National Aluminium (CITI)

Downgrade to Sell: Persisting Oversupply; High Inventories

* Target price cut — We are cutting our target price to Rs124 (from Rs230) as
we cut EPS 29-51% for FY09-11E on lower LME price forecasts. We continue to
value Nalco at 8x P/E, the lower end of its six-year trading band, given our
cautious outlook on aluminium and recent pressure to alumina prices. At our
TP, Nalco would trade at 2.2x EV/EBITDA. Over the past three months, the
stock has outperformed the Sensex by ~18%. Downgrade to Sell (3M).

* Change in aluminium outlook — Though aluminium prices have cut deep into
the cost curve, persisting oversupply and high inventories (2.8mt) leave little
room for prices recovering before 2010. Although Chinese smelters (a third of
global production) are at the top end of the cost curve, shutdowns have been
stalled due to a cut in export taxes and power subsidies by provincial bodies.

To see full report: NATALU