Hindalco shares in focus after Novelis results lead to multiple downgrades, target cuts

Shares of Aditya Birla Group's Hindalco Industries Ltd. will be in focus on Thursday, November 6, after its unit Novelis reported results over the market holiday, which resulted in multiple downgrades to the parent company, along with cuts to price targets.

Novelis results were weak on expected lines with net sales rising 10% from last year to $4.7 billion. Total shipments of Flat Rolled Products stood at 941kt down from 945kt last year.

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of Hindalco's subsidiary fell to $422 million from $462 million last year, while that figure, on a per tonne basis, fell to $448 from $489 last year.

Novelis had a net negative impact of the Trump administration tariffs worth $54 million during the quarter, nearly double of the $28 million seen in the first quarter.

Due to the fire at the company's Oswego plant, Novelis could see a cash flow impact between $550 million to $650 million, while its EBITDA could see a hit between $100 million to $150 million. However, 70% to 80% of that could be recoverable in the next financial year through insurance.

Another negative for Novelis during the quarter is that its net debt, at nearly $5.8 billion, is at the highest level in 21 quarters. Hindalco will also be infusing a sum of $750 million into its unit.

Novelis has also raised the cost projections for its 600 KTPA Bay Minette project expansion in the US. What started off with an initial estimate of $2.5 billion, increased to $4 billion in financial year 2024, and now stands at $5 billion. The company attributed this escalation to inflation and execution complexities.

As a result, Novelis' overall capex for the full financial year is likely to be in the range of $1.9 billion to $2.2 billion. Net leverage ratio is likely to be at 3.5x.

Brokerages Downgrade, Cut Targets

Analysts tracking Hindalco have issued downgrades to their recommendations on the stock and also cut their price targets.

Investec downgraded the stock to "sell" from its earlier rating of "hold", and cut its price target to ₹693 from ₹775 earlier. The revised target implies a potential downside of 16.5% from current levels. Investec said that the downgrade and target cut factors in higher debt and a hit to earnings.

Axis Capital has also downgraded the stock to "reduce" from its earlier rating of "buy" and marginally reduced its target to ₹770 from ₹880 earlier. The target Enterprise Value to EBITDA multiple for Novelis has also been cut to 6x from 6.5x earlier.

Nuvama has downgraded the stock to "hold" from its earlier "buy" rating, but has raised its price target to ₹838 from ₹757 earlier. However, the revised target implies no upside as that is the level at which the stock had closed on Tuesday.

The brokerage has cut Novelis' EBITDA estimates for financial year 2026 and 2027 by 10% and 6% respectively, but increased Hindalco's consolidated EBITDA estimate by 2% to 6% to factor in the higher aluminum prices.

Equirus has also downgraded Hindalco to "reduce" from its earlier rating of "add" with a December 2026 price target of ₹790. It said that the risk-reward for the stock is turning unfavourable at 6.6 times one-year forward EV/EBITDA.

Earlier, brokerage firm Kotak Institutional Equities had also removed Hindalco from its model portfolio, citing the recent run-up in the stock price, which now gives a healthy downside potential.

Shares of Hindalco had ended 2% lower on Tuesday at ₹830.85. The stock has risen 40% so far in 2025.