Nalco Stock Drops 13% As Brokerages See Near-Term Outlook Uncertain

Shares of National Aluminium Co. shed nearly 13% to Rs 82.10 apiece after the company missed estimates in the quarter ended June.

While analysts see higher costs and uncertain capital allocation to weigh on the company’s creation, a rise in spot aluminium prices is likely to aid its margin and profitability in subsequent quarters.

Nalco Q1FY22 Highlights (Consolidated, QoQ)

• Net profit at Rs 347.48 crore, a fall of 63%. That compares with the Bloomberg consensus estimate of Rs 441 crore.

• Revenue fell 12% to Rs 2,474.55 crore, against an estimate of Rs 2,580 crore.

• Ebitda stood at Rs 580.78 crore, a decline of 38%. Analysts had pegged the metric at Rs 944.01 crore.

• Margin was at 23.5% against 33.5%.

Of the 10 analysts tracking the company, six maintained ‘buy’, one suggested a ‘hold’ and three recommended a ‘sell’, according to Bloomberg data. The overall consensus price of analysts tracked by Bloomberg implied a downside of 0.5%.

What brokerages have to say about Nalco’s first-quarter results...

Kotak Institutional Equities

• Maintains ‘sell’ but hikes target price from Rs 70 apiece to Rs 80, a potential downside of 15.07% from Friday’s close.

• Lower volumes and higher cost weighed on Ebitda.

• High cost structure and uncertain capital allocation likely to continue to remain a drag on creation.

• Aluminum margins were flat sequentially and failed to reflect higher metal prices.

Motilal Oswal

• Recommends ‘buy’, raises target price from Rs 94 apiece to Rs 107, a potential upside of 13.6% from Friday’s close.

• Higher-than-expected costs and miss on volumes dragged Q1 numbers.

• With spot LME aluminium prices rising, the near-term profitability outlook is strong.

• Expects higher aluminium prices to absorb the cost shock and lead to improved margin in subsequent quarters.

• With integrated mining operations, Nalco is the best play on higher LME prices.

Systematix Institutional Equities

• Maintains ‘buy’ with a target price of Rs 117 apiece, a potential upside of 24.20% from Friday’s close.

• Alumina production for the quarter below estimates.

• June-quarter performance weak on all fronts; higher power and staff cost, other expenses and lower metal sales weighed on the earnings.

• Recent uptick in alumina prices, continued rise in aluminum prices and cheap spot e-auction coal prices would drive near-term earnings.

• Volume imbalances are likely to weigh on alumina prices in the near term.