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India delivers, Novelis yet to regain lost ground

Hindalco (HNDL) delivered a strong Q2FY27, with cons. EBITDA up 43% YoY and 6% ahead of PLe, led by robust India performance and a gradual improvement at Novelis. Aluminum upstream EBITDA grew 55% on higher NSR/premiums, better volumes and strong operating performance, while downstream EBITDA rose 26% on higher shipments and improved product mix. Copper reported record EBITDA, up 164%, mainly aided by higher sulphuric and other by-product prices, along with one-off gains worth ~INR4bn. Novelis’ performance improved gradually, with Oswego operations normalized recently and favorable metal benefits supporting profitability; however, shipments remained soft, with adj. EBITDA/t at US$510 ex. the Oswego insurance recovery. With customer supply chains expected to normalize and Bay Minette moving towards commissioning, volume recovery should gather pace from Q4FY27E, while tariff-related pressure is expected to normalise by same time.

Going ahead, LME prices and Novelis volume ramp up remains two key monitorables, as anticipated resolution of the Middle East conflict and new Indonesian capacities can potentially ease the current supply-side overhang. While elevated copper by-product prices should continue to provide near-term support, softer aluminium prices could moderate earnings momentum in the India business. Scaling up VASP and timely execution of the Aditya smelter and captive coal mines will be important to sustain growth and improve cost competitiveness. At Novelis, the key priority is to regain US customers from the temporary loss of market share during the Oswego disruption and translate production normalization into a sustained volume recovery. As Q3 is seasonally weak quarter for Novelis, we expect LME to remain key driver of HNDL’s near term earnings. We cut our FY28/29E EBITDA by 5%/4% assuming LME of USD3,050/t and tweak capex estimates. We expect ~15% EBITDA CAGR over FY26- 29E as we have not yet incorporated any benefit of INR500bn capex in India which would be visible post FY29E only. HNDL is focusing on expanding its non-LME-linked business while selectively adding LME-linked capacities over the LT to mitigate earnings cyclicality. However, timely execution of these plans remains key. At CMP, the stock is trading at EV of 6.1x/5.5x FY28/29E EBITDA. Maintain ‘Buy’ with revised TP of INR 1,141 (earlier INR 1,113) valuing at same 7x/6.5x India/Novelis biz respectively.

Higher NSR and operating perf. drive earnings growth:

Standalone AL revenue grew 35% YoY while copper revenue grew 47% YoY. Upstream AL revenue is up 33% YoY on better realization (volumes were up 1% YoY) and EBITDA was up 55% on strong operating performance. CoP inched up slightly YoY (3%) to US$1,927/t (+2% QoQ). Upstream EBITDA/t came at $2,125/t. Export mix was tad lower at 21% (23% in Q1 and 25% in Q2FY26). Downstream revenue is up 45% YoY on account of better NSR while shipments were up 5% YoY at 119kt. EBITDA is up 26% YoY on higher shipments and further value addition. Downstream EBITDA/t stood at $289/t. Copper revenue is up 47% YoY to INR213bn on higher LME (up 44% YoY), flat CCR volumes and higher sulphuric prices. EBITDA was up 164% YoY to INR 16.73bn. Copper EBITDA/t was higher on healthy domestic demand across segments despite elevated prices and higher NSR of by-products and one-time gains (INR4bn). AL upstream sales volumes grew 1% YoY to 345kt, downstream sales volumes grew 5% YoY to 119kt. Blended realization for AL business was up 1% QoQ to ~INR 318k/t (up 32% YoY) while copper business realization was up 12% QoQ to INR 1,842k/t (up 43% YoY).

Broad-based earnings growth led by strong India ops:

Standalone EBITDA doubled YoY to INR 75.9bn (+9% QoQ), supported by strong operational performance across both businesses, higher LME and copper business (higher by-products prices and one-time gains). Cons. EBITDA grew 43% YoY at INR 128bn (-8% QoQ; PLe INR 120.5bn) on strong India performance and inline Novelis. EBITDA from non-LME-linked businesses at INR68.6bn, up 50%. Cons. reported PAT up 47% YoY to INR 75.33bn. Exceptional items of INR2.84bn in Q2FY27 was on net insurance recovery at Novelis. Other income also includes Business Interruption recoveries worth ~INR3.7bn related to Oswego fire.

Higher AL prices and premiums drive revenue growth:

Novelis's revenue increased 25% YoY to US$5.94bn (+3% QoQ; PLe US$5.54bn), primarily driven by a 21% YoY increase in average LME aluminum prices, partially offset by lower shipments. Average realization improved 28.3% YoY and 2% QoQ to US$6,466/t (PLe US$5,984/t), supported by higher LME aluminum prices and better premiums over LME

S.A. leads regional perf., N.A. faces tariff and fire-related headwinds:

FRP shipments declined 2.3% YoY to 919kt (flat QoQ; PLe 926kt). Higher beverage packaging and aerospace shipments were offset by lower automotive and specialty shipments. North America: FRP shipments increased 0.5% YoY to 371kt. Adj. EBITDA increased 8.4% YoY to US$146mn, translating into EBITDA/t of US$394. Higher beverage packaging shipments were offset by lower automotive and specialty shipments. Performance was also impacted by the net negative tariff impact of US$78mn, partly offset by favorable metal benefits. N.A. EBITDA includes US$39mn of business interruption insurance recovery related to the Oswego fires. Ex. this recovery, EBITDA stood at US$107mn, down 20% YoY, while EBITDA/t was ~US$288. Europe: FRP shipments declined 1.5% YoY to 257kt. Adj. EBITDA increased 26.6% YoY to US$101mn, EBITDA/t stood at US$393. Lower beverage packaging and specialty shipments were partially offset by higher automotive shipments. Favorable product mix and metal benefits supported performance, while forex remained a headwind. Asia: FRP shipments declined 7% YoY to 206kt. Adj. EBITDA increased 2% YoY to US$101mn, with EBITDA/t at US$490. Production and shipments were affected by the labor strike at the Yeongju plant in South Korea, with an est. negative impact of US$20mn on Adj. EBITDA. Lower beverage packaging and automotive shipments were partially offset by higher specialty and aerospace shipments, along with favorable metal benefits and forex. South America: FRP shipments remained flat YoY at 159kt. Adj. EBITDA increased 48% YoY to US$160mn, translating into EBITDA/t of US$1,006. Higher beverage packaging shipments were offset by lower specialty shipments, while favorable metal benefits and product mix supported profitability.

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