NALCO 2nd quarter profit after tax expected to grow by 40 percent

State-run National Aluminium Company's ( NALCO ) profit after tax is expected to grow by 40 percent year-on-year to Rs 195 core in the second quarter of FY13.

Net sales are seen going up by 7.7 percent to Rs 1,705 crore from Rs 1,583.7 crore during the same period.

Earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to go up by 96 percent YoY to Rs 240 crore for the quarter.

EBITDA margin is expected to be at 14.1 percent as against 7.7 percent in a year ago period and 15.98 percent in previous quarter.

On quarter-on-quarter basis, net sales are seen going down by 0.8 percent, EBITDA down by 12.6 percent and profit after tax down by 12.60 percent.

Factors:

Net sales is expected to grow on higher alumina volumes despite lower realizations

Alumina production is expected to be up 3 percent on a QoQ basis and aluminium sales volumes to increase 1 percent QoQ

But costs to remain high on a YoY basis and on a sequential basis

Aluminium has been one of the hardest hit base metals and has tanked 20 percent on a YoY basis and down 3 percent on a QoQ basis

LME prices have fallen 3 percent QoQ (20 percent YoY) to USD 1,912/tonne

Impact of lower aluminium prices is partly offset by depreciation in the rupee in the quarter and the rise in premiums

Margins to decline:

Primarily on account of legacy cost issues in coal and employee costs

EBITDA margin to decline on account of cost inflation, furnace oil and lower availability of coal for CPP

Aluminum smelting will continue to be a loss making business (contributes 50% of topline)

EBITDA to decline on a QoQ basis on lower LME prices, despite better volumes

Power cost to remain high till Utkal coal block commissioning

NALCO has been suffering on account of high power cost and lower LME prices

It is unable to get sufficient linkage coal from Mahanadi Coal Field and has to depend on high cost e-auction and imported coal

Till the Utkal coal block is commissioned Nalco will not be able to reap the full benefits of its enhanced refining capacity and power capacity

Aluminum smelter cannot sustain more than Rs 3 a unit cost of power (Production through grid power is not an economical option, they have indicated they rather use imported coal))

NALCO's ageing equipment and reliance on imported coal has been hitting the company’s profitability

Union cabinet committee on disinvestment (CCD) decided recently to dilute 12.15 percent of the government's stake in NALCO. Employees have been strongly protesting against divestment.