Why NALCO Share Price is Rising

In the article why metal stocks are rising, we discovered how one big stimulus can alter the entire sentiment of the capital markets.

In fact, Chinese stocks have surged to register their biggest single-day rally since 2008 on stimulus cheer.

This stimulus is positive for some Indian companies because Chinese dumping is expected to slow down and it will be a positive for sectors like metal, chemicals, and many more.

Among metal stocks, National Aluminium (NALCO) has topped the list with over 25% gains in a month or 15% gains within a week.

Today, let's breakdown the reason behind the rally and what lies ahead for the aluminium company.

Why NALCO is Rising

#1 Stimulus Measures from China

Metal stocks are seeing a sharp rise driven by China's recent announcement of economic stimulus measures. Last week on Tuesday, China's central bank revealed plans to inject more liquidity and lower borrowing costs to stimulate its slowing economy.

The People's Bank of China also announced to cut the reserve requirement ratios (RRR) by 50 basis points, which will ease the amount of cash banks need to hold in reserves. This move is seen as a significant boost for global metal demand, as China is the largest consumer of metals.

With China's latest steps to lower interest rates on mortgages and support the property market, demand is expected to increase. This news has had a direct impact on Indian metal stocks, leading to renewed investor confidence.

The People's Bank of China is also expected to reduce its seven-day repo rate to 1.5% and lower the medium-term lending facility rate by around 30 basis points. Although the timeline for these changes is not clear, the market is anticipating positive effects from these policies.

These developments follow the US Federal Reserve's recent rate cut, which gives China more room to ease monetary policy without putting too much pressure on the yuan.

Analysts believe these measures could help stabilise metal demand, supporting metal prices and boosting the share prices of companies like Vedanta, NALCO, and Tata Steel.

#2 Rising Aluminium Prices

The below chart shows the price trend of Aluminium over the past 1 year -

Aluminium (USD/T)

Although down from its all-time peak of US$ 3,900, aluminium prices have shot up in the past one month.

The demand for aluminium has been rising with expectations of Chinese demand bottoming out already turning true. The rising demand from China can lead to a significant impact of Demand-Supply balance.

And let's not forget aluminium's growing use in the automotive, power and construction industries. The way we see it, demand is expected to be buoyant, with signs of recovery in the US and European countries.

#3 Recent Upgrade

Apart from the above two reasons, NALCO share price is rising after a brokerage firm upgraded its rating on the stock, citing an attractive risk-reward.

According to the brokerage firm, NALCO is best placed to benefit from the ongoing supply tightness in the alumina market, largely due to its net long position and the consequent tailwind in the aluminum prices.

NALCO is a pure aluminium play and has the highest leverage to aluminium prices. An increase in price of alumina, a raw material used to produce aluminium, also supports the company as it also sells alumina.

The company doubles it earnings on every US$400 a tonne increase in aluminium price.

What Next?

The outlook for metal stocks comes with a sense of cautious optimism from analysts. The recent rally is also fuelled by favorable global conditions, particularly the aggressive rate cuts by the US Federal Reserve.

Looking ahead, metal companies are likely to benefit from strong domestic fundamentals. As India's infrastructure development and industrial activities continue to grow, demand for metals is expected to remain robust.

Additionally, decreasing input costs, such as raw materials and energy prices, provide further support for profitability. Steel companies, in particular, are in a strong position to capitalise on the domestic price premiums.

Investors have also placed NALCO as a prime beneficiary of India's lithium mining megatrend.

NALCO's foray into lithium mining and battery manufacturing leverages their extensive industrial infrastructure and metallurgical expertise.

This vertical integration positions the company as a major player in the entire lithium value chain, from resource extraction to finished battery production.

In recent years, owning to high aluminium prices, the company's revenue and net profit have grown at a healthy pace.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	84,718	89,558	142,146	142,569	131,492
Growth (%)	-26%	6%	59%	0%	-8%
Operating Profit	7,618	19,294	48,146	26,888	31,236
OPM (%)	9%	22%	34%	19%	24%
Net Profit	1,362	12,994	29,514	14,347	19,885
Net Margin (%)	2%	15%	21%	10%	15%
ROE (%)	1.3	12.6	25.4	11.2	14.5
ROCE (%)	2.2	12.8	34.1	14.5	19.8
Dividend (Rs)	2.8	3.5	6.5	4.5	3.0
Debt to Equity (x)	0.0	0.0	0.0	0.0	0.0

Data Source: Ace Equity

NALCO also has a track record of paying consistent dividends.

Given that the company has zero debt, high free cash flows, and a rich dividend history, shareholders can expect steady dividends from NALCO going forward.

How NALCO Share Price has Performed Recently

In the past 5 days, NALCO share price has gained 14%.

In 2024 so far, the stock is up 65%.

NALCO has a 52-week high of Rs 227 touched on 1 October 2024 and a 52-week low of Rs 89 touched on 26 October 2023.

In the past 1 year, NALCO share price is up 132%.

Here's a table comparing NALCO with its peers -

Comparative Analysis

Company	NALCO	Hardwyn India	Hind Aluminum	MMP Industries	Palco Metals
ROE (%)	14.5	2.7	9.3	8.5	18.7
ROCE (%)	19.8	4.1	8.5	13.1	51.4
Latest EPS (Rs)	12.2	0.3	20.2	13.8	18.2
TTM PE (x)	18.4	137.5	3.6	27	8.9
TTM Price to book (x)	2.8	3.8	0.6	3.2	3.1
Dividend yield (%)	1.3	0	0	0.3	0
Industry PE	18.2
Industry PB	2.8

Data Source: Ace Equity, Equitymaster

About NALCO

Incorporated in 1981, National Aluminium Company, abbreviated as NALCO, is a government company that operates in mining, metals, and power. It's under the ownership of the ministry of mines, government of India.

It's the country's largest integrated bauxite-alumina-aluminium-power complex, with bauxite mining, alumina refining, aluminium smelting, and casting.

The company has already commissioned more than 198 MW of wind power plants, with another 50 MW on the way, making it one of the largest producers of renewable energy among PSUs.

To know more about the company, check out NALCO company fact sheet and quarterly results.

You can also compare NALCO with its peers.

NALCO vs Hind Aluminium

NALCO vs Maan Aluminium

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...