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Deeptha Rajkumar

WITH the commodity cycle being on an uptick, the stock of Hindalco Industries witnessed sustained buying on the bourses, with the counter hitting a 52-week high intra-day on the BSE.

Brokers said one of the key drivers of the Hindalco stock price has been the benchmark international aluminium prices. "Aluminium prices are currently quoting at a high of $1,500 per tonne. However, given the global supply-demand mismatch, we expect, say over the next one-two months, that prices will touch a new high of $1,750 per tonne," Mr Hanu Bhatia, Vice-President (Equities), Parag Parikh Securities, said.

Hindalco produces value-added products in aluminium where realisations and margins are high.

The demand for aluminium is also being driven by China, which is the second largest consumer of aluminium in the world today. Reportedly, Chinese demand has been on the rise due to huge infrastructure spending by the Government.

Additionally, copper prices are also ruling at a 30-month high. Hindalco derives almost 55 per cent of its revenue from copper.

"The company recently acquired two mines in Australia. Going ahead, it is expected that almost 40 per cent of the copper concentrate required by the company will be sourced from these two mines," Mr Bhatia said. And given the telecom boom, copper usage will only go up, he added.

According to market sources, a long-term presence in the copper business would make acquisitions of copper mines mandatory as it will bring down the variable cost. "In this regard, the company's capacity expansion (in both copper and aluminium) has been timely," the sources said.

There is also a perception among analysts that the TC/RC margins (treatment charges/refining charges) will also improve significantly over the next three quarters. This is expected to add to the bottomline.

Hindalco is due to announce its second quarter results on October 23. Given that the company is looking at volume-driven growth coupled with improved margins and realisations, there is market speculation of a bonus issue being on the anvil.

"The company should report a Rs 1,500-crore profit by financial year 2005 which would mean that the share will be trading at 6 PE. At those levels, it will be the cheapest metal play," Mr. Bhatia reasoned.

The stock ended the day at Rs 1,118.95, up 2.36 per cent with around 2.2 lakh shares traded on the BSE. On the NSE, it closed at Rs 1,121.85, up 2.49 per cent with around 5.13 lakh shares traded.

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