Hindalco Industries shares are in focus as US President Donald Trump imposed a 25% tariff on all steel and aluminium imports to the US. This is because Novelis, a subsidiary of Hindalco and global aluminium major exports to many countries including the US. However, most brokerages see the extent of impact as minimal as Novelis has invested $2.5 billion for a new plant in Bay Minette, Alabama in the US. While it may be a drag on earnings at the moment, it is seen as a means to cushion tariff impact.
Tariff impact on Hindalco: Nuvama says not a big worry for Novelis
The Hindalco management has indicated earlier that any increase in aluminium prices (due to the tariff imposed on US imports) will be passed in the form of a higher mid-west premium. Hence, there could be minimal impact on earnings due to tariffs on Canada, Moreover, the brokerage firm, Nuvama Institutional Equities said “the effect of tariff imposition, if it happens, shall be minimal on Novelis’s earnings”
According to them, Novelis’s (Hindalco’s 100% subsidiary) soft earnings are already factored in as the management had earlier guided for the weak numbers. They posted adjusted EBITDA of $367 million, down 21% QoQ and EBITDA/t of $406, down 17% QoQ during Q3FY25. Nuvama expects Noveli’s “earnings to revive in Q4.”
As a result, Nuvama maintained a ‘Buy’ rating on Hindalco, with an unchanged target price of Rs 776. It believes that Hindalco’s earnings will be strong on the back of higher aluminium prices and will be able to offset potential rise in prices.
Novelis’ net debt likely to increase
Novelis’s net debt rose by $534 million QoQ to $5.29 billion. Capex in Q3FY25 was $458 million. The management kept the FY25 capex target unchanged at the lower end of guidance of $1.8–2.1 billion. It guided that the 0.6mtpa Bay Minette expansion and ramping up funding can drag net debt/EBITDA. However, given that they expect deleveraging from FY27-end post-commissioning and ramping up the Bay Minette facility, Nuvama sees “Novelis’s net debt to peak in FY27 and earnings to revive in Q4FY25”.
Despite elevated scrap prices, they are factoring in “FY26E/27E EBITDA/t of $510/$525, which looks achievable with management’s efforts to mitigate the effect of higher scrap prices.”
Novelis in the December quarter
On Monday Novelis reported a drop of 9% year-on-year in its net income for the December quarter at $110 million.
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