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Nalco investors seem a tad too optimistic

Nalco investors seem a tad too optimistic
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First Published: Thu, Jun 04 2009. 10 00 PM IST

Updated: Thu, Jun 04 2009. 10 00 PM IST
National Aluminium Co. Ltd (Nalco) reported weaker-than-expected results for the quarter ended 31 March, leading to a 3.4% drop in the company’s share price on Thursday, even as the broad market rose by about 1.4%. The company’s operating profit fell by 85.3% year-on-year to Rs95.6 crore, while net sales fell by 6.6% to Rs1,088.5 crore.
Aluminium prices halved year-on-year in the three months to March and analysts had factored in a sharp drop in profit. But few had bargained for an 85% drop in profit. What’s more, the company incurred a loss of Rs139.6 crore in its aluminium division, much higher than the Rs28.8 crore loss in the December quarter. The company’s cost-cutting measures seemed to have fallen short of expectations.
Worldwide aluminium inventories have risen by 82% this year to 4.24 million tonnes. This is far higher than the peak of 2.66 million tonnes in mid-1994. Ahmed Raza Khan / Mint
The alumina (reported as chemicals) segment saved the day for the company, reporting a profit of Rs1,48.8 crore, which is 16% higher compared with the December quarter. Alumina prices are about 20% higher compared with the March quarter levels, which augur well for the company.
The outlook on aluminium prices, however, remains weak, as inventories have spiralled to record highs. Although there had been announcements of sharp production cutbacks owing to the fall in prices, the cutbacks have been lower than expected. Worldwide inventories (based on London Metal Exchange data provided by Bloomberg) have risen by 82% this year to 4.24 million tonnes. This is far higher than the peak of 2.66 million tonnes in mid-1994.
On the positive side, prices of raw materials such as coke and caustic soda have come down, which will provide the company much-needed breathing space. Still, the markets seem to be a tad optimistic about the company’s prospects.
A research note by Kotak Securities Ltd dated 4 June says: “The stock is factoring in average aluminium prices of $2,200 (about Rs1 lakh) per tonne and alumina prices of $286 a tonne, which are higher by 48% and 33%, respectively, from the current prices.”
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First Published: Thu, Jun 04 2009. 10 00 PM IST