Hindalco gets an upgrade from CLSA, citing "overdone concerns"

The drop in Hindalco's share price has largely been triggered by the company's US-based subsidiary Novelis announcing a delay in completion and an increased capital for the Bay Minette project.

Novelis is a maker of flat-rolled aluminium products used in building products ranging from beverage cans to aeroplanes.

The company also revised the return guidance for the Bay Minette project to mid-teens from double digits, sending the parent company's stock price spiralling.

The global brokerage said that clarity on the use of cash and growth projects are key points to watch for.

Novelis Inc has recently filed for an initial public offering (IPO) with the Securities and Exchange Commission (SEC). Novelis has confidentially submitted a draft registration statement on form F-1 with the SEC relating to the proposed primary stake sale of its common shares. The common shares are expected to be offered by Novelis’ sole shareholder AV Minerals (Netherlands), a fully owned subsidiary of Hindalco.

According to the regulatory filing with US bourses, Novelis would not receive any proceeds from the sale of common shares by its sole shareholder.

The foreign brokerage questioned the motives of the IPO, whether it was for value-unlocking purposes or to build a war chest. Therefore, a key monitorable to decode the motive will be to find clarity on the usage of cash, especially the influx following the public offer.

On Thursday, the stock settled 0.42% higher at ₹506.50 apiece on NSE. Hindalco shares have fallen 17% so far this year and gained 23% in the last one year.