Hindalco awaits Bay Minette ramp-up as Novelis volumes and cash flow recover
Hindalco Industries Ltd.
BUY
₹938
₹959
₹1,200
27.93%
Investment View and Valuation
ICICI Securities' November 6, 2026 results update on Hindalco Industries retains a BUY recommendation. The investment case is centred on a gradual recovery in Novelis volumes and profitability, Bay Minette commissioning, structural cost savings and subsequent deleveraging.
The broker retains its Rs 1,200 target price, based on 7x FY28E EV/EBITDA. ICICI Securities expects Oswego operations to normalise gradually, tariff-related costs to moderate and Bay Minette to start commercial shipments in Q1FY28, supporting improvement through FY27.
Novelis Q2FY27 Performance
Novelis reported Q2FY27 adjusted EBITDA of USD 508 million, in line with ICICI Securities' estimate. EBITDA rose 20 per cent YoY and declined 2 per cent QoQ. Adjusted EBITDA per tonne was USD 553, up 23 per cent YoY and down 2 per cent QoQ.
The operating improvement was driven by USD 86 million of favourable operating costs, USD 14 million from price and mix, and USD 18 million from foreign exchange and other items. These benefits were partly offset by a USD 29 million volume impact. The quarter included USD 39 million of Oswego insurance proceeds; excluding insurance benefits, EBITDA per tonne was USD 510.
| Novelis Q2FY27 metric | Reported performance |
|---|---|
| Adjusted EBITDA | USD 508 million; up 20 per cent YoY and down 2 per cent QoQ |
| Adjusted EBITDA per tonne | USD 553; up 23 per cent YoY and down 2 per cent QoQ |
| Adjusted EBITDA per tonne excluding insurance benefits | USD 510 |
| Rolled-product shipments | 919 kilotonnes; down 2 per cent YoY and flat QoQ |
Rolled-product shipments were affected by lower automotive and specialty shipments and a union strike at Novelis' Yeongju facility in South Korea.
Regional Performance and Oswego Normalisation
| Region | Q2FY27 EBITDA | YoY change |
|---|---|---|
| North America | USD 146 million | Up 49 per cent |
| Europe | USD 101 million | Up 25 per cent |
| Asia | USD 101 million | Up 2 per cent |
| South America | USD 160 million | Up 48 per cent |
Management said the Oswego hot mill has returned to normal production, although supply-chain disruption and customer inventory adjustments still constrain shipment recovery. Tariff impact increased to USD 78 million in Q2FY27, largely because of imports from Kingston, Canada, used to sustain customer supply.
Management expects tariff costs to decline materially from Q3FY27, become relatively insignificant in Q4FY27 and approach near-zero in FY28 as US production is increasingly onshored.
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Bay Minette Growth Outlook
Bay Minette is the key long-term growth driver. The first cold-milled coil was produced in September 2026 and commercial shipments are expected from Q1FY28. Initial output will be beverage-can body stock before automotive and other high-value products, with full capacity expected over 18 to 24 months.
Management expects around USD 1,000 per tonne EBITDA from the facility, while overall group EBITDA guidance remains USD 600 per tonne. North American beverage volumes required from Bay Minette are contracted through the end of the decade. Start-up costs could reach USD 200 million in the first year and will be recorded below EBITDA.
Structural Cost Savings and Cash Flow
Management has achieved more than USD 240 million of annualised structural cost savings and targets USD 300 million by FY27-end and USD 350 million to USD 400 million by FY28-end. Savings are expected from SG&A efficiency, restructuring, technology-led process improvements and labour productivity.
FY27 capex guidance is maintained at USD 2.1 billion to USD 2.4 billion, towards the upper end of the range. Adjusted free cash flow was negative USD 1.8 billion in H1FY27 due to Bay Minette capex and working-capital needs. Management targets positive free cash flow in Q4FY27, helped by around USD 300 million of working-capital release, insurance recoveries and lower capex.
Insurance Recoveries and Deleveraging
Cumulative Oswego-fire insurance recoveries reached USD 519 million by Q2FY27, including USD 219 million received in the quarter. Management expects recoveries of around USD 900 million by FY27-end from total expected receivables of USD 1.3 billion, with the balance expected in FY28.
Net leverage was 4.7x in Q2FY27. Management expects it to decline to around 4x by FY27-end and 3.5x by FY28-end.
Key Monitorables and Risks
Key monitorables are:
- Bay Minette ramp-up and customer qualifications
- Tariff mitigation
- Scrap spreads
- Working-capital normalisation
- Timely insurance collections
The stated risks are persistently high scrap spreads because of tariffs and a sharp increase in LME aluminium prices.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
