JPM is overweight on Nalco shares given the company’s strong cash generation and net-cash balance sheet

Analysts at global brokerage JPMorgan have remained overweight on National Aluminium Co Ltd (Nalco) shares given the company’s strong cash generation, net-cash balance sheet and attractive valuations.

While Nalco is not immune to higher costs across caustic, coal and carbon, the overall combination of higher LME aluminum and alumina prices would be a net positive for Nalco, in JPM's view.

The brokerage house has an overweight rating on the metal stock with a March 2023 target price of ₹ 135 per share. Though, key downside risks, as per JPM, include sharply lower LME aluminum and alumina prices. Nalco shares have declined over 15% in a month.

“Given limited capital spend programs (the aluminum smelter project spending is still some time away), we expect Nalco's DPS to increase sharply on higher EPS. We expect consensus earnings upgrades ahead and highlight upside risk to DPS if LME prices sustain at current levels," the note stated.

“We maintain our earnings estimates for FY23-24, and our FY24 EBITDA estimate of ₹ 44 bn is sharply lower than the 4Q annualized level of ₹ 64 bn. We cut our valuation multiple to 4x from 5x, and this drives our PT lower, to ₹ 135 from ₹ 158. At this point, the key overhang across our coverage universe is the potential for policy intervention in the fight against inflation," the brokerage added.

As per BSE shareholding pattern, Indian ace investor and stock market trader Rakesh Jhunjhunwala holds 1.36% in Nalco as of quarter ending March 2022.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

Log in to our website to save your bookmarks. It'll just take a moment.

Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.

Your session has expired, please login again.

You are now subscribed to our newsletters. In case you can’t find any email from our side, please check the spam folder.

This is a subscriber only feature Subscribe Now to get daily updates on WhatsApp