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Broad-based beat fueled by favorable pricing

* Nalco (NACL)’s 2QFY25 revenue stood at INR40b (YoY/QoQ: +31%/+40%) vs. our est. of INR32b, driven by favorable pricing.

* Consol. EBITDA stood at INR15.5b (YoY/QoQ: +291% /+66%) vs. our est. of INR9.1b during the quarter.

* EBITDA margin stood at 38.7% vs. 32.7% in 1QFY25 and 13% in 2QFY24.

* APAT for the quarter stood at INR10.5b (YoY/QoQ: +458%/+78%) vs. our est. of INR5.8b.

* The Board declared an interim dividend of INR4 per share for FY25.

* In 1HFY25, NACL reported a revenue of INR68.6b (+10% YoY) and EBITDA of INR24.8b (+151% YoY), while it posted an APAT of INR16.3b (+214% YoY).

Aluminum business

* Revenue from the aluminum business came in at INR27b, up 17% YoY and 8% QoQ vs. our estimate of INR22.5b.

* EBIT came in at INR8.6b (+325% YoY and 6% QoQ) against our estimate of INR6.1b during the quarter.

* Domestic metal sales for 1HFY25 stood at 0.22mt

Chemical business

* Revenue from the chemicals business stood in line with our estimate at INR17b, up 37% YoY; revenue doubled on a QoQ basis.

* EBIT for the vertical stood at INR6b vs. our estimate of INR2.3b.

Valuation and view

* The recent exploration and lithium mining agreement with Argentina’s CAMYEN SE, will help NACL establish its presence, diversify product offerings, and enhance the supply chain for critical and strategic minerals.

* Until the fifth stream of alumina comes on stream, we expect NACL to operate at full capacity, leaving little room for capacity expansion over the next two years. The next phase of growth is anticipated once the additional 1mt capacity of the alumina refinery comes on stream by May’25.

* The Utkal D coal block will fulfill ~25-28% of the coal requirements for the Angul smelter. This will enhance raw material security and boost the margins until the augmented capacity comes on stream.

* Owing to its robust performance in 1HFY25, we raise our revenue/EBITDA/ APAT estimates by ~9/27%/32% for FY25, while broadly maintaining our FY26/FY27 estimates.

* We foresee 2HFY25 revenue/EBITDA and APAT to grow 17/24/30% YoY on account of favorable pricing, especially of alumina.

* At CMP, NACL trades at 6.9x on EV/EBITDA and 1.8x on P/B and appears to be largely priced in at current levels. We reiterate our NEUTRAL rating on the stock with a revised TP of INR240, valuing it at 7.5x Sep’26 EV/EBITDA.

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