Hindalco shares down 4% today. JM Financial sees stock at Rs 530 level

Shares of Hindalco Industries were trading nearly 4 per cent lower in Friday’s trade amid across-the-board selling in the metals space. JM Financial has upped the price target on this scrip marginally to Rs 530 level from Rs 525 earlier as it believes Indian operations will benefit from easing cost pressure and from the fact that 60 per cent of Novelis’ business comes from can body, which may have a resilient demand outlook

On Friday, the scrip fell 3.84 per cent to hit a low of Rs 438.15. JM Financial’s target on the stoc suggests a potential 21 per cent upside over this price.

Aluminium prices have rallied 7 per cent from recent lows on hopes of improved demand from China amidst easing Covid norms, JM Financial said. Increased smelter curtailments across Europe on account of the energy crisis and multi-year low LME inventory at 481 KT will likely support aluminium prices going forward, the brokerage said.

“Aluminium market (ex-China) is expected to remain in deficit (Norsk forecast) during 2023 fuelled by smelter curtailments despite expectations of recession led demand headwinds while China is expected to move to surplus given a higher rate of production inside China,” JM Financial said,

Novelis, it said, continues to be relatively well placed despite fears of recession, as 60 per cent of Novelis’ business comes from can body, which is likely to have a resilient demand outlook. Besides, the auto business which accounts for 18 per cent of the business has a good order-book, evem as building and construction segment may see some slowdown, JM Financial said.

Hindalco expects near term margins to be impacted due to high cost inventory and inflationary pressures but medium term adjusted Ebitda per tonnes guidance is maintained at $525 per tonne.

JM Financial said Novelis expects $500 million of free cashflow in FY23 aided by working capital release in H2. India operations are likely to benefit from declining thermal coal prices (25-30 per cent) and improving linkage coal availability, the brokerage said.

The long term outlook for Hindalco continues to remain buoyant given a) Novelis –maintaining medium term Ebitda per tonne guidance, improving trajectory for India aluminium business given thermal coal price correction, enhanced coal security post acquisition of Meenakshi and Chakla coal mines at recent auctions and growth capex to augment downstream capacity amidst encouraging demand for FRP products,” JM Financial said.

Hindalco, it said, remains the brokerage’s preferred play in the metal space.

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