IGI Logo

Novelis' profitability set to improve…

…the India business to maintain its strong growth trajectory

* Capacity expansion plans: HNDL is undertaking a substantial capex plan for India and Novelis operations to expand aluminum and copper capacities. Indian operations focus on projects such as the Aditya Alumina Refinery (850kt), the Aditya Aluminum FRP expansion (200kt), the 180kt/300kt of aluminum/copper smelters, et al. The Novelis expansion is targeting debottlenecking and the flagship Bay Minette facility of 600kt FRP capacity. These developments will mostly be commissioned over FY26-29E to meet the rising domestic/global demand and enhance operational efficiency.

* Coal and cost synergies and RE push: HNDL is accelerating its renewable energy (RE) push and coal backward integration. It plans to meet 30% of its energy requirements from RE and the rest via coal-based captive mines by FY30, supported by hybrid and solar installations and a strategic tie-up with Ayana Renewable Power. Simultaneously, HNDL is developing captive coal mines (Chakla and Meenakshi) to reduce cost volatility from e-auctions and imports. These initiatives are crucial for cost control, sustainability goals, and margin stability amid energy-intensive operations.

* Favorable pricing and demand; near-term uncertainty led by trade tension: HNDL is well-positioned to capitalize on favorable long-term demand and pricing trends in the aluminum and copper sectors. The strong demand growth will be driven by rising applications in EVs, electrification, packaging, transportation, RE systems, and construction. The supply-demand mismatch will ensure pricing resilience in the near to medium term.

* Novelis’ near-term cash flow will be under pressure due to the US tariff hike. Though higher Midwest premiums may partially offset the impact, operational cuts are likely to continue. HNDL’s strategic shift toward valueadded and premium products with higher recycled content would enhance its NSR and support the margins. We expect HNDL to sustain consolidated EBITDA margin at ~13% over FY26-28.

Valuation and view: Reiterate BUY

* HNDL’s Indian operation has been net debt-free, and the company’s consolidated net debt/EBITDA stood at 1.02x as of Jun’25 vs. 1.21x in Jun’24. The announced/ongoing expansion is set to position HNDL as the global leader, though any delay in the stated timeline and cost escalation might put pressure on the cash flow.

* Volume growth across geographies will remain stable for HNDL, and favorable pricing will limit cost pressure and maintain the margins in the medium term. The stock is trading at 6.2x FY27E EV/EBITDA and 1.5x FY27E P/B. We reiterate our BUY rating on HNDL with our SoTP-based TP of INR950, premised on our Sep’27 estimates.

* Key risks: 1) delay in the capex timeline and cost escalation, 2) a rise in aluminum scrap price, and 3) the US tariff escalation.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412