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Strong quarter: Focus on downstream products to continue; Maintain ADD!

Result Synopsis

Hindalco Industries Ltd’s (HIL) Q1FY25 performance was above the consensus estimates owing to higher LME pricing for the Indian aluminium business, strong Novelis performances as well as higher copper volumes for CC Rods. Higher realizations clubbed with a fall in the cost structure for aluminium production helped margin expansion during the quarter. On the operational front, Novelis reported shipments to be flattish at 951k and an EBITDA/t of $525/t. The management continues to guide the same for the full year of FY25, slowly increasing it with incremental capacities to reach $600/t by the end of FY27E. The Indian upstream aluminium business showed robust growth on the margin front, however, the shipments were marginally lower and stood at 329 kt for Q1FY25 vs 337 kt in Q4FY24. Our View We continue to remain positive on Hindalco owing to its focus on backward integration – acquiring coal mines, expanding alumina refinery capacities. The backward integration clubbed with the focus on value-added products and downstream expansions are expected to help expand the company’s aluminium business margins. Additionally, we see Novelis to take a set back for the upcoming quarter and a half due to the Switzerland floods affecting the plant operations, however, we don’t see this to have any impact on the volumes expected in FY26E. We maintain our ADD rating on Hindalco and value the company on a SOTP basis – 6.0x EV/EBITDA FY26E for Novelis, 5.5x EV/EBITDA FY26E for the Indian Aluminium business and 5.0x EV/EBITDA FY26E for the Copper business to arrive at our target price of Rs 722/sh.

Result Highlights

* Consolidated revenue from operations stood at Rs 57,013 crores (vs consensus estimate of Rs 56,186 crores and our estimate of Rs 58,514 crores), up~2% QoQ and 7.6% on a YoY basis.

* Novelis revenue stood at Rs 34,929 crores for the quarter.

* Aluminium upstream business reported a revenue of Rs 8,839 crores. o Aluminium downstream business’s revenue stood at Rs 2,868 crores. o Indian copper business stood at Rs 13,292 crores

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