Nalco posts extraordinary Q4 results on back of global boom in aluminium

Higher aluminium prices led to 855% rise in net profit in FY21

Odisha-based public sector undertaking (PSU) National Aluminium Company (Nalco) delivered extraordinary results in the fourth quarter of financial year 2020-21 (Q4FY21), riding on the back of the global boom in aluminium. The consolidated results indicated 45 per cent expansion year-on-year (YoY) in operational revenues of Rs 2,821.5 crore, versus Rs 1,935.8 crore a year ago.

PBDIT rose by 216 per cent to Rs 996.8 crore versus Rs 314.9 crore the previous year and PAT rose by 830 per cent to Rs 935.7 crore versus Rs 100.5 crore a year ago. (This was aided by a tax refund of Rs 97 crore in the last quarter). The Q3 performance was also strong with a net profit of Rs 240 crore, up from Rs 107 crore in Q2.

The FY21 performance was excellent. Operational revenues rose 5.7 per cent to Rs 8,955 crore (Rs 8,471.8 crore in FY20), PBDIT was up 53 per cent at Rs 1,928 crore (Rs 761 crore in FY20), PAT rose 855 per cent to Rs 1,299 crore (Rs 136 crore in FY20). This is despite the lockdowns that affected Q1.

The cash-flow statement indicates the company invested in plants, equipment and property after generating around Rs 2,000 crore of free cash from operations. It also made a share buyback. Net of financing and investments, it still had Rs 195 crore in positive cash-flow. The company is nearly debt-free, which gives it a good balance sheet.

At the production level, Nalco achieved record production of bauxite at 73.65 lakh tonnes. It also hit record exports of 192,000 tonnes of aluminium metal in FY21, surpassing the decade-old record of 146,000 tonnes achieved in FY10. It produced 2 million tonnes (MT) of alumina hydrate and 418,000 tonnes of aluminium metal. Aluminium is extensively used in cars, and aircraft, and also in various electrical systems. The cycle for the light metal has been very strong for the past year. Global aluminium prices are near $2,500 per tonne on the LME, which is close to three-year highs achieved in May 2021. Metal prices are the only driver for Nalco’s profit so, it’s a pure cyclical.

Global demand is expected to rise around 8 per cent to 69 MT this year. Russia is imposing a substantial export tax from August-December on aluminium. That could push prices up further. Meanwhile, China is making an attempt to force down prices – it will sell around 50,000 tonnes on open auction in early July. Commodity traders believe the metal will hold at over $2,400 per tonne for at least another year but prices may plateau.

Nalco is among the cheapest producers in the world, with its own bauxite source. Input costs could rise. Nalco has its own captive thermal power capacity but power costs could escalate through the fiscal due to rising energy prices.

The government owns over 51 per cent of the company. The stock has risen by 150 per cent in the last year and the latest results have led to another set of ‘buy’ recommendations. Some analysts are seeing a target of Rs 92-93, which is 16 per cent up from current levels.