NALCO (Q2 FY14)

India Infoline News Service | Mumbai |

Operating profit for the quarter stood at 2.7bn, lower by 12% yoy and 36.5% qoq, but was quite higher than our estimate of Rs1.9bn.

CMP Rs39, Target Rs36, Downside 8.1%
  • NALCO’s Q2 FY14 results were quite stronger than our estimate on the back of a jump in alumina sales volumes. Power costs too declined due to an increase in supply of linkage coal during the quarter. The company managed to report stronger than expected numbers on all the fronts in Q2 FY14.


  • The company reported a 0.6% yoy de-growth in topline to Rs15.6bn due to lower aluminium metal production. Aluminium production declined sharply by 25.7% yoy due to lower availability of coal and the management’s focus to decrease consumption of imported coal. This impact on topline was offset by strong alumina volume growth of 20.1% yoy to 478,000 tons. Sales of alumina were strong at 96.8% yoy due to lower internal consumption for converting it into aluminium metal and higher production. 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 jumped 27% yoy to Rs9.7bn on account of higher volumes and realization. Revenue from aluminium business fell sharply by 21% yoy to Rs9.7bn on account of lower aluminium production. Aluminium realizations higher by 5.3% yoy to Rs130,019/ton led by rupee depreciation and higher product premiums. Power business revenue decreased 26.7% yoy to Rs3.8bn as the company avoided usage of imported coal.

Production and sales volume details
 
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Production





Alumina
478,000
398,000
20.1
482,000
(0.8)
Aluminium
75,000
102,000
(26.5)
85,000
(11.8)
Sales





Alumina
374,000
190,000
96.8
283,000
32.2
Aluminium
75,000
101,000
(25.7)
85,000
(11.8)
Source: Company, India Infoline Research
  • Operating profit for the quarter stood at 2.7bn, lower by 12% yoy and 36.5% qoq, but was quite higher than our estimate of Rs1.9bn. The outperformance in operating profit was led by a jump in alumina sales and lower power costs. An increase in supply of linkage coal led to a decline in power costs. The company didn’t purchase any power from outside sources. Power costs as a % of sales decreased from 34.6% in Q2 FY13 and 32.4% in Q1 FY14 to 29.5% as aluminium production was lower. EBIT from the alumina division increased 19.6% yoy to Rs2.3bn due to higher alumina prices and volumes.

Cost Analysis
 
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Material costs
17.2
14.1
313
16.3
88
Power and Fuel costs
29.5
34.6
(507)
26.2
334
Personnel Costs
18.6
16.2
235
15.3
328
Other overheads
19.3
17.7
159
19.6
(31)
Total costs
84.6
82.6
201
77.4
718
Source: Company, India Infoline Research
  • NALCO’s operating profit has improved over the last one year on the back of higher availability of linkage coal and an increase in alumina sales. However, the supply of linkage coal has not been steady leading to variations in its quarterly numbers. We have lowered our metal production estimates inline with the management guidance and have increased our metal realizations for FY14 and FY15 to incorporate the depreciation in the rupee. The stock has run up sharply over the last one quarter. We believe the upside for the stock would be capped around current levels and downgrade the stock from BUY to Market Performer with a revised price target of Rs36.

Results table
(Rs m)
Q2 FY14
Q2 FY13
% yoy
Q1 FY14
% qoq
Net sales
17,382
17,481
(0.6)
BSE 77.75 1.20 (1.57%)
NSE 77.70 1.05 (1.37%)

***Note: This is a NSE Chart

 

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