Reduce NALCO; target of Rs 53: Angel Broking

“For 3QFY2012, National Aluminium’s (Nalco) profitability was significantly below our expectations on account of higher-than-expected raw-material and power and fuel costs. We recommend Reduce on the stock.”

“For 3QFY2012, Nalco’s net sales reported 0.4% yoy growth to Rs1,430cr (below our estimate of Rs1,770cr). Alumina realization decreased by 10.5% to Rs18,263 and aluminium realization decreased by 3.7% yoy Rs115,545. Raw-material costs and power costs grew by 99.2% yoy and 28.1% yoy to Rs239cr and Rs568cr, respectively. Hence, EBITDA decreased by massive 83.6% yoy to Rs64cr and EBITDA margin contracted by 2,287bp yoy to 4.5%. Other income, however, grew by 46.4% yoy to Rs131cr. Consequently, net profit decreased by 80.0% yoy to Rs51cr (significantly below our estimate of Rs224cr). Nalco received compliance letter for its Utkal coal block during September 2011. However, there is lack of clarity on the completion of other regulatory formalities in the near term. Hence, production from this block is unlikely to start in FY2013 in our view.”

“Although Nalco has captive bauxite mines, the cost of aluminium production remains very high on account of high power costs. Further, there is lack of clarity over the company’s future expansion plans. At the CMP, Nalco is trading at valuations of 11.4x FY2012E and 8.6x FY2013E EV/EBITDA, significant premium to its peers. Hence, valuing the stock at 7.0x FY2013E EV/EBITDA, we derive a target price of Rs53 and recommend Reduce on the stock,” says Angel Broking research report.   

Institutional holding more than 40% in Indian cos

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