NALCO - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, National Aluminium's (Nalco) profitability was significantly above our expectations; however, we recommend Reduce on the stock.

Net sales decline by 1.9% yoy: For 4QFY2012, Nalco's net sales declined by 1.9% yoy to Rs.1,753cr (below our estimate of Rs.2,524cr). The aluminium segment reported a decline of 11.4% yoy in its revenue to Rs.1,262.71cr and loss of Rs.16.47cr in its EBIT.

Higher input and energy costs hit margins: During the quarter, raw-material cost as a percentage of net sales stood at 19.2% compared to 14.8% in 4QFY2011. Further, power cost as a percentage of net sales stood at 29% in 4QFY2012 compared to 26.2% in 4QFY2011. Hence, EBITDA decreased by massive 32.3% yoy to Rs.307cr and EBITDA margin contracted by 784bp yoy to 17.5%. Consequently, net profit decreased by 7.6% yoy to Rs.282cr (significantly above our estimate of Rs.115cr).

Update on Utkal coal block: Nalco received compliance letter for its Utkal coal block during September 2011. However, there is lack of clarity on the completion of other regulatory formalities in the near term. Hence, production from this block is unlikely to start in FY2013 in our view.

Outlook and valuation: Although Nalco has captive bauxite mines, the cost of aluminium production remains very high on account of high power costs. Further, there is lack of clarity on the company's future expansion plans. At the CMP, Nalco is trading at valuations of 11.1x FY2013E and 8.3x FY2014E EV/EBITDA, significant premium to its peers. Hence, valuing the stock at 7.0x FY2013E EV/EBITDA, we derive a target price of Rs.54 and recommend Reduce on the stock.

Source : Equity Bulls

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