Hindalco up 8% in last 2 days as US housing demand revives: Nikunj Dalmia

ET Now's Nikunj Dalmia shares his views about Hindalco Industries, the leading manufacturer in aluminium and copper. Excerpts:

Hindalco Industries is up 8% in the last two days. So, the stock has really caught my attention at a time when markets just love to hate commodity stocks. Globally, things are looking charged up and incrementally, things are looking rather positive for aluminium as a cycle.

Also, Alcoa (world’s largest producer of aluminium) has indicated that in the near term, they expect the US housing market to revive and they also expect the demand to come back from the US aviation industry. US housing industry and the US aviation industry are the two big large buyers of aluminium.

So globally, this is one commodity where demand is back unlike steel or copper where demand is low and inventory built-ups are high. Also, the valuation for Hindalco is extremely supportive.

The stock currently is trading at nearly 0.5 times price-to-book. Historically, for those who have always bought metal stocks closer to 0.75 times book or 0.05 times book, have always made money. So, there is a margin of safety, a bit of a short covering and then there is a big global belief that the worst for aluminium is now behind us.

The stock is looking cheap and no one owns it. Markets are currently moving up because of the short-covering. So, may be there is some money which could be made in Hindalco. The bad news here is that the stock already has seen a run up of 8-9% in the last two days.

So, maybe this is a stock which may not give you too much of headroom in the short-term. But a level of Rs 120-125 looks conceivable because Hindalco even at Rs 120 will be trading below its book value.