Motilal Oswal remains structurally positive on Hindalco; raises target

Motilal Oswal Financial Services has raised its target on Hindalco Industries stock to ₹1,110 from ₹1,070 per share, reiterating ‘Buy’, implying about 20.5 per cent upside from its previous close. The brokerage remains structurally positive on Hindalco, considering favourable LME, its strategic expansion aligned with a robust domestic outlook, and a strong balance sheet, which provides steady growth, visibility, and capital efficiency in the long run.  

However, it said that muted near-term earnings visibility from Novelis due to the Oswego fire could remain a key overhang on the overall performance.

Capacity expansion to drive long-term growth

Hindalco is executing an ambitious multi-pronged expansion across its India and Novelis businesses. These investments, totaling ₹10,000–12,000 crore annually, are expected to transition the company into a higher-margin, more diversified entity. 

Novelis: The marquee Bay Minette project (600 KT rolling and recycling) is slated for commissioning by H2CY26 at a revised cost of $5 billion. 

India: The company is doubling upstream capacity via the Aditya alumina refinery (850kt) and a two-phase aluminum smelter expansion (370kt total), aiming for 1.71mt capacity by FY29.

Cost optimisation and backward integration support margins

In India, Hindalco’s focus on cost competitiveness remains a defining pillar. The company is already a global leader on the cost curve, boasting an Earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 42 per cent ($1,600 per ton) in Q3FY26. 

To further support margins, Hindalco is advancing captive coal mines (Chakla, Meenakshi, and Bandha). Once fully operational, these mines are expected to provide direct cost savings of $200 per ton by reducing dependence on market-priced coal.  READ | ICICI Bank erodes ₹1.2 trn mcap; stock hits 52-week low, down 12% in month

Industry tailwinds to bolster earnings

Analysts believe Hindalco is well-positioned to capitalise on favourable tailwinds in both aluminum and copper. LME prices have strengthened to $3,200 per ton, supported by smelter shutdown concerns and a broader commodity upswing. 

At Novelis, a record-high Midwest premium in North America (at 70 per cent of LME) has improved scrap spreads, benefiting margins through lower metal input costs. Additionally, the India-EU FTA could open new avenues for volume growth and premium realisations.

Muted near-term cash flow; recovery expected in FY28E

Novelis faces temporary cash flow pressure due to three primary headwinds: 

Oswego plant fire: Estimated cash flow impact of $1.3–1.6 billion until insurance recoveries normalize. Near-term Ebitda will be hit by $150–200 million due to lost shipments and external sourcing costs. 

Peak capex: The Bay Minette project is entering its most capital-intensive phase ahead of its H2CY26 commissioning. 

Working capital: Rising LME prices have increased working capital needs. To bridge this, parent entity AV Minerals infused $750 million into Novelis in December 2025. 

Consequently, Novelis' gross debt is expected to peak at $8 billion, with a net debt-to-Ebitda ratio of 4x. However, Motilal Oswal expects a turning point in the next 6–8 months as the Oswego hot mill restarts in Q1FY27 and Bay Minette begins contributing $1,000 per ton in Ebitda, driving a material step-up in free cash flow.  Disclaimer: The views and investment tips expressed by the analysts/brokerage are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.