Nalco: the aluminium price play

: After being hammered down to abysmal levels in October 2008, the Nalco share price has now recorded its 52-week high in the month of December 2009 to touch Rs 408. And this is despite the fact that the company recorded a net profit of Rs 159.49 crore in the September quarter of the current financial year, a 64% fall over Rs 444.46 crore during the same period of the previous year. Similarly, total income also fell by 20% over the same period. Analysts also expect that the company would record a lower net earnings in the current financial year as well. The reason for the optimism is therefore not near term, but actually for the following year. It is then that the excess supply situation would ease and the annual surplus of 1.05 million tonne, the highest seen in the past three years, would more than halve and see prices rise. And when this happens, Nalco will be in a position to make the most of it. The aluminium and alumina capacities will be expanded by 33% to 460 ktpa and 2.1 million tonne per annum in the last quarter of the current financial year. And by global standards, Nalco is extremely cost competitive with its cost of production pegged at $1,400 per tonne as compared to the global average of around $2,000 per tonne. With the expansion falling in line, cost of production is expected to dip to $1,250 a tonne. Meanwhile, the average prices are expected to rise from $1,800 a tonne level in the current year to $2,200 a tonne, say analysts at Enam Securities. Prices for alumina, another critical element in Nalco’s portfolio, will also remain strong and the average realisations are set to rise from 30% in the next financial year to $341 a tonne. With this happening, the EBITDA is expected to grow by 141% in 2010-11 and this is what analysts are looking to trap.