Alumina prices as a percentage of spot aluminum prices are currently at 16% as compared to the five-year average of 18% and Nalco is among the lowest cost bauxite and alumina producers and is a major exporter of alumina, highlighted brokerage Antique Stock Broking in a note.
“We remain positive on Nalco in view of the strong alumina and aluminum price outlook (supported by European smelter shutdowns, projected global deficit amidst plausible bans on Russian aluminum, subdued Chinese exports), integrated business model, and attractive dividend yield. Nalco sells ~1.3 MT of alumina and ~0.4 MT of aluminum annually and is well positioned to benefit from their strong prices. An additional 1 mtpa alumina along with captive coal mining and caustic soda production would drive margin expansion and cost reduction,” the note stated.
The brokerage house likes its integrated business model with captive bauxite, alumina, captive power and maintained its estimates, with a BUY rating on Nalco shares with a target price of ₹99 per share.
High margin of safety with high cash levels and attractive dividend yield: Cash and cash equivalents at the end of FY23 is estimated at ₹46 bn, which is 30% of its current market capitalization. Dividend yield remains attractive at 6% level, leading to a high margin of safety, it added.
“Lowering of e-auction premiums from 2QFY23 record levels corroborated by higher coal production at Coal India would support higher linkage coal availability and lower coal costs. Mining activities for Utkal-D captive coal lock are expected to commence by 4QFY23 and operationalization of caustic soda plant in Gujarat (through JV) would further aid raw material security and lower costs,” as per Antique Stock Broking.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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