Accumulate National Aluminium Co; target of Rs 205: Prabhudas Lilladher

Prabhudas Lilladher's research report on National Aluminium Co

National Aluminium (NACL) reported strong operating performance in Q3FY25 on strong alumina pricing and volumes. Alumina/ metal volumes grew 9%/-7% YoY to 375kt/106kt. Average NSR for alumina in Q3 improved 80% YoY to USD648/t, while that for metal grew 19% YoY to USD2,906/t aided by higher LME prices. Alumina prices were elevated significantly in Q3FY25 due to refinery disruption in Australia and bauxite supplies from Guinea. As refineries have resumed, alumina pricing is being normalized over the last few weeks. EBITDA improved significantly on higher alumina and metal prices, strong alumina volumes and well constrained cost of production. NACL has benefited from higher captive coal usage and lower RM costs. Management expects to complete the ongoing 1mtpa refinery expansion by Q3FY26 along with commencement of Pottangi mines via MDO route. However, considering the delays in the past, we have assumed slower ramp up in FY27E. NACL has planned a significant capex of Rs300bn for 0.5mtpa aluminum smelter and 1200MW CPP, to be commissioned by FY30E. However, given the current annual capex run rate of Rs20bn and NACL’s past execution track record, there are certain apprehensions.

Outlook

We believe NACL to remain a pure play on LME prices till FY28E and upgrade the stock to ‘Accumulate’ from ‘Reduce’ with revised TP of Rs205 (from Rs211 earlier, assigning same 5x EV/EBITDA multiple) as stock has also corrected ~30% in the last two months. At CMP, the stock is trading at 4.5x/3.9x EV of FY26E/FY27E EBITDA.