ICICI Securities's research report on Hindalco Industries
Novelis’ (Hindalco’s 100% subsidiary) Q2FY26 (adj.) EBITDA of USD 422mn (and ~USD 448/te) was 4% better than our estimates due to lower-than-expected impact of the Oswego fire accident. Key points – 1) Oswego incident’s total impact estimated at USD 550-650mn (USD 100-150mn in EBITDA and rest as exceptional); 2) entire cashflow impact may be visible in H2FY26 but the company is guiding for 70-80% loss recovery in insurance; 3) Bay Minett capex revised upwards to USD 5bn from USD 4.1bn; implied IRR drops from mid-teens to higher single digit; 4) debt to increase (debt/EBITDA threshold now at 4.0x) to USD 5,799mn. Downgrade to REDUCE (from Hold) given the potential poor near-term performance in Novelis, trade war uncertainty, lower return profile of capex and higher debt. We roll over multiple to FY28E to arrive at SoTP-based TP of INR765.
Outlook
We roll our SoTP to FY28E and arrive at a target price of INR 765, based on 6.5x FY27E EV/EBITDA for Novelis and 6x for domestic business. Downgrade to REDUCE from Hold.
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