National Aluminium Company Limited (NALCO) has steadily positioned itself as a leading player in the aluminum industry, especially given its scale of operations and strategic expansions. Established in 1981, NALCO is a Navratna CPSE under the Ministry of Mines and is one of Asia’s largest integrated aluminum producers. Let’s examine the core reasons why NALCO could be an attractive investment.

Business Scale and Leadership in the Industry

NALCO operates a massive Bauxite-Alumina-Aluminium-Power complex, making it one of India’s most integrated and cost-effective aluminum producers. With a total market cap of ₹41,168 Cr., the company continues to be a pivotal player in the non-ferrous metals sector. It supplies aluminum ingots, wire rods, billets, and other products, diversifying its revenue streams.

Growing Product Segment and Innovations

NALCO’s aluminum segment, its primary revenue driver, has shown consistent growth. In FY24, the segment contributed 73% of the total revenue compared to 65% in FY22. Even with minor volume growth from 4.57 Lakh MT in FY22 to 4.7 Lakh MT in FY24, NALCO has been proactive in expanding its offerings, introducing new products like AL59 aluminum alloy ingot, aimed at addressing more specialized markets.

Expansion Projects Positioning for Future Growth

NALCO is in the midst of an expansion phase with projects that could significantly increase its output and profitability:

• Alumina Refinery Expansion: A fifth stream is under construction to boost alumina refining capacity to 31 Lakh MTPA by September 2025. This expansion is expected to increase alumina output and reduce reliance on external sourcing.
• Mining Lease and Bauxite Sourcing: With a 50-year mining lease for the Pottangi Bauxite Mines, NALCO secures long-term raw material availability. The company has also initiated plans for alternative sourcing from the Panchpatmali Mines.
• Smelter Expansion: NALCO’s planned 5 Lakh MTPA smelter expansion at Angul, with an investment of ₹17,000 Cr., will enable greater aluminum production at a competitive cost structure, particularly when completed within the next few years.

These projects reinforce NALCO’s strategic positioning and indicate substantial production growth over the coming years.

Technical Analysis

Resistance Level

• The chart shows a clear resistance level around 232, highlighted by the green line. The stock has attempted to break above this level multiple times but has faced selling pressure near or just below this point, causing a pullback. A successful breakout above 232 with strong volume could signify bullish momentum, as it would indicate buyers overcoming selling pressure at this level.

Moving Averages Indicating Bullish Trend

• The chart includes three key Exponential Moving Averages (EMAs):
  • 10-day EMA (Green) at 224.23
  • 20-day EMA (Orange) at 219.39
  • 200-day EMA (Purple) at 176.53
• Currently, the 10-day EMA is above the 20-day EMA, which is a bullish sign indicating short-term upward momentum. Both shorter EMAs are also significantly above the 200-day EMA, further reinforcing the positive trend. This alignment suggests strong buying interest, especially if the price stays above these EMAs.

Volume Analysis

• The chart shows a daily trading volume of 10,991,335 shares. Volume appears to spike around key support and resistance levels, which could indicate that institutional buyers or sellers are actively trading around these price points.
• For a convincing breakout above 232, watch for increased volume on bullish days. Higher volume with price gains would confirm strong buying interest and enhance the chances of a sustained move upward.

Relative Strength Rating (RS Rating)

• The RS Rating at 92.93 (shown below the chart) is high, suggesting that NALCO is outperforming the broader market. A rating above 80 is generally considered strong and indicates that the stock has been resilient relative to other stocks.

Support at 200-Day EMA

• The 200-day EMA around 176.53 provides a significant support level for the stock. During corrections, this level often acts as a strong floor. As long as the stock remains above the 200-day EMA, the long-term trend remains intact.

Potential Consolidation Pattern

• Since mid-October, the stock seems to be in a consolidation phase, with price movements fluctuating within a tight range below the 232 resistance. This range-bound action often precedes a breakout. Investors may watch for a decisive close above 232, as it could signal the end of consolidation and the beginning of a new uptrend.

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Trading Strategy

• Bullish View: A breakout above 232 with high volume could offer a buying opportunity, as it would confirm strength and indicate the stock’s potential to move higher.
• Caution: If the stock fails to break above 232 and instead starts dropping below key EMAs, especially the 20-day EMA (219.39), it could be a sign of weakening momentum and might warrant caution.
• Support Levels: For those holding long positions, keeping an eye on support at the 200-day EMA (176.53) could be prudent. A drop below this level would indicate a significant shift in trend.

Geographic Shift and Market Diversification

NALCO has shifted its focus more towards the domestic market, with domestic sales growing to 67% in FY24 compared to 56% in FY22. This adjustment mitigates risks associated with export market fluctuations and aligns with India’s growing infrastructure and industrial needs.

Solid Financial Health with a High Dividend Yield

NALCO is nearly debt-free, a rare strength in capital-intensive sectors like metals and mining. This stability is complemented by a strong dividend yield of 2.22%, with the company maintaining a high dividend payout ratio of around 46.2%. This aspect makes it an attractive choice for dividend-focused investors seeking steady income.

Operational and Financial Challenges: Managed Decline in Margins

NALCO’s operating profit margins saw a decline from 32% in FY22 to 22% in FY24, mainly due to an increase in raw material costs and power and fuel expenses. However, the company’s shift toward more efficient resource management (e.g., Utkal-D and Utkal-E coal mines) is expected to offset these costs over time, helping to stabilize or even improve margins as the new projects ramp up.

Peer Comparison: Competitive Advantage in Valuation and Returns

Compared to its industry peers, NALCO’s P/E ratio stands at 20.6, which is modest relative to companies like Maan Aluminium and Baheti Recycling with higher P/E ratios. Furthermore, NALCO offers one of the highest dividend yields in the sector, making it an attractive prospect for value-oriented investors. Its current Return on Capital Employed (ROCE) of 17% and Return on Equity (ROE) of 12.6% indicate efficient use of resources and a strong ability to generate returns.

Future Prospects and Strategic Roadmap

NALCO’s corporate plan spans a 3-year action plan, 7-year strategy, and a 15-year vision focusing on revenue and profitability growth. The roadmap includes forward integration, downstream expansion, and diversification into critical minerals, aligning well with India’s growing industrial requirements. The recent MoU signed between NALCO’s JV company, KABIL, and Argentina’s CAMYEN SE for lithium mining ventures positions NALCO in the global critical minerals domain—a highly prospective segment given the rise in electric vehicle (EV) demand.

Conclusion: Why NALCO Could Be a Strong Buy

With robust expansion plans, secure raw material sources, and strategic ventures into critical minerals, NALCO is well-equipped to capitalize on future growth opportunities. While short-term challenges like rising raw material costs may impact margins, the company’s proactive approach to managing these costs and its efficient use of resources suggest resilience and growth potential. Combined with a solid dividend yield and a debt-free balance sheet, NALCO offers an attractive investment proposition for long-term investors looking to diversify their portfolios with a reliable dividend-paying stock in the metal sector.