Stock Market Result Update on National Aluminium for 1QFY2012

Stock Market Result Update on National Aluminium for 1QFY2012 with a Neutral recommendation.

National Aluminium’s (Nalco) 1QFY2012 results were above our expectations. The company was able to sustain its margin on account of higher realisation. In light of the recent decline in stock price, we now have a Neutral view on the stock.

Higher realisation aids top-line growth: For 1QFY2012, Nalco’s net sales grew by 34.2% yoy to `1,733cr, led by higher realisation of alumina and aluminium. Alumina realisation increased by 21.1% yoy to `20,653/tonne and aluminium realisation increased by 18.3% yoy to `122,086/tonne. The aluminum segment’s sales grew by 20.9% yoy to `1,355cr due to higher LME prices despite metal volumes of only 2.2% yoy to 111kt. The chemical segment’s revenue grew by 60.6% yoy to `646cr on the back of alumina sales volumes, which grew by 83.0% yoy to 183kt.

Stable EBITDA margin despite rising costs: EBITDA grew by 34.5% yoy to `530cr and EBITDA margin improved by 8bp yoy to 30.6%. The company was able to maintain its margin despite increased coal costs due to higher realisation. Other income grew by 41.1% yoy to `127cr. Thus, net profit increased by 32.7% yoy to `377cr in 1QFY2012.

Outlook and valuation: Although Nalco enjoys high levels of backward integration, the cost of production remains very high for Nalco. Further, there is lack of clarity over Nalco’s volume growth. At the CMP, Nalco is trading at valuations of 6.8x FY2012E and 5.7x FY2013E EV/EBITDA, higher than its peers. Given the recent decline in the stock price, we recommend Neutral on the stock.

Stock market Result Update on Punj Lloyd for 1QFY2012

Stock market Result Update on Punj Lloyd for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, Punj Lloyd (Punj) posted mixed set of numbers with decent top-line performance, stable margin but loss at the earnings level. The company’s current order backlog stands at `23,938cr (3.0x FY2011 revenue). Further, the company has received orders worth `5,627cr during CY2011 against `9,978cr in FY2011. However, owing to uncertainty over receivable claims and overhangs on the stock because of lack of clarity on various issues (execution, margin and Libyan projects), we maintain our Neutral view on the stock.

Mixed performance: For 1QFY2012, Punj posted 30.5% yoy top-line growth to `2,263cr (`1,734cr). Barring 4QFY2011, this is quite an impressive performance when compared to the last seven quarters. EBITDA margin for the quarter stood at 8.0% against 7.7% in 1QFY2011. Interest and depreciation cost came in at `113.3cr (`81.0cr) and `61.7cr (`64.0cr), respectively. Interest cost jumped by 39.9% yoy and 14.6% qoq. On the earnings front, Punj reported loss of `12.7cr compared to loss of `30.6cr in 1QFY2011 due to high interest cost and tax.

Outlook and valuation: The infrastructure sector has been marred by concerns such as high interest cost, margin pressure due to high commodity prices and poor award activity across segments. On account of these concerns and continued disappointing performance since the last few quarters, the stock has demonstrated huge underperformance over the last 12 months on the bourses. We have valued Punj on 1x P/BV (FY2013) and have arrived at a fair value of `95. Although the stock offers an upside of 71.4% from the current levels, we continue to maintain our Neutral view on the stock due to the headwinds faced by the sector and overhangs (mentioned above) on Punj.