Nalco’s 1QFY17 EBITDA of INR1.9b (-18% QoQ/-13% YoY) was below est. of INR2.4b on lower aluminum volumes and higher costs. PAT of INR1.3b (est. of INR1.8b) was down 35% QoQ/17% YoY on higher depreciation due to accounting policy change. The negative surprise on aluminum cost in the quarter was primarily on account of negative operating leverage from re-stocking led lower sales volume. We largely maintain our estimates and TP. We estimate Nalco’s aluminum production to increase from 372kt in FY16 to 441kt by FY18E as it increases smelter utilization on improved domestic coal availability.

With fixed cost of more than USD600/t, higher volumes would deliver better cost absorption. Its alumina business is in the 1 st quartile of global cost curve and would help tide through the current depressed alumina market. Cost of production has tailwind of improving domestic coal quality and start of its captive mines. Maintain Buy with TP of INR67.