Prabhudas Lilladher has issued a BUY call on Hindalco Industries, assigning a target price of Rs 696 for potential investors. The firm’s research underscores Hindalco’s balanced performance in both its domestic operations (aluminum and copper) and its overseas subsidiary, Novelis. Key drivers include strategic cost control, capacity expansions in India, and hedging gains from higher aluminum prices. Novelis, despite near-term headwinds from higher scrap costs, projects stronger volumes and an enhanced product mix in the beverage can segment. Domestic operations benefit from more stable coal procurement, with captive mines reducing costs over the medium term. Consequently, the research house boosts its FY26–27 EBITDA assumptions and sets a target price of Rs 696, reflecting a long-term bullish outlook.

1. Research House Recommendation

According to Prabhudas Lilladher, Hindalco’s balanced operating metrics warrant a BUY rating. The brokerage firm has revised its target to Rs 696 (previously Rs 682) based on projected improvements across multiple segments, including:

• Stronger Domestic Aluminum EBITDA due to higher London Metal Exchange (LME) prices and optimized cost structures.
• Novelis Growth fueled by higher volumes, a better product mix, and more stable contract pricing in the beverage can vertical.
• Ongoing Capex that positions Hindalco for long-term profitability, even amid potential fluctuations in global commodity markets.

2. Domestic Operations: Aluminum and Copper Insights

Hindalco’s India business exhibited resilience and profitability in Q3FY25, backed by:

• Volume Stability: Aluminum upstream sales volumes dipped only 1.7% YoY, reflecting a largely steady production pace.
• Elevated Aluminum Realization: Blended realization improved more than 20% YoY, supported by favorable LME trends.
• Higher Copper Throughput: Copper volumes rose 1% YoY, while better by-product realizations enhanced margins in the copper segment.

Furthermore, cost efficiency measures—particularly in thermal power sourcing—bolstered the company’s bottom line, a trend expected to continue into the coming quarters.

3. Cost Drivers and Medium-Term Outlook

An important aspect of Hindalco’s performance involves its coal procurement strategy and hedging policies:

• Coal Strategy: Approximately 50% of coal requirements were met via linkage coal and 50% via e-auctions. This mix is projected to improve substantially once captive mines at Chakla and Meenakshi become operational by FY26–FY27, potentially reducing coal costs by 30% from current levels.
• Hedging Gains: The company has hedged 35% of Q4FY25 aluminum volumes at USD 2,600/t and an additional 12% of FY26 volumes at around USD 2,700/t. Currency hedges, with exchange rates as high as Rs 88 per USD in some cases, further mitigate volatility.

These initiatives position Hindalco to capture upside in commodity cycles while cushioning potential downside risks.

4. Novelis Segment Performance

Although Novelis’s Q3FY25 EBITDA per ton dropped to USD 406 (down 19% YoY), management anticipates a rebound in the near term:

• Volume and Product Mix: Expectation of higher volumes, improved beverage can pricing, and an uptick in automotive shipments support a potential EBITDA/t recovery in Q4FY25.
• Scrap Spread Optimization: Ongoing measures to secure more favorable scrap supplies and improved recycling capacities may stabilize costs.
• Expansion Initiatives: Novelis is investing USD 6 billion over the next three years to fortify its production and recycling infrastructure, bolstering long-term EBITDA potential.

While immediate challenges persist—particularly in raw material pricing—Novelis remains central to Hindalco’s global footprint and revenue mix.

5. Planned Capacity Expansions

Hindalco’s future growth trajectory hinges on capacity augmentations and downstream investments:

• Aluminum Refinery in Odisha: The planned 0.85 mtpa alumina refinery has secured environmental clearance, ensuring a critical supply of intermediate materials at optimized costs.
• Smelter Projects: Environmental clearance applications are in process for expansions at Aditya (aluminum) and Dahej (copper), a testament to Hindalco’s integrated approach.
• Solar and Wind Power Scaling: The company targets 300 MW of renewable energy capacity by H1CY25, further driving operational efficiencies and aiding ESG compliance.

Collectively, these projects underscore a methodical blueprint aimed at reinforcing Hindalco’s position as a low-cost producer with diversified revenue streams.

6. Share Price Levels and Investment Targets

In light of the Q3FY25 results and updated estimates, Prabhudas Lilladher offers the following market-oriented guidance:

• Recommended Entry Zones: Investors could consider accumulating Hindalco shares in the Rs 580–Rs 600 range, given the company’s ongoing operational progress.
• Primary Resistance/Target: A sustained move above Rs 620 may signal bullish momentum, with an intermediate goal near Rs 650.
• Overall Target Price: Rs 696 is the research house’s fair value estimate, suggesting moderate upside from prevailing levels.

These levels are subject to fluctuations in aluminum and copper prices, global demand trends, and any near-term operational updates.

7. Risk Factors

Despite a constructive outlook, investors should remain mindful of potential pitfalls:

• Commodity Volatility: Sharp swings in LME aluminum or copper prices may adversely impact margins, especially if hedges roll off or scrap spreads escalate.
• Geopolitical and Regulatory Hurdles: Proposed U.S. tariffs or changes in environmental regulations could disrupt certain segments of Hindalco’s business, particularly Novelis’s North American operations.
• Execution Delays: Slower-than-expected ramp-up of captive coal mines or new refinery capacity could push up operating costs.

Hence, thorough due diligence remains essential in balancing these risks against the broader upside potential.

8. Broader Market Context

Infrastructure growth, government spending, and global investment in green energy transitions continue to bolster demand for metals. With the automotive industry gradually moving toward lighter materials, Hindalco’s aluminum products remain an attractive choice. Meanwhile, higher beverage can consumption, especially in emerging markets, supports Novelis’s outlook. Therefore, industry tailwinds reinforce Hindalco’s strategic focus on capacity expansion and sustainability.

9. Conclusion

Prabhudas Lilladher’s BUY rating on Hindalco highlights the company’s favorable risk-reward proposition, anchored by robust aluminum pricing, improving copper margins, and an imminent Novelis recovery. Cost advantages derived from captive coal mines, plus the hedge strategy on key price variables, add layers of insulation to earnings. Though short-term uncertainties related to raw material dynamics persist, Hindalco’s medium- to long-term growth trajectory remains compelling, supported by its capital expenditure road map and ongoing developments in renewable energy adoption. With a target price of Rs 696, the stock offers a blend of cyclical upside and structural resilience that may appeal to both value seekers and growth-oriented investors.