Shares of National Aluminium Company Limited (Nalco) jumped 6 per cent in morning deals on May 28 to hit an all-time high of Rs 206.30 on the National Stock Exchange (NSE) after the PSU reported strong earnings for the quarter that ended March 2024.

While Motilal Oswal raised the target price on the stock, Axis Securities retained a 'buy' call on the counter.

Nalco is a Navratna PSU under the ministry of mines. It is one of the country's largest integrated bauxite-alumina-aluminium-power complex.

The state-owned firm reported a two-fold rise in consolidated profit to Rs 996.74 crore for Q4FY24 on the back of lower expenses. However, the company's consolidated total income during the quarter dropped to Rs 3,663.09 crore from Rs 3,726.76 crore in the year-ago period.

The expenses of the PSU in the fourth quarter dropped to Rs 2,720.42 crore, owing to a 22 per cent decline in raw material costs.

The expenses were kept in check by lower prices of thermal coal and bauxite - key materials for aluminium production, as it opted to source more domestic coal and bauxite in the quarter. Lower costs were offset by a plunge in aluminium prices.

The benchmark three-month aluminium on the London Metal Exchange averaged $2,241 a metric ton in January-March this year, down 8.2 per cent from the same period in 2023.

Should you buy Nalco shares?

Recently, Nalco’s JV KABIL (established by three CPSUs) signed its first exploration and lithium mining agreement with Argentina’s CAMYEN SE.

According to analysts at Motilal Oswal, this will help NACL establish its presence, diversify product offerings, and enhance the supply chain for critical and strategic minerals, which have key applications across various sectors.

Additionally, Nalco’s participation will provide the necessary technical and operational experience for brine-type lithium exploration, exploitation, and extraction.

Until the fifth stream of alumina comes on stream, the domestic brokerage expects Nalco to operate at full capacity, leaving little room for capacity expansion over the next two years. "The next phase of growth is anticipated to begin once the additional 1mt stream of the alumina refinery comes on stream by May’25," it said.

Moreover, the Utkal D coal block will fulfil ~25-28 per cent of the coal requirements for the Angul smelter. This will enhance raw material security and boost the margins until the augmented capacity comes on stream, said Motilal Oswal as it reiterated a 'Neutral' rating on the stock with a raised target price of Rs 180 per share

NALCO is consistently operating at its peak refining and smelting capacity (460 ktpa), and the recent softness in thermal coal prices has led to lower power costs, said Axis Securities. The brokerage revised its LME Aluminium and Alumina prices upwards post the sharp rally in the last month.

"Our earnings changes reflect an EBITDA increase over previous estimates led by these higher prices. Post the rally in stock price, the valuation appears near peak limiting material upside from CMP," it said as it maintained a buy rating on the stock with a target price of Rs 215

At 11:36 am, Nalco shares were trading around a per cent higher at Rs 195.75 on NSE.