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NALCO - 3QFY17 Result Update - Strong Performance on Higher Volume, Realizations - Reliance Securities

Posted On: 2017-02-18 23:34:59

National Aluminium Company (NALCO) has posted strong performance in 3QFY17, which was largely in-line with our estimate. EBITDA increased by 102% YoY and 66% QoQ to Rs2.9bn tad lower than our estimate of Rs3bn, as its alumina realization declined to US$269/tonne vs. our estimate of US$295/tonne. Continuing its northward movement, power cost rose by 16% YoY and 12% QoQ to Rs5.9bn, which we assume owing to higher coal cost. Despite a dismal performance by aluminium division with marginal EBIT of Rs1,158/tonne in 3QFY17, we continue to remain positive on NALCO as its alumina cost of production being one of the lowest in the world due to high-grade captive bauxite mine. We continue to maintain our HOLD recommendation on the stock with a revised Target price of Rs71.

Segmental Sales Volume Performance

Aluminium division's sales volume rose by 2% YoY (flat QoQ) to ~99,000 tonne, marginally higher than our estimate of 97,500 tonne. Regional premium of the division declined 24% YoY to US$377/tonne. Alumina division's sales volume increased by 9% YoY and 7% QoQ, higher than our estimate of 295,000 tonne. Alumina sales saw a sequential rise of 7% during the quarter. Benefit of recent hike in alumina price is likely to flow with a time lag (spot prices at US$340/tonne).

Higher Operating Cost Drags Bottom-line

Despite rising by 66% QoQ to Rs285bn, EBITDA came below our estimate due to increased input cost. Alumina EBIT increased by 40% QoQ to Rs2.1bn (down 20% YoY), while Aluminum segment reported Rs115mn EBIT profit compared to Rs999 mn EBIT loss in 2QFY17, led by higher alumina and aluminum prices. Adjusted net profit increased by 49% QoQ to Rs1.8bn (up 92% YoY) led by strong EBITDA growth, partially offset by lower other income (-45% QoQ). The Company also recognized an exceptional charge of Rs371mn towards entry tax on imports.

Outlook & Valuation

We believe that NALCO's profitability would remain largely intact on the back of low cost of production, expected improvement the prices of in all-in Aluminium and firm alumina prices. Further, our view is reinforced by NALCO's alumina cost of production, which is one of the lowest in the world due to its high grade captive bauxite mine. We continue to maintain our HOLD recommendation on the stock with a revised Target price of Rs71.

Shares of NATIONAL ALUMINIUM CO.LTD. was last trading in BSE at Rs.64.3 as compared to the previous close of Rs. 64.85. The total number of shares traded during the day was 368872 in over 2172 trades.

The stock hit an intraday high of Rs. 67 and intraday low of 63.5. The net turnover during the day was Rs. 24186604.

Source: Equity Bulls

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