Nalco - Increase In Alumina Refinery Capacity, Raw Material Securitisation To Drive Performance: Motilal Oswal

Motilal Oswal Report

National Aluminium Company Ltd. had successfully acquired Utkal D and E coal blocks , with a combined reserves and resources of 175 million tonne, aimed at improving Nalco’s raw material security.

Despite encountering multiple delays, Nalco is all set to operationalise Utkal D coal mine by the end of CY23. This development is poised to provide the company with an annual raw material security of approximately two million tonne.

Nalco is in the process of establishing a fifth stream for its alumina refinery, which will enhance the capacity by an additional 1 mt to 3.1 mt by May 2025. The full incremental benefits of this expansion are expected to materialise from FY26E onwards.

Nalco is operating at full capacity across 960 electrolytic potcells, which will help the company clock 460 kilo tonne of metal production in FY24E.

Nalco is also setting up a 0.27 mt caustic soda facility (in joint venture with Gujarat Alkalies and Chemicals Ltd.) at Dahej, Gujarat, which will further enhance its raw material integration.

We believe that despite Nalco currently operating at full capacity, the synergies arising from enhanced raw material security will propel Ebitda/adjusted profit after tax to exhibit a compound annual growth rate of 16% each until FY25E.

Nalco currently trades at 3.8 times FY25E enterprise value/Ebitda and appears to be fully priced in.

We reiterate our 'Neutral' rating on the stock with a target price of Rs 95

Key downside risks:

• Nalco relies on fuel supply agreement and e-auction routes for its coal requirements, and any constraint in the availability or increase in prices could adversely affect margins,

• any adverse movements in London Metal Exchange prices might hurt margins, and

• any further delay in project execution will adversely impact the performance of the company in the near term.

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