Emkay Global Financial's report on National Aluminium Company
NALCO wrote back RPO liability worth c Rs1bn during the quarter, which boosted reported EBITDA by 100% in otherwise in-line Q4 earnings. We believe that the company should have disclosed this material write-back in the results. Coal supplies remained smooth, with inventory of over three months. However, Aluminum production remained low at c100kt, owing to pot outages in Q3FY20. We believe that aluminum production could rise in Q1FY21, resulting in higher losses. We note that NALCO has c Rs6.7bn in direct tax liability and c Rs7.2bn in indirect tax liability, which is disputed and there is potential of settlement under the Vivad se Vishwas and Sab ka Vishwas schemes, which can result in substantial cash outflow in future.
We cut our FY21/22E EBTDA by 44%/2%, driven by lower LME assumptions, which is offset by lower Re/$ assumptions. We also lower our multiple for the stock from 4.5x to 4x and roll over valuation to Mar-22. We maintain Sell, with a TP of Rs29 (Rs34 previously), with UW in sector EAP. Key risk: Higher-than-anticipated Alumina prices.
For all recommendations report, click here
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.