For 4QFY2009, Nalco posted a de-growth of 6.6% y-o-y in topline to Rs1,088 crore (Rs1,165cr), which was mainly driven by lower realisations recorded by both the Aluminium and Alumina business on account of the sharp correction in LME Prices.
Notably, LME Aluminium prices were lower by 50% y-o-y to $1,365/tonne while Alumina prices fell 52% y-o-y to $189/tonne. However, rupee depreciation of around 25% helped the company to support its realisations and revenues.
The Alumina business revenues grew 15.2% y-o-y to Rs492 crore (Rs427cr). However, the Aluminium business revenue de-grew by 11.4% y-o-y to Rs804 crore (Rs907cr) on account of lower aluminium realisations.
For FY2009, the company posted a flattish topline growth of 2.4% to Rs5,108 crore (Rs4,989cr).
Even though topline de-grew marginally by 6.6% y-o-y, Nalco’s net profit de-grew by a substantial 81.4% y-o-y to Rs83cr (Rs447cr) for 4QFY2009.
Bottomline de-grew mainly due to the decline in margins owing to higher costs and lower LME prices. For FY2009, net profit however, fell by 22% to Rs1,272 crore (Rs1,632cr).
Aluminum prices have collapsed by more than 50% in the last couple of months owing to the liquidity crunch globally, which has led to an uncertain environment for Aluminium demand. LME Aluminium prices have averaged at $1,365/tonne, lower by 50% y-o-y during the quarter.
However, prices rebounded by around 35% from the bottom in the last couple of months due to improvement in liquidity globally on account of several stimulus packages announced and also increased buying from China.
We believe that the LME Aluminium prices are unlikely to move up significantly due to all time high inventory of around 4.3mn tonnes at the LME and weak underlying demand.
We have factored average LME Aluminium price at $1,600/tonne and $1,800 for FY2010E and FY2011E, respectively.
We downgrade our EPS estimate for FY2010 by 14.2% to Rs15.5 to factor in higher employee and raw materials costs.
At Rs344, the stock is trading at a P/E of 15.9x, EV/EBIDTA of 9.3x and P/BV of 1.9 on our FY2011 estimates, which is expensive considering the weak aluminium outlook on account of the all-time high inventory due to higher supply and sluggish demand due to the global economic slowdown and consequent pressure on Aluminium and Alumina prices.
Hence, we maintain a SELL on Nalco with a Target Price of Rs240, at which level it would trade at an EV/EBIDTA of 6x on FY2011E EBIDTA.