India’s largest aluminium producer delivered solid domestic numbers. The problem is its American subsidiary is not firing on all cylinders, and the debt pile is getting harder to ignore.
Hindalco Industries has a tale-of-two-cities problem. The India business is humming along nicely, riding a strong London Metal Exchange price cycle and inching toward full mine security. Novelis, the crown jewel global recycling subsidiary that was supposed to be the growth engine, has become a source of operational heartburn.
Close, but Not Quite
Hindalco reported consolidated adjusted EBITDA of Rs 79.7 billion for Q3FY26, marginally below JM Financial’s estimate of Rs 84 billion. The roughly 11% sequential EBITDA decline was “driven by weak performance in Novelis given Oswego fire incident,” says JM Financial. The miss was not catastrophic, but it underscored a pattern that is beginning to test investor patience.
The India aluminium business, including the Utkal operations, delivered EBITDA of approximately Rs 50.6 billion, up 6% quarter-on-quarter, “driven by strong LME during the quarter,” notes JM Financial. That is the good news. The copper segment was softer, with EBITDA slipping 6% sequentially to Rs 5.9 billion from Rs 6.3 billion. Management guided for a modest 1% increase in cost of production in Q4, driven by higher CP coke prices — manageable, not alarming.
Hedging positions tell a story of cautious optimism: 64% of commodity exposure for Q4FY26 is locked in at $2,807 per tonne, with 26% of currency hedged at Rs 88.1 per dollar. For FY27, 21% of commodity is already hedged at $2,925 per tonne. The company is clearly positioning for a sustained strong aluminium price environment.
When the Crown Jewel Mifires
The Novelis picture is not so good. Revenue came in at $4.2 billion, up 3% year-on-year, “primarily driven by higher realisations (+15% YoY) partially offset by lower volumes (-10.5% YoY),” says JM Financial. Total rolled product shipments fell to 809 kilotonnes, with automotive volumes taking the biggest hit. The culprit was unmistakable: two separate fires at the Oswego facility in September and November 2025.
Adjusted EBITDA of $388 million beat JM Financial’s conservative estimate of $317 million, but that headline number masks underlying weakness. EBITDA per tonne dropped to $430 from $448 in the previous quarter. North America and Asia saw EBITDA contract 23% and 36% year-on-year respectively, says JM Financial, even as South America and Europe delivered expansions of 7% and 59%.
Then there are tariffs. Novelis absorbed a net negative tariff impact of approximately $34 million in the quarter, with JM Financial noting that management expects this to worsen to $60-65 million on EBITDA in Q4FY26. For a business already dealing with fire-related disruptions, tariff headwinds are an unwelcome additional burden.
The Debt Elephant
The balance sheet deterioration in the quarter was sharp. Net debt surged to Rs 594 billion from Rs 414 billion — a Rs 180 billion jump in a single quarter. JM Financial attributes this to two factors: an increase in Novelis net debt by approximately $400 million, compounded by a $750 million infusion from the parent entity funded through debt, totalling roughly Rs 140 billion after forex adjustments, and a Rs 40 billion increase in working capital requirements for the copper business.
Novelis net debt currently stands at $6.2 billion and “is expected to go up with capex spend on Bay Minette and until the time insurance payments start coming in,” says JM Financial. Management expects this to peak in the high $8 billion range before declining from FY28 onwards as insurance repayments flow through and Bay Minette capital expenditure winds down. The overall cost of capital at Novelis sits in the mid-8% range, with cost of debt at approximately 5.3%.
The capex appetite remains robust. India operations carry a guidance of Rs 100 billion for FY26 and Rs 100-120 billion for FY27. Novelis FY26 capex guidance stands at $1.9-2.2 billion, including $300 million of maintenance spend, with a slightly lower number expected for FY27.
Strip away the Novelis noise, and the medium-term setup for Hindalco is compelling. The Aditya Smelter expansion is on track to take total upstream capacity to 1.71 million tonnes by FY29, with a 181 kilotonne aluminium smelter expected to be commissioned in FY28, notes JM Financial. Full mine security following the acquisition of Meenakshi, Bandha and Chakla mines gives the India business a structural cost advantage that will only deepen as captive production ramps up.
The alumina sales guidance of 170-180 kilotonnes for Q4FY26 suggests the company is monetising surplus production while the market is tight. JM Financial maintains its BUY rating, arguing that “the current strong LME is likely to drive earnings trajectory for the company coupled with 100% security post acquisition” of the mines.
