28 May 2013
4QFY13 Results Update | Sector:
Metals
Nalco
BSE Sensex
20,031
Bloomberg
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
S&P CNX
6,083
NACL IN
2,577.2
89.0/1.6
64/33
-7/-28/-63
CMP: INR35
TP: INR38
Neutral
Financials & Valuation (INR b)
Y/E March
Sales
EBITDA
NP
Adj. EPS (INR)
EPS Gr(%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV
EV/EBITDA (x)
Div. Yield (%)
2013 2014E 2015E
69.2
9.1
5.9
2.3
-31.5
46.3
5.0
7.2
63.6
15.0
0.7
5.3
3.6
72.6
12.1
7.6
3.0
28.4
48.0
6.3
8.6
43.6
11.7
0.7
4.6
3.2
80.0
14.2
8.8
3.4
16.2
50.1
7.0
9.6
37.5
10.1
0.7
3.4
3.2
4QFY13 results better than expected:
National Aluminium Company (NACL)
reported EBITDA of INR4.2b for 4QFY13, higher than our estimate of INR2.5b
due to sharp reduction in power and fuel cost, aided by better coal availability.
According to our calculations, the cost of production (CoP) of metal declined
12% QoQ to INR106,859/ton (USD1,970/ton). Net sales grew 10% QoQ (5%
YoY) to INR18.7b on higher alumina and aluminum realizations. Power and
fuel cost as a percentage of sales dipped 8.4pp QoQ to 26.2%. Adjusted PAT
increased 1% YoY (107% QoQ) to INR2.5b in a seasonally strong quarter.
Segmental performance:
Alumina sales improved 46% QoQ to 320k tons.
Aluminum production declined 2% QoQ to 98k tons. Aluminum realization
increased 1% QoQ to INR126,511/ton (USD2,332/ton), while Alumina
realization increased 4% QoQ to INR18,144/ton (USD341/ton). Aluminum
realizations were supported by higher product premium of 16.1% in 4QFY13
against 15.8% in 3QFY13. Aluminum EBIT (full integration basis) improved
from INR364m in 3QFY13 to INR1.9b. Alumina EBIT (external sales) improved
from INR828m in 3QFY13 to INR1.6b.
Coal supply disrupted again; superior performance unlikely to sustain:
NACL
has shut ~25% of its smelting capacity owing to lack of coal supply from
Mahanadi Coalfields (MCL). This will impact metal production in 1QFY14.
Alumina refineries, however, continue to operate efficiently.
Maintain Neutral:
We are building production growth of 13% for Alumina
and 5% for Aluminum over FY13-15, on improved capacity utilization, though
coal supply disruptions pose near-term challenges. We expect 22% EPS growth
over FY13-15 to INR3.4. The stock trades at 10.1x FY15E EPS and at an EV of
3.4x FY15E EBITDA. Maintain
Neutral.
The Board has recommended final
dividend of INR0.5/share, taking total dividend to INR1.25/share.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +9122 39825412
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +9122 39825413
Investors are advised to refer through disclosures made at the end of the Research Report.
1

Nalco
Superior 4QFY13 operational performance unlikely to sustain
NACL reported EBITDA of INR4.2b for 4QFY13, higher than our estimate of INR2.5b
due to sharp reduction in power and fuel cost, aided by better coal availability.
According to our calculations, the cost of production (CoP) of metal declined 12%
QoQ to INR106,859/ton (USD1,970/ton).
Power and fuel cost as a percentage of sales dipped 8.4pp QoQ to 26.2%.
Alumina sales improved 46% QoQ to 320k tons. Aluminum production declined
2% QoQ to 98k tons.
Adjusted PAT increased 1% YoY (107% QoQ) to INR2.5b in a seasonally strong
quarter.
Superior 4QFY13 operational performance is unlikely to sustain because coal supply
from MCL has been disrupted once again. This will affect metal production and
cost in 1QFY14. Alumina refineries, however, continue to operate efficiently.
Other highlights
Net sales grew 10% QoQ (5% YoY) to INR18.7b on higher alumina and aluminum
realizations.
Aluminum realization increased 1% QoQ to INR126,511/ton (USD2,332/ton), while
Alumina realization increased 4% QoQ to INR18,144/ton (USD341/ton). Aluminum
realizations were supported by higher product premium of 16.1% in 4QFY13 against
15.8% in 3QFY13.
Aluminum EBIT (full integration basis) improved from INR364m in 3QFY13 to
INR1.9b. Alumina EBIT (external sales) improved from INR828m in 3QFY13 to
INR1.6b.
NACL has been carrying out bauxite mining activity at Panchpatmali on temporary
one-year extension since December 2012.
NACL has shut ~25% of its smelting capacity owing to lack of coal supply from
Mahanadi Coalfields (MCL). This will impact metal production in 1QFY14.
The company commissioned its 50.4MW wind power plant in Andhra Pradesh in
4QFY13.
The Board has recommended final dividend of INR0.5/share, taking total dividend
to INR1.25/share.
Maintain Neutral
We are building production growth of 13% for Alumina and 5% for Aluminum over
FY13-15, on improved capacity utilization, though coal supply disruptions pose
near-term challenges.
We expect 22% EPS growth over FY13-15 to INR3.4. The stock trades at 10.1x FY15E
EPS and at an EV of 3.4x FY15E EBITDA.
We value the stock at INR38/share (EV of 4x FY15E EBITDA; LME at USD2,100/ton).
Maintain
Neutral.
28 May 2013
2

Nalco
Nalco: an investment profile
Company description
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 (0.46mtpa) sources
alumina and power from its captive refinery in
Damanjodi and captive power plant (CPP) located in
Angul. 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. Thus, NACL's cost of production
is the lowest in the world.
Key investment risks
Unexpected fall in alumina or aluminum prices may
adversely impact profitability.
Recent developments
The Board has recommended final dividend of
INR0.5/share, taking total dividend to INR1.25/share.
Valuation and view
We expect 22% EPS growth over FY13-15 to INR3.4.
The stock trades at 10.1x FY15E EPS and at an EV of
3.4x FY15E EBITDA.
We value the stock at INR38/share (EV of 4x FY15E
EBITDA). Maintain
Neutral.
Sector view
Key investment arguments
NACL has increased its capacity for aluminum
smelting from 345ktpa to 460ktpa, for alumina
refining from 1.6mtpa to 2.1mtpa and for captive
power from 960MW to 1,200MW.
The company has been allotted a coal block, Utkal-
E, which has coal reserves of ~70m tons, and will
insulate it from input price risk.
Aluminum prices were flat QoQ , while spot
premium shot up to all-time high levels. Weak LME
and high operating cost resulted in shutdowns of 2-
3mtpa of smelter capacities, recently. More than
30% of smelters are still making cash losses. We
expect LME prices to improve from current levels.
We factor aluminum prices of USD2,100/ton in FY14.
Comparative valuations
Nalco
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
11.7
10.1
0.7
0.7
0.8
0.6
4.6
3.4
Sesa -Sterlite
4.8
5.1
0.6
0.5
1.3
1.2
5.3
5.0
Hindalco
5.2
5.5
0.9
0.8
0.8
0.7
6.3
5.7
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
3.0
3.4
Consensus
Forecast
2.9
3.2
Variation
(%)
4.5
5.9
FY14
FY15
Target price and recommendation
Current
Price (INR)
35
Target
Price (INR)
38
Upside
(%)
8.6
Reco.
Neutral
Stock performance (1 year)
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
28 May 2013
81.1
10.4
4.2
4.4
Dec-12
87.2
5.2
3.9
3.7
Mar-12
87.2
5.3
3.9
3.7
3

Nalco
Financials and Valuation
28 May 2013
4

Nalco
N O T E S
28 May 2013
5

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Nalco
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