EUR 120.00 For Business Accounts Only

MOSL: NALCO (Buy)-Higher cost impacts performance

Nalco: Higher cost impacts performance

(NACL IN, Mkt Cap USD1.1b, CMP INR41, TP INR48, 17% Upside, Buy)

 

Coal availability issues continue impacting margin

• NALC’s result highlights the continued impact of lower coal supplies from Mahanadi coal fields, which led to higher power costs and lower volumes.
• We cut our FY20/21 EBITDA estimate by 15%/17% to factor in lower LME aluminum prices (due to Coronavirus outbreak) and higher power costs. Maintain Buy.

 Miss led by lower production, higher costs

• Revenue declined 23% YoY (-12% QoQ) to INR20.9b due to lower aluminum production of 96kt (-12% YoY, -13% QoQ) and lower LME aluminum price of USD1,752/t (-11% YoY, -1% QoQ).
• EBITDA of INR0.3b (-94% YoY, +7% QoQ) was below our estimate of INR1.5b due to lower volumes and higher aluminum cost of production (largely higher power cost) on account of lower coal supplies from Mahanadi coal fields.
• The company reported a loss of INR0.34b (our estimate: profit of INR0.7b).
• Aluminum: EBIT loss was at INR1.4b (v/s INR1.25b profit last year); revenue declined to INR13.4b (-22% YoY, -13% QoQ) as production was down at 96kt (-12% YoY, -13% QoQ). Assuming sales at similar levels (i.e. 96kt), realization declined 14% YoY (and 1% QoQ) to USD1,959/t on account of lower LME and premiums. Implied CoP was up 4% YoY at USD2,145/t (-1% QoQ).
• Alumina: Revenue was at INR10.1b (-22% YoY, -11% QoQ) and EBIT at INR1b (-73% YoY, -13% QoQ).