Capacity expansion likely trigger for Hindalco Industries' stock

The scenario for Hindalco and its US subsidiary Novelis is promising although Novelis has been impacted by tariffs

Non-ferrous metal prices have strengthened 1-5 per cent month-on-month (M-o-M) as well as year-on-year (Y-o-Y) due to geopolitical tensions and tight London Metal Exchange (LME) inventories.

 

Higher NATO defence outlays from its EU members will also create long-term demand. India’s domestic demand for aluminium and copper is expected to grow very strongly.

 

The long-term demand will be driven by electric vehicles (EVs), electrification, packaging, transport, renewable energy (RE) systems and construction sectors.

 

However, Novelis’ near term may be under pressure. US prices have surged on tariff threats and may moderate as those ease. A US-Canada trade agreement would support Novelis which imports scrap from Canada. There are new alumina capacities being commissioned in Indonesia, India and China. But the largest global bauxite supplier, Guinea, has cancelled many exploration permits, tightening ore supply. 

 

The scenario for Hindalco and its US subsidiary Novelis is promising although the latter has been impacted by tariffs. Consolidated revenue stood at ₹64,890 crore (up 16 per cent Y-o-Y and up 11 per cent Q-o-Q). Earnings before interest, taxes, depreciation and amortisation (Ebitda) for Hindalco stood at ₹9,609 crore (up 41 per cent Y-o-Y and 26 per cent Q-o-Q).

 

Hindalco and Novelis have capex plans to expand capacities and cut fuel costs (in India) by developing captive coal mines and RE capacity. All these will be commissioned over FY26-29. The India capex of ₹45,000 crore includes projects like Aditya Alumina Refinery (850,000 tonnes), Aditya Aluminium flat rolled products (FRP) expansion (200,000 tonnes), 180,000 tonnes of new aluminium smelter capacity and 300,000 tonnes of copper smelter capacity. The Novelis expansion targets debottlenecking and increasing Bay Minette facility capacity. Hindalco aims to meet 30 per cent of India’s energy requirements from RE and the rest from captive coal mines by FY30. Hindalco currently only sources 2-3 per cent coal through captive. The RE capacity was at 189 Mw (February 2025), but it should scale to 300 Mw by end-June 2025 with a partnership with Ayana Renewable Power.

 

Indian operations are net debt free and the consolidated net debt-to-Ebitda ratio was 1.06x (March 2025) versus 1.21x in March 2024. Ebitda margins could sustain at around 13 per cent. Key risks would be project delays and cost escalations, rise in scrap prices and US tariff escalations.

 

Aditya Aluminium Smelter expansion will require a capex of ₹9,500 crore over FY26-28. The project is awaiting environmental clearances. Downstream, the 200,000 tonnes Aditya Aluminium FRP expansion project is on schedule to be completed by this month-end. This will increase downstream capacity to 600,000 tonnes from 400,000 tonnes. New extrusions capacity at Silvassa and battery enclosures at Pune have been commissioned. Other value-added product capacities will also be completed in FY26. The 300,000 tonnes copper smelter expansion has a capex of ₹9,500 crore across FY26-28. Other copper upstream and downstream projects are being planned. 

 

Novelis’s Bay Minette produces 600,000 tonnes per annum (tpa) of FRP, catering to beverage packaging (420,000 tonnes) and automotive and specialty products (180,000 tonnes). The facility is to be operational by H2FY26 and would take 18-24 months to fully ramp up. The project cost has increased by 65 per cent to $4.1 billion. As of Q4FY25-end, the company had already spent $1.6 billion. Funding is through internal accruals and debt with a fund of $750 million in January 2025.

 

Novelis will also debottleneck to unlock nearly 200,000 tonnes of rolling capacity, with a capex outlay of $330 million at its plants in Oswego and Logan (US) and in Brazil.

 

Recycling centres in the US and South Korea are already operational.

 

Subject to regulatory approvals, Hindalco has acquired 100 per cent stake in a US-based specialty alumina manufacturer, AluChem, for a cash consideration of $125 million through its subsidiary Aditya Holdings LLC.

 

AluChem has a capacity of 60 kilo tonnes (reported revenue of $66.38 million in CY24), with its products finding applications in ceramics, electronics, aerospace, and medicine.

 

If tariff worries ease, there could be an instant rerating of Novelis. Otherwise, prospects will improve as more capacity comes onstream.