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We downgrade HNDL to ADD from Buy, while increasing TP by ~9% to Rs1,200 from Rs1,100. HNDL reported strong Q4 adjusted EBITDA of Rs101.7bn, led by robust Novelis performance (already known); the India business remained broadly in line. Upstream aluminium (Al) EBITDA benefited from higher Al prices, with EBITDA/t remaining globally competitive. We expect earnings momentum to remain strong over FY27-29E, supported by elevated Al prices amid worsening global supply tightness, easing Novelis headwinds, and improved backward integration benefits. However, following the 20% rally (vs 8.4% for Nifty Metals) in the stock since the onset of the US-Iran conflict, valuations appear relatively demanding.

Novelis drives strong Q4 EBITDA; upstream margins stay robust

While Novelis’s performance was already known and the India business was broadly in line with expectations, HNDL reported Q4 adjusted EBITDA of Rs101.7bn (+9.6% vs Emkay; +11.2% vs consensus; +27.2% QoQ, +6.0% YoY), driven by strong Novelis performance with adjusted EBITDA of USD459mn and EBITDA/t of USD544 (read: Robust quarter; early Oswego restart adds comfort). Al upstream EBITDA came in at Rs54.5bn, aided by 12.8% QoQ improvement in average Al prices, resulting in a globally competitive EBITDA/t of USD1,756. Al downstream and copper segment EBITDA was also strong QoQ at Rs25.5bn (+9.4% QoQ) and Rs9.1bn (+52.4% QoQ), respectively, supporting consolidated EBITDA. Consolidated net debt rose 9.0% QoQ and 83.5% YoY to Rs648.4bn, primarily due to the higher Oswego fire impact of USD1.7bn vs earlier guidance of USD1.3-1.4bn and capex of Rs316.2bn in FY26

Rising Al prices and easing Novelis headwinds support earnings

The ongoing geopolitical tensions between the US and Iran have led to Al capacity curtailments of 2mt, widening the global supply deficit to 2.5-3.0mt in CY26 and intensifying near-term supply tightness. As a result, QTD average Al prices have increased to USD3,607/t vs Q1CY26 average of USD3,195/t. Accordingly, we raise our Al price assumptions to USD3,325/3,250/3,200/t for FY27/28/29E, respectively. We expect the stronger Al pricing environment to support earnings over FY27-29E. This should be further aided by enhanced backward integration benefits, as the Chakla and Bandha coal mines commence production over FY28-29, helping HNDL maintain a competitive position on the global Al cost curve. In addition, with key Novelis headwinds beginning to ease from Q1FY27 onward, we expect a gradual normalization in Novelis’s operations, supporting a stronger earnings recovery over the medium term.

Medium-term outlook intact; downgrade to ADD

While we believe our medium-term investment thesis of sustained earnings, driven by firm Al prices and recovery at Novelis is intact, the recent ~20% rebound in the stock since the onset of the US-Iran conflict has made valuations relatively demanding. Hence, we downgrade HNDL to ADD from Buy, while raising our TP to Rs1,200 from Rs1,100.

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