Concerns ranging from high input cost to delays in project may impact Hindalco going forward.
Weak aluminium outlook and higher input costs are likely to bother non-ferrous players Hindalco even in FY14, says Citi Wealth advisors in its earnings review note.
The Aditya Birla Group company reported 10.89 percent YoY fall in profit to Rs 3,026.89 crore in FY13. Net sales also declined marginally by 0.86 per cent to Rs 79,705.51 crore on rising input cost, weak pricing power and smelter disruption.
Hindalco shares declined around a percent to Rs 108.85 in morning trade after the firm announced numbers post market hours on Tuesday.
Citi has a 'sell' on Hindalco with a target price of Rs 118 on expectation of muted aluminium outlook and viability of expansion plan of the firm.
The three expansion projects including the 1.5 metric tonne Utkal refinery, the 359 ktpa Mahan aluminium smelter, and the 359 ktpa Aditya aluminium smelter are expected to be commissioned later this year but lack of captive coal may delay break-even for them.
The performance of Hindalco's wholly-owned subsidiary Novelis will be closely watched due to pricing pressure from competitors, supply chain disruptions due to implementation of a new ERP (enterprise resource planning) system in its two North American plants as well as production challenges and softer demand.
IDFC also maintains a cautious stance on the stock given weak aluminum price outlook,rising leverage and continuing concerns on return profile of the upcoming greenfield smelter projects, given the delays. Also, operating profits of Novelis have peaked, and any earnings growth led by capacity expansion would kick only in FY15. With these factors at play, the firm has downgraded stock to ‘underperform with a target of Rs 100
ICICI Securities has also assigned 'reduce' rating with a target price of Rs 94 on concerns rangings from higher debt level which is currently at Rs 470 billion. Other concerns include.greenfield capex likely to take time to start contributing to improve balance sheet. Novelis remains a non-repatriating subsidiary, reasons the brokerage.