Hindalco Industries Ltd witnessed a significant drop of 15% in its shares during Tuesday's trading session following an upward revision in capex by Novelis, coupled with a delayed timeline for its Bay Minette project.
Novelis' Capex Revision
Novelis, in its December quarter results, announced a 65% increase in the capex for its Bay Minette project, along with a one-year delay. This revision also led to a reduction in return guidance from the project, downgrading it from 'mid-teens' to 'double digits'.
Impact on Hindalco Shares
The news of Novelis' capex revision and delayed timeline resulted in a sharp decline in Hindalco's stock price, plummeting by 14.69% to reach Rs 496.80. Analysts have provided fresh targets for the stock in light of these developments.
Analysts' Assessments
Kotak Institutional Equities
Kotak Institutional Equities highlighted the adverse impact of the escalated capex and delayed timeline on Hindalco's growth prospects. While it maintained its earnings forecast until FY2026E, the brokerage expressed concerns about the long-term growth, earnings, and return prospects of the company. It assigned a fair value of Rs 535 for the stock.
JM Financial
JM Financial acknowledged the challenges posed by the increased projected costs for the Bay Minette plant, which may lead to a lower IRR. However, it anticipated positive earnings trajectory driven by plant commissioning, enhanced recycling efforts, and evenly spread capex. Despite the challenges, JM Financial maintained a 'Buy' rating with a target of Rs 610 for Hindalco shares.
Axis Securities
Axis Securities revised its target upwards to Rs 660 from Rs 555, citing expectations of reaching the $500 million Ebitda mark in Q4FY24. The firm also noted a downward revision in full-year Capex guidance and projected a decrease in net leverage ratio by the end of FY24.
The revision in Novelis' capex and timeline for the Bay Minette project has had a significant impact on Hindalco's share price, prompting analysts to reassess their targets for the stock. While challenges lie ahead, the company's strategic initiatives and focus on sustainable earnings remain key factors driving investor confidence in the long term.
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