Hindalco, Vedanta and Nalco shares trade near 52-week highs: What’s driving the gains? — explained
- Stock Market Today: Hindalco, Vedanta and Nalco share prices have risen 54-133 per cent in the last one year. While the Hindalco share price hit a 52-week high on Thursday, Vedanta and Nalco are trading near the 52-week peaks seen on Wednesday. Here is what is driving the gains.
Stock Market Today: Hindalco Industries, Vedanta and National Aluminium Co. Ltd (Nalco) share prices have risen 54-133 per cent in the last one year. While Hindalco Industries' share price scaled a fresh 52-week high on Thursday, Vedanta and National Aluminium Co Ltd (Nalco) share prices are trading near 52-week highs scaled on May 15.
Improvement in aluminium prices has been a reason for these gains in Hindalco Industries, Vedanta, and Nalco share prices.
Rise in aluminium prices
The aluminium prices on the London Metal Exchange, that were close to $2,100 a tonne level in February, are trading above $2,500 a tonne level at present.
The demand for aluminum has been rising and expectations are that China demand has already bottomed out. The rising China demand, the largest consumer of the metal in the world, can have a significant impact on the demand-supply balance of aluminium, which could lead to a deficit.
Analysts at Kotak Institutional Equities, in their April report, had raised their aluminium price forecast by 6 per cent and 8 per cent for FY25 and FY26, respectively, thereby raising earnings and fair value of Hindalco, Vedanta and Nalco.
According to CRISIL Ratings Director Ankit Hakhu, the domestic demand, accounting for almost half of the domestic primary aluminium sales volume, had risen 10 per cent in the past two fiscals and is likely to rise 7-9 per cent this fiscal year (FY25).
The same is likely to be fuelled by the metal's growing use in the automotive industry as well as the robust expansion of the power and construction industries. Buoyant export demand is likely to continue, and there are signs of recovery in the US and Europe. Hakhu added that the increasing demand in China from the automotive and energy transition segments will push demand higher in the calendar year 2024, after a lull in the past two years.
Operating margin expansion
Meanwhile, the positive is that costs are also declining.
CRISIL Research says the operating margin of primary aluminium makers are likely to expand more than 25 per cent in FY25.
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CRISIL attributes this improvement in operating margin to robust demand, improved realisations, and a probable decrease in production costs fuelled by cheaper energy and alumina.
Ankush Tyagi, Associate Director of CRISIL Ratings, in a statement said, “We also expect the overall cost of production to decline a further 5-10 per cent this fiscal, driven by lower spends on imported alumina (one of the key raw materials, accounting for around 30 per cent of overall cost) and power and fuel (30-35 per cent of overall cost)”.
Since manufacturers are enhancing upstream alumina refinery capacity, this should also reduce the country's dependence on imports.
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