NALCO – Rising profitability expected to continue in coming

quarters
National Aluminium Company Limited (NALCO) is a Navratna Central Public Sector
Enterprise (CPSE) under the Ministry of Mines, Government of India. The Company
has integrated and diversified operations in mining, metal and power.

NALCO operates captive high-quality bauxite mines, which meet 100% of its alumina
requirement for manufacturing aluminum. It also operates 1,200 MW coal-based
captive power plants, which are sufficient for its entire aluminum smelting capacity.
For feeding coal, it has a fuel supply agreement with Mahanadi Coalfield Limited for
around 85% of its requirement. This integration confers significant cost advantages,
making NALCO one of the few low-cost producers of alumina across the world.

The company has witnessed rising profitability in the last quarter with a YoY jump of
84% in Q4FY24. The demand for Aluminium is expected to rise in products like EVs
where aluminum is used for battery cases as well as body construction. Also
supported by steady global prices, the next few quarters are also expected to have
higher profitability.

Going forward, the factor that will aid revenues and profits is the focus of the
company on the early completion of the 5th stream refinery project and the
development of the Pottangi Bauxite mines and the Utkal D & E coal blocks in
Odisha. Another project that would add to the topline in coming quarters is the
Khanij Bidesh India Limited (KABIL) project, a joint venture between NALCO,
Hindustan Copper and Mineral Exploration, signing an agreement with Argentina's
CAMYEN SE to explore and develop five lithium mines which will enhance the
company’s lithium sourcing capabilities.

NALCO released an update on its performance on completion of FY24. In this

update, the company stated that it has made its highest-ever metal sales of 4,70,108
metric tonne during FY24. The excavation of bauxite reached a record high of
7,600,230 metric tonne during FY24.

NALCO CMD Sridhar Patra said, "Major milestones have been achieved by the
company by way of backward integration and securitisation of raw materials and
energy in the past four years on account of the dedication and hard work of the
employees and cooperation received from various stakeholders."
The company's alumina refinery has produced 21,24,000 metric tonnes of alumina
hydrate, while the captive power plant generated a gross 7,193.62 million units of
power during the year. During the last quarter of FY24, it also developed and
operationalised the Utkal D coal block and produced 2 million tonnes of coal, which
is the peak-rated capacity of the mine.

Western sanctions targeting Russian metals have put pressure on the availability of
aluminum. On 12th April, the US and the UK jointly imposed a ban on new
shipments of Russian aluminum to the London Metal Exchange (LME), restricting the
metal's supply at one of the world's key trading platforms. The latest sanctions
package is intended to hit Russia's export revenue from sectors that account for
5.5% of global aluminum supply. Moreover, the supply outlook was further impacted
by concerns that Western buyers might avoid purchasing Russian metals outside
LME contracts due to the risk of additional restrictions in the future.

In late March, the Aluminium Corporation of China (Chalco), the world's largest
aluminum producer, raised concerns about the "relatively high" risks linked to bauxite
supplies from Guinea, pointing out that China's growing dependency on a single
source for this critical raw material could pose a significant risk. In the previous year,
Guinea was responsible for 70 percent of China's bauxite imports, which are
essential for aluminum production.

Conclusion:

NALCO closed FY24 with the highest ever production aided by the capacity addition
of its Utkal block. As some of the other projects get operational, the next fiscal year
is likely to see higher production output. The demand for aluminum remains strong
and is growing in the automotive sector with increasing adoption of EVs. The stock is
riding out on a rally in the metals sector and is expected to further test levels of 215
over the next two quarters.
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