MOSL: NALCO (Buy)-Annual Report Analysis - Wages eroding its strategic advantages
(NACL IN, Mkt Cap USD1.7b, CMP INR66, TP INR107, 65% Upside, Buy)
We analyzed Nalco’s FY18 annual report, key takeaways:
- Revenue from sale of metal and alumina increased 26% YoY to INR93.7b driven by 21% increase in LME, partially offset by 4% appreciation of currency and 11% /3% increase in sales volumes for metal/alumina.
- Nalco realized a premium over the LME of USD57/t on metal exports and USD196/t in the domestic market. Alumina realization was up 26% to USD370/t.
- Nalco has advantage of captive bauxite mines, coal linkage and logistics due to strategic locations. However, its wage bill keeps growing unfettered every year without corresponding improvement in productivity. Employee wages now account for more than USD500/t in metal CoP (cost of production), which is the highest in the world. Although, total headcount declined 2% to 6,776, average recurring annual wages increased 32% to INR29.21m per annum – highest in Indian metal and mining industry.
- CoP of alumina increased by INR1794/t to INR14,417/t on an increase in input cost and wage hike. INR appreciation by 4% accentuated the impact in USD term. CoP increased by USD35/t to USD224/t.
National Aluminium is engaged in the manufacture and distribution of aluminum related products and in the generation of electricity. Co.'s aluminum products include bauxite, zeolite, alumina hydrate, special grade hydrate, calcined alumina, special grade alumina, aluminium standard and sow ingots, aluminium wire rods, aluminium billets, aluminium strips and rolled products.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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