A promoter planning a secondary aluminium plant had already reached the stage where machinery quotations were on the table. The furnace supplier had quoted the melting line, the land had been shortlisted, and the promoter had a rough idea that the complete plant might require around ₹5 crore in fixed investment.
On paper, the project looked attractive.
Then the financial model was prepared.
The first major surprise was that the ₹5 crore machinery and infrastructure investment was not the biggest funding problem. Once scrap inventory, supplier payment terms, material in transit, finished stock and customer credit were added, the project needed another several crores in working capital.
The second surprise came from recovery.
The promoter had assumed that buying 1 tonne of aluminium scrap would almost mean selling 1 tonne of aluminium. But after sorting losses, oxidation, dross and process losses, the actual saleable output was lower. Even a 3% difference in recovery changed annual revenue significantly.
Then scrap prices moved by ₹10 per kg.
That small-looking change reduced annual profitability by crores.
This is why a secondary aluminium plant financial model should be prepared before machinery orders are finalized. A serious model does not only answer how much the plant costs. It shows how CAPEX, OPEX, scrap prices, recovery, capacity utilization, working capital and selling prices combine to determine IRR, payback and actual cash generation.
For investors planning an aluminium recycling plant in India, these numbers matter far more than a simple machinery quotation.
Secondary aluminium has a major structural advantage over primary aluminium production.
Producing aluminium from recycled material requires only a fraction of the energy required for primary aluminium production. Government and industry assessments commonly place the energy requirement of secondary aluminium at roughly 5-7% of the primary production route.
That makes recycling attractive from both an economic and sustainability perspective.
The sector also benefits from demand from industries such as:
But a growing market does not automatically make every recycling plant financially viable.
Profitability depends heavily on the difference between the landed cost of scrap and the value of usable aluminium recovered from it.
That difference is commonly called the metal spread.
A plant with excellent machinery but poor scrap sourcing can struggle. A plant purchasing expensive mixed scrap with weak recovery can also struggle. On the other hand, a well-designed project with disciplined procurement, strong recovery and reliable buyers can generate healthy operating cash flow.
One of the biggest mistakes during project planning is searching for one standard number such as:
“10 TPD aluminium recycling plant cost = ₹X crore.”
Actual investment can vary considerably.
A simple scrap melting and ingot casting facility is very different from an integrated plant containing:
Project scale also changes the economics.
At the large industrial end, sector assessments have estimated that a highly mechanized 1 million tonne per annum aluminium recycling facility could require roughly ₹1,500-2,000 crore depending on technology and configuration.
That figure should never be proportionately divided to calculate the cost of a 5 TPD or 10 TPD plant.
Small and medium projects have completely different civil costs, automation levels, furnace configurations, utility requirements and working-capital structures.
The correct way to estimate CAPEX is to build the project item by item.
Plant CAPEX should include much more than the furnace.
For a typical project, the investment may be divided into the following major heads.
Land cost depends heavily on location, state, industrial area and whether the property is purchased or leased.
Apart from land itself, provision may be required for:
The project may require separate areas for scrap storage, processing, furnace operations, casting, finished material, utilities and administration.
Civil expenditure can become significant where heavy foundations or large storage areas are required.
Depending on technology, machinery can include:
Air-emission and dust-control equipment should be considered while freezing project cost rather than added after the plant has been installed.
Actual requirements depend on furnace design, fuel, process, production capacity and applicable regulatory conditions.
The project may require transformers, electrical panels, compressors, pumps, cooling systems and backup power arrangements.
For businesses supplying alloy-specific material, quality control can directly affect selling price.
A spectrometer and supporting testing equipment may therefore be commercially important rather than optional.
Transportation, erection, electrical connections, piping, trial runs and commissioning expenses should be included separately.
These may include engineering, DPR preparation, project management, approvals, professional consultancy and expenses incurred before commercial production begins.
A contingency provision should also be maintained.
This is where many recycling projects are underestimated.
A promoter may say:
“Plant investment is ₹5 crore, so if I arrange ₹5 crore the project is funded.”
Not necessarily.
Suppose the plant needs ₹6-8 crore worth of scrap inventory, goods in transit and receivables during normal operations. The actual funding requirement can be much higher than the machinery investment.
India also remains highly dependent on imported aluminium scrap, with industry assessments indicating that imported material accounts for roughly 85-90% of total aluminium scrap requirements.
Imported scrap creates additional financial pressure because businesses may face:
Working capital should therefore be calculated using operating days instead of assuming a random percentage of CAPEX.
Consider a proposed secondary aluminium unit processing 10 tonnes of scrap per day.
The following numbers are illustrative assumptions prepared only to explain how a financial model works. Actual projects should use current scrap quotations, buyer prices, equipment quotations and site-specific operating costs.
| Parameter | Case Study Assumption |
|---|---|
| Scrap input capacity | 10 TPD |
| Working days | 300 days |
| Maximum annual input | 3,000 MT |
| Recovery | 85% |
| Scrap landed cost | ₹170/kg |
| Finished aluminium realization | ₹245/kg |
| Variable processing cost | ₹15/kg input |
| Annual fixed operating expenses | ₹1.20 crore |
| Fixed project CAPEX | ₹5.00 crore |
| Initial working capital | ₹8.00 crore |
| Total initial project funding | ₹13.00 crore |
Production is not assumed at 100% from the first year.
A more practical utilization ramp has been taken:
At 90% capacity utilization, annual scrap processing becomes:
3,000 MT x 90% = 2,700 MT
With an assumed 85% recovery:
2,700 MT x 85% = 2,295 MT saleable aluminium
This recovery percentage is one of the most important numbers in the entire financial model.
At a net finished aluminium realization of ₹245 per kg, or ₹2,45,000 per tonne:
2,295 MT x ₹2,45,000 = approximately ₹56.23 crore annual revenue
Now consider the raw-material cost.
At ₹170 per kg:
2,700 MT x ₹1,70,000 = ₹45.90 crore annual scrap cost
Other variable processing expenditure is assumed at ₹15 per kg of scrap input:
2,700 MT x ₹15,000 = ₹4.05 crore
Annual fixed operating expenses are assumed at:
₹1.20 crore
The stabilized operating economics therefore become:
| Financial Item | Annual Amount |
|---|---|
| Revenue | ₹56.23 crore |
| Scrap purchase | ₹45.90 crore |
| Variable processing expenses | ₹4.05 crore |
| Fixed operating expenses | ₹1.20 crore |
| Estimated EBITDA | ₹5.08 crore |
The EBITDA margin in this case study is approximately 9% of revenue.
That number looks reasonable only as long as scrap cost, recovery and finished-product realization remain close to assumptions.
Change one of those numbers and profitability changes quickly.
At 90% utilization, the plant purchases approximately 2.7 million kg of scrap annually.
Now assume scrap becomes only ₹10/kg more expensive.
Additional annual cost:
2.7 million kg x ₹10 = ₹2.70 crore
The project’s ₹5.08 crore EBITDA could fall to approximately:
₹2.38 crore
Nothing changed in the furnace.
Nothing changed in manpower.
Nothing changed in installed capacity.
Only scrap cost increased by ₹10/kg.
This is why raw-material sourcing should be treated as a financial strategy, not merely a procurement activity.
A DPR should identify expected scrap categories, sourcing markets, supplier concentration, imported versus domestic procurement and possible price formulas.
Now consider recovery.
At 85% recovery, 2,700 MT of scrap produces approximately 2,295 MT of saleable aluminium.
If recovery decreases from 85% to 82%, saleable production falls to:
2,700 MT x 82% = 2,214 MT
That is a difference of 81 MT of finished aluminium annually.
At ₹245/kg, that represents almost:
₹1.98 crore of annual revenue difference
A seemingly small 3 percentage point recovery loss can therefore materially change plant profitability.
Recovery can be affected by:
A financial model should therefore use recovery figures that are supported by the selected technology and actual feedstock.
Now assume the project requires:
₹5 crore fixed CAPEX + ₹8 crore working capital = ₹13 crore initial investment
For calculation purposes, assume:
Based on the capacity-utilization ramp and operating assumptions above, the calculated project IRR is approximately 23.1%.
Simple project payback is around:
4.0 years
Again, this is not a promised return for a secondary aluminium plant.
It is the result of one specific financial case study.
Change the commercial assumptions and the return changes.
A serious financial model should never show investors only the most attractive numbers.
It should also answer:
“What happens when the market moves against us?”
Using the same 10 TPD case study:
| Change in Assumption | Approx. Project IRR | Approx. Payback |
|---|---|---|
| Original case study assumptions | 23.1% | 4.0 years |
| Scrap cost increases by ₹10/kg | 8.4% | Beyond 7 years |
| Selling price decreases by ₹10/kg | 10.7% | 6.6 years |
| Recovery decreases from 85% to 82% | 12.5% | 6.0 years |
| Selling price increases by ₹10/kg | 34.5% | 2.9 years |
This table tells the promoter much more than a machinery quotation.
The project may look attractive at 23.1% IRR, but an adverse ₹10/kg movement in scrap cost reduces the calculated return to approximately 8.4%.
That is why promoters should understand the downside case before committing capital.
Promoters often spend months negotiating to save ₹10-20 lakh on machinery.
That may be useful, but the operating economics can have a much larger financial impact.
Consider the case study.
A ₹10/kg scrap-price increase changes annual expenditure by ₹2.70 crore.
A 3 percentage point fall in recovery can reduce annual sales value by almost ₹2 crore.
Compared with those numbers, saving ₹10 lakh on the original furnace quotation has a relatively small impact on long-term project economics.
The project-development team should therefore spend as much effort on procurement, recovery testing and buyer development as it spends on machinery negotiations.
In the case study, contribution before fixed operating expenses is approximately:
₹23.25 per kg of scrap input
This comes from:
Saleable aluminium value per kg of input:
85% x ₹245 = ₹208.25
Less scrap cost:
₹170
Less variable processing cost:
₹15
Contribution:
₹23.25/kg
With annual fixed expenses of ₹1.20 crore, the simplified EBITDA break-even input is approximately:
516 MT per year
Against 3,000 MT installed annual capacity, that equals roughly 17% utilization.
However, this is only operating EBITDA break-even under the assumed prices. It does not include loan repayments, finance cost, working-capital interest or promoter return expectations.
A bankable DPR should therefore calculate financial break-even separately.
Many project presentations display one IRR figure without explaining what it represents.
Project IRR measures the economic return generated by the complete project before considering how the project is financed.
Equity IRR calculates return specifically on promoter equity after considering:
A project with ₹13 crore total funding may not require the promoter to contribute all ₹13 crore if debt finance is available.
That can change equity IRR significantly.
For a loan-oriented DPR, IRR should therefore be accompanied by:
Plant financial planning should also include regulatory and environmental infrastructure.
Depending on the state, site, fuel, furnace configuration and process, a project may need to plan for items such as pollution-control equipment, Consent to Establish, Consent to Operate, waste handling arrangements, fire and factory requirements and other applicable approvals.
These requirements should be evaluated before finalizing machinery specifications.
If emission-control systems, additional storage, fire infrastructure or civil changes are discovered after installation begins, project CAPEX can increase and commissioning can be delayed.
The financial model and approval roadmap should therefore be prepared together.
Before machinery is ordered, the promoter should be able to answer a few basic commercial questions clearly.
If these answers are missing, the project may have a machinery plan, but it does not yet have a complete investment plan.
Secondary aluminium recycling can be an attractive industrial opportunity because it combines metal recovery, lower energy intensity and growing demand for recycled material.
But plant profitability is not created by furnace capacity alone.
It is created by the relationship between scrap landed cost, recovery, product realization, operating expenses, capacity utilization and working capital.
For the 10 TPD case study used above, the project generates approximately ₹56.23 crore in stabilized annual revenue, ₹5.08 crore EBITDA, 23.1% project IRR and around 4 years payback under the selected assumptions.
But a ₹10/kg increase in scrap cost reduces the calculated IRR to around 8.4%.
That single comparison explains why a detailed financial model should come before the final investment decision.
The most useful DPR is not the one showing the highest return. It is the one that tells the promoter exactly which numbers must remain under control for the project to remain financially viable.
Green Permits can support project promoters with plant feasibility assessment, CAPEX and OPEX modelling, financial projections, IRR and payback analysis, project DPR preparation and approval planning.
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