Top Conviction Ideas : Buy Nalco Ltd for Target Rs. 220 - Axis Securities Ltd
* NALCO is currently undertaking brownfield expansion of its 5 th stream of Alumina Refinery, increasing its capacity by 1 MT from the existing 2.1 MTPA to 3.1 MTPA. The commissioning date for the 5 th stream Alumina refinery of 1 mtpa is kept unchanged at Jun’26 (Mechanical completion by the end of FY26). The Pottangi Bauxite Mine (3.5 mtpa) will also start from Jun’26 to supply Bauxite for the refinery expansion.
* Nalco is targeting operationalising the 3.5 MTPA Pottangi Bauxite mines, synchronising with the Alumina Refinery expansion. Capex for this mine development is Rs 2,200 Cr. The company has received board clearance for an MDO appointment, and it is expected to be operational by Jun’26. The mine has reserves of 120 MnT, which will be sufficient for the next 15-20 years, including the 3.5 MnT bauxite requirement for the 1 MTPA new refinery.
* Captive coal usage to increase to the rated 4 MTPA capacity in FY26 vs. 2.8 MT in FY25. The total Coal requirement for CPP is at 7.2 MTPA, and in FY26, ~4 MT will be from the captive Utkal D-E mines, and the balance will be from the linkage coal from CIL. The difference between CIL and own mined coal cost is ~Rs 300-400/t.
* Valuation & Recommendation: We value the company at 6.0x Mar’27E EBITDA and 0.5x book value of CWIP to arrive at our TP of Rs 220/share
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