NALCO - Result Update 1QFY2014 - Angel Broking

For 1QFY2014, Nalco reported a lower-than-expected performance, both on the top-line and PAT front. We recommend Neutral rating on the stock.

Net sales fall 10.6% yoy: Nalco's net sales declined by 10.6% yoy to Rs. 1,537cr (below our estimate of Rs. 1,798cr) due to lower aluminium sales. Its alumina sales increased by 11.9% yoy to 283,000 tonne whereas aluminium sales declined by 17.5% yoy to 85,000 tonne.

Higher other income and lower taxes mute PAT decline: The company's aluminium segment reported a negative EBIT of Rs. 79cr for the quarter compared to a loss of Rs. 19cr in 1QFY2013. Staff costs as a percentage of net sales stood at 20.9%, compared to 16.5% in 1QFY2013 and other expenses also increased 16.7% yoy to Rs. 361cr. Further, other operating income was lower by 19.3% yoy to Rs. 24cr. Hence, EBITDA declined by 49.8% yoy to Rs. 153cr. The other income increased by 27.4% yoy to Rs. 179cr and tax rate also decreased to 23.0% compared to 30.1% in 1QFY2013. Hence, the company's net profit declined by a lower rate of 28.4% yoy to Rs. 160cr (below our estimate of Rs. 245cr).

Outlook and valuation: Although Nalco has captive bauxite mines, the cost of aluminium production remains very high on account of high power 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 the company's future expansion plans. Hence, we recommend a Neutral rating on the stock.

Source : Equity Bulls

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