Nalco - Portfolio Buy

Investors could consider selling their shares in aluminium producer Nalco given the fact that the company's expansion plans do not provide the company's top-line sufficient firepower for increased volume growth over the near-term. With aluminium metal prices expected to remain in a narrow range, top-line expansion will have to come mainly from volumes. Continual pressure on the input cost front too is crimping profit growth. Therefore, the stock's current market price of Rs.75 which is 18 times its FY11 earnings may prove to very hard to justify. Peers with more ambitious expansion plans or better product mix such as Hindalco and Sterlite trade at 13 and 11 times their FY11 earnings. On a enterprise value to operating profit basis, Nalco is at eight times also at a premium to larger global peers such as Alcoa and Norsk Hydro among others.

The year 2010-11 saw net sales and profits rise by 20 and 28 per cent to Rs 6,370 and Rs 1,070 crore respectively as higher global aluminium prices boosted sales. The company's net profits received a significant boost from locking into longer term raw material contracts whenever possible. However this is not an advantage the company is likely to enjoy this year. External factors such as the lacklustre pace of growth in domestic coal supply and the new profit-sharing clause in the Draft Mining Bill are likely to contribute to significantly higher coal prices over the medium-term. Coal is an input to the company's captive power plants which are a third of the cost of producing aluminium. The company's other inputs such as caustic soda, calcined petroleum coke and coal tar pitch have seen their prices rise at a far quicker pace than the six per cent gain registered by aluminium since the start of the year.

Aluminium prices face another headwind in the form of high global inventory. Global inventory stockpiles are estimated at 4.5 million tonnes or 12-15 per cent of the annual consumption. This stockpiled mass of aluminium is expected to keep aluminium prices in check. Further smelter additions and restarts in West Asia, China and developed countries have more than kept pace with the growing demand for aluminium. The company's own expansion plan includes the addition of 25 per cent to the current alumina production capacity and a commensurate increase in bauxite ore production. Given that alumina prices trade at roughly 14-15 per cent of the value of final aluminium, the upside from increased alumina volumes is unlikely to off-set the input cost pressure from running smelters. The company is a zero-debt entity with Rs 3,800 crore of free reserves which gives great scope for buying assets overseas.

Performance

The Company has share split equity share of Rs 10 into two equity shares of Rs 5 each & company approved 1:1 bonus, that is one bonus share for each share held.

The scrip gave negative returns as per the returns chart for the past 1 year.

Time Span	Price	Change	%Change
Today	65.55	-0.20	-0.30
Week	67.20	-1.45	-2.15
Month	62.00	3.75	6.04
Three Months	87.20	-21.45	-24.59
Six Months	107.50	-41.75	-38.83
One Year	102.35	-36.60	-35.75

Our Recommendation :

The scrip offers tremendous value for money.  Wait for steep falls in the coming months to add to your portfolio hold.  Its peers - Hindalco and Sterlite too present investors with great buying opportunity.

Bought to you by

Ingenious Investor
Equity Research Division

Ravina Consulting
Pattamal Plaza
3rd Cross Kamanahalli
BANGALORE 560084

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sowmya@ravinaconsulting.com
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Nalco - Avoid

Nalco:

Though most metal and mineral players are affected by the slowdown in demand and increase in input costs, analysts don't recommend players like the National Aluminium Company (Nalco). The recent 30% price increase by Coal India is going to hit Nalco because it is the primary source of coal for the latter.

The international coal prices have also shot up recently. Another problem is with regard to its alumina expansion plans in Orissa, which is expected to come on track in only in the second quarter of 2011-12. "Since the alumina price is high now, the company is losing this opportunity. On the valuation front too, it is expensive compared with its peers," says Tarang Bhanushali, AVP, research, India Private Clients, IIFL.

Our Recommendation :

The stock has a monthly high / low of Rs.83 and Rs.93

Traders with risk appetite can buy around 83 levels and sell on keeping a strict stop loss of Rs. 79

Bought to you by

Ingenious Investor

Equity Research Division

Ravina Consulting

Pattamal Plaza

3rd Cross Kamanahalli

BANGALORE 560084

For Free Stock Advise + Ideas

sowmya@ravinaconsulting.com

Talk / SMS 08105737966

Read - www.ingeniousinvestor.blogspot.com

Follow us - www.twitter.com/smartinvestor

Market cues and Share Tips 16 Feb 2009

Markets scaled a five-week high on expectations of stimulus measures in the interim Budget and a rate cut from RBI to ‘support’ the economy.

On the Bombay Stock Exchange, the Sensex closed 334 points higher at 9,635 and the Nifty on the National Stock Exchange gained 105 points to close at 2,948 during the week ended. Market breadth improved and sharp moves in many midcap and smallcap stocks reflect wider participation by market players.

While positive cues like fall in inflation to a one-year low and changes in FDI norms ‘boosted’ markets, negatives like weak global cues, weak IIP numbers and revision of GDP projecting slower growth kept the bulls on leash.

Fears over deepening rece-ssion and uncertainty in global equity markets are prompting investors opt for gold and silver. Punters exp-ect gold to cross $1,000 an ounce mark very soon.

Market players caution investors against “unreasonable expectations” regarding the Vote-On-Account. Chartists predict a trading band of 9,200-10,400 for the Sensex and 2,820-3,100 for the Nifty in the week ahead.

The Sensex and the Nifty could face resistance at 9,840 and 2,980, if rise abo-ve these levels, the indices may touch 10,600 and 3,150 levels in the near term.

Be bearish below 9,380 and 2,860 level on the indices on closing basis.

With no major trigger left after interim Budget, markets are likely to move in a broad range of 8,400-11,000 (Sensex) and 2,600-3,200 (Nifty) for next few weeks.

Don’t trade on the basis of tips. In other words, “trade with the trend, not your friend.” Get accurate information. Always demand facts, not opinions.

SATTA GUPSHUP

* Orient Paper and Inds is a diversified company with interests in paper, cement and fans. Its plants are strategically located in stro-nger growth markets of the south and the west. Buy value is Rs 25, trailing twelve month EPS is Rs 10 and the last dividend was 120 per cent. Buy at current levels for a medium-term target of Rs 33.

* Auto component major Bharat Forge is reportedly increasing focus on non-automotive businesses like railways, aerospace, power, marine and construction equipment. With commissioning of new facilities at Baramati and Mundhwa, sources indicate that share of non-automotive business to increase to 30 per cent. Buy in the present correction for portfolio.

* Allcargo Global Logistics is a logistics company operating in seven key areas of logistics. Its third quarter results were better than expectations due to its dive-rsified mix. Buy on declines for strong returns in the medium term.

* Recent coverage by some institutions triggered buying in Hind Dorr and Take Solutions. Chennai-based Take Solutions is a supply chain management and life sciences product company. Hi-nd Dorr is primarily in water infrastructure management with significant EPC business. Buy both the counters on declines for returns in the medium term.

* Onmobile is a pioneer and leader in the Indian VAS market having nearly all telecom operators as its clients. It is reportedly planning to tap international market. Buy on declines for unexpected sharp gains.

F & O

Mirroring the strong bullish undertone in the markets, brisk trading volumes were seen in derivatives segment. Overall open interest shot up to a three-month-high and stock futu-res saw a highest open interest addition since September 2006 reflecting ‘confidence’ of the traders over near-term strength of the rally. However, ‘quick’ unwinding of positions is not ruled out on evidence of negative surprises.

Sector-specific and long-term build-up was seen in cement, auto, fertiliser and metal counters. A modest and short-term build-up was seen in construction, infra and banking stocks.

Stocks that witnessed positive open interest build up are Adlabs, Balrampur Chini, Shree Renuka, Idea, R Comm., Power Grid, PTC, PFC, TV-18, Dish TV, RIL, RPL, LIC Hsg, Nalco and Crompton Greaves.

Inclusion of PowerGrid in MSCI index has triggered renewed buying in the counter. Buy on declines for a target price of Rs 125.

A sharp rally likely in RPL and JP Associates, say punters. The rally in media stocks to continue for some more time, say industry watchers. Stay invested for further gains.

Telecom counters witnessing a renewed buying interest from funds. Buy Idea and RComm. for a target price of Rs 65 and Rs 220 respectively in the near-term.

More sweet returns indicated in sugar counters. Use declines to accumulate. Cement and metal counters are attracting good buying on reports of better dispatches and modest improvement in price trends. Stay invested for further gains.

Though luck plays a great role in speculation, it demands cool judgment, courage, pliability and prudence.

Kutumba Rao is a Hyderabad-based stock market analyst. The views expressed and the recommendations made are those of the author. Readers are strongly recommended to consult their financial advisors before making any financial investments. This newspaper is not liable for investment decisions made on the basis of recommendations in these columns.

Source : deccan.com

Tags : Idea, RComm, RPL, JP Associates, Adlabs, Balrampur Chini, Shree Renuka, Idea, R Comm., Power Grid, PTC, PFC, TV-18, Dish TV, RIL, RPL, LIC Hsg, Nalco, Crompton Greaves.