5 September 2020
1QFY21 Results Update | Sector: Metals
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
67.7 / 1
49 / 24
TP: INR42 (+16%)
LME recovery and lower costs to improve profitability
Cost reduction leads to better-than-expected profitability
Nalco (NACL) surprised with higher-than-expected EBITDA at INR1.29b (est.:
INR81m), led by cost reduction in the Aluminum business. However, it was
down 33% YoY due to lower prices and volumes.
We raise our FY21 EBITDA estimate by 67% to factor recovery in LME prices,
but maintain FY22 estimates. Maintain
Financials & Valuations (INR b)
2020 2021E 2022E
84.7 84.4 92.9
4.9 9.6 11.0
EBITDA Margin (%)
5.8 11.4 11.8
Cons. Adj. EPS (INR) 0.7 2.0
EPS Gr. (%)
51.7 51.1 50.0
-0.2 -0.2 -0.1
457.6 127.5 147.6
50.8 18.5 15.3
Div. Yield (%)
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
EBITDA declines 40% YoY due to lower LME and volumes
Revenue declined 34% YoY (29% QoQ) to INR13.8b on a lower LME aluminum
price of USD1,493/t (-17% YoY; -12% QoQ) and lower aluminum volumes.
EBITDA at INR1.3b (-38% QoQ) came in above our estimate of INR81m despite
lower-than-expected volumes. We believe this was due to a reduction in fixed
cost and other discretionary costs as other expenses declined 49% YoY to
INR2.1b. Reported EBITDA still declined 40% YoY on lower alumina and
The company reported PAT of INR166m (our estimate: loss of INR472m).
It reported positive EBIT at INR470m after four quarters (v/s
INR3m loss last year); revenue declined to INR9.3b (-37% YoY; -18% QoQ) on
lower LME prices/volumes due to the impact of COVID-19. Aluminum
production was at 98kt (-11% YoY; -3% QoQ). We estimate NACL’s aluminum
sales at 73kt, impacted by lockdown in 1QFY21. Derived realization declined
17% YoY (and 11% QoQ) to USD1,700/t on account of lower LME. Implied CoP
was down 13% QoQ to USD1,613/t (-20% YoY).
Revenue (incl. inter-segment) was at INR7.7b (-17% YoY; -34% QoQ)
and EBIT at INR415m (-73% YoY; -77% QoQ).
Valuation and view
FII Includes depository receipts
Aluminum LME prices have recovered to pre-COVID levels and turned positive
YoY. Alumina prices are also hovering near pre-COVID levels. Accordingly, we
have raised our LME aluminum estimate to USD1,675/t in FY21 (earlier
USD1,575/t) and USD1,750/t (earlier USD,1700/t) in FY22. With integrated
operations, NACL is best placed to benefit from recovery in prices.
We expect NACL to benefit from lower coal prices due to improved coal
availability in India and lower input commodity costs such as furnace oil, etc.
We maintain our positive stance on NACL considering its integrated business
model, high cash levels, and attractive dividend yield.
We value the stock at 5.5x FY22E EV/EBITDA to arrive at TP of INR42.
Amit Murarka - Research analyst
Basant Joshi - Research analyst
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.