Fundamental analysis is the key to any successful investment. National Aluminium Company Limited (NALCO), a Navratna Central Public Sector Enterprise (CPSE) under the Ministry of Mines, is a key player in India’s aluminum industry. Since its incorporation in 1981, NALCO has emerged as one of the largest integrated Bauxite-Alumina-Aluminium-Power complexes in India. With a well-diversified product range, including aluminum ingots, billets, wire rods, and a new aluminum alloy ingot (AL59), the company holds a dominant position in the Indian and Asian aluminum markets.
In recent years, NALCO has undergone significant capacity expansions, improved raw material sourcing strategies, and executed innovative projects to maintain its competitive edge. The company’s business model, which includes both domestic and export revenues, combined with its forward-looking approach, provides a solid foundation for continued growth. In this blog, we will delve into NALCO’s financials, explore its historical performance, and provide price targets based on current trends.
Table of Contents
NALCO’s Fundamental Analysis: A Deep Dive into the Numbers
First, take a glance at the balance sheet dashboard of the company, and let’s understand step-by-step
Sales, Net Profit, and Operating Profit (FY2018 – FY2025)
The company has demonstrated consistent growth in terms of sales, operating profit, and net profit over the years. A key highlight is the robust performance in FY2022, where sales hit a peak of ₹14,257 crores, operating profit skyrocketed to ₹4,550 crores, and net profit surged to ₹2,951 crores. However, both FY2023 and FY2024 saw a slight dip in performance due to global commodity price fluctuations and rising raw material costs.
The projected sales for FY2025 are expected to climb to ₹14,414.12 crores, with net profits estimated at ₹2,179.27 crores, indicating a positive recovery. The consistent growth in sales and the company’s efforts to control costs despite external challenges reflect its strong operational capabilities.
Operating Profit Margins
NALCO’s operating profit margins (OPM) have shown significant fluctuations. The OPM soared to an impressive 32.01% in FY2022, driven by favorable aluminum prices and increased demand. However, it dropped to 16.41% in FY2023 and is predicted to stabilize around 21.75% in FY2025. The reduction in profit margins can largely be attributed to the steep increase in raw material costs, particularly C.P. Coke, C.T. Pitch, and other fuel-related expenses.
Despite these challenges, NALCO has shown resilience in improving margins through better cost control measures and raw material sourcing strategies, such as starting operations at the Utkal-D and Utkal-E coal mines.
Earnings Per Share (EPS)
NALCO’s earnings per share have seen both highs and lows in recent years. After a notable dip to ₹0.73 in FY2020, EPS rebounded to ₹16.07 in FY2022 due to higher profitability. As of FY2024, EPS stands at ₹10.83, with an expected rise to ₹11.87 by FY2025. This growth reflects the company’s ability to generate shareholder value, even in challenging market conditions.
Return on Equity (ROE)
NALCO’s ROE followed a similar pattern, peaking at 23.51% in FY2022, reflecting strong profitability and efficient asset utilization. The company faced a dip in FY2023, with ROE falling to 10.93%. However, projections for FY2025 indicate a recovery, with ROE expected to reach 13.74%. Investors can look forward to consistent long-term returns as the company enhances its asset base and profitability.
Asset and Liability Distribution
NALCO’s total assets are well-distributed, with ₹7,383 crores in fixed assets and ₹6,938 crores in other assets, which provide stability. The company’s capital work in progress (CWIP) stands at ₹4,573 crores, reflecting ongoing expansion projects such as the fifth stream of the alumina refinery and the smelter expansion at Angul. These projects are expected to enhance production capacity further and drive revenue growth in the coming years.
On the liability side, NALCO’s borrowings are relatively low at ₹96 crores, with a strong equity capital base of ₹918 crores. The company’s reserves, amounting to ₹13,470 crores, provide a robust cushion against any financial shocks, ensuring long-term stability.
Potential of NALCO
NALCO’s growth story is rooted in its strategic initiatives and forward-thinking corporate plans. The company is committed to expanding its core business through capacity expansions and backward integration for raw material security. NALCO’s ongoing projects, including the commissioning of the fifth alumina refinery stream and the smelter expansion at Angul, are expected to increase production capacities significantly by FY2025.
Moreover, NALCO’s investments in critical minerals, such as the joint venture with Argentina’s CAMYEN SE for lithium exploration, demonstrate its commitment to diversification and future-proofing its business. With the global demand for aluminum expected to rise, NALCO is well-positioned to capitalize on the market opportunities and sustain its leadership in the industry.
Price Targets for NALCO: Short-Term and Long-Term Outlook
NALCO’s stock is trading at ₹224 as of 01/10/2024 with a P/E ratio of 20.6, which is fairly valued compared to its peers in the aluminum industry. Based on the company’s strong fundamentals and future growth prospects, here are the price targets for both the short and long term:
Short-Term (3 Months) Target: ₹250 – ₹260
In the short term, NALCO is expected to see a minor rally, driven by improving margins, stable global aluminum prices, and its cost control measures. The company’s projected increase in sales and profit margins will likely fuel upward momentum in the stock price.
- Stop Loss: ₹210
Long-Term (12 Months) Target: ₹300 – ₹320
Over the next 12 months, NALCO’s capacity expansions and strategic projects, such as the smelter and alumina refinery expansions, will come online, boosting production and profitability. This, coupled with increasing global aluminum demand, should propel the stock towards the ₹300 – ₹320 range.
- Stop Loss: ₹195
Frequently Asked Questions (FAQs)
What is NALCO’s core business?
How has NALCO performed financially in recent years?
What are the current expansion projects of NALCO?
What are NALCO’s projected EPS and ROE for FY2025?
What are NALCO’s raw material sourcing strategies?
What is the current P/E ratio of NALCO?
Conclusion
NALCO stands out as a key player in the aluminum sector, with a well-rounded growth strategy supported by ongoing expansion projects, raw material security measures, and a diversified product portfolio. Its financial performance, while slightly impacted by external factors in recent years, shows significant potential for recovery and growth in the coming years. For investors looking for a strong player in the commodities sector, NALCO presents an attractive opportunity with both short-term and long-term upside potential.
Check out In-depth Fundamental Analysis of TCS
Check out In-depth Fundamental Analysis of INFOSYS
Check out In-depth Fundamental Analysis of Adani Ports
