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India Equity Research | Metals & Mining

January 15, 2016

Initiating Coverage

National Aluminium Co

Better positioned in a rough weather!

CMP Target Price

Rs37 Rs51 (��)

Rating Upside

BUY (��) 37.8 %

Change in Estimates

EPS Chg FY16E/FY17E (%) NA

Target Price change (%) NA

Previous Reco NOT RATED

Emkay vs Consensus

EPS Estimates

FY16E FY17E

Emkay 3.0 3.7

Consensus NA NA

Mean Consensus TP Rs 41

Stock Details

Bloomberg Code NACL IN

Face Value (Rs) 5

Shares outstanding (mn) 2,577

52 Week H/L 53 / 28

M Cap (Rs bn/USD bn) 88 / 1.30

Daily Avg Volume (nos.) 1,373,075

Daily Avg Turnover (US$ mn) 0.8

Shareholding Pattern Sep '15

Promoters 80.9%

FIIs 2.8%

DIIs 9.5%

Public and Others 6.7%

Price Performance

(%) 1M 3M 6M 12M

Absolute (18) (15) (12) (27)

Rel. to Nifty (3) (4) 3 (15)

Relative price chart

Source: Bloomberg

Goutam Chakraborty

[email protected]

+91 22 66121275

Deepankar Kohli

[email protected]

+91 22 66121244

-40

-28

-16

-4

8

20

20

28

36

44

52

60

Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16

%Rs

National Aluminium (LHS) Rel to Nifty (RHS)

� National Aluminium Company (NALCO) is a PSU with 460 kt smelting facility, 1200 MW

power plant and 2.23 mtpa alumina refinery supported by 6.8 mtpa bauxite mine. It is one

of the lowest cost aluminium producers in the world and better positioned among the peers

� Low cost alumina business with 36% RoCE (FY15) has been the backbone of the

company, as metals business RoCE has been very weak since last five years. With

disrupted coal availability and weak prices, NALCO has cut smelter utilization to ~70%

� NALCO recently got back its earlier de-allocated Utkal E coal block along with Utkal D coal

block. This is going to be a big boost for the company’s smelter operations going forward,

as it will help smoothen coal supply and cost savings of ~Rs 500/ tonne aluminium

� Strong balance sheet with net cash of Rs 53.3 bn (Rs 21/ share). Focus stays on profitable

alumina segment. Valuation looks cheap at 8.7xFY18 PE and 3.0xFY18 EV/ EBITDA.

Initiate coverage on NALCO with a Buy rating and a target price of Rs 51

Best positioned among domestic peers being net long in alumina

NALCO, a Navaratna PSU, is an integrated aluminium producer. It has 6.8 mtpa bauxite mine,

2.23 mtpa alumina refinery and 460 ktpa aluminium smelter along with 1200 MW captive

power generation capacity. Being strategically located (Odisha) with nearby operations helps

it in cost optimizations. The biggest driver for NALCO has been its surplus alumina with RoCE

of 36% (FY15). Good quality bauxite from own mine makes it more profitable. Thus, as a step

in the right direction, the company is investing more into alumina business, which will ensure

better margins in future. We expect aluminium business not to contribute meaningfully unless

there is a significant and sustained rise in LME towards US$2000/ tonne.

Coal availability improved, own mines to aid profitability

NALCO had suffered due to poor coal supply by Coal India during FY12- FY14. With higher

output and better evacuation from Coal India, NALCO has seen improvement in cost

structure. With allocation of Utkal D and E coal blocks by the government, there would be

significant cost saving. Coal cost is likely to come down by ~Rs 500/ tonne of aluminium.

Sound financials and attractive valuation

Unlike its peers, NALCO is debt free, which is a major benefit for cyclical nature of business.

NALCO has net cash of Rs 53.3 bn (Rs 21/ share). After meeting future capex requirements

also, we see net cash generation due to better profitability. Valuation looks attractive as at the

CMP of Rs 37, the stock is trading at 8.7xFY18 EPS and 3.0xFY18 EV/ EBITDA. Dividend

yield stands at ~4.8%. Valuing it at 5.5xFY18 our fair value for the stock works out to be Rs

51. We initiate our coverage report on NALCO with Buy rating.

Financial Snapshot (Consolidated)

(Rs mn) FY14 FY15 FY16E FY17E FY18E

Net Sales 67,809 73,828 62,682 68,518 73,648

EBITDA 9,869 17,086 9,072 11,767 13,346

EBITDA Margin (%) 14.6 23.1 14.5 17.2 18.1

APAT 7,444 11,760 7,645 9,617 10,912

EPS (Rs) 2.9 4.6 3.0 3.7 4.2

EPS (% chg) 39.1 58.0 (35.0) 25.8 13.5

ROE (%) 6.2 9.4 5.9 7.3 7.9

P/E (x) 12.8 8.1 12.5 9.9 8.7

EV/EBITDA (x) 5.6 2.9 5.1 3.7 3.0

P/BV (x) 0.8 0.7 0.7 0.7 0.7

Source: Company, Emkay Research

National Aluminium Co (NACL IN) India Equity Research | Initiating Coverage

Emkay Research | January 15, 2016 2

Investment arguments

NALCO’s - a) superior position amongst peers in terms of cost advantage, better integration and

strategic location, b) profitable alumina segment, c) strong balance sheet with net cash and d)

attractive valuations makes it a good investment idea. In all these parameters, NALCO stands

superior to its domestic peers.

Best positioned amongst domestic peers

NALCO, a Navratna PSU, has a 460 ktpa aluminium smelter capacity, backed by a 2.23 mtpa

alumina refinery supported by a captive bauxite mine (6.8 mtpa) and 1200 MW captive power.

NALCO is best positioned amongst its peers in terms of integration, strategic location, cost

advantage and balance sheet strength. The company has close to 16% domestic share in

Aluminium segment, with higher capacity utilization, it is likely to grow that share. Moreover,

NALCO is net long in alumina, which has been its biggest advantage.

Exhibit 1: NALCO: Capacity of Operating Units

Unit Capacity

Bauxite Mines 6825000 Mt

Alumina Refinery 2275000 Mt

Aluminium Smelter 460000 Mt

Captive Power Plant 1200 MW

Wind Power Plant - I 50.4 MW

Wind Power Plant - II 47.6 MW

Rooftop Solar Power System 260 KWp


Exhibit 2: Indian Aluminium Capacity & Production (KT)

Company Installed Capacity Production FY15 % Utilization

BALCO 575 324 56%

Vedanta Ltd 550 520 95%

Vedanta Ltd – SEZ 1190 20 2%

NALCO 460 327 71%

HINDALCO 1354 836 62%

Total Primary Production 4129 2026 49%

Source: Industry, Emkay Research

Better integration helps in smooth process

NALCO is a backward integrated producer of aluminium. Good quality bauxite helps in low cost

alumina, which in turn, helps in aluminium production. The 1200 MW coal based captive power

plant helps the aluminium smelting. So far, the company has been primarily sourcing coal from

Coal India through linkage. However, with the company being allotted two coal mines, Utkal- D

and E, we believe, going forward NALCO will be further well integrated. Aluminium being power

intensive industry, coal integration and captive power is vital. NALCO has also ventured into

solar and wind power projects. While NALCO has a total wind power capacity of 98 MW, it has

roof top solar power capacity of 260 KW.

For logistics, NALCO uses its own locomotives and wagons and it has its own mechanized

storage and ship building facilities for exporting calcined alumina and importing caustic soda. It

has aluminium storage capacity of 3x25,000 tonnes.

Strategic location ensures efficient movement of goods

NALCO’s mine, refinery and smelters are located nearby making it economically feasible. A 1800

TPH, single flight, multi-curve cable belt conveyor connects the bauxite mines to the refinery

at Damanjodi, which is just 14.6 km away from the mine. This helps in cutting down costs on

account of freight and also fuel. Strategic location of the refinery near port makes it cost effective

for the company to export alumina.



Exhibit 3: Proximity to ports help in better logistics


Cost advantage

NALCO operates at fully mechanized Panchpatmali Hills bauxite mine at Koraput district of

Odisha. This mine is one of the lowest cost mines in the world with cash cost of production of

around US$9/ tonne only. Total resources stand at 310 mt.

Backed by low cost bauxite, the alumina production cost also stays low for NALCO at sub

US$200/ tn. In the global alumina cost curve, this falls in 1st quartile, making NALCO a big

beneficiary.

Along with its efficiency related cost advantages, NALCO also benefits from better integration

and strategic location, which helps in reducing logistics costs to a great extent.

Alumina- the key driver

Unlike its domestic peers, NALCO’s business model is mainly dependent on alumina rather than

aluminium. This has been supportive as demand- supply dynamics in alumina is better than that

in case of the metal. In the long run, this is also true in the context of capacity expansion in

aluminium metal going around the world and singular use of this intermediary commodity.

The pricing scenario has been weak in recent months. Alumina spot prices fell steadily during

CY2015, due to decreasing demand in China, weak aluminium prices and supply growth. As per

some global commodity research houses, spot alumina prices are likely to stay subdued in the

near term due to closure of smelters. However, the 2015 average was forecast at US$339/ tonne,

higher than 2014 level of US$331/ tonne. Recently, in past two months, prices fell sharper than

expectations and the average stands at US$301/ tonne for CY15. NALCO’s average realizations

are better than this, as for CY14, NALCO’s average alumina realizations were US$336/ tonne.

In YTDCY15 the same has been US$319/ tonne. We expect the alumina realizations to remain

weak in H1CY16 and should improve in H2CY16. In fact, alumina prices in medium term are

expected to increase as small-scale operations in China are estimated to expand and is likely to

help removing supply from the market.

According to Alcoa’s latest presentation Alumina is set to be in deficit in CY16 by 2.8 mt.



Exhibit 4: Alumina is likely to be in deficit by 2.8 mt in CY16: Alcoa

2016 Alumina Balance China Rest of World

Production at Beginning Run Rate 56,807 56,900

Production to be Added/Restarted 3,993 1,610

Production to be Closed/Curtailed -3,615 -2,085

Imports/(Exports) – Full Year 4,400 -4,400

Total Production 61,585 52,025

Demand -62,805 -53,560

Net Balance -1,220 -1,535

Source: Alcoa presentations, Emkay Research

World alumina production is forecast to continue to grow in 2015 supported by new additions to

capacity. However in long run, growing aluminium consumption and production will support the

fundamentals. Some other forecast too suggest that in the longer term, alumina will remain in

deficit.

The companies which are expected to be a part of demand supply chain for Alumina in coming

years are mentioned in below charts.

Exhibit 5: Share of world third party Alumina Demand (Mt)


Exhibit 6: Share of world third party Alumina Supply (Mt)


0%

10%

20%

30%

40%

02468

101214161820

2013 2015 2017 2019 2021 2023

Dubal Alba Century Vedanta

CPI Yunnan Aluminum Zengshi Xinheng group

Aluar EMAL % of WTD

0%

20%

40%

60%

80%

0

10

20

30

40

2013 2015 2017 2019 2021 2023

Alcoa/AWAC Chalco Jinjiang Group Xinfa Group

BHP Billiton Rio Tinto Alcan Weiqiao Hydro

Nalco ENRC % of WTS



Price movement in alumina as against aluminium has been more steady in recent years. Alumina

prices, as a percentage of aluminium, has been rising. As per recent data alumina prices have

been hovering at around 14% of the LME, which is lower than the long term average of 17%.

During the month of May, 2015, alumina prices reached 20% of the LME aluminium. Though,

very recently spot alumina prices have drifted down, we believe, it will continue to outperform

aluminium prices. NALCO meanwhile, has already contracted 70% of its alumina at 17.5% of

LME for CY16, which should help the company in reducing the volatility. Any improvement in

LME during the course of time would thus, result into double benefit for the company.

Exhibit 7: Alumina as a percentage of Aluminium LME ($/ tonne)


NALCO’s market is focused towards the less volatile Middle East

After meeting its captive requirement, NALCO sells its surplus alumina through auction. Since

last 10 years, on an average, exports have been contributing more than 95% of alumina sales.

NALCO predominantly supplies its alumina to the Middle East markets, where it gets better

premium over the South East Asian markets including China due to lesser competition and freight

differential. We understand the demand environment is also better in Middle East compared to

other regions. In that sense, it remains helpful for NALCO.

Exhibit 8: NALCO’s alumina Production trend


Exhibit 9: Exports as percentage of Nalco’s alumina sales volume


10%

12%

14%

16%

18%

20%

22%

Nov-1

1

Feb-1

2

Ap

r-12

Jun

-12

Se

p-1

2

Nov-1

2

Jan

-13

Ap

r-13

Jun

-13

Au

g-1

3

Oct

-13

Jan

-14

Mar-

14

May-

14

Au

g-1

4

Oct

-14

Dec-1

4

Mar-

15

May-

15

Jul-1

5

Se

p-1

5

Dec-1

5

1550 1567 15781463 1559 1557 1563 1516

16871802

1925 1851 1934 2002 2093

500

1000

1500

2000

2500

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Production (kt)

90%

91%

92%

93%

94%

95%

96%

97%

98%

99%

100%

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

NALCO has already contracted

its 70% alumina volume at 17.5%

of Aluminium LME for CY16



Superior margins in alumina segment to continue

This is important as it is the alumina segment, which has been making sound profits offsetting

the low profitability/ losses made in smelting business. The segmental EBIT performance can

prove it. During the last eight quarters, the average EBIT margin of the alumina segment has

been 26%. We expect the company to maintain better margins in alumina segment going

forward. Smelter margins improved during FY15 due to better coal availability. Sustaining

positive EBIT margins in aluminium will help the company to see much better performance in

forthcoming quarters. At the EBITDA level however, we don’t expect any meaningful contribution

by aluminium segment in next couple of years, unless there is significant jump in LME.

Exhibit 10: EBIT Margin (%) Alumina vs Aluminium


Along with superior margins, contribution of alumina segment in total EBIT has been much better

for NALCO. In last 10 years, the average contribution from alumina segment has been 48%.

Electricity and aluminium contributed the rest. During the last five years, contribution of alumina

segment to the total EBIT has been higher at 60%. In 2011, EBIT contribution by alumina fell

towards 16%, however, it rose gradually since then to reach to ~85% in FY13 and FY14 before

falling below 60% in FY15. With capacity addition in alumina segment, we expect EBIT

contribution by alumina segment to continue to increase in future.

Exhibit 11: % EBIT from Alumina for NALCO


Investing in refinery- a step in right direction

In this regard, it is important to mention that the next major capex spending has been targeted

at commissioning of a new 1 mtpa alumina refinery for Rs 56 bn. The company has been waiting

for commencement of work on this project pending clearance of Pottangi bauxite mine. Recently,

the company has got an in-principle go ahead for the Pottangi bauxite mine from the state

government of Odisha and is waiting for the formal allocation of the mine. We understand that

some procedures are being completed in this regard. This mine with ~75 mt bauxite reserve will

service the upcoming refinery. This is, we believe, a step in the right direction, as alumina is the

most profitable business, where the company plans to expand its capacity.

Smelter utilizations kept lower to counter higher costs

NALCO has a linkage of 4.6 mtpa of coal from Coal India. However, the company suffered losses

during FY12 to FY14 due to high coal costs arising from less than required supply from Coal

India. For 100% utilization of its smelter, it requires 6 mtpa coal. With lesser supply from Coal

India, NALCO had to rely on high cost imports, which resulted in a fall in its profitability. The

company however, took a logical step to cut down the utilization level of the smelter to the extent

it can be supported by the linkage coal availability. In FY15 and H1FY16, with improvement in

-20%

0%

20%

40%

60%

80%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Alumina Margin Aluminium Margin

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15



coal availability through linkage and also e-auction, the company also has been improving on its

smelter utilizations. With the hope that coal availability through e-auction will be maintained,

NALCO is planning to achieve aluminium metal production of 360- 370 kt in FY16 instead of the

earlier envisaged 320 kt. According to the management, even with a further US$100/ tn fall in

aluminium LME, the company will continue to produce at the targeted rate provided coal is

available through linkage and e-auction. This, we believe, is a good strategy of the company to

control costs.

Exhibit 12: NALCO’s aluminium Production and Utilization


Coal cost advantage due in next couple of years- a major trigger

NALCO was allotted Utkal- E coal mine in 2004. The company had started basic development

work also and spent Rs 1.3 bn on land acquisition before it was de-allocated by the government,

following a Supreme Court order regarding discrepancy in coal block allocation issue. Recently,

the company was re-allocated the same mine along with another block, Utkal- D. This is should

be seen as a big positive for NALCO. As per available data, together, these two blocks have

347mt (153 mt from Block D and 194 mt from Block E) of coal reserve. According to the

management, substantial work was done in Utkal- D by the previous allottee and thus, NALCO

will develop this block first. This will bring down the coal cost substantially ensuring smooth

supply at the same time. Also, as per the new policy, the PSUs can continue with the linkages

even if they are allotted mines. Considering the volume growth in Coal India, we are confident

that NALCO should get 90- 95% of the linkage quota of 4.6 mtpa. In case of own mine, NALCO

is likely to target ~2 mtpa coal from Utkal- D initially. This will result in substantial cost savings

for the company. Also, the company will able to increase the utilization of the smelter and thereby

improved performance. Currently, on an average basis, linkage coal costs Rs 1600- 1800/ tonne

while, e- auction prices have been hovering at around Rs 3000- 3200/ tn. Against these rates,

we believe, landed costs of coal from own mine not to cross Rs 1000/ tonne. Since, this will

eventually replace e-auction coal, there should be a saving of Rs 2000/ tonne of coal for that

much quantity. For the entire coal usage, this is likely to bring down the coal costs by Rs 500/

tonne of aluminium. This itself can improve EBITDA by ~15%. At present we are not factoring

this into our estimates, as the official allotment of the mines are yet to be done and logistics

issues to transport the coal from the mine to the plant need to get fixed.

Exhibit 13: Average Coal Cost (Rs/ tonne)


298338 359 359 360 366

431 444413 403

316 327 345 359 368

0%

20%

40%

60%

80%

100%

120%

0

100

200

300

400

500

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016e

2017e

2018e

Production (kt) Utilization (%)

0

500

1000

1500

2000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



Strong balance sheet with net cash makes NALCO stand out

Unlike its peers, the biggest advantage for NALCO lies in its balance sheet strength. While its

peers are struggling with huge debt, NALCO has a net cash of Rs 53.3 bn. In fact at the current

CMP of Rs 37/ share, cash contributes more than 50% of the market capitalization. This gives

better room for the required capex spending by the company.

Exhibit 14: Cash per share (Rs mn)


Exhibit 15: Net Debt for NALCO and its peers for H1FY16 (Rs bn)


Cash accumulation is likely to continue

As per the management, the FY16 capex is likely to be Rs 7.8- 8 bn. Similar amount is expected

to be spent in FY17 also. Majority of the capex would be spent on the 100 MW wind power plant.

We expect some capex spending to start on Damanjodi refinery also. Most of the other major

capex viz. GMDC, project, NPCL, Sundergarh projects etc are not much in focus due to various

issues. At present, NALCO is free cash flow positive and is likely to generate healthy cash flows

even after paying dividend.

0

10

20

30

40

50

60

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

-53.3

280.7

423.3

-100

-25

50

125

200

275

350

425

500

NALCO Hindalco (Standalone) Vedanta (Except Cairn, HZL,Zinc Int. and Talwandi Sabo)



Exhibit 16: Capex

Project Description Investment Current status Likely completion

Wind Power To add 100 MW, to the existing

capacity of 99 MW

Rs 7 bn Company has finalized location,

talking to contractors. Government

of India had reserved Pottangi mine

for NALCO in April-07

By FY17

1 mtpa alumina refinery

stream at Damanjodi,

Odisha

To expand 5th stream which is

linked to the 3 mtpa Pottangi mine

Rs 56 bn Government of Odisha has given

approval, lease is awaited

If mining lease in granted in

FY16, alumina refinery could

be commissioned by FY18

Utkal-D& E Coal Mine,

Odisha

Development of Utkal- E mine which

has 68 mt of reserves

Rs 1.3 bn spent

out of total

budget of Rs 4.8

bn

NALCO has been re-allotted this

mine

Utkal- D mine likely to be

taken up first (FY18) and

then Utkal- E

Caustic Soda Project,

Dahej, Gujarat

To set up 270 ktpa Caustic Soda

plant in Gujarat in a JV with GACL

Rs 7.2 bn Detailed project report including a

captive power plant is being finalized

Beyond FY18

Alumina refinery, Gujarat To set up 1 mtpa greenfield refinery

in Gujarat in a JV with GMDC

Rs 64 bn Discussions with GMDC are on Beyond FY19

Kakrapar Units 3 & 4 To set up 2 X 700 MW Nuclear

power plant in a JV with NPCIL

Rs 135 bn,

NALCO is having

26% stake in JV

Running behind schedule; Work yet

to begin

Beyond FY20

Sundergarh smelter +

Captive Power Plant,

Odisha

To set up 500 ktpa smelter and

1,260 MW captive power plant as

Greenfield project

Rs 200 bn Will go ahead only if a separate coal

block is allotted for CPP

Beyond FY20


Strong dividend yield makes it more attractive

NALCO has been consistently increasing its dividend per share since FY11. From Re 1/ share

in FY11, it has increased its dividend to Rs 1.75 per share in FY15. We expect the company to

continue with its dividend policy. At CMP this translates to a dividend yield of 4.8%, which looks

attractive on top of its growth prospect.

Exhibit 17: Dividend Yield and DPS


0%

1%

2%

3%

4%

5%

6%

7%

8%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

DPS Dividend Yield



Concerns

Weak aluminium and alumina prices

The biggest concern for the company and risk to our estimates would be aluminium and alumina

prices. Aluminum prices have been hovering near US$1500/ tonne for sometime now, while

physical premium also has fallen sharply over past few months. This has been putting pressure

on all the smelters including NALCO. Alumina prices, so far have been stable, however, recently

fell sharply and if the downtrend sustains, it could be negative for the company.

Lower coal supply in the domestic market

NALCO had already suffered due to lower than required coal supply by Coal India earlier. As the

company had to rely on imports, it put pressure on the margins significantly. At present, the

domestic supply has improved and the company has stopped imports too. However, any short

supply of coal by Coal India will be a major concern for the company.

Delay in coal mining projects

We understand that NALCO has not yet got formal allocation of the Utkal D & E coal mines.

Once it gets them, the challenge will be to start developing those mines. In Utkal- E block full

land acquisition is pending and it might take time. Also, logistics can be a major challenge in this

regard.

Employee costs

Being a PSU, employee costs are very high for NALCO and upcoming wage revision in this

regard would be very important to look at. Significantly higher settlement will raise the costs and

thus will weigh on the margins and profitability.

Cheaper imports from China & Middle East threat for domestic industry

Cheaper import of aluminium from China and Middle East have been a worry for the domestic

producers including NALCO. Share of imports into the domestic consumption has increased from

40% in 2011 to 56% in 2015. Consistent increase in cheap imports will be a major issue for the

aluminium producers.

Poor grade of bauxite at new mine

NALCO’s currently operating mine Panchpatmali has very good quality of bauxite. In Pottangi

mine however, the quality of bauxite may not be very good requiring for higher per unit

consumption and rise in cost structure from the current level.

Overhang of OFS

Presently, the government of India holds 80% in the stock. So, there can still be 5% sale by the

government most likely through OFS. Given the experience of the past OFS in NALCO and other

PSUs, this can be an overhang on the stock.



Financials

Revenue likely to be back on track in FY18

Sales volumes for Alumina rose by 42% from FY08 to FY15 while volume for Aluminium rose by

25% for same period. As a result, the topline of the company grew at a CAGR of 5.7% during

this period. Realizations also stood firm at US$2410/ tonne in FY15, thanks to stronger physical

premium. Going forward as we see gradual growth in volume and stabilization in Aluminium LME

and Alumina prices, we expect revenue of the company to gradually improve FY17 onwards with

better volume and stabilization in the realizations.

Exhibit 18: After falling in FY16, revenue is likely to gradual improvement


EBITDA Margin to remain stable

NALCO has been amongst the lowest cost producers of aluminium in the world, resulting into

better EBITDA margins. NALCO had been reporting margins of above 45% till FY11. After this

the margins fell because of significant increase in that the coal cost as the company had to import

coal, as Coal India failed to supply the required quantity. Further, fall in realizations due to decline

in LME also weighed. Since 2012, it has been maintaining EBITDA margin of 20% and we

believe, after a slight decline in FY16, it will continue to improve gradually. In case of segmental

performance, outperformance of alumina segment over aluminium is likely to continue.

Exhibit 19: EBITDA (Rs mn) and EBITDA Margin (%)


Exhibit 20: NALCO EBIT/ tonne diversification (Rs)


-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

Revenue (Rs mn)

0%

10%

20%

30%

40%

50%

60%

70%

0

5000

10000

15000

20000

25000

30000

35000

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16e FY17e FY18e

EBITDA EBITDA Margin

(10,000)

-

10,000

20,000

30,000

40,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Alumina EBIT/ tn Aluminium EBIT/ tn



Profitability to rise further

On the back of better topline growth and better margin, we believe the company should see

better growth in PAT as well. From FY09 to FY15, PAT grew by CAGR of 1%. After falling in

FY16, we expect the PAT to improve gradually. Expected better PAT growth can be attributed

to low fixed costs and improved margins. Other income also is likely to grow with better cash

generation.

Exhibit 21: Net profit (Rs mn) and NPM trend


ROCE and ROE are likely to improve

With improvement in profitability, return ratios are also likely to improve further. For FY15 the

ROCE was recorded at 15%, which after declining in FY16e is likely to rise back to 10% level

again in FY18e. ROE is also expected to rise to 8% in FY18e and be at par with current levels

of 9%. So the company is efficiently utilizing its capital employed with profitable returns going

forward.

Exhibit 22: ROCE (%)


Exhibit 23: ROE (%)


0%

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20%

30%

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50%

0

5,000

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20,000

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2017e

2018e

APAT APAT Margin (%)

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FY

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FY

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FY

17e

FY

18e



Assumptions

We have taken following assumptions for our estimates. We believe, commodity prices and

currencies will remain volatile and thus, subject to change. For aluminium prices, we expect

some gradual improvement going forward.

Exhibit 24: Assumptions for commodity and FX

Assumptions 2014 2015 2016e 2017e 2018e

Aluminium LME (US$/ tonne) 1773 1890 1613 1725 1775

Alumina LME (US$/ tonne) 362 341 275 285 300

Aluminium Sales (000 tonne) 320 326 345 359 368

Alumina Sales (000 tonne) 1343 1225 1244 1284 1357

INR: US$ 50 61 65 65 65

Source: Emkay Research

Sensitivity

Both aluminium and alumina prices along with coal costs are critical for NALCO’s operational

performance. The following exhibits show the sensitivity to prices of aluminium, alumina and coal

on the EBITDA, EPS and target price. Interestingly, impacts are similar in all three cases. As per

the estimates, 1% change in aluminium LME will change EBITDA by 3.3%, 1% change in

alumina prices will affect EBITDA by 2.1% and 1% change in coal costs will change the EBITDA

by 0.9%.

Exhibit 25: Sensitivity to change in Aluminium prices (FY18)

Aluminium LME ($/tn) % Change EBITDA (Rs mn) EPS (Rs) TP (Rs)

1598 -10% 8948 2.97 41

1686 -5% 11147 3.60 46

Base Case = 1775 0% 13346 4.23 51

1864 5% 15545 4.86 55

1953 10% 17744 5.49 60


Exhibit 26: Sensitivity to change in Alumina prices (FY18)

Alumina LME ($/tn) % Change EBITDA (Rs mn) EPS (Rs) TP (Rs)

270 -10% 10603 3.45 44

285 -5% 11975 3.84 48

Base Case = 300 0% 13346 4.23 51

315 5% 14718 4.63 54

330 10% 16089 5.02 57


Exhibit 27: Sensitivity to change in Coal prices (FY18)

Avg Coal Cost (Rs/tn) % Change EBITDA (Rs mn) EPS (Rs) TP (Rs)

1557 -10% 14540 4.58 53

1644 -5% 13943 4.41 52

Base Case = 1730 0% 13346 4.23 51

1817 5% 12749 4.06 49

1903 10% 12152 3.89 48




Valuation- attractive with div yield of 4.8%

Like many other metals stocks, NALCO has suffered a lot along with the sharp fall in metals

prices. Some company specific issues such as lack of coal availability also weighed on the

performance earlier. With better strategy to cut smelter utilizations and focusing more on alumina

segment along with subsequent improvement in coal supply by Coal India, the company could

overcome most of its challenges. Optimum coal supply by Coal India, both through linkages and

e- auction, is going to be helpful for NALCO going forward. The company will be further benefitted

as and when it starts its own coal mining. On top of this, in near to medium term, any

improvement in aluminium and alumina prices would be a big positive for the company’s

operational performance. AT CMP of Rs 37, the stock discounts its FY16E, FY17E and FY18E

earnings by 12.5x, 9.9x and 8.7x respectively. Also the stock is available at 5.1x FY16E EV/

EBITDA, 3.7x FY17E EV/ EBITDA and 3.0x FY18E EV/ EBITDA. This suggests that the stock is

quite attractively placed in terms of valuation and provides room for substantial upside. At the

CMP, the dividend yield of 4.8% makes it even more attractive. We value the stock at 5.5xFY18

EV/ EBITDA to arrive at a fair value of Rs 51. We initiate our coverage with a Buy rating. Any

improvement in Aluminium LME will provide further upside to our valuation.

Exhibit 28: Valuation Table

Rs (mn) FY18E

EBITDA 13346

EV/EBITDA (x) 5.5

EV 73403

Net Debt -56991

Market Cap 130394

No. of Shares 2577

Fair Value (Rs) 51


Exhibit 29: P/E Band

Source: Emkay Research, Company

Exhibit 30: EV/EBITDA Band

Source: Emkay Research, Company

Peer comparison

NALCO stands out amongst its global peers as it is trading at low multiples.

Exhibit 31: Peer Valuation

Mcap PER P/BV EV/EBITDA

Company (USD Bn) FY16E FY17E FY16E FY17E FY16E FY17E

Alcoa 9.5 22.1x 12.8x 0.8x 0.7x 7.1x 6.0x

Chalco 8.5 NA NA 0.8x 0.9x 15.1x 16.1x

Hydro 6.7 10.7x 15.6x 0.8x 0.8x 4.4x 5.6x

Rusal 4.5 3.6x 5.4x 1.6x 1.3x 6.1x 9.6x

Hindalco 2.3 11.0x 7.9x 0.4x 0.4x 7.9x 6.7x

Alumina Ltd 2.1 10.9x 27.0x 0.9x 0.9x 32.8x 69.2x

NALCO 1.4 12.5x 9.9x 0.7x 0.7x 5.1x 3.7x

Al Bahrain 1.4 7.2x NA 0.5x 0.6x 3.4x 9.5x

Source: Emkay Research, Bloomberg

0

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8x9x



Annexure 1: Company background

NALCO

National Aluminium Company Limited (NALCO) is a Navratna CPSE under Ministry of Mines,

Govt. of India. It was established on 7th January, 1981, with its registered office at Bhubaneswar.

The Company has integrated and diversified operations in mining, metal and power with sales

turnover of Rs 7024 crore in financial year 2013-14. Presently, Government of India holds

80.93% equity of NALCO.

The company has a 68.25 lakh TPA Bauxite Mine & 22.75 lakh TPA Alumina Refinery located

at Damanjodi in Koraput dist. of Odisha, and 4.60 lakh TPA Aluminium Smelter & 1200 MW

Captive Power Plant located at Angul, Odisha. As per diversification plan, NALCO has ventured

into renewable energy sectors. The Company has successfully commissioned two wind power

plants. A 50.4 MW wind power plant at Gandikota, Andhra Pradesh and another of 47.6 MW

wind power plant at Jaisalmer, Rajasthan are operational since December, 2012 and January,

2014 respectively. 260 KWp Rooftop Solar Power System has been made operational at Office

and Township, Bhubaneswar during FY 2014-15.

NALCO has bulk shipment facilities at Vizag port for export of Alumina/Aluminium and import of

caustic soda and also utilises facilities of Kolkata and Paradeep ports. The company has its

regional marketing offices in Delhi, Kolkata, Mumbai & Chennai its branch offices at Bangalore,

Paradeep , Ahmedabad and its 11 stockyards at various locations in the Country.

NALCO is the first Company in Aluminium sector in the Country to venture into International

market in a big way with London Metal Exchange (LME) registration since May, 1989. All the

manufacturing units and the port facility of the Company.

In its efforts for capacity addition and expansion, NALCO has extensive plans for brown field and

green field expansion projects, which include 1 MTPA Alumina Refinery in Gujarat in JV with

Gujarat Mineral Development Corporation (GMDC) (Greenfield), 5th Stream of 1 MTPA capacity

in existing Alumina Refinery at Damanjodi (Brownfield), 0.5 MTPA Aluminium Smelter and 1050

MW Power Complex in Odisha (Greenfield), 0.5 MTPA Aluminium Smelter abroad and

development of bauxite mines at Gudem and KR Konda in Andhra Pradesh and Pottangi in

Odisha etc.

The Company has plans to set up a 2 lakh TPA caustic soda plant in JV with Gujarat Alkalies &

Chemicals Limited (GACL) and 55,000 TPA Aluminium Conductor plant in JV with Power Grid

Corporation of India Limited (PGCIL). The Company has plans to set up a 14MW wind power

plant at mined out area of Damanjodi and another 100MW wind power plant at any suitable

location in the Country.

The company has formed a JV Company with Nuclear Power Corporation of India Limited

(NPCIL) for establishing 2X700 MW Nuclear Power Plants at an estimated investment of Rs.

11,459 crore at Kakrapara in Gujarat. For development of downstream ancillary industries, a JV

Company has been formed with IDCO, Odisha for Angul Aluminium Park.

The company is involved in playing a significant role in the socio-economic development of the

areas where it operates. Rehabilitation of displaced families, employment, income generation &

health care for local people, development of infrastructure, care for environment and various

humanitarian goodwill missions have earned NALCO a place of pride in the corporate world.

With the setting up of NALCO Foundation and doubling of CSR budget to 2% of the net profit,

the company is well-poised to augment its activities on social responsibilities significantly.

In order to promote education amongst tribal children, NALCO has sponsored more than 655

students in reputed educational institutes in Odisha by way of bearing all their expenses on

studies including lodging and boarding etc.

Bauxite Mines

On Panchpatmali hills of Koraput district in Orissa, a fully mechanized opencast mine is in

operation since November, 1985, serving feedstock to Alumina Refinery at Damanjodi located

on the foothills. Present capacity of Mines is 68.25 lakh TPA. Panchpatmali plateau stands at

elevation of 1154 m to 1366 m above mean sea level. Bauxite occurs over the full length of the

Panchpatmali plateau, which spans over 18 kms.



The salient features:

� Area of deposit - 16 sq. KM

� Resource - 310 million tonnes

� Ore quality - Alumina 45%, Silica 3%

� Mineralogy - Over 90% gibbsitic

� Over burden - 3 meters (average)

� Ore thickness - 14 meters (average)

� Transport - 14.6 KM long, single flight, multi-curve cable belt conveyor of 1800 TPH

capacity

Alumina Refinery

The Alumina Refinery is located at Damanjodi, Odisha, approximately 14 KM from the bauxite

mine at Panchpatmali. The mined-out bauxite is transported from captive mine to refinery by a

14.6 KM long single-light multi-curve 1800 tonnes per hour (TPH) capacity cable belt conveyor.

The alumina produced is transported to aluminium smelter at Angul (Odisha) and to Vizag

(Andhra Pradesh) port by rail. The present capacity of Alumina Refinery is 22.75 lakh TPA.

Alumina produced is used to meet Company's requirements for production of primary aluminium

at smelter. The surplus alumina is sold to third parties in the export markets.


� Atmospheric pressure digestion process

� Pre-desilication and inter-stage cooling for higher productivity

� Energy efficient fluidised bed calciners

� Co-generation of 4x18.5 MW power by use of back pressure turbine in steam generation

plant

Aluminium Smelter

The present capacity of smelter is 4.60 lakh TPA. Alumina is converted into primary aluminium

through a smelting process by using electrolytic reduction. From the pot-line, the molten

aluminium is routed to either the casting units, where the aluminium can be cast into ingots, sow

ingots, tee ingots, billets, wire rods, cast strips and alloy ingots, or to RPU where the molten

aluminium is rolled into various cold-rolled products or cast into aluminium strips. Aluminium

products are sold in the domestic market and also exported through Kolkata, Paradeep & Vizag

ports. NALCO acquired and subsequent merged International Aluminium Products Limited

(IAPL), the 50,000 tpa export-oriented Rolled Products Unit with NALCO. The RPU is integrated

with the Smelter Plant at Angul for production of aluminium cold rolled sheets and coils from

continuous caster route based on the advanced technology of FATA Hunter, Italy. It has also

started production of another variety of rolled product named as chequered sheet with thickness

ranging from 0.60mm to 3.0mm.


� 180 KA cell technology

� Micro-processor based pot regulation system

� Fume treatment plant with dry-scrubbing system for pollution control and fluoride salt

recovery

� Integrated facility for manufacturing carbon anodes, bus bars, anode stems etc.

� Hyper Dense Phase System (HDPS) for alumina feeding.

� 4 x 35 Tonne and 4 x 45 Tonne furnaces and 2 x 15 TPH and 2 x 20 TPH ingot casting

machines

� 4 x 45 Tonne furnaces and 2 x 9.5 TPH wire rod mills

� 2 x 45 Tonne furnaces and 60/42 per drop billet casting machine

� 2 x 1.5 Tonne induction furnace with a 4 TPH alloy ingot casting machine

� 26,000 TPA strip casting machines

� 2 x 45 Tonne furnaces and 9 TPH tee ingot casting machine

� 2 x 45 Tonne furnaces and 20 TPH sow ingot casting facility are being installed



Annexure 2: Aluminium industry

Domestic demand to gain momentum from 2015-16

Power, automobile and consumer durable sectors to drive long-term demand

During 2009-10 to 2014-15, aluminium demand recorded a 4.8% CAGR, in-line with the growth

recorded by the power and automobile sectors. In 2014-15, demand rose 7% to 1.9 million

tonnes, as demand from the key end-user sectors automobiles, power and consumer durables

(together accounting for 65-70% of domestic demand) improved 7%.

Aluminium demand is likely to rise 7-8% in 2015-16, as demand from key end-user sectors

increase. Over 2014-15 to 2019-20, demand will record 8-9% CAGR, with demand in volume

terms pegged at about 3 million tonnes. The moderate growth rate would be supported by rising

demand from the automobile, power and consumer durable sectors.

Exhibit 32: India: Sector-wise break up of Aluminium consumption


Exhibit 33: World: Sector-wise break up of Aluminium consumption


Exhibit 34: Indian market moving towards surplus supply

Producer (kt) FY14 FY15 FY16 (E) FY17 (E)

Consumption (Metal+Scrap) 2588 2840 3029 3252

Consumption (Metal excl. scrap) 1849 1975 2189 2452

Metal Production 1734 2050 2986 3294

Surplus (net of scrap imports) -115 75 797 842


US and India positive; EU and China to play spoilsport

Global aluminium demand, which increased 6% y-o-y to 53. 3 million tonnes in 2014, is expected

to rise by a slower 4-5% in 2015. The CAGR is projected to remain at 4-5% levels over 2015 to

2017. Between 2015 and 2019 as well, demand is forecasted to clock 4-5% CAGR vis-a-vis

8.2% CAGR during 2009 to 2014.

Exhibit 35: Per capita consumption of Aluminium (Kg/ person)


Exhibit 36: Share of Primary producers in domestic consumption


32%

9%

8%

38%

4%6% 3%

Transport

Construction

Packaging

Electrical

Consumer Durable

Machinery & Equipment

Others

27%

25%

15%

13%

5%

9%

6%Transport

Construction

Packaging

Electrical

Consumer Durable

Machinery & Equipment

Others

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014

India China World

0%

20%

40%

60%

80%

100%

FY11 FY12 FY13 FY14 FY15

Primary Producer’s Domestic Sale Import’s Share in India



Exhibit 37: Aluminium Demand Supply Scenario

2016 Aluminum Balance China Rest of World

Production at Beginning Run Rate 31,053 26,968

Production to be Added/Restarted 3,400 1,010

Production to be Closed/Curtailed -2,420 -766

Total Supply 32,033 27,212

Demand -31,217 -29,254

Net Balance 816 -2,042


The tepid growth is because of a slowdown in investments in the various industries in the

aftermath of the European debt crisis. Also, usage of the metal in China, the largest global

consumer, will decrease as moderate growth in the country's real estate investments will

translate into lower demand for the metal from the construction sector. Demand in Japan will be

sluggish on account of lower demand from the automobile and construction sectors. While the

US has shown relatively better growth, the country accounts for less than 14% of primary

aluminium consumption and less than 5% of the incremental global demand.

Exhibit 38: China produces more than 50% in Al as well; Production breakup for Aluminium (Mt)


Exhibit 39: Aluminium physical premium (USD/ tonne)

Source: Bloomberg, Emkay Research

-1

1

3

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Africa North America South America Asia (ex China)

West Europe East & Central Europe Oceania GCC

China ROW

60

160

260

360

460

560

Au

g/1

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/12

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US Midwest Alum. Prem. MB Japan Alum. Ingot Prem.



Annexure 3: Alumina industry

The Chinese angle

Like other commodities, alumina too is dependent to a great extent on China, where less than

anticipated consumption has impacted the pricing scenario in CY15. As per the estimates, China

is adding up capacities in Aluminium and that will be the key driver for growth in Alumina demand

going forward. Better global prices for Alumina will impact NALCO’s realization directly which is

expected to improve gradually.

Exhibit 40: China leading with 50% production for Alumina; Production breakup (Mt)


Exhibit 41: Monthly alumina production in China (mt)


Exhibit 42: Monthly alumina imports by China (mt)


China has started taking steps towards that by curtailment of its capacities in Alumina as well as

Aluminium to avoid further price fall. According to Alumina Ltd, in 2019, total alumina is likely to

be in deficit of 1.2 mt taking into consideration that China will be in deficit of ~4 mt at that time.

The absolute amount of deficit may vary for different agencies, however, important thing is that

it is likely to increase.

0

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East & Central Europe Oceania China

0

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Exhibit 43: Outlook for near market balance for alumina (mn tonnes)

Source: Alumina Ltd presentations, Company, Emkay Research

Exhibit 44: China 2016 alumina curtailments in thousand tonne


Exhibit 45: China 2016 aluminum curtailments in thousand tonne


4.9 4.84.2

4.83.7

2.7

-5.1-4.6 -4.8

-5.5-4.2 -3.9

-0.2

0.2

-0.6 -0.7 -0.5-1.2

-6

-4

-2

0

2

4

6

2014 2015 2016 2017 2018 2019

ROW China Global

-1590

-900

-675

-300 -150

-3615

-4000

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

Henan Shandong Shanxi I.Mongolia Sichuan Total

6,700 Kmt annualized has been announced

-450

-321

-313

-248

-232-191

-183

-482

-2420

-2500

-2000

-1500

-1000

-500

0

Gansu Ningxia Yunnan Qinghai Henan Sichuan Liaoning Other Total

3,900 Kmt annualized has been announced



Exhibit 46: Alumina: Planned expansions (2015 - 2019)

Region Country Company Location 2015 2016 2017 2018 2019 Type Comments Bauxite

Integrated

Latin

America

Brazil Norsk Hydro Alumina do Para 1,860 Greenfield The 1.86mt project has

been shelved by the

company awaiting

better “market

conditions”.

Yes

Brazil Votorantim

Group

Alumina Rondon 3,000 Greenfield Passed the first stage of

the environmental

licensing. Looking

for JV partners.

Yes

Middle

East

Saudi

Arabia

Alcoa-Ma'aden Ras Al Khair 1,800 Greenfield First alumina produced

in Q4 2014. Ramping up

in 2015.

Yes

UAE Emirates

Global

Aluminum

KIZAD, Al

Taweelah

2,000 Greenfield Project feasibility

studies completed. First

phase of 2.0 million

tpa planned to be ready

by 2017. Phase II could

double capacity to 4.0

million tpy.

NO

Asia

ex. China

India NALCO Damanjodi 1,000 Brownfield Approval for mining

lease received from

Govt of Odisha. DPR

under study

Yes

Anrak Anrak Alumina 1,500 Greenfield Commissioning has

been delayed several

times amid financial

and bauxite supply

issues and not expected

to start production

until 2016 at the

earliest.

Yes

Vedanta Lanjigarh 2,035 Brownfield The expansion is on

hold due to inability to

secure long term

bauxite supply.

Yes

Indonesia PT Antam Mempawah,

West Kalimantan

Greenfield The 1.2 million tpa

project was reported

being cancelled as it

only received half of the

planned state capital

injection of funds. The

project was planned to

start production in 2016.

Yes

Hongqiao Well

Harvest

Winning

Alumina

Ketapang,

West Kalimatan

1,000 1,000 Greenfield First 1million tpa phase

scheduled to start by

the end of 2015.

Second 1million tpa

phase scheduled for

2017.

Yes

China China Various

Brownfield

Various 1,000 800 600 0 0 Brownfield Yes

Various

Greenfield

Various 5,000 4,400 0 7,200 800 Greenfield Yes

Total World 8,800 7,700 6,600 11,095 800

Total China 6,000 5,200 600 7,200 800

Total ROW 2,800 2,500 6,000 3,895 0

Source: Alcoa presentations, Company, Emkay Research



Key Financials (Consolidated)

Income Statement

Y/E Mar (Rs mn) FY14 FY15 FY16E FY17E FY18E

Net Sales 67,809 73,828 62,682 68,518 73,648

Expenditure 57,940 56,742 53,610 56,751 60,302

EBITDA 9,869 17,086 9,072 11,767 13,346

Depreciation 5,247 4,137 4,795 5,005 5,215

EBIT 4,622 12,950 4,276 6,762 8,131

Other Income 5,577 6,726 6,341 6,595 7,025

Interest expenses 0 0 0 0 0

PBT 10,199 19,676 10,617 13,357 15,156

Tax 2,755 7,916 2,973 3,740 4,244

Extraordinary Items (494) 1,484 0 0 0

Minority Int./Income from Assoc. 0 0 0 0 0

Reported Net Income 6,950 13,245 7,645 9,617 10,912

Adjusted PAT 7,444 11,760 7,645 9,617 10,912

Balance Sheet


Equity share capital 12,886 12,886 12,886 12,886 12,886

Reserves & surplus 108,338 115,087 117,454 121,794 127,430

Net worth 121,225 127,973 130,341 134,681 140,316

Minority Interest 0 0 0 0 0

Loan Funds 0 0 0 0 0

Net deferred tax liability 9,101 11,053 11,053 11,053 11,053

Total Liabilities 130,326 139,026 141,393 145,733 151,369

Net block 67,919 66,454 68,659 70,653 72,438

Investment 12,450 9,510 8,500 8,500 8,500

Current Assets 77,428 80,315 82,503 86,216 92,727

Cash & bank balance 40,483 46,280 49,359 51,676 55,601

Other Current Assets 0 0 0 0 0

Current liabilities & Provision 35,159 22,751 24,766 27,134 30,794

Net current assets 42,269 57,564 57,737 59,083 61,933

Misc. exp 0 0 0 0 0

Total Assets 130,326 139,026 141,393 145,733 151,369

Cash Flow


PBT (Ex-Other income) (NI+Dep) 9,178 21,134 10,617 13,357 15,156

Other Non-Cash items (4,395) (5,227) 0 0 0

Chg in working cap 3,379 (9,925) 2,905 972 1,074

Operating Cashflow 9,813 5,205 15,345 15,594 17,202

Capital expenditure (6,187) (3,031) (8,000) (8,000) (8,000)

Free Cash Flow 3,627 2,173 7,345 7,594 9,202

Investments 2,450 2,940 1,010 0 0

Other Investing Cash Flow 0 0 0 0 0

Investing Cashflow 781 5,657 (6,990) (8,000) (8,000)

Equity Capital Raised 0 0 0 0 0

Loans Taken / (Repaid) 0 0 0 0 0

Dividend paid (incl tax) (5,155) (5,065) (5,277) (5,277) (5,277)

Other Financing Cash Flow 0 0 0 0 0

Financing Cashflow (5,155) (5,065) (5,277) (5,277) (5,277)

Net chg in cash 5,439 5,797 3,079 2,317 3,925

Opening cash position 35,044 40,483 46,280 49,359 51,676

Closing cash position 40,483 46,280 49,359 51,676 55,601



Key Ratios

Profitability (%) FY14 FY15 FY16E FY17E FY18E

EBITDA Margin 14.6 23.1 14.5 17.2 18.1

EBIT Margin 6.8 17.5 6.8 9.9 11.0

Effective Tax Rate 27.0 40.2 28.0 28.0 28.0

Net Margin 11.0 15.9 12.2 14.0 14.8

ROCE 7.9 14.6 7.6 9.3 10.2

ROE 6.2 9.4 5.9 7.3 7.9

RoIC 6.7 17.6 5.5 8.7 10.4

Per Share Data (Rs) FY14 FY15 FY16E FY17E FY18E

EPS 2.9 4.6 3.0 3.7 4.2

CEPS 4.9 6.2 4.8 5.7 6.3

BVPS 47.0 49.7 50.6 52.3 54.4

DPS 1.5 1.8 1.8 1.8 1.8

Valuations (x) FY14 FY15 FY16E FY17E FY18E

PER 12.8 8.1 12.5 9.9 8.7

P/CEPS 7.5 6.0 7.7 6.5 5.9

P/BV 0.8 0.7 0.7 0.7 0.7

EV / Sales 0.8 0.7 0.7 0.6 0.5

EV / EBITDA 5.6 2.9 5.1 3.7 3.0

Dividend Yield (%) 4.1 4.8 4.8 4.8 4.8

Gearing Ratio (x) FY14 FY15 FY16E FY17E FY18E

Net Debt/ Equity (0.3) (0.4) (0.4) (0.4) (0.4)

Net Debt/EBIDTA (4.1) (2.7) (5.4) (4.4) (4.2)

Working Cap Cycle (days) 9.6 55.8 48.8 39.5 31.4

Growth (%) FY14 FY15 FY16E FY17E FY18E

Revenue (2.0) 8.9 (15.1) 9.3 7.5

EBITDA 16.2 73.1 (46.9) 29.7 13.4

EBIT 34.5 180.2 (67.0) 58.1 20.2

PAT 29.9 90.6 (42.3) 25.8 13.5

Quarterly (Rs mn) Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16

Revenue 19,955 19,060 18,013 14,913 18,151

EBITDA 4,743 5,272 4,280 2,237 3,393

EBITDA Margin (%) 23.8 27.7 23.8 15.0 18.7

PAT 3,415 3,545 3,549 1,634 2,261

EPS (Rs) 1.3 1.4 1.4 0.6 0.9

Shareholding Pattern (%) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

Promoters 80.9 80.9 80.9 80.9 80.9

FIIs 3.9 3.8 3.6 3.4 2.9

DIIs 9.4 9.5 9.7 9.6 9.5

Public and Others 5.8 5.8 5.8 6.1 6.7



DISCLAIMERS AND DISCLOSURES: Emkay Global Financial Services Limited (CIN-L67120MH1995PLC084899) and its affiliates are a full-service, brokerage, investment banking, investment

management and financing group. Emkay Global Financial Services Limited (EGFSL) along with its affiliates are participants in virtually all securities trading markets in India. EGFSL was established in

1995 and is one of India's leading brokerage and distribution house.EGFSL is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited(NSE),

MCX Stock Exchange Limited (MCX-SX).EGFSL along with its subsidiaries offers the most comprehensive avenues for investments and is engaged in the businesses including stock broking (Institutional

and retail), merchant banking, commodity broking, depository participant, portfolio management, insurance broking and services rendered in connection with distribution of primary market issues and

financial products like mutual funds, fixed deposits. Details of associates are available on our website i.e. www.emkayglobal.com

EGFSL is registered as Research Analyst with SEBI bearing registration Number INH000000354 as per SEBI (Research Analysts) Regulations, 2014. EGFSL hereby declares that it has not defaulted

with any stock exchange nor its activities were suspended by any stock exchange with whom it is registered in last five years, except that NSE had disabled EGFSL from trading on October 05, October

08 and October 09, 2012 for a manifest error resulting into a bonafide erroneous trade on October 05, 2012. However, SEBI and Stock Exchanges have conducted the routine inspection and based on

their observations have issued advice letters or levied minor penalty on EGFSL for certain operational deviations in ordinary/routine course of business. EGFSL has not been debarred from doing business

by any Stock Exchange / SEBI or any other authorities; nor has its certificate of registration been cancelled by SEBI at any point of time.

EGFSL offers research services to clients as well as prospects. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject

company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Other disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject

company(s) covered in this report-:

EGFSL or its associates may have financial interest in the subject company.

Research Analyst or his/her relative’s financial interest in the subject company. (NO)

EGFSL or its associates and Research Analyst or his/her relative’s does not have any material conflict of interest in the subject company. The research Analyst or research entity (EGFSL) have not been

engaged in market making activity for the subject company.

EGFSL or its associates may have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research

Report: (NO)

EGFSL or its associates may have received any compensation including for investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EGFSL or its

associates may have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months. EGFSL

or its associates may have received any compensation or other benefits from the Subject Company or third party in connection with the research report. Subject Company may have been client of EGFSL

or its associates during twelve months preceding the date of distribution of the research report and EGFSL may have co-managed public offering of securities for the subject company in the past twelve

months.

The research Analyst has served as officer, director or employee of the subject company: (NO)

EGFSL and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material. Our salespeople, traders, and other professionals may

provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses

may make investment decisions that may be inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other

things, may give rise to real or potential conflicts of interest including but not limited to those stated herein. Additionally, other important information regarding our relationships with the company or

companies that are the subject of this material is provided herein. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any

locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject EGFSL or its group companies to any

registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument

or as an official confirmation of any transaction to any U.S. person. Unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may

be distributed in Canada or used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material,

nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of EGFSL . All trademarks, service marks

and logos used in this report are trademarks or registered trademarks of EGFSL or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in

any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read

“Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report

includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

www.emkayglobal.com

Emkay Global Financial Services Ltd.

CIN - L67120MH1995PLC084899

7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India

Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

Emkay Rating Distribution

BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.

ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.

HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.

REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.

SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.

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