Bauxite And Alumina Expansion Will Grow Production Amid ESG Risks

Key Takeaways

• Increased production capacity, vertical integration, and investment in renewables will strengthen margins, cost control, and ESG appeal amid global input pressure.
  
• Expansion into value-added aluminium products and supportive structural demand factors will reduce commodity price dependency and drive long-term earnings growth.
  
• Heavy reliance on coal, rising ESG compliance costs, and volatile global markets expose earnings and margins to regulatory, pricing, and execution risks despite ongoing diversification efforts.

Catalysts

Engages in the manufacture and sale of alumina and aluminum products in India and internationally.

• The imminent commissioning of a new bauxite mine and the fifth stream of alumina refinery by mid-2026 will substantially increase production volumes, supporting revenue growth from FY27 as output and exports ramp up.
  
• National Aluminium's strong vertical integration-own bauxite, coal, power, and a caustic soda JV-greatly improves raw material security and cost control, supporting robust operating and net margins especially as global input costs rise.
  
• Ongoing investments in value-added products (wire rods, foils, rolled products) will diversify revenue streams, lower dependence on LME-linked commodity sales, and boost EBITDA margins over the medium term.
  
• The company's plans to expand renewable energy capacity (wind, solar, hybrid) directly address stricter renewable obligations and rising carbon compliance costs, providing visibility for improved margin sustainability and ESG-driven investor interest.
  
• Structural demand growth drivers-including robust domestic infrastructure, electrification, transport, and packaging needs-combined with limited global supply additions due to environmental caps, position National Aluminium for long-term higher price realisation and volume-led earnings growth.

National Aluminium Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming National Aluminium's revenue will decrease by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 32.3% today to 21.6% in 3 years time.
• Analysts expect earnings to reach ₹37.0 billion (and earnings per share of ₹24.27) by about August 2028, down from ₹57.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, up from 6.1x today. This future PE is lower than the current PE for the IN Metals and Mining industry at 22.8x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.56%, as per the Simply Wall St company report.

National Aluminium Future Earnings Per Share Growth

Risks

• Despite cost advantages, National Aluminium faces significant risks from rising ESG (Environmental, Social, Governance) obligations-such as increased RPO (Renewable Purchase Obligation) requirements-which are leading to higher compliance and operational costs (e.g., ₹75 crores increase in one quarter alone), likely to pressure net margins over time as green regulations tighten.
  
• The company's power generation remains heavily dependent on coal (only ~15-20% of green power targeted by 2030, with the balance coal-based), making it highly exposed to future increases in carbon taxes, carbon credits costs, and potential regulatory penalties, all of which could squeeze long-term profitability and net margins.
  
• Aluminium and alumina market prices are strongly tied to global LME trends and dollar indices, with ongoing risks of price volatility from external shocks (e.g., changes in U.S. tariffs, Russian/Chinese supply dynamics), which could reduce realizations and result in revenue and profit volatility, particularly during periods of sustained global oversupply.
  
• With a large proportion (approximately 80%) of alumina exports sold on the spot market, NALCO's earnings are highly sensitive to short-term market swings and not protected by long-term contracts, increasing earnings volatility and risk to both revenue and EBITDA stability.
  
• Although the company is investing in value-added products (wire rods, rolled products, foils), progress on diversification remains in early phases with multi-year timelines, making NALCO's future earnings still vulnerable to commodity price swings and slow ramp-up of new, higher-margin products, thereby exposing EBITDA and long-term earnings growth to execution risk and competitive pressures.

Valuation

• The analysts have a consensus price target of ₹216.2 for National Aluminium based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹264.0, and the most bearish reporting a price target of just ₹185.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹171.8 billion, earnings will come to ₹37.0 billion, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹189.94, the analyst price target of ₹216.2 is 12.1% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.