>NALCO (BNP PARIBAS)

No surprises here; Maintain REDUCE

* Demand weakness leads to inventory pile up
We estimate that aluminium (Al) inventory level at Nalco has increased
about 200%, increasing from seven days to about twenty days as at the
end of 3QFY09. We further estimate that inventory levels will rise to
nearly a month’s production of Al by the end of 4QFY09. We expect
sales offtake will continue to be poor going into 4QFY09. Also as Nalco
is a public sector undertaking (PSU), we believe that it will not curtail its
production immediately, thereby adding to inventory.

* Lower power and input costs to show up from 4QFY09
We believe that Nalco stands to benefit from lower power and raw
material costs beginning 4QFY09 due to a sharp decline in commodity
prices. Electricity generation costs will decline by about 15% as Nalco
has stopped purchasing expensive imported coal. Overall, we believe
that COP for alumina will trend down by about 18% and that for
aluminium by 9% over the next 6 months.

To see full report : NALCO