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National Aluminum: Prospects 2021-22

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The following analysis is based on data from:

Prices and prospects of National Aluminum Co’s products
Events in 2020-21
The recent company’s buyback program
The company’s 2019-20 Annual Report

SYMBOL: NATIONALUM; PRICE: RS 59.4; FV: RS 5

  1. Prices of National Aluminum Co’s Products

Typically, the aluminum manufacturing goes something like this:

Bauxite is an ore that is mined
Alumina Hydrate is made from Bauxite
Alumina is then made from Alumina Hydrate
Then, Alumina is smelted to make Aluminum and many other products

With that cleared, let’s check the company’s product line:

Bauxite (mostly used in the manufacture of aluminum): Capacity: 68.25 lakh tons per year/ But in 2019-20, the company mined 73 lakh tons. As no revenues were reported from bauxite sales in the year ended March 2020, I’m assuming the company uses bauxite to make alumina. Bulk are the revenues are derived from alumina and aluminum and therefore let’s focus on these two.

National Aluminum Revenue Break-up

ALUMINA

The company manufactured 13.04 lakh MT of alumina (at full capacity) in 2019-20 and sold it for Rs 2,978 crores. That implies a price of Rs 22,843 per MT. About 95% of the alumina produced was exported.

LME Alumina 1 Month Contract

Well, the prices of alumina zoomed during the year helping the company to report a stellar show in the QE ended December 2020. The March 2021 quarter will be spectacular as well. However, alumina prices have dipped sharply recently, and the company may report a flat performance in the June 2021 quarter. Note that the fall in price will be offset by a strengthening dollar.

ALUMINUM

In 2019-20, National Aluminum sold 3,95.761 MT of aluminum for Rs 5,292 crores (@ Rs 1,33,717/MT or $1,857/MT). Well, aluminum prices are on a rampage now:

LME Aluminum Cash Rates

Current aluminum cash rates (forward contracts are even higher) are hovering above $2200/MT and therefore it is easy to estimate that National Aluminum will report a minimum 20% jump on account of aluminum sales in the quarters ending March and June 21.

2. Prospects of National Aluminum Co’s Products

Federal Reserve Aluminum Import Price Index

Joe Biden has announced a $1.9 trillion infrastructure spend and has pledged to boost EV output. The U.S. is buying everything connected to aluminum and lapping up global supplies. The US Aluminum Iport Price Index has spiked hard lately, and guesstimates suggest that the price gains are likely to sustain and even rise some more.

Experts suggest that aluminum is all set to replace steel as the metal of choice for making EVs because it is lightweight and yet tough. The advantage is that an EV made with aluminum can go on much longer than one made with steel. Then, there’s news that aluminum-air batteries are superior to lithium batteries. Indian Oil Corporation is already in talks with JV partners to launch such batteries.

The Institute of Foreign Trade (IIFT) has opines that aluminum demand will help India achieve 25% of GDP from manufacturing by 2022. Global construction and aerospace industries are also witnessing an increase in the consumption of aluminum.

3. National Aluminum Co’s Expansion

The company expanded its product range last year by adding cookware sheets, aluminum foils, and high-grade alloy billets to its product range.

In 2021-22, it plans to add and explore more mines for bauxite, increase its alumina smelting capacity, start manufacturing caustic soda in a JV with GACL, and collaborate with Midhani for manufacturing high-end aluminum alloys. It also proposes to explore strategic minerals (read as rare earths) abroad and set up an aluminum park in India.

The company’s just concluded a buyback of 2.9 crore shares @ 57.50 (originally planned for 13 crore shares, but people opted to hold on).

Conclusion

All current data and information about National Aluminum points to a bullish feature.

Disclosure: Invested

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