Overview of the Company:

National Aluminium Company Limited, abbreviated as NALCO, (incorporated 1981) has

units in odisha at places like Angul and Damanjodi. It was incorporated as a public
sector enterprise of the Ministry of Mines, Government of India in 1981. It is Asias largest,
and the sixth largest, integrated aluminium complex, encompassing bauxite mining, alumina
refining, aluminium smelting and casting, power generation, rail and port operations.
It is expanding by currently employing new projects. The ongoing second phase of expansion
is set to make it the sixth largest producer of the metal in the world.
Products:
Aluminium Metal
i.
Ingots
ii.
T-Ingots
iii.
Billets
Rolled Products
i.
Aluminium rolled products
ii.
Aluminium chequered products
Power
i.
Thermal Power
ii.
Wind Power
iii.
Solar Power

Revenue Split:
Revenue split basically explains the revenue generated by the company from various
products.
According to the reviewed financial results for 3rd quarter of the financial year 2014-15,
taken on record by the Board in a meeting held in Bhubaneswar, NALCO has registered a net
profit of Rs.354 crore, up 170%, against Rs.131 crore achieved during the corresponding
quarter of the previous fiscal.
The net profit for the 9 months ended December 2014 work out to Rs.967 crore, against the
corresponding figure of Rs.470 crore for the previous fiscal, i.e. up by 106%. The net sales
for the 9 months ended December 2014 is Rs.5,483 crore as compared to Rs. 4,868 crore in
the corresponding period of the last financial year.
On the production front, during the first nine months, NALCO produced 14.24 lakh tonnes of
alumina hydrate, as compared to 14.26 lakh tonnes achieved during the comparable period of
the previous fiscal. Metal production was 2.44 lakh tonnes, against 2.38 lakh tonnes
registered during the comparable nine months of the previous fiscal. Power generation was
3,858 MU against 3,760 MU achieved in the corresponding period of the previous year.
Particulars
Bauxite

Unit
MT

Revenue Generated 2013-14

62,92,677

Alumina Hydrate
Aluminium
Power
Wind Power

MT
MT
MU
MU

19,25,000
3,16,492
4,989
144

Cash flows:
Reported
Profit

FY 2014
Net 642.35

FY 2013
592.83

FY 2012
849.50

FY 2011
1069.30

Chart Title
1200
1000
800

Net Profit

600
400
200
0
2011

2012

2013

Year

Risks and Cost of Capital:

2014

An assets risk can be analysed in two ways

1. Standalone risk
2. Portfolio risk
Standalone risk: It is a risk that investor would face if he or she held only one asset.
Portfolio risk: It is the risk that investor would face if he or she held more than one asset.
If any investor is holding the assets of NALCO, then it comes under the category of
Standalone risk. We generally measure by risk by the concept of Beta.
Beta: The tendency of a stock to move up and down with the market is reflected in this beta
coefficient, b. Beta measures the stock volatility relative to an average stock, which has b=1.0
A stocks beta measures its contribution to the riskiness of a portfolio.
Beta value for National Aluminium Company is 0.8347.
If b=0.8347, it will rise and fall only 83% as much, such stocks will be 83% as risky as a
portfolio of b=1.0
The beta value here is comparatively less and hence we can say that risk associated with this
stock is relatively low.

Cost of equity:
The cost of equity of a company can found by using CAPM (Capital Asset Pricing Model)
approach
Step 1: Estimate the risk-free rate.
Step 2: Estimate the stocks beta coefficient and use it as an index of stocks risk
Step 3: Estimate the current expected rate of return on the market or on an average stock.
Step 4: Substitute the preceding values into the CAPM equation to estimate the required rate
of return on the stock.
Ke=Krf+ (Km-Krf) b
Cost of equity calculation for NALCO:
The yield of Treasury bill in India calculated by Reserve Bank of India is 7.3%
The market risk premium is 8.5%
The value of beta is 0.8347
Substituting the values in above equation,
=7.35+ (7%*0.8347)
=14.475
This is the minimum returns that shareholders require from the company.

Assumptions of CAPM Approach:

Individuals are risk averse.

Individuals seek maximising the expected return.
Homogenous expectations.
Borrow or lend freely at risk less rate of interest.
Market is perfect.
Quantity of risky securities in market is given.
No transaction cost.

Cost of Debt:
The effective rate that a company pays on its current debt. This can be measured in either
before- or after-tax returns; however, because interest expense is deductible, the after-tax cost
is seen most often. This is one part of the company's capital structure, which also includes the
cost of equity.
A company will use various bonds, loans and other forms of debt, so this measure is useful
for giving an idea as to the overall rate being paid by the company to use debt financing. The
measure can also give investors an idea as to the riskiness of the company compared to
others, because riskier companies generally have a higher cost of debt.
After tax cost of debt = Interest rate Tax savings
= Kd Kd * T
= Kd (1-T)
Tax rate is 30%
Equity value per share:
=total shareholders funds/number of shares
=121224500000/2577238512
=47.036

References:
http://en.wikipedia.org/wiki/National_Aluminium_Company
http://www.nalcoindia.com/productsmain.aspx
http://capitaline.com/user/framepage.asp?id=1
http://www.moneycontrol.com/budget-2015/

http://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=711#26