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Alcoa's woes: Temporary pain likely for Hindalco and Vedanta

Year-to-date, Vedanta and Hindalco have surged 118% and 89%, respectively compared to a 48% gain in the Nifty Metal index.

, ET Bureau|
Last Updated: Oct 13, 2016, 11.03 AM IST|Original: Oct 13, 2016, 11.00 AM IST
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“One should not read too much directly but because Alcoa reported weak numbers and its stock fell sharply, we may see a weak opening for the Indian companies,” said Abhisar Jain, vice-president, Centrum Broking.
“One should not read too much directly but because Alcoa reported weak numbers and its stock fell sharply, we may see a weak opening for the Indian companies,” said Abhisar Jain, vice-president, Centrum Broking.
MUMBAI: Disappointing earnings of aluminium giant Alcoa may put a break on the stellar run of Hindalco Industries and Vedanta’s shares, which have been the top performers in the metal pack this year.

Shares of Alcoa, the world’s third largest aluminium producer, tanked 11% on the NYSE on Tuesday as its $166-million third quarter net profit and $5.2-billion revenue missed expectations. However, analysts said the impact on Thursday would be sentimental and advised buying shares of Hindalco on any decline due to its ‘deleveraging story’.

“One should not read too much directly but because Alcoa reported weak numbers and its stock fell sharply, we may see a weak opening for the Indian companies,” said Abhisar Jain, vice-president, Centrum Broking.

Year-to-date, Vedanta and Hindalco have surged 118% and 89%, respectively compared to a 48% gain in the Nifty Metal index.

Analysts said that Alcoa has reported a sequential drop in EBITDA per ton in its global roll products division citing headwinds which indicates that Hindalco’s subsidiary Novelis may also face a slight drop. However, the company has retained deficit forecasts for aluminium which bodes well for global aluminium pricing.

Some analysts said positive commentary on the auto business by Alcoa was also a good takeaway. “Alcoa’s poor performance is related more to their aerospace business. They have given a positive commentary on the auto business.

As Hindalco’s subsidiary Novelis is present in the auto business, it should be read positively,” said Sanjay Jain, senior VP-research at Motilal Oswal. While some analysts are positive on both stocks, others prefer Hindalco over Vedanta.

“Vedanta’s valuations have gone up and uncertainty is still there on some of its businesses. In Hindalco, the capex cycle is over. Availability of coal and benefit of low coal prices is still not reflecting in the price,” said Goutam Chakraborty, analyst at Emkay Global.

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