Nalco to tap waste-to-wealth model using Chinese tech to boost bottom line

National Aluminium Company (Nalco) is looking at out-of-the-box business models to ramp up its profitability. The company has lately decided to go for a waste-to-wealth model to process mineral wastes and commercialise them.

“Under the waste-to-wealth model, one of the potentially rewarding areas is extraction of iron ore concentrates from red mud. The iron ore concentrates retrieved this way could find applications in steel making. But, Indian companies have not ventured into this area due to lack of technology. Nalco is talking to some Chinese companies for firming up the technology. We have to strike a collaboration with the Chinese companies to deploy technology,” said Nalco's chairman & managing director T K Chand.

Nalco has an inventory of 60 million tonnes (mt) of red mud at its captive bauxite deposits atop Panchpatmalli hills in southern Odisha's Koraput district. The company believes that with the application of the ideal technology, 15-20 mt of iron ore concentrates can be extracted.

The navratna company is also pursuing plans to recover hidden alumina from bauxite and laterite mines. Upon removal of the first two seams, such deposits can yield 15-20 per cent alumina.

“For alumina extraction technology, we are discussing with a few IITs and the Institute of Minerals and Materials Technology (IMMT), Bhubaneswar. Nalco is keen to commercialize this alumina after extraction”, Chand said.

Any surplus alumina is bound to enrich Nalco's bottomline. Over the years, alumina segment has propelled the company's profitability. Each year, Nalco exports 1-1.2 mt of surplus alumina which contributes 75 per cent to its Ebitda (earnings before interest, taxes, depreciation and amortisation).

Nalco was a big gainer when spot international alumina prices galloped after US imposed sanctions of UC Rusal in early April. The sharp price upswings helped Nalco to garner its highest ever alumina shipment price of $718 per tonne, bettering the company's own record of $633 achieved in 2006-07 during metals sector boom. Strategically, Nalco has stayed close to the alumina market by opting to sell its material at spot or index prices, a departure from the practice of signing long-term contracts with buyers.

Nalco's earnings have high sensitivity to alumina prices as with every $20 per tonne increase, the company's earnings per share (EPS) is impacted by six per cent. More, Nalco's own calculations establish that every $10 per tonne hike in international alumina prices boost its Ebitda by Rs 850 million. Research by Kotak Securities has pegged alumina sales by Nalco at 1.25-1.28 mt in 2018-19.

The aluminium major clocked an unusual 400 per cent year-on-year jump in its net profit for the December quarter of last fiscal. The company's net profit rose sharply from Rs 1440 million to Rs 7220 million, making Nalco post its best ever net profit figures in a decade. The staggering growth in net profit came on the back of operational efficiency, cost reduction and strategic management decisions.