Hindalco To Increase Capex On Upstream Projects, Says MD Satish Pai

Hindalco Industries Ltd. will focus on upstream projects as part of its expansion plan after an upbeat performance in the first quarter of the current fiscal, according to Satish Pai, Managing Director of the company.

“We are nearing the end of our current downstream investment cycle, which is now poised to yield results. Going forward, our capital expenditures will focus more on upstream projects, including a new alumina refinery and the brownfield expansion of our aluminium smelter,” Pai told NDTV Profit. 

The aluminium producer announced its financial results for the June 2024 quarter on Aug. 13. The company reported consolidated revenue of Rs 57,013 crore in Q1, up 7.6% year-on-year from Rs 52,991 crore in the same quarter of the preceding fiscal. 

The company’s net profit increased 25% YoY to Rs 3,074 crore in Q1 from Rs 2,454 crore in the corresponding quarter a year ago.

Commenting on the Q1 results, Pai said, “We’ve achieved an 80% year-on-year growth, and we have been steadily growing sequentially. This is largely due to improved cost control as carbon prices have moderated.”

However, he noted that LME (London Metal Exchange) prices have recently declined, indicating profitability in Q2 might take a hit. “The future behaviour of LME prices is uncertain as they are influenced by macroeconomic and geopolitical events, rather than supply and demand alone. The key to maintaining strong results will be controlling our costs effectively,” Pai added.

On market demand, Pai highlighted positive trends. “We are seeing strong growth in market demand, with Indian aluminium consumption up by 15% year-on-year and copper demand rising by 11%, driven by increased electrification,” he said.

On the outlook for the next 6-9 months, Pai said, “Sales of electric vehicles have slowed slightly, but we supply aluminium for both EVs and internal combustion engine vehicles, so we are comfortable in this sector. Aerospace demand has been very strong due to a significant backlog of aircraft orders. Our main concern is geopolitical events, which could impact our operations unpredictably.”

Jefferies has retained a ‘buy’ rating on Hindalco stock, stating that the company’s June quarter Ebitda grew 32% on-year, aligning with its estimates. The company’s India operations are performing well, with effective cost control in aluminium production and improved margins in the copper segment, despite challenges from the recent decline in aluminium prices. Hindalco’s 1.2x FY25E price-to-book ratio is considered reasonable, prompting a slight revision in FY25-27E EPS within +/-3%, the brokerage observed in a note.

Jefferies, however, revised target price of Rs 800 per share, compared to Rs 825 earlier. The target price reflects an upside of nearly 29% from the previous close of Rs 621.15 apiece on the BSE on Tuesday.

Motilal Oswal also maintained a ‘buy’ rating, with a revised target price of Rs 750 per share, noting that Hindalco’s consolidated net sales of Rs 57,000 crore and Ebitda of Rs 7,500 crore were in line with their estimates, driven by better realisations, operational efficiency, lower input costs and higher volumes.