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Stock Data

Sector Aluminium

Face Value (Rs.) 10.00

52 wk. High/Low (Rs.) 525.90/334.00

Volume (2 wk. Avg.) 9859.00

BSE Code 532234

Market Cap (Rs.mn.) 238394.70

Financials (Rs. in mn.) FY10

FY11E FY12E

Net Sales 51735.80 60530.89 67189.28

EBIDTA 14765.40 20240.90 23111.75

PAT 8125.00 11191.09 13265.91

EPS 12.61 17.37 20.59

P/E 29.34 21.30 17.97

National Aluminium Co.Ltd

BUY

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SYNOPSIS

National Aluminium Company (Nalco) is India's largest integrated public sector producer of alumina and second largest producer of aluminium. Its combination of modern assets, excellent logistics, cheap power, and captive port facilities has all contributed to making it one of the lowest-cost producers of alumina in the world.

NALCO installs new ash disposal system in Power Plant. The system is one of the latest and eco-friendly ways of Ash disposal of Modern Power plants, adopted by Nalco at a cost of Rs.50 cr.

The company exports alumina products to

countries namely USA, Georgia, Iran, China, Russia, Australia, Indonesia and the UAE.

The company’s net sales are expected to

grow at a CAGR of 9% over FY09 to FY12E.

1 Year Comparative Graph

NALCO BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.370.00 Rs.425.00

Share Holding Pattern

December 14th, 2010

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Table of Content

Content Page No.

1. Peer Group Comparison 03

2. Investment Highlights 03

3. Company profile 05

4. Financials 08

5. Charts & Graph 10

6. Outlook and Conclusion 12

7. Industry Overview 13

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

NALCO Ltd 370.00 238394.70 12.61 29.34 2.25 25.00

Hindalco Inds 224.70 429966.60 10.76 20.88 1.54 135.00

Parekh Aluminium 241.95 3130.80 44.98 5.38 1.02 30.00

Ess Dee Aluminium 494.65 14586.60 40.75 12.14 4.96 20.00 *As on 14/12/2010

Investment Highlights

Results Updates (Q2 FY11) (Standalone)

For the Second quarter, the top line of the company increased 25%YoY and stood at Rs.14791.50mn against Rs.11791.10mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.2240.40mn from Rs.1594.90mn of the corresponding period of the previous year i.e. an increase of 40%YoY.

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EPS of the company for the quarter stood at Rs.3.48 for equity share of Rs.10.00 each.

Expenditure for the quarter stood at Rs.11314.30mn, which is around 9% higher than the corresponding period of the previous year. Power & Fuel cost of the company for the quarter accounts for 34% of the sales of the company and stood at Rs.4963.80mn from Rs.4845.00mn of the corresponding period of the previous year i.e., an increase of 2%YoY. Employ Cost increased 13%YoY to Rs.2027.30mn from Rs.1800.20mn and accounts for 14% of the revenue of the company for the quarter.

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OPM and NPM for the quarter stood at 29% and 15% respectively from 24% and 14% respectively of the same period of the last year.

Company Profile National Aluminium Company (Nalco) was incorporated in 1981, as a public sector enterprise under the Ministry of Mines. The total capital cost of Rs 2408crore was funded through the Government of India's contribution of Rs1289crore and a euro-dollar loan from consortium f International banks of Rs1119crore. The company has Asia's largest integrated aluminium complex, encompassing bauxite mining, alumina refining, aluminium smelting and casting, power generation, rail and port operations. Commissioned during 1985-87, Nalco has emerged to be a star performer in production, export of alumina and aluminium, and more significantly, in propelling a self-sustained growth. Nalco, since its inception, has taken adequate steps for pollution control and effective environment management. Nalco's technology associate Aluminum Pechiney (AP), France, with its experience of stringent pollution control standards in Europe, has ensured eco-friendly process technology. With the growing environmental awareness in India and framing of stringent and statutory regulations, Nalco achieved all statutory clearances before starting its production.

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Strict adherence to approved EMP and constant monitoring has helped Nalco to achieve considerable success in the field of environment management. The company's bauxite mine is located at Panchpatmali Hills in Koraput district of Orissa. It is a fully mechanized open-cast mine, in operation since 1985. It serves feed-stock to alumina refinery. The capacity of mine has increased from 24,00,000 tonnes per year (tpy) to 48,00,000 tpy. Nalco's alumina refinery is located at Damanjodi in Koraput district, which began operations in 1986. It is amongst the top ten alumina refineries in the world. The refinery operates three production streams, each of 5.25 lakh tpy and 3x18.5 MW co-generation of power. The capacity of the refinery has increased from 8,00,000 tpy to 15,75,000 tpy. Its aluminium smelter is located at Angul in Orissa, which is in operation since 1987. It comprises integrated casting & rolling facilities and energy-efficient state-of-the-art Pechiney technology (France). The capacity of smelter has increased from 2,18,000 tpy to 3,45,000 tpy. A captive power plant is located close to smelter. It also has captive rail system for coal transport from Talcher Coalfields. The plant feeds uninterrupted power to smelter and is connected to state grid for sale of surplus power. The capacity of power plant has increased from 600 MW to 960 MW Port facilities are also located on the inner harbour of Visakhapatnam Port with mechanized storage and ship handling facilities for exporting alumina and importing caustic soda. The storage capacity is of 75,000 tonnes of alumina and 30,000 tonnes of caustic soda and can handle up to 1 million tonnes of alumina export per year. Nalco operates a rolled product unit, which is a 100% export oriented unit and is located close to the smelter plant at Angul. The company acquired this unit from IAPL in March 2000. It has a product mix of aluminium alloy coils and sheets with capacity of 50,000 tpy. Exports - The Company exports alumina products to countries namely USA, Georgia, Iran, China, Russia, Australia, Indonesia and the UAE. It exports aluminium products to countries namely Italy, Bahrain, Germany, China, Philippines, Pakistan, Sri Lanka, Nepal, Bangladesh, Myanmar, Thailand, Malaysia, Singapore, Indonesia, Hong Kong, Taiwan, South Korea, UAE, Japan, Turkey, USA and Vietnam The R&D centres at Angul and Damanjodi are recognized by Ministry of Science and Technology, Government of India.

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Products

Alumina

Calcined Alumina

Alumina Hydrate

Speciality Aluminas & Hydrates

Detergent GradeZeolite Aluminium Metal

Standard Ingots

Sow Ingots

Wire Rods

Billets Cast Strips

Cold Rolled Sheets

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Financials Results 12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 52308.00 51735.80 60530.89 67189.28

Other Income 4001.10 3741.20 3292.26 3358.10

Total Income 56309.10 55477.00 63823.14 70547.38

Expenditure -34268.20 -40711.60 -43582.24 -47435.63

Operating Profit 22040.90 14765.40 20240.90 23111.75

Interest -39.60 -40.00 -14.50 -14.65

Gross Profit 22001.30 14725.40 20226.40 23097.11

Depreciation -2729.70 -3194.00 -3768.92 -4145.81

Profit Before Tax 19271.60 11531.40 16457.48 18951.29

Tax -6548.90 -3406.40 -5266.39 -5685.39

Net Profit 12722.70 8125.00 11191.09 13265.91

Equity Capital 6443.10 6443.10 6443.10 6443.10

Reserves 91255.00 99380.00 110571.09 123837.00

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 644.31 644.31 644.31 644.31

EPS 19.75 12.61 17.37 20.59

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Mar-10 30-Jun-10 30-Sep-10 31-Dec-10E

Description 3m 3m 3m 3m

Net Sales 16259.70 13080.90 14791.50 16270.65

Other income 657.60 897.20 853.60 896.28

Total Income 16917.30 13978.10 15645.10 17166.93

Expenditure -10849.10 -9142.90 -11314.30 -11877.57

Operating Profit 6068.20 4835.20 4330.80 5289.36

Interest -0.70 0.40 -0.10 -0.10

Gross Profit 6067.50 4835.60 4330.70 5289.25

Depreciation -878.10 -916.30 -951.70 -989.77

Profit Before Tax 5189.40 3919.30 3379.00 4299.49

Tax -1274.60 -1078.80 -1138.60 -1401.63

Net Profit 3914.80 2840.50 2240.40 2897.85

Equity Capital 6443.10 6443.10 6443.10 6443.10

Face Value (Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 644.31 644.31 644.31 644.31

EPS 6.08 4.41 3.48 4.50

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Key Ratio

Particulars FY09 A FY10 A FY11 E FY12 E

EBIDTA % 42% 29% 33% 34%

PAT % 24% 16% 18% 20%

P/E ratio (x) 18.74 29.34 21.30 17.97

ROE - % 13% 8% 10% 10%

ROCE - % 20% 11% 14% 15%

EV/EBIDITA (x) -11.02 16.15 11.78 10.31

Price/Book Value 1.21 2.25 2.04 1.83 A-Actual E-Expected Charts:

Net sales & PAT

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P/E Ratio (x)

P/BV (X)

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EV/EBITDA(X)

Outlook and Conclusion

At the market price of Rs.370.00, the stock is trading at 21.30 x and 17.97 x for FY11E and FY12E respectively.

On the basis of EV/EBDITA, the stock trades at 11.78 x for FY11E and 10.31 x for

FY12E.

Price to book value of the company is expected to be at 2.04 x for FY11E and 1.83 x for FY12E respectively.

EPS of the company is expected to be at Rs.17.37 and Rs.20.59 for the earnings of

FY11E and FY12E respectively.

The company’s net sales are expected to grow at a CAGR of 9% over FY09 to FY12E.

We recommend ‘BUY’ in this particular scrip with a target price of Rs.425.00 for

Medium to Long term investment.

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Industry Overview The most commercially mined aluminium ore is bauxite, as it has the highest content

of the base metal. The primary aluminium production process consists of three stages.

First is mining of bauxite, followed by refining of bauxite to alumina and finally

smelting of alumina to aluminium. Production of 1tonne of aluminium requires 2

tonnes of alumina while production of 1tonne of alumina requires 2 to 3 tonnes of

bauxite.

The aluminium production process can be categorized into upstream and downstream

activities. The upstream process involves mining and refining while the downstream

process involves smelting and casting & fabricating. Downstream-fabricated products

consist of rods, sheets, extrusions and foils.

Indian manufacturers are the lowest cost producers of the base metal due to access to

captive power, cheap labor and proximity to abundant supply of raw material.

Among the different downstream activities, Aluminium Foil Packaging is among one

of the fastest growing sector. Demand for aluminium foil packaging sector is

characterized as a derived demand, which means the demand for this sector is derived

from the demand of other sector. For Aluminium packaging industry, the demand is

derived from sector likes Pharmaceuticals, Foods, Fast Moving Consumer Goods

(FMCG).

Most of the industries create wealth but the packing industry plays a unique role by

way of both creation of wealth through a wide range of manufacturing activities and

also by way of preserving wealth or value created. It serves the economy by helping

preservation of the quality and increasing the life of the products ranging from milk

and biscuits, to drugs and medicines, processed and semi-processed foods, fruits and

vegetables, edible oils, besides domestic appliances and industrial machinery and

other need.

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Pharmaceutical packaging occupies a considerable portion of the overall aluminium

packaging market in India and is growing steadily with the same pace of the industry.

Pharmaceutical packaging consists of various types of glass, pet bottles, strip and

blister packs, injectibles, ampoules, bulk packs, etc. Upward trends in medication

consumption clubbed with adoption of stricter regulations and standards governing

which boost global growth opportunities for packaging products. Pharmaceutical and

Food packaging requirements focused exclusively on preserving the quality of enclosed

products.

Initially, Packaging was merely a medium to carry a product but discovery of

aluminium foil in the flexible form along with the properties like tasteless, odorless

and opaque has further differentiate it from other substitute as a potential packaging

material. The aluminium foil packaging industry has registered a robust growth rate

over the past years and is expected to increase at a higher rate.

The Indian aluminium industry registered a growth of around 9% in FY09. Strong

growth in industrial, infrastructure, automobile, transportation and power sectors

during the first half of the fiscal were the key drivers for the demand. However,

realizations for the fiscal fell significantly on account of fall in LME prices due to the

global credit crisis, thus causing a dent in margins. On the other hand, the steep

depreciation of Indian rupee against the US dollar impacted the industry positively.

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sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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