National Aluminium Co Ltd (Q4 FY14)

India Infoline News Service | Mumbai |

NALCO’s Q4 FY14 topline of Rs18.4bn was quite higher than our estimate of Rs16bn on the back of strong aluminium product premiums.

CMP Rs53, Target Rs46, Downside 12.9% 
  • Topline of Rs18.4bn was quite higher than our estimate of Rs16bn on the back of strong aluminium product premiums

  • Aluminium spot product premiums continued to increase on a qoq basis

  • Alumina sales volume of 0.37mn was marginally higher than our estimate

  • Operating profit of Rs3.1bn was higher than our estimate due to higher product premiums and increase in share of external alumina sales volume

  • The stock has run up ahead of fundamentals; downgrade to sell with a price target of Rs46

Result table
(Rs mn) Q4 FY14 Q4 FY13 % yoy Q3 FY14 % qoq
Net sales 18,382 18,673 (1.6) 16,439 11.8
Material costs (3,528) (3,051) 15.6 (2,514) 40.4
Power and fuel costs (4,785) (4,889) (2.1) (5,198) (8.0)
Personnel costs (2,986) (2,854) 4.6 (3,025) (1.3)
Other overheads (3,993) (3,662) 9.0 (3,659) 9.1
Operating profit 3,091 4,216 (26.7) 2,043 51.3
OPM (%) 16.8 22.6 -577 bps 12.4 439 bps
Depreciation (1,409) (1,361) 3.6 (1,308) 7.8
Other income 1,354 1,190 13.8 1,208 12.1
PBT 3,035 4,046 (25.0) 1,943 56.2
Tax (819) (1,585) (48.4) (633) 29.3
Effective tax rate (%) 27.0 39.2 32.6
Adjusted PAT 2,217 2,460 (9.9) 1,310 69.2
Adj. PAT margin (%) 12.1 13.2 -112 bps 8.0 409 bps
Reported PAT 1,723 2,460 (30.0) 1,310 31.5
EPS (Rs) 6.9 7.6   (9.9) 4.1   69.2
Source: Company, India Infoline Research

Strong volumes boost topline

NALCO’s Q4 FY14 topline of Rs18.4bn was quite higher than our estimate of Rs16bn on the back of strong aluminium product premiums. Alumina sales remained strong during the quarter aided by sales of previous quarter inventory. External alumina sales volume stood at 0.37mn tons against 0.32mn tons in Q4 FY13 and 0.31mn tons in Q3 FY14. Production of alumina was higher by 7.1% qoq, but was lower by 6.2%5 on a yoy basis. Aluminium production remained flat on a qoq basis at 77,000 tons. However, on a yoy basis metal production was lower by 21.3% yoy as the company had shut down 300 pots of the total 960 pots over the last two quarters. Sales volume of 81,000 tons was higher than our estimate due to some inventory liquidation.

On a segmental basis, alumina division revenue jumped 13.7% yoy to Rs10.6bn on account of higher volumes and realization. Revenue from aluminium business fell sharply by 16.4% yoy to Rs10.7bn on account of lower aluminium production. Aluminium realizations were higher by 1% yoy led by rupee depreciation and higher product premiums. We were quite surprised by the increase in product premiums on a qoq basis. The management believes that aluminium production would remain flat in FY15 due to unavailability of cheaper coal.


Production and sales volume trend
(Tons) Q4 FY14  Q4 FY13 % yoy Q3 FY14 % qoq
Production
Alumina 499,000 532,000 (6.2) 466,000 7.1
Aluminium 77,000 97,794 (21.3) 79,000 (2.5)
Sales
Alumina 371,000 319,191 16.2 314,000 18.2
Aluminium 81,000 97,794 (17.2) 79,000 2.5
Realisations (Rs/ton)
Alumina 21,160 17,454 21.2 18,097 16.9
Aluminium 132,952 131,681 1.0 134,672 (1.3)
Source: Company, India Infoline Research

Strong product premiums and lower power costs lead to 51.3% qoq increase in operating profit

Operating profit for the quarter stood at Rs3.1bn quite higher than our estimate of Rs2.1bn. The outperformance in operating profit was led by higher sales volume and strong product premiums. Power costs as a % of sales declined from 31.6% in Q3 FY14 to 26% in Q4 FY14 due to increase in availability of linkage coal. The management has mentioned that they would avoid consuming imported coal. The company’s power production during the declined by 18% yoy as the company’s focus was to avoid expensive coal. However, the impact of lower power costs was somewhat offset by an increase in raw material costs. Raw material costs as a % of sales increased from 15.3% in Q3 FY 14 to 19.2% in Q4 FY14. EBIT from the alumina division increased  52% qoq to Rs2.4bn due to higher alumina prices and volumes. However, on a yoy basis it was lower by 8.3% due to lower sales volume.


Cost Analysis
  Q4 FY14  Q4 FY13 % yoy Q3 FY14  % qoq
Material costs 19.2 16.3 285 15.3 390
Power and Fuel costs 26.0 26.2 (16) 31.6 (559)
Personnel Costs 16.2 15.3 96 18.4 (216)
Other overheads 21.7 19.6 211 22.3 (54)
Total costs 83.2 77.4 577 87.6 (439)
Source: Company, India Infoline Research

Segmental Results
  Q4 FY14  Q4 FY13 % yoy Q4 FY14  Q4 FY13
Sales (Rs mn) In %  Sales Contribution (%)
Chemicals 10,559 9,286 13.7 59.3 50.6
Aluminium 10,769 12,878 (16.4) 60.5 70.2
Others 140 26 428.8 0.8 0.1
Less: Intersegment Rev (3,656) (3,838) (4.8) (20.5) (20.9)
Total 17,812 18,352 (2.9)
EBIT (Rs mn) In %  EBIT contribution (%)
Chemicals 2,389 2,606 (8.3) 94.0 64.4
Aluminium (705) 493 (242.9) (27.7) 12.2
Others 859 946 (9.2) 33.8 23.4
Total 2,543 4,046 (37.1)
EBIT margins (%) In bps
Chemicals 22.6 28.1 (544)
Aluminium (6.5) 3.8 (1,038)
Others (23.5) (24.6) 115
Total 14.3 22.0 (777)    
Source: Company, India Infoline Research

Running ahead of fundamentals; downgrade to sell with a price target of Rs46

NALCO’s operating profit has improved over the last one year on the back of higher external alumina sales and increase in aluminium metal spot premiums. 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 FY15 and FY16 to incorporate the strong product premiums in the market. Lower product premiums coupled with an appreciation in the rupee would lead to a decline in operating profit in FY16. We believe the upside for the stock would be capped around current levels and downgrade the stock from Market Performer rating to SELL with a price target of Rs46.


Financial Summary
Y/e 30 Jun (Rs m) FY13 FY14E FY15E FY16E
Revenues 69,164 67,809 71,918 75,246
yoy growth (%) 4.6 (2.0) 6.1 4.6
Operating profit 9,069 9,342 9,194 8,268
OPM (%) 13.1 13.8 12.8 11.0
Pre-exceptional PAT 5,829 6,915 7,083 6,733
yoy growth (%) (31.4) 10.2 10.3 (4.9)
         
EPS (Rs) 2.3 2.7 2.7 2.6
P/E (x) 23.4 19.8 19.3 20.3
Price/Book (x) 1.1 1.1 1.1 1.1
EV/EBITDA (x) 9.6 9.0 7.6 8.6
RoE (%) 4.9 5.7 5.8 5.4
RoCE (%) 7.2 7.5 7.5 7.0
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

Advertisements

  • Save upto Rs.2.67 lakh with Pradhan Mantri Awas Yojana ...Know more
  • Now Save Rs.3150 on your Demat Account ...Click here
  • Now get IIFL Personal Loan in just 8* hours...APPLY NOW!
  • Get the most detailed result analysis on the web - Real Fast!
  • Actionable & Award-Winning Research on 500 Listed Indian Companies.