Hindalco operates across the value chain, from bauxite mining, alumina refining, coal mining, captive power plants and aluminium smelting to downstream rolling, extrusions, and foils.
Why is Motilal Oswal bullish on Hindalco Industries Ltd?
According to the brokerage, “management highlighted positive demand trends for the domestic market, with India witnessing stronger consumption trends compared to global markets.”
While global aluminium demand is forecasted to increase at a modest compound annual growth rate (CAGR) of 2-4 per cent, the company’s domestic aluminium demand is expected to sustain itself and surpass global aluminium consumption trends due to ongoing infrastructure development and manufacturing expansion in the country.
MOSL noted that the company remains confident about the structural growth drivers in the domestic aluminium market, including demand from sectors such as construction, power, automotive, and renewable energy.
India’s push toward infrastructure development and electrification is expected to further support aluminium demand in the coming years.
Another aspect highlighted by the brokerage is the commentary given by the management regarding the current geopolitical situation in the Middle East region.
The brokerage noted that the direct operational impact is limited for Hindalco. However, the company also noted that the situation may have an impact in the form of increased energy costs due to the volatility in the global energy markets.
Energy is another important cost factor for aluminium producers. At the analyst meet, the company’s management disclosed that about 75 per cent of Hindalco’s energy requirements are met through coal linkages.
This is because linkages offer a stable and predictable supply of energy. The remaining 25 per cent is met through coal e-auctions, which are subject to market rate variability.
Hence, any rise in coal prices in the e-auction market may lead to a rise in energy costs, which may affect the company’s cost structure in the near future.
However, the high proportion of coal procured under linkages acts as a buffer against volatility in spot or auction markets.
MOSL believes Hindalco remains well-positioned to navigate cost pressures, supported by its integrated operations, diversified product portfolio, and strong presence across the aluminium value chain.
The company’s strategic focus on operational efficiencies and value-added products is also expected to support margins over the medium term.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
