Nalco 3QFY2014 performance highlights and results update
January 31, 2014, Friday, 09:47 GMT | 05:47 EST | 15:17 IST | 17:47 SGT
For 3QFY2014, National Aluminium Company (Nalco) reported a lower-than-expected performance, both on the top-line and PAT front. We recommend a Neutral rating on the stock.
Net sales falls 2.9% yoy: Nalco’s 3QFY2014 net sales decreased by 2.9% yoy to Rs.1,621cr (below our estimate of Rs.1,744cr). Its alumina production volumes increased by 17.7% yoy to 466,000 tonne whereas the aluminium production volumes declined by 21.0% yoy to 79,000 tonne.
Aluminium segment continues to report loss at EBIT level: The company’s Aluminium segment reported a negative EBIT of Rs.40cr for the quarter compared to a loss of Rs.53cr in 3QFY2013. The raw material costs declined 16.1% yoy to Rs.251cr and power and fuel costs decreased by 11.2% yoy to Rs.520cr due to lower production of aluminium (its production involves high power consumption). Alumina division sales and EBIT grew by 26.2% yoy and 295.1% yoy to Rs.818cr and Rs.158cr, respectively. Therefore, the company’s EBITDA increased by 12.1% yoy to Rs.205cr in 3QFY2014.
Outlook and valuation: Although Nalco has captive bauxite mines, the cost of aluminium production remains very high on account of high power and employee costs. With subdued aluminium prices likely over the coming one year, we expect the company to suppress its production given its high costs of production. Further, there is lack of clarity over utilization of excess cash. Hence, we maintain our Neutral rating on the stock.