12 November 2020
2QFY21 Results Update | Sector: Metals
Nalco
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
NACL IN
1,933
64 / 0.8
49 / 24
2/-16/-34
446
48.5
CMP: INR34
TP: INR41 (+20%)
Buy
LME recovery and lower costs to improve profitability
Higher volumes lead to better-than-expected EBITDA
Nalco’s (NACL) 2QFY21 higher-than-expected EBITDA at INR2.8b (v/s est.
INR2.2b) and volumes were a surprise once again. EBITDA continues to
strengthen due to LME recovery and lower input commodity costs.
We raise our FY21/FY22E EBITDA estimates by 36%/28% to factor in the
recovery in LME prices. Maintain
Buy.
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
84.7 84.7 93.9
EBITDA
4.9 12.3 14.3
Adj. PAT
1.4
5.4
6.4
EBITDA Margin (%)
5.8 14.6 15.2
Cons. Adj. EPS (INR)
0.7
2.8
3.3
EPS Gr. (%)
-92.2
288.9 19.9
BV/Sh. (INR)
51.7 52.0 51.8
Ratios
Net D:E
-0.2 -0.2 -0.0
RoE (%)
1.4
5.4
6.4
RoCE (%)
2.0
7.4
9.0
Payout (%)
457.6 89.9 104.9
Valuations
P/E (x)
48.0 12.3 10.3
P/BV (x)
0.7
0.7
0.7
EV/EBITDA(x)
8.8
3.6
4.4
Div. Yield (%)
8.0
7.3
7.3
Shareholding pattern (%)
Sep-20 Jun-20
As On
Promoter
DII
FII
Others
51.5
10.0
7.2
31.4
51.5
13.8
9.0
25.6
EBITDA rises significantly on lower costs
Revenue was flattish YoY (+72% QoQ) to INR23.8b as lower LME was offset
by the INR depreciation. Sequentially, LME prices at USD1,702/t (+14% QoQ)
led the recovery.
EBITDA at INR2.8b (+114% QoQ) was above our estimate of INR2.2b due to
higher-than-expected volumes. EBITDA was significantly higher compared to
INR0.3b reported in 2QFY20 on lower input commodity costs (down 13%
YoY).
The company reported PAT of INR1.1b (v/s est. INR852m).
Aluminum:
EBIT at INR732m (v/s INR1.2b loss in 2QFY20); revenue increased
to INR17.5b (15% YoY) on higher volumes. Aluminum production stood at
106kt (-5% YoY; +7% QoQ). We estimate NACL’s aluminum sales to rise 12%
YoY to 123kt due to higher exports of 58.6kt (v/s 16.3kt in 2QFY20). Derived
realization declined 3% YoY (+13% QoQ) to USD1,915/t.
Alumina:
Revenue (incl. inter-segment) stood at INR9.8b (-14% YoY; +27%
QoQ) and EBIT at INR1.2b (+1% YoY; +186 QoQ). Alumina production
increased 2% YoY to 487kt whereas sales declined 26% YoY to 285kt.
Valuation and view
Sep-19
52.0
16.9
10.8
20.3
FII Includes depository receipts
While aluminum prices have recovered ~30% from lows, higher aluminum
inventory is a cause for concern due to sustainability of prices. We factor in
average LME of USD1,725/t for FY21E and USD1,750/t for FY22E. Alumina
prices are also hovering near pre-COVID levels. With integrated operations,
NACL is best placed to benefit from the recovery in prices.
NACL has planned for alumina refinery expansion by 1.0mtpa with
announced capex of ~INR64b (earlier projected at INR55b) and expects
completion of the project in FY23E.
We expect NACL to benefit from improved LME and lower input commodity
costs. We maintain our positive stance on NACL considering its integrated
business model.
We value the stock at 5.5x FY22E EV/EBITDA to arrive at TP of INR41.
Maintain
Buy.
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
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.