Hindalco stock dropped by 7% following Constellium’s latest earnings report, raising concerns for investors. Is it the right time to buy or should you hold back?
What led to Hindalco’s share price fall?
Hindalco Industries, a major player in the aluminium market, experienced a sharp 7% fall in its share price on October 24, 2024. This decline was directly triggered by the weak earnings report released by Paris-based Constellium, a leading aluminium products manufacturer. Let’s explore the details of this event and its significance for Hindalco’s stockholders.
Key figures from Hindalco’s Stock Performance
- Opening price: ₹716.95
- Lowest price of the day: ₹666.80
- Current trading price: ₹683.50 (down 4.73% by mid-day trading)
Constellium’s Earnings: a major factor
Constellium’s third-quarter results revealed a significant 5% decline in revenue. A few reasons for this poor performance include:
- Weak demand in the automotive sector: Both North America and Europe saw sluggish demand for automotive aluminium, a key market for Constellium.
- Impact of flooding: Constellium’s Swiss facilities were severely impacted by flooding earlier in the year, further contributing to its weak quarterly performance.
Given Constellium’s status as a benchmark in the aluminium sector, its struggles raise concerns about Hindalco’s future performance, particularly in its subsidiary, Novelis, which caters to the automotive market.
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The impact on Hindalco: What’s driving investor concerns?
Hindalco, which will announce its quarterly earnings in November, is expected to face a mixed outlook. Here’s a snapshot of what’s to come:
- Expected Q2 earnings: Brokerage firm Antique Stock Broking predicts Hindalco will report a profit of ₹1,290 crore, marking a 59% year-on-year growth but a 12% drop from the previous quarter.
- Revenue projections: Standalone revenue is anticipated to remain flat year-on-year but could see an 8.1% quarter-on-quarter decline, affected by lower aluminium and copper prices.
Novelis, which is Hindalco’s crown jewel, is feeling the heat from reduced demand in the automotive sector. Constellium’s weak results act as a warning sign for Hindalco, and investors have responded by offloading shares.
Investor Sentiment: Buy or Hold?
For investors, the key question is whether this price dip represents a buying opportunity or a warning sign of further downside risk. Let’s break down the two sides of the argument:
Bullish Case:
- Rising Demand in Asia: Some analysts, like Sagar Shetty from StoxBox, believe that Hindalco’s long-term prospects remain strong. Rising aluminum prices in Asia and the company’s leadership in aluminum rolling and recycling could boost its profitability in the coming quarters.
- Strategic Partnerships: Novelis has been ramping up its efforts to produce low-carbon aluminum products through a strategic partnership with TSR Recycling GmbH. This partnership is expected to source 75,000 tonnes of recycled aluminum, meeting the growing demand for sustainable materials in the automotive industry.
- Cost Improvements: Lower input costs and operational improvements could help Hindalco weather the short-term storm caused by Constellium’s weak earnings.
Bearish Case:
- Weak Automotive Demand: As highlighted by Constellium’s report, the demand for aluminum in the automotive sector is falling, particularly in Europe and North America, which could negatively impact Novelis’ performance.
- Technical Concerns: According to analysts like Hardik Matalia from Choice Broking, Hindalco’s stock has broken a key support level of ₹715, forming a bearish technical pattern. The stock may continue its downtrend, with further support at ₹640, indicating more downside risk.
Hindalco’s recent financial performance
| Metric | Value (Constellium) | Value (Hindalco, Previous Quarter) |
| Revenue (YoY) | -5% | 0.076 |
| Quarterly Net Profit (₹ crore) | Not Disclosed | ₹3,074 crore |
| Quarterly Revenue (₹ crore) | Not Disclosed | ₹57,013 crore |
| Stock Price Change | -28% (Constellium) | -7% (Hindalco) |
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Should you buy, hold, or sell Hindalco Stock?
Expert Opinions
While the drop in Hindalco’s share price is certainly concerning, experts are offering mixed opinions about its future trajectory.
Positives for Long-Term Investors
According to Sagar Shetty, an analyst at StoxBox, the long-term outlook for Hindalco remains positive. Rising aluminium prices, driven by strong demand in Asia, are expected to boost Hindalco’s profitability. Additionally, Novelis is making strides in sustainability by increasing the recycled content in its products, which will help meet growing global demand for low-carbon aluminium.
- Sustainability push: Novelis’ three-year strategic partnership with TSR Recycling aims to source 75,000 tonnes of raw materials from end-of-life aluminium products. This initiative could enhance Hindalco’s market position and profitability in the long term.
Short-Term Risks
On the technical side, Hardik Matalia, a derivatives analyst at Choice Broking, highlights some caution for short-term investors. He points out that the stock has formed a double-top pattern, indicating potential bearishness.
- Key resistance and support levels: Hindalco has broken a key support level of ₹715, and the next support level stands at ₹640, around the 200-day exponential moving average (EMA).
The stock’s Relative Strength Index (RSI) stands at 39.43, suggesting that while it is nearing oversold territory, it could continue its downward trend before hitting the 200-day EMA, which might offer strong support.
What should investors do?
For Long-Term Investors
If you’re in it for the long haul, Hindalco’s dominant position in the aluminium industry and its strategic focus on sustainability are reasons to stay positive. The company’s focus on recycling and reducing its carbon footprint aligns well with future global demand trends, making it a solid hold for long-term portfolios.
For Short-Term Investors
However, in the short term, it might be wise to tread cautiously. The technical indicators point to further downside risk, and the weak demand in global markets, especially in the automotive sector, could continue to weigh on the stock.
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Final thoughts: Is it time to buy Hindalco Stock?
The 7% fall in Hindalco’s stock after Constellium’s weak earnings report has certainly rattled investors. However, while short-term risks remain, Hindalco’s long-term prospects in the aluminium market, especially in Asia, provide reasons for optimism.
Investors with a long-term view may want to consider buying into the stock during this dip, while those with shorter investment horizons should proceed with caution, keeping an eye on the upcoming earnings report on November 11, 2024.
