IGI Logo

HNDL posted a strong 1Q, with adjusted EBITDA of Rs139.3bn, coming in 23.4% above our estimate, driven by broad-based strength; this was led by upstream EBITDA on higher aluminium (Al) prices and premiums. Novelis’s profitability was also sturdy, while downstream Al EBITDA rose 17% qoq despite lower volumes. We expect 2Q earnings to remain healthy, supported by Oswego normalization, firm aluminium realization, and strong India upstream performance, though both higher costs and elevated tariff hit are likely to moderate sequential improvement. We remain constructive on medium-term outlook and raise FY27E EBITDA by ~11% on inclusion of insurance recoveries, while FY28/29 estimates are broadly unchanged; retain ADD and TP of Rs1,150

Strong upstream business drives overall EBITDA beat

HNDL posted a strong 1Q, with adjusted EBITDA of Rs139.3bn (+23.4% vs Emkay; +26.5% vs consensus; +37.0% qoq, +72.6% yoy), driven by broad-based strength across segments. While Novelis’s execution was already known, upstream EBITDA rose 36% qoq to Rs73.9bn, supported by 11.6% qoq rise in Al prices and higher premiums, improving EBITDA/t by 33% qoq to $2,331 vs $1,756 in 4Q. Novelis’s EBITDA increased 16% qoq to Rs48.7bn, with EBITDA/t at $563 (read: Novelis 1Q). Downstream Al EBITDA increased 17% qoq to Rs3.0bn despite a 7% decline in volumes, while EBITDA/t improved to $303 on strong MJP premium. Copper EBITDA was flat at Rs9.2bn amid an 18% decline in shipments, though EBITDA/t came in at $920 vs $749 in 4QFY26, on lower conversion costs. Consolidated net debt increased 19.5% qoq to Rs775bn, with net debt-to-EBITDA at 2x, driven by higher cost-to-serve and working capital requirements.

Outlook for 2Q remains healthy

We expect HNDL’s earnings momentum to remain healthy in 2QFY27, supported by continued normalization of Oswego operations, higher aluminium realizations (albeit lower sequentially), and sustained strength in the India upstream business. However, near-term costs are likely to remain elevated, with cash costs expected to rise 5-6% qoq due to higher coal prices during the monsoons. At Novelis, sequential improvement is likely to remain moderated due to the elevated tariff impact. Even as the gradual reduction in imports (as Oswego ramps up) should help reduce the ~$70mn tariff burden, while higher MJP premiums should continue to support upstream/downstream realizations. Overall, we remain constructive on 2Q earnings, with improving Oswego utilization, structural cost savings, and strong India aluminium profitability providing support, although higher costs and elevated net debt remain key monitorables.

Earnings recovery intact; maintain ADD

We believe our medium-term investment thesis is intact, supported by sustained earnings momentum from firm aluminium prices and gradual recovery at Novelis. Incorporating the 1QFY27 results, we raise FY27E adjusted EBITDA by ~11%, mainly reflecting the inclusion of insurance recoveries, while FY28/29 estimates are broadly unchanged. We maintain ADD on Hindalco and TP of Rs1,150.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354