Subdued rupee, firm alumina prices to boost Nalco earnings

A subdued rupee and firmer international alumina prices have resulted in a bonanza for state-controlled National Aluminium Company (Nalco).

Since it exports nearly 1.3 million tonnes of alumina each year, it gains from the commodity’s price upswing. Also, for every point's depreciation in the rupee vis-a-vis the dollar, it makes an extra net profit of ~130-140 million a month, translating to up to ~1.6 billion annually.

Strategically, Nalco has stayed close to market dynamics by opting to make all its alumina shipment at the spot price, a departure from the usual practice of long-term contracts with buyers. Says T K Chand, chairman & managing director (CMD): “Due to our timely supplies, backed by efficient logistics and quality positioning of products, Nalco commands a premium of 10 per cent over the index price in spot alumina sales.”

Between August 1 and 15, the global price of alumina rose 9.6 per cent from $530 a tonne, to $581. The forecast is bullish, in the backdrop of tight supplies.

“For every $10 (a tonne) rise in alumina prices, Nalco straightway gains ~910 million in net profit. For instance, when the price jumped by $51 earlier this month, Nalco’s net profit is estimated to have strengthened by ~400 mn. We believe the price would be $520-530 in Q2 (July-September),” Chand said.

Which would mean it continues the stellar financial performance. In the June quarter (Q1), the net profit was nearly ~6.9 bn, driven by strong alumina pricing. Nalco expects Ebitda (earnings before interest, taxes, depreciation and amortisation) in Q2 to improve to 26-27 per cent of net sales, from 15 per cent in Q1.

Brokerage firm Motilal Oswal believes the Ebitda would increase by 71 per cent to ~28.4 bn in 2018-19. “Nalco is likely to benefit from strong alumina prices, led by the closure of (Osla-headquartered) Norsk Hydro’s facility and shutdowns at Chinese refineries. Spot alumina prices are trading above $500 a tonne versus our estimate of $450 for the remainder of FY19 and FY20. Nalco is a key beneficiary of higher alumina prices, given its net long position and advantage of low-cost bauxite,” goes its report.

Nalco’s alumina production in the June quarter rose 11 per cent year-onyear (y-o-y) to 583,000 tonnes, it’s best ever in a three-month period. Sales moved up 24 per cent y-o-y, with average realisation at $562 a tonne.