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This metal stock is outpacing peers; experts say buy more

This company is among the high conviction stock ideas of Motilal Oswal Financial Services.

Updated: Apr 20, 2018, 03.09 PM IST
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This stock is among the high conviction stock ideas of Motilal Oswal Financial Services.
Aluminium major National Aluminium Company (Nalco) outpaced other metal majors available in the BSE Metal index in April so far. The share price of the company has jumped 30 per cent to Rs 87.40 as on April 19 from Rs 67.30 on April 2.

On the other hand, other majors including Hindalco, Vedanta, Jindal Steel, Tata Steel and SAIL have rallied up to 25 per cent during the same period.

Nalco is among the high conviction stock ideas of Motilal Oswal Financial Services. The brokerage house believes that the company is the biggest beneficiary of rally in metal prices and it is insulated from an input price increase due to its integrated operations of bauxite mining, alumina refinery, and power generation and smelting.

Aluminium is on track for a weekly rise of 9.3 per cent in London and is up 24.6 per cent so far this month. It soared 11.9 per cent last week in the wake of Rusal sanctions announced on April 6, its biggest weekly jump since 1988, according to Reuters.
Aluminum and alumina market dynamics have turned favorable after recent events, leading to supply vacuum of 2.8 mtpa of metal (Rusal and Hydro) and 8 mtpa of alumina from the world’s largest alumina refinery in Brazil owned by Hydro and alumina refineries of Rusal in Ireland, Ukraine and Jamaica.

“Nalco directly benefits from its long position by 1.2 mtpa of alumina and 460 kilo tonnes of metal. We are increasing EBITDA by 84-85% for FY19-20E on raising LME and alumina prices,”

Motilal Oswal said in a report and recommending a ‘Buy’ with a target price of Rs 100. Kotak Securities also has the same target price.

For the quarter ended December 31, 2017, the company posted a net profit of Rs 721.78 crore, up 401 per cent, against Rs 143.92 crore in the corresponding quarter last year.

Nalco is yet to announce its financial results for the quarter ended March 2018.

Brokerage firm Edelweiss in a report said that Alcoa’s Q1CY18 numbers and guidance reinforce their belief that the LME aluminium (Al) price will stay robust in the near term as unprecedented constraints in global supply chain post sanctions on Rusal and cut in Alunorte’s production, smelter restarts/new capacity expected to be slower or lower in China and steady growth in global Al demand at 4.25-5.25 per cent.

Taking cognizance of the improved outlook, Alcoa has revised up its CY18 EBITDA guidance 30 per cent.

“We believe, all domestic aluminium companies—Hindalco, Vedanta and Nalco—will benefit in the near term,” said Edelweiss Securities in a report.
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