Hindalco Aluminium wins upgraded target from CLSA on potential earnings drive

According to CLSA, even when the LME aluminium benchmark price had eased to USD 2,600 per tonne, a level lower than today's spot price of roughly USD 2,850 per tonne, Hindalco's ongoing investments in new capacity and its push for wider margins could place it on course to nearly double its EBITDA within five years. This expansion, it added, would likely translate into much stronger free cash flow as the cycle progresses.

The report acknowledged that Novelis, Hindalco's US subsidiary, has attracted some caution in the market after cost pressures increased and a plant accident added to near-term uncertainties. However, CLSA argued that the broader aluminium backdrop remains sufficiently constructive to balance out these concerns. With China nearing its 45 million tonne output ceiling and Indonesia's planned expansions held back by energy constraints, the global supply picture remains tight. 

Beyond these regions, new smelting capacity has become harder to bring online as energy markets stay stretched and electricity demand rises, driven in part by data-centre and AI-infrastructure growth.

On the demand front, the brokerage noted steady consumption across core sectors. It also pointed to the company's hedging strategy as an additional buffer: 49 per cent of Hindalco's aluminium exposure for 4QFY26 is locked in at USD 2760 per tonne, while 10 per cent of FY27 exposure has been secured at USD 2800. These positions, CLSA said, provide a measure of earnings stability as the cycle improves.

Overall, the firm maintained that Hindalco stands to gain from the combination of tight global supply and supportive cyclical dynamics, reinforcing its optimistic view on the stock.

Note: This article is published in accordance with an article exchange agreement between Mysteel and AL Circle.