Nalco hits a home run, high-grade coal fuels it

At the Citi India Investor Conference, Nalco makes out a case for higher visibility. Going by the statistics reeled off, it looks to be well within reach.

When it comes to costs, National Aluminium Company (Nalco) has a definite advantage over its rivals. The list looks long. It’s a low-cost alumina producer, enjoys benefits of superior bauxite quality, low-cost captive power, railway wagons that are its own and captive port facilities.

Prior to the coal hike, the average cost of alumina was $220 per tonne, and $1,850 per tonne for aluminium. The coal price hike means the cost of production will jack up by $80-90/tonne. However, Nalco believes that the increase can be partly offset by a likely improvement in coal consumption, higher alumina volumes and a lower proportion of imported coal.

Nalco has been allotted a coal block with 70 mt of reserves, which it thinks can produce around 2 mtpa by 2012-13. The alumina capacity is picking up steam as the company is trying to raise it from 1.6 million tonnes per annum (mtpa) to 2.1 mtpa. The entire exercise is expected to be wrapped up in FY12. This may further go up to 2.28 mtpa via debottlenecking by March 2012 with a capex of Rs 500 crore. Nalco has plans to increase its alumina capacity by another 1 million tonne by 2015 at a capex of Rs 3,000 crore.

The company is lining up greenfield expansion projects, which include a 0.5-mtpa smelter with a 1,250-mw power plant in Indonesia, a 0.5 mtpa smelter for Odisha/Chhattisgarh and a 1.4-mtpa bauxite and alumina refinery in Andhra Pradesh. The Indonesian smelter will source alumina from the Andhra Pradesh refinery and the Odisha smelter will use Nalco’s surplus alumina.

Nalco expects its fuel efficiency to improve in FY12 compared to FY11 on account of better quality coal being made available by Coal India. Average fuel consumption in FY11 was 0.9 kg/kwh of power and Nalco expects this to slip 10-12% in FY11. The company is looking at aluminium prices at around $2,400-2,700/tonne through 2011. It’s not particularly worried about the large inventory locked up in financial deals.

The company has a strong balance sheet with a cash balance of Rs 5,100 crore as of March 2011. All expansions have been funded through internal accruals as Nalco has zero debt. The FY11 capex at Rs 650 crore is likely to take a sharp hike at Rs 1,100 crore in FY12. As for the medium-term domestic expansion plans, Nalco has no plans to raise debt.