Mumbai: Shares of large aluminium producers are expected to regain momentum in the coming months, even if aluminium prices trend weaker, said analysts, advising investors to take advantage of the current correction to accumulate them from a 9-12 month horizon.
Shares of Vedanta Aluminium Metal and Hindalco Industries, the country's two largest producers of aluminium, are likely to gain around 20% from current levels, as per analyst estimates.
While Vedanta is set to benefit from continued cost improvement, volume growth, and higher cash flows easing its debt burden, Hindalco will gain from earnings at its US subsidiary Novelis stabilising after recent volatility due to the impact of factory fires. "Hindalco remains a buy-on-dip for us, because it is doing a lot of expansion, especially in upstream and a lot of it will come on board in 2028-29," said Aditya Welekar, analyst at Axis Securities. The brokerage has a target price of ₹1,250 for the shares.
Both companies will have the additional advantage of a global deficit in aluminium, which is expected to keep average prices of the metal higher compared to the previous fiscal year, they said. After hitting a high of about $3,790 per tonne on the London Metal Exchange earlier this month, aluminium prices are trending lower for the fourth consecutive week, falling about 17% from their peak.
Prices of the base metal surged after the start of the Iran war on February 28, especially after production in West Asian facilities got impacted. It was one of the largest ever supply shocks for the industry, given that the region accounts for about 8% of the global output.
"...the market has moved from an earlier expectation of 0.3 million tons deficit to 1.5 million tons deficit for calendar year 2026, which should support prices and drive visible inventory drawdowns," Satish Pai, managing director at Hindalco Industries, said last month.
While Hindalco has retreated from a lifetime high scaled in early June, shares of Vedanta Aluminium are also lower than the price at which they were listed earlier this month. Analysts, though, remain upbeat about both companies.
CLSA India recently initiated coverage on Vedanta Aluminium with an 'outperform' rating, backing it with a 'higher-for-longer' aluminium cycle and robust operational tailwinds. "Capacity additions underpin about 6% volume CAGR over FY26-29, while integration across bauxite and coal mines is set to materially lower costs by about $150 per tonne," analysts at Kotak Institutional Equities said.
For Hindalco, which most analysts covering it rate as 'buy' or 'hold', earnings are seen as supported by its downstream business - which is relatively insulated from price fluctuations - and a recovery in earnings at Novelis.
