NALCO (Q1 FY14)

India Infoline News Service | Mumbai |

NALCO’s Q1 FY14 results were below our estimate due to a jump in power costs and higher employee costs.

CMP Rs26, Target Rs32, Upside 24.3%

  • NALCO’s Q1 FY14 results were below our estimate due to a jump in power costs and higher employee costs. Power costs increased sharply on account of lower supply of linkage coal. The company had to shutdown pots due to lower availability of coal, leading a sharp decline in aluminium production.


  • The company reported a 10.7% yoy de-growth in topline to Rs15.6bn due to lower metal realizations and a decline in aluminium production. Aluminium production declined sharply by 17.5% yoy due to lower availability of coal. However, alumina production increased by 1.3% yoy to 482,000 tons. Sales of alumina were strong at 11.9% yoy due to lower internal consumption for converting it into aluminium metal. Both alumina and aluminium production was line with our estimate. Product premium continued to remain high for aluminium. 


  • On a segmental basis, alumina division revenue decreased 2.5% yoy to Rs7.4bn on account of lower realisations. Revenue from aluminium business fell sharply by 18% yoy to Rs10.2bn on account of lower aluminium production. Aluminium realizations declined marginally by 0.7% yoy to Rs120.326/ton as the impact of weaker global prices have been offset by rupee depreciation and higher product premiums.. Power business revenue decreased 2.3% yoy to Rs4.8bn due to lower availability of linkage coal.

Production and sales volume details
 
Q1 FY14
 Q1 FY13
% yoy
Q4 FY13
 % qoq
Production





Alumina
482,000
476,000
1.3
532,000
(9.4)
Aluminium
85,000
103,000
(17.5)
97,794
(13.1)
Sales





Alumina
283,000
253,000
11.9
319,191
(11.3)
Aluminium
85,000
103,000
(17.5)
97,794
(13.1)
Source: Company, India Infoline Research
  • Operating profit for the quarter stood at 1.5bn, lower by 49.7% yoy and 63.7% qoq and is also lower than our estimate of Rs2.4bn. The decline in operating profit was due to jump in power costs and lower metal sales. Power costs as a % of sales increased from 26.2% in Q4 FY13 to 32.4% even though aluminium production was lower. We believe this was largely due to lower availability of linkage coal. EBIT from the alumina division declined 26.2% yoy to Rs1.4bn due to lower alumina prices.

Cost Analysis
 
Q1 FY14
 Q1 FY13
% yoy
Q4 FY13
 % qoq
Material costs
14.0
14.1
(8)
16.3
(234)
Power and Fuel costs
32.4
34.6
(215)
26.2
625
Personnel Costs
23.2
16.2
694
15.3
787
Other overheads
20.6
17.7
289
19.6
99
Total costs
90.2
82.6
760
77.4
1,277
Source: Company, India Infoline Research
  • NALCO’s operating profit had improved over the last two quarters on the back of higher availability of linkage coal and lower e-auction prices. However, the supply of linkage coal has not been steady leading to variations in its quarterly numbers. We have lowered our metal production estimates on account of the current situation and have also lowered our metal realizations for FY14 and FY15. We now estimate profitability to be impacted due to lower realizations. However, we believe that downside for the stock is limited due to the high cash balance (80% of current market cap). We maintain our BUY recommendation on the stock with a revised price target of Rs32.
Results table
(Rs m)
Q1 FY14
 Q1 FY13
% yoy
Q4 FY13
% qoq
Net sales
15,606
17,481
(10.7)
18,673
BSE 76.70 [0.45] ([0.58]%)
NSE 76.70 [0.40] ([0.52]%)

***Note: This is a NSE Chart

 

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