Nalco OFS

Nalco OFS for stake sale of 5% in the paid up equity capital of the the company at a floor price of Rs. 67 opened yesterday(19/4/17)  for Non Retail investors. Nalco OFS has a green shoe option of 5%. Nalco OFS was subscribed by 1.84 times on Day 1 in the non retail category. OFS is open for Retail investors today (20/4/17).

Alert

Nalco OFS: Retail who have bid at 69.8 i.e. effective price 66.31 are likely to get allotment. Closing price of Nalco was 67.75 . Issue got good response from retail and was subscribed 3.17x”

About the Nalco OFS Issue :

    • Floor Price of the Offer is Rs. 67. The Floor price was at 9% discount to closing of Rs. 73.5 on 17-04-2017
    • NALCO closed at 67.75 on NSE on 19-4-2017
    • Nalco intends to sell upto 9.66 crore equity, or 10%, through the offer for sale (OFS) route. The government owns 74.58% in  NALCO
    • Retail investors will be getting a discount of 5 per cent to the cut-off price.
    • About NALCO :
      • National Aluminium Company Limited (NALCO) is a Navratna CPSE under Ministry of Mines, Govt. of India.
      • Nalco is a fully integrated producer of Alumina and Aluminium. It has installed capacity of 2.28MT, 0.46MT, for Alumina and Aluminium respectively.
      • NALCO also has 1200 MW Power generation facility and is putting focus to enhance its renewable energy generation.
      • NALCO is lowest cost producer of Alumina globally, supported by captive bauxite mines at Panchpatmali in Odissa 

Nalco : Financials
Quartery Results     Rs. Crore
 Dec-16Sep-16Jun-16Mar-16Dec-15Sep-15
Gross Sales1963.811813.21645.271836.861723.791892.88
Excise Duty000000
Sales1963.811813.21645.271836.861723.791892.88
Total Income2063.981982.921799.722030.151937.272075.9
Expenses1740.021673.751471.491635.711601.541578.89
PBIDT323.96309.17328.23394.44335.73497.01
Interest0.60.560.5400.520.51
PBDT323.36308.61327.69394.44335.21496.5
Depreciation117.68135.28118.79113.21107.28108.53
PBT205.68173.33208.9281.23227.93387.97
Tax61.7652.173.8973.2980.05137.12
Profit After Tax143.92121.23135.01207.94147.88250.85
Equity966.46966.461288.621288.621288.621288.62
Face Value555555
EPS (not annualized)0.740.630.520.810.570.97
EPS (TTM)2.7     
Price67     
PE (TTM)24.81     
Qtrly Sales yoy14%     
Qtrly NP yoy-3%     
Qtrly Sales qoq8%     
Qtrly  NP qoq19%     

NALCO had come up with a buy back offer  in May 2016 at Rs. 44 per share which reduced its equity from 1288 crore to 968 crore.

Plus Points

  • Nalco is a cash rich company. It has zero debt
  • Nalco has been maintaining a decent dividend payout of 50%
  • Nalco is providing a good dividend yield of 3.65%.
  • Nalco evenue mix is accounted by Aluminium (67%) and Alumina(33%). Power accounts for remaining 1%. 
  • NALCO is considered among the lowest cost producer of Alumina globally from its bauxite mines in Odisha with capacity of Mining is 0.6825 MTPA. Estimated reserve of 160 MT provides it considerable cushion for many decades
  • NALCO is better placed compared to its peers due to  relatively high sales of alumina and as an integrated player it can withstand lower aluminium price cycle as well. .
  • Nalco  plans to company is increasing the capacity of its 0.46 million tonne Aluminium Smelter at Angul, Odisha, with an addition of 0.6 million tonne to its capacity. Also, the company is adding 1 million tonne to the 2.275 million tonne Alumina Refinery at Damanjodi, Odisha.
  • Nalco has put considerable focus on renewable energy and has major investments plans in Odisha and Rajathan.
  • Though china has added to its semlter capacity,  potential Chinese enviro-driven  smelter cutbacks may  keep alumimiun prices firm

Minus Points

  • Nalco has a high employee cost in the region of 20% of revenues.
  • Nalcos operational costs are high compared to its peers
  • Nalco is not included in F&O which removes the vital short covering effect which is useful on listing day due to considerable selling pressure & acts as a good safeguard
  • A Slowdown in Chinese economy can impact global demand for commodities and prices.
  • Govt. ownership means its interest may not be aligned with those of minority shareholders & are characterized by lower operational performance. 

Overall Assessment:

  • NALCO’s stock price  has strong correlation with  aluminium prices.
  • LME aluminum orice at 1900$/tn+ is key parameter for the company. Presently LME aluminium prices are  1915$/tn.  LME Aluminium Prices
  • On an  EV/EBITDA basis, it is trading at 6.02x compared to its peers Hindalco  11.53 EV/EBITDA).
  • At PE(TTM)  of 24.81, Nalco is not exorbitantly priced looking at its product mix, reserves of alumina.
  • Offer for sale of 5% paid-up equity capital of Nalco to non-retail investors, with 5% green-shoe option, was oversubscribed by 1.84 times on Day 1 which can be considered as average response.
  • Nalco has definite advantages being a integrated player. Companies like Vedanta have trying hard to start mining in Odisha.NALCO.
  • Despite the inertia associated with Government companies, high wage bill  and operational weakness, NALCO has  one of the lowest cost of alumina production in the world due to high-grade captive bauxite mine. Firm Trend in Aluminium price and environment driven Chinese melter shutdowns are also +ve. 
  • I intend to apply in Nalco  OFS to get some allocation but would not bid very aggressively (final discounted price beyond cut off price) and in quantities that can be held for medium term. 
Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.