NALCO Ltd Q3 FY25 concall analysis

Financial Performance Highlights

  • Record-Breaking Results: NALCO reported its highest-ever quarterly and nine-month cumulative turnover, profit after tax (PAT), and EBITDA in Q3 FY25. Standalone PAT for the nine months was Rs. 3,246 crores (up 211% from Rs. 1,044 crores in the prior year), and turnover was Rs. 11,434 crores (up 20% from Rs. 9,506 crores). Q3 PAT was Rs. 1,583 crores (up 224% from Rs. 488 crores in Q3 FY24).
  • Dividend: The company declared a second interim dividend of Rs. 4 per share, following a first interim dividend of Rs. 4 per share, marking the highest-ever dividend in its history.
  • Drivers: Improved sales realization in alumina and metal segments, higher alumina sales volumes, use of captive coal, and reduced raw material costs fueled this performance.

Growth Strategy

NALCO’s growth strategy focuses on capacity expansion, operational efficiency, and diversification into value-added products:

  • Refinery Expansion: The fifth stream alumina refinery expansion (1 million tons per annum) is nearing completion, expected by December 2025, with a CAPEX of Rs. 5,677 crores. This will increase alumina production to feed the smelter and generate excess for export.
  • Smelter Expansion: A brownfield smelter expansion of 0.5 million tons per annum is planned by FY 2029-30, costing Rs. 17,163 crores, aimed at boosting metal production and enabling downstream value-added products like extrusions.
  • Power Infrastructure: A new 1,200 MW captive power plant (CPP) is proposed in a joint venture (JV) with NTPC, costing Rs. 13,000 crores, to support the smelter expansion. Plans include integrating 20-30% green power to comply with regulatory norms.
  • Bauxite Mines: The Pottangi bauxite mine expansion (3.5 million tons per annum) is expected by FY 2025-26, costing Rs. 1,961 crores, ensuring raw material security for the refinery.
  • Coal Security: NALCO aims to produce 4 million tons of coal annually from Utkal D & E blocks by FY26, reducing reliance on e-auction coal and stabilizing costs with a 50-50 mix of captive and linkage coal.
  • Value-Added Products: The company plans to leverage excess smelter capacity to enter downstream markets, reducing exposure to LME price volatility and enhancing margins.
  • Short-Term Optimization: Efforts to increase hot metal production by 1 lakh tons using existing casting capacity and exploring scrap utilization are underway, with EIL conducting a feasibility study.

Future Outlook

  • Financial Stability: With zero debt and a strong balance sheet (net worth projected at Rs. 17,000-17,500 crores), NALCO plans to fund expansions through a 70-30 debt-equity ratio, ensuring sustainable growth.
  • Production Targets: The refinery is expected to reach 70-80% capacity (700,000-800,000 tons) in FY27 post-commissioning, with full capacity by FY28. Smelter expansion will add 5 lakh tons of metal by FY30, boosting revenue by Rs. 11,000-12,000 crores annually.
  • Sustainability: Emphasis on ESG initiatives, including 98% blast-free mining, 100% ash utilization, rooftop solar (targeting 7 MW addition), and biodiversity conservation, positions NALCO as a responsible industry leader.
  • Global Expansion: Exploration of lithium brine blocks in Argentina via the KABIL JV (with HCL and MECL) is progressing, with a potential mining decision by mid-2027, diversifying NALCO’s portfolio.

Market Situation (Management’s View)

  • Alumina Prices: Prices peaked at $800/ton due to supply disruptions in Australia and Papua New Guinea but corrected to $530/ton as supply normalized. Management expects prices to stabilize between $450-$500/ton by end-2025, with a marginal global surplus anticipated.
  • Aluminium Market: A small deficit in 2024 is expected to turn into a surplus by 2025, influenced by U.S. tariffs (25%) and potential smelter closures. Domestic demand in India, driven by infrastructure, transportation, and electrical sectors, is projected to grow from 4.9 million tons (2023-24) to 8.3 million tons by 2030.
  • Commodity Volatility: NALCO’s exposure to LME cycles is mitigated by strategic sales (spot vs. term contracts) and cost optimization via captive resources.

Detailed Q&A (Minimum 10 Questions)

  1. Amit Dixit (ICICI Securities): What is the total CAPEX committed for the projects, and what’s the expected outflow over the next 3-4 years?
    • Answer (Bijendra Pratap & Ramesh Chandra Joshi): This year’s CAPEX is Rs. 2,000 crores, with Rs. 1,500 crores expected to be spent. Next year’s plan is also Rs. 2,000 crores. Major projects include the fifth stream refinery (Rs. 5,677 crores), Pottangi mines (Rs. 1,961 crores), smelter expansion (Rs. 17,163 crores), and a JV CPP with NTPC (Rs. 13,000 crores). The refinery and mines will conclude in the next year, while smelter and CPP spending will ramp up post-FY26.
  2. Amit Dixit: What’s the current environmental clearance (EC) limit for coal blocks, and what coal security is targeted for the new plant?
    • Answer (Bijendra Pratap): Coal requirement is 7 million tons annually. Utkal D & E blocks (4 million tons total) will produce 3 million tons this year and 4 million tons next year, eliminating e-auction coal reliance. A 20% EC increase (0.8 million tons) is possible post-4 million tons achievement. For the new smelter, coal needs will be met via the JV CPP.
  3. Somaiah: How does alumina pricing work (M-1, M-2, spot), and which export markets are targeted?
    • Answer (Bijendra Pratap & Ramesh Chandra Joshi): Alumina prices averaged $641/ton in Q3 and $562/ton for nine months. Pricing is tactical (spot or term, often M-1/M-2 based), favoring spot this year due to rising prices. Export markets weren’t detailed, but Vishakhapatnam port facilities support global shipments. Spot prices dropped from $800 to $530/ton after supply normalization.
  4. Somaiah: Will the new refinery’s cost and margin profile differ from the existing one?
    • Answer (Bijendra Pratap): Costs will be similar to the existing refinery (~$240-$250/ton) as bauxite comes from nearby Pottangi mines with no significant transport cost difference. New technology may save 6-7 kg caustic soda per ton, slightly reducing costs.
  5. Divya Agrawal: What’s the current scenario for alumina and bauxite pricing? Will the price gap persist?
    • Answer (Bijendra Pratap): Alumina prices ($530/ton) depend on demand-supply, expected to drop to $450-$500/ton with surplus production. Bauxite costs (~Rs. 1,000/ton) remain stable due to mining economics. The gap may narrow if smelters close, reducing alumina demand.
  6. Sumangal (Kotak Securities): How will employee costs trend over the next 1-2 years, and what’s the retirement outlook?
    • Answer (Ramesh Chandra Joshi): Employee costs will stay at Rs. 2,000-2,200 crores annually, with a Rs. 150 crore drop this year due to a one-time provision reversal. About 200 employees will retire over the next two years (40/year for five years).
  7. Sumangal: What’s the coal sourcing mix for nine months, and how will it evolve next year?
    • Answer (Ramesh Chandra Joshi & Bijendra Pratap): Nine-month mix: 49% linkage, 47% captive, 4% e-auction. Next year, 4 million tons captive coal will maintain a 50-50 linkage-captive mix for process stability. Captive coal saves Rs. 400/ton vs. linkage.
  8. Sumangal: What alumina sales volumes are expected in Q4 and FY26 without the new refinery?
    • Answer (Bijendra Pratap): Current capacity is 2.1 million tons; 1 million tons feed the smelter, leaving 1.1 million tons for export/domestic sales. Q4 sales are projected at 400,000 tons, with a similar run rate in FY26 pre-expansion.
  9. Pranay Khandelwal: Why is depreciation higher this quarter, and what’s the CPP JV structure with NTPC?
    • Answer (Ramesh Chandra Joshi & Bijendra Pratap): Depreciation rose due to a Rs. 106 crore impairment of a Rajasthan wind plant without a PPA. The 1,200 MW CPP (Rs. 13,000 crores) will be coal-based, with 20-30% green power in the JV with NTPC, details pending negotiation.
  10. Rajesh Malinda (B&K Securities): What’s the current cost of production for alumina and aluminium, and will Pottangi mines reduce it?
    • Answer (Ramesh Chandra Joshi & Bijendra Pratap): Alumina costs Rs. 21,000-22,000/ton (~$240-$250), and aluminium costs Rs. 1,60,000-1,65,000/ton, including depreciation. Pottangi may slightly lower bauxite use, and new tech saves Rs. 500-700/ton on caustic soda, offset by depreciation.
  11. Ajit Darda: What’s the expected return from the Rs. 30,000 crore smelter and CPP investment?
    • Answer (Bijendra Pratap & Srimanta Panda): The smelter will add 5 lakh tons, generating Rs. 11,000-12,000 crores in revenue. Downstream products will improve margins. Detailed IRR projections await updated DPR with new tech and coal plans.
  12. Aditya (Axis Securities): What sales volumes are expected from the refinery expansion in FY27?
    • Answer (Bijendra Pratap): Post-commissioning by December 2025, FY27 sales are targeted at 700,000-800,000 tons (60-70% of 1 million tons capacity), reaching full capacity thereafter.

These responses reflect NALCO’s strategic focus on expansion, cost efficiency, and market resilience, with management optimistic about leveraging India’s growth and stabilizing global commodity cycles.

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