13 September 2016
1QFY17 Results Update | Sector: Metals
Nalco
Buy
BSE SENSEX
28,354
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
8,716
NACL IN
2,577.2
107.2 / 1.6
51 / 30
-2/0/22
55
19.1
CMP: INR47
TP: INR67(+43%)
Higher aluminum cost drives 1Q miss
Nalco’s 1QFY17 EBITDA of INR1.9b (-18% QoQ/-13% YoY) was below est. of INR2.4b
on lower aluminum volumes and higher costs. PAT of INR1.3b (est. of INR1.8b) was
down 35% QoQ/17% YoY on higher depreciation due to accounting policy change.
Aluminum:
Cost of production (CoP, incl. depreciation) was up USD306/t QoQ
to USD1,898 (est. USD1,681) on higher power cost on coal cess and operating
leverage impact from lower volumes. Aluminum sales were down 21% QoQ to
82kt (est. 96kt), although production was down only 2% QoQ to 94kt, on re-
stocking. Aluminum realization of USD1,860/t (up USD120 QoQ) implies
~USD70/t QoQ increase in realized premiums on import duty benefit (raised by
5%).
Alumina:
CoP was down USD15/t QoQ to USD191 (est. USD201) despite lower
volumes. Alumina sales were down 22% QoQ to 291kt, although production
was down by only 6% QoQ to 524kt. Alumina realization was up USD18/t QoQ
to USD257 lower than est. of USD272 probably on lower contract sales.
Maintain Buy; Improved coal availability to drive better utilization
The negative surprise on aluminum cost in the quarter was primarily on
account of negative operating leverage from re-stocking led lower sales
volume. We largely maintain our estimates and TP. We estimate Nalco’s
aluminum production to increase from 372kt in FY16 to 441kt by FY18E as it
increases smelter utilization on improved domestic coal availability. With fixed
cost of more than USD600/t, higher volumes would deliver better cost
absorption. Its alumina business is in the 1
st
quartile of global cost curve and
would help tide through the current depressed alumina market. Cost of
production has tailwind of improving domestic coal quality and start of its
captive mines. Maintain Buy with TP of INR67.
INR million
FY16
2Q
3Q
4Q
94
96
96
94
97
104
315
285
375
1,593 1,495 1,517
300
261
224
308
263
239
18,151 16,353 18,744
-9.0 -14.2
4.1
3,393 1,363 2,387
-28.5 -74.1 -44.2
1,073 1,046 1,132
1,260 1,240 1,558
3,581 1,558 2,812
0
535
0
3,581 2,092 2,812
1,319
757
733
36.8
36.2
26.1
2,261 1,335 2,079
2,261
994 2,079
1Q
94
82
291
1,570
290
257
15,490
3.9
1,946
-13.0
1,188
1,336
2,089
0
2,089
739
35.4
1,350
1,350
FY17
2QE
3QE
4QE
101
103
105
101
103
105
299
322
359
1,615 1,620 1,630
210
210
210
275
273
272
18,159 18,882 19,872
0.0
15.5
6.0
3,472 3,695 3,940
2.3 171.0
65.1
1,194 1,200 1,206
577
632
689
2,855 3,127 3,423
0
0
0
2,855 3,127 3,423
932 1,021 1,117
32.6
32.6
32.6
1,923 2,106 2,306
1,923 2,106 2,306
FY16
372
372
1,195
1,593
283
299
68,160
-7.7
9,380
-45.0
4,241
5,366
10,493
535
11,028
3,718
33.7
7,310
6,956
FY17E
403
391
1,270
1,609
230
261
72,402
6.2
13,054
39.2
4,787
3,233
11,494
11,494
3,809
33.1
7,685
7,685
FY17 vs Est
1QE
(%)
96
-2
96
-14
248
18
1,570
0
210
38
272
-6
15,969
-3
7
2,451
-21
10
1,138
4
1,329
1
2,642
-21
0
2,642
-21
862
-14
33
1,779
-24
1,779
-24
Financials & Valuations (INR b)
2016 2017E
Y/E Mar
Net Sales
68.2
72.4
EBITDA
9.4
13.1
NP
6.8
7.7
EPS (INR)
2.6
4.0
EPS Gr. (%)
-44.8 51.1
BV/Sh. (INR)
50.2
54.3
RoE (%)
5.3
7.6
RoCE (%)
7.5
9.0
Payout (%)
77.7
51.5
Div. Yield
4.2
4.2
2018E
81.1
18.3
10.7
5.5
38.9
57.7
9.9
13.3
37.1
4.2
Estimate change
TP change
Rating change
Quarterly Performance
Y/E March
1Q
Aluminium Prod. ('000 tons)
86
Aluminium Sales ('000 tons)
78
Alumina Sales ('000 tons)
220
Avg LME Aluminium (USD/ton) 1,769
NSR premiums (USD/ton)
349
Alumina NSR (USD/ton)
306
Net Sales
14,913
Change (YoY %)
-11.2
EBITDA
2,237
Change (YoY %)
-19.1
Depreciation
990
Other Income
1,308
PBT (before EO Item)
2,543
Extra-ordinary Income
0
PBT (after EO Item)
2,543
Total Tax
908
% Tax
35.7
Reported PAT
1,634
Adjusted PAT
1,634
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Nalco
Alumina realization was up
USD18/t QoQ to USD257/t.
Aluminum was up USD120/t
QoQ to USD1,860/t on
higher realized premiums.
Exhibit 1: Alumina and aluminum realization – USD/t
Alumina
2,161 2,094 2,097
2,153
2,323
2,532 2,513
Aluminium
2,284
2,118
1,893
1,756 1,741 1,860
325
316
313
304
308
342
342
321
306
308
263
239
257
Source: MOSL, Company
Alumina production was
down 6% QoQ to 524kt.
Aluminum production was
down 2% QoQ to 94kt.
Exhibit 2: Alumina and aluminum production volumes – kt
Alumina
100
98
85
75
397
532
482
500
465
78
78
487
82
460
83
427
83
86
388
Aluminium
490
94
517
558
524
479
477
79
96
96
94
Source: MOSL, Company
Alumina sales was down
22% QoQ to 291kt.
Aluminum sales was down
21% QoQ to 82kt.
Exhibit 3: Alumina and aluminum sales volumes – kt
Alumina
102
98
85
78
81
77
81
Aluminium
82
85
78
94
97
104
82
75
220
320
283
374
313
373
315
341
286
283
220
315
285
375
291
Source: MOSL, Company
13 September 2016
2

Nalco
Exhibit 4: Alumina CoP – USD/t
237
241
225
238
238
212
191
205
191
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
Source: MOSL, Company
Exhibit 5: Aluminum CoP – USD/t
Aluminum CoP incl. depreciation (USD/t)
Source: MOSL, Company
Exhibit 6: Target price calculation
EBITDA
EV/EBITDA (x)
Target EV
add: CWIP
add: cash surplus
Equity Value
Implied Price
TP (Wtg. Avg.)
Key Assumption
USD/INR rate
LME (USD/t)
FY15
17,060
6.0
102,361
FY16
9,380
6.0
56,282
FY17E
13,054
6.0
78,321
3,497
36,959
118,778
61
67
FY18E
18,265
6.0
109,587
3,497
46,835
159,920
83
61.1
1,889
65.5
1,593
68.0
70.0
1,609
1,650
Source: MOSL, Company
13 September 2016
3

Nalco
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
Total Expenses
EBITDA
% of Net Sales
Depn. & Amortization
EBIT
Net Interest
Other income
PBT before EO
EO income
PBT after EO
Tax
Rate (%)
Reported PAT
Adjusted PAT
Change (%)
2012
66,116
11.0
54,667
11,449
17.3
4,666
6,784
9
5,422
12,197
-219
11,978
3,483
29.1
8,495
8,650
-19.2
2013
69,165
4.6
60,096
9,069
13.1
5,054
4,014
75
5,111
9,050
0
9,050
3,122
34.5
5,928
5,928
-31.5
2014
67,809
-2.0
58,466
9,342
13.8
5,247
4,095
0
5,577
9,672
-494
9,178
2,755
30.0
6,424
6,769
14.2
2015
73,828
8.9
56,768
17,060
23.1
4,137
12,924
0
6,726
19,650
1,484
21,134
7,916
37.5
13,219
12,290
81.6
2016E
68,160
-7.7
58,780
9,380
13.8
4,241
5,139
0
5,366
10,505
0
10,505
3,718
35.4
6,788
6,788
-44.8
2017E
72,402
6.2
59,349
13,054
18.0
4,787
8,266
0
3,233
11,499
0
11,499
3,809
33.1
7,691
7,691
13.3
(INR Million)
2018E
81,138
12.1
62,874
18,265
22.5
4,884
13,381
0
2,476
15,857
0
15,857
5,176
32.6
10,681
10,681
38.9
Cashflow Statement
Y/E March
Pre-tax profit
Depreciation
(Inc)/Dec in Wkg. Cap.
Tax paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA + CWIP
Free Cash Flow
(Pur)/Sale of Investments
CF from Inv. Activity
Equity raised/(repaid)
Debt raised/(repaid)
Dividend (incl. tax)
CF from Fin. Activity
(Inc)/Dec in Cash
Add: opening Balance
Closing Balance
E: MOSL Estimates
2012
11,978
4,666
-8,358
-1,926
1,136
7,495
-5,234
2,261
5,774
540
0
-149
-4,156
-4,304
3,731
37,952
41,684
2013
9,050
5,054
2,740
-2,582
-1,436
12,826
-8,338
4,488
-7,358
-15,696
0
0
-3,769
-3,769
-6,640
41,684
35,044
2014
9,178
5,247
1,368
-2,755
-1,027
12,012
-4,500
7,512
2,450
-2,050
0
0
-4,523
-4,523
5,439
35,044
40,483
2015
21,134
4,137
-9,925
-4,915
-5,227
5,205
-3,031
2,173
8,689
5,657
0
0
-5,065
-5,065
5,797
40,483
46,280
2016E
10,505
4,241
-928
-3,718
0
10,101
-2,000
8,101
0
-2,000
0
0
-5,277
-5,277
2,824
46,280
49,104
2017E
11,499
4,787
174
-3,809
0
12,652
-2,000
10,652
0
-2,000
-28,350
0
-3,958
-32,307
-21,655
49,104
27,449
(INR Million)
2018E
15,857
4,884
269
-5,176
0
15,834
-2,000
13,834
0
-2,000
0
0
-3,958
-3,958
9,876
27,449
37,325
13 September 2016
4

Nalco
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
EBITDA Margins (%)
Net Profit Margins (%)
RoE
RoCE (pre-tax)
RoIC (pre-tax)
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Debtor (Days)
Inventory (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Current Ratio
2012
3.4
5.1
45.5
1.4
48.9
12.4
8.2
0.9
0.9
5.1
3.3
17.3
13.1
7.6
10.0
11.3
0.5
0.5
8
67
5
2.5
2013
2.3
4.3
46.3
1.3
63.6
18.1
9.8
0.9
0.8
6.3
3.0
13.1
8.6
5.0
7.2
5.8
0.5
0.5
8
73
3
2.1
2014
2.6
4.5
47.0
1.5
70.4
15.9
9.2
0.9
0.8
5.8
3.6
13.8
10.0
5.6
7.5
5.9
0.5
0.5
13
63
3
2.2
2015
4.8
6.7
49.7
1.5
34.2
8.7
6.2
0.8
0.7
3.0
3.6
23.1
16.6
9.9
14.6
17.5
0.5
0.5
6
58
15
3.5
2016E
2.6
4.3
50.2
1.8
77.7
15.8
9.7
0.8
0.7
5.2
4.2
13.8
10.0
5.3
7.5
6.6
0.4
0.5
9
61
18
3.8
2017E
4.0
6.5
54.3
1.8
51.5
10.5
6.5
0.8
0.6
3.3
4.2
18.0
10.6
7.6
9.0
10.8
0.5
0.6
11
66
17
2.6
2018E
5.5
8.1
57.7
1.8
37.1
7.5
5.2
0.7
0.4
1.8
4.2
22.5
13.2
9.9
13.3
18.1
0.5
0.7
12
80
15
2.6
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Deferred Tax Liability
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Curr. Assets
Inventories
Account Receivables
Cash and Bank Balance
Others
Curr. Liability & Prov.
Account Payables
Provisions & Others
Net Curr. Assets
Appl. of Funds
E: MOSL Estimates
2012
12,886
104,265
117,151
8,491
125,642
136,586
70,463
66,124
6,844
7,543
74,697
12,127
1,381
41,684
19,506
29,566
26,733
2,833
45,131
125,642
2013
12,886
106,438
119,325
9,031
128,356
141,750
75,461
66,289
10,019
14,901
72,061
13,806
1,430
35,044
21,781
34,914
31,201
3,713
37,147
128,356
2014
12,886
108,338
121,225
9,101
130,326
148,581
80,662
67,919
7,687
12,450
77,428
11,737
2,436
40,483
22,773
35,159
31,505
3,655
42,269
130,326
2015
12,886
115,087
127,973
11,053
139,026
152,847
86,393
66,454
5,497
9,510
80,315
11,656
1,208
46,280
21,171
22,751
18,461
4,290
57,564
139,026
2016E
12,886
116,598
129,484
11,053
140,537
155,847
90,634
65,213
4,497
9,510
83,350
11,394
1,681
49,104
21,171
22,035
17,745
4,290
61,316
140,537
2017E
9,665
95,202
104,867
11,053
115,920
158,847
95,421
63,426
3,497
9,510
63,784
13,058
2,106
27,449
21,171
24,298
20,008
4,290
39,486
115,920
(INR Million)
2018E
9,665
101,926
111,591
11,053
122,643
160,847
100,305
60,542
3,497
9,510
78,947
17,784
2,668
37,325
21,171
29,854
25,564
4,290
49,094
122,643
13 September 2016
5

Nalco
Corporate profile
Company description
National Aluminium Company (Bloomberg: NACL) is a
fully integrated producer of aluminum and alumina.
Aluminum contributes ~70% and alumina ~30% of
revenues. Its aluminum smelter (460ktpa) sources
alumina and power from its captive refinery in
Damanjodi and captive power plant (CPP) located in
Angul respectively. Coal for power generation is sourced
from the state-owned Coal India; hence, the cost of
power generated is low. The alumina refinery, which has
a capacity of 2.1mtpa, is located in Damanjodi (Orissa),
close to captive bauxite mines at Panchpatmalli. Bauxite
from these mines is of superior quality and consumes
low energy in the crushing and digestion process during
conversion to alumina.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Jun-16
Promoter
DII
FII
Others
80.9
9.7
2.3
7.1
Mar-16
80.9
10.0
2.2
6.9
Jun-15
80.9
9.6
3.4
6.1
Source: Capitaline
Exhibit 3: Top holders
Holder Name
LIC OF INDIA PROFIT PLUS GROWTH FUND
BAJAJ ALLIANZ LIFE INSURANCE COMPANY
LIMITED
HINDALCO INDUSTRIES LIMITED
NA
NA
% Holding
8.0
1.2
1.1
0.0
0.0
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
Tapan Kumar Chand
K C Samal
Basant Kumar Thakur
K N Ravindra
Designation
Chairman
&
Managing
Director
Director (Finance)
Director (Human Resources)
Company Secretary
Exhibit 5: Directors
Name
N R Mohanty
V Balasubramanyam
R Sridharan
Dipankar Mahanta
P K Nayak
Name
Soma Mondal
Nikunja Bihari Dhal
Damodar Acharya
M S Sahu
S Sankararaman
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
ABP & Associates
D S Shukla & Co
Dhal & Co
DPSV & Associates
G R Kumar & Co
Internal
Cost Auditor
Internal
Internal
Source: Capitaline
Type
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
4.0
5.5
Consensus
forecast
3.2
3.6
Variation (%)
26.9
53.7
Source: Bloomberg
13 September 2016
6

Nalco
NOTES
13 September 2016
7

Disclosures
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Nalco
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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Kadambari Balachandran
kadambari.balachandran@motilaloswal.com
(+65) 68189233 / 65249115
Motilal Oswal Securities Ltd
13 September 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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