Hindalco Faces Share Price Drop Due to Novelis Capex Upward Revision

Shares of Hindalco witnessed a substantial decline of over 14% on the Bombay Stock Exchange on Tuesday as a result of an announcement made by its subsidiary company Novelis. The parent company is gearing up to reveal its Q4 results amid this market turmoil.

The sharp downturn in Hindalco’s stock price was triggered by the news of Novelis revising the capex for its Bay Minette plant in Alabama, USA. The company announced a 64% surge in the project’s CAPEX, now standing at $410 million instead of the initial $250 million. Additionally, Novelis anticipates a delay of 9-12 months, aiming for a plant commissioning in the latter half of 2026.

Novelis’ plant troubles resulted in a reduction in its IRR to 11% (LOW DOUBLE DIGIT) from the previous 15-16% (Mid Teens). However, the company experienced a remarkable 10.1 times leap in its profit after tax for the third quarter, reaching $12.1 million compared to the $1.2 million from the same period last year.

Analyst firm CLSA downgraded Hindalco to ‘underperform’ from ‘buy’ post the CAPEX announcement by Novelis. CLSA’s commentary on the matter indicates a downside risk, prompting the revision of the share target price to Rs 635 from Rs 590.

On the contrary, Jefefries held onto a ‘Buy’ recommendation with a target of Rs 725, emphasizing that Novelis’ Q3 EBITDA showed a 33% YoY rise. However, the brokerage acknowledged the challenges Hindalco faces in achieving a double-digit IRR with the Bay Minette project. Jefefries maintains an ‘outperform’ rating on the firm with a price target of Rs 570.