Emkay Global Financial is bearish on National Aluminium Company has recommended sell rating on the stock with a target price of Rs 30 in its research report dated September 06, 2020.
Emkay Global Financial's report on National Aluminium Company
Recent strength in alumina prices is driven by production disruption at the Alunorte alumina refinery in Brazil. Norsk Hydro has announced that the Alunorte refinery shall achieve full production in Q4CY20, which will put alumina prices under pressure. The aluminum market is likely to remain in surplus in 2020 in China (1-1.3mt) and in Rest of World (2-3.4mt). This will keep aluminum prices under check. Recent run up in stock is on account of the disruption in Alunorte. Q1 earnings beat our estimate due to higher-than-expected alumina sales vs. our assumption of higher aluminum sales. Rs4.5bn negative change in inventory is the largest in the last 30 quarters, which should reverse in the coming quarters.
Nalco is trading at 4.9x our FY22 EV/EBITDA estimate. It has planned capex in excess of Rs300bn in various projects, the benefit of which is unlikely to be seen before FY23. We make minor adjustment to our estimates, maintain Sell with a TP of Rs30 (up from Rs29).
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