NALCO - lowest cost producer of alumina and bauxite

Here are the EBIT margins for aluminum division of Hindalco. In top of cycles, it can go above 20% but this will not go on for a long time. I guess peak cyclical margins are 12-15%.

For NALCO peak EBIT margins seem to be ~12%. We have to keep in mind that NALCO is not the lowest cost producer in aluminum, its HINDALCO. NALCO is competitive in alumina and bauxite (global leader). All data taken from screener (@ayushmit its okay to post this?)


Thanks for sharing this. A couple of observations

  1. Hindalco does not provide exact margins for its Aluminum sales. The Aluminum business section shows the combined sales of Utkal Alumina + Aluminum + Aluminum VAP. So I think, we cannot exactly compare the margins to NALCO. However, this is a good enough guesstimate.

  2. This also means that we should be looking at NALCO as an Alumina producer whose bottom line will be dented due to the production of Aluminum during down cycles. The OPM for Aluminum is typically -4% to -6% during the down cycles. The interesting thing to note here is that in the last decade, FY-20 witnessed the lowest Alumina margins of 13%! This is highly unusual considering the avg Alumina margins hover in the range of 18 - 22 %.

A quick look at US Alumina Price History shows that at current levels of 275 USD per tonne, we have reached a deep bottom of the Alumina (and Aluminum cycle). How far will it go further? Only time will tell



Just to add, these are alumina 1-month forward contract prices traded on LME. Prices have gone down quite a bit, lets see if and when prices recover.

Hi @harsh.beria93 - its totally ok to share extracts.
In ref to Nalco, I feel the blended margins are not bad for the company. They do make good money by exporting aluminia. I don’t know if Nalco is the lowest cost producer but several reports, credit rating etc say that its one of the lowest cost producer. The numbers were badly impacted in recent quarters due to 1. lower prices 2. issues in coal block impacting their power cost. There used to be articles about additional coal blocks etc which will help the company reduce cost further and also go for an expansion after a long time.
Based on my interaction with some industry people, it is believed that Nalco trades at substantial discount to replacement value and the biggest comfort is that the company is debt free.

Disc: Invested in family accounts and client accounts.


Management updates (CNBC interview)

  • Currently operating at ~90%
  • Fear increased in the labor force (specially in Maharashtra, Chennai regions)
  • Global production has increased, it will be surplus conditions
  • Still debt free
  • Full year CAPEX guidance: 1000 cr., 1st quarter CAPEX was >90 cr. spent
  • Alumina prices: $260
  • Aluminum prices: $1650 (prices increased by $40 overnight)

Very nice work @harsh.beria93 on the valuation framework for Nalco and multiple ways of looking at the company. I have been pursuing few companies in the commodity space as a basket and I feel that some of them are very attractive on valuations. Some of these cos seem to be at multiyear low and at substantial discount to replacement cost and BV. For a patient investor for next 2-3 year. For eg - in Nalco, like you mentioned, the stock is at multi-year low from multiple valuations perspectives - like Price to Sales, Price to BV, Div yield etc. From my side I did a very rudimentary analysis of the long term chart of the company and one can observe that the price is at kind of 15 year low despite the company being much bigger in size. The good thing with Nalco is that they are debt free and have a good dividend track record.

Interestingly the international aluminium prices have moved up to pre-covid levels and are up almost 20% from lows:

The recent performance of the company has been really poor in recent quarters as they had some issues in procurement of coal and power (biggest cost) in recent times but the same seems to have been resolved in recent months. They also got mining lease for a coal block recently which is expected to bring substantial saving in a couple of quarters- NALCO Gets Mining Lease For Utkal-D Coal Block
There have been articles about some major capex lined up and possibility of substantial cost savings.
There was a good detailed research report by B&K securities on the company recently. One may look for that to understand more.

Negatives - 1. PSU 2. Some of these are in-efficient - one can see the same as employee costs are very high 3. Company hasn’t grown much in terms of volumes over the years

Disc: Invested in family accounts and PMS.


Just wanted to ask is Maan Aluminium is also the same peers?

Another data point is that of alumina whose prices have also gone to almost pre-covid levels (LME 1 month forward prices)



Aluminum margins for Hindalco was ~19% this quarter, demand for the aluminum division of Hindalco is at 85% pre-COVID level. Demand is mostly coming back from China, and Chinese aluminum prices have gone beyond LME prices. Average aluminum prices during the last quarter was $1490, its currently $1750. Market is unsure of sustainability of this because the LME price rise has been very sharp. Here are the two videos of Hindalco management interaction (video1, video2)


Global peer Norsk Hydro (largest producer of alumina and bauxite) has temporarily halted production of alumina.

Update: Nice article from BQ


Got this from the net on the temporary halt of alumina production,and%20reducing%20production%20at%20Alunorte.&text=Hydro%20is%20taking%20all%20necessary%20measures%20to%20mitigate%20any%20customer%20impact.
Looks to be for a 2 months period

Its an low risk moderate return type of stock today, The over supply scenario globally expected to last for 1-2 years, bad thing about this recessions was globally central banks bailed out everyone so, demand is gone ( real economy is in pain) but supply has not diminished ( not many mining companies went bankrupt)

but anyways if one expects demand to catch up in 3-5 years you can expected to make 10-15% kind of CAGR in 5 years.

My worry is there are other ways to make these returns ( bond markets - many companies at 10%) but after 3-5 years when you sell will you have the opportunities you have today in the market ? Will you have the companies like Edelweiss , SIB trading at 10-15% YTM in bond markets ( of course risks are there) but we may have markets which discounting all the risks 5 years from now.

In short cyclicals my problem is it’s another headache to time selling and then find our new thing. ( there is additional opportunity cost involved here) .

i want at least 4-5 x from cyclicals today not 2x (in 5 years), realistically we should not expect it to trade Rs 150- 200, i think Rs 60 is a good case scenario as supply side of industry is not affected ( bailed out by central banks).

Thoughts invited.


Results declared today, aluminum division is back into black. Overall reports a small net profit of 13 cr. One weird thing was in the notes to account section containing this. I didn’t find these joint ventures in their previous annual report, so its probably a recent joint venture.


CNBC interview (link)

  • Aluminum prices hovering around $1750; Below $1800, smelter plants are not viable globally; Get a premium pricing of $80-100 over LME prices
  • Last year NALCO’s alumina production was 21 lakh ton; this year trying to reach 20.5 lakh ton (current quarter demand has gone up and Indian demand should reach last year numbers of 36 lakh ton)
  • Utkal-D mine: got forest clearance; start mining operations this year; will add to profitability; Expect saving Rs. 200-300/ton
  • Alumina prices: $260-280 in last quarter, in last tender prices were $300


is anybody aware of the comparative cost of aluminium production for Nalco, Hindalco & Vedanta?

sorry for my ignorance - but can you explain - what all different substances do you include in ‘Commodities’ ? - - metals- Ferrous and Nonferrous… sugar … oil … - is Cement / coffee also included?

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Good set of results from NALCO, aluminium division reported 14.7% YOY growth in sales. Chemicals division de-grew in revenues by 14.5%, however margins were higher resulting in similar PBT compared to last year. Both divisions are in black now. Good cashflow generation leads to slightly higher cash balance (~2090 cr.; increased by ~100cr.).

Dislosure: Invested (position size here)