National Aluminium Company Q1 net may rise 14% to INR 182 cr

State-run National Aluminium Company (Nalco), which will declare its first quarter (April-June) earnings on Wednesday, is expected to show a 14 percent growth in profit after tax at INR 182 crore compared to INR 159.7 crore in corresponding quarter of last fiscal on account of company's strategy to minimise expensive coal imports, according to CNBC-TV18 poll estimates.

Analysts feel operational performance of the company may not entirely reflect in profit because of effective tax rate in Q1FY14 (which was only 23 percent) and other income (that may be lower during the quarter).

Analysts feel operational performance of the company may not entirely reflect in profit because of effective tax rate in Q1FY14 (which was only 23 percent) and other income (that may be lower during the quarter).

Total turnover is likely to increase 8 percent to INR 1,680 crore in the quarter ended June 2014 from INR 1,560 crore in same quarter last year led by growth in alumina sales and aided by 7 percent weaker INR/USD rate. However, sequentially numbers may look weaker because in Q4FY14, it had benefits of higher alumina sales due to a delayed shipment from Q3FY14 to Q4FY14.

Factors like Nalco’s strategic decision to reduce exposure towards aluminium and focus on alumina; and decision to restrict aluminium production to the extent of domestic coal availability and keep power cost under check may be closely watched during the quarter.

Operating profit may jump 67 percent year-on-year to INR 255 crore and margin may expand 540 basis points to 15.2 percent in April-June quarter driven by higher volumes of alumina, better realisation and lower cost.

LME prices were lower but offset by rupee depreciation of 7 percent year-on-year and higher premiums may aid realisations during the quarter. LME aluminum prices declined 2 percent Y-o-Y (up 5 percent Q-o-Q) while LME alumina slipped 3 percent Y-o-Y (down 3 percent Q-o-Q).

Key issues to watch out for are aluminum production (which has been affected due to constraints in supply of linkage coal from Mahanadi Coalfields-MCL) and lower LME prices; capacity utilisation (Nalco is operating at 25-30 percent lower capacity and the trend is likely to continue due to limited linkage coal supply); and Utkal E coal block (which remains the key to profitability of the idle smelter capacity).

Analysts feel alumina prices are likely to increase over the next few years due to shortage of bauxite and the export ban from largest supplier, Indonesia.