Hindalco Industries Ltd.'s US subsidiary Novelis Inc. reported June-quarter earnings that reinforced expectations of an operational recovery, with revenue and EBITDA exceeding expectations. Brokerages covering Hindalco pointed to the restart of the Oswego hot mill, progress on the Bay Minette expansion and cost savings as key drivers ahead. Morgan Stanley and Kotak retained their positive ratings on Hindalco, while Macquarie maintained its Neutral stance.
Analysts expect easing operational disruptions at Novelis and the addition of new capacity to support Hindalco's outlook. The Oswego ramp-up remains an important near-term monitorable, while Bay Minette is emerging as a medium-term earnings catalyst. Higher aluminium prices could provide further upside, though Novelis' elevated leverage and negative free cash flow remain key considerations.
Novelis reported a 23% increase in net sales to $5.8 billion during the quarter, while adjusted EBITDA rose 24% to $516 million. EBITDA per tonne increased 30% to $563. Profit after tax climbed 71% to $164 million, while profit excluding special items more than doubled to $265 million.
Novelis Q1 Highlights
- Net sales rose 23% to $5.8 billion.
- Adjusted EBITDA increased 24% to $516 million.
- EBITDA per tonne rose 30% to $563.
- Profit after tax increased 71% to $164 million.
- Profit excluding special items rose 128% to $265 million.
- Volumes stood at 916 kilotonnes, down 5%.
Higher aluminium prices lifted realisations during the quarter, while lower scrap prices helped cost efficiencies flow into margins.
The Oswego hot mill restarted in June following disruption caused by a fire. The insurance impact turned net positive by $18 million during the quarter as the timing of insurance proceeds more than offset the adverse production impact.
Cash flow, however, remained under pressure. Operating cash flow turned negative with an outflow of $455 million, while adjusted free cash outflow widened to $1.1 billion, driven by working capital requirements and capital expenditure on Bay Minette. Net leverage stood at 4.5 times trailing EBITDA. Novelis' chief financial officer expects free cash flow to turn positive in Q4FY27.
Here's what brokerages said after Novelis announced Q1 results:
Morgan Stanley
- Maintained 'Overweight' On Hindalco; Target Price At Rs. 1,140
- Novelis' core EBITDA was better than expected.
- Oswego recovery, Bay Minette commissioning and cost savings support the outlook.
- Bay Minette's ramp-up remains a key medium-term catalyst for Hindalco.
Kotak
- Maintained 'Buy' On Hindalco; Target Price At Rs. 1,120
- Novelis' quarter was in line with expectations, with operational headwinds easing.
- Oswego's ramp-up remains on track for H2FY27E.
- Bay Minette is expected to start contributing from FY28E.
Macquarie
- Maintained 'Neutral' On Hindalco; Target Price At Rs. 1,080
- Novelis' EBITDA recorded a modest beat and the expansion programme remains on track.
- Higher aluminium prices present upside risk to Hindalco's FY27 and FY28 consolidated EBITDA.
- A slower Novelis ramp-up and weaker aluminium prices remain downside risks.
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