Nalco hopes to double margin in FY19 on strong demand
Time:Fri, 27 Apr 2018 05:04:36 +0800
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State-owned National Aluminium Company expects its EBITDA margin to nearly double in FY19. According to the CMD, Mr Tapan Kumar Chand, EBITDA margin, which was close to 20 % at the end of Q3 FY18, could improve to 40 % by the end of FY19 backed by the firming up of demand and prices of both alumina and aluminium.
Mr Chand told Business Line on the sidelines of “The People Management Conclave’ organised by the Bengal Chamber of Commerce and Industry here recently that “Prices of alumina and aluminium have been firming up, if this trend is maintained, then we expect our margins to double by the end of FY19.”
Aluminium prices have been on an upswing since August 2017 on the back of global deficit in production. Aluminium prices on the London Metal Exchange are currently ruling around USD 2,250 a tonne.
Prices had increased to USD 2,600-2,700 a tonne over the last two weeks following the US imposing sanctions on Russia’s Rusal - the biggest producer of aluminium after China. However, it softened later with the US giving Rusal more time to comply with sanctions.
According to Mr Jayanta Roy, Senior Vice-President, ICRA, the US sanction on Rusal notwithstanding, prices have been on the rise following a deficit in the global aluminium market due to capacity cutbacks in China.
Mr Roy said that “Despite the recent relaxation on Rusal, the deficit in global aluminium industry is likely to give a cushion to prices.”
Prices of alumina, the semi-processed material used to make aluminium, have also been on the rise, touching a record high of USD 718 a tonne compared to USD 300-310 a tonne in the same period last year.
According to Chand, alumina prices could stabilise around USD 600 a tonne. Every USD 20 a tonne increase in price of alumina and USD 40 a tonne rise in price of aluminium give Nalco an additional EBITDA of INR 290 crore, he said.
A pick-up in demand following a growth in construction, infrastructure and automobile sectors will also aid in shoring up the company’s margins.
Mr Roy said that Nalco, being a vertically integrated player with a captive bauxite mine, alumina refinery and a captive power plant, will stand to benefit from the improved demand and better prices.
Mr Roy said that “Nalco’s profitability and overall cash flows are likely to improve significantly this year if the pricing environment remains as expected.”
