- JPMorgan upgrades Hindalco and Vedanta stocks to 'overweight' on higher aluminum prices
- Target price raised to Rs 1,125 for Hindalco and Rs 850 for Vedanta
- Aluminum prices expected to stay high due to prolonged Middle East supply disruptions
The Middle East conflict is expcted to keep aluminium prices higher for a longer period of time, according to a recent note by JPMorgan. This has prompted the brokergae to upgrade stocks of aluminium giants like Hindalco and Vedanta to 'overweight' from neutral. Reason? A substantial earnings growth potential from higher aluminium prices and favourable foreign exchange reserves over the next several quarters.
The target price for Hindalco has been hiked to Rs 1,125 from Rs 875, marking a 28.57% upside, while for Vedanta it has been raised to Rs 850 from Rs 680, a 25% upside.
Aluminium prices should remain higher for longer, driven by potentially longer disruptions at Al Taweelah and Alba. JPMorgan expcets that a ramp-up when eventually feasible could be a significantly more lengthy process of up to around 9 to more than 12 months for smelters of this size. Additonally, ex-China aluminum markets should tighten sharply. Aluminum prices could quickly touch $4,000/mt and above before eventually settling to a demand-driven unwind, the note says. The commodity prices should also help recent debt concerns and valuations of these companies.
For Vedanta, commodity price tailwinds likely to be higher for longer; while energy inflation not a major concern. The brokerage forecast s49% EBITDA growth in FY27 on an year on year basis, led by higher Aluminium, Zinc and silver prices.
In terms of Hindalco, JP Morgan estimates a 29% YoY EBITDA growth in FY27 led by a combination of higher Aluminium prices, rupee depreciation, better copper profitability and a gradual recovery in Novelis earnings.
What to expect in earnings?
The brokerage expects a strong quarter for Vedanta, while Hindalco is likely to show muted quarter on quarter growth.
Hindalco and Vedanta will likely post 6% and 24% quarter on quarter EBITDA growth in India Aluminum. It is estimated that Vedanta'ss EBITDA will increase 62% on a year on year basis and 22% on a quarter on quarter basis. Hindalco's consolidated EBITDA EBITDA is expected to be impacted by the Oswego fire outage and hedging.
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