Why Emkay Global upgraded Hindalco to ‘Buy’ with 38% higher target price

Emkay Global has upgraded Hindalco Industries to ‘Buy’ from ‘Reduce’, raising its target price to Rs 900 from Rs 650 earlier. The brokerage cited strengthening aluminium fundamentals, an expected recovery in Novelis margins, and Hindalco’s superior cost positioning as key reasons for the upgrade.

Hindalco’s India operations remain a central pillar of the thesis. With a cost of production at about $1,700 per tonne, well below China’s average of $2,300 per tonne, the company sits on the industry’s leading cost curve. Emkay expects this cost advantage, coupled with robust aluminium prices, to drive strong cash generation of around Rs 300 billion annually, or about 13 per cent of enterprise value, which is sufficient to fund planned capital expenditure and growth initiatives.

The brokerage believes that profitability pressures at Novelis, Hindalco’s US-based subsidiary, have likely bottomed out. While tariff-led distortions in scrap spreads weighed on margins, easing used-beverage-can scrap costs and firmer LME prices are expected to support a recovery. Emkay forecasts Novelis’ margins to reset to about $480 per tonne by FY28 and move past $500 per tonne by FY29, compared with roughly $430 per tonne currently, once the Bay Minette project is fully ramped up.

From a broader perspective, Emkay argues that the current environment marks the most favorable period for industrial metals since the end of the last commodity supercycle in 2012. Supply discipline, combined with a weaker US dollar, creates a supportive setup for aluminium prices. Reflecting this view, the brokerage has lifted its 0–6 month aluminium target to $2,850 per tonne from $2,700 earlier and raised long-term price forecasts modestly by 2 per cent for FY27 and FY28. Stronger aluminium prices and normalized Novelis margins are expected to provide visibility on earnings and cash flows, supporting a valuation re-rating for Hindalco.

Emkay has also raised its FY27–28 EBITDA estimates by around 3–3.5 per cent. However, it flagged risks such as the possibility of industry-level capital indiscipline if higher aluminium prices spur a wave of new supply, and the potential easing of Russian sanctions, which could weaken cost curve support.

With both structural and cyclical tailwinds at play, Emkay Global sees Hindalco as better placed than its global peers to benefit from improving aluminium dynamics, justifying its upgrade to ‘Buy’ with a target price of Rs 900.