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JP Morgan Downgrades NALCO – Exit

November 16, 2007

JP Morgan has downgraded National Aluminum Company Ltd – NALCO with an underweight rating. NALCO stock price shot up by by almost 42% over the past fortnight. Following the stock price surge, Nalco is now among the most expensive aluminum companies, globally. JP Morgan sets a downward target price of Rs 245 on NALCO by Dec-2008. Macquarie Research has also given an underperform rating on the stock with a target of Rs 270.

NALCO is expected to report an EPS of Rs 26.5 and Rs 22 for FY08 and FY09 respectively. Nalco’s EBITDA margins expected to compress by 1280bps in 08, EPS set to decline by 28% yoy in FY08 and 16% yoy in FY09. The calculations are based on global aluminum price forecasts. Target price implies an EV/EBITDA multiple of 5.8.

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