NALCO (Q4 FY12)

CMP Rs60, Target Rs56, Downside 7.4%
 

• Q4 FY12 topline of Rs17.8bn was lower by 2.1% yoy, but higher by 23% on a yoy basis. Topline was marginally lower than our estimate of Rs18.1bn. Production of aluminium was higher on a qoq basis to 104,000 tons due to higher availability of linkage coal during the quarter. However, aluminium production was lower on a yoy basis as it continued to keep 120 pots idle. Alumina production too remained strong on the back of higher contribution from the new refinery. External alumina sales jumped 68.1% qoq and 40.6% yoy to 274,000 tons due to higher production and some previous quarter inventory liquidation. Realisations of both alumina and aluminum were higher on a qoq basis. 

Quarterly production and sales trend

Source: Company, India Infoline Research 

• On a segmental basis, aluminium division revenues increased by 11% on a qoq basis due to higher volumes. Alumina division revenue jumped 26.6% due to higher external sales. Revenue from power division too was strong at Rs5.1bn, higher by 9.2% due to higher availability of linkage coal.
  

• Operating profit of Rs3.1bn was quite higher than Rs0.7bn achieved in Q3 FY12, but lower by 32.3% yoy from Rs4.6bn achieved in Q4 FY11. Operating profit of Rs3.1bn was higher than our estimate due to lower power costs. Power costs for the company declined on qoq basis despite the increase in aluminium production. The decrease was largely due to the availability of linkage coal. Share of e-auction coal of total coal consumed declined from 15% in Q3 FY12 to 8% in Q4 FY12. Employee costs too declined qoq as previous quarter it had made provision for employee benefits. The impact of lower power costs was offset by a jump in other expenditure. On a segmental basis, aluminium division managed to register an EBIT loss of Rs0.2bn lower than loss of Rs1.5bn in Q3 FY12.
  

• PAT of Rs2.8mn was 450% higher on a qoq basis due to higher other income and an extra ordinary income of Rs639mn. Other income jumped 26.3% on a qoq basis at Rs1.6bn.
  

• NALCO would remain an underperformer hence forth on account of higher coal costs, uncertainty over global financial health and slower ramp up in alumina refinery. We reduce our volume estimates for FY12 and FY13 incorporating the management strategy of keeping aluminium smelter pots idle and slower ramp up in new refinery. At the current price of Rs60, the company is trading at 7x FY13 EV/EBIDTA, which is inline with its peers. We maintain our Market Performer rating on the stock with a 9-month price target of Rs56.