National Aluminium Company Ltd. share price target

Robust quarter on lower costs, strong volumes Cutting estimates to factor in alumina/LME price decline; Maintain Buy EBITDA of INR5.2b (-10% QoQ) was 42% ahead of our estimate due to (a) lower power & fuel costs (-22% QoQ) and (b) higher alumina volumes (we assume to have come in at 380kt). The sequential decline in EBITDA can be attributed to lower...

9 February 2019 INR6.2b) in 3QFY19 owing to lower volumes/realizations and higher cost of production (CoP). The miss versus our estimate can primarily be ascribed to higher Production increased 12% QoQ to 532kt, but sales were down 10% QoQ to 293kt. Production was down 8% QoQ to 105kt, while sales were down USD2,241/t, even as LME was lower, due to higher product premiums. CoP increased USD172 QoQ to USD2,109/t, accentuated by reduced volumes leading to lower absorption of fixed cost. NACLs performance was impacted by alumina prices coming off their recent highs and fixed cost absorption being lower due to reduced volumes. We expect volumes to improve, which should drive down CoP, but the alumina benchmark prices have fallen further as Chinese supply is rising. We cut our alumina price estimate from USD400/t to USD350/t for FY20-21. We have also marginally cut aluminum product premiums and increased CoP.

National Aluminium Company Ltd Q2FY19 results Comment Revenue increased by 2.27% to Rs. 3040.93 Cr in Q2FY19 when compared to the previous quarter. Also, it grew by 23.88% when compared with Q2FY18. The Sales had been increasing from Q4FY18 to Q2FY19.

12 November 2018 2QFY19 EBITDA declined 16% QoQ (+140% YoY) to INR8.5b (in-line), led by lower Effective tax rate stood at 38%, higher than our estimate of 33% and 34% in 1Q. Production was down 18% QoQ at 477kt due to seasonal factors. Sales, however, increased ~1% QoQ to 324kt, led by destocking. Alumina Calculated cost of production (CoP) increased QoQ. Production increased 4% QoQ (8% YoY) to 114kt, which is now near full capacity. Sales increased ~10% QoQ to 115kt. Aluminum realization declined by USD357 QoQ to USD2,162/t, as against a decline in LME of ~USD200/t. CoP was lower QoQ, aided by operating leverage benefit and currency depreciation. NACL is a key beneficiary of higher alumina prices as it is net long and has the advantage of low-cost captive bauxite. We have cut our alumina price estimate from USD450 to USD400/t for 4QFY19 and FY20.

National Aluminium Company Ltd is in the Metals sector, having a market capitalization of Rs. 12,950.62 crores.

Revenue increased by 3.85% to Rs. 2973.31 Cr in Q1FY19 when compared to the previous quarter. National Aluminium Company Ltd Q1FY19 results Comment

8 August 2018 NALCOs 1QFY19 EBITDA increased 61% QoQ (+344% YoY) to INR10.1b (est. of INR6.9b), driven by strong alumina pricing. Adj. PAT grew 70% QoQ (~5x YoY) to INR6.3b. PAT is adjusted for ~INR0.9b gain on revaluation of renewable purchase obligation after resumption of trading on electricity exchanges. Production increased 3% QoQ (+11% YoY) to 583kt - best ever in a quarter. Sales declined 27% QoQ (+24% YoY) to 320kt due to re-stocking. Alumina realization increased 36% QoQ to USD562/t. Production was down 2% QoQ but up 9% YoY to 110kt. Sales were down ~6% QoQ (+18% YoY) to 105kt. Aluminum realization increased ~7% QoQ to USD2,526/t led by higher LME.

27 May 2018 NALCOs 4QFY18 adj. EBITDA increased 35% QoQ (47% YoY) to INR6.3b (est. The beat is on account of destocking of inventories and strong prices of alumina. EBITDA is adjusted for provision of INR1.4b in wage bill towards fluctuation in actuarial calculations. Adj. PAT increased 34% QoQ/38% YoY to INR3.7b. For the full year FY18, EBITDA increased 54% to INR16.6b driven by increase in sales tonnage of 9% for metal and 3% for alumina, increase in prices by 21% for LME and 43% for alumina, partially offset by 20% jump in wage bill, inflation in coal and other inputs. Adj. PAT increased 37% to INR9.

US sanctions on Rusal (April 2018) and alumina cost push led to ~10% rise in the aluminium prices since Feb'18 end. Besides, supply disruptions, the sanctions also restrict Rusal's ability to complete new projects or ramping up of exiting capacities (1.5-1.6MT), restricting any new supply coming into the market. This, coupled with China's emphasis on environmental sustainability should support aluminium prices in the near to medium term. As we believe that, lower supply from China, low inventory, and deficit (exChina) will continue to support the aluminium prices. Given the recent uptick in aluminium prices, we believe, NALCO should report improvement...

NALC is undertaking various projects to expand capacity by 500kt at smelter, 1mtpa at alumina refinery, etc. We understand that actual spend on alumina project has started, while other projects are still on drawing board. Therefore, we are increasing capex from INR6b in FY18 to INR11b in FY19E. NALC is a play on LME and alumina price. We are factoring in LME of USD2,000/t and alumina prices of USD350/t. The stock trades at 7.2x FY19E EV/EBITDA. We value the stock at INR79/share based on FY20E SOTP. Every USD100 change in LME increases the target price by INR16/share. Maintain Neutral.