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Strong Indian business drives overall earnings; Novelis EBITDA to rebound in 2H

Consolidated performance

• Consolidated net sales stood at INR642.3b (+13% YoY and -1% QoQ), against our est. of INR607.6b, driven by strong performance in Indian operations and favorable pricing.
• Consolidated EBITDA stood at INR79.1b (+5% YoY and -11% QoQ) against our estimate of INR72.5b. The QoQ decline was driven by muted Novelis profitability, led by higher aluminum scrap prices, unfavorable product mix, and a net negative tariff impact.
• APAT came in at INR40b (+21% YoY and -24% QoQ) against our estimate of INR34.3b. This beat was primarily driven by better-than-expected EBITDA for the domestic business.
• Consol. net debt/EBITDA stood at 1.02x as of 1QFY26 vs 1.06x in 4QFY25

Aluminum business

• Upstream revenue stood at INR93.3b in 1QFY26 (+6% YoY), led by higher average aluminum prices. Aluminum upstream EBITDA stood at INR40.8b (+17% YoY; USD1,467/t), driven by lower input costs with favorable pricing.
• Downstream revenue stood at INR33.5b (+17% YoY) due to higher shipments and favorable pricing. Downstream EBITDA stood at INR2.3b (+108% YoY), led by a better product mix. This translated to EBITDA/t of USD264 (+92% YoY) in 1QFY26, compared to USD138 in 1QFY25.
• Upstream aluminum sales stood at 325kt (-1% YoY) and downstream aluminum sales stood at 101KT (+6% YoY) in 1QFY26.

Copper business

• Copper business revenue stood at INR148.9b (+12% YoY), driven by higher average copper prices.
• EBITDA declined 16% YoY to INR6.7b in 1QFY26, led by a sharp decline in TC/RCs, offset by higher NSR from sulphuric acid.
• Copper metal sales stood at 124KT (+4% YoY) in 1QFY26, and CCR sales were 104KT (+4% YoY) during the quarter.

Novelis’ 1QFY26 performance

• Shipments volume stood at 963kt (vs. our estimate of 975kt), up 1% YoY and flat QoQ, primarily led by higher beverage packaging shipments, partially offset by lower automotive and specialty shipments.
• Revenue stood at USD4.7b (+13% YoY and +3% QoQ), against our estimate of USD4.4b. This was led by a healthy ASP, which stood at USD4,898/t (+11% YoY and +2% QoQ), mainly driven by favorable aluminum prices.
• Adjusted EBITDA stood at USD416m (vs. our est. of USD434m), declining 17% YoY and 12% QoQ, driven by higher aluminum scrap prices, an unfavorable product mix, and a net negative tariff impact.
• Adj. EBITDA/t for the quarter stood at USD432 (against our est. USD445), declining 18% YoY and 13% QoQ. ? APAT stood at USD156m in 1QFY26 (-34% YoY and -38% QoQ), in line with our estimate. The decline was mainly attributed to soft operating performance.
• Capex for 1QFY26 stood at USD386m, primarily attributed to the new Greenfield rolling and recycling plant in Bay Minette, Alabama.
• Net debt/EBITDA as of Jun’25 stood at 3.2x vs 2.9x in Mar’25. The company issued USD400m of tax-exempt bonds with a mandatory tender for purchase in 2032 and maturation in 2055, which will be used to finance the Bay Minette expansion.

Highlights from the management commentary

• The cost of production (CoP) for upstream aluminum declined 3% QoQ in 1QFY26, driven by a higher mix of linkage coal (63%). Management has guided CoP to increase ~3% QoQ in 2QFY26 due to the monsoon impact and higher coal prices.
• Aluminum hedging: The company hedged ~20% of 2QFY26 volumes at USD2,666/t and currency hedged ~18% at INR87/USD.
• Alumina sales stood at 170kt and are expected to clock ~190-200kt in 2Q.
• Downstream EBITDA/t is expected to reach USD250-300 in FY26.
• Management reiterated its copper EBITDA guidance of INR6b every quarter.
• Aditya Alumina Refinery expansion: HNDL has placed all orders, received EC, and construction has begun, with commissioning targeted for FY28.
• 180KT aluminum smelter expansion at Aditya will proceed alongside the alumina refinery and is expected to be operational by FY28, whereas the 300KT copper smelter expansion will be commissioned by FY29.
• Two captive coal mines (Chakla and Bandha) will start the initial work in FY26, with commercial coal output from Chakla expected by Feb-Apr’27.

Valuation and view

• HNDL posted a decent consolidated performance in 1QFY26. The earnings growth was primarily driven by favorable pricing. Going forward, while nearterm costs could increase in the Indian business with higher coal prices and lower captive linkage, the medium to long-term outlook remains robust. Capex plans are progressing well, and no slippages are expected in terms of the commissioning timeline.
• Novelis' earnings outlook is expected to remain soft in 2Q, led by the tariff implications, but is guided to rebound in 2H, driven by its mitigation plans. Additionally, we anticipate that strong domestic earnings will manage to offset the muted Novelis profitability for FY26. The ongoing capex in Novelis will establish HNDL as the global leader in the beverage can and automotive FRP segments. Moreover, the commissioning of Bay Minette will reduce the import dependency and free up other US capacities for high-margin products.
• At CMP, the stock trades at 5.3x EV/EBITDA and 1.2x P/B on FY27E. We largely retain our estimates and reiterate our BUY rating on HNDL with an SoTP-based TP of INR790.

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