Nalco eyes net profit from aluminium biz by fiscal end, leans on LME prices

Nalco has turned Ebitda positive in aluminium vertical in first two-quarters of this fiscal; last year it had posted Rs two billion loss

National Aluminium Company (Nalco) is clawing towards profitability in aluminium business. Historically, alumina sales have been propelling the company's profits, with 46 per cent share in gross turnover and contributing nearly 80 per cent to its Ebitda (earnings before interest, taxes, depreciation and amortisation).

“We expect to turn profits from aluminium segment by the end of this fiscal if the current market trends continue. Assuming an average LME (London Metal Exchange) of $2,100 per tonne, including premium and no significant cost-push factor, we should be able to make profits. Already, Nalco has turned Ebitda positive in aluminium vertical in the first two-quarters of this fiscal. This is opposed to our performance in last fiscal when Nalco posted Rs two billion loss from aluminium operations,” said T K Chand, chairman & managing director (CMD), Nalco.

As per Nalco's forecasts, LME prices would stay range bound in $2,050-2,100 per tonne. Prices of key ingredients in alumina refining like caustic soda and carbon are firm but are expected to remain under control. 

“When I took over, aluminium sector was incurring continuous losses. We have made sustained efforts to bring it into the positive territory,” he said.

To ramp up profitability, Nalco is making concerted efforts to prune cost of its metal production. The central PSE is going for brownfield expansion of its smelter at Angul, adding 0.5 million tonnes (mt) in annual capacity. The expanded capacity to be achieved with minimal incremental manpower is expected to be commissioned in three years. Nalco is also hopeful of commencing mining from its captive coal block later in this fiscal.

Chand believes, the two steps would be a game changer. “After our brownfield expansion is through, it will save our wage costs by seven to eight per cent. The smelter expansion coupled with captive coal mining will make Nalco's aluminium business extremely competitive,” he said.

Though Nalco ranks among the lowest cost producers of alumina in the world, mounting metal production costs has nettled the company. A report by brokerage firm Motilal Oswal shows Nalco's cost of aluminium production in FY18, rose 10 per cent to $2187 per tonne despite an operating leverage. “Variable cost and wage hike were the key drivers, which offset marginal gains in manufacturing fixed expenses. Apart from the inflation in alumina CoP (cost of production), carbon, power and wage hike were the key drivers,” the report noted.

Nalco's revenue from the sale of metal and alumina moved up 26 per cent year-on-year (YoY) in 2017-18 to Rs 93.7 billion driven by 21 per cent spurt in LME prices and partially offset by four per cent appreciation in Indian currency. The company's aluminium sales volume expanded 11 per cent whilst alumina sales was up three per cent.

The aluminium major reported Rs 13.42 billion net profit in last fiscal, buoyed by firm alumina prices. Nalco has sustained the momentum through this fiscal, logging Rs 6.87 billion in net profit during April-June quarter. The company aims at Rs 120 billion turnover in this financial year.