Nalco shares surge even as Q3 profit drops. Should you buy the metal stock?

Shares of National National Aluminium Company Limited (NALCO) surged more than 2% to ₹78 apiece on the BSE in Monday's opening deals even as the aluminium maker and seller reported a 69% decline in its consolidated net profit at ₹256 crore for the quarter ended December 31, 2022 as compared to ₹830 crore in the year-ago period. Meanwhile, its consolidated income dropped to ₹3,356 crore.

The company said that lower sales volume of alumina during the quarter, higher input costs coupled with global challenging business scenario and volatility affected the profit margins despite the company registering robust growth in production.

"LME aluminium has been trading in a rangebound manner as higher production outlook is counterbalanced by expectations of good demand from China reopening. However, energy prices have been on a downtrend which is expected to help the margin expansions going forward. Commissioning of Utkal D coal block are expected to aid some cost reduction in FY24. We expect the performance have already bottomed out on peak power cost and henceforth EBITDA/t will improve. We have upgraded our FY24 EBITDA estimates driven by US$ 250/t higher aluminium realisation expectation," said brokerage PhillipCapital.

Consequently, the brokerage house has raised its target price to ₹90 while upgrading Nalco shares' rating to Buy as it believes risk reward is turning favorable and expects performance to improve.

"We remain positive on Nalco with current aluminum and alumina price outlook supported by global cost curve, integrated business model, and attractive dividend yield. 4QFY23TD average LME aluminum spot price at USD 2,507 is 7% higher than 3QFY23 average level. Nalco sells ~1.3 MT of alumina and ~0.4 MT of aluminum annually and is well positioned to benefit from stable prices. Lower coal costs aided by captive coal mining at Utkal block-D (expected to commence in 4QFY23) and stable supply chain is expected to improve profitability. We maintain BUY rating with a target price of ₹99 per share," said another brokerage Antique Stock Broking.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.