14 February 2021
3QFY21 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
91.2 / 1.3
52 / 24
-1/6/-2
643
48.5
CMP: INR49
TP: INR59 (+21%)
Higher LME prices boost profitability
Retain Buy on improved earnings outlook and dividend yield
Buy
Nalco’s (NACL) 3QFY21 result was strong on the back of higher LME prices. It
reported an EBITDA of INR4.3b (+57% QoQ) and PAT of INR2.4b (+123% QoQ).
We raise our FY21E/FY22E EPS estimate by 9%/13% to factor in a lower tax
rate. We expect alumina prices to stay strong which should support strong
cash flows and a good dividend payout (8% yield in FY22). Maintain
Buy.
Revenue was flat QoQ at INR23.8b (4% above estimate) as higher LME price
(+13% QoQ, +10% YoY) was offset by lower Aluminum sales (103kt, -16%
QoQ). Alumina sales, however, was up 21% QoQ to 344kt.
EBITDA rose 57% QoQ (11x YoY) to INR4.3b (7% above our estimate) led by
better realization. Depreciation increased 18% QoQ to INR1.7b.
The management opted for the new tax regime during 3QFY21. As a result,
implied tax rate in 3Q was lower at ~20% (v/s 31% in 2QFY21) as higher tax
provision made in earlier quarters was written back in 3Q.
As a result, PAT rose 123% QoQ to INR2.4b (21% above our estimate).
Aluminum:
It reported an EBIT at INR1.6b, up 116% QoQ (v/s a loss of INR1.4b
in 3QFY20). Revenue declined 7% QoQ to INR16.4b on lower volumes (103kt, -
16% QoQ). The same was offset by higher LME prices (USD1,925/t, +13%
QOQ). Sales were lower during 3QFY21 due to inventory destocking in 2Q.
Derived realization improved 12% QoQ (and 10% YoY) to USD2,153/t. Derived
EBITDA/t improved 104% QoQ to USD287/t.
Alumina:
Revenue (including inter-segment) stood at INR9.9b (+1% QoQ).
EBIT came in at INR1.8b (+52% QoQ). While alumina production rose 8% YoY
(14% QoQ) to 555kt, external sales rose 3% YoY (21% QoQ) to 344kt.
With spot LME aluminum hovering at ~USD2,000/t (up ~18% YoY), near-term
profitability outlook is strong. Alumina prices have not yet reacted to the
strength in aluminum and could surprise positively in FY22. With integrated
mining operations, NALCO is the best play on higher LME prices.
Aluminum market has been in surplus (2.8mt in CY20) which is expected to
continue in CY21 and could put pressure on prices in the medium term. We
have factored in LME at USD1,850/t in FY22E.
The management has announced a 1mtpa alumina refinery expansion at a
capex of ~INR64b and expects to complete the project in FY23. Given slow
execution, we, however, expect commissioning in FY24.
We value the stock on a SoTP basis at 5x FY22E EV/EBITDA and 0.75x book
value for growth CWIP to arrive at our TP of INR59. At the CMP, it provides an
attractive dividend yield of ~8%. Maintain Buy.
Higher LME boosts EBITDA by 57% QoQ
Financials & Valuations (INR b)
Y/E MARCH
2021E 2022E 2023E
Sales
86.5 99.4 100.8
EBITDA
13.1 17.5 18.6
Adj. PAT
6.3
9.5 10.0
EBITDA Margin (%)
15.2 17.5 18.5
Cons. Adj. EPS (INR)
3.4
5.1
5.4
EPS Gr. (%)
357.1 49.8
5.5
BV/Sh. (INR)
54.2 55.2 56.2
Ratios
Net D:E
-0.3 -0.1
0.1
RoE (%)
6.3
9.3
9.6
RoCE (%)
7.6 11.3 11.0
Payout (%)
79.7 80.8 80.4
Valuations
P/E (x)
14.5
9.7
9.2
P/BV (x)
0.9
0.9
0.9
EV/EBITDA(x)
5.0
4.7
5.3
Div. Yield (%)
5.5
8.4
8.8
Shareholding pattern (%)
As On
Dec-20 Sep-20 Dec-19
Promoter
51.5
51.5
51.5
DII
9.8
10.0
15.6
FII
7.2
7.2
11.8
Others
31.5
31.4
21.1
FII Includes depository receipts
Valuation and view
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.