Nalco gains 4% on Kotak Equities' rating and target upgrade; check details
Kotak Institutional Equities believes that Nalco is best placed to benefit from the ongoing supply tightness in the alumina market
 "Nalco gains 4% on Kotak Equities' rating and target upgrade; check details")
National Aluminium Company Ltd (Nalco) share price climbed as much as 4 per cent intraday at Rs 218.65 on the BSE. Nalco shares saw buying after Kotak Institutional Equities upgraded its rating to 'Add' from 'Sell' and raised the target price to Rs 235 from Rs 160 per share.
At around 9:49 AM, shares of Nalco were up 1.57 per cent at Rs 213.7 per share on BSE. In comparison, the BSE Sensex traded 0.27 per cent higher at 84,524.73 around the same time.
Kotak Institutional Equities believes that Nalco is best placed to benefit from the ongoing supply tightness in the alumina market, given its net long position and the consequent tailwind in the aluminium prices.
Meanwhile, the demand is also supported by record primary aluminium output in China. Thus, the brokerage has upgraded the alumina price forecast by more than 11 per cent/10 per cent/7 percent for FY2025/26/27E, factoring in the market tightness, and expects only a gradual easing of the ongoing deficit.
Analysts at Kotak reckon Nalco's external coal requirement and costs to reduce due to the production of 2 mtpa coal from the Utkal D mine in FY2024 and an additional 2 mtpa from the Utkal E coal block, in FY2025-26E.
"Commissioning of captive coal mines has helped reduce costs in FY2024 and a further ramp-up should keep costs on a downtrend," the report read.
Additionally, Nalco's 1 mtpa alumina refinery's slow expansion shall contribute to volume from 2HFY27E, as per Kotak.
Furthermore, analysts at Kotak have increased their earnings before interest, tax, depreciation, and amortisation (Ebitda) estimates by 8 per cent/11 per cent/17 per cent for FY2025E/26E/27E, mainly led by commodity price assumptions.
They have raised the target price on the back of higher earnings, rollover to September 2026E, and higher multiple (7X EV/EBITDA against 5.5X earlier) as it enters a volume growth phase from FY2027E.
In the past one year, shares of Nalco have gained 118 per cent against BSE Sensex's rise of 29 per cent.