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Margins expand sequentially; cautious approach on scrap prices

Novelis reported 4Q EBITDA of USD473mn, marginally above JMfe. Adj. EBITDA jumped sharply from last quarter lows as guided by management - though still down 8% YoY driven by higher COGS (+13% YoY). Consequently, Adj. EBITDA/t came in at USD494/t - up sharply from lows of USD406/t in 3Q. Key takeaways from the call are – 1) company maintains a cautious approach on scrap price movement going ahead – no guidance on near-term margins 2) capex incurred during FY25 stood at USD1.7bn – guidance for FY26 stands at USD1.9-2.2bn 3) Bay Minette to be commissioned in 2HCY26 – full capacity ramp-up to take another 18-20 months 4) Net debt to EBITDA ratio to remain below 3.5x. Net debt decreased marginally QoQ to USD5.1bn – net debt to EBITDA flat sequentially at 2.9x. Hindalco, given ~70%+ steady/strong EBITDA being non-LME linked, remains our preferred play in the metal space. We await Hindalco consolidated numbers - to be published shortly. Reiterate BUY.

* Top-line driven by higher LME: Company reported revenue at USD4.6bn (+13%YoY) primarily driven by higher realisations (+12% YoY). The total rolled product shipments stood flat YoY at 957ktons in 4Q primarily driven by strong demand in beverage packaging sector offset by weak demand in automotive sector. Tariff uncertainty led to muted demand in the automotive sector – leading to lower automotive shipments during the quarter.

* Margins expand sequentially; cautious approach on scrap prices: Adj. EBITDA came in at USD473mn, marginally above JMfe. Adj. EBITDA jumped sharply from last quarter lows as guided by management - though still down 8% YoY driven by higher COGS (+13% YoY). Margins increased sequentially driven by higher sales volume and better realizations from beverage packaging (60% of deliveries) and better operating leverage. Consequently, Adj. EBITDA/t came in at USD494/t - up sharply from lows of USD406/t in 3Q. Company is witnessing stability in scrap prices – maintains a cautious approach on how the scrap prices will move in future. Company believes if the US tariff situation remains as it was a week ago, it can incur additional costs to the tune of ~USD40mn per quarter – yet to see how the situation pans out. During the quarter, North America and South America witnessed EBITDA contraction by 29% YoY and 11% YoY respectively while Europe witnessed EBITDA expansion to the tune of 41% YoY.

* Capex guidance for FY26 at USD1.9-2.2bn; projects on track: Company incurred capex to the tune of USD1.7bn in FY25 – guidance for FY26 stands at USD1.9bn-2.2bn. Company plans to spend USD130mn / 150mn / 50mn on debottlenecking projects in Oswego (US) / Logan (US) / Pinda (Brazil) respectively during FY26. Bay Minetter project remains on track and is expected to be commissioned in 2HCY26 – full capacity ramp-up to take another 18-20 months. In near-term, company believes demand from Beverage packaging, aerospace and specialty remains strong while demand from automotive sector remains uncertain. Company plans to raise USD750mn worth of debt in FY26 – primarily to fund Bay Minette; Net leverage ratio to remain below 3.5x.

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