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Increase in alumina refinery capacity and raw material securitization to drive performance

* NACL had successfully acquired Utkal D and E coal blocks , with a combined R&R of 175mt, aimed at improving NACL’s raw material security.

* Despite encountering multiple delays, NACL is all set to operationalize Utkal D coal mine by the end of CY23. This development is poised to provide NACL with an annual raw material security of approximately 2mt.

* NACL is in the process of establishing a fifth stream for its alumina refinery, which will enhance the capacity by an additional 1mt to 3.1mt by May’25. The full incremental benefits of this expansion are expected to materialize from FY26E onwards.

* NACL is operating at full capacity across 960 electrolytic potcells, which will help the company clock 460kt of metal production in FY24E.

* NACL is also setting up a 0.27mt caustic soda facility (in JV with GALK) at Dahej, Gujarat, which will further enhance its raw material integration.

* We believe that despite NACL currently operating at full capacity, the synergies arising from enhanced raw material security will propel EBITDA/APAT to exhibit a CAGR of 16% each until FY25E.

* NACL currently trades at 3.8x FY25E EV/EBITDA and appears to be fully priced in. We reiterate our Neutral rating on the stock with a TP of INR95. 

 Next leg of capex to drive growth

* In FY23, NACL reached full capacity utilization, leaving little room for expansion within its existing production capacity. Consequently, NACL has initiated the construction of a fifth stream for its alumina refinery, aimed at increasing its current installed capacity of 2.1mt by an additional 1mt (total capacity post expansion 3.1mt).

* The expansion project has encountered multiple delays, and the projected timeline for completion has been revised to May’25. As on Jul’23, ~57.8% of the project work has been successfully completed.

* In order to feed the new alumina refinery, NACL is also setting up Pottangi bauxite mine (reserves of ~75mt) and the same is expected to be operational by 1QFY26.

* However, given that the complete ramp-up of bauxite availability from the Pottangi mine is expected to occur after the commissioning of the fifth stream, NACL has initiated plans to secure additional sources of raw materials from the Panchpatmali south block. The project has already engaged an EPCM consultant and significant machinery and infrastructure packages have been finalized.

* As the capex plans have already experienced delays, any further extension of the project timeline will impact the growth outlook for NACL. 

Strengthening backward integration Caustic soda facility 

* NACL is setting up 0.27mt caustic soda facility (in JV with GALK) at Dahej, Gujarat along with 130mw of CPP.

* 99% of the project has been completed and all eight electrolysers units of the plant are operational.

* Given that caustic soda is a key raw material in the manufacturing process, the establishment of this facility will further enhance NACL’s raw material integration capabilities.

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