Hindalco shares jump 6% despite reporting a decline in Q2 profit, here's why

Shares of Hindalco Industries jumped more than 5 per cent in Monday's trade despite reporting a decline in profit for the quarter that ended on September 30 due to higher input costs. The stock surged as much as 6.69 per cent to hit an intraday high of Rs 458.50. It finally settled 6 per cent higher at Rs 455.55 today.

Considering the day's high level, the shares traded over 48 per cent higher than their 52-week low of Rs 309, hit in June this year, and close to 28 per cent lower than their March high of Rs 636.

A total of 7.14 lakh shares of the company changed hands, amounting to a turnover of Rs 32.21 crore on BSE. Hindalco's market capitalisation (m-cap) climbed to Rs 1.02 lakh crore.

"Hindalco Q2 FY23 EBITDA contracted due to a decline in profitability in aluminium division. Aluminium cost of production was more than 20 per cent QoQ. Aluminium margins suffered a two-fold setback of lower prices and higher costs; however, we believe the worst is behind and expect cost pressures to ease. Novelis' margins should remain under pressure in H2 FY23, but we expect recovery in FY2024E. We see both the India and Novelis businesses well-placed to deliver earnings growth, led by expansion projects without an increase in leverage," said Jatin Damania, Vice President - Fundamental Research, Kotak Securities Ltd.

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Despite a surge in input costs, Hindalco produced the highest-ever aluminium metal volumes. In addition, Hindalco's Managing Director Satish Pai said the copper business outperformed in Q2, reporting its highest-ever metal and copper rod sales. Novelis is Hindalco's subsidiary.

Vishal Wagh, Research Head, Bonanza Portfolio Ltd, said, "One can initiate a long position in Hindalco at a CMP (current market price) of Rs 455.55. A fall in the price -- till Rs 450 levels -- can be used as a buying opportunity for the upside target of Rs 489. However, the bullish view will be negated if Hindalco closes below the support level of Rs 440."

Brokerages remained largely positive on Hindalco after it reported an "in-line but weak" set of quarterly numbers amid hopes that near-term cost of production would "start reducing on better coal availability."

"For Q2 FY23, Hindalco's Indian Business EBITDA (business segment EBITDA) was at | Rs 2,091 crore (our estimate of | Rs 1,782 crore). Hindalco's Indian aluminium business EBITDA was at | Rs 1,547 crore (our estimate of | Rs 1,350 crore). Hindalco's Indian copper business EBITDA was at | Rs 544 crore, up 54 per cent YoY (our estimate of | Rs 432 crore). Ensuing PAT (Profit after tax) of Hindalco's India business for Q2 FY23 was at | Rs 921 crore," stated ICICI Direct's report.

The brokerage maintained a 'Buy' call on the stock with a target price of Rs 500.

JM Financial noted that the company's net debt decreased marginally during the September quarter to Rs 42,100 crore as against Rs 42,200 crore in June.

The brokerage recommended a 'Buy' rating on the stock with a target price of Rs 525.

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Motilal Oswal stated that the company reported "yet another in-line but weak set of results, largely attributed to lower aluminium price." The near-term cost of production would start reducing on better coal availability, it added.

The brokerage maintained a 'Buy' call with a target price of Rs 520.

Nuvama Research stated, "Q3 FY23 could be a weak quarter amid lower aluminium prices, affecting Indian operations, and lower profitability at Novelis due to higher energy cost and lower scrap spread. We believe Hindalco is pursuing its growth plan while keeping a tight leash on debt."

The brokerage retained a 'Buy' call with a target price of Rs 511. 

Hindalco reported a 35.4 per cent decline in Q2 profit at Rs 2,205 crore compared to a profit of Rs 3,417 crore in the year-ago period.

Meanwhile, the domestic equity benchmarks traded lower in afternoon deals.