

It has lowered its metal production estimates on account of the current economic situation and also lowered metal realisations for FY14 and FY15.

NALCO’s Q1 FY14 results were low due to a jump in power costs and higher employee costs. Power costs increased sharply on account of lower supply of linkage coal. The company had to shutdown pots due to lower availability of coal, leading a sharp decline in aluminium production.

The company reported a 10.7% yoy de-growth in topline to INR 15.6bn due to lower metal realizations and a decline in aluminium production. Aluminium production declined sharply by 17.5% yoy due to lower availability of coal. However, alumina production increased by 1.3% yoy to 482,000 tons. Sales of alumina were strong at 11.9% yoy due to lower internal consumption for converting it into aluminium metal. Both alumina and aluminium production was line with our estimate. Product premium continued to remain high for aluminium.

On a segmental basis, alumina division revenue decreased 2.5% yoy to INR7.4bn on account of lower realisations. Revenue from aluminium business fell sharply by 18% yoy to INR 10.2bn on account of lower aluminium production. Aluminium realizations declined marginally by 0.7% yoy to Rs120.326/ton as the impact of weaker global prices have been offset by rupee depreciation and higher product premiums.. Power business revenue decreased 2.3% yoy to INR 4.8bn due to lower availability of linkage coal.

NALCO’s operating profit had improved over the last two quarters on the back of higher availability of linkage coal and lower e-auction prices. IIFL maintains BUY recommendation on the stock with a revised price target of INR 32.