Sell NALCO - Project delay continues; Valuations expensive – PINC Result Review

Valuations unattractive

NALCO's revenues increased by 40% YoY to Rs13.1bn due to enhanced volume and higher LME aluminium prices. Operating profit surged by 135% to Rs3.9bn as OPM expanded to 30.1% vs. 17.9% in Q1FY10 on higher LME prices. Net profit grew by 125% YoY to Rs2.8bn.

Nalco has a cash balance of Rs46bn as of Q1FY11.

VALUATIONS AND RECOMMENDATION

Nalco is one of the lowest cost producers of aluminium globally with integrated bauxite, alumina and power. Further, with ~USD1.0bn of cash, the company has a strong balance sheet. However at CMP of Rs424, 8.8x FY12E EV/EBITDA we find the stock expensive. We recommend 'SELL' with a target price of Rs322 (6x FY12E EV/EBITDA).

Source : Equity Bulls

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