Public sector aluminium firm National Aluminium Company (Nalco) is expected to touch the breakeven point in its aluminium operations in the Q4 of FY18, analysts predict.
Over the years, alumina sales have been driving Nalco’s bottom line. Aluminium has been the sore point since high power costs have failed to rein in the metal production costs.
“In Q4 of FY18, Nalco would be at breakeven point in the aluminium segment. The current prices of alumina are not sustainable in the long term but given the supply disruptions in aluminium, LME (London Metal Exchange) prices are likely to stay robust”, said an analyst.
Nalco’s operating margins are expected to stay strong with the recent uptick in alumina and aluminium prices. The company also believes that its aluminium segment would remain EBITDA (earnings before interest, taxes, depreciation and amortisation) would stay positive due to the sustainability of current prices.
More, Nalco plans to start mining from its captive coal blocks from this fiscal. Coal sourced from its Utkal D coal block would contain aluminium making cost by around $500 per tonne. That would make Nalco an extremely cost effective aluminium producer given that its current metal manufacturing cost is still hovering around $1900 per tonne. On alumina, however, Nalco is amongst the most cost effective producers anywhere in the world.
Nalco has been harvesting the swift gains in global alumina prices. At a recent shipment, the company bagged its all-time high price of $718 per tonne. Nalco’s CMD T K Chand believes alumina prices to hover in the band of $600-650 per tonne and with such prices, the company can double its quarterly net profit to Rs 1500 crore.
A report by Kotak Securities says Nalco’s EBITDA would see a spike of 50 per cent in Q4 of FY18, helped by higher alumina sales. In every quarter, Nalco does an average of 9-10 alumina shipments with annual sales of 1.2-1.2 million tonnes.
Nalco is poised to be one of the key beneficiaries of the recent uptick in the alumina prices and is better placed compared to its peers owing to the higher sales of alumina, as over 75 per cent of its EBITDA comes from the alumina segment. Nalco’s earning has high sensitivity to the change in alumina prices, with every $20 per tonne change in alumina prices, EPS (earnings per share) impact will be six per cent. Nalco’s surplus alumina production will allow the company to sell 1.28 million tonnes of alumina in this fiscal.
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