13 February 2017
3QFY17 Results Update | Sector: Metals
Nalco
Buy
BSE SENSEX
28,352
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val, INRm
Free float (%)
S&P CNX
8,805
NACL IN
1,933
128.3 / 1.9
79 / 31
-11/39/88
96
25.4
CMP: INR66
TP: INR83(+26%)
Operating leverage driving down CoP; raising LME est.
Alumina exports led the miss in 3QFY17; Maintain Buy
Nalco’s 3QFY17 EBITDA of INR2.8b (+8% QoQ/22% YoY) came in below our
estimate due to lower-than-expected alumina exports and realization. Other
income was down 45% QoQ to INR0.7b post buy-back. Adjusting for the
exceptional charge of INR0.3b for entry tax on imports, PAT was up 40%
QoQ/71% YoY to INR1.7b.
Alumina production – best ever, but exports disappointed
Production was up 27% QoQ/9% YoY to best-ever 566kt. Sales growth was
lower at 7% QoQ to 311kt (est. of 335kt).
Realization was up 1% QoQ to USD269/t (est. of USD290/t) as benefit of
recent alumina price increase is likely to flow with a lag (spot at USD340/t).
Cost of production (CoP) declined USD10/t QoQ to USD211/t.
Aluminum: Production up 6% QoQ; operating leverage driving down CoP
Production was up 6% QoQ to 99kt (est. of 96kt), which is ramping up ahead
of expectation. Sales were flat QoQ at 99kt.
CoP declined ~USD100/t QoQ on operating leverage.
Operating leverage and alumina prices driving earnings growth; Maintain Buy
We expect metal production to increase from 372kt in FY16 to 448kt by
FY18E on improved domestic coal supply. The operating leverage benefit will
be meaningful because of high fixed cost (>USD600/t). Nalco is net long on
alumina and will benefit from sharp increase in prices.
We have upgraded LME assumption by USD50 to USD1,700/t for FY18/19E.
Alumina CoP is slightly higher on caustic soda prices. EBITDA is raised by ~9%
for FY18/19E. Revised TP is INR83/share (INR77/share earlier) based on 6.5x
FY18E EV/EBITDA. Maintain
Buy.
Financials & Valuations (INR b)
2016 2017E
Y/E Mar
68.2
74.4
Net Sales
9.4
10.9
EBITDA
7.0
6.9
PAT
2.7
3.6
EPS (INR)
-43.4
32.6
Gr. (%)
50.1
53.6
BV/Sh (INR)
5.4
6.9
RoE (%)
7.5
7.9
RoCE (%)
24.6
18.6
P/E (x)
1.3
1.2
P/BV (x)
2018E
83.3
18.4
10.3
5.3
49.4
56.8
9.7
13.0
12.4
1.2
Estimate change
TP change
Rating change
Quarterly Performance – INR million
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.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549

Nalco
Exhibit 1: Alumina and aluminum production volumes – kt
Alumina
100
532
98
397
482 479
465
85
78
75
Aluminium
558
517
96
524
96
94
566
99
Alumina production was up
9% YoY to best ever 566kt.
Aluminum production was
up 3% YoY to 99kt.
500
78
477 487
460
82 83
427
79
83
86
388
490
94
94
444
Source: MOSL, Company
Alumina sales were up 9%
YoY to 311kt. Aluminum
sales was up 2% YoY to
99kt.
Exhibit 2: Alumina and aluminum sales volumes – kt
Alumina
102
98
85
75
78
81
77
81
82
Aluminium
85
78
94
97
104
82
99
99
220 320 283 374 313 373 315 341 286 283 220 315 285 375 291 290 311
Source: MOSL, Company
Exhibit 3: Alumina CoP (incl. depreciation) – USD/t
237
241
225
238
238
221
191
212
191
205
211
1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Source: MOSL, Company
13 February 2017
2

Nalco
Exhibit 4: Aluminum CoP (incl. depreciation) – USD/t
Aluminum CoP incl. depreciation (USD/t)
Source: MOSL, Company
Exhibit 5: Target price calculation
EBITDA
EV/EBITDA (x)
Target EV
add: CWIP
add: cash surplus
Equity Value
Implied Price
Key Assumption
USD/INR rate
LME (USD/t)
FY15
17,060
6.5
110,891
5,497
55,790
FY16
9,380
6.5
60,973
6,614
58,106
FY17E
10,949
6.5
71,169
5,614
29,183
105,966
FY18E
18,393
6.5
119,557
4,614
36,371
160,542
83
70.0
1,700
FY19E
18,501
6.5
120,256
4,614
42,517
167,386
87
70.0
1,700
61.1
1,889
65.5
1,593
67.5
1,655
Source: MOSL, Company
13 February 2017
3

Nalco
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
66,116
11.0
11,449
17.3
4,666
6,784
9
5,422
-219
11,978
3,483
29.1
0
8,495
8,650
-19.2
2012
12,886
104,265
117,151
0
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
69,165
4.6
9,069
13.1
5,054
4,014
75
5,111
0
9,050
3,122
34.5
0
5,928
5,928
-31.5
2013
12,886
106,438
119,325
0
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
67,809
-2.0
9,342
13.8
5,247
4,095
0
5,577
-494
9,178
2,755
30.0
0
6,424
6,769
14.2
2014
12,886
108,338
121,225
0
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
73,828
8.9
17,060
23.1
4,137
12,924
0
6,726
1,484
21,134
7,916
37.5
0
13,219
12,290
81.6
2015
12,886
115,087
127,973
0
11,053
139,026
152,847
86,393
66,454
5,497
10
89,815
11,656
1,208
55,780
21,171
22,751
18,461
4,290
67,064
139,026
2016
68,160
-7.7
9,380
13.8
4,241
5,139
12
5,366
535
11,028
3,718
33.7
0
7,310
6,956
-43.4
2016
12,886
116,191
129,077
0
11,101
140,178
155,035
90,360
64,675
6,614
11
93,891
11,270
2,352
58,095
22,173
25,012
20,001
5,011
68,878
140,178
2017E
74,448
9.2
10,949
14.7
5,084
5,865
0
4,152
0
10,017
3,101
31.0
0
6,916
6,916
-0.6
2017E
9,665
93,919
103,584
0
11,101
114,684
162,035
95,444
66,591
5,614
11
63,446
10,420
1,681
29,172
22,173
20,977
15,966
5,011
42,469
114,684
2018E
83,295
11.9
18,393
22.1
5,534
12,859
(INR Million)
2019E
83,351
0.1
18,501
22.2
5,646
12,855
0
2,476
0
15,336
5,006
32.6
0
10,330
10,330
49.4
2018E
9,665
100,190
109,855
0
11,101
120,955
169,035
100,978
68,057
4,614
11
79,529
18,256
2,738
36,361
22,173
31,255
26,244
5,011
48,274
120,955
0
2,814
0
15,670
5,115
32.6
0
10,555
10,555
2.2
2019E
9,665
106,686
116,351
0
11,101
127,451
175,035
106,624
68,411
4,614
11
85,688
18,269
2,740
42,506
22,173
31,273
26,261
5,011
54,416
127,451
Balance Sheet
(INR Million)
13 February 2017
4

Nalco
Financials and Valuations
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
Ratios
2012
3.4
5.1
45.5
1.4
48.9
19.8
13.0
1.5
1.8
10.6
2.1
7.6
10.0
11.3
0.5
8
67
-0.4
2012
11,449
5,194
-3,966
-3,041
-770
8,867
-7,582
1,285
5,774
985
-823
0
-149
-9
-4,156
-4,313
3,731
37,952
41,684
2013
2.3
4.3
46.3
1.3
63.6
28.9
15.6
1.4
1.8
13.4
1.9
5.0
7.2
5.8
0.5
8
73
-0.3
2013
9,069
5,036
-726
-4,351
-266
8,762
-6,489
2,272
-7,358
731
-13,116
0
0
-75
-2,211
-2,285
-6,640
41,684
35,044
2014
2.6
4.5
47.0
1.5
70.4
25.3
14.7
1.4
1.7
12.7
2.3
5.6
7.5
5.9
0.5
13
63
-0.3
2014
9,342
5,083
3,379
-3,596
-4,395
9,813
-6,187
3,627
2,450
4,517
781
0
0
0
-5,155
-5,155
5,439
35,044
40,483
2015
4.8
6.7
49.7
1.5
34.2
13.9
9.9
1.3
1.6
6.8
2.3
9.9
14.6
17.5
0.5
6
58
-0.4
2015
17,060
8,211
-9,925
-4,915
-5,227
5,205
-3,031
2,173
12,440
5,749
15,157
0
0
0
-5,065
-5,065
15,297
40,483
55,780
2016
2.7
4.5
50.1
1.8
74.0
24.6
14.8
1.3
1.7
12.0
2.6
5.4
7.5
6.7
0.5
13
60
-0.5
2016
9,380
5,888
796
-3,614
-4,012
8,438
-5,456
2,982
-1
4,773
-683
0
0
-12
-5,427
-5,440
2,316
55,780
58,095
2017E
3.6
6.2
53.6
1.8
58.7
18.6
10.7
1.2
1.3
9.1
2.6
6.9
7.9
7.6
0.6
8
51
-0.3
2017E
10,949
4,152
-2,514
-3,101
0
9,486
-6,000
3,486
0
0
-6,000
-28,350
0
0
-4,059
-32,409
-28,923
58,095
29,172
2018E
5.3
8.2
56.8
1.8
39.3
12.4
8.1
1.2
1.1
5.0
2.6
9.7
13.0
16.1
0.7
12
80
-0.3
2018E
18,393
2,476
1,383
-5,006
0
17,248
-6,000
11,248
0
0
-6,000
0
0
0
-4,059
-4,059
7,188
29,172
36,361
2019E
5.5
8.4
60.2
1.8
38.5
12.2
7.9
1.1
1.0
4.6
2.6
9.3
12.6
16.0
0.7
12
80
-0.4
2019E
18,501
2,814
4
-5,115
0
16,204
-6,000
10,204
0
0
-6,000
0
0
0
-4,059
-4,059
6,145
36,361
42,506
Cash Flow Statement
(INR Million)
13 February 2017
5

Nalco
Corporate profile
Company description
Exhibit 1: Sensex rebased
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.
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Dec-16
Promoter
DII
FII
Others
74.6
13.2
3.3
8.9
Sep-16
74.6
13.0
3.2
9.2
Dec-15
80.9
11.7
0.8
6.6
Source: Capitaline
Exhibit 3: Top holders
Holder Name
LIC OF INDIA PROFIT PLUS GROWTH FUIND
BAJAJ ALLIANZ LIFE INSURANCE COMPANY
LTD.
HINDALCO INDUSTRIES LIMITED
NA
NA
% Holding
10.6
1.6
1.5
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
Damodar Acharya
M S Sahu
S Sankararaman
Name
Soma Mondal
Nikunja Bihari Dhal
Subhash Chandra
Dipankar Mahanta
P K Nayak
*Independent
Source: Capitaline
Exhibit 6: Auditors
Name
ABP & Associates
Saroj Ray & Associates
Tanmaya S Pradhan & Co
Type
Statutory
Secretarial Audit
Cost Auditor
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
FY19
MOSL
forecast
3.6
5.3
5.5
Consensus
forecast
3.6
4.2
4.1
Variation (%)
-0.8
27.2
34.4
Source: Bloomberg
Source: Capitaline
13 February 2017
6

Nalco
NOTES
13 February 2017
7

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Nalco
Disclosure of Interest Statement
Analyst ownership of the stock
No
Served as an officer, director or employee -
No
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13 February 2017
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