Hindalco Shares In Focus After Novelis Q2FY26 Result Triggers Downgrades, Target Price Cuts

The shares of Aditya Birla Group's flagship firm Hindalco Industries Ltd. will be in focus in trade on Thursday, November 6, after the company's wholly-owned subsidiary Novelis posted weak Q2FY26 result, resulting in downgrade and cut in target price.

According to Nuvama's brokerage note, "Novelis (Hindalco’s 100% subsidiary) posted weak, but in-line adjusted EBITDA of USD422mn (our estimate: USD419mn), up 1.4% QoQ and EBITDA/t of USD448, up 4% QoQ during Q2FY26.

Further inflation in capex, adverse effect of fire at the Oswego plant and likely future volume loss to competitors are negatives. Though we are cutting FY26E/27E EBITDA of Novelis by 10%/6%, consolidated EBITDA has been increased by 2%/6%, factoring in higher aluminium prices(USD2,700/t versus USD2,500 earlier)," it said.

In its institutional equities report, Nuvama downgraded the aluminium rolling and recycling stock to ‘HOLD’.

As a result of Trump tariffs, Novelis was subjected to a net impact of "$54 million in Q2FY26".

"FRP shipments were down 0.4% QoQ/2.4% YoY to 941kt. The lower beverage can and speciality shipment was partially offset by higher automotive and aerospace," Nuvama said.

"The fire at Oswego plant is likely to affect EBITDA by USD100–150mn in H2FY26 and USD550–650mn cashflows (70–80% is recoverable in insurance)," it said.

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"Novelis’s H2FY26 earnings are likely to be weaker due to fire impact at Oswego facility (to restart by end-Q3FY26). This coupled with higher capex at Bay Minette by 22% keeps consolidated net debt high, but in comfortable zone (net debt/EBITDA: 1.2x at end-FY26). Novelis is accelerating cost cutting to mitigate tariff impact (USD125mn in FY26) saving run rate by end-FY26. Scrap spread has improved aided by higher mid-west premiums. As a result, we expect an earnings recovery in FY27," as per the brokerage note.

"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," it said.

In the Q2FY26 conference call, management noted "that beverage cans demand remains strong across regions and expect a 4% demand CAGR over FY26–31. During Q2FY26, Brazil witnessed scrap availability issue for limited period which is now back to normal. It led to 2% YoY decline in beverage can shipment in South America. The automotive demand (19% of FY25 volume) remain muted in Europe and North America. In China, OEMs are focussed on smaller EVs, so adoption of aluminium has come down. Over FY26-31, demand from automotive segment is expected to grow at 3-5% CAGR."

"Management informs further increase in estimated capex by ~22% to USD5bn (earlier USD4.1bn and initial estimate of USD2.5bn), reflecting poor execution. As per Management, recent increase is due to inflation, tariff and higher labor cost," it said.

Approximately, $750 million will be infused by the parent firm Hindalco to meet the increased capital expenditure, as per Novelis.