Navratna-status National Aluminium Company (NALCO) Ltd. is one of the low-cost bauxite and alumina producers globally. Along with this, it is also a prominent alumina exporter in India. Incorporated in 1981, it is a government company under the Ministry of Mines, Government of India. It has a market capitalization of Rs 15,000 crore. 

The alumina prices, which are presently at 16% as a percentage of spot aluminium prices, are lower than the five-year average figure of 18%. Taking this into consideration, the analysts at Antique Stock Broking are optimistic about the near-term prospects of the stock. 

The brokerage commented, “We remain positive on Nalco in view of the strong alumina and aluminium price outlook (supported by European smelter shutdowns, projected global deficit amidst plausible bans on Russian aluminium, subdued Chinese exports), integrated business model, and attractive dividend yield.” 

The analysts further commented, “Nalco sells ~1.3 MT of alumina and ~0.4 MT of aluminium annually and is well positioned to benefit from their strong prices. An additional 1 mtpa alumina along with captive coal mining and caustic soda production would drive margin expansion and cost reduction.” 

Taking forward the margin of the safety concept of Benjamin Graham (teacher of billionaire investor Warren Buffet), they highlighted that NALCO has high levels of cash and cash equivalents on its balance sheet. It provides the investors with a big downside protection as the estimated cash at the FY23 end is Rs 4,600 crore, almost 30% of the present market value of the miner. 

In addition to this, the present dividend yield of 7.92% further makes the stock very attractive. Taking into account cash levels and dividend yield both, the analysts of the firm see NALCO as a high margin of safety stock. 

Putting their analysis together, the analysts of Antique Stock Broking have provided a ‘buy’ rating on the stock with a target price of Rs 99 per share. This translates into a potential upside of 21% from the closing price of Rs 82.1 on Thursday. 

Written by Vikalp Mishra 

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