Sell NALCO, target of Rs 287: Reliance Money

Reliance Money recommended a sell rating on National Aluminium Company (NALCO) with a target price of Rs 287 in its June 12, 2009 research report.

“National Aluminium Co. Ltd. (Nalco) has delivered its worst ever performance in last 16 quarters – courtesy low LME Aluminium prices which are currently trading at slightly above cost of production ($1500 per tonne). Nalco posted net sales revenue of Rs 10.9 billion (down by 23% (YoY)), an EBIDTA of Rs 0.58 billion (YoY decline of 90%) and a PAT of Rs 0.83 billion (drop by 80%).”

“At CMP, the stock is quoting at an EV/EBIDTA of 10.2x for FY11E earnings. Due to the huge LME inventory, we expect the LME Aluminium prices to be range bound. We perceive the stock to be currently quoting at stretched valuations and recommend a ‘Sell’ with a price target of Rs 287 at which it will quote at an EV/ EBIDTA of 8x for FY11E earnings. The target price also quotes at the P/E of 13.8x FY11E earnings which is roughly near the mean of the P/E band. We would like to issue a rider that being a PSU, the company is likely to feature in the disinvestment list as GoI controls 87% of the stock. Any news on disinvestment will take the stock to further highs though it may not be backed by fundamentals,” says Reliance Money’s research report.

source: Moneycontrol

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