Hindalco is the preferred play in the aluminium space with good earnings visibility for the next six months. Buy for target price of ₹800 (15.7% upside): JMFICS

Novelis past its trough; strong performance in India business to continue

With Aluminium prices remaining strong above ~USD2.6k/tn levels and the company guiding for Novelis’ 4QFY25 performance to be in line with that of 2QFY25 (implied EBITDA/tn: ~USD490/t), makes Hindalco our preferred play in the aluminium space with good earnings visibility for the next six months. India business margins are expected to trend upwards primarily driven by a) deficit forecast in aluminium leading to prices sustaining above ~USD2.6k/tn levels b) subdued coal prices and c) value-accretive upstream expansion projects (180ktpa Al smelter, 0.85mtpa Al refinery). This has led to improved margins of Hindalco’s India aluminium business with EBITDA/tn sustaining above USD 1k/tn (~USD 1.5k/tn in 3QFY25) for the past 4 quarters, significantly above historical levels of ~USD 0.7k/t. We also believe Novelis margins have troughed given a) high scrap prices leading to bottoming out of spreads – unlikely to worsen further as it would discourage recycling capacity and restrict demand b) recent imposition of tariffs has led to significant growth in Midwest premiums with spot premium at ¢38/lb, up 78% from Dec’24 levels, potentially leading to recovery in scrap spreads and c) volume growth driven by Bay Minette (600ktpa) and debottlenecking projects (~200ktpa). We expect Net debt/EBITDA to remain range-bound at ~1.2x over FY25-27. The outlook for Hindalco continues to be buoyant given resilient performance by India aluminium operations and enhanced coal security post acquisition of Meenakshi, Meenakshi West and Chakla coal mines. We re-iterate BUY.