Hindalco: Green Metal Giant, 12% Upside

Executive Summary

Hindalco continues to demonstrate resilience and growth as a leading integrated metals player, underpinned by its dual engine of robust Indian operations (Aluminium & Copper) and the steady performance of its US-based subsidiary, Novelis. The company reported strong Q2FY26 results, with consolidated revenue growing 13.5% YoY to INR 66,058 crore and EBITDA expanding 19.2% YoY to INR 8,785 crore, driven by improved operational efficiencies, better product mix, and higher demand in both upstream and downstream segments.

Our research is predicated on three pillars: (1) Cyclical Upside in LME Aluminium: Global supply constraints and rising demand from green energy sectors (EVs, solar) are supporting firm metal prices, directly benefiting Hindalco’s upstream margins; (2) Novelis’ Structural Recovery: With the Bay Minette expansion progressing and the Oswego plant on track to resume full operations by December 2025, Novelis is overcoming temporary headwinds from US tariffs and operational disruptions, positioning it for margin expansion; and (3) Deleveraging & Capital Efficiency: Management’s focus on maintaining a Net Debt/EBITDA ratio below 2.0x (currently ~1.23x) while funding aggressive capex through internal accruals highlights prudent capital allocation. Key risks include volatility in LME aluminium prices, fluctuations in coal costs for Indian operations, and potential regulatory shifts in global trade tariffs.

Company Overview & Corporate Structure

History & Evolution

Hindalco Industries Ltd, the metals flagship of the Aditya Birla Group, is one of the world’s largest aluminium rolling and recycling companies and a major copper player. Established in 1958, the company has transformed from a domestic upstream producer into a global downstream powerhouse, largely catalyzed by the landmark acquisition of Novelis in 2007. Today, Hindalco operates across the entire value chain: bauxite mining, alumina refining, coal mining, captive power generation, aluminium smelting, and downstream rolling/extrusions.

Business Segments

1. Novelis (approx. 60% of Revenue): The world’s largest producer of rolled aluminium products and the largest recycler of aluminium. Headquartered in Atlanta, it serves the beverage packaging, automotive, and aerospace sectors. It operates 33 manufacturing plants globally.
2. Aluminium Upstream (India): Includes bauxite mines, refineries (Utkal Alumina), and smelters (Renukoot, Hirakud, Mahan, Aditya). This segment is highly sensitive to LME prices and input costs (coal/CP Coke).
3. Aluminium Downstream (India): Focuses on value-added products (VAP) like foil, extrusions, and flat-rolled products for the domestic market.
4. Copper (India): Operates one of the world’s largest custom copper smelters at Dahej, Gujarat. It produces copper cathodes and continuous cast rods (CCR), with significant revenue also derived from by-products like gold, silver, and sulphuric acid.

Management & Strategy

Led by Managing Director Satish Pai, Hindalco’s strategy focuses on “de-commoditizing” its portfolio by increasing the share of Value-Added Products (VAP). The company has committed to substantial organic growth, including a INR 10,225 crore expansion at Aditya Aluminium and the ongoing USD 2.5 billion investment in Bay Minette, Alabama.

Industry & Macro Context

Global Aluminium Market

The global aluminium market in 2026 is characterized by a structural supply deficit. While demand is growing at ~2-3% annually—driven by the green transition—supply is constrained. China, producing ~60% of the world’s aluminium, has capped capacity at 45 million tonnes due to strict decarbonization mandates, limiting new smelting additions. This effectively places a floor under LME prices, which have stabilized above $2,500/tonne in late 2025. In the West, high energy costs have curtailed production in Europe, further tightening the physical market.

Domestic (India) Dynamics

India remains a bright spot for aluminium demand, with consumption growing at double the global average (6-7%). Key drivers include:

• Power Sector: Massive investments in transmission grids and renewable energy integration.
• Automotive: Shift towards light-weighting for EVs and higher SUV penetration.
• Infrastructure: Government capex on metro rails, airports, and affordable housing.

On the regulatory front, the Indian government’s focus on reducing coal imports and promoting domestic mining auctions has improved raw material security for integrated players like Hindalco.

Copper Market

The copper market is similarly tight, often referred to as the “electrification metal.” Hindalco’s custom smelting model (Tc/Rc based) is less sensitive to copper prices but benefits from tight concentrate markets and high demand for sulphuric acid (a key by-product used in fertilizers). With India’s refining capacity lagging domestic demand for finished copper goods, Hindalco’s domestic market share remains dominant.

Recent Performance & Latest Financials

Q2FY26 Operational Review

Hindalco delivered a robust performance in Q2FY26 (ending September 2025), defying broader macroeconomic headwinds.

• Revenue: Consolidated revenue reached INR 66,058 crore, up 13.5% YoY, supported by higher volumes in the Indian aluminium business and steady shipments at Novelis.
• EBITDA: Consolidated EBITDA surged 19.2% YoY to INR 8,785 crore. The EBITDA margin expanded by 60 basis points to 13.3%, reflecting the company’s cost optimization measures and favorable product mix.
• Profitability: Reported PAT grew 21.3% YoY to INR 4,741 crore. Adjusted PAT, which strips out one-off items, stood at INR 4,923 crore, up 11.3% YoY.

Segment Highlights (Q2FY26)

• Novelis: Revenue rose 15.1% YoY to INR 41,418 crore. Shipments remained steady at 941 KT. Despite headwinds from US trade tariffs, Novelis managed margins effectively through localization and recycling benefits.
• Aluminium Upstream: Shipments increased to 341 KT (vs 328 KT in Q2FY25). EBITDA per tonne improved 13% to $1,521, a best-in-class metric globally, driven by lower coal costs and firm LME prices.
• Copper: Revenue grew 11.0% YoY to INR 14,563 crore. EBITDA was healthy at INR 634 crore, supported by strong sulphuric acid realizations.

Balance Sheet & Cash Flow

The company’s leverage remains comfortable with a Net Debt/EBITDA ratio of 1.23x as of September 30, 2025, marginally up from 1.19x the previous year due to capex deployment but well within the management’s guidance cap of 2.0x.

Strategic Positioning in the Green Metal Super-Cycle

Aluminium is critical to the global energy transition, specifically in light-weighting electric vehicles (EVs) and expanding renewable energy grids. Hindalco’s integrated model allows it to capture value across the chain, from mining bauxite to producing high-margin flat-rolled products (FRP) via Novelis. Unlike pure-play commodity producers, Hindalco’s significant downstream capacity (Novelis accounts for ~60% of revenue) provides a hedge against LME volatility.

The company is currently executing a significant capex cycle, including the expansion of the Aditya Aluminium smelter (193 KT addition) and the massive Bay Minette rolling facility in the US, which will cement its leadership in the North American beverage can and automotive sheet markets. Furthermore, the Indian copper division continues to deliver record EBITDA, driven by high by-product realizations (sulphuric acid) and robust domestic demand for copper rods in infrastructure projects.

Financial Analysis

Profit & Loss Outlook

We forecast a Revenue CAGR of 5.8% over FY25-27E, reaching INR 266,874 crore by FY27E. This growth is driven by the ramp-up of downstream capacities in India and the commissioning of Novelis’ new rolling lines. We expect EBITDA margins to expand from 13.0% in FY25A to 13.5% in FY27E, as the benefits of the lower-cost coal mix and higher share of VAP materialize.

• FY26E: We estimate Revenue of INR 257,829 crore and EBITDA of INR 33,924 crore.
• FY27E: We estimate Revenue of INR 266,874 crore and EBITDA of INR 35,928 crore.

Ratio Analysis

• Return Ratios: ROE is projected to moderate slightly to 11.3% in FY27E (from 12.9% in FY25) due to the heavy capital work-in-progress (CWIP) associated with Bay Minette, which will not immediately contribute to earnings. However, ROCE remains robust at ~12%.
• Liquidity: The current ratio is healthy at 1.5x (FY26E), indicating sufficient liquidity to meet short-term obligations.
• Coverage: Interest coverage is exceptionally strong at 7.0x for FY26E, underscoring the company’s ability to service its debt even in a downturn.

Peers & Relative Valuation

Hindalco trades at a discount to its global and domestic peers when adjusted for its business mix. While pure-play miners like Vedanta trade at lower multiples due to governance and debt overhangs, Hindalco warrants a premium due to its conversion business model (Novelis).

Investment Risks & Mitigants

Principal Downside Risks

1. Commodity Price Volatility: While Novelis is shielded via pass-through contracts, the Indian Upstream business is exposed to LME fluctuations. A sharp drop in LME Aluminium below $2,200/t would erode margins. Hindalco’s increasing integration into downstream VAP reduces sensitivity to LME prices over time.
2. Energy Costs (Coal): Indian operations rely heavily on coal. Supply disruptions or sharp price hikes in e-auction coal can impact the cost of production. The company has secured several coal linkages and owns captive mines (Chakla, Meenakshi) which provide partial hedge against market volatility.
3. Capex Execution Risk: The Bay Minette project is massive ($2.5bn+). Delays or cost overruns could drag on return ratios (RoCE) and free cash flow for longer than expected. Management has a strong track record of project execution (e.g., Aditya Smelter ramp-up).
4. Currency Fluctuations: A strengthening INR vs USD negatively impacts the realization of Indian exports and the translation of Novelis’ earnings.

Catalysts & Monitoring Checklist

Investors should track the following events over the next 12 months:

1. Bay Minette Commissioning (2H 2026): Any announcements regarding the start of cold mill commissioning will de-risk the growth narrative.
2. LME Price Trends: Sustained strength in LME Aluminium >$2,500/t and Copper >$9,500/t.
3. Quarterly Deleveraging: Monitoring the Net Debt/EBITDA trajectory to ensure it stays near or below 1.5x despite heavy capex.