Buy Hindalco Industries Ltd For Target Rs. 734 - Elara Capita
Novelis eyes QoQ margin recovery in Q4
Hindalco Industries’ (HNDL IN) consolidated EBITDA rose ~29% YoY but fell ~4% QoQ to ~INR 76bn, mostly in line with our/Consensus estimates of ~INR 76bn/77bn, respectively. While weak margin at Novelis was a drag, another robust performance by India operations with record quarterly aluminium EBITDA was the key positive in Q3FY25. HNDL expects a recovery in Novelis’ performance in Q4FY25, primarily led by increased volume and higher prices of new contracts. In the medium term, we expect aluminium to outperform ferrous because of better demand-supply scenario which should benefit HNDL.
We largely retain our EBITDA estimate for FY27E and raise it ~1% each for FY25E-26E. We roll over to March 2027E from September 2026E and our SoTP based TP is unchanged at INR 734. As our TP offers an upside potential of ~21%, we revise HNDL to Buy from Accumulate.
Novelis – EBITDA/tonne down ~19% YoY and ~17% QoQ: Sales volume declined ~1% YoY and ~4% QoQ to 904,000 tonnes, as benefit of higher beverage packaging volume was offset by sluggish demand in the automotive and specialties segments. Realization increased ~4% YoY but dipped ~1% QoQ to USD 4,513/tonne. Adjusted EBITDA/tonne fell ~19% YoY and ~17% QoQ to USD 406, versus our estimates of USD 427
India operations – EBITDA up ~69% YoY: Sales volume of the domestic aluminium business grew ~2% YoY and ~3% QoQ to 338,000 tonnes. Realization rose ~20% YoY and ~5% QoQ to USD 3,813/tonne. Thus, EBITDA/tonne surged ~67% YoY and ~7% QoQ to USD 1,503. In the copper segment, sales volume grew ~1% YoY and ~3% QoQ to 120,000 tonnes. Realization was up ~12% YoY and ~1% QoQ to USD 13,549/tonne. EBITDA/tonne rose ~16% YoY but fell ~9% QoQ to USD 767. Overall, EBITDA for India operations surged ~69% YoY but fell ~7% QoQ to ~INR 48bn.
Revise to Buy; TP retained at INR 734: HNDL expects a recovery in Novelis’ performance in Q4FY25, led by higher volume, better product mix, benefit of new contract pricing and favorable metal benefit. For India operations, healthy demand, gradual completion of ongoing growth projects and cost-saving initiatives will be key catalysts.
Also, with the start of captive coal mines, coal cost for India operations is likely to fall by ~30% from the current levels in the long term. We largely retain our EBITDA estimate for FY27E and raise it ~1% each for FY25E-26E. We roll over to March 2027E from September 2026E and retain our SOTP-TP of INR 734, ascribing 6.0x (from 6.3x) March 2027E EV/EBITDA to Novelis and 5.5x (unchanged) March 2027E EV/EBITDA to other business. As our TP offers an upside potential of ~21%, we revise HNDL to Buy from Accumulate. Demand slowdown from key end-user industries, weak aluminium prices and adverse currency movement are key risks to our call
Please refer disclaimer at Report
SEBI Registration number is INH000000933
