Reduce National Aluminium Co ltd For Target Rs. 370 By Emkay Global Financial Services Ltd
NACL reported a weak Q4 with EBITDA at Rs23.5bn (+7.8% QoQ), 14.7% below consensus; aluminium performance improved on higher prices, while alumina EBITDA declined due to lower alumina sales during the quarter. FY26 remained strong (EBITDA Rs79.5bn), with a higher net cash position and a dividend of Rs10.5/sh. While spot aluminium exposure supported earnings, the shift to 100% spot alumina sales raises profitability concerns amid oversupply, partially offset by a constructive aluminium outlook (USD3,200/t in FY28E). We cut FY27-28E EBITDA by ~4% and TP to Rs370 (from Rs410), while maintaining REDUCE given elevated valuations (7.4x FY28E EV/EBITDA vs 6x avg).
Q4 results miss street’s estimates
NACL reported a weak Q4, with standalone EBITDA at Rs23.5bn (+7.8% QoQ), broadly in line with our estimate of Rs24bn and down 14.7% vs consensus. Aluminium (Al) EBITDA increased 18.4% sequentially, driven by a 12.8% increase in aluminium prices, leading to EBITDA/t improving to USD1,865 (vs USD1,577 in Q3). Alumina EBITDA declined 17.1% QoQ to Rs5.3bn, largely due to lower sales volumes (343kt vs 403kt in Q3) as inventory sales were absent during the quarter, resulting in EBITDA/t moderating to USD102 (-19.3% QoQ). Overall, FY26 operations remained robust, with alumina and aluminium facilities operating at peak utilization, supported by favorable pricing and cost efficiencies, driving EBITDA of Rs79.5bn, which, in turn, drove higher PAT to Rs58bn increasing 9.2% YoY. NACL’s net cash position also improved to Rs84bn vs Rs53bn in FY25. The company also announced a total dividend of Rs10.5/sh for the year.
Shift to spot alumina sales weighs on margin outlook
NACL’s strategy of maintaining higher exposure to spot Al sales, rather than hedging volumes, enabled it to fully capture the benefit of the price upcycle during FY26. In contrast, the alumina segment demonstrated resilience despite softer pricing in FY26, supported by limited exposure to spot sales and inherent cost advantages. However, with the favorable phase moderating, management has guided a transition to 100% spot alumina sales (vs earlier LME-linked contracts), in response to a subdued pricing environment amid excess global supply. This shift raises concerns on the sustainability of alumina profitability over FY27-28E. However, we remain constructive on Al prices in the near-to-medium term, supported by an estimated ~2mt supply deficit in FY27. While some normalization is expected in FY28 as disrupted capacities ramp up, we factor in Al prices of USD3,200/t, which should continue to strengthen earnings visibility for NACL.
Valuation leaves limited headroom; maintain REDUCE
Factoring in Q4 performance and the management guidance, we revise down FY27-28E EBITDA by 4%, leading to a reduction in TP to Rs370 from Rs410. We maintain REDUCE, as the stock currently trades at 7.4x FY28E EV/EBITDA, implying a 23% premium to its long-term average of 6x; which, in our view, limits further re-rating potential
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