Nalco aims 30000 to 60000 tonne additional alumina sale in Q3

 

 

The Q2 results were well below the street’s estimates in terms of earnings. A huge fuel and power cost bogged Nalco's profitability yet again. The company’s EBITDA performance was down about 62%.

 

 

Mr BL Bagra chairman and director of finance of Nalco said that the company’s topline was supported by higher prices despite flat volumes. The margins were hit because the supply from Mahanadi coal was disrupted. Nalco has been targeting 30,000 tonnes to 60,000 tonne of additional alumina sale in Q3.

 

 

Q - Your topline has grown fine about 9% or so but your results have faced a lot of pressure in terms of margins being eroded. What do the pressure pockets look like this time around?

 

 

A - The topline has increased by 9% largely because of increase in the prices of metal as well as alumina. The volumes of sales remain almost at the same level but the bottomline has taken a hit due to increase in operating cost. In the operating cost, there are two major factors increase in prices of some key raw materials like calcined petroleum coke as well as caustic soda.

 

 

More than the raw material prices, the real hit was taken in the power and fuel sector. For two consecutive months August and September the coal supply from Mahanadi coal field was almost disrupted. Due to this we had to run the plant with very expensive imported coal.

 

 

As well as, we had to import huge power from state grid. When we don’t have a regular arrangement with state grid and draw power on an emergency basis, the tariff there is very high. Because of power and fuel, the cost was very high.

 

 

Intermittently, we had to use a lot of heavy fuel oil to supplement our boilers. The price of HFO was very high. Due to a combination of all these things and mainly due to the short supply of coal, the cost was very high. This was the temporary phenomenon for August and September.

 

 

Q - The street expected higher alumina volumes because you commissioned a new refinery. What were the volumes like? What are they likely to be?

 

 

A - As far as volumes are concerned, we commissioned our new refinery during this quarter but no saleable product was available. As a tech requirement, we have to build up a stock of 40,000 tonne in the drums. The building up of the stock was continuing though the hybrid was produced but it cannot be sold until it reaches a particular level.

 

 

The saleable product will come out only in the current quarter. There will be increase in the volumes of the sales of alumina in the current quarter, but there was no additional volume of alumina available for sale in Q2. There was less production of metal during Q2 by almost 6000 tonne because of the less supply of coal. To reduce the losses, we had to take shutdown of 120 aluminum ports.

 

 

Due to this shutdown, we lost roughly 6000 tonne of production. If we had continued to draw power from State Grid, we would have produced it but it again would have been very expensive and the marginal cost would have been much higher than the price.

 

 

Therefore, for the financial reasons, we had to take shutdown of the 120 port to reduce the losses which will still remain closed because the supply of coal has started getting restored. We are building up on stock of coal. We will take a call in two weeks’ time to restart these ports again.

 

 

Q - Could there be decent increase in alumina volumes in the current quarter?

 

 

A - In the Q3 October to December, we should have minimum 40,000 tonne of additional alumina. When we sell alumina we sell in lots of 30,000 shipments. Minimum 30,000 tonne of alumina should be sold excess which can go up to 60,000 tonne also. Between the range of 30,000 tonnes to 60,000 tonne of more alumina sale is expected in Q3.

 

 

Q - What are your realizations on the export front? What have your export volumes been? Have you benefited from the depreciating rupee?

 

 

A - Our alumina export compared to same quarter last year was a little less. Last year, it was 214,000 tonne and this quarter it was 183,000 tonne only. As far as the aluminum metal is concerned, last quarter the export was 25,000 tonne whereas this quarter it was only 20,000 tonne.

 

 

The exchange rate does not affect exports alone. Exchange rate and rupee weakening affects domestic price also. This year both domestic as well as export prices have been higher than last year. This quarter, our alumina price was USD 400 compared to USD 309 last year.

 

 

This quarter, the metal price was USD 2,599 compared to USD 2,112. This quarter, the exchange rate of INR 46 was almost same in the same quarter last year. Because of higher dollar prices, the realization price is higher for both alumina and metal. This is the reason that topline is higher compared to previous year.

 

 

Q - There are certain newspaper reports with regard to CBI investigation of Nalco officials. Can you give us any kind of confirmation of that taking place? Can you tell us something about the awarding of contracts?

 

 

A - As far as this news is concerned, I haven’t seen it. Some of my colleagues have informed me. If this is true, there is a particular case about work awarded on the lean slurry disposal of ash coming out of our power plants which was awarded based on the open tender and approval by our Board of Directors. The construction is in progress.

 

 

A matter of routine, most of the tenders which go beyond a particular threshold level, we report to vigilance department and the vigilance department picks up some projects for matter of scrutiny based on their own criteria. The award of this project is also under scrutiny of the vigilance department. This is a routine activity, which takes place in PSU's by the vigilance department.