Hindalco Industries shares on Wednesday extended their losses to over 13% in two sessions notwithstanding a 71% year-on-year (YoY) jump in its December quarter net profit as the Novelis capex shocker weighed on the stock. However, the intensity of decline was substantially lower on Wednesday with less than 1% fall around 11 am.
A clutch of brokerages remains optimistic about the long-term story of Hindalco expecting the company to benefit from Novlis capex, over time. While Jefferies, Motilal Oswal and JM Financial have reiterated their buy views, Kotak Institutional Equities has an 'Add' stance. Nuvama on the other hand has recommended a hold and cut the price target.
Hindalco Industries on Tuesday reported a 71% YoY growth in its consolidated net profit at Rs 2,331 crore for the quarter ended December 2023. The profit stood at Rs 1,362 crore a year ago. Revenue from operations in the third quarter fell marginally to Rs 52,808 crore from Rs 53,151 crore in the same quarter of last year.
Read more: Hindalco Industries Q3 Results: Profit jumps 71% YoY to Rs 2,331 crore
Today marks a decline for the fourth continuous session where the stock has lost nearly 16% in stock price.
Here's what brokerages recommended:
Jefferies: Buy | Target: Rs 610
Jefferies has retained a buy rating on Hindalco Industries' stock for a price target of Rs 610, which has been slashed 20% from Rs 725, earlier. While the US brokerage prefers Coal India over Hindalco, it expects a better fourth quarter from Novelis along with India aluminum margins holding up.
The big cost escalation at Novelis has deteriorated cashflow outlook and will impact project return ratios, jefferies said.
Motilal Oswal: Buy | Target: Rs 590
Motilal Oswal has reiterated a Buy rating with a revised SOTP-based target price of Rs 590. Commenting on the company's Q3 results, this brokerage said that EBITDA was in line with its estimates though PAT missed the estimates.
The ongoing capex in Novelis would augment Hindalco as the global leader in beverage cans and automotive FRP segments, though an extension in the capex timeline along with an increase in cash outflow will add some pressure on the cash flow of the company.
Motilal said that its capex would be a key monitorable for any further cost revisions or delays.
JM Financial: Buy | Target: Rs 610
JM Financial has maintained a buy view on the counter for a price target of Rs 610. The stock remains one of its preferred bets.
Novelis reported 3Q adjusted EBITDA of $454 mn which was higher than JM's estimates of $437 mn. EBITDA outperformance was due to lower than expected raw material cost, it said in its stock review note.
The brokerage also highlighted key takeaways from the call which included a revision in its capex guidance for its Bay Minette plant from $2.7-2.8 bn to $4.1 bn, up 52%.
A significant escalation in projected cost for the Bay Minette plant is likely to result in lower IRR, it said.
However, in JM's view, earnings trajectory is likely to benefit from tracking plant commissioning, increased recycling and evenly spread capex (due to delay in Bay Minette plant commissioning) resulting in higher shipments and margins keeping its journey of sustainable EBITDA/t of US$525/t intact.
Kotak Equities: Add | Target: Rs 535
Kotak has recommended an 'Add' rating on Hindalco Industries for a price target of Rs 535. The brokerage has expressed surprise on the Novelis—capex front. The December quarter earnings were in line with its estimates.
Novelis’ 3QFY24 adjusted EBITDA came in line with its estimates with the demand outlook improving in America, whereas Europe and Asia remain under pressure. The company has revised the capex outlay upward for its key growth project—greenfield expansion in North America — by 65% to US$4.1 bn and delayed the timeline by one year to end FY2027E. Management has downgraded the return guidance from this project to ‘double digits’ from ‘mid-teens’ earlier. Cost inflation and delay do not impact our explicit earnings forecast until FY2026E, but damage the growth, earnings, and return prospects of the company from a 5-year perspective, Nuvama said in a note.
Nuvama: Hold | Target: Rs 508
Nuvama has reiterated a 'Hold' on Hindalco and cut the target price to Rs 508 from an earlier target of Rs 522. The brokerage noted sharp capex escalation in Novelis though the company's Indian operation (including Utkal) posted better-than-expected EBITDA. "Lower cost at Indian operation led us to raise FY24E/FY25E consolidated EBITDA by 2–3%. However, the rise in capex at Novelis shall lead to higher debt in FY26E, affecting value," Nuvama said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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