National Aluminum Company (NACL’s) 2QFY16 EBITDA of Rs 340 crore (down 28% YoY) was well ahead of our estimate of Rs 170 crore, with realisations and aluminum volumes surpassing our expectations. Aluminum volumes grew 15% Y-o-Y to 94kt against our estimate of 89kt. Alumina sales declined 8% YoY to 315kt on higher transfer to aluminum segment.
Aluminum net realisations were $1,892/t (vs our estimate of $1,859/t), while alumina realisations were $308/t (vs our estimate of $279/t). PAT declined 34% YoY to Rs 230 crore.
Nalco is currently trading at 2.6x FY17E EV/EBIDTA (LME at $1,621) which we believe is significantly cheap considering long term average multiple of 6.0x. With (a) Under-utilized smelting capacity – currently operating at ~70% utilization (b) healthy balance sheet – cash balance of ~R21/share at the end of FY15 (c) our positive outlook for aluminum, we believe the discount to the long term average multiples is unjustified. We value Nalco at 6x FY17E EV/EBITDA.
We raise our EBITDA estimates by 23% for FY16 and by 9% for FY17 on higher aluminum production, minor cost tweaks in the alumina segment and incorporating the beat in 2Q.
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