Hindalco Industries shares are back in focus after HSBC Global Investment Research reiterated its Buy rating and raised the target price, citing growing upside risks to earnings and valuation as global aluminium markets tighten.

HSBC Revises Target Price and Earnings Projections

HSBC has raised its target price on Hindalco to ₹1,060.00 from ₹1,040.00, implying a potential upside of approximately 17% from current levels. The brokerage highlighted that at prevailing spot LME aluminium prices and USD/INR levels, Hindalco's earnings could materially surprise to the upside over the next two financial years.

According to HSBC, if aluminium prices and currency assumptions remain near current levels, the company's earnings per share could significantly exceed expectations. The brokerage noted that aluminium prices have risen faster than earlier assumptions, improving profitability expectations for both Hindalco's upstream operations and its US-based subsidiary Novelis.

Global Aluminium Market Dynamics

A key pillar of HSBC's bullish view centers on increasing visibility of structural tightness in global aluminium supply. The brokerage highlighted several factors contributing to this market dynamic:

• Resilient demand in China despite year-end slowdown
• Output constraints due to China's effective capacity cap
• Limited overseas supply additions
• Upcoming production halt at South32's Mozal smelter from March

HSBC argued that aluminium supply constraints are increasingly policy- and infrastructure-driven, making them difficult to resolve quickly even at higher prices. As investor conviction around aluminium tightness strengthens, the brokerage sees scope for valuation multiples to expand.

Valuation and Subsidiary Performance

Hindalco is currently valued at a blended EV/EBITDA multiple of 6.80x, slightly above its long-term average. However, HSBC believes this premium is justified in the current cycle given the favorable market dynamics.

On the subsidiary front, HSBC expects Novelis' earnings to stabilize from the first quarter of FY27, after being impacted by two fire-related disruptions in recent quarters. While near-term earnings may remain volatile, the market is likely to start pricing in benefits from Novelis' $5.00 billion investment pipeline, which is expected to deliver steady-state EBITDA of approximately $600.00 million over time.

Market Performance and Outlook

HSBC noted that Hindalco has underperformed global aluminium peers over the past year, a gap the brokerage expects to narrow as aluminium fundamentals improve and earnings visibility strengthens. The combination of tightening supply conditions, robust demand dynamics, and the company's strategic positioning through Novelis supports the positive investment thesis.

Hindalco Industries announced that its wholly owned subsidiary Novelis Inc. has secured $750 million through a subscription agreement with AV Minerals (Netherlands) N.V. The transaction, disclosed on December 29, involves AV Minerals purchasing common shares while serving as both the sole shareholder of Novelis and a wholly owned subsidiary of Hindalco Industries.

Transaction Structure and Financial Details

The subscription agreement outlines specific parameters for this substantial corporate investment within Hindalco's organizational structure.

Management Outlook and FY27 Projections

Satish Pai, Managing Director of Hindalco Industries, has expressed strong confidence in Novelis's future performance, projecting FY27 to be a standout year for the U.S. subsidiary. The company is targeting $500 per tonne earnings before interest, taxes, depreciation, and amortisation (EBITDA) as operations normalize following recent operational disruptions.

Pai indicated that Novelis's Oswego mill, which was affected by a fire earlier in the year, will restart in the first week of December. This restart is expected to significantly strengthen fourth-quarter results, with management noting that Q3 bore the primary impact of the Oswego fire incident.

Strategic Growth Initiatives and Market Position

The Bay Minette project in the U.S. represents a key component of Novelis's expansion strategy. This facility provides 600,000 tonnes of capacity with potential expansion to 1.2 million tonnes, positioning the company advantageously in the largest aluminum market.

Pai emphasized that the U.S. tariff environment creates significant barriers for imports, making domestic production facilities particularly valuable. Despite budget increases due to U.S. inflation, the project is expected to deliver returns above the cost of capital.

Market Performance and Regulatory Compliance

Shares of Hindalco Industries ended trading at ₹865.35, down ₹7.55 or 0.86% on the BSE. The announcement has been made in compliance with Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, with documentation filed across multiple regulatory jurisdictions to ensure transparency for international operations.