Hindalco Faces Stock Slump on Novelis Capex Revision, Analysts Reveal Outcomes

Shares of Hindalco Industries witnessed a significant downturn of over 14% on Tuesday as Novelis, the company’s subsidiary, made announcements during its Q4FY24 results, causing a stir in the market.

Novelis disclosed an unexpected increase in the capital expenditure (CAPEX) for its plant located in Bay Minette, Alabama, USA. The initial estimated amount of $250 million has been revised to $410 million, reflecting a substantial 64% surge in costs.

The construction timeline for Novelis’ aluminum recycling and rolling facility has been extended by 9-12 months, now targeting completion in the latter half of 2026. Concurrently, the internal rate of return (IRR) for the plant has dropped from the previously projected ‘mid-teens’ to ‘low double digits’, standing at 11%.

Analysts from various firms have weighed in on the consequences of these developments. Kotak Institutional Equities has set a fair value estimate of Rs 535 for Hindalco’s stock, stating that the escalating costs and delayed timeline of the Bay Minette project could obstruct the company’s growth prospects over the following five years.

JM Financial, on the other hand, maintains a positive outlook, acknowledging that the cost increase may affect the project’s IRR but would benefit the earnings trajectory in the long run through enhanced recycling efforts and improved margins, ensuring sustainable EBIDTA of $525 per tonne.

Meanwhile, Axis Securities has raised its target price for Hindalco to Rs 660 from Rs 555 and anticipates the company’s EBIDTA to hit the $500 million milestone in Q4FY24, showcasing a positive trajectory amidst the current setbacks.

CLSA, downgrading its rating to ‘underperform’, raised the share target price to Rs 635 from Rs 590. The brokerage highlighted the challenges Hindalco may face in achieving a double-digit IRR and suggested skepticism regarding the Bay Minette project’s performance.

Despite the hurdles, Jefefries remains optimistic, maintaining an ‘outperform’ rating for the company with a target price of Rs 570, emphasizing Novelis’ operational advancements and the potential for future growth.