Brokerage CLSA upgraded Hindalco Industries to "buy", saying the Aditya Birla group company's existing businesses are strong and likely to see a gradual improvement.
Hindalco shares, which has fallen over 11 percent in the past month, settled at Rs 506.5 on the National Stock Exchange on February 29. CLSA issued a target price of Rs 635 on the counter, implying an upside of around 25.4 percent from the closing levels.
The drop in the share price has largely been triggered by Hindalco's US-based subsidiary Novelis announcing a delay in completion and an increased capital for the Bay Minette project.
Novelis is a maker of flat-rolled aluminium products used in building products ranging from beverage cans to aeroplanes.
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The company also revised the return guidance for the Bay Minette project to mid-teens from double digits, sending the parent company's stock price spiralling.
After the correction, CLSA said concerns regarding the company are overdone.
Novelis also filed for an initial public offering (IPO) with the US Securities and Exchange Commission. The shares are expected to be offered by Novelis’ sole shareholder AV Minerals (Netherlands), a wholly-owned subsidiary of Hindalco.
CLSA questioned the motives of the IPO, whether it was for value-unlocking purposes or to build a war chest. Therefore, a key monitorable to decode the motive will be to find clarity on the usage of cash, especially the influx following the IPO.
Apart from Novelis, the brokerage said that Hindalco's businesses were strong and profitability would gradually improve. However, in a bear case scenario, there could be around 10-12 percent further downside from the current levels.
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