07 Mar , 2022 By : Kanchan Joshi
Rising global energy prices and concerns on Russian supply have fueled a 37% CYTD rally in aluminum to a three-decade high. Hindalco should be a beneficiary especially given the bulk of coal coming from Coal India at below-global prices, as per 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.
The global brokerage has a 'Buy' rating on the metal stock with target price raised to Rs700 per share (from Rs660). Shares of Hindalco have rallied about 74% in a year's period.
The global energy squeeze has resulted in melt-up in thermal coal prices, almost trebling CYTD. Russia produces around 6% of global aluminum and concerns on sanctions are also pushing up prices, Jefferies highlighted.
“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.
Further, Hindalco also has 100 percent captive bauxite and is a direct beneficiary of any alumina-led cost push in aluminum. It has also expanded its Utkal alumina refinery capacity by 0.5 mtpa in July, and external sales of alumina is providing an additional boost.
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