China Aluminium Network
Nalco Q2 FY2012 performance highlights and results update
Edited by : AL CIRCLE
2 min read
Nalco Q2 FY2012 profitability was significantly below our expectations on account of higher than expected raw aterial and power and fuel costs. We have a Neutral view on the stock.
Higher realization leads to net sales growth: For Q2 FY2012, Nalco’s net sales grew by 8.9% YoY to INR 1,584cr mainly due to increased realization despite lower volumes. Realization of alumina and aluminum grew by 29.4% and 23.1% YoY to USD 400 and USD 2,599 respectively. However, the company lost production of atleast 6,000 tonnes of aluminum metal on account of coal supply disruptions by Mahanadi Coalfields.
Lower domestic coal supplies hit margins: Raw-material cost as a percentage of net sales stood at 18.7% in Q2 FY2012 compared to 15.5% in Q2 FY2011. Further, power and fuel cost as a percentage of net sales stood at 40.3% in Q2 FY2012 compared to 34.1% in Q2 FY2011. The company had to import coal on account of lower supplies from Mahanadi Coalfields, which resulted in higher power costs. Hence, EBITDA decreased by 56.1% YoY to INR 153cr and EBITDA margin contracted by massive 1,427 BP yoy to 9.6%. Other income grew by 54.7% YoY to INR 132cr and tax rate stood at 16.4% in Q2 FY2012 compared to 33.7% in Q2 FY2011. Consequently, net profit decreased by 37.8% YoY to INR 139crore.
Although Nalco enjoys high levels of backward integration, the cost of production remains very high for Nalco. Further, there is lack of clarity over Nalco’s volume growth. At the CMP, Nalco is trading at valuations of 7.4x FY2012E and 4.5x FY2013E EV/EBITDA, higher than its peers. Hence, we recommend Neutral on the stock.
Higher realization leads to net sales growth: For Q2 FY2012, Nalco’s net sales grew by 8.9% YoY to INR 1,584cr mainly due to increased realization despite lower volumes. Realization of alumina and aluminum grew by 29.4% and 23.1% YoY to USD 400 and USD 2,599 respectively. However, the company lost production of atleast 6,000 tonnes of aluminum metal on account of coal supply disruptions by Mahanadi Coalfields.
Lower domestic coal supplies hit margins: Raw-material cost as a percentage of net sales stood at 18.7% in Q2 FY2012 compared to 15.5% in Q2 FY2011. Further, power and fuel cost as a percentage of net sales stood at 40.3% in Q2 FY2012 compared to 34.1% in Q2 FY2011. The company had to import coal on account of lower supplies from Mahanadi Coalfields, which resulted in higher power costs. Hence, EBITDA decreased by 56.1% YoY to INR 153cr and EBITDA margin contracted by massive 1,427 BP yoy to 9.6%. Other income grew by 54.7% YoY to INR 132cr and tax rate stood at 16.4% in Q2 FY2012 compared to 33.7% in Q2 FY2011. Consequently, net profit decreased by 37.8% YoY to INR 139crore.
Although Nalco enjoys high levels of backward integration, the cost of production remains very high for Nalco. Further, there is lack of clarity over Nalco’s volume growth. At the CMP, Nalco is trading at valuations of 7.4x FY2012E and 4.5x FY2013E EV/EBITDA, higher than its peers. Hence, we recommend Neutral on the stock.
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