Antique says 'Buy' again on Nalco; check key drivers behind bullish call

Analysts at Antique Stock Broking remain bullish on National Aluminium Company (Nalco) and have retained their Buy rating, citing firm aluminum prices and additional alumina volumes as key drivers for topline growth. Cost efficiencies from lower bauxite mining expenses, captive coal, softer caustic soda prices, and rationalised employee costs are expected to support margins, they said. 

“We like Nalco’s growth prospects, including its initiative to explore critical minerals, its integrated operations, and net cash position,” wrote Pallav Agarwal and Dhruvesh Kanakia of Antique in a research note.  The analysts have set a target price of ₹420, based on a target multiple of 6x FY28E EV/Ebitda.

 

Domestic aluminum demand to support growth

Antique expects Nalco to benefit from the domestic aluminum market, projected to grow at a CAGR of 7.2 per cent through 2030, supported by the government’s strong push in power infrastructure and increasing adoption by automobile manufacturers. Global supply dynamics are also favorable: China’s 45 mtpa aluminum production cap and smelter disruptions in the Middle East, which account for 8–9 per cent of global aluminum output, are expected to support aluminum prices. 

“New aluminum capacity expected in Indonesia in the medium term may cap price upside but should aid a recovery in alumina prices from current subdued levels. An additional 1 mtpa of alumina volume, captive coal mining, and reduction in employee costs will support profits,” the analysts noted.  READ | JPMorgan bullish on port sector; initiates 'OW' on Adani Ports, JSW Infra

Aluminum and alumina price trends

The 4QFY26TD average LME spot aluminum price stood at $3,115 per ton, up 10.1 per cent QoQ and 18.6 per cent Y-o-Y. In contrast, global alumina futures remain soft due to new capacity in Indonesia, currently around 9.2 per cent of the spot LME aluminum price—below the long-term average of 16.1 per cent. 

M/s Dilip Buildcon has been awarded the contract as Mining Development Operator (MDO) for Pottangi mines, including the overland conveyor corridor, at mining charges significantly lower than the existing rates at Panchpatmali mines. Antique expects this to lower the blended alumina production cost. 

Nalco is likely to commission the mines by May 2026, while the ongoing 5th stream 1 mtpa alumina refinery is expected to be commissioned by June 2026, with volumes of 0.3 mt in FY27 and full capacity utiliSation during FY27. 

Cost efficiencies to boost margins

Antique notes that Nalco’s captive coal mines are now operating at rated capacity (4 mtpa), expected to meet 55–57 per cent of the company’s annual thermal coal requirement. Captive coal is cheaper by ₹200–250 per ton compared to external linkage coal. For the remaining thermal coal requirement, Nalco renewed its five-year fuel supply agreement with Mahanadi Coalfields (5.6 mtpa) from April 2023. 

Employee costs for 9MFY26 declined 8.6 per cent Y-o-Y, and further rationalisation is expected due to scheduled retirements of senior personnel and lower manpower needs for the 5th stream refinery, which, analysts said, will offset the impact of the pay revision slated for January 2027.  READ | Hindalco shares rally 7% as aluminium prices surge on supply concerns

Strong balance sheet, attractive dividend yield

Nalco reported a cash and bank balance of ₹7,590 crore at the end of 2QFY26, around 11 per cent of its current market capitalization, offering a high margin of safety. Capex guidance is ₹1,600 crore for FY26 and ₹1,800–2,000 crore for FY27, with the new alumina refinery expected to come online by June 2026. 

The company’s 0.5 mtpa aluminum smelter expansion (capex ₹17,000–20,000 crore), additional VAP capacity of 100 ktpa wire rod mill (₹300 crore), and aluminum foil plant (₹60 crore) are expected to be primarily funded from internal accruals. The additional 1 mtpa alumina capacity is projected to contribute to cash flows from FY27 onwards. Nalco declared an interim dividend of ₹8.5 per share for FY26, and Antique expects a sustained dividend yield of 3 per cent during FY27–28. 

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