Hindalco stock correction opens up a buying opportunity

The correction in shares of Hindalco Industries should be seen as a buying opportunity as its fundamentals remain robust from a medium and long-term perspective, experts said after the aluminium major's stock experienced its sharpest intraday fall in nine months on Thursday.

Such dips can be utilised for accumulating Hindalco shares because the stock is likely to consolidate over the next few quarters, analysts told ET.

Hindalco shares ended at ₹648.10 on the NSE on Thursday, down 8.5% from the previous close, following its US-based arm Novelis' weak earnings and an uncertain outlook.


"It is a buying opportunity for Hindalco... Those who are holding the stock should continue to hold the stock, and those who want to take a fresh entry, maybe, this is the opportunity," said Aditya Welekar, analyst at Axis Securities.

While he expects the shares to remain under pressure for some quarters, in line with the profitability at Novelis, Welekar said they are bound to bounce back given that the company's upcoming facility at Bay Minette in the US is likely to have an operating profit of $1,000 per tonne.

Novelis' profit for the September quarter fell 18% on-year due to lower operating income and charges related to a production disruption. Its operating profit, among other things, was impacted by a rapid increase in scrap aluminium prices.

"We believe that the scrap market is likely to remain tight in the medium term and keep Novelis margins under pressure," analysts at Kotak Institutional Equities said in a report, maintaining their 'reduce' rating for the shares.

While the company made an adjusted operating profit of $489 per tonne in the September quarter, it has withdrawn its profitability guidance until further clarity on metal markets and the impact of mitigation actions.

Pegging the current levels of the stock as a 'good level' to add, Tushar Chaudhari of Prabhudas Lilladher suggested that investors should keep buying the shares in smaller quantities. "It will remain weak, but below ₹650, it is a good stock to add," he said.

Hindalco will report its consolidated earnings for the quarter on Monday, post which analysts are likely to review their target price for the shares. Even after today's losses, the shares are up nearly 34% over a one-year period.