Axis Securities upgrades NALCO to Buy; flags upside despite positive valuations

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National Aluminium Company (NALCO) has received a ‘Buy’ rating by the brokerage Axis Securities, estimating a projection of 10 per cent upside from current standard market levels, while cautioning that rich valuations could limit additional gains. Axis has elevated NALCO’s target price from the previous INR 390 (USD 4.12) per share to INR 440 (USD 4.65) per share, provided there is improved earnings visibility along with favourable pricing dynamics.

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The development in NALCO’s rating came after the company reported a robust financial performance for its fourth quarter (Q4) of FY 2025-26. While earnings were hit by lower profitability of alumina and a reduction in aluminium sales volumes, favourable aluminium prices, coupled with steady sales, drove up the profit and EBITDA margins.  

The brokerage also noted firm global aluminium prices, averaging USD 3,593 per tonne in April 2026 so far versus USD 3,193 per tonne in Q4FY26, largely due to supply disruptions in the Middle East. However, alumina prices may stay under pressure in FY27 amid additional supply from Indonesia, while aluminium prices could soften if geopolitical tensions ease.

Axis Securities pointed out that the company continues to benefit from a relatively stable cost base, supported by higher captive coal output of about 4 million tonnes in FY26, which met roughly 55 per cent of its power needs. This in-house supply provides a cost edge of INR 300–600 (USD 3.17–6.34) per tonne over linkage and e-auction coal.

Growth in future is expected to be fuelled by NALCO’s alumina refinery expansion. The fifth stream, adding 1 million tonnes per annum, is likely to become operational by June 2026, although minor delays have led to a slight trimming of the FY27 output estimates.

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NALCO’s FY27 objectives

For FY27, alumina production is projected at around 2.5 million tonnes, aided by the new stream, while aluminium output is expected to remain close to peak levels at about 473,000 tonnes. In parallel, the company is advancing a long-term capex plan of INR 300 billion (USD 3.17 billion), which includes setting up a 0.5 million tonne smelter and a 1,080 MW captive power plant, with execution likely to gather pace from FY28.

On the cost front, increases in inputs such as caustic soda, calcined petroleum coke and coal tar pitch have added pressure, though this is expected to be partly offset by lower power costs and ongoing efficiency improvements.

In terms of finance, the company is advantaged with low debt and strong cash generation, enabling fund expansion with continued shareholder returns. It has already announced a third interim dividend of INR 2 (USD 0.02) per share for FY26.
However, the brokerage has also advised caution, pointing out the risks which could influence earnings, such as delays or cost overruns in expansion projects, aluminium price volatility, and power cost fluctuations, given the cyclical nature of the industry.

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