Hindalco Industries shares experienced a sharp decline of 6.34 percent, trading at ₹778.65 on Thursday afternoon, significantly lower than its opening price of ₹788. This drop came in response to Q2 results and updated capital expenditure guidance from its subsidiary, Novelis Inc.
In light of these developments, JM Financial Institutional Securities has retained a ‘Buy’ rating for Hindalco, setting a target price of ₹800. However, analyst Ashutosh Somani raised concerns regarding a substantial increase in capital expenditure at the Bay Minette plant, which rose from $4.1 billion to $5 billion. The brokerage attributed this escalation to inflation, tariffs, heightened competition for contractors due to various ongoing US construction projects, and increased equipment costs as progress continued.
This revised capex is anticipated to exert pressure on returns, as Novelis has indicated its internal rate of return may dip slightly below double digits, contrary to the previous guidance of double-digit returns. This outlook affected investor sentiment, despite Novelis meeting operational performance expectations.
In its Q2 report, Novelis recorded an adjusted EBITDA of $422 million, with EBITDA per tonne measuring $448, an increase from $432 in Q1. However, the company encountered a negative tariff impact of around $54 million during the quarter. Performance varied by region, with North America and South America experiencing year-on-year EBITDA contractions of 27.6 percent and 11.5 percent, respectively, while Europe and Asia reported gains.
The stock traded heavily, with volumes reaching 224.36 lakh shares valued at ₹1,751 crore, and a deliverable quantity of 60.88 percent.
