While the company continues to seek captive coal supplies, it is also optimising the cost of production through use of linkage coal and by curtailing production. Aluminium output at 98,000 tonnes was down two per cent sequentially and six per cent year-on-year owing to production cuts, in the wake of weakness in the prices. While aluminium production consumes more power, prices of the metal on the London Metal Exchange (LME) remain weak, leading to low profitability. The strategy so far has been successful. Thus, power and fuel costs as a percentage of sales during the March quarter had declined to 27 per cent versus 35 per cent in the December 2012 quarter. The aluminium segment also reported a profit at the EBIT (earnings before interest and tax) level for the first time after seven quarters of losses.
Nalco has also been pushing up merchant sales of alumina to drive revenues. The bauxite mining issues, on the back of delays in the licence renewal, had been sorted in December. Alumina output at 306,000 tonnes in the March quarter had increased substantially compared to the 220,000 tonnes produced in the December 2012 quarter. On a year-on-year basis, alumina production was up 11.7 per cent. Consequently, the company was able to beat consensus estimates on profitability.
The strategy of cutting aluminium production and optimising costs is working but it remains to be seen how much it will help in the coming days. Aluminium prices on the LME have declined further to $1,800-1,900 a tonne from an average of a little over $2,000 in the March quarter.
A majority of the analysts in the past month have given ratings of 'Neutral' to 'Hold'. The one-year consensus target price, from Bloomberg data, is Rs 40.