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National Aluminium Company 3QFY13 results update

Contributed by Nirmal Bang

National Aluminium Company (Nalco) posted strong results for 3QFY13, with EBITDA/PAT being 261%/382% above our estimates, respectively. EBITDA/PAT were 40%/10% up, respectively, compared to consensus estimates. Robust alumina sales along with lower power and fuel costs have primarily driven the strong performance. We have revised our EBITDA estimates upward by 9%/7% for FY13E/FY14E, respectively, while PAT estimates have been revised upward by 10%/8% for the same period. However, we have retained our Sell rating on NALCO with a revised target price of Rs45 (up 5% from our earlier TP of Rs43).

Segment-wise highlights: Nalco posted 16% YoY and 9% QoQ increase in alumina revenue, primarily driven by higher volume. EBIT was down 6% YoY due to higher energy costs, but it is up by a whopping 218% QoQ due to higher volume and lower energy costs. Aluminium revenue posted a 13% YoY jump on the back of marginal improvement in volume, realisation and the metal’s premium over LME, while it was up 3% QoQ. However, aluminium PBIT continued to remain in the red due to higher energy costs, although, losses narrowed down to Rs215mn from a loss Rs1,529mn in 3QFY12 and a loss of Rs532mn in 2QFY13. Power revenue was up 5% YoY as well QoQ due to stable generation, while due to lower coal costs the PBIT turned green from a loss of Rs568mn in 2QFY13 to a profit of Rs138mn in 3QFY13.

Operational performance: Nalco posted a 7% YoY jump in aluminium production due to higher capacity utilisation, while it was down 2% QoQ. However, alumina performance remained strong with 35% YoY and 14% QoQ jump in sales volume due to commissioning of a new unit. Revenue remained stable with 17% YoY and 5% QoQ jump, but EBITDA was lumpy due to power and fuel costs. The company reported 186%/132% YoY jump in EBITDA/PAT, respectively. On QoQ basis, Nalco posted EBITDA of Rs1,827mn as compared to EBITDA loss of Rs16mn in 2QFY13, while PAT stood at Rs1,189mn as compared to a PAT of Rs48mn in 2QFY13.

Lumpy financials due to power and fuel (P&F) costs: In 2QFY13, aluminium output was down 1% QoQ, but P&F costs were up 25% QoQ (accounting for 47% of revenue), while in 3QFY13 aluminium output was down 2% QoQ but P&F costs were up 22% QoQ (accounting for 35% of revenue). This was primarily driven by uneven coal sourcing via linkage, resulting in higher usage of imported and e-auctioned coal.