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The Indian aluminum industry experienced a significant surge on Monday, driven by China's decision to eliminate export tax rebates for aluminum and copper products, effective December 1, 2024. This move sparked concerns about a potential reduction in the substantial flow of Chinese aluminum exports to global markets, directly benefiting Indian aluminum producers. The announcement triggered a dramatic rise in the share prices of major Indian aluminum companies, with National Aluminium Company Ltd (Nalco), Hindalco Industries Ltd, and Vedanta Ltd experiencing gains of up to 10 percent during the trading session. This positive market reaction underscores the significant impact of China's policy change on the global aluminum landscape and the competitive advantage it offers to Indian players.
Nalco's stock performance was particularly noteworthy. Shares hit a 10 percent circuit breaker, reaching Rs 241.75, resulting in a market capitalization exceeding Rs 44,400 crore. This surge followed a previous closing price of Rs 219.80. While the bullish outlook for Nalco is largely fueled by the China-related developments, the company's own financial projections also contribute to the positive sentiment. Cost savings from reduced coal and CP coke prices are expected to contribute to a 16 percent Ebitda CAGR (Compound Annual Growth Rate) over the FY24-27 period. However, differing opinions exist among financial analysts. InCred Equities, while raising its target price to Rs 176, downgraded Nalco's rating to 'hold', citing concerns about an 'anomaly' in recent alumina tender pricing. Conversely, Axis Securities upgraded Nalco to a 'buy' with a target price of Rs 250, highlighting factors such as higher alumina prices, expected alumina refinery expansion, and the commencement of the Utkal D Coal block.
The positive momentum wasn't limited to Nalco. Hindalco Industries Ltd and Vedanta Ltd also experienced significant gains, rallying 4.86 percent and 4.52 percent respectively. Hindalco's strong performance is attributed to several factors, including the resilient performance of its Indian aluminum operations, record-high run rates in its copper business, enhanced coal security following the acquisition of Meenakshi, and growth capital expenditures to increase capacity in its downstream business. JM Financial Services maintains a 'buy' rating on Hindalco, citing its strong and steady Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) that is largely independent of LME (London Metal Exchange) prices, and projecting a target price of Rs 760. Antique Stock Broking also holds a 'buy' rating, with a target price of Rs 794. Vedanta's upward trend is influenced by its impending demerger, with Emkay Global projecting a significant upside (57 percent) based on its sum-of-the-parts (SOTP) equity valuation of Rs 2.8 lakh crore. Nuvama Institutional Equities also maintains a positive stance on Vedanta, anticipating increased profitability in its aluminum segment due to increased captive alumina usage and firm aluminum prices.
The underlying driver for these positive developments in the Indian aluminum sector is the shift in the global aluminum market dynamics caused by China's policy change. China's aluminum exports amounted to 5.7 million tonnes in 2023, representing a substantial portion of global supply. The significant increase in shipments observed in the first 10 months of 2023, reaching 5.5 million tonnes (a 17 percent rise year-on-year), and the projected figure of 6.6 million tonnes for the entire year, highlight the scale of China's aluminum exports. The removal of export tax rebates suggests a potential decrease in Chinese exports, creating an opportunity for Indian producers to capture a larger share of the global market. This scenario, combined with factors such as cost reductions and strategic acquisitions within Indian companies, creates a bullish environment for investors and suggests a potentially bright outlook for the Indian aluminum sector in the coming years. The differing analyst opinions regarding target prices and ratings reflect the inherent complexities and uncertainties in the market, highlighting the need for careful consideration and due diligence before making investment decisions.
Source: Nalco, Hindalco, Vedanta rally up 10%; why these metal stocks are shining brighter