The shares of Asia’s largest aluminum producer rose 3.7 percent to ₹522 a share after CLSA recommended a buy call on the stock with an upside of 22%.
At 2:15 p.m. on the National Stock Exchange, Hindalco Industries Ltd. shares were trading at ₹520.30 per share, up ₹17.20 or 3.60 percent from the previous close price. The company has a market capitalization of ₹1,17,305 crore.
According to the recent shareholding pattern, the promoters hold 34.65 percent of the company, while foreign institutional investors hold 27.89 percent and domestic institutional investors hold a 25.06 percent stake.
Hindalco Industries Ltd. is a flagship company of the Aditya Birla Group. The company is primarily engaged in the production of aluminium and copper.
The company’s revenue has declined by 0.7 percent year on year, from ₹ 53,151 crore in Q3FY23 to ₹52,808 crore in Q3FY24. During the same period, net profit has significantly increased by 71 percent, from ₹1,362 crore to ₹2,331 crore.
Hindalco Industries shares have gained 10 percent in the last six months and 26 percent in a year.
CLSA recommended a buy call on Hindalco Industries Ltd. The brokerage has revised a target to ₹635 per share, representing an upside of 22 percent from Friday’s trading price of ₹520.30 per share.
CLSA upgraded the stock to ‘Buy’ from ‘Underperform’ earlier, citing the company’s existing businesses remain strong with gradual improvement in profitability.
The decline in Hindalco’s stock price can be primarily attributed to the announcement by its US-based subsidiary, Novelis, regarding a delay in the completion of the Bay Minette project and an associated increase in capital requirements. CLSA noted.
Novelis is a manufacturer of flat-rolled aluminium products utilised in a wide array of building applications, extending from beverage cans to aeroplanes. The company has also adjusted the return guidance for the Bay Minette project to the mid-teens
from double digits, causing a significant decline in the stock price of the parent company.
The global brokerage said that clarity on the use of cash and growth projects are key points to watch for Hindalco Industries Ltd. Apart from Novelis, the brokerage said that Hindalco’s businesses are strong and profitability will gradually improve. However, CLSA suggested a further 10-12% downside from the current market levels in its bear case scenario.
Additionally, the brokerage has indicated that the capital allocation appears well-placed, attributing this to the upstream smelters being positioned in the first quartile of the cost curve. The focus on capital expenditures (capex) for downstream assets in both India and Novelis further supports this assessment.
Nevertheless, there is a foreseen pressure on free cash flow (FCF) over the next three years due to an increase in capex intensity. Returns are expected to be backend, particularly following the completion of expansion projects. The key factor influencing this outlook is the successful execution of the project at Bay Minette, as emphasized by the brokerage.
Written by Omkar Chitnis
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
