Hindalco Industries Ltd: Buy

CMP: Rs.83.65

The stock  is showing strong  bullish trends after crossing Rs.79 on the upside. Today the scrip tried to cross the resistance zone of Rs.84.50-84.60.......

Moreover, when Vedanta Ltd, a peer group company,  closed at Rs.103.60, up more than 10%, then Hindalco Industries Ltd (Rs.83.65) shouldn't (or cannot) be far behind. 

A weak rupee will benefit the company. Also, any hike in import duty (from 5-10 per cent) as demanded by the industry should help. 

Long-term positives

Hindalco’s long-term prospects, however, remain strong. Its copper segment, which contributes about 15% of operating profits, faced revenue pressure from falling metal prices. However, thanks to better smelting margins, profits improved Y-o-Y in the June quarter by 8%.

This segment should see consistent growth as refining margins are expected to be robust.

Its Utkal alumina refinery plant — among the low-cost plants globally — is operating at nearly full capacity utilisation.

The Aditya smelter’s utilisation is expected to improve from about 55% levels currently to full capacity by the end of the financial year.

Also, margins should improve in the long term as captive coal output ramps up.

Uptick in aluminium demand from the automotive segment to meet stricter global emission standards should boost revenue and profits for Novelis. The company has debt of about Rs.60,000 crore and it may remain at these levels with the capex cycle nearing an end. The company's net debt to equity is about 1.7 times. 

Therefore, Fresh Positions can be taken in the counter at the CMP of Rs.83.65 (BSE), for short term targets of Rs.93-97. Moreover, those who are already holding the scrip, can remain invested as the near-term negatives seem to be priced in and the company’s long-term prospects remain strong. The book value of the shares of the company is Rs.182.36, which is much lower than the CMP of Rs.83.65.