Analysts bearish on Hindalco as Jharkhand shuts bauxite mines

MUMBAI: The Jharkhand government’s move to shutdown all bauxite mines with deemed licenses in the state is likely to have negative impact on Hindalco.

The company has 5 bauxite mines in Lohardaga and Gumla which, have been operating on deemed license.

The company has bauxite inventory for about 1-2 months and will have to source bauxite from external sources if the state government does not allow restarting of mines soon.

According to reports, these mines cumulatively accounted for 45 per cent of Hindalco’s bauxite production from Jharkhand.

"Factoring the cost differential between captive and imported bauxite, we see an adverse impact of Rs 7.1 per share on our current Fair Value. Hindalco’s disclosures pertaining to bauxite sourcing have been opaque and the Street so far has given it the benefit of doubt on sourcing arrangements/costing," said Espirito Santo report.

"Given the power outage issues and bauxite mine shutdown, we expect higher COP/lower volumes on a sequential basis for Hindalco’s standalone operations in Q2FY15," the report added.

The brokerage has reiterated ‘Sell’ rating on the stock with a target price of Rs 155 per share.

The stock after correcting over 10 per cent in the last one month looks weak on the charts.

Sandeep Wagle, Founder & CEO, Power My Wealth has advised traders to go short on the stock with stoploss of Rs 168. He expects the stock to slip lower to Rs 156 per share.

At 10:30 a.m.; the stock was at Rs 164.75, up 0.83 per cent, on the BSE. It touched a high of Rs 165.50 and a low of Rs 161.15 in trade today.