Buyback plan won't hit our capital expenditure, says T K Chand of Nalco

T K Chand, chairman and managing director, Nalco, spoke to Zee Business about pressure on margins due to reduced alumina prices, the impact of the proposed buyback programme and aluminium ingots, among others.

Nalco has posted good results in the second quarter. What is your outlook for the third quarter amid the ongoing pressure on alumina prices?

Alumina prices have moderated, but we will be supported by the availability of coal at our place, as it will allow us to start electricity production at our own facility. Unavailability of coal during the second quarter restricted us from producing electricity at our place and forced us to procure it from Gridco at high rates. However, this moderation of alumina and aluminium prices will have an impact on our margins, and we are expecting that our Ebitda margin between 23% and 24% in the third quarter. Our calculations suggest that the Ebitda margin for fiscal 2019 will stand at 28%.

Aluminium prices have crawled down from high levels of October 2018. Do you expect that the prices will continue to go down?

The moderation is a result of the ongoing uncertainties in the market – due to a trade war between the US and China and the US sanctions on Rusal that will be effective from January 7, 2019, which are forcing the buyers to adopt a wait-and-watch policy. Secondly, low element prices have reduced smelters' interest towards production, but this will benefit us in the long term. We are estimating that the aluminium prices, under prevalent conditions, will move in the range of $1,950-2,050.

Will the proposed buyback have an impact on your dividend payout as well as capex plans?

The buyback will lead to a reduction of shares, but per-share income will go up. In terms of capex, we have a cash of Rs 3,500 crore and the profits will pay back something to the reserve. In fact, we will be able to fund the projects that have been lined up for next one to two years from our cash reserves, and thus the proposed buyback will not have any impact on our capex plans. However, we will approach banks for projects that are in the development phase and new projects. In addition, the proposed buyback will not have any impact on our dividends as we are not drawing anything from the reserves as our profits are sufficient to finance our dividends. In fact, profit collection for the first half of this fiscal stands at Rs 1,197 crore, and we are expecting something good in the second half. We want to increase the percentage of dividend from last year's 114%.

Nalco has cut the prices of aluminium ingots for six times in a row. Do you think that this cut will have an impact on your margins?

Yes, realisations of the price cuts are creating a pressure on our margins. But our calculations on profitability -- at minimum levels in accordance with ongoing market trends -- suggest that the year's Ebitda margin will hover around 28% against last year's 18%.