Hindalco sees sharpest fall in 4 years on higher capex, lower returns for US project

MUMBAI – Shares of Hindalco Industries saw their sharpest fall in nearly four years as a significantly higher spend on capex and with lower expected returns for a facility to be set up in the US is seen hurting the company’s earnings over the long-term.

Down more than 13% on the NSE, shares of Hindalco slipped to their lowest level in three months.

US-based Novelis Inc – a subsidiary of the company – said that the company will now spend $4.1 billion on the integrated rolling and recycling plant to be set up in Bay Minette in the US, up a staggering 65% from the previously announced capex of $2.7-$2.8 billion.

The company has cut down the returns expected to ‘double digits’ from ‘mid-teens’ earlier given the higher capital costs, while delaying the commissioning of the plant by a year to second half of 2026.

Even though earnings will be impacted in the long run, most analysts have not downgraded Hindalco as they believe that Novelis will be able to sustain its operating profit around $525 per tonne, and as they also await Hindalco’s earnings scheduled for later today.

“Cost inflation and delay do not impact our explicit earnings forecast until FY2026E, but damage the growth, earnings and return prospects of the company from a 5-year perspective,” Kotak Institutional Equities said in a note.The fact that the management has said that they are 85% confident of the current estimates for cost, though, leads to a risk of cost inflation, the brokerage said.While a higher capex for Bay Minette will lead to lower returns, the earnings trajectory could benefit from the capital expenditure being spread evenly, JM Financial Institutional Equities said in a note, maintaining Hindalco as its ‘preferred’ play in the metals space.

Novelis announced its earnings for the December quarter on Monday, and its net sales fell 6% on year to $121 million, due to lower average prices of aluminium. The adjusted operating profit rose 33% on year to $454 million, while the net income jumped to $121 million as compared to $12 million a year ago.

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