Buy Hindalco Ltd for the Target Rs 1,170 by Motilal Oswal Financial Services Ltd
Multiple growth levers to drive earnings inflection and deleveraging
We maintain our positive stance on Hindalco Industries (HNDL), as the recent correction, driven by declining LME prices and supply normalization, appears largely priced in, while the long-term growth outlook remains intact. This correction offers an attractive risk-reward opportunity in a diversified play spanning India’s integrated aluminum business with a premium value-added product portfolio, global aluminum recycling through Novelis, and the domestic copper growth opportunity. HNDL offers strong earnings growth visibility, driven by aggressive capacity expansion, downstream integration, structural cost savings, and Novelis’ operational recovery, positioning the company for a structural earnings inflection and B/S deleveraging. Net debt/EBITDA is expected to decline to below ~1.5x from 1.95x in 1QFY27, with execution and Novelis’ recovery remaining the key monitorables. Currently, the stock trades at 5.4x EV/EBITDA and 1.3x P/B on FY28 estimates. We reiterate our BUY rating on HNDL with an SOTP-based TP of INR1,170 on FY28E.
Key risks:
1) Execution delays
2) LME price correction
3) increase in scrap prices
4) changes in global policies.
Aggressive upstream expansion provides long-term growth visibility
* HNDL India has outlined a capex plan of INR450-500b to expand its aluminum and copper capacities, strengthen resource security, and increase value-added offerings.
* Aluminum capacity is expected to rise from 1,340ktpa to 1,714ktpa (+28%), while copper capacity will increase from 421ktpa to 721ktpa (+71%).
* HNDL targets doubling its capacity to over 2,000ktpa for aluminum, +5,500ktpa for alumina, and 1,200ktpa for copper, providing long-term growth visibility
Cost optimization via backward integration and RE share
* HNDL is reducing external coal dependence through captive mining, with existing Gare Palma IV/4 & 5 and Kathautia mines meeting only 2-3% of its coal requirements.
* We believe the development of Chakla, Bandha, and Meenakshi mines is expected to improve energy security and deliver ~USD200/t savings over FY24 cost levels.
* Meanwhile, renewable capacity of 470MW is expected to increase to ~884MW by FY27 and 1.5GW by FY28, supporting the company's target of sourcing 30% of its energy from renewables by 2030.
* Novelis' recovery is gaining traction following the restart of the Oswego hot mill in Jun’26, with operational normalization and insurance proceeds supporting cash flow recovery (expects positive free cash flow in 4QFY27).
* The 600ktpa Bay Minette facility, equivalent to ~16% of US capacity including recycling, will drive incremental growth and diversify Novelis' footprint, reducing its dependence on Oswego (accounts for ~40% of US domestic automotive supply).
* Gradual operational recovery and Bay Minette's ramp-up should support earnings growth and cash generation, although production normalization, insurance recoveries, and elevated leverage remain key monitorables.
Valuation and view: Reiterate BUY
* HNDL’s India operations are net debt-free, while consolidated net debt-toEBITDA ratio stood at 1.95x as of Jun’26. The announced/ongoing expansion is set to position HNDL as the global leader, though any delay in the stated timeline and cost escalations could pressure cash flows.
* The stock is trading at 5.4x FY28E EV/EBITDA and 1.3x FY28E P/B. We reiterate our BUY rating on HNDL with our SOTP-based TP of INR1,170.
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