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Nalco, 1st February 2013

Nalco, 1st February 2013

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Published by Angel Broking
1st February 2013
1st February 2013

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Categories:Types, Business/Law
Published by: Angel Broking on Feb 01, 2013
Copyright:Attribution Non-commercial

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Please refer to important disclosures at the end of this report
 1 
Quarterly highlights (Standalone)
 
Particulars (
`
cr) 2QFY13 2QFY12
yoy %
1QFY13
qoq %
Net sales 1,670 1,430
16.8
1,586
5.3
EBITDA 182 68
166.6
(2)
-EBITDA margin (%) 10.9 4.8 614bp (0.1) 1,104bp
Net profit 119 51
132.0
5
2,384.1
 Source: Company, Angel Research
For 3QFY2013, Nalco reported a better-than-expected PAT performance,although the top-line was in line with our estimates.
We recommend Reducerating on the stock due to its expensive valuation.
 
Muted top-line performance:
Nalco’s net sales grew by 16.8% yoy to
 ` 
1,670cr (inline our estimate of
 ` 
1,657cr). Its aluminium sales volumes grew 4.1% yoy to 102,000 tonne while alumina production increased by 35.0% yoy to220,000 tonne.
Higher input and energy costs hit margins:
Nalco’s power costs as a percentageof net sales stood at 35.0%, ie above our estimate, due to higher-than-expectedproportion of linkage coal from Mahanadi Coalfields (80%). Hence, Nalco’sprofitability was above our estimates. Nalco reported an EBITDA and PAT growthof 166.6% and 132.0% yoy, respectively.
Update on Utkal coal block:
 
Currently, there is no clarity on land acquisition forthe coal block. While Nalco expects to commence production from this mine by the end of CY2013, our recent experience suggests that it could take a muchlonger time to acquire land and sign the mining lease with the state government.
Outlook and valuation:
 Although Nalco has captive bauxite mines, the cost ofaluminium production remains very high on account of high power costs. Further,there is lack of clarity over the company’s future expansion plans. At the CMP,Nalco is trading at valuations of 10.7x FY2013E and 7.3x FY2014E EV/EBITDA,ie at a significant premium to its peers. Hence,
valuing the stock at 6.5x FY2014EEV/EBITDA, we derive a target price of
`
46 and
 
recommend Reduce on the stock.
 
Key financials (Standalone)
(
`
cr) FY11 FY12 FY13E FY14ENet sales 5,959 6,500 6,630 8,357
% change 17.9 9.1 2.0 26.0
Adj. PAT 1,069 871 548 840
% change 31.3 (18.5) (37.1) 53.3
EPS (
`
) 4.1 3.4 2.1 3.3
OPM (%) 26.7 17.5 11.4 14.5PE (x) 11.9 14.6 23.2 15.2P/BV (x) 1.1 1.1 1.1 1.0RoE (%) 9.9 7.4 4.6 6.9RoCE (%) 10.2 5.5 2.0 5.0EV/Sales (x) 1.3 1.2 1.2 1.0EV/EBITDA (x) 4.8 6.9 10.7 7.3
 Source: Company, Angel Research
 
REDUCE
CMP
 ` 
49Target Price
 ` 
46
Investment Period 12 months
Stock InfoSectorBloomberg CodeShareholding Pattern (%)Promoters87.2 MF / Banks / Indian Fls5.2 FII / NRIs / OCBs3.9 Indian Public / Others3.7  Abs. (%)3m1yr3yrSensex7.515.721.6  Nalco5.6(13.6)(48.2)  NACL@INFace Value (
 ` 
)BSE SensexNifty Reuters CodeBase Metals Avg. Daily VolumeMarket Cap (
 ` 
cr)Beta52 Week High / Low519,895Net debt (
 ` 
cr)(4,600)6,035NALU.BO12,7320.968/4471,102
 
Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821bhaveshu.chauhan@angelbroking.com
Vinay Rachh
Tel: 022- 39357600 Ext: 6841vinay.rachh@angelbroking.com
 
National Aluminium
Performance Highlights
3QFY2013 Result Update | Base Metals
January 31, 2013
 
 
National Aluminium | 3QFY2013 Result Update
January 31, 2013
2
Exhibit 1:
 
3QFY2013 performance (Standalone)
(
`
cr.) 3QFY133QFY12yoy %2QFY13qoq %9MFY139MFY12yoy %
Net Sales
1,6701,430
16.8
1,586
5.3
4,9744,747
4.8
Raw Material
299240
 25.0
253
18.3
798713
12.0
% of Net sales
17.916.716.016.115.0
 
Power and Fuel
585568
3.0
753
(22.3)
1,9431,688
15.1
% of Net sales
35.039.747.539.135.6
 
Staff Cost
289296
(2.4)
296
(2.0)
869874
 
(0.6)
% of Net sales
17.320.718.617.518.4
 
Other Expenses
336278
 20.9
308
9.2
954802
18.9
% of Net sales
 20.119.419.419.216.9
 
Total Expenditure
1,5101,382
9.3
1,610
(6.2)
4,5644,076
12.0
% of Net sales
90.496.7101.591.885.9
 
Operating Income
2321
9.3
22
1.6
7580
(6.9)
EBIDTA
18268
166.6
(2)
-
485751
(35.4)
% of Net sales
10.94.8(0.1)9.715.8
 
Interest
0(0)
-
4
-
7(0)
-
Depreciation
123123
(0.3)
124
(0.6)
369343
7.5
Other Income
113126
(10.5)
139
(19.0)
392385
 2.0
Exceptional Items
00000
 
Profit before Tax
17271
142.1
9
1,714.5
500792
(36.8)
% of Net sales
10.35.00.610.116.7
 
Provision for tax
5320
168.4
5
1,032.0
154225
(31.6)
% of PBT
30.927.949.530.728.4 
Profit after tax
11951
132.0
5
2,384.1
347567
(38.9)
 Source: Company, Angel Research
Exhibit 2:
 
3QFY2013 – Actual vs. Angel estimates
(
`
cr) Actual Estimates
Variation (%)
Net sales 1,670 1,657
0.8
EBITDA 182 46
 293.3EBITDA margin (%) 10.9 2.8 813bp
PAT 119 63
88.5
 Source: Company, Angel Research
Result highlights
Net sales up 16.8% yoy 
Nalco’s net sales grew by 16.8% yoy to
 ` 
1,670cr (in line our estimate of
 ` 
1,657cr).Its aluminium sales volumes grew 4.1% yoy to 102,000 tonne while aluminaproduction increased by 35.0% yoy to 220,000 tonne..
 
 
National Aluminium | 3QFY2013 Result Update
January 31, 2013
3
Exhibit 3:
 
Quarterly revenue trend
 Source: Company, Angel Research
Higher mix of linkage coal results in EBITDA improvement
The company’s aluminium segment reported a lower EBIT loss of
 ` 
22cr for thequarter compared to a loss of ~
 ` 
150cr in 3QFY2012, which helped inimprovement in the performance. Power costs as a percentage of net sales stoodat 35.0%, compared to 39.7% in 3QFY2012 as there was significant improvementin supply of linkage coal from Mahanadi Coalfields (80% of the coal mix). Further,staff costs (surprisingly) decreased 2.4% yoy to
 ` 
289cr. Hence, Nalco reported anEBITDA growth of 166.6% yoy to
 ` 
182cr.
 
Nalco’s aluminium EBIT continues to make losses on account of lower realizationscoupled with higher costs.
Exhibit 4:
 
Quarterly EBITDA trend
 Source: Company, Angel Research
Exhibit 5:
 
 Aluminium EBIT continues to make losses
 Source: Company, Angel Research
1,7331,5841,4301,7531,7181,5861,670(5)051015202530354002004006008001,0001,2001,4001,6001,8002,0001QFY122QFY123QFY124QFY121QFY132QFY133QFY13
     (     %     )     (
   `
   c   r     )
Net revenue (LHS)yoy chg (RHS)
53015368307304(2)182(5)05101520253035(100)01002003004005006001QFY122QFY123QFY124QFY121QFY132QFY133QFY13
     (     %     )     (
   `
   c   r     )
EBITDA (LHS)EBITDA margin (RHS)193242(89)(153)(16)(19)(53)(22)(200)(150)(100)(50)0501001502002503004QFY111QFY122QFY123QFY124QFY121QFY132QFY133QFY13
     (
   `
   c   r     )
 Aluminium EBIT

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