Shares of National Aluminium Company (NALCO) surged by 4% to reach a record high of ₹218.72 on October 1, driven by an upgrade from Kotak Institutional Equities (KIE), which has now rated the stock as 'add.' This rating reflects an attractive risk-reward proposition for investors looking to invest in stocks.
Alongside the rating upgrade, KIE also increased its price target for NALCO by an impressive 58% to ₹235, suggesting a potential upside of 12% from the stock's current level. As of 11:30 AM, NALCO shares were trading at ₹216 on the National Stock Exchange (NSE). This positive movement indicates strong investor confidence and underscores the firm's optimistic outlook.
KIE's assessment positions NALCO to capitalise on the ongoing supply tightness in the alumina market, largely due to its net long position. This advantageous stance is expected to provide a tailwind for aluminium prices, further enhancing the company's performance. The brokerage firm anticipates that while increased production in China—thanks to restarts in Yunnan amid weak global demand—will help to alleviate the aluminium deficit in the short term, the market will likely remain structurally deficient in the medium term.
Kotak's bullish outlook is founded on the belief that China's aluminium production will approach its capacity limit of 45.5 million tonnes per annum (mtpa). Currently, it operates at a utilisation rate of 95%. With steady demand growth anticipated from the energy transition, there is a strong likelihood that NALCO will continue to thrive. To facilitate medium-term expansions, the market will need to see incentive pricing beyond current cost pressures, a situation that appears favourable for NALCO.
Moreover, the commissioning of captive coal mines has significantly lowered NALCO's operational costs in FY24. KIE believes that further ramp-up in these operations will keep costs on a downward trajectory, which is essential for maintaining profitability. This strategic move aligns with broader industry trends and positions NALCO advantageously within the market.
Taking into account these growth factors, KIE has revised its EBITDA forecasts for NALCO, raising projections by 8% for FY25, 11% for FY26, and a substantial 17% for FY27. These adjustments are primarily driven by changes in commodity price assumptions, which reflect the dynamic nature of the market. Additionally, KIE has increased the valuation multiple assigned to NALCO, now pegging it at 7 times EV/EBITDA, up from the previous multiple of 5.5 times. This adjustment signals the company's entry into a volume growth phase starting in FY27, further encouraging investors to consider NALCO as a solid investment opportunity.
In summary, NALCO's recent performance and the optimistic forecast provided by Kotak Institutional Equities underscore its potential as a strong player in the market. For those looking to invest in stocks, NALCO represents a compelling opportunity driven by favourable market conditions and strategic growth initiatives. As the company continues to adapt to the evolving landscape, investors may find attractive prospects in its stock for both short-term gains and long-term growth.
For android only