Hindalco Industries continues to demonstrate strategic resilience and operational superiority across its core verticals. According to Kotak Institutional Equities, the company’s robust Q4FY25 performance exceeded expectations, led by margin expansion across both domestic aluminum operations and global subsidiary Novelis. While soft commodity prices and global headwinds could weigh on near-term earnings, Hindalco’s ambitious capex cycle and strong operating cash flows signal long-term growth. Kotak reiterates a BUY rating and raises its Fair Value target to Rs735, up from Rs725, underpinned by a 5.5x EV/EBITDA valuation on FY27E estimates.

Strong Domestic EBITDA Performance Drives Quarterly Outperformance

Hindalco's consolidated EBITDA surged to Rs96.1 bn in Q4FY25, significantly ahead of consensus estimates, reflecting the dual strength of its Indian aluminum business and Novelis. The Indian operations alone contributed Rs53.5 bn (+69% YoY, +10.8% QoQ), while aluminum EBITDA soared to Rs47.4 bn (+99% YoY), supported by:

Higher realization of +3.8% versus Kotak estimates

Reduced input costs (-3.1%)

Boosted downstream margins (+34% QoQ)

Copper segment EBITDA, though subdued at Rs6.1 bn, aligns with management’s quarterly guidance for FY26.

Aluminum Business Poised for Structural Margin Expansion

Hindalco is doubling down on its downstream capabilities. A 170 ktpa FRP plant at Aditya is set to go live by June 2025, expanding downstream aluminum capacity to 600 ktpa. This will enable shipment of 60–70 kt during FY26. Strategic investments in high-margin products—battery enclosures, AC fins, and extrusions—are forecast to lift downstream EBITDA margins toward the US$250–300/ton range in upcoming quarters.

Moreover, captive coal sourcing (Bandha mine) is expected to reduce energy costs from FY28, reinforcing structural margin gains.

Capex Cycle Intensifies, But Leverage Remains Manageable

Capex in India is expected to touch Rs75–80 bn in FY26, up from Rs65 bn in FY25, signaling a new growth phase. Projects in the pipeline include:

A 180 ktpa green-energy powered aluminum smelter

A 0.85 mtpa alumina refinery (Phase I)

A ~0.3 mtpa copper smelter expansion

Despite expected negative FCF during FY26–28, Kotak forecasts net debt/EBITDA to remain below 1.5x—a manageable level supported by robust cash flow from operations.

Novelis Faces Tariff Headwinds, But Long-Term Prospects Remain Firm

While Novelis delivered strong performance, it grapples with a quarterly US$40 mn impact from Section 232 tariffs on Canada-origin imports to the U.S. Despite this, management remains optimistic, with plans for plant divestiture (Fairmont) and higher scrap utilization to support profitability. Novelis' EBITDA/ton for FY25 stood at US$480, with expectations of modest improvement in FY26–28.

Financial Snapshot and Forecasts

Below is a table summarizing key consolidated financial metrics from Kotak’s forecast:

Copper Business Faces Margin Pressure

Copper segment EBITDA declined by 21% QoQ to Rs6.1 bn, impacted by lower treatment charges and concentrate availability. Kotak projects a stable quarterly EBITDA run rate of Rs6 bn through FY26, assuming normalization of Tc/Rcs and consistent volume performance.

Outlook: Headwinds Short-Term, Tailwinds Long-Term

Kotak sees Hindalco navigating near-term challenges of weak commodity prices and global trade friction with a robust operational model and strategic capital deployment. Aluminum EBITDA/ton in FY26/27E is forecast at US$1,206/1,268, slightly below the stellar Q4FY25 level of US$1,587.

Valuation and Target Price

The revised fair value of Rs735 (up from Rs725) is based on:

5.0x EV/EBITDA multiple on India business

6.0x EV/EBITDA on Novelis

Adjustments for net debt and under-construction assets

This implies an upside from the current price of Rs663, warranting a continued BUY stance for investors with a 12-month horizon.

Investment Rationale and Strategic Takeaway

Hindalco remains a compelling investment in India’s metals and mining space due to:

Strategic downstream and upstream expansion

Prudent capital allocation

Strong EBITDA visibility across segments

Manageable leverage and healthy ROE profile

While short-term volatility in global markets may persist, Hindalco's value chain integration and long-term positioning offer investors a well-balanced mix of growth and defensive characteristics.