The performance of commodity stocks have not been very good in the recent past. Along with the poor performers, the companies which have managed to produce encouraging results have also taken a beating in the recent past. National Alumium (Nalco) is one such counter which has failed to perform in the recent past. While poor sentiment is partly responsible for this, a declining discounting for the commodity business has also played its role.For instance, after performing very well in 1999-2000, the results for the first quarter have also been impressive.For the March 2000 revenue jumped up 42 per cent and the net profit improved from Rs 248 crore to Rs 512 crore. Due to rising realisations and higher value addition, OPM during the same period improved from 29 per cent to 44.6 per cent.
If this was not enough, the recent decline in the value of rupee has further improved the prospects for the company. Being one of the largest exporters (the company exported Rs 1,032 crore worth of metal last year accounting for nearly 48 per cent of total revenue), the recent fall in value alone would mean an additional boost of around 2-3 per cent on the operating level.
The firm prices on the London Metal Exchange (LME) also augurs well for the future. The prices in the next two quarters are projected at around $ 1,500 per tonne. Firm prices alongwith increasing focus on value addition will ensure a firmer profit margins.
The implementation of 50,000 cold rolled project under International Aluminium Products (IAPL), which is expected to be commissioned by next March, will also help the company to save on energy and transportation cost. IAPL is 100 per cent subsidiary of Nalco. The ongoing expansion programme also make Nalco more competitive in the medium term. The first phase of alumina refinery expansion has been commissioned in June 2000 increasing its capacity from 8 lakh tonne to 10.5 tonne.
In the last phase, which is expected to be completed by April next year, the capacity will rise to 15.75 lakh tonne. The capacity of bauxite mines have already been doubled to 48 lakh tonne. With completion of all the expansion plans, the cost will further go down, and help the company to improve its profit margins. Overall the outlook is favourable.
For the stock market, however, huge equity base of Rs 644 will continue to act as a handicap whenever the stock makes an attempt an upward jump.Technically, the stock is near its bottom of Rs 39 which can be used as a stop loss for long position. On the upper side, the medium term outlook will improve only above Rs 50. The next hurdle thereafter exists at Rs 60.
Deepak Singh Tanwar
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.