Buy Hindalco For 15% Upside From Current Levels; Jefferies Raise Target Price To Rs. 700/Share

Jefferies-the global firm has raised its bets on Hindalco amid supply disruption engulfing the whole of the world given the escalating Russia-Ukraine war.

For the stock, the diversified financial services entity has raised target price to Rs. 700 from the last target of Rs. 660, signalling a 'Buy' in the stock. From the current price levels of Rs. 608 per share, the upside is of 15%. In the 1-year period, the stock has spurted in price by over 80%.

Jefferies rationale for likely gains in Hindalco

On the supply constraints in the backdrop of geo-political tensions, aluminium prices have gained on a CYTD basis by 37% to a three-decade high. Hindalco should be a beneficiary especially given the bulk of coal coming from Coal India at below-global prices, notes Jefferies.

"Novelis outlook remains strong amid structural tailwinds in packaging and autos. We raise FY23-24 EPS by 5%-11% on higher aluminum prices and see further upside at spot. Hindalco is our preferred pick in India metals," the note stated.

"We believe Hindalco is better positioned in a global cost push environment in aluminum. Hindalco is also witnessing energy cost inflation and expects its aluminum production cost to rise around 10% rise QoQ in 4Q. However, with the bulk of coal coming from Coal India linkages at notified prices, HNDL should suffer lower energy cost inflation than a thermal-powered smelter sourcing fuel at global prices," the note added.

As far as aluminium is concerned, Russia produces 6% of global aluminium and concerns around sanctions are lifting its prices higher; the global brokerage claimed.

Disclaimer: The stock is taken from the report of Jefferies and the market is highly volatile and has come down sharply from its record highs, so take call accordingly.