Business Standard
Nalco's margins to remain under pressure
Edited by : AL CIRCLE
1 min read
Despite rupee fall cushioning the revenue decline and expectations of aluminium prices improving, raw material costs may keep a tab on profitability.
The Nalco stock has lost over half its value since March 2011 due to declining aluminium prices on account of the global uncertainty, and weak performance. Rising production costs, owing to high raw material prices, have hit the company’s profitability. Nalco saw its operating margin dip to a seven-year-low of 9.5 percent in the September 2011 quarter.
The rupee depreciation has provided some respite, as it may limit the decline in revenues for domestic aluminium players like Nalco. A silver lining also comes from analysts’ expectations that aluminium prices will bounce back in the coming quarters as low prices have led to production cuts. They feel that operating margins, too, have bottomed out. However, coal still continues to be a cause for concern. Other raw materials like caustic soda, having been contracted at higher prices, will continue to impact profitability for the next few quarters. Therefore, over two-thirds of the analysts, according to Bloomberg data, have either a hold or a sell rating on the stock.
The Nalco stock has lost over half its value since March 2011 due to declining aluminium prices on account of the global uncertainty, and weak performance. Rising production costs, owing to high raw material prices, have hit the company’s profitability. Nalco saw its operating margin dip to a seven-year-low of 9.5 percent in the September 2011 quarter.
The rupee depreciation has provided some respite, as it may limit the decline in revenues for domestic aluminium players like Nalco. A silver lining also comes from analysts’ expectations that aluminium prices will bounce back in the coming quarters as low prices have led to production cuts. They feel that operating margins, too, have bottomed out. However, coal still continues to be a cause for concern. Other raw materials like caustic soda, having been contracted at higher prices, will continue to impact profitability for the next few quarters. Therefore, over two-thirds of the analysts, according to Bloomberg data, have either a hold or a sell rating on the stock.
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