National Aluminium Company (NALCO)’s Q3FY11 revenue increased 3% to INR 14,250 on account of higher alumina (increase 34% on YoY) and aluminium (increase 18% on YoY) realisations. Lower cost of production due to improved operational efficiency and higher capacity utilisation resulted in 611 bps increase in the EBITDA margin. EBITDA increased 32% on YoY to INR 3,896 mn over INR 2,961 in Q3FY10. Net profit at INR 2,560 mn in Q3FY11 was 65% higher from INR 1,552 mn in Q3FY10. Net profit margin increased 621 bps to 16.7% in Q3FY11 from 10.5% in Q3FY10.
On segmental basis aluminium segment outpaced the other two segments (Chemical & Electricity). Topline for aluminium segment remained flat on account of lower volumes and higher realisations. The segment posted an EBIT of INR 3.48 bn in Q3FY11 compared to INR 0.62 bn in Q3FY10 an increase of 460% due to a sharp 18% increase in realisations to USD 2,390 (USD 2,017 in Q3FY10). This was in comparison to a loss recorded by the power segment (INR -1.27 bn in Q3FY11 against INR 0.7 bn in Q3FY10) on account of higher coal cost. (~USD 210, an increase of more than 60% in last quarter).
NALCO has selected UAE-based RAK minerals as JV partner for its INR 180 bn aluminium-cum-power project in Indonesia and is looking at commencing work on it by June 2011. The company proposes to set up 0.5 MTPA aluminium smelter and 1,250 MW captive thermal power plants in East Kalimantan, Indonesia, part of its ongoing INR 580 bn capacity expansion plan. At the same time the company will also bid in consortium for upcoming 4,000MW power plants in the Orissa and Chattisgarh.
Higher input costs continue to remain a concern for the company as it is not integrated. Though the company has been allotted the Utkal-E coal block with reserves of 70mt, mining is likely to commence only in 2012–13 resulting in higher dependence on imported coal. The company also remains exposed to fluctuations in prices of alumina and aluminium. The company has seen a 20% increase in market price on account of the uptrend in aluminium prices and is currently trading at a PE multiple of 17x FY12E which looks expensive compared to peers. We have a ‘HOLD’ rating on the stock with a target price of INR 380.
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