Nalco, Hindalco, Vedanta rally up 10%; why these metal stocks are shining brighter

Indian aluminium companies were rallying higher on Monday as China said it would cancel export tax rebates, fuelling worries that a heavy flow of shipments abroad may be curbed. In its latest measure, China announced that the export tax rebate for Aluminium and Copper products will be withdrawn with effect from December 1, 2024.

On the back of this announcement, shares of Indian aluminium producers including National Aluminium Company Ltd, Hindalco Industries Ltd and Vedanta Ltd surged as much as 10 per cent during the trading session on Monday. Aluminium prices in general rallied nearly sharply, up to 9 per cent.

Amid the rising optimism in the Aluminium counters, shares of National Aluminium (Nalco) hit the first 10 per cent circuit at Rs 241.75 mark, commanding a total market capitalization of more than Rs 44,400 crore. The scrip had settled at Rs 219.80 in the previous trading session.

Cost savings in the form of lower coal prices as well as declining CP coke prices will help Nalco to achieve a 16 per cent Ebitda CAGR over FY24-27. Recent alumina tender fetched 22% of LME price - we see this as an anomaly, said InCred Equities. "We downgrade the stock’s rating to 'hold' but raise our target price to Rs 176," it said.

However, Axis Securities upgraded the stock to a 'buy' with a target price of Rs 250. "The stock has re-rated since January 2024 on account of higher Alumina prices; expectation of Alumina Refinery expansion; start of Utkal D Coal block and lower e-auction coal prices; it's JV KABIL & Argentina’s CAMYEN SE’s agreement in Jan’24 for exploration of Lithium brine blocks," it said.

Other aluminium players including Hindalco Industries Ltd and Vedanta Ltd also posted firm gains. The former one rallied 4.86 per cent to Rs 657.60, while the latter one gained 4.52 per cent during the session to Rs 453.10. For Vedanta, Aluminium contributes most to its business following Hindustan Zinc Ltd, while Hindalco is majorly dependent on its US-based subsidiary Novelis.

The long term outlook for Hindalco continues to remain buoyant given resilient performance by India aluminium operations; record high run rates in the copper business; enhanced coal security post acquisition of Meenakshi; and growth capex to augment capacity in downstream business, said JM Financial Services.

Hindalco, given 70 per cent steady and strong Ebitda being non-LME linked, remains our preferred play in the metal space, JM added with a 'buy' rating and a target price of Rs 760. Another brokerage firm Antique Stock Broking maintained buy rating on the stock with a target price of Rs 794.

Vedanta indicated that to-be-demerged companies could break away from the group and list at different times, as and when respective approvals are secured, said Emkay Global. "We arrive at SOTP equity valuation of Rs 2.8 lakh crore, which implies 57 per cent upside on potential value unlocking following the demerger," it added with a 'buy' rating and a target price of Rs 600.

Nuvama Institutional Equities believes that despite surging alumina prices, profitability of aluminium segment shall rise in Q3 due to increased usage of captive alumina, 40 per cent of alumina purchase is on spot basis and firm aluminium prices. "We retain a positive stance on Vedanta," it added with a 'buy' rating and a target price of Rs 663.

China's Aluminium exports stood at 5.7 million tonnes (MT) in 2023. For the first 10 months of this calendar, shipments increased by 17 per cent from last year to 5.5 MT and they are likely to end the year at 6.6 MT. Chinese Aluminium exports represent 15-16 per cent of the country's total production and 20-22 per cent of production outside China.