Beneficiary of larger aluminum costs: Retain ‘buy’ on sturdy earnings outlook. Nalco (NACL’s) 4QFY21 outcome was sturdy, led by larger LME costs and reduced fees. It reported ebitda of Rs 9.4billion (+118% QoQ) and PAT of Rs 6.3billion (+162% QoQ). We raise our FY22E/FY23E ebitda estimate by 43%/27%, factoring in larger aluminum costs, which ought to assistance sturdy money flows and a very good dividend payout. Maintain ‘buy’.
Higher LME and reduced fees enhance ebitda by 118% QoQ: Revenue /ebitda / Adj. PAT was up 19%/118%/162% QoQ tonne Rs 28.2billion/Rs 9.4billion/Rs 6.3billion (+3%/49%/63% v/s our estimate). The beat on ebitda was led by far better-than-anticipated fees, partly owing to the reversal of renewals obtain obligations — as per the notification issued by Odisha Electricity Regulatory Commission — booked beneath other costs. Employee expense was down 11% QoQ to Rs 4.31billion and other expense 31% QoQ to Rs 2.8billion. The corporation has opted for the new tax regime, hence reversing its deferred tax liabilities by Rs 4.23billion — major to net tax credit of Rs .97billion through the quarter. Adjusted PAT, hence, stood at Rs 6.3billion (+162% QoQ +63% v/s est). FY21 rev /ebitda/ adj. PAT stood at Rs 89.5billion/Rs 17.8billion/Rs 9.9billion (+6%/+2.6x/+6.0x YoY). OCF/FCF stood at Rs 22.0billion/Rs 9.8billion (v/s – Rs 3.5billion/–Rs 12.0billion). Aluminum: It reported ebit at Rs 5.9billion (up 273% QoQ). Revenue rose 19%n QoQ to Rs 19.4billion on larger LME ($2,093/t +9% QoQ) and larger volumes. Aluminum production was up 10% QoQ to 112kt. Alumina: Revenue (which includes inter-segment) stood at Rs 12.1billion (+23%n QoQ). EBIT came in at Rs 2.96billion (+65% QoQ). Alumina external sales rose 10% QoQ to 378kt. Valuation and view: With spot LME aluminum hovering at ~$2,450/t+ (up ~10% YTDFY22), then close to-term profitability outlook is sturdy.
Alumina costs have not but reacted to the strength in aluminum and could surprise positively in FY22. With integrated mining operations, NALCO is the most effective play on larger LME costs. Given the tight demand-provide situation, we count on aluminum costs to remainn sturdy. Although, prevailing larger inventory could limit a additional upside. We aspect in LME costs of USD2,300/USD2,150 per tonne for FY22E/FY23E. The management has announced a 1mtpa alumina refinery expansion at capexn of ~INR64b and expects to total the project in FY23. Given the slow execution, nevertheless, we count on commissioning by FY24. We worth the stock on an SoTP basis at 5x FY23E EV/EBITDA and a .75x bookn worth for development CWIP to arrive at TP of INR93. At CMP, it supplies an eye-catching dividend yield of ~6%. Maintain Buy.