Nalco hopes to double margin in FY19 on strong demand

State-owned National Aluminium Company (Nalco) expects its EBITDA (earnings before interest, tax, depreciation and amortization) margin to nearly double in FY19.

According to the CMD, Tapan Kumar Chand, EBITDA margin, which was close to 20 per cent at the end of Q3 FY18, could improve to 40 per cent by the end of FY19 backed by the firming up of demand and prices of both alumina and aluminium.

“Prices of alumina and aluminium have been firming up, if this trend is maintained, then we expect our margins to double by the end of FY19,” Chand told BusinessLine on the sidelines of ‘The People Management Conclave’ organised by the Bengal Chamber of Commerce and Industry here recently.

Aluminium prices have been on an upswing since August 2017 on the back of global deficit in production. Aluminium prices on the London Metal Exchange (LME) are currently ruling around $2,250 a tonne (up from $1,900 a tonne in April 2017).

Prices had increased to $2,600-2,700 a tonne over the last two weeks following the US imposing sanctions on Russia’s Rusal - the biggest producer of aluminium after China. However, it softened later with the US giving Rusal more time to comply with sanctions.

According to Jayanta Roy, Senior Vice-President, ICRA, the US sanction on Rusal notwithstanding, prices have been on the rise following a deficit in the global aluminium market due to capacity cutbacks in China.

“Despite the recent relaxation on Rusal, the deficit in global aluminium industry is likely to give a cushion to prices,” he said.

Prices of alumina, the semi-processed material used to make aluminium, have also been on the rise, touching a record high of $718 a tonne compared to $300-310 a tonne in the same period last year.

According to Chand, alumina prices could stabilise around $600 a tonne. Every $20 a tonne increase in price of alumina and $40 a tonne rise in price of aluminium give Nalco an additional EBITDA of ₹290 crore, he said.

A pick-up in demand following a growth in construction, infrastructure and automobile sectors will also aid in shoring up the company’s margins.

Nalco, being a vertically integrated player with a captive bauxite mine, alumina refinery and a captive power plant, will stand to benefit from the improved demand and better prices, Roy said.

“Nalco’s profitability and overall cash flows are likely to improve significantly this year if the pricing environment remains as expected,” he said.

Expansion plans

Talking about the expansion plans, Chand said, the ground-breaking ceremony for the company’s one million tonne alumina stream at its Damanjodi refinery in Odisha is expected to happen soon.

Nalco, which has an existing capacity of 2.27 million tonnes, is investing close to ₹5,500 crore on this expansion.

“We have received all the necessary clearances. We hope to go for the ground-breaking soon. This expansion will shore up our revenues and profits are likely to increase by ₹250 crore,” he said.

The company also hopes to commence mining from its captive Utkal-D and E coal blocks by the first quarter of FY19.

“We currently buy close to 1.2-2 million tonnes of coal through auction. Once we commence our mining, our cost would come down by ₹2,000 a tonne resulting in overall savings of close to ₹400 crore,” he pointed out.

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