Nuvama Institutional Equities has maintained its ‘Buy’ rating on Hindalco Industries following Novelis’ Q1 FY26 results. Novelis, Hindalco’s fully owned subsidiary, reported an adjusted Ebitda of $416 million, falling short of Nuvama’s estimate of $439 million.
This represents a 12 per cent quarter-on-quarter decline, attributed to the US tariff, lower scrap spread, and an unfavourable product mix.
According to Nuvama, the net tariff impact on Novelis was $28 million for Q1 FY26, with expectations of $60 million per quarter moving forward, assuming a 50 per cent tariff on aluminium imports in the US. Despite these challenges, there is optimism for an improvement in scrap spread and production costs. “The net impact of US tariff was $28 million in Q1 FY26 and we reckon $60 million/quarter Q2 FY26 onwards. Novelis shall initiate cost takeouts ($100 million run-rate by FY26-end and $300 million by FY28) to mitigate tariff impact,” Nuvama stated.
In terms of shipments, flat rolled products experienced a slight increase of 0.6 per cent QoQ and 1.3 per cent YoY, reaching 963kt, supported by higher beverage cans demand. However, automotive and speciality shipments were affected as buyers await stability after the US tariff impact. The company plans to adjust its forecasts with Hindalco’s Q1 earnings, maintaining a target price of Rs 776.
Nuvama highlighted that Novelis’ net debt rose by approximately $395 million QoQ to $5.57 billion. The capex for Q1 FY26 was $386 million, with a projected FY26 capex ranging from $1.9 to $2.2 billion. The ongoing Bay Minette expansion could potentially increase the net debt/Ebitda cap.
Despite the current challenges, Nuvama believes that Novelis’ earnings have bottomed out and anticipates a revival starting Q4 FY26. The management aims to reduce costs by $100 million annually, improving the company’s financial outlook.
Nuvama pointed out that the benefits from a major pickup in scrap spread will take time to be reflected in the profit and loss statement. Firm demand for beverage cans, accounting for 60 per cent of FY25 volume, would offset part of the reduced demand in other segments.
However, high aluminium prices in the US pose a downside risk to overall demand, should the aluminium import tariffs persist. Given the backdrop, while Nuvama expects Ebitda to have bottomed out in Q1 FY26, any significant recovery is unlikely before Q3 FY26. The situation necessitates careful navigation as market conditions evolve. Nuvama continues to recommend Hindalco’s stock, reflecting confidence in long-term improvements.
The market will be closely watching Hindalco’s strategic responses to these developments, particularly the cost-saving measures and their impact on financial performance. Investors and analysts alike are keen to see how these factors will shape Hindalco’s trajectory in the coming quarters.