Shares of Hindalco were gaining on Friday after the stock was given an upgrade by an international brokerage.

What Happened: Analysts at CLSA upgraded Hindalco Industries to a “buy” rating, citing the strength of the Aditya Birla group company’s existing businesses and anticipating a gradual improvement. CLSA set a target price of ₹635, suggesting a potential upside of around 25.4% from the closing levels.

The share price decrease was largely attributed to Hindalco’s US-based subsidiary Novelis announcing a delay in completion and an increased capital requirement for the Bay Minette project. Novelis specialises in flat-rolled aluminum products used in various applications, from beverage cans to aircraft.

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Concerns overblown? Following the adjustment, CLSA remarked that concerns surrounding the company were exaggerated. Despite Novelis revising its return guidance for the Bay Minette project downwards, CLSA expressed confidence in Hindalco’s prospects.

Novelis also filed for an IPO with the US Securities and Exchange Commission, with the shares expected to be offered by Novelis' sole shareholder AV Minerals (Netherlands), a wholly-owned subsidiary of Hindalco. CLSA raised questions about the IPO’s motives, whether aimed at unlocking value or building a financial reserve. Therefore, monitoring the usage of cash post-IPO influx will be crucial to decipher the motive behind the move, the brokerage suggested.

Aside from Novelis, CLSA highlighted the strength of Hindalco’s core businesses and anticipated a gradual improvement in profitability. However, in a pessimistic scenario, there could be a further downside of around 10-12% from the current levels, the analysts said.

Price Action: Hindalco’s share price was up 2.18% at ₹514.85 in morning trade on Friday.

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