Powered by: Motilal Oswal
14/09/2021 10:58:42 AM | Source: Motilal Oswal Financial Services Ltd
Buy National Aluminium Company Ltd For Target Rs.107 - Motilal Oswal
News By Tags | #872 #845 #4315 #368 #1302
Buy National Aluminium Company Ltd For Target Rs.107 - Motilal Oswal

Higher costs lead to EBITDA miss

Strong aluminum prices to support earnings

* NALCO’s 1QFY22 result was below our expectations due to higher than expected costs and miss on volumes/realization. EBITDA/adjusted PAT declined by 38%/45% QoQ to INR8.9b/INR3.5b and missed our estimate by 34%/38%.

* We lower our FY22E EBITDA estimate by 10% to factor in higher costs. However, we raise our FY23E EBITDA estimate by 15% as we revise upwards our FY23E LME aluminum assumption by 7% to USD2,300/t. We maintain our Buy rating.

 

EBITDA declines by 38% QoQ on higher costs

* Revenue/EBITDA/adjusted PAT fell 12%/38%/45% QoQ to INR24.7b/INR5.8b/INR3.5b and was 15%/34%/38% below our estimate. Sequentially, the decline was led by lower volumes and higher costs (on a lower base due to one-offs), partly offset by higher LME prices.

* The miss on EBITDA was led by lower than expected aluminum volumes (91kt, 9% lower than our estimate), lower than expected realizations, and higher than expected costs. Employee cost stood at INR5.8b v/s INR4.3b in 4QFY21 (INR5.2b in 1QFY21).

* Derived aluminum realization came in at USD2,589/t and was 4% lower than our estimate of USD2,691/t. Alumina NSR came in lower at USD274/t and was 10% below our estimate.

* Aluminum: It reported an EBIT of INR4b (-32% QoQ). Revenue declined by 11% QoQ to INR17.4b, despite higher LME (USD2,393/t; +14% QoQ), due to lower volumes (91kt). Aluminum production was flat QoQ at 112kt.

* Alumina: Revenue (excluding inter-segment) stood at INR6.4b (-27% QoQ). EBIT came in at INR1.2b (-60% QoQ). Alumina external sales declined by 16% QoQ to 316kt.

 

Valuation and view

* With spot LME aluminum hovering over USD2,550/t (up ~15% in FY22 YTD), the near term profitability outlook is strong. Alumina prices have not yet reacted to the strength in aluminum and could surprise positively in 2HFY22.

* We expect higher aluminum prices to absorb the cost shock and lead to improved margin in subsequent quarters. With integrated mining operations, NALCO is the best play on higher LME prices.

* Given the tight demand-supply scenario, we expect aluminum prices to remain strong. We factor in LME prices of USD2,375/USD2,300 per tonne for FY22E/FY23E.

* The management has announced a 1mtpa alumina refinery expansion at a capex of ~INR64b, and expects to complete the project in FY23. Given its slow execution, we expect commissioning by FY24E.

* We value the stock on a SoTP basis at 5x FY23E EV/EBITDA and at 0.75x book value for growth CWIP to arrive at our TP of INR107. At the CMP, it provides an attractive dividend yield of ~5%. We maintain our Buy rating.

 

To Read Complete Report & Disclaimer Click Here

 

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

 

Above views are of the author and not of the website kindly read disclaimer

Disclaimer: The content of this article is for informational purposes only and should not be considered financial or investment advice. Investments in financial markets are subject to market risks, and past performance is not indicative of future results. Readers are strongly advised to consult a licensed financial expert or advisor for tailored advice before making any investment decisions. The data and information presented in this article may not be accurate, comprehensive, or up-to-date. Readers should not rely solely on the content of this article for any current or future financial references. To Read Complete Disclaimer Click Here