NALCO Analysis: A Navratna stock with 88% returns, future outlook, expansion plans, and key insights

Public sector undertakings often move through phases of neglect, excitement and eventual rediscovery. One company that has recently captured attention is National Aluminium Company Limited Nalco.

The stock has already delivered close to 88 percent gains in the current financial year, yet valuations remain attractive, and fundamentals appear structurally stronger than before. This naturally raises the question for investors: Should the stock still be added at this stage?

National Aluminium Company Ltd, with a market capitalization of Rs. 49,442.13 crore, closed at Rs. 269.20 on Thursday, up by 1.01 percent from its previous day’s close price of Rs. 266.50 per equity share.

Stock Return

The Navratna company has seen a strong re-rating in the current financial year. From its price of Rs. 175.29 on 1 April 2025, the stock has climbed to Rs. 268.7, marking an impressive upside of 53.23 percent.

The surge looks even more striking when measured from the year’s low of Rs. 143.22 recorded on 11 April 2025, from where it has generated a remarkable return of 87.54 percent, highlighting robust investor confidence and sustained momentum in the stock.

A Year of Record Numbers

Nalco delivered its best-ever performance in Q2 FY26 and H1 FY26 backed by strong operational momentum. Revenue grew seven percent year on year in the September quarter but the most striking improvement came from volumes. Alumina sales rose thirty nine percent to three hundred ninety six kilo tonnes supported by export demand and a sharp rise in domestic consumption. Lower power costs due to higher usage of captive coal further strengthened margins making this one of the company’s most profitable quarters on record.

Cost Advantage 

The company now benefits from an improving cost structure led by captive coal which is expected to fulfil nearly 57 percent of fuel requirements. This reduces dependency on external energy sources and brings down overall production cost. Even though alumina prices continue to fluctuate near 320-340 dollars per tonne profitability remains intact due to this structural cost efficiency. Nalco’s earnings appear more resilient now even when commodity prices soften.

Expansion Potential the Market Might Be Overlooking

Nalco is preparing for the next round of capacity growth which could significantly increase production scale and earnings in the coming years. The first addition is a one million tonne alumina refinery that is already 80 percent complete. Once operational it will raise refining capacity from 2.1 million tonnes to 3.1 million tonnes by FY27.

The second leg includes a 0.5 million tonne aluminium smelter along with a large 1,080 megawatt captive power plant. Project execution is targeted for the next phase of growth with commissioning expected toward 2030. Together these projects involve capital expenditure of nearly Rs. 30,000 crore. With more than Rs. 8,000 crore rupees in cash reserves and consistent cash generation Nalco can comfortably support this expansion without financial stress.

Valuation Still Attractive Despite the Rally

Although the stock has gained nearly 88 percent this financial year it still trades at close to 8.15 times earnings and about 4.5 times EV to EBITDA which remains inexpensive compared to peers with similar profitability. The stock also offers a healthy dividend yield of around 4.5 percent providing regular income for shareholders while they wait for the market to re-rate the company. The market seems to have factored in short-term metal price volatility but not the long-term earnings expansion or cost benefits that are now visible.

About the Company

National Aluminium Company Limited (NALCO), based in Bhubaneswar, India, is engaged in the manufacture and sale of alumina and aluminum products both domestically and internationally. Operating through its Chemical and Aluminum segments, NALCO produces aluminum metal products (ingots, billets, wire rods, rolled and chequered sheets), alumina and hydrate products (calcined alumina, alumina hydrate, specialty alumina), and zeolite-A products. 

The company also manages coal mines, opencast bauxite mines, alumina refineries, aluminum smelters, and captive power plants. Additionally, NALCO operates renewable energy assets, including wind and solar power plants across Andhra Pradesh, Rajasthan, Maharashtra, and Odisha, as well as mechanized storage and shipping facilities for alumina exports and caustic soda imports. Incorporated in 1981, NALCO is a vertically integrated aluminum producer with a strong presence in both energy and raw material resources.

Financial Outlook

The company posted a strong performance in Q2FY26 with revenue rising to Rs. 4,292 crore, up 7.27 percent YoY from Rs. 4,001 crore and 12.74 percent QoQ from Rs. 3,807 crore, signalling healthy growth momentum. EBITDA also improved significantly to Rs. 2,077 crore, reflecting a 28.13 percent YoY jump from Rs. 1,621 crore and an almost identical 28.54 percent QoQ rise over Rs. 1,616 crore, indicating better operating efficiency and margin uplift.

Profitability remained robust with net profit at Rs. 1,433 crore, up 34.94 percent YoY compared to Rs. 1,062 crore and 34.66 percent QoQ versus Rs. 1,064 crore. The broad-based improvement across revenue, EBITDA, and profit suggests strong operational leverage and sustained demand environment, positioning the company favourably for upcoming quarters.

Over the past five years, the company has demonstrated strong growth, achieving a revenue CAGR of 15 percent, a profit CAGR of 108 percent, and stock price CAGR of 45 percent, reflecting both its operational performance and market confidence. A return on equity (ROE) of about 32.7 percent and a return on capital employed (ROCE) of about 44 percent demonstrate the company’s financial position.

Conclusion

Nalco is no longer just a cyclical aluminium trade. It is steadily transforming into a competitive, low-cost producer with increasing volumes, a strong balance sheet, and the ability to fund growth internally. While short-term commodity price fluctuations may persist,

Nalco now operates with improved cost efficiency, better margin visibility, and expansion levers that could significantly strengthen earnings as capacity utilisation rises. With these structural improvements in place, investors may evaluate the stock as a potential long-term opportunity, depending on their risk and return expectations.

Written by Akshay Sanghavi

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