Kotak upgrades Hindalco to 'Buy', sees 17% upside on aluminium, Novelis recovery

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Aditya Birla Group company Hindalco Industries is expected to remain in focus after Kotak Institutional Equities raised its recommendation on the company by two notches. It has shifted from 'Reduce' to 'Buy', highlighting improvement in earnings visibility with a more attractive valuation after the recent correction in the stock.

Kotak has also made a slight revision of its target price to INR 1,120 (USD 11.63) per share from INR 1,100 (USD 11.42), implying an upside potential of 17 per cent (approx.) from the current market price.

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Kotak believes several growth catalysts are coming together for the Aditya Birla Group company. One of these is Novelis' restarting of its Oswego facility. Other factors include healthier US scrap spreads and the planned ramp-up of the Bay Minette plant from FY2028.

The brokerage is optimistic about Hindalco's ongoing expansion projects across the alumina, aluminium and copper businesses, which are expected to support long-term volume growth.

These comprise an annual refinery with an annual capacity of 850,000 tonnes, a 370,000-tonne-per-year aluminium smelter and a copper smelter with a 300,000-tonne capacity.

Additionally, Kotak expects Hindalco’s dependence on external coal supplies to ease with the commissioning of captive coal mines in the next three to five years, thereby potentially lowering aluminium production costs by USD 150-200 per tonne.

A constructive outlook on the global aluminium market is maintained, forecasting a supply deficit of 900,000 tonnes in the 2026 calendar year, followed by 100,000-tonne deficits in both 2027 and 2028.

The London Metal Exchange (LME) aluminium price is expected to average USD 3,250 per tonne in FY2027 before easing to USD 3,000 per tonne in FY2028.

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Kotak expects Hindalco's net debt to peak in FY2027 as spending on the Bay Minette project reaches its final phase. However, it believes leverage has already topped out at 1.8x in FY2026 and anticipates strong free cash flow generation from FY2028 onwards, paving the way for faster deleveraging.

Post the recent correction, the brokerage noted that Hindalco is currently trading at around 5.5x FY2028 estimated EV/EBITDA, adjusted for capital work-in-progress, making the stock's risk-reward profile increasingly attractive.

Hindalco Industries share price closed 2.13 per cent lower at INR 953.5 (USD 9.9) on Wednesday, although this year the stock has still gained about 7 per cent so far.

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