Hindalco slips 8% in two days on profit booking; stock up 77% in one year

The management sees strong demand for aluminum from major segments like Beverage Can, Automotive Body Sheet, Specialties, and Aerospace.

Shares of Hindalco Industries traded lower for the second straight day, down 4 per cent at Rs 577.45 on the BSE in Thursday’s intra-day trade in an otherwise range-bound market. In comparison, the S&P BSE Sensex was up 0.13 per cent at 58,760 at 11:01 am.

The stock of the largest aluminum player in India has slipped 8 per cent in the last two days on profit booking. The stock has corrected 9 per cent from its record high of Rs 636 touched on Tuesday, March 29, 2022.

However, in the past three months, Hindalco has outperformed the market by surging 22 per cent as compared to a 0.78 per cent rise on the S&P BSE Sensex. In the last one year, the stock has zoomed 77 per cent, as against a 19 per cent rally on the benchmark index.

Hindalco unveiled a capex plan of ~$8 billion over the next five years. This capex would be incurred in FY23-27 with total capex ~$4.5-4.8 billion to be incurred at Novelis while ~$3.37 billion would be spent on the India business.

The management sees strong demand for the aluminum from major segments like Beverage Can, Automotive Body Sheet, Specialties, and Aerospace. The supply disruption in aluminum will deepen the deficit and result in higher LME prices through FY23 and FY24.

“Hindalco is one of the lowest-cost producers of alumina at its Utkal refinery. The same has been fully ramped up, driving costs down further. The company is expanding both downstream and upstream to raise its aluminum capacity as well as the share of value add products, which will eventually reflect in an improved EBITDA margin,” Motilal Oswal Financial Services said. The brokerage firm retains ‘buy’ rating on the stock with a target price of Rs 750 per share. “The key downside risk to our call is a slowdown in China. A sharp reduction in LME prices will impact Hindalco's capex plans adversely,” it said.

“Global supply shortage and strong demand prospects have pushed global aluminum prices to healthy levels. With its recently announced growth capex plan, over a medium to longer term horizon Hindalco is poised to benefit from the same. With respect to the capex plan, for both Novelis and Indian operations, some projects are in the appraisal stage and are likely to get requisite approvals in due course”, ICICI Securities said in a note.