Buy Hindalco Industries; target of Rs 696: Prabhudas Lilladher

Prabhudas Lilladher's research report on Hindalco Industries

Hindalco Industries (HNDL) Q3FY25 delivered strong cons operating performance on strong India upstream AL and copper business. Indian business volumes were stable, higher pricing and lower operating cost benefited Q3 performance. Mgmt. guided for flattish coal costs for Q4 and expect strong upstream EBITDA/t to continue with ~35% of volumes hedged at USD2,600/t. Coal supplies from captive Chakla/ Meenakshi mines to start from Mar’26/ Mar’27 respectively; post which coal cost is expected to decline ~30% from current levels. Novelis Q3 was weak on higher scrap prices during seasonally weak quarter but 4Q would be better on account of: a) Higher volumes and better product mix, b) New better priced Can contracts which got activated from CY25, and c) higher recycled volume. Although Novelis continues to take its long-term measures (technologies, efficient supply chains, diverting land filling scrap etc.) to mitigate the impact of lower scrap spreads; we maintain our lower EBITDA/t assumption for FY26/27E at USD440/480.

Outlook

We factor in higher AL prices of USD2,593/USD2,632 for FY26E/27E from USD2,578/USD2,600 earlier. At CMP, the stock is trading at EV of 5.4x/4.8x FY26/27E EBITDA. Retain ‘Buy’ rating with revised TP of Rs696 (earlier Rs682), valuing Novelis at 6.5x & standalone ops at 5x EV of Sep’26E EBITDA.

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