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India smelting ahead, Novelis healing gradually

We downgrade our rating to ‘Hold’ from ‘Accumulate’ with a revised TP of INR 1,126 (earlier INR 1,043) valuing Hindalco India biz at higher multiple of 7x EV of Mar’28E EBITDA (earlier 6x) on expectation of stronger EBIDTA on higher LME prices (benefitted by disruption in Middle East smelters). We maintain same 6.5x multiple on Novelis as it is still recovering from multiple issues viz. Oswego fire incident, higher tariffs, higher leverage and potential risk of higher scrap pricing. Hindalco Industries (HNDL) delivered largely in-line Q4 cons operating performance, supported by continued strong India performance and sequential improvement in Novelis. Ally hedging and overall inflationary environment for fuel/ raw materials is expected to limit India FY27 EBITDA. Captive mining is still few quarters away and production start from Chakla is delayed to Q4FY27 now Vs H1FY27 earlier.

Novelis reported better than expected quarter with adjusted EBITDA/t of $544 (PLe $509) aided by higher premiums over LME, although shipments were 4% lower YoY adjusting for Oswego volume loss. Estimated FCF loss has increased to $1.7bn now and deleveraging will only start from FY28 as capex intensity reduces post completion of Bay Minette (BM). Although volume would improve on weak base & commissioning of BM, tight scrap market would weigh on EBITDA/t till the long-term mitigation efforts don’t show material impact. As Oswego hot mill restarts in next few weeks, volumes are expected to improve from Q2FY27 while planned cost savings would aid Novelis EBITDA. As the tightness in physical aluminium market is expected to flow in CY27 due to damage to potlines in Middle East, LME prices are expected to remain elevated for next few quarters; which will support domestic smelters. Hindalco India business is expected to remain buoyant on

a) higher LME,

b) consistent improvement in downstream volumes,

c) coal supply from captive Chakla/Bandha mines over next few quarters would drive savings,

d) commissioning of Aditya refinery & phase 1 smelter by Dec’27 would aid upstream volumes. We raise our FY27/28E EBITDA by 2/7% incorporating higher LME ($3,292/$3,325), higher Novelis EBITDA/t ($510/540); negating higher RM costs. At CMP, the stock is trading at EV of 7.6x/6.6x FY27/28E EBITDA. Hold

Strong performance across aluminium and copper businesses:

Standalone AL revenue grew 12% YoY while copper revenue grew 52% YoY. Upstream AL revenue was up 11% YoY on better realization [although much lower (3%) than avg LME (12% YoY) due to hedging] and EBITDA up 13% due to strong operating performance. CoP up only 1% YoY at $1,926/t. Upstream EBITDA/t at $1,758/t. Downstream revenue was up 35% YoY on account of higher shipments (18% YoY to 124kt) and realization. EBITDA up 16% YoY supported by favorable product mix and higher shipments. (Downstream EBITDA/t at $225/t). Copper revenue was up 52% YoY despite 17% decline in CCR sales (offset by strong operational performance and higher realization in by-products like sulphuric acid) and higher realization (avg LME CU up 15%) while EBITDA was aided by higher sulphuric acid realisation which is expected to continue in Q1FY27.. AL upstream sales volumes grew 2% YoY to 339kt, downstream sales volumes grew 18% YoY to 124kt. Blended realization for AL business inched up 8% QoQ to INR 277k/t (up 6% YoY) while copper business realization improved 16% QoQ to INR 1,730k/t (up 60% YoY).

Robust EBITDA growth in India:

Standalone EBITDA grew 72% YoY to INR 51.46bn (+21% QoQ) on higher LME, higher upstream profitability and higher copper contribution. Cons. EBITDA grew 13% YoY at INR 100bn (25% QoQ; PLe INR 98.3bn) on strong India performance and Novelis getting tad better. Cons. reported PAT down 51% YoY to INR 25.97bn. Exceptional items include INR 41.71bn. Exceptional expenses (net of insurance) related to both fires stood at INR 45.65bn ($ 500mn) and INR 1.07bn ($12mn) of business interruption insurance recovery. Novelis recognized INR 3.94bn ($43mn) of property insurance recoveries as exceptional income and INR 3.76bn ($41mn) of business interruption recoveries under other income. Cons. net debt increased by INR 54bn QoQ to INR 648bn. Net debt to EBITDA increased to 1.83 vs (1.73 in Q3FY26).

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