Buy Hindalco Industries Ltd for the Target Rs. 800 by JM Financial Services Ltd
Hindalco reported 1Q consol. adj. EBITDA of INR81bn, marginally below JMfe of INR83bn driven by subdued performance in Novelis offset by outperformance in India business. India aluminium business (incl. Utkal) delivered an EBITDA of INR43bn, down 15% QoQ primarily driven by weak LME. Key takeaways from the call are a) aluminium CoP expected to be up 3% in 2Q given monsoon impact and higher CP coke prices b) downstream expansion through Aditya FRP remains on track – expects ~70kt commercial sales from Aditya FRP in FY26 c) Aluminium downstream FY26 EBITDA/t guidance maintained at USD250-300/t – company expects quarterly shipments to reach ~150kt with Silvassa coming up d) hedging for 2QFY26; 20% of commodity at USD2,666/t and 18% currency hedged at INR87 per dollar e) capex guidance for India operations at INR70bn-INR75bn for FY26 and ~INR150bn for FY27. Net debt decreased to INR343bn in 1QFY26 from INR353bn in 4QFY25. The long term outlook for Hindalco continues to remain buoyant given a) resilient performance by India aluminium operations b) record high run rates in the copper business c) enhanced coal security post acquisition of Meenakshi, Meenakshi west, Bandha, Chakla coal mines and d) growth capex to augment capacity in downstream business. Hindalco, given ~70%+ steady/strong EBITDA being non-LME linked, remains our preferred play in the metal space. Re-iterate Buy.
* Novelis margins impacted by tariffs: Novelis reported revenue at USD4.7bn (+13%YoY) primarily driven by higher realisations (+11% YoY). The total rolled product shipments increased marginally YoY to 963ktons in 1Q primarily driven by strong demand in beverage packaging sector offset by weak demand in automotive sector. Adj. EBITDA came in at USD416mn, marginally below JMfe driven by elevated scrap prices, unfavourable product mix and negative impact of tariffs. Adjusted EBITDA/t came in at USD432/t - down from recent highs of USD494/t in 4Q - mitigation actions to begin offsetting tariff impacts in 2HFY26.
* India Al business spreads decline given weak LME: Aluminium EBITDA (incl Utkal) stood at INR43bn (down 15% QoQ) primarily driven by weak LME during the quarter. Copper EBITDA was up 10% QoQ to INR6.7bn from INR6.1bn last quarter driven by higher realisations from sulphuric acid partially offset by lower TC/RC. Net debt decreased to INR343bn in 1QFY26 from INR353bn in 4QFY25. Capex guidance for India operations stands at INR70-INR75bn for FY26 and ~INR150bn for FY27; INR12.7bn incurred in 1QFY26. Aluminium CoP came lower by 3% in 1Q and is expected to be up 3% in 2Q.
* Growth capex on track; coal integration to drive margins: Hindalco remains committed to growth through downstream expansion of Aditya FRP project taking their downstream capacity to 600kt - expects ~70kt commercial sales from Aditya FRP in FY26. Chakla remains on track – box cut expected to start in CY26. Company estimates coal cost savings to the tune of ~30% post the stabilization of all 3 mines.
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SEBI Registration Number is INM000010361
