CLSA Asia Pacific Markets and Kotak Institutional Equities have raised their target price on the company by 7-8%, with both the brokerages maintaining a ‘buy’ or ‘add’ rating. The shares closed with over 2% gains at 480.65 rupees on Tuesday, also supported by strength in the broader market.
“The key inference from our visit was its unrelenting focus on reducing volatility in the business, either through a better product mix or stabilising input costs,” analysts at CLSA said, after their visit to the company’s Sambalpur plant cluster that houses its Hirakud plant and Aditya smelter.
Hindalco plans to add 170,000 tonnes of capacity for flat rolled products at Aditya, for which it will use the existing hot-rolled capacity at Hirakud. At its upstream operations, the company plans to reduce the cost of production and will also add capacity for primary aluminium only through renewable power.
Higher purity of metal and a lower iron and silicon content have helped Hindalco produce higher-grade aluminium alloys, which have applications in high-margin areas such as defence, railways and automobiles, and an increased usage in battery foils, solar modules etc augurs well for a growth in demand, Kotak Institutional Equities said in a note to its clients.
“We believe that further expansion of downstream capacities, led by increased end-use applications, higher domestic demand and import substitution for high-grade imported alloys, will provide a meaningful runway for margin growth over FY2024-26E,” it said.
Of the 26 analysts covering the shares, 25 have a ‘buy’ rating for the shares with an average target price of 542 rupees, data from Bloomberg showed. This implies an upside of about 13% from the current levels.Shares of Hindalco are up a little over 1% so far in 2023 as against 8.7% gains in the Nifty 50, and less than 1% returns in the Nifty Metal index.
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