1QFY2012 Result Update | Base Metals

August 17, 2011

National Aluminium
Performance Highlights

NEUTRAL
CMP Target Price `61 yoy % 34.2 34.5 8bp 32.7 4QFY11 1,788 454 27.3 305 qoq % (3.0) 16.8 323bp 23.4

Particulars (` cr) Net sales EBITDA EBITDA margins (%) Net profit
Source: Company, Angel Research

1QFY12 1,733 530 30.6 377

1QFY11 1,292 394 30.5 284

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Base Metals 15,837 0.5 120/61 56776 5 16,841 5,057 NALU.BO NACL@IN

National Aluminiums (Nalco) 1QFY2012 results were above our expectations. The company was able to sustain its margin on account of higher realisation. In light of the recent decline in stock price, we now have a Neutral view on the stock. Higher realisation aids top-line growth: For 1QFY2012, Nalcos net sales grew by 34.2% yoy to `1,733cr, led by higher realisation of alumina and aluminium. Alumina realisation increased by 21.1% yoy to `20,653/tonne and aluminium realisation increased by 18.3% yoy to `122,086/tonne. The aluminum segments sales grew by 20.9% yoy to `1,355cr due to higher LME prices despite metal volumes of only 2.2% yoy to 111kt. The chemical segments revenue grew by 60.6% yoy to `646cr on the back of alumina sales volumes, which grew by 83.0% yoy to 183kt. Stable EBITDA margin despite rising costs: EBITDA grew by 34.5% yoy to `530cr and EBITDA margin improved by 8bp yoy to 30.6%. The company was able to maintain its margin despite increased coal costs due to higher realisation. Other income grew by 41.1% yoy to `127cr. Thus, net profit increased by 32.7% yoy to `377cr in 1QFY2012. Outlook and valuation: Although Nalco enjoys high levels of backward integration, the cost of production remains very high for Nalco. Further, there is lack of clarity over Nalcos volume growth. At the CMP, Nalco is trading at valuations of 6.8x FY2012E and 5.7x FY2013E EV/EBITDA, higher than its peers. Given the recent decline in the stock price, we recommend Neutral on the stock. Key financials
(` cr) Net sales % change Adj. PAT % change EPS (`) OPM (%) PE (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 87.2 5.1 4.5 3.3

Abs. (%) Sensex Nalco

3m

1yr

3yr 14.4 (37.4)

(7.1) (6.7) (31.7) (41.4)

FY10 5,055 (0.8) 814 (35.3) 3.2 21.8 19.5 1.5 8.1 7.3 2.5 11.5

FY11E 5,959 17.9 1,069 31.3 4.1 26.6 14.8 1.6 10.5 10.7 2.4 8.8

FY12E 7,670 28.7 1,439 34.6 5.6 28.0 11.0 1.6 14.5 14.7 1.9 6.8

FY13E 8,680 13.2 1,631 13.3 6.3 29.2 9.7 1.6 16.4 17.1 1.7 5.7

Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Please refer to important disclosures at the end of this report

National Aluminium | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 performance

(` cr) Net Sales Raw Material % of Net sales Power and Fuel % of Net sales Staff Cost % of Net sales Other Expenses % of Net sales Total Expenditure % of Net sales Operating Income EBIDTA % of Net sales Interest Depreciation Other Income Exceptional Items Profit before Tax % of Net sales Provision for tax % of PBT Profit after tax
Source: Company, Angel Research

1QFY12 1,733 178 10.3 481 27.7 338 19.5 236 13.6 1,233 71.1 29 530 30.6 102 127 554 32.0 178 32.0 377

1QFY11 1,292 95 7.3 369 28.6 218 16.9 232 18.0 914 70.8 16 394 30.5 (0) 92 90 392 30.3 108 27.5 284

yoy % 34.2 88.1 30.3 54.8 1.6 34.8 79.6 34.5 11.3 41.1 41.5 64.6 32.7

FY11 5,959 776 13.0 1,779 29.9 988 16.6 928 15.6 4,471 75.0 97 1,585 26.6 0 422 362 1,525 25.6 455 29.9 1,069

FY10 5,055 808 16.0 1,617 32.0 813 16.1 833 16.5 4,071 80.5 119 1,102 21.8 2 319 374 1,155 22.8 341 29.5 814

yoy % 17.9 (3.9) 10.0 21.5 11.4 9.8 (18.6) 43.8 32.0 (3.3) 32.0 33.7 31.3

Exhibit 2: 1QFY2012 Actual vs. Angel estimates

(` cr) Net sales EBITDA EBITDA margin (%) PAT
Source: Company, Angel Research

Actual 1,733 530 30.6 377

Estimates 1,698 435 25.6 268

Variation (%) 2.1 21.9 497bp 40.5

August 17, 2011

National Aluminium | 1QFY2012 Result Update

Result highlights
For 1QFY2012, Nalcos net sales grew by 34.2% yoy to `1,733cr, led by higher realisation of alumina and aluminium. Alumina realisation increased by 21.1% yoy to `20,653/tonne and aluminium realisation increased by 18.3% yoy to `122,086/tonne. The aluminum segments sales grew by 20.9% yoy to `1,355cr due to higher LME prices despite metal volumes of only 2.2% yoy to 111kt. The chemical segments revenue grew by 60.6% yoy to `646cr on the back of alumina sales volumes, which grew by 83.0% yoy to 183kt.

Exhibit 3: Quarterly revenue trend

2,000 1,800 1,600 1,400 1,200 50 45 40 35 30 25 20 15 10 5 0 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12

(`cr)

1,000 800 600 400 200 0

Net revenue (LHS)

yoy chg (RHS)

Source: Company, Angel Research

EBITDA grew by 34.5% yoy to `530cr and EBITDA margin improved by 8bp yoy to 30.6%. The company was able to maintain its margin despite increased coal costs on account of higher realisation. Other income increased by 41.1% yoy to `127cr. Thus, net profit grew by 32.7% yoy to `377cr.

Exhibit 4: Quarterly EBITDA trend

600 500 400 35 30 25

Exhibit 5: Quarterly net profit trend

400 350 300 250 20 30 25

(` cr)

(`cr)

15 10 5 0 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 EBITDA (LHS) EBITDA margin (RHS)

(%)

300 200 100 0

150 100 50 0 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 Net profit (LHS) Net profit margin (RHS)

10 5 0

Source: Company, Angel Research

Source: Company, Angel Research

August 17, 2011

(%)

20

200

15

(%)

National Aluminium | 1QFY2012 Result Update

Exhibit 6: 1QFY2012 segmental performance

(` cr) Sales Chemicals Aluminium Electricity Gross sales Less intersegment Net sales EBIT Chemicals Aluminium Electricity Total Unallocated income Interest PBT EBIT margin (%) Chemicals Aluminium Electricity
Source: Company, Angel Research

1QFY12 646 1,355 478 2,479 (746) 1,733 163 242 75 480 75 554 32.0 25.2 17.9 15.7

1QFY11 403 1,121 360 1,884 (593) 1,292 80 198 65 343 49 392 30.3 19.9 17.6 18.1

% yoy 60.3 20.9 32.6 31.5 25.8 34.2 103.0 22.4 15.6 39.9 52.5 -

4QFY11 588 1,425 483 2,496 (718) 1,788 120 193 77 389 30 419 23.6 20.4 13.5 15.9

% qoq 9.9 (4.9) (1.0) (0.7) 3.8 (3.1) 35.6 25.6 (1.8) 23.3 149.7 -

August 17, 2011

National Aluminium | 1QFY2012 Result Update

Investment rationale
Coal supply issues to continue
Nalco has been facing coal supply issues, which have disrupted its operations in the past. The company sources its annual coal requirement from Mahanadi Coalfields Ltd., but the supply is not evenly distributed. In our view, any disturbance in coal supply would increase the companys dependence on imported or external coal (which is very expensive compared to linkage coal), thereby negatively affecting its margins.

Limited growth visibility

Apart from the ongoing expansion plan, there is little clarity on the other proposed expansion plans as they are in various stages of financial closure and significant progress is yet to be made.

Outlook and valuation

Although Nalco enjoys high levels of backward integration, the cost of production remains very high for Nalco. Further, there is lack of clarity over Nalcos volume growth. At the CMP, Nalco is trading at valuations of 6.8x FY2012E and 5.7x FY2013E EV/EBITDA, higher than its peers. Given the recent decline in the stock price, we recommend Neutral on the stock.

Exhibit 7: Key assumptions

FY2012E Sales volume (tonnes) Aluminium Alumina LME prices (US$/tonne) Aluminium Alumina
Source: Angel Research

FY2013E 579,600 883,390 2,300 380

442,080 1,159,560 2,300 380

August 17, 2011

National Aluminium | 1QFY2012 Result Update

Exhibit 8: EV/EBITDA band

80,000 70,000 60,000 50,000
(` cr)

40,000 30,000 20,000 10,000 0

Dec-06 Aug-08 Apr-05 Apr-10 Jul-06 Mar-08 Oct-07 Feb-06 Sep-05 May-07 Nov-09 Sep-10 Feb-11 Feb-11 Feb-11 Jan-09 Jun-09 Jul-11 Jul-11 Jul-11

4x
Source: Bloomberg, Angel Research

8x

12x

16x

20x

Exhibit 9: P/E band

350 300 250
(`)

200 150 100 50 0

Feb-06 Oct-07 Nov-09 Sep-05 May-07 Dec-06 Aug-08 Mar-08 Sep-10 Sep-10 Apr-05 Jan-09 Jun-09 Apr-10 Jul-06

5x
Source: Bloomberg, Angel Research

15x

25x

35x

Exhibit 10: P/BV band

160 140 120 100
(`)

80 60 40 20 0
Feb-06 Oct-07 May-07 Nov-09 Sep-05 Dec-06 Jan-09 Jun-09 Apr-05 Mar-08 Aug-08 Apr-10 Jul-06

0.5x
Source: Bloomberg, Angel Research

1.5x

2.5x

3.5x

August 17, 2011

National Aluminium | 1QFY2012 Result Update

Exhibit 11: Recommendation summary

Company CMP Target Reco. Mcap Upside/ P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%) (downside) (` cr) (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E 38 52 27 6.8 11.0 7.4 8.9 6.2 9.7 5.8 8.0 1.0 1.6 0.9 1.9 0.9 1.6 0.8 1.5 5.6 6.8 6.4 4.9 5.2 5.7 4.2 3.6 15.6 14.5 13.7 23.2 15.0 16.4 15.2 21.0 10.0 14.7 9.1 23.3 10.0 17.1 12.0 21.2

(`) Price (`)

Hindalco
Nalco

143 61 134 123

196 205 156

Buy Buy Buy

27,386 15,837 45,151 52,077

- Neutral

Sterlite Hind. Zinc

Source: Company, Angel Research

August 17, 2011

National Aluminium | 1QFY2012 Result Update

Profit & loss statement

Y/E March (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Inc/(Expense) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Extraordinary Expense/(Inc.) PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 5,474 486 4,989 4,989 (16.0) 2,769 521 1,226 553 469 2,220 (37.3) 44.5 281 1,939 (39.9) 38.9 2 555 22.3 2,492 (31.3) (25) 2,467 835 33.9 1,632 1,632 1,657 (30.6) 33.2 5,518 423 5,095 5,095 2.1 3,401 585 1,562 771 483 1,694 (23.7) 33.2 272 1,421 (26.7) 27.9 4 496 25.9 1,913 (23.2) 14 1,927 655 34.0 1,272 1,272 1,258 (24.0) 24.7 5,310 256 5,055 119 5,174 1.6 4,071 808 2,124 813 326 1,102 (34.9) 21.8 319 783 (44.9) 15.5 2 374 32.4 1,155 (39.6) 1,155 341 29.5 814 814 814 (35.3) 16.1 6,370 411 5,959 97 6,056 17.1 4,471 776 2,376 988 331 1,585 43.8 26.6 422 1,163 48.5 19.5 0 362 23.7 1,525 32.0 1,525 455 29.9 1,069 1,069 1,069 31.3 17.9 8,195 524 7,670 118 7,788 28.6 5,638 1,074 2,984 1,151 430 2,151 35.7 28.0 598 1,552 33.5 20.2 2 598 27.8 2,148 40.9 2,148 709 33.0 1,439 1,439 1,439 34.6 18.8 9,274 594 8,680 144 8,824 13.3 6,293 1,215 3,290 1,302 486 2,531 17.7 29.2 712 1,819 17.2 21.0 2 616 25.3 2,434 13.3 2,434 803 33.0 1,631 1,631 1,631 13.3 18.8

August 17, 2011

National Aluminium | 1QFY2012 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Share Warrants Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 644 8,230 8,874 607 9,482 9,137 5,606 3,531 2,335 115 5,041 3,516 541 984 1,541 3,500 9,482 644 9,126 9,770 621 10,391 9,900 5,868 4,032 2,868 896 4,529 2,869 616 1,044 1,933 2,596 10,391 644 9,751 10,396 661 11,056 11,018 6,182 4,836 2,243 987 5,210 3,152 786 1,272 2,220 2,990 11,056 1,289 8,670 9,959 661 10,619 13,175 6,603 6,572 1,343 987 3,875 1,823 786 1,267 2,158 1,718 10,619 1,289 8,603 9,892 661 10,553 14,932 7,202 7,730 843 987 3,736 1,273 786 1,677 2,744 992 10,553 1,289 8,728 10,017 661 10,677 15,932 7,913 8,019 743 987 3,950 1,317 786 1,848 3,022 928 10,677 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

August 17, 2011

National Aluminium | 1QFY2012 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments (Inc.)/ Dec. in loans and adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E 2,467 285 30 28 908 1,902 528 (528) (170) 3,687 3,516 1,927 273 361 60 682 1,938 13 387 (388) (647) 3,516 2,869 1,155 319 (20) 8.8 292 1,172 (678) 85 (593) 304 (304) 275 2,878 3,152 1,525 422 (58) 455 1,433 (1,257) (1,257) 1,506 (1,506) (1,330) 3,152 1,823 2,148 598 176 709 2,213 (1,257) (1,257) 1,506 (1,506) (550) 1,823 1,273 2,434 712 108 803 2,450 (900) (900) 1,506 (1,506) 44 1,273 1,317

(1,544) (2,211)

(1,544) (2,198)

August 17, 2011

10

National Aluminium | 1QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio (%) Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA (0.4) (1.6) (0.3) (1.7) (0.3) (2.9) (0.2) (1.2) (0.1) (0.6) (0.1) (0.5) 0.5 481 4 419 17 0.5 525 2 717 (5) 0.5 427 13 718 (27) 0.5 427 13 718 (27) 0.5 427 13 718 (23) 0.6 440 10 718 (27) 21.8 3.3 19.7 14.3 3.1 13.6 7.3 2.5 8.1 10.7 2.1 10.5 14.7 1.8 14.5 17.1 1.7 16.4 38.9 66.1 1.3 34.6 34.6 27.9 66.0 1.2 22.7 22.7 15.5 70.5 1.0 11.0 11.0 19.5 70.1 0.9 12.6 12.6 20.2 67.0 1.0 13.3 13.3 21.0 67.0 1.0 14.5 14.5 6.4 6.4 7.4 6.0 34.4 4.9 4.9 6.0 5.0 37.9 3.2 3.2 4.4 5.0 40.3 4.1 4.1 5.8 5.0 38.6 5.6 5.6 7.9 5.0 38.4 6.3 6.3 9.1 5.0 38.9 9.6 8.3 1.8 9.8 2.5 5.6 1.3 12.6 10.3 1.6 8.1 2.5 7.7 1.2 19.5 14.0 1.5 8.1 2.5 11.5 1.1 14.8 10.6 1.6 8.1 2.4 8.8 1.3 11.0 7.8 1.6 8.1 1.9 6.8 1.4 9.7 6.8 1.6 8.1 1.7 5.7 1.4 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

August 17, 2011

11

National Aluminium | 1QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

National Aluminium No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 17, 2011

12