Shares of Hindalco Industries fell 2.30% to 657.50 following the release of weak quarterly results from its US subsidiary Novelis Inc. The aluminum giant's stock price decline reflects investor concerns over Novelis' performance in a challenging market environment.

Novelis Q1 Performance

Novelis, a wholly-owned subsidiary of Hindalco and a global leader in aluminum rolling and recycling, reported a significant drop in its first-quarter profits. The company's net income attributable to its common shareholder decreased by 36% year-over-year to $96 million. Excluding special items, net income fell 43% to $116 million.

Key financial highlights for Novelis' Q1 include:

Factors Impacting Performance

Novelis attributed the decline in profitability to several factors:

1. Higher aluminum scrap prices
2. Unfavorable product mix
3. Net negative tariff impact of $28 million
4. Restructuring charges related to efficiency initiatives

Despite these challenges, the company reported continued strong demand for beverage packaging sheet and stable demand in other end markets.

Cost Reduction Initiatives

To address the challenging market conditions, Novelis has accelerated its cost reduction program. The company now expects to achieve over $100 million in run-rate savings, exceeding its previous target of $75 million. These savings are being realized through:

• Footprint rationalization, including idling an automotive finishing line in China and closing two specialty finishing plants in North America
• Streamlining SG&A expenses

Novelis aims to achieve over $300 million in total savings through these and additional efficiency measures.

Strategic Investments

Despite the short-term challenges, Novelis continues to invest in strategic projects to drive long-term growth:

• The greenfield rolling and recycling facility in Bay Minette, Alabama, USA, remains on track
• Recycling centers in Guthrie, Kentucky, USA, and Ulsan, South Korea, continue to ramp up casting operations
• A hot mill expansion in Logan, Kentucky, USA, began commissioning, aimed at debottlenecking 80 kilotonnes of capacity

Market Outlook

Novelis expects resilient market demand, particularly in the beverage packaging sector. While scrap prices remain elevated, they are trending relatively stable to slightly positive. The company is implementing strategies to mitigate the impact of higher net tariffs and is prioritizing investments that drive value, achieve sustainability goals, and capture growing demand for sustainable aluminum flat rolled products.

Analyst Perspectives

Despite the quarterly decline, some analysts maintain a positive outlook on Hindalco:

• JPMorgan retained an 'Overweight' rating with a target price of 715.00
• CLSA maintained an 'Outperform' rating with a 850.00 target

Among 29 analysts covering Hindalco stock, 21 recommend 'buy', five suggest 'hold', and three advise 'sell', with an average 12-month price target of 749.00, implying a 12% upside potential from current levels.

As Hindalco navigates through these market challenges, investors will be closely watching Novelis' performance in the coming quarters and the progress of its cost reduction initiatives.

Hindalco Industries Limited's wholly-owned subsidiary, Novelis Inc., reported mixed results for the first quarter of fiscal year 2026, with revenue growth offset by a significant decline in net income.

Revenue and Shipments

The company saw a 13% year-over-year increase in net sales, reaching $4.70 billion. This growth was primarily driven by higher average aluminum prices and a modest 1% increase in total rolled product shipments, which rose to 963 kilotonnes. The increase in shipments was mainly attributed to higher demand for beverage packaging, partially offset by lower automotive and specialty shipments.

Profitability

Despite the revenue growth, Novelis experienced a substantial decline in profitability:

• Net income attributable to common shareholder decreased by 36% to $96 million
• Adjusted EBITDA fell by 17% to $416 million
• Adjusted EBITDA per tonne dropped 18% to $432

The company cited several factors for the decline in profitability:

1. Higher aluminum scrap prices
2. Unfavorable product mix
3. Net negative tariff impact of $28 million
4. Restructuring charges

These negative factors were partially offset by higher product pricing, lower SG&A costs, and favorable foreign exchange rates.

Cost Reduction Initiatives

In response to the challenging market conditions, Novelis has accelerated its cost reduction program:

• The company now expects to achieve over $100 million in run-rate cost savings by the end of fiscal year 2026, exceeding its previous target of $75 million
• Novelis aims to reach over $300 million in total savings by the end of FY28
• In Q1 FY26, the company recognized $83 million in restructuring costs related to these initiatives

Strategic Investments

Novelis continues to make progress on its strategic investments, including:

• The construction of a new greenfield rolling and recycling plant in Bay Minette, Alabama, with a 600kt capacity
• Ongoing ramp-up of recycling centers in Guthrie, Kentucky, and Ulsan, South Korea
• Commissioning of an 80kt hot mill expansion in Logan, Kentucky

Financial Position

As of June 30, 2025:

The company issued $400 million in tax-exempt bonds in June 2025.

Outlook

Steve Fisher, President and CEO of Novelis Inc., commented on the results: "We continue to see strong demand for aluminum beverage packaging sheet supporting top-line growth and the need for new capacity under construction at our plant in Bay Minette, Alabama. While market headwinds mainly from structurally higher scrap prices negatively impacted financial performance in the quarter, we are making solid progress on our comprehensive cost reduction program, which we expect will lower our cost base and improve our margins."

The company remains focused on streamlining its cost structure and investing in sustainable aluminum solutions to meet growing market demand, despite the current challenging external environment.