NALCO stock gets Neutral rating

NALCO stock gets Neutral rating from Angel Broking.

NALCO's aluminium segment reported a negative EBIT of INR 79cr for the quarter compared to a loss of INR 19cr in 1QFY2013. Staff costs as a percentage of net sales stood at 20.9 percent, compared to 16.5 percent in 1QFY2013 and other expenses also increased 16.7 percent yoy to INR 361cr. Further, other operating income was lower by 19.3 percent yoy to INR 24cr. Hence, EBITDA declined by 49.8 percent yoy to INR 153cr. The other income increased by 27.4 percent yoy to INR 179cr and tax rate also decreased to 23.0 percent compared to 30.1 percent in 1QFY2013. Hence, the company's net profit declined by a lower rate of 28.4 percent yoy to INR 160cr (below our estimate of INR 245cr).

Although Nalco has captive bauxite mines, the cost of aluminium production remains very high on account of high power costs. With subdued aluminium prices likely over the coming one year, we expect the company to suppress its production given its high costs of production. Further, there is lack of clarity over the company's future expansion plans. Hence, Angel Broking recommends a Neutral rating on the stock.