The international brokerage CLSA reiterated its buy ratings for Hindalco Industries Ltd and Vedanta Ltd citing expectations of a strong recovery in aluminum demand, which is projected to support prices.
Particularly emphasized the advantageous position of Indian smelters, attributed to their high backward integration and reliance on domestic sourcing for crucial raw materials such as bauxite and coal.
In Q1 2024, China experienced a significant uptick in aluminum demand, particularly from the automotive and photovoltaic sectors. While global demand remains robust overall, there are exceptions in sectors like building and construction.
The brokerage expects sustained high prices for aluminum, driven by cost pressures, notably from alumina. Downstream industries, including beverage can sheet producers, automotive manufacturers, and aerospace companies, are anticipated to witness a recovery in demand.
Despite a decline in gross floor area completion, low inventory levels, and increased imports, China saw a 12% year-on-year surge in aluminum consumption in 2024. This growth was propelled by strong activity in automobiles, new energy vehicles (NEVs), and photovoltaic capacity. Although production in Yunnan resumed in March, it did so at a sluggish pace.
CLSA forecasts that factors such as capacity constraints, investment costs, and supply uncertainties will likely maintain elevated prices, supported by increasing demand and production.
Brokerage anticipate an average aluminum price to surpass Rmb19,000/ton in 2024. Additionally, the brokerage notes that global demand remains robust, particularly in automotive and electrical sectors, with signs of recovery in packaging. While the building and construction sector, notably weak in Europe, is stabilizing in North America. Furthermore, the transition to renewable energy is expected to drive future demand.
Listed below are two metal stocks with an upside up to 20%
Hindalco Industries Ltd
Hindalco Industries Ltd. is a flagship company of the Aditya Birla Group. The company is primarily engaged in the production of aluminium and copper.
At 12:55 p.m., on the National Stock Exchange, Hindalco Industries Ltd shares were trading at Rs 643.55, up 0.34 percent from the previous close. The company has a market capitalization of Rs 1,45,024 crores.
In the past six months, the company’s shares have seen an impressive 35 percent growth, while over the course of a year, they have soared by 46 percent.
Despite a slight year-on-year decline of 0.6 percent in revenue, from Rs 53,151 crore in Q3FY23 to Rs 52,808 crore in Q3FY24, the company has experienced a remarkable 71 percent increase in net profit during this period, rising from Rs 1,362 crore to Rs 2,331 crore.
CLSA has revised a ‘buy’ rating on Hindalco Industries Ltd with a target price of Rs 770 per share from Rs 635,representing an upside potential of up to 20%,from the current market price of Rs 643.55 per share.
CLSA has increased its forecasted EBITDA for Hindalco for the fiscal years 2024 to 2026 by 4-13%, attributing this adjustment to elevated aluminum prices and a marginal uptick in profit estimations for Novelis.
Novelis, a producer of flat-rolled aluminum items, caters to diverse sectors, ranging from beverage packaging to aerospace engineering.
Vedanta Ltd
Vedanta Ltd is a diversified natural resource company that explores, extracts, and processes minerals as well as oil and gas. The company explores, produces, and sells zinc,silver, copper, aluminum, iron ore, and oil and gas.
At 12:55 p.m., on the National Stock Exchange, Vedanta Ltd shares were trading at Rs 412.25,up 0.43 percent from the previous close. The company has a market capitalization of Rs 1,54,263 crores.
Over the past six months, the company’s shares have yielded a return of 77 percent, while over the course of a year, they have seen a 48 percent increase.
Furthermore, the company’s revenue experienced a year-on-year decrease of 6.3 percent, dropping from Rs 37,930 crore in Q4FY23 to Rs 35,509 crore in Q4FY24. Similarly, during this period, net profit declined by 27 percent, falling from Rs 3,132 crore to Rs 2,275 crore.
CLSA has kept a ‘buy’ rating on Vedanta Ltd with a target price of Rs 430 per share, representing an upside potential of up to 4.5%.from the current market price of Rs 412.25 per share.
CLSA sees Vedanta as strongly positioned to capitalize on the current commodity upswing, attributed towards company’s diversified portfolio and continual efforts to enhance capacity and profitability through its capital expenditure program.
Written by Omkar Chitnis
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