Topline of Rs16.9bn increased 5% qoq and was higher than our estimate of Rs15.5bn. The outperformance in topline was due to higher aluminium sales volume and higher spot premiums. Alumina sales increased 16% qoq to 220,000 tons, but were lower than our estimate of 235,000 tons. One shipment of alumina was deferred from Q2 FY13 helped the company register an increase in alumina sales on a qoq basis. Alumina production growth rate was slower at 8.3% yoy to 431,000 tons while aluminium production declined 2% qoq to 102,000 tons. The company is conservative on aluminium production due to current LME prices and costly power and fuel. Alumina and aluminium realizations were higher due to higher premiums and depreciation of the Rupee.
On a segmental basis, alumina division revenue increased 9% qoq to Rs7.09bn led by higher alumina sales and marginally higher realizations. Revenue from aluminium business increased 3% qoq to Rs12.8bn on account of higher realizations which made up for the marginal decline in aluminium production. Aluminium realizations increased 2% qoq to Rs125,385/ton. Power business increased 5% yoy to Rs4.9bn due to better availability of linkage coal which led to an increase in power generation by 5.7% qoq to 1,525mn units. The company received 100% coal linkage from MCL for its power plants.
Operating profit stood at Rs1.8bn against a loss of Rs16mn last quarter on the back of a sharp decrease in power costs. Total expenditure of the company declined 6% qoq to Rs15.1bn. The decline in operating expenses was led by lower raw material and fuel costs. The power and fuel expenses declined 22% qoq to Rs5.8bn due to a decline in coal prices and better coal linkage. The average blended cost of coal was Rs2,000/ton for the current quarter which included linkage coal (80%), e-auction coal (10%) and imported coal (10%). The average cost of linkage coal was Rs1,200-1,500/ton, e-auction coal was Rs4,000/ton and imported was Rs5,900/ton for the current quarter. The company spent only Rs120mn for purchase of power from the state government against Rs1,030mn in the last quarter as coal availability improved and coal prices were lower. CP coke price decreased 13% qoq to Rs23,000/ton. Fuel consumption at captive power plant decreased from 1kg/kwh to 0.95kg/kwh. Caustic soda required per ton for aluminium production declined from 95kg/ton in the last quarter to 83kg/ton in the current quarter. Other expenses increased 3.7% qoq to Rs19.9mn due to a one-time major replacement cost for restarting the bauxite mine in Koraput district.
The mining lease of NALCO’s bauxite mine in Panchpatmali hills in Koraput district expired on 16th November, 2012. The company resumed mining at the site on 17th December, 2012 when it received a one-year temporary permit from the state government. The management said that the mining suspension did not impact the company’s smelter operations and hopes to receive the lease that it applied for two years back in this period. NALCO has paid Rs250mn for the land acquisition of Utkal-E coal block in Angul and expects to start mining by end of 2013. The JV with NPCIL with 26:74 equity is awaiting permission from the Department of Atomic Energy but the project activity is going on. The feasibility of JV with GMDC for setting up alumina and aluminium smelter plant in Gujarat will be decided in the next 2-3 months. NALCO is looking to enhance its alumina production capacity to 2.2mtpa in FY14 and to 2.275mtpa in FY15.
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 believe Aluminium volumes in FY14 would remain subdued due to higher costs and flat aluminium prices. The management would continue its strategy of keeping aluminium smelter pots idle and slower ramp up in new refinery. At the current price, the company is trading at 7.4x FY14 EV/EBIDTA, which is expensive compared to its peers. We downgrade the stock from Market Performer to SELL with a 9-month price target of Rs44.
|(Rs m)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Power and fuel costs||(5,852)||(7,535)||(22.3)||(5,683)||3.0|
|OPM (%)||10.8||(0.1)||1,089 bps||4.7||607 bps|
|Effective tax rate (%)||30.9||49.5||27.9|
|Adj. PAT margin (%)||7.0||0.3||673 bps||3.5||350 bps|
|Ann. EPS (Rs)||3.7||0.1||-||0.8||364.4|
|Q3 FY13||Q2 FY13||% qoq||Q3 FY13||Q2 FY13|
|Sales (Rs mn)||In %||Sales Contribution (%)|
|Less: Intersegment Rev||(7,730)||(8,044)||(3.9)||(48.7)||(46.8)|
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