Same old story for Hindalco in the June quarter: Novelis drags, while domestic business shines

Mint

a day ago

Hindalco Industries Ltd's shares rose nearly 5% on Wednesday, following its June quarter (Q1FY26) results, in which consolidated Ebitda grew 6% year-on-year to ₹8,075 crore. The trend seen in recent quarters persisted: India's business stole the show, but wholly-owned US subsidiary Novelis Inc. remained under pressure.
India operations' Ebitda (earnings before interest, taxes, depreciation, and amortization) grew a solid 29% on-year to ₹4,750 crore. Domestic business comprises aluminium upstream, aluminium downstream, and copper.
On the other hand, Novelis' Ebitda fell by 17% to $416 million, weighed down by higher aluminium scrap prices and the adverse impact of US import tariffs. Ebitda per tonne fell 18% to $432, and there could be more pain in store as the tariff impact has not played out fully.
Tariff impact
The management expects a cost hit of $60 million per quarter, assuming the existing 50% tariff on aluminium imports in the US stays. Note that sales of some of its key segments, such as automotives and speciality shipments, were also impacted as buyers waited for stability in the tariff structure. In this backdrop, Nuvama Institutional Equities has trimmed its FY26 estimated Ebitda by 3% due to lower profits at Novelis, led by higher tariffs, partially offset by higher profits at Indian operations.
Hindalco sees Novelis's profitability improving in H2FY26, aided by projected cost savings of $100 million annually by FY26-end, up from $75 million projected earlier. A higher contract price for its key segment, beverage cans, which form almost 60% of volumes, should also aid profitability. In the medium term, ongoing capacity expansion at Bay Minette, expected to get commissioned in H2CY26, would help lower its imports to the US and mitigate the tariff impact.
In Q1FY26, higher realizations helped Hindalco report 13% growth in consolidated revenue to ₹64,200 crore. Volume grew by just 1%. Global aluminium prices were firm, with China seeing some deficit in supplies versus a balance in Q4FY25. Aluminium upstream Ebitda grew by 17%, contributing over 80% of Q1 domestic Ebitda, aided by higher realizations and lower cost of production (CoP), the lowest in the past 15 quarters. However, CoP is expected to rise in Q2 due to the higher cost of coal.
The aluminium downstream business is seeing a structural shift with Hindalco moving up the value chain, and more than doubled its Ebitda in Q1. Copper business Ebitda fell 16% due to lower processing spreads, but the ongoing commissioning of the facility for higher value-added products should boost earnings. The expansion project based on scrap and e-waste, expected to come online by December 2026, would generate an Ebitda margin of 2-3X of the conventional process.
Capex boost
Medium-term expansion plans domestic and abroad are on track, funded by strong domestic cash flow. Consolidated net debt-to-Ebitda fell marginally to 1.02X, from 1.06X in Q4, despite increase in Novelis' net debt. Yet, with significant capital expenditure (capex) planned over the next two years, leverage is worth tracking. Nuvama forecasts Hindalco's net debt to increase to ₹45,300 crore by FY27-end, taking net debt-to-Ebitda to 1.3X.
Hindalco's stock is up about 12% in 2025 so far backed by strong domestic performance, and trades at an enterprise value of 6.2X FY26 estimated Ebitda, shows Bloomberg. Improving Novelis' performance is critical for a re-rating of the stock, but that may not happen in a hurry given the macro uncertainties around tariffs. As per Kotak Institutional Equities' analysts, the Hindalco stock lacks substantial near-term triggers, with volume growth to kick in largely from FY28.