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Novelis delivered a strong 1Q, with adjusted EBITDA of $516mn, 5.7% above our estimate (+12.4% qoq), and EBITDA/t of $563. Even adjusting for the $18mn net Oswego benefit, underlying EBITDA/t remained healthy at $525. With Oswego operations normalizing, the earnings drag should recede, while insurance proceeds and normalization of elevated inventories should support cash conversion. We would, however, temper near-term earnings extrapolation, given unusually favorable scrap spreads, with the management retaining its medium-term normalized EBITDA/t guidance of ~$600. As Bay Minette capex also winds down, Novelis expects to turn FCF-positive by 4QFY27, supporting leverage reduction from 4.5x to below 4x by FY27-end. We maintain ADD and TP of Rs1,150

Core earnings remain robust as Oswego headwinds recede

Novelis reported a strong 1Q performance, with adj EBIDTA of $516 in 4Q (+12.4% qoq, 24.0% yoy), 5.7% ahead of our estimate of $487. The beat was led by higher average aluminum prices (up 11.6% qoq) and lower shipment loss of 33kt from Oswego (already known) vs 4Q loss of 72kt; it was further supported by an estimated $18mn net positive impact from the Oswego fires, inclusive of $47mn business interruption insurance proceeds. Adj EBITDA/t stood at $563 vs $544 in 4Q. However, even on excluding the net positive impact of the Oswego fire incident, underlying business continues to perform well, with EBITDA/t of $525. Operationally, shipments rose 8.5% qoq but declined 4.9% yoy to 916kt. Novelis reported net profit of $164mn vs our estimate of $181mn

Oswego drag fading; working-capital unwind to aid cash flows

With Oswego largely back online and majority of incremental fire-related costs already absorbed, insurance receipts should exceed residual costs from 2Q onward, providing a meaningful cash-flow offset as the operational impact recedes; this would offer a meaningful tailwind to profitability over the next few quarters. However, we would not extrapolate the strong 1Q profitability, as favorable scrap spreads provided a meaningful tailwind during the quarter and are unlikely to sustain at current levels. Accordingly, the management continues to anchor medium-term normalized EBITDA/t at ~$600. Working capital was elevated, as Novelis carried higher-than-normal inventories to mitigate supply-chain disruptions and longer transit times following the Oswego outage; this should unwind as operations normalize, aiding cash conversion

FCF recovery to pave the way for deleveraging Novelis reported net debt of $7.9bn in Jun-26, with net debt-to-EBITDA rising to 4.5x vs 4.1x in Mar-26. We draw comfort from insurance recoveries expected to more than offset residual Oswego costs going forward, while working-capital normalization and tapering Bay Minette capex should support return to a positive FCF by 4QFY27, which is expected to bring down leverage below 4x by FY27-end. We maintain ADD and TP of Rs1,150.

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