>NATIONAL ALUMINIUM COMPANY LIMITED: Q3FY12 – Net sales declined owing to dismal performance from Aluminium division

• NALCO’s net sales for Q3FY12 showed a marginal growth of 0.4% on Y-o-Y basis, while on a sequential basis net sales de-grew by 10.2%.
• EBIDTA margin declined by 2,258bps, this was mainly on account of decline in realisation of Aluminium division and simultaneous increase in total expenditure.
• As a result of dismal performance from Aluminium division PAT for Q3FY12 declined by 80% on Y-o-Y basis.


Result Highlights


Positive Y-o-Y growth from Chemical and Electricity division, could not offset de-growth from Aluminium division
• The Y-o-Y decline in top-line was primarily on account of de-growth in revenue from Aluminium division. Aluminium division which accounted for 51.2% of the total revenue in Q3FY12 de-grew by 2.3% Y-o-Y. Owing to higher input costs and low LME prices 120 pots out of 960 pots were shut as a result of which the production of Aluminium metal was lower by 16.2% Y-o-Y and sales volume were lower by 4.9% Y-o-Y.
• Where as the other two divisions, Chemical and Electricity which accounted for the balance 48.8% of total revenue grew by 24.9% and 86.7% respectively on Y-o-Y basis.
• The EBIT for the Aluminium continued to report loss for both Q2FY12 and Q3FY12.


Valuation & Viewpoint
At current market price the stock is trading at 10.14x its EV/EBIDTA and 18.26x its P/E (trailing 12 months). The average P/E of the sector stands at 12.84x. Given the continued decline in revenue as well as continued loss from an Aluminium division, we believe that at current price the valuations are stretched and could result in the stock correcting in the future.

Concall highlights
• During the quarter company had shut 120 pots out of the total 960 pots; however company
expects to resume operation depending on the cost dynamics. Given the lower Y-o-Y LME
Aluminium prices and expected increase in use of imported coal on account of quality
issues relating to domestic coal, we believe company might not restart its 120 pots which
were shut in Q3FY12 at least in Q4FY12.
• NACLO has completed its 4th stream of Alumina production during Q3FY12 and company
expects to operate new unit at 80% utilization levels in Q4FY12 adding around 1lac MT to
sales volume of Alumina in Q4FY12.
• Q3FY12 results included an expense of `380mn pertaining to employee expenses which
were one time in nature.
• As a result of commissioning of its 4th stream of Alumina and also with employee expense
expected to decline by Rs 380mn sequentially in Q4FY12 as Q3FY12 included employee
expense which was one time in nature. Hence, we belive this would have a positive impact
on company’s margins by about 260bps sequentially.