Hindalco Industries Faces Double Blow as U.S. Project Costs Surge and Subsidiary’s Revenue Slips
Shares of Hindalco plummeted over 14% amidst project cost escalation in the U.S. and decline in subsidiary Novelis's net revenue, prompting market concerns.
Mumbai, India: Hindalco Industries Ltd. witnessed a tumultuous day in the share market as its stocks plunged over 14%, marking the lowest level in two months, in response to two significant setbacks. The first blow came from its U.S. unit, Novelis, which announced a staggering increase in capital costs for its Bay Minette project. The project, aimed at building a fully integrated aluminium rolling and recycling plant in the U.S., will now incur an estimated cost of $4.1 billion, significantly higher than the initial projection of $2.5 billion. Moreover, the expected commissioning date has been pushed back by a year, adding to investor concerns.
Adding to the downward pressure on Hindalco’s shares was the disappointing performance of its largest subsidiary, Novelis, which reported a slip in net revenue. Despite a notable surge in net income, which soared over 10 times compared to the same period last year, Novelis witnessed a 6% decline in net revenue. This drop was attributed to lower aluminium prices and stagnant volumes during the third quarter of the current financial year.
The repercussions of these developments were immediate, with Hindalco’s shares witnessing a sharp decline, touching an intraday low of Rs 497.50. Analysts attribute this downward spiral to a combination of factors, including the unexpected increase in project costs and the subdued performance of Novelis.
Over the short term, Hindalco’s stock has experienced significant volatility, plummeting over 15% in the last five days and 13% in the last month. However, it has managed to maintain an upward trajectory over the long term, registering a rise of 17.5% in the last year and a remarkable surge of almost 170% in the past five years.
Despite the recent setbacks, analysts remain cautiously optimistic about Hindalco’s prospects. Out of 25 analysts tracking the company, the majority maintain a ‘buy’ rating, underscoring confidence in its long-term growth trajectory. However, with the current challenges posed by the escalated project costs and the performance of its subsidiaries, investors are advised to tread carefully, weighing both short-term risks and long-term potential before making investment decisions in Hindalco Industries.
