IGI Logo

Strong pricing drives India; Novelis to improve gradually

Hindalco Industries (HNDL) delivered robust Q1FY27, with 62% India EBITDA growth led by higher LME and higher copper bye-product prices while volume growth remained soft. Upstream aluminum benefited from higher NSR driving EBITDA/t to US$2,331, while downstream EBITDA improved on better product mix, pricing and improving FRP volumes. Novelis delivered an inline quarter aided by LME and premiums offsetting volume impact from the Oswego fire (33kt); while Asia and S. America regions continuing better margins and volumes supporting Oswego. With Oswego expected to get ramped up in next few quarters, Novelis volumes should recover, reducing elevated leverage gradually.

Going ahead, India earnings are expected to be driven by LME movement till the time new Aditya complex gets commissioned by FY29E. Timely commissioning of Aditya and captive coal mines remains the key. Improving downstream volumes, upcoming coal mines and lower tax rate (26%) provides a structural benefit while higher byeproduct prices would continue to benefit in near term. Oswego’s ramp-up and Bay Minette commissioning should drive Novelis volume recovery, while planned cost savings should support margins. US tariffs, scrap pricing and elevated leverage remain key monitorables. We believe Novelis is largely past the worst, with FY27 likely to remain a transition year as Oswego normalizes and Bay Minette moves towards commissioning. Cost savings, product qualifications and deleveraging are progressing. We upgrade our FY27/28E EBITDA by 11%/7% on strong Q1 and improving Novelis and expect 18% EBITDA CAGR over FY26-28E. At CMP, the stock is trading at EV of 6.2x FY28E EBITDA. Maintain ‘Accumulate’ with a revised TP of INR 1,162 (earlier INR 1,050) valuing at same 7x/6.5x India/Novelis biz respectively.

Strong realizations drive broad-based growth:

Standalone AL revenue grew 37% YoY while copper revenue grew 16% YoY. Upstream AL revenue is up 44% YoY on better realization (volumes were up 3% YoY) and EBITDA was up 81% on strong operating performance. CoP remained flat YoY US$1,895/t (-2% QoQ). Upstream EBITDA/t at US$2,329/t. Export mix was at 23% (27% in Q4; 23% in Q1FY26). Downstream revenue is up 46% YoY on account of better NSR while shipments were up just 3% YoY to 104kt. EBITDA is up 30% YoY supported by favorable product mix, higher FRP and higher pricing. (Downstream EBITDA/t at US$303/t). Copper revenue is up 16% YoY despite 8% decline in CCR sales (on higher realization in by-products like sulphuric acid) and higher realization (average LME CU up 4%) while EBITDA grew 36% YoY to INR9.18bn. Copper EBITDA/t higher on account of higher volumes in CCR and by-production realization. AL upstream sales volumes grew 3% YoY to 335kt, downstream sales volumes grew 3% YoY to 104kt. Blended realization for AL business inched up 13% QoQ to INR313k/t (up 33% YoY) while copper business realization down 5% QoQ to INR1,641k/t (up 37% YoY).

Higher LME lifts India earnings:

Standalone EBITDA grew 123% YoY to INR69.85bn (+36% QoQ) on higher LME, higher profitability across all businesses. Cons. EBITDA grew 76% YoY at INR139bn (39% QoQ; PLe INR118.8bn) on strong India performance and Novelis delivering tad better. Cons. reported PAT up 75% YoY to INR70.13bn. Exceptional items of INR22.99bn. Exceptional items include costs associated with Oswego fire (Rs23bn) has been recorded as exceptional expenses, net of insurance proceeds. Business interruption recoveries of INR4.47bn related to fire is recorded under other income.

Higher realizations offset lower volumes:

Novelis’s revenue grew 23% YoY to US$5.79bn (+21% QoQ; PLe of US$5.65bn) on higher LME pricing & premium (up 19% YoY) which partially offset lower volumes in North America. Average realization improved 12% QoQ to US$6,324/t (+29% YoY Vs PLe of US$6,227/t) on higher LME and better premiums over LME.

Strong Europe and Asia offset North America weakness:

Shipments of flat rolled products (FRP) declined 5% YoY to 916kt (+9% QoQ, PLe 908kt) impacted by impacted by Oswego fires (~33kt lower). North America: FRP Shipments declined 3% YoY in N.A. to 376kt. EBITDA/t declined 14% YoY in N. A. to US$295/t on lower shipments and unfavorable product mix due to Oswego fires negated by favorable scrap and product prices aided. Europe: Volumes grew 5% YoY to 275kt; EBITDA/t grew 37.5% YoY to US$367/t in Europe on higher beverage packaging & automotive shipments to support North America. Benefitted by favorable product price & mix coupled with metal benefit. Asia: Volumes grew 7% YoY to 232kt; Asia EBITDA/t increased 20.6% YoY to US$522/t aided by higher beverage packaging, specialties, and aerospace shipment. Favorable metal benefit was negated by unfavorable product mix. South America: Volumes were up 7% YoY to 167kt. EBITDA/t was up 46% YoY to US$1,114/t aided by higher beverage packaging shipments to support North America and favorable metal benefit. SA Operations benefited due to higher premium, easier availability of scarp, VAT benefit till CY27 giving tailwinds

Please refer disclaimer at https://www.plindia.com/disclaimer/

SEBI Registration No. INH000000271