Hindalco gets a 'buy' call from CLSA; TP set is around all-time high levels

Hindalco share price: Shares of Hindalco Industries, the flagship company of the Aditya Birla Group, touched levels of Rs 516.8 at the day's high, gaining 2.7 per cent as brokerage firm CLSA upgraded the stock to a 'buy' from the previous 'underperform' call. The brokerage has set a price target close to its all-time high of Rs 635, touched nearly two years ago. Its all-time high level is Rs 636 on the BSE, which was hit on March 29, 2022.
 
The upgrade in the stock comes after a steep correction to the tune of over 17 per cent on a year-to-date basis. The brokerage maintains that the concern is overdone. However, it is still sceptical about the recently announced IPO by the company's US-based subsidiary Novelis and says that whether it will lead to value unlocking or building a war chest is not known yet.
 
Investors need to be watchful of the use of cash and growth projects, the brokerage added.
 
However, the bear case analysis suggests a further 10 per cent–12 per cent downside from current levels, even though existing businesses remain strong with gradual improvement in profitability, CLSA notes.

Earlier, Axis Direct gave the stock a target price of Rs 660. The brokerage said, "We continue to value the company using SoTP with a 12MF EV/EBITDA target of 6.0x/5.0x/5.5x on FY26 EBITDA for Indian Aluminium, Copper, and Novelis operations, respectively, and add investments at market price and capital work-in-progress (CWIP) at 50 per cent to arrive at our TP of Rs 660/share."

Further, the brokerage stated that with the upstream smelters in the first quartile of the cost curve and the capex focus on the downstream assets at both India and Novelis, the capital allocation looks well-placed. However, free cash flow (FCF) will be under pressure for the next three years as capex intensity increases. Returns will be backended after the completion of expansion projects. Project execution at Bay Minette remains the key, it added.