Nalco – Follow Up Note

Had covered Nalco earlier when the price was Rs 50 at market cap of 9450 cr

Note Link :


Market cap- 17,200 cr

CMP- 93.5

Industry Scenario & Fundamentals

  • Current Price 2,500 USD per ton LME price. Aluminum prices are at 3 yr high.

Last quarter 2,300 USD.

Last year 2,000 USD.

  • Process of Aluminum– 3 tons of bauxite required for 1 ton alumina. 2 tons of alumina for 1 ton of aluminum.  NALCO has own bauxite, captive pricing is around rs 1000 per ton vs imports cost rs 3,000 per ton.

50% of China producers use imported bauxite. 

NALCO 200 USD Cost of Production. China Cost of Production 300 USD Cost Of Production mainly due to bauxite availability by NALCO.

  • Inventory levels are low & Strong demand.
  1. Demand, China consumes 3 mn ton per month. Total production is 39 mn ton.
  2. LME inventory 1mn ton, shot up to 2mn ton first wave (2020). Later shot up to 2.5 mn ton end of 2020, Current inventory at 2021 level 1.3 mn ton.
  • Industry Demand: Packaging & EV DEMAND is good. Aluminum keeps the weight of vehicle light vs steel. Demand will keep increasing gradually.

EV demand in China is too big. CAGR at 40% in past 3 years.

  • Disruption in Pricing- China government has asked players to shift to coastal areas, shift to hydro power to avoid pollution. Aluminum is more 2x carbon emitting than Steel. This shift will create further disruption in pricing.  LME spot is USD 2,500 vs 2,000 last year (2020 low).

Clamp down has happened, China has capped aluminum production at 45mn tons.

China was net importer 1.5 mn ton of aluminum last year.

Global Supply/Demand outlook

NOTE- From a surplus of 2.8 mn ton, Global demand/supply has turned into net deficit.

Strong Financials

2019 peak EBIDTA was 2,900 cr odd, NALCO made an Alumina EBIDTA per ton of USD 75 & Aluminum EBIDTA per ton USD 330 (approx.)

The latest quarter ie Q4FY21 EBIDTA per ton in Alumina is at USD 120 & aluminum EBIDTA per ton USD 735 (approx.)

NALCO is a net cash & zero debt company with 2,000 cr cash & cash equivalents on the balance sheet.

Our thesis is, LME spot prices will be around USD 2,500 for the rest of the year.

At peak 2019 EBIDTA also, the company is available at 5x EV/EBIDTA. We strongly believe FY22 EBIDTA can surprise on the upside by at least 50%.


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