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Capex raised; net debt to increase

Operating performance as expected

Hindalco Industries’ (HNDL IN) consolidated net sales declined ~1% YoY and ~3% QoQ to ~INR 528bn. Further, EBITDA improved ~65% YoY and ~5% QoQ to ~INR 59bn. Net sales and EBITDA were broadly in-line with our estimates of ~INR 509bn and ~INR 60bn, respectively. Adjusted PAT surged ~149% YoY and ~7% QoQ to ~INR 23bn.   

Novelis – EBITDA/tonne up ~33% YoY but down ~4% QoQ

Net sales fell ~6% YoY and ~4% QoQ to ~USD 3.9bn, primarily due to weak aluminium prices. Shipments were largely flat YoY but down ~2% QoQ to 910,000 tonnes. Realization fell ~7% YoY and ~2% QoQ to USD 4,324/tonne. Adjusted EBITDA rose ~33% YoY but fell ~6% QoQ to USD 454mn. Adjusted EBITDA/tonne increased ~33% YoY but fell ~4% QoQ to USD 499.         

India operations – EBITDA up ~40% YoY/10% QoQ

Sales volume of India aluminium business fell ~1% YoY but rose ~2% QoQ to 344,000 tonnes. Realization for aluminium fell ~4% YoY and ~1% QoQ to USD 3,076/tonne. EBITDA/tonne for aluminium improved ~41% YoY and ~12% QoQ to USD 869. Copper sales volume grew ~9% YoY but fell ~11% QoQ to 119,000 tonnes. Realization for copper increased ~5% YoY and ~7% QoQ to USD 12,064/tonne. EBITDA/tonne for copper grew ~9% YoY and ~12% QoQ to USD 662. Overall, EBITDA for India operations rose ~40% YoY and ~10% QoQ to ~INR 28bn.   

Valuations: Downgrade to Reduce; TP pared to INR 515  

We believe Novelis’ near-term performance may be supported by improved demand across segments. For India operations, gradual completion of growth capex, lower coal prices, continued focus on value-added products and backward integration augur well for future margin. However, because of upgrade in capex for Bay Minette project in the US from USD 2.5bn to USD 4.1bn, our net debt estimates have gone up and FY26E ROE has diluted by ~30bps.

We trim FY24E/25E EBITDA ~5%/~2%, but largely retain it for FY26E. Further, we roll-over to December 2025E from September 2025E and lower our TP to INR 515 from INR 541, ascribing 6x (unchanged) December 2025E EV/EBITDA to Novelis and 5x (unchanged) December 2025E EV/EBITDA to other businesses. As our TP offers an upside of only ~1% from CMP, we downgrade HNDL to Reduce from Accumulate.

Please refer disclaimer at Report
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