On Thursday, JPMorgan adjusted its outlook on Hindalco Industries (NS:HALC) Limited (HNDL:IN) stock, a leading aluminum and copper manufacturing company, by revising its price target downward. The new target has been set to INR735.00, a decrease from the previous target of INR770.00. Despite the price target reduction, the firm maintained its Overweight rating.
The price target adjustment comes after Hindalco's subsidiary, Novelis, reported earnings that fell short of JPMorgan's expectations. A significant factor in the lower earnings was an unfavorable metal benefit, attributed to rising scrap metal prices, which impacted the company's EBITDA. The analyst anticipates that this development could lead to a negative reaction in Hindalco's stock price.
Hindalco management has decided to suspend its near-term Adjusted EBITDA per ton guidance due to the current weakening of scrap spreads. This decision was informed by the challenges foreseen in the third and fourth quarters.
As a result, JPMorgan has revised its EBITDA per ton estimates for the fiscal years 2025 and 2026 to $498 and $510 per ton, respectively. This is a decrease from the former estimates of $524 and $539 per ton and is below management's previous guidance of $525 per ton as a sustainable figure and $600 per ton in the long term.
Despite the downward revision, the management of Hindalco highlighted several positive aspects. Notably, the Bay Minette facility is expected to achieve approximately $1000 per ton in EBITDA, taking into account the current tightening spreads.
Additionally, the demand in the end markets remains robust. The company has seen double-digit year-over-year growth in beverage packaging shipments during the second quarter. Furthermore, the demand in the automotive sector has not weakened as much as previously feared, providing a more optimistic view of the company's market position.
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