National Aluminum Company Limited
Value Investment Analysis Report
23rd November 2016
Basic Filtering Criteria:
Market Snapshot of NALCO Share |
Critical prima-facie Observations:
- PE Ratio: National Aluminum (NALCO)’s PE Ratio is 14.33 is marginally below the maximum permitted 15 and well above the Ideal for Indian conditions of 10 and therefore though passes the hurdle does not bestow any special advantage.
- Price to Book Value Ratio: Placed one-third below the maximum recommended 1.50 times the book value, at 1.04. However presently there is no opportunity to buy the assets at a discount.
- Distance from 52 week low: The current price of Rs.52 is 76.43% away from the 52 Week Low of Rs.29.30. On this parameter the scrip is NOT in the attractive zone – rather it is very near the 52 Week High of Rs.56.65.
- Dividend Yield: Again at just acceptable at 3.85%, slightly below the recommended minimum four to five percent and above.
In light of the
above conditions, National Aluminium (NALCO) shall cautiously be accepted for
further study.
A. Company Performance
Profitability Analysis
National
Aluminum Company Ltd. (NALCO)
Profit
and Loss Account
Rs. in Crores (10
Millions)
|
March 31' 2013
|
March 31' 2014
|
March 31' 2015
|
March 31' 2016
|
|
Net
sales
|
6,916.48
|
6,780.85
|
7,382.81
|
6,816.00
|
|
% age rise (+) or fall (-)
|
4.61%
|
-1.96%
|
8.88%
|
-7.68%
|
|
Cost
of sales:
|
|||||
Raw
materials
|
1,167.83
|
1,063.16
|
1,031.59
|
1,104.40
|
|
Intermediaries
& WIP
|
-64.25
|
58.55
|
2.90
|
-8.99
|
|
Power
and fuel
|
2432.27
|
2017.67
|
1802.24
|
1864.61
|
|
Employee
Benefit Expenses
|
1153.93
|
1245.33
|
1377.91
|
1361.37
|
|
Other
Expenses
|
1319.83
|
1461.94
|
1462.15
|
1556.60
|
|
Depreciation
|
505.43
|
524.73
|
413.66
|
424.09
|
|
Interest
|
7.45
|
0.00
|
1.21
|
1.21
|
|
Total Expenses
|
6522.49
|
6371.38
|
6091.66
|
6303.29
|
|
EBT
|
393.99
|
409.47
|
1,291.15
|
512.71
|
|
Net
of other non-operating income/expenses
|
511.05
|
508.34
|
821.06
|
684.06
|
|
Profit Before Tax
|
905.04
|
917.81
|
2112.21
|
1196.77
|
|
Provision
for taxes
|
312.21
|
275.46
|
791.57
|
731.03
|
|
Profit
After Tax (PAT)
|
592.83
|
642.35
|
1320.64
|
465.74
|
|
EBDITA
|
906.87
|
934.20
|
1706.02
|
938.01
|
|
EBDITA
(Operating Profits) %
|
13.11%
|
13.78%
|
23.11%
|
13.76%
|
|
Depreciation
|
505.43
|
524.73
|
413.66
|
424.09
|
|
Interest
|
7.45
|
0.00
|
1.21
|
1.21
|
|
Interest Cost to Sales - %
|
0.11%
|
0.00%
|
0.02%
|
0.02%
|
|
EBT
|
393.99
|
409.47
|
1291.15
|
512.71
|
|
EBT
%
|
5.70%
|
6.04%
|
17.49%
|
7.52%
|
|
Net Non-Operating Income
|
511.05
|
508.34
|
821.06
|
684.06
|
|
FINAL PBT
|
905.04
|
917.81
|
2112.21
|
1196.77
|
|
FINAL PBT %
|
13.09%
|
13.54%
|
28.61%
|
17.56%
|
|
Income Tax
|
312.21
|
275.46
|
791.57
|
731.03
|
|
PAT
|
592.83
|
642.35
|
1320.64
|
465.74
|
|
PAT
%
|
8.57%
|
9.47%
|
17.89%
|
6.83%
|
Remarks:
- NALCO’s profitability margins in the recent years have been decent, at best. We must note that globally commodity prices have been hammered in the recent years over recession world over and slowdown in China. In 2008, when the world economy was at the peak, NALCO’s EBDITA margin was 45.04% and PAT margin was 31.78%. Therefore, we can expect improvement in margins with the pick-up in global economy.
- One good factor is that the company is debt free. This has saved the NALCO in the present tough economic conditions. If not NALCO could be suffering losses.
To conclude, NALCO is recommendation for inclusion
with expectation of improvement of margins in future over economic pick-up and
consequent price increase
Balance Sheet Analysis:
National
Aluminum Company Ltd. (NALCO)
Balance
Sheet
Rs. in Crores (10 Millions)
|
March 31' 2013
|
March 31' 2014
|
March 31' 2015
|
March 31' 2016
|
LIABILITIES
|
||||
Short
term borrowings
|
-
|
-
|
-
|
-
|
Sundry
creditors
|
503.56
|
531.12
|
455.46
|
581.38
|
Short
Term Provisions
|
162.67
|
147.25
|
186.21
|
277.43
|
Other
Current Liabilities
|
2545.70
|
2564.38
|
1325.37
|
1350.77
|
Total
Current Liabilities
|
3,211.93
|
3,242.75
|
1,967.04
|
2,209.58
|
Term
loans
|
-
|
-
|
||
Deferred
Tax Liability
|
903.13
|
910.13
|
1105.27
|
1110.09
|
Long
Term Provisions
|
208.62
|
218.22
|
242.76
|
223.72
|
Other
long term liabilities
|
70.82
|
54.96
|
65.30
|
69.47
|
Total
Term Liabilities
|
1,182.57
|
1,183.31
|
1,413.33
|
1,403.28
|
Total Outside Liabilities (TOL)
|
4,394.50
|
4,426.06
|
3,380.37
|
3,612.86
|
Ordinary
share capital
|
1288.62
|
1288.62
|
1288.62
|
1288.62
|
Reserves
& Surplus
|
10643.83
|
10833.83
|
11508.68
|
11627.88
|
Net
Worth
|
11,932.45
|
12,122.45
|
12,797.30
|
12,916.50
|
Total
Liabilities
|
16,326.95
|
16,548.51
|
16,177.67
|
16,529.36
|
ASSETS
|
||||
Cash
and bank balances
|
3504.38
|
4048.29
|
4627.98
|
4944.11
|
Short-term
Investments
|
1329.02
|
1244.00
|
950.00
|
66.00
|
Receivables
|
142.99
|
243.57
|
120.82
|
235.21
|
Inventory
|
1380.64
|
1173.66
|
1165.56
|
1126.97
|
Other
current assets
|
718.78
|
716.68
|
847.82
|
820.36
|
Total
Current Assets
|
7,075.81
|
7,426.20
|
7,712.18
|
7,192.65
|
Fixed Assets-Net Block
|
6523.80
|
6688.80
|
6509.21
|
6328.90
|
Capital Work in Progress
|
1001.92
|
768.74
|
549.73
|
662.14
|
Total
Fixed Assets
|
7525.72
|
7457.54
|
7058.94
|
6991.04
|
Non
Current Investments
|
161.04
|
1.04
|
1.04
|
810.03
|
Long
Term Loans & Advances
|
1422.80
|
1517.27
|
1221.85
|
1347.55
|
Other
Non Current Assets
|
36.49
|
43.32
|
90.77
|
49.48
|
Total Other Non-Current Assets
|
1,620.33
|
1,561.63
|
1,270.34
|
2,207.06
|
Intangible
Assets
|
105.09
|
103.14
|
136.21
|
138.61
|
Total
Assets
|
16,326.95
|
16,548.51
|
16,177.67
|
16,529.36
|
Tangible Net Worth
|
11,827.36
|
12,019.31
|
12,661.09
|
12,777.89
|
Net Working Capital
|
3,863.88
|
4,183.45
|
5,745.14
|
4,983.07
|
Current Ratio
|
2.20
|
2.29
|
3.92
|
3.26
|
Total Outside Liabilities/ Tangible Net Worth
(TOL/ TNW)
|
0.37
|
0.37
|
0.27
|
0.28
|
Total Term Liabilities/Tangible Net Worth
|
0.10
|
0.10
|
0.11
|
0.11
|
Highlights:
- NALCO fortunately is debt-free.
- Current ratio is very healthy at 3.26 as against minimum recommended two.
- TOL/ TNW ratio is very healthily at 0.28 as against less than 3.
- Long-term Deb-Equity ratio is attractively far less than the recommended not more than One.
Therefore on the balance sheet
front all parameters are very positive.
Dividends
Distribution of net Profits
Let
us study the dividend distribution pattern of NALCO:
Rs. in Crores (10
Millions)
|
March 31' 2013
|
March 31' 2014
|
March 31' 2015
|
March 31' 2016
|
Dividend
(Including Dividend Distribution Tax)
|
221.06
|
515.48
|
506.50
|
542.74
|
Dividend
% of PAT
|
37.29%
|
80.25%
|
38.35%
|
116.53%
|
Dividend
% of Nominal Value of Share
|
17.15%
|
40.00%
|
39.31%
|
42.12%
|
The above table shows that the company
has been generously distributing minimum about 35% of the net profits as
dividends. On this count the company performance very excellent.
Uninterrupted Dividend Payment History
Year
|
Effective Date
|
Dividend Type
|
Dividend(%)
|
30/05/2016
|
27/09/2016
|
Final
|
15%
|
08/03/2016
|
23/03/2016
|
Interim
|
25%
|
01/06/2015
|
18/09/2015
|
Final
|
10%
|
09/03/2015
|
18/03/2015
|
Interim
|
25%
|
28/05/2014
|
12/09/2014
|
Final
|
8%
|
13/02/2014
|
05/03/2014
|
Interim
|
22%
|
27/05/2013
|
20/09/2013
|
Final
|
10%
|
18/03/2013
|
26/03/2013
|
Interim
|
15%
|
21/05/2012
|
03/08/2012
|
Final
|
2%
|
09/03/2012
|
22/03/2012
|
Interim
|
18%
|
30/05/2011
|
16/09/2011
|
Final
|
10%
|
20/01/2011
|
07/02/2011
|
Interim
|
20%
|
09/08/2010
|
27/08/2010
|
Final
|
10%
|
05/03/2010
|
23/03/2010
|
Interim
|
15%
|
03/06/2009
|
04/09/2009
|
Final
|
15%
|
28/01/2009
|
12/02/2009
|
Interim
|
35%
|
2008
|
13/02/2008
|
Interim
|
70%
|
2007
|
50%
|
||
2006
|
|
|
50%
|
2005
|
|
|
40%
|
01/07/2004
|
22/09/2004
|
Final
|
40%
|
23/06/2003
|
29/08/2003
|
Final
|
60%
|
12/07/2002
|
19/09/2002
|
Final
|
40%
|
11/07/2001
|
04/09/2001
|
Final
|
40%
|
2000
|
|
|
20%
|
02/08/1999
|
Final
|
12%
|
|
19/08/1997
|
Final
|
8%
|
On the dividends front National
Aluminium has, except for skipping in 1998, which is not easily forgivable, a
good track record.
Dividend
Yield:
Dividend
Yield, is a combination of both the company’s dividend policy and performance
as well as market condition. A yield of 3.85% is marginally lower than the
minimum 4%. The real culprit is not the company paying less but the market
price of the share being high.
Five-year
price graph:
Share price movement of NALCO Share in last five years |
The
graph above shows that the stock price of NALCO having dipped to about Rs.30 in
February 2016 to has recovered
steeply to Rs.52 and is not in any especially favourable condition.
Five
years returns (price rise):
Price Return of NALCO Share in 5 years |
The
five years return of -3.17% indicates
that the price of the scrip gone back to almost the same level at which the
price stood five years ago, whereas the book value of the share has grown 35%
during the same five year period. has appreciated that much in the past five
years and therefore there is some special benefit here. Of course, if the five
year return had been say -50% would have meant a bonanza.
Distance
from 52 Week Low:
52 Week Low: Rs.29.30
52
Week High: Rs.56.65
Current
Market Price (CMP) on 22nd November 2016: Rs.52
The current price of Rs.52 is 76.43% away from the 52 Week
Low of Rs.29.30. On this parameter the scrip is NOT in any specially attractive
zone – rather it is very near the 52 Week High of Rs.56.65.
However please note that there is
still opportunity for price increase from the present level of Rs.52 on the
back of recovery of the global economy and price increase in all commodities,
including aluminium.
Final Conclusions:
- The above brief analysis proves that National Aluminum is without doubt a good company and that is undergoing market stress and consequently low margins.
- PE Ratio of 14.33 is primarily on account low margins and will come down only when commodity prices increase. It is also on account of recent steep price rise of share.
- Price to Book Value Ratio (P2BV) of 1.04, though well within below the accepted 1.50, there is no discount opportunity.
- The EBDITA, EBT and PAT margins are acceptable.
- The company is consistently profitable for many years into the past.
- Company has not borrowed money, which is a very prudent policy.
- Balance sheet parameters are very strong.
- The market condition parameters of five-year price graph and distance from 52 Week low and five year returns do not bestow any special privilege.
Though the company is distributing a
good proportion of the profits as dividends, the high market price has pulled
down the dividend yield.
Final Investment Advice:
National Aluminium (NALCO) is a good company but presently
undergoing price and margins stress. Market conditions are not highly favourable.
Wait for a price correction or buy small quantities. This is not
the time for significant investments in this scrip.