Axis Securities has downgraded Hindalco Industries Ltd to a HOLD rating while sharply raising its target price to Rs 1,050 from Rs 880, reflecting improved aluminium pricing assumptions but heightened execution risks at Novelis. The brokerage underscores that India operations remain structurally strong, delivering robust upstream margins and stable downstream premiumisation. However, the Oswego fire incident and Bay Minette capex escalation at Novelis have pressured consolidated profitability and leverage. With consolidated net debt rising and earnings visibility tied to insurance recoveries and ramp-ups, Axis believes upside is capped at current levels, implying a measured stance despite long-term structural positives.

Rating Shift: From Aggressive Buy to Calibrated HOLD

Axis Securities assigns a HOLD rating with a target price of Rs 1,050, implying roughly 9% upside from the CMP of Rs 964. The valuation is derived using a Sum-of-the-Parts framework, applying a 12-month forward EV/EBITDA multiple of 7.0x for Indian Aluminium, 6.0x for Copper, and 6.0x for Novelis, rolled over to December 2027 estimates.

The brokerage has raised its aluminium price assumptions, which improves medium-term earnings visibility. However, execution at Novelis—particularly Oswego restoration and Bay Minette commissioning—remains the key swing factor.

Q3FY26 Snapshot: India Stable, Novelis Disruptions Drag

Consolidated revenue came in at Rs 66,521 Cr, up 14% YoY and largely in line with expectations. EBITDA stood at Rs 7,975 Cr, reflecting a 5% YoY rise but an 11% sequential decline, primarily due to Novelis-related disruptions. Adjusted PAT was Rs 4,659 Cr, up 23% YoY but down 5% QoQ.

The surge in net debt is largely working capital and capex driven rather than earnings deterioration.

Indian Aluminium: First-Quartile Margins Hold Firm

The Indian upstream aluminium business continues to anchor performance.

Upstream EBITDA per tonne improved to $1,572/t, marking 6% YoY growth and positioning Hindalco in the global first quartile. Stable third-party shipments of 244 kt and firm LME aluminium prices supported realisations. Adjusted for one-off RPO reversals, cost performance remained steady.

Downstream aluminium delivered EBITDA of Rs 233 Cr, up 55% YoY despite a modest QoQ dip. EBITDA per tonne rose 35% YoY to $241/t, reflecting premiumisation and mix improvements. The battery enclosure facility has reached full ramp-up, and FRP expansion is progressing.

Strategically, management has hedged 64% of Q4FY26 aluminium output at $2,807/t, providing near-term earnings visibility.

Copper: Cyclical Pressure, Recovery Expected

Copper EBITDA moderated to Rs 595 Cr, declining 23% YoY due to weak TcRc spreads and adverse concentrate mix. Channel inventory drawdowns followed elevated LME copper prices.

However, management guides for a rebound toward ~Rs 600 Cr EBITDA in Q4FY26. With global TcRc spreads tightening—China reportedly settling near zero and spot spreads negative—the structural tightness in concentrate supply could restore margin leverage.

Novelis: Fire Impact Clouds Near-Term Earnings

The Oswego fire incident remains the largest overhang.

Q3 adjusted EBITDA stood at $348 Mn, down 5% YoY and 18% QoQ. EBITDA per tonne was $430/t; excluding fire and tariff impacts, it would have been approximately $495/t.

Total estimated financial impact includes:

• $150–200 Mn EBITDA loss
• $1.3–1.6 Bn gross FCF impact
• 150–200 kt shipment disruption

Importantly, management expects 70–80% of losses to be recovered through insurance, with recoveries already initiated. Leverage temporarily rose to 3.7x Net Debt/EBITDA and could approach 4x before moderating post-recovery.

Bay Minette capex has escalated to roughly $5 Bn, with commissioning expected in 2HCY26. Full ramp-up to 600 kt capacity will take 18–24 months.

Capex & Balance Sheet: Discipline Under Scrutiny

FY26 capex guidance stands at Rs 10,000 Cr for India operations, rising to Rs 10,000–12,000 Cr in FY27 onward as expansions accelerate. Consolidated net debt/EBITDA is targeted to remain near 2x over the medium term.

India standalone remains effectively net cash (~Rs 600 Cr), underscoring structural strength in domestic operations.

Financial Outlook: Earnings Trajectory Improving

Axis has revised estimates upward, factoring in stronger aluminium assumptions.

Return ratios are expected to strengthen, with ROE rising from 10.4% in FY26E to 14% in FY28E. EV/EBITDA moderates from 8.1x to 6.7x over the forecast horizon.

Key Risks: Aluminium Volatility & Execution Slippage

The principal risks to valuation include:

• Lower-than-expected LME aluminium prices
• Cost escalation in coal or other raw materials
• Delays or overruns in Novelis expansion projects

Execution discipline during the capex cycle remains the defining variable.

Investment View: Structural Strength, Tactical Patience

Hindalco’s Indian franchise remains structurally sound—first-quartile upstream margins, downstream premiumisation, and disciplined hedging support long-term fundamentals. Yet, near-term earnings volatility from Novelis and leverage expansion limit immediate rerating potential.

With a revised target of Rs 1,050 and upside capped near 9%, Axis Securities’ shift to HOLD reflects a balanced view: the cycle is favourable, but execution will determine the next leg of value creation.

Investors should monitor aluminium price trends, insurance recovery progress, and Bay Minette commissioning milestones before increasing exposure.

Disclaimer: Investors should conduct their own due diligence and consult a financial adviser before making investment decisions. Equity markets are subject to risk, and forward-looking projections may vary based on macroeconomic and commodity price movements.