Hindalco's Q1 EBITDA beat fuels bullish calls from CLSA, Jefferies, other brokerages

Hindalco stock has rallied 38 percent in the last one year, beating benchmark Nifty's returns of 25 percent during this period.

Hindalco's Q1 India EBITDA beat, driven by lower aluminium cost of production (COP) and improved profitability in the copper segment has bolstered bullish sentiment among brokerages.

CLSA has given an "Outperform" rating on Hindalco with a target price of Rs 760 per share. Although the spot London Metal Exchange (LME) price was $210 per tonne lower than in Q1, the profitability impact is expected to be cushioned by a better product mix and effective hedging strategies, the brokerage said.

With downstream expansion nearing completion, Hindalco is now shifting its focus to upstream projects, which are anticipated to drive volume growth and margin expansion, said analysts at CLSA.

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The Aditya Birla group company's net profit rose 25 percent on-year to Rs 3,074 crore and consolidated revenue from operations rose 7.5 percent YoY to Rs 57,013 crore in the fiscal first quarter.

Jefferies has also issued a "Buy" call on Hindalco with a target price of Rs 800 per share. The company's India business is performing well, demonstrating strong cost control in aluminium production and delivering better margins in the copper segment, it noted.

While the recent decline in aluminium prices presents some challenges, Novelis, Hindalco's subsidiary, is benefiting from higher demand for beverage cans, the brokerage said.

Additionally, the flooding issue at the Swiss plant is expected to normalize in the second half of the year. With a price-to-book ratio of 1.2x for FY25, Jefferies considers the valuation reasonable.

JPMorgan maintained an "Overweight" rating on Hindalco with a target price of Rs 725 per share. Hindalco has three upstream projects in the pipeline, which JPMorgan believes will not compromise the company's balance sheet health. However, the firm anticipates a softer EBITDA per tonne in Q2 FY25 due to the recent decline in LME prices.

Hindalco is in an extensive expansion plan mode with a capital expenditure of approximately $8.5 billion over the next five years, including $4.9 billion allocated for Novelis and $3.6 billion for its India operations.

While the capex in India will be internally funded, the expansion at Novelis is expected to increase consolidated net debt to Rs 38,000 crore by the end of FY26, up from Rs 35,500 crore in Q1 FY25, noted analysts Nuvama Institutional Equities.

Also Read | Hindalco Q1 Results: Net profit rises 25% to Rs 3,074 crore, misses estimates

Hindalco is well-positioned for growth with Novelis’s capacity expansion and robust margins, alongside domestic advancements in aluminium and alumina production, driving strong profitability and market leadership through FY27, according to analysts.

The company's earnings growth over the next three years will largely depend on aluminium prices, the brokerage said as it put a 'hold' rating on the stock with an unchanged target price of Rs 695, based on a valuation of 6.4x FY26 EV/EBITDA.

The company faces significant risks from potential sharp declines in aluminium LME prices, rising input costs, and lower margins at Novelis due to economic downturns in Europe and the US, which could erode profitability, Nuvama noted.

Hindalco shares ended 1.3 percent lower at Rs 620.90 on the National Stock Exchange (NSE) in the previous session. In the last one year, the stock has rallied 38 percent, beating benchmark Nifty's returns of 25 percent during this period.

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