Hindalco Stock Faces Analyst Downgrade: Price Target Slashed! See Why Investors Are Concerned Now!

Research firm Prabhudas Lilladher has revised its rating for Hindalco Industries, downgrading it to 'Accumulate' and lowering the target price to Rs 846 from Rs 883. The company's consolidated operating performance in Q2 was in line with expectations, supported by strong India operations driven by higher downstream volumes and increased London Metal Exchange (LME) prices for aluminium.

However, the cost of aluminium production in Q2 increased by approximately 4% quarter-on-quarter due to higher coal costs during the monsoon. Management guided for a slight increase in the cost of production (CoP) in the second half of the fiscal year as other raw material prices have also firmed up.

Novelis, Hindalco's subsidiary, reported an in-line quarter. However, a significant cost escalation of about 22% at the Bay Minette project is expected to depress its internal rates of return (IRRs). This will likely require parent support in the form of an equity infusion worth $750 million. The adverse impact of tariffs in Q2 was $54 million, but the company anticipates this will be negated by higher Metal Working Products (MWP), better spot scrap spreads, and cost mitigation efforts.

Prabhudas Lilladher is incorporating higher Novelis capex and anticipating lower H2 volumes, leading to a cut in the target price. They maintain their EBITDA per tonne assumption for Novelis but have reduced the target price by about Rs 70. The brokerage increased FY26/27 estimates due to higher aluminium and by-product prices in copper. At current market price, the stock trades at an enterprise value (EV) of 5.6x/5.3x FY27/28E EBITDA. The valuation assigns 6.5x EV to Novelis and 5.5x EV to India operations based on September 2027E EBITDA.

Impact: This downgrade and target price reduction could lead to negative sentiment and potential selling pressure on Hindalco's stock in the short term. Investors will be watching the management's execution on cost control and the equity infusion for Novelis closely. The strong performance in India may provide some support, but the challenges at Novelis are a significant factor for the overall outlook. Rating: 7/10

Difficult Terms: * Cons operating performance: Consolidated operating performance refers to the combined financial performance of all business segments and subsidiaries of a company, presented in terms of operational efficiency and profitability before interest, taxes, depreciation, and amortization. * LME prices: London Metal Exchange prices are global benchmark prices for various industrial metals, including aluminium. * QoQ: Quarter-on-Quarter, a comparison of financial performance from one quarter to the next. * CoP: Cost of Production, the total expenses incurred by a company to produce its goods or services. * H2: Second half of the fiscal year. * FY26/27/28E: Fiscal Years 2026, 2027, and 2028, with 'E' denoting estimates. * IRRs: Internal Rates of Return are metrics used in capital budgeting to estimate the profitability of potential investments. A lower IRR indicates lower profitability. * Equity infusion: The process of a parent company investing additional capital into a subsidiary, often by issuing new shares. * MWP: Metal Working Products, likely referring to value-added products or processing services. * Spot scrap spread: The difference between the price of new metal (spot price) and the price of recycled metal (scrap), indicating the profitability of using scrap materials. * CMP: Current Market Price, the prevailing price at which a stock is trading on the exchange. * EV: Enterprise Value is a measure of a company's total value, including debt and minority interests, but excluding cash and cash equivalents. * EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of a company's operating performance. * TP: Target Price, the price level at which an analyst or broker expects a stock to trade within a specified timeframe. * 'Accumulate': A stock rating suggesting that investors should buy the stock, but perhaps not aggressively, as the analyst believes it has moderate upside potential.