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Nalco executes mining lease deed with Odisha government; stock gains 4.5%

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Nalco executes mining lease deed with Odisha government; stock gains 4.5%

The BSE saw a 4.5% increase in the share price of National Aluminium Company (Nalco) on Friday following the public sector company’s execution of a mining lease document with the State Government of Odisha.

On Thursday, Nalco said that it had signed a mining leasing agreement for 697.979 hectares of bauxite mine land in Pottangi Tehsil, Koraput District, with the State Government of Odisha.

With reserves estimated at 111 million tonnes, the mines have an annual production capacity of 3.5 million tonnes, implying a 32-year mine life. After the mine receives the final necessary regulatory clearances, it should shortly be operational. An overland conveyor measuring 18.5 kilometres would carry the mined bauxite to the Nalco Refinery in Damanjodi, according to Nalco’s exchange report.

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Nalco shares were up 3.3% at Rs 192.6 a share at 1:55 PM compared to the Sensex index, which was almost unchanged. The share price of Rs 195, the intraday high, was nearer the record high of Rs 206.3, which was reached on May 28, 2024.

Under the Government of India’s Ministry of Mines, Nalco is a “Navratna” CPSE. The business is a Group ‘A’ CPSE that engages in both integrated and diverse metal and power mining operations. Its operations involve producing and marketing aluminium and alumina.

Nalco reported consolidated revenue for the March quarter of Rs 3,600 crore, which was up 7% quarter-over-quarter (Q-o-Q) but down 3% year-over-year (Y-o-Y). With a combined Ebitda margin of 30.9 percent compared to 20.9 percent in Q4FY23 and 23.1 percent in Q3FY24, its consolidated Ebitda stood at Rs 1,100 crore, up 45% year over year and 43% quarter over quarter.

After accounting for a one-time loss of Rs 430 crore related to the reversal of royalties, Nalco’s earnings after tax increased by 37% year over year and 44% quarter over quarter to Rs 680 crore in Q4FY24.

We anticipate that Nalco will run at maximum capacity for the next two years, with no opportunity for capacity expansion until the fifth stream of alumina comes online. According to experts at Motilal Oswal Financial Services, “Once the additional 1mt stream of the alumina refinery comes on stream by May’25, the next phase of growth is anticipated to begin.”

The stock has been rated as “Neutral” with a target price of Rs 180 because of the improved view on input costs, which increased the Ebitda estimate by 6 per cent for FY25/FY26.

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