8 August 2021
1QFY22 Results Update | Sector: Metals
Nalco
Estimate change
TP change
Rating change
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CMP: INR93
TP: INR107 (+15%)
Higher costs lead to EBITDA miss
Strong aluminum prices to support earnings
Buy
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
1,837
172 / 2.3
97 / 29
14/80/126
1753
48.7
NALCO’s 1QFY22 result was below our expectations due to higher than
expected costs and miss on volumes/realization. EBITDA/adjusted PAT
declined by 38%/45% QoQ to INR8.9b/INR3.5b and missed our estimate by
34%/38%.
We lower our FY22E EBITDA estimate by 10% to factor in higher costs.
However, we raise our FY23E EBITDA estimate by 15% as we revise
upwards our FY23E LME aluminum assumption by 7% to USD2,300/t. We
maintain our
Buy
rating.
Revenue/EBITDA/adjusted PAT fell 12%/38%/45% QoQ to
INR24.7b/INR5.8b/INR3.5b and was 15%/34%/38% below our estimate.
Sequentially, the decline was led by lower volumes and higher costs (on a
lower base due to one-offs), partly offset by higher LME prices.
The miss on EBITDA was led by lower than expected aluminum volumes
(91kt, 9% lower than our estimate), lower than expected realizations, and
higher than expected costs. Employee cost stood at INR5.8b v/s INR4.3b in
4QFY21 (INR5.2b in 1QFY21).
Derived aluminum realization came in at USD2,589/t and was 4% lower
than our estimate of USD2,691/t. Alumina NSR came in lower at USD274/t
and was 10% below our estimate.
Aluminum:
It reported an EBIT of INR4b (-32% QoQ). Revenue declined by
11% QoQ to INR17.4b, despite higher LME (USD2,393/t; +14% QoQ), due to
lower volumes (91kt). Aluminum production was flat QoQ at 112kt.
Alumina:
Revenue (excluding inter-segment) stood at INR6.4b (-27% QoQ).
EBIT came in at INR1.2b (-60% QoQ). Alumina external sales declined by
16% QoQ to 316kt.
With spot LME aluminum hovering over USD2,550/t (up ~15% in FY22 YTD),
the near term profitability outlook is strong. Alumina prices have not yet
reacted to the strength in aluminum and could surprise positively in 2HFY22.
We expect higher aluminum prices to absorb the cost shock and lead to
improved margin in subsequent quarters. With integrated mining operations,
NALCO is the best play on higher LME prices.
Given the tight demand-supply scenario, we expect aluminum prices to
remain strong. We factor in LME prices of USD2,375/USD2,300 per tonne
for FY22E/FY23E.
The management has announced a 1mtpa alumina refinery expansion at a
capex of ~INR64b, and expects to complete the project in FY23. Given its
slow execution, we expect commissioning by FY24E.
We value the stock on a SoTP basis at 5x FY23E EV/EBITDA and at 0.75x
book value for growth CWIP to arrive at our TP of INR107. At the CMP, it
provides an attractive dividend yield of ~5%. We maintain our Buy rating.
EBITDA declines by 38% QoQ on higher costs
Financials & Valuations (INR b)
Y/E MARCH
2021 2022E 2023E
Sales
89.6 111.8 117.2
EBITDA
17.8 27.9 32.8
Adj. PAT
9.9 17.3 20.4
EBITDA Margin (%)
19.9 24.9 28.0
Cons. Adj. EPS (INR)
5.4
9.4 11.1
EPS Gr. (%)
629.4 74.4 17.7
BV/Sh. (INR)
58.2 62.9 68.5
Ratios
Net D:E
-0.2
-0.2
-0.1
RoE (%)
9.7 15.6 16.9
RoCE (%)
11.7 19.3 20.0
Payout (%)
35.3 49.9 49.6
Valuations
P/E (x)
14.8
8.5
7.2
P/BV (x)
1.4
1.3
1.2
EV/EBITDA(x)
7.0
4.6
4.2
Div. Yield (%)
3.1
5.9
6.9
Shareholding pattern (%)
As On
Jun-21 Mar-21
Promoter
51.3
51.3
DII
11.5
9.6
FII
8.6
8.4
Others
28.6
30.7
FII Includes depository receipts
Valuation and view
Jun-20
51.5
13.8
9.0
25.6
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.