Hindalco down 8% in two days on profit taking; Store 77% in one year

Shares of Hindalco Industries were trading lower for the second day in a row, down 4 per cent at Rs 577.45 on the Bahrain Stock Exchange in Thursday through Thursday trading in a range-bound market. By comparison, the S&P BSE Sensex was up 0.13 percent at 58,760 at 11:01 a.m.

Shares of India’s largest aluminum company have fallen 8 percent in the past two days due to profit taking. The stock corrected 9 per cent from a record high of Rs 636 touched on Tuesday, March 29, 2022.

However, in the past three months, Hindalco has outperformed the market with a 22 percent rise compared to a 0.78 percent rise in the S&P C Sensex. Last year, the stock rose 77 percent, versus a 19 percent rise on the benchmark.

Hindalco has unveiled a capital expenditure plan of approximately $8 billion over the next five years. These capital expenditures will be incurred in fiscal year 23-27 totaling $4.5-4.8 billion to be incurred in Novelis while $3.37 billion will be spent on India business.

Management sees strong demand for aluminum from key sectors such as beverage cans, auto body panels, specialties and aerospace. Supply disruptions in aluminum will deepen the deficit and lead to higher LME prices during fiscal years 23 and 24.

Hindalco is one of the lowest cost alumina producers at its Utkal Refinery. And the whole thing itself has been ramped up, further reducing costs. Motilal Oswal Financial Services said the company is expanding in both downstream and upstream operations to increase its aluminum production capacity as well as the share of value-added products, which will ultimately be reflected in improved EBITDA margins. The brokerage maintains a “buy” rating on the stock with a target price of Rs 750 per share. “The main downside risk facing our call is the slowdown in China. The sharp drop in LME prices will negatively impact Hindalco’s capital expenditure plans,” she said.

Global supply shortages and strong demand prospects have pushed global aluminum prices to healthy levels. With its recently announced growth capex plan, Hindalco is poised to capitalize on it in the medium to long term. In terms of the capital expenditure plan, for both Novelis and the Indian operations, some projects are in the evaluation stage and are likely to obtain the required approvals in due course, ICICI Securities said in a note.

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