Why did NALCO shares rally 5% today? Rising Margins, Capacity Expansion and more

Synopsis: Nalco shares jumped 5% to a record ₹292.75 on strong investor sentiment. The rally is fueled by firm aluminium prices, lower costs, rising margins, and planned capacity expansion signaling future growth.

The shares of the Mid-Cap stock specialising in the integrated production and supply of alumina and aluminium products, have jumped upto 5 percent in the day’s trade. In this article, let’s explore the reason for the rally.

With a market capitalization of Rs. 53,308.24 crores on Monday, the shares of National Aluminium Company Ltd jumped to 5.07 percent, making a high of Rs. 292.75 per share compared to its previous closing price of Rs. 278.60 per share.

What Happened

National Aluminium Company Ltd, engaged in the integrated production and supply of alumina and aluminium products, has been in the spotlight as it rallied 5 percent on Monday, December 22, touching a fresh life high.

Reason for the Rally

Aluminium Market in Deficit Supporting Prices: Nalco expects the aluminium market to stay in a deficit, meaning demand exceeds supply. This shortage tends to keep aluminium prices firm, providing stable revenue for the company, and investors see this as a positive sign for profitability and long-term growth.

Firm Aluminium and Stabilizing Alumina Prices: Aluminium is expected to trade between $2,900–$3,000 per tonne, while alumina has likely bottomed around $330 per tonne. Stable or improving commodity prices give confidence in predictable cash flows, reducing uncertainty and boosting investor sentiment.

Lower Input Costs from Captive Coal Production: With captive coal production ramping up, Nalco can reduce its dependence on external coal purchases. This lowers production costs, improving operational efficiency and margin potential, which attracts investors looking for cost-efficient growth.

Declining Employee Expenses: Employee expenses, currently 15–16% of sales, are expected to fall to 10–12%. This reduction increases net profitability without relying on revenue growth, making the company’s financials more robust and appealing to the market.

Strong Expected Margins: The company forecasts EBITDA margins of 42–45% over the next two quarters. High margins indicate efficient operations and strong profitability, which often drives stock price rallies as investors anticipate sustained earnings growth.

Capacity expansion and growth prospects: Nalco’s planned Rs. 1,700 crore annual capex and the upcoming 1 million tonne alumina refinery by mid-2026 signal future growth. Expansion plans suggest higher production capacity and revenue potential, fueling optimism among investors about long-term gains.

Financials & Others

The company’s revenue rose by 7.27 percent from Rs. 4,001 crores to Rs. 4,292 crores in Q2FY25-26. Meanwhile, Net profit rose from Rs. 1,046 crores to Rs. 1,430 crores in the same period.

The company demonstrates strong financial performance with a ROCE of 44% and a ROE of 32.7%, indicating efficient use of capital and shareholder funds. It carries no debt, reflecting a very conservative capital structure. The stock appears undervalued with a P/E ratio of 8.67 compared to the industry average of 20.8, and a PEG ratio of 0.41, suggesting potential for growth relative to earnings.

It offers a solid dividend yield of 3.63%, providing steady returns to investors and the has delivered remarkable profit growth of 108% CAGR over the past five years, reflecting strong performance. It maintains a healthy dividend payout of 46.8%, striking a good balance between growth and rewarding shareholders.

National Aluminium Company Ltd (NALCO) was established in 1981. It is a large integrated producer in the aluminium value chain, covering bauxite mining, alumina refining, aluminum smelting, and power generation, with its main operations in Odisha (Damanjodi & Angul) and a vision for global presence, known for self-sufficiency and high-quality production. 

The company is a Navratna CPSE, with 51.28% government ownership, and operates an integrated Bauxite-Alumina-Aluminium-Power-Coal complex. It produces bauxite (7.5 mtpa), alumina (2.1 mtpa), and aluminium (0.46 mtpa) along with power (1200 MW + 198 MW wind) and coal handling (4 mtpa). With dedicated port and storage facilities, it is a global leader in low-cost bauxite and alumina production.

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