Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Markets / Mark To Market/  Nalco’s capex plans may hit cash flows
BackBack

Nalco’s capex plans may hit cash flows

The strain on cash-flows could also cut clean into its high dividend yields in the coming years
  • Nalco’s dividend yield works out to about 4.2% based on payouts it made in FY20
  • Nalco's production was hit due to covid-19 with both alumina and aluminium production contracting by 20% and 11% year on year. But production is expected to be better in the next quarter. (AFP)Premium
    Nalco's production was hit due to covid-19 with both alumina and aluminium production contracting by 20% and 11% year on year. But production is expected to be better in the next quarter. (AFP)

    National Aluminium Company Ltd (Nalco) is going ahead with an extensive expansion plan that would lead to restrictions in cash flows and even a possible increase in debt, say analysts. The outgo for the alumina refinery expansion is 6,000 crore.

    “We estimate negative free cash flow in FY2021-23 as it would use all its surplus cash and Nalco would require to raise debt in FY2023 to continue its expansion spends," said Kotak Institutional Equities.

    The strain on cash flows could also cut clean into its high dividend yields in the coming years. Nalco’s dividend yield works out to about 4.2% based on payouts it made in FY20.

    One positive is that the market dynamics for the aluminium sector appear to be improving. Aluminium prices so far this financial year have stepped up about 20% in international markets, and this could shore up Nalco’s profits.

    Demand from China has been steady, while the weak US dollar could continue to support prices.

    But one worry for the aluminium market is high inventory. “A surplus market and weak costs should cap further upside in aluminium prices. The market remains well supplied despite the disruption at Alunorte, Brazil, and we see limited upside," said Kotak’s analysts in the report.

    Of course, analysts have already raised expectations of earnings in FY21, supported by the lower base and expected better realizations. Valuations, however, continue to be on the higher side; and a lack of positive surprises coupled with strained cash flows could weigh on the stock.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 07 Sep 2020, 11:54 AM IST
    Next Story footLogo
    Recommended For You
    GENIE RECOMMENDS

    Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

    Let’s get started
    Switch to the Mint app for fast and personalized news - Get App

    Chat with MintGenie