Target: ₹600
CMP: ₹626.80
Hindalco delivered a strong upstream performance that is on a firm foot vs a starkly different downstream performance with bleak near-term outlook for Novelis, balancing out one another in Q2 and resulting in EBITDA beat of 9.5 per cent at business segment level. On Novelis, there is no incremental clarity, especially on quantification in terms of impact on profitability from rise in scrap prices. It seems a part of margin contraction is structural.
Near term, its management indicated that direction of profitability is lower, at least in Q3/4 FY25. On Upstream, full benefit of the alumina price increase in likely to be realized in Q3/Q4, given realisation lag; hedges roll-off at $2,700/t for FY26 which we see as an attractive level; supply deficit of ali in China is positive for prices. Copper TC/RC negotiation for CY25 is scheduled this week in China.
We recently upgraded our near-term ali price forecasts, essentially marking-to-market for increase in spot prices. Incorporating the Q2 results (which were ahead of expectations) and our latest commodity price deck, our EBITDA estimates increase by 11.5 per cent for FY25, while the revisions are modest for out-years. Maintain Sell.