Hindalco can cut costs if it invests in its foundry and uses scrap.
The decision to buy Hydro’s aluminum extraction business from Hindalco is part of its strategy to double-speed its downstream strategy. This plant is located in Kappam, Andhra Pradesh. This plant will serve as a complement to Silvassa’s aluminum extraction plant. With the commissioning of the Kappam and Silvassa units, Hindalco’s total aluminum extraction capacity will increase from 60 thousand tonnes per annum to one lakh nine thousand tonnes per annum. .
China’s major share in global aluminum supply
According to ICICI Securities, the global supply of aluminum extrusions is 3 lakh tonnes per annum. Out of this, the share of 1 lakh 90 thousand tonnes belongs to China alone. China is the largest exporter of aluminum. The Indian market of aluminum extrusions can grow to one million tonnes per annum by 2030. Jindal Aluminum is currently the largest aluminum extracting company in India. Jindal also has the largest network of dealers.
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What is the target price for Hindalco?
As far as Hindalco is concerned, it can cut costs if it invests in its foundry and uses scrap. In India, aluminum is in high demand for building construction. Therefore, the demand for aluminum will increase as the construction sector picks up and Hindalco will benefit from it. In view of this, Hindalco’s decision to invest in the foundry can prove to be correct. ICICI Securities says that considering Hindalco’s current strategy, it can be given a BUY rating and its target price can be kept at Rs 550 per share.
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