Buy National Aluminium Company Ltd For the Target Rs. 210 by Emkay Global Financial Services Ltd
NACL reported Q1FY26 EBITDA of Rs14.9bn (down 45.8% QoQ), which is 10.2/14.2% weaker than consensus/Emkay estimate. This was expected, as alumina prices had corrected owing to the supply-demand balance moving into surplus, with above-normal prices leading to a supply deluge. NACL’s operating performance remained healthy in Q1. The earnings base is under a reset, with the market expecting Rs50-55bn of EBITDA in FY26. The new baseline profitability is significantly better than the years prior to FY25 which indicates structural improvement in fundamentals, in our view. With the upcoming 1mt of alumina expansion in Q1FY27, we expect volume-led growth in FY27/28E. We retain BUY, with our TP trimmed to Rs210 (Rs225 earlier).
Weak Q1 as expected
NACL reported Q1FY26 EBITDA of Rs14.9bn (down 45.8% QoQ), which is 10.2/14.2% weaker than consensus/Emkay estimate. This was expected, as alumina prices had corrected to USD350/t by Apr-25, from the Dec-24 peak of USD800/t, owing to the supply-demand balance moving into surplus, with a supply deluge attracted by abovenormal prices. We sense that alumina prices are stabilizing around USD375/t, which is within the long-term alumina-to-aluminium range of 14-16%. NACL’s operating performance remained healthy in Q1—in terms of production volumes and cost profile— with EBITDA margin of 39.2% in Q1 vs 52.3% in Q4.
Key takeaways from the earnings call
1) Alumina expansion: The mgmt reiterated alumina expansion timeline of Q1FY27 commissioning, noting 74-75% progress. The mgmt expects 50% utilization at the new capacity of 1mt in FY27 (Emkay estimate: 30%). 1mt of a single line would help achieve scale benefits with lower manpower cost and caustic soda consumption. Bauxite mine to be commissioned in Mar-26. 2) Tariff impact: Most of NACL’s aluminium production caters to the domestic market and hence is unaffected by tariffs. 3) Operating performance: Existing alumina operations are at 100% utilization, with favorable cost positioning at USD230-240/t vs realization at ~USD400/t. Aluminium segment cost is at USD1,850/t, which places the company favorably vs the global aluminium cost curve. 4) No monsoon impact was seen on the business. 5) Captive coal: Operating at peak rated capacity of 4mt, replacing ~50% of external coal purchases.
Earnings baseline undergoing a reset; retain BUY
NACL saw EBITDA of Rs76bn in FY25, benefitting from the exceptional performance led by a temporary spike in bauxite/alumina prices. The earnings base is under a reset, with the market expecting Rs50-55bn of EBITDA in FY26. Nevertheless, the new baseline profitability is significantly better than the years prior to FY25 which indicates structural improvement in fundamentals, in our view. With 1mt of alumina expansion upcoming in Q1FY27, we expect volume-led growth in FY27/28E; we reiterate BUY.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
