Published on 17/12/2018 10:48:14 AM | Source: Motilal Oswal Securities Ltd

Buy Nalco Ltd For Target Rs.90.00 - Motilal Oswal

Posted in Broking Firm Views - Long Term Report| #Nalco Ltd #Metals Sector #Broking Firm Views Report #Motilal Oswal #Quarterly Result

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Another strong quarter; smelter now at full capacity

Valuations attractive; Maintain Buy

2QFY19 EBITDA declined 16% QoQ (+140% YoY) to INR8.5b (in-line), led by lower LME. Adj. PAT was down 19% QoQ (+140% YoY) at INR5.1b (our estimate: INR5.4b). Effective tax rate stood at 38%, higher than our estimate of 33% and 34% in 1Q.

Alumina : Production was down 18% QoQ at 477kt due to seasonal factors. Sales, however, increased ~1% QoQ to 324kt, led by destocking. Alumina realization increased 2% QoQ to USD570/t (our estimate: USD550/t). Calculated cost of production (CoP) increased QoQ.

Aluminum : 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. Product premiums were lower. CoP was lower QoQ, aided by operating leverage benefit and currency depreciation. 


Alumina prices will drive earnings; valuations attractive; Maintain Buy

*  While alumina prices have come off from recent highs, the market is expected to remain tight, given the partial shutdown at Hydro’s alumina facilities and rising aluminum production. 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. EBITDA is reduced by 4%/18% to INR31.9b/INR23b for FY19/20E.

*  We expect EBTIDA to increase by ~90% to INR31.9b in FY19, driven by strong sector tailwinds. Stock is trading at attractive valuations of EV/EBITDA of 4.6x FY20E. We value the stock at 5.5x FY20E EV/EBITDA at INR90/sh. Maintain Buy.


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