Big Bull Portfolio: What should investors do with this Rakesh Jhunjhunwala stock post Q2 earnings?
The stocks of market mavens of Dalal Street are widely tracked by investors. Shares of National Aluminum Co. Ltd (NALCO), a part of Big Bull’s portfolio, have delivered multi-bagger return to its shareholders in the last 12 months.
NALCO posted stellar earnings for the quarter ended September 2021. The company reported a more than sevenfold jump in its net profit at Rs 748 crore for the quarter ended September 2021. Profit in the year-ago period stood at Rs 107 crore. The total income increased to Rs 3,592 crore from Rs 2,375 crore in the year-ago period.
In the past one year, the share price of Nalco jumped from Rs 36.7 to Rs 101.60 mark —- logging around 177 per cent return in this period. With a market capitalisation of more than Rs 18,000 crore, the shares stand higher than 50 day, 100 day and 200 day moving averages but lower than 5 day and 20 day moving averages.
So what should the investors do?
Technical View
“Technically Nalco has formed a “shooting star” candlestick pattern which is a bearish reversal pattern. Now, Rs 127 levels have become a crucial resistance and till those levels are not taken off the short to medium-term trend remains negative. The stock has seen a straight run-up for 6 consecutive quarters and it will be interesting to watch whether it manages to close in positive territory for one more quarter,” Jay Thakkar, VP and head of equity Research at Marwadi Shares and Finance Limited told BusinessToday.In.
He said if it closes below Rs 93 levels on a quarterly basis it will further confirm a reversal. The momentum indicator MACD on the weekly charts has gone into sell mode with a negative divergence which is quite negative in the short term.
“Fundamentally, the stock has come out with one of the best quarterly results in recent times however the price seems to have discounted the same well in advance hence the reaction has not been quite positive. The stock is likely to correct until 89 to 77 levels which will be 38.2 to 50 per cent retracement levels of the entire rise from March 2020 lows,” he noted.
He further added that the immediate resistance on the upside is pegged at Rs 111 and Rs 115 which is 50 and 61.8 per cent retracement of the recent fall from Rs 127 levels. As of now, the risk-reward is not favorable for fresh shorts, hence any bounce up to above-mentioned levels should be utilized as a selling opportunity.
Brokerage View
According to Systematix Institutional Equities, High alumina prices and a continued rise in aluminium prices (at record levels of USD 2,676/t) would drive near-term earnings even as several input prices, especially for caustic soda and auction coal, have surged.
“NALCO trades at 3.7/3.6x FY22/23E EBITDA which is at a significant discount to its 5-6x mid-cycle EBITDA. We are positive about its 1mt brownfield alumina expansion, which would significantly lower its fixed costs and has historically seen a payback of less than 2-3 years supported by cyclical factors,” it said in a report.
“NALCO’s high cash balance has allowed it to invest during down-cycles. We revise our FY22/23E EBITDA estimates by +13%/+11% to Rs 4100 crore/Rs 4000 crore and maintain our ‘BUY’ rating on the stock with a revised target price of Rs 131 (Rs 117 earlier) based on 5x FY23E EV/EBITDA multiple, implying an upside of 28 per cent,” it added.
Big Bull stake
This is a fresh investment by Dalal Street veteran Rakesh Jhunjhunwala, whose name was not there in the list of big shareholders in the previous shareholders’ data.
According to the shareholding pattern for September 2021, Rakesh Jhunjhunwala held a 1.36 per cent stake or 2,50,00,000 shares in the company.
