Ind-Ra Assigns National Aluminium Company ‘IND AAA’; Outlook Stable
June 2015: India Ratings and Research (Ind-Ra) has assigned National
Aluminium Company Limited (NALCO) a Long-Term Issuer Rating of ‘IND
AAA’. The Outlook is Stable. A full list of rating actions is
at the end of the commentary.
KEY RATING DRIVERS
The ratings reflect NALCO’s integrated operations as well as its negative net debt position. The company owns a 1,200MW power plant and has a fuel supply agreement with Mahanadi Coalfield Limited for around 80% of its coal requirement. It also owns high quality bauxite mines, which lowers the cost of alumina production as well as provides the flexibility to sell alumina when aluminium prices are less remunerative. NALCO’s facilities are located in proximity to raw material sources, leading to savings in freight cost.
In FY14, EBITDA was generated primarily from the sale of alumina due to the fall of aluminium prices in international markets. During 9MFY15, higher premiums (charged over LME prices for immediate delivery) led to NALCO’s EBITDA margin increasing to 22.9% from around 13% during FY13-FY14. Ind-Ra however expects the realisations to moderate, given global oversupply and high inventory levels; thus, the EBITDA margins could decline to 16%-20% during FY16. During 9MFY15, the revenue increased to INR55,815.6m (9MFY14: INR49,426.5m) due to higher sales volume and realisation.
The ratings are supported by NALCO’s strong liquidity. The company had a cash balance of INR33.7bn in form of fixed deposits at FYE14 (FYE13: INR28.96bn, FY12: INR37.48bn) on which it earned interest income of INR3,688.8m (INR3,950.3m, INR4,140.9m). NALCO also has unutilised fund-based bank facilities.
Negative: Large debt-funded projects and/or a significant reduction in the cash balance leading to the gross leverage of above 1x could result in a negative rating action.
NALCO is a Navratna central public sector enterprise under the ministry of Mines, the government of India. Established in 1981, the company manufactures alumina (2.275MTPA) and aluminium (0.46MTPA) and has a 1,200MW captive power plant in Odisha.
- Long-Term Issuer Rating: assigned ‘IND AAA’; Outlook Stable
- INR6,000m fund-based limit: assigned Long-Term ‘IND AAA’; Outlook Stable
INR8,000m non-fund-based limit: assigned Short-Term ‘IND A1+’
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Applicable criteria, ‘Corporate Rating Methodology’, dated 12 September 2012, are available at www.indiaratings.co.in.