Hindalco gets a 'buy' tag from Nomura, target price up 26%

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26 Aug, 2025 12:21

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Brokerage firm Nomura Research has initiated a 'buy' recommendation on Hindalco Industries Ltd with a target price of Rs 540 a share, indicating a 26 percent increase from its current market price.

Hindalco Industries (HNDL) is a global low-cost quartile aluminum producer, thanks to its fully integrated bauxite-to-aluminum business model and 100 percent captive power. According to Nomura's estimates, Hindalco has a $550-600 per tonne cost advantage over its Chinese peers. As Hindalco improves its coal sourcing and increases its share of value-added products, its profitability is expected to enhance further. Although there may be global macro challenges in the near term, Nomura expects Hindalco's profitability to rise structurally in the longer term.

Nomura predicts that the rising demand for electric vehicles and renewables, coupled with global supply tightness, will support aluminum pricing. They also expect an increased share of value-added products to aid realisations. With limited global capacity additions by CY26, the demand-supply situation is likely to tighten, leading to price hikes.

This would be supported by the current weak profitability of Chinese smelters, according to Nomura. Hindalco's downstream share is expected to rise until FY26, further improving its realisations. Nomura estimates aluminum prices at $2,600 per tonne in FY24 and $2,750 in FY25.

"We expect coal cost to decline over FY24/FY25, led by a gradual rise in the share of coal procured via linkage contracts from Coal India to pre-pandemic levels by FY25 and easing of supply disruptions globally (leading to lower international thermal coal prices). We expect e-auction premiums to narrow marginally led by falling coal prices globally," Nomura said in its latest report.

The brokerage values Hindalco's India business at 4.5x FY25 EV/EBITDA and Novelis at 5.7x FY25 EV/EBITDA.