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On Wednesday, Hindalco Industries (NSE:HALC) Limited (HNDL:IN) experienced a change in stock rating as Jefferies analyst Sagar Sahu downgraded the company from Buy to Hold. Accompanying this downgrade, the price target for Hindalco was also reduced, now set at INR690.00, a decrease from the previous target of INR800.00.
The decision by Jefferies to adjust Hindalco’s stock rating and price target was influenced by several factors impacting the aluminum industry. Notably, China’s net deficit in primary aluminum had been a supporting pillar for aluminum prices in 2024. However, since mid-March, these prices have seen a 9% decline, largely attributed to concerns over tariffs.
In response to the falling aluminum prices and additional challenges, Jefferies has revised Hindalco’s FY26-27E earnings per share (EPS) downwards by 7-10%. This revision takes into account not only the lower aluminum prices but also the anticipated reduced volumes from Novelis, Hindalco’s subsidiary, which faces concerns regarding demand in the US automotive and specialty sectors.
The valuation of Hindalco’s stock was also a subject of analysis. Its current 1.1x FY26E price-to-earnings (PE) ratio for an expected 11% return on equity (ROE) compares to its long-term average of 0.9x price-to-book (PB) for a 10% ROE. Although this valuation is not considered expensive, Jefferies suggests that the stock is unlikely to perform well. This is due to an expected lack of significant earnings growth and an increase in debt projected over FY25-27E.
Jefferies’ downgrade to Hold reflects a cautious stance on Hindalco’s near-term prospects. The revised price target of INR690.00 offers a current perspective on the value of Hindalco’s shares, taking into account the latest industry dynamics and company-specific financial forecasts.
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