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Hindalco Industries Ltd

| Q2 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤7th Nov 25

Summary : Hindalco delivered strong Q2 FY26 consolidated results, driven by resilient India operations and Novelis's cost efficiencies, while advancing major growth projects despite global economic headwinds.

Management Perspective positive : We are confident to keep our consolidated net leverage below 2 times. The Bay Minette project is going to be a significant game changer for us in the U.S. market. The Indian expansion projects are on track and on budget. Hindalco business is quite poised over the next 2 years to become a high-performing business.

Concall Report Analysis & Insights

Business Overview

  1. Consolidated EBITDA increased 6% year-on-year, reaching INR9,104 crores.
  2. Consolidated net profit after tax rose 21% year-on-year to INR4,741 crores.
  3. Novelis shipments were nearly flat at 941 Kt; adjusted EBITDA was $476 million, up 3% year-on-year (ex-tariff).
  4. Hindalco India business EBITDA grew 15% year-on-year to INR5,419 crores.
  5. India Downstream Aluminium achieved record quarterly EBITDA of INR261 crores, up 69% year-on-year.

Future Growth Prospects

  1. Bay Minette greenfield rolling and recycling facility in the U.S. is progressing well, total cost around $5 billion.
  2. On track to add 230 MW renewable energy, reaching 522 MW total capacity by FY26 end.
  3. Doubling down on capacity expansion across aluminium and copper upstream in India.
  4. Targeting a fourfold increase in downstream EBITDA by FY30 in India.
  5. Novelis advancing its 3x30 strategy for sustainable growth and profitability by 2030.

Management Insights

  1. Safety is the highest priority, with LTIFR at 0.27; unit heads now serve as night duty officers.
  2. Strong progress on circularity and waste management, with 78% of total waste recycled or reused.
  3. India continues to show resilience with 7.8% GDP growth in Q1 FY26, supported by industry and services.
  4. Aluminium prices are fundamentally supported by electrification, EVs, and infrastructure investments.
  5. Committed to maintaining consolidated net leverage below 2x while investing $10 billion in growth capex.

Signs of Skepticism

  1. Bay Minette project cost overruns occurred twice, raising questions about de-risking India projects.
  2. Analyst questioned if hedging strategy deliberately caps upside potential during good market cycles.
  3. Concerns about fungibility of cash flows between Hindalco and Novelis given standalone businesses.
  4. Alumina sales pricing impacted by overall alumina price decline, affecting specialty alumina products.

Risk Factors

  1. Global economic growth projected to ease from 3.3% in 2024 to 3.1% in 2026.
  2. High uncertainty around global economic stability and protectionist policies.
  3. Geopolitical tensions, global trade policy uncertainties, and financial market volatility remain downside risks.
  4. U.S. tariffs (50%) and weakening global demand pose challenges for India's external trade.
  5. Copper TC/RCs declined sharply by 73% from 2024 benchmark to 5.45 cents per pound.

Good To Know

  1. Company is committed to increasing recycling volumes to 100 Kt in aluminium and 50 Kt in copper.
  2. India's festive season consumer demand reached a record INR6 trillion, up from INR4.25 trillion last year.
  3. RBI expects FY26 growth at 6.8% with benign inflation at 2.6%.
  4. Hedged 31% of Q3 FY26 volumes at $2,700/ton and 49% of Q4 FY26 volumes at $2,760/ton.
  5. Indian aluminium demand projected at 1.5 million tons for Q2 FY26, an 8% growth year-on-year.

Key Drivers

  1. India's robust domestic demand growth.
  2. Novelis's structural cost reduction program.
  3. Bay Minette project completion in U.S.
  4. Increased renewable energy capacity.

Key Analyst Discussions

Competitive Environment

  1. Novelis expects price increases on uncontracted volumes due to tight North American market and tariffs.
  2. Europe has sufficient scrap availability and does not depend on imported scrap.
  3. Management believes policymakers should prevent scrap from leaving Europe to address CBAM concerns.
  4. India upstream aluminium maintains global industry-leading EBITDA per ton, first decile cost curve position.

Market Trends & Consumer Behavior

  1. MJP premium is low due to tariffs impacting Japanese/Korean auto companies and low East Asia demand.
  2. Midwest premium is strong due to U.S. tariffs, with benefits still to come.
  3. Global beverage packaging market is strong, growing 3-4% CAGR over next 5 years.
  4. U.S. market is short 400-500 Kt of can sheet, indicating strong demand.

Financial Highlights

  1. Hedging strategy for FY26 and FY27 volumes was clarified, with 20-25% long-term insurance hedge.
  2. Net debt to EBITDA is committed to stay below 2x over the next 4 years, including Bay Minette costs.
  3. India capex for FY27 is projected around INR11,000 crores.
  4. The $750 million equity infusion into Novelis will be raised as debt at AV Mineral level due to balance sheet strength.
  5. EBITDA per ton increase in India business was lower than LME due to alumina sales and higher Q2 coal costs.

Product Composition

  1. Specialty alumina business from Muri and Belgaum is around 500 Kt.
  2. Excess metal grade alumina from Utkal is sold at alumina index price.
  3. Specialty alumina pricing is impacted by the overall decline in alumina prices.

Strategic Considerations

  1. Smelter expansion is a long-term strategy based on cost curve and LME projections for good returns.
  2. Company is expanding downstream in India, aiming for 600 Kt downstream capacity.
  3. Bay Minette project IRR is above cost of capital, with upside potential from Phase 2 expansion.
  4. Indian projects are de-risked by strong project and monitoring teams, and experienced hiring.
Hindalco Industries Ltd (HINDALCO) Concall Report Analysis & Insights | Dhanarthi