Novelis: Short-term EBITDA pressure, long-term visibility improvement
Welekar acknowledged pressure on Novelis’ margins in the third quarter of FY26 in the short term, largely due to the Oswego fire incident and disruptions related to Bay Minette. Management has already targeted an EBITDA impact of $100-150 million in the second half of FY26, with cash flow impact estimated at $550-600 million, which is expected to be recovered through insurance claims.While Bay Minette’s investments have escalated to $5 billion, Welekar believes most of the negative factors are now priced in. “As the project nears completion and execution risk decreases, visibility into Novelis’ earnings trajectory will improve,” he said.
Bay Minette’s aluminum rolling mill, expected to come online in the second half of CY26, will add 600 KTPA capacity. Nearly 60% of this capacity is already contracted in the beverage can segment, which generates EBITDA of approximately $1,000 per tonne, providing strong margin support.
Aluminum Prices: Structural Shift Supporting Earnings
On aluminum prices, Welekar highlighted a structural change in global supply-demand dynamics. China’s 45 million tonne capacity cap, limited addition of smelters outside China, energy shortages in Europe and Africa and ESG-related restrictions are pushing the market toward a persistent shortage.
“With aluminum prices in the region of $2,900-3,000 per tonne, Hindalco can benefit significantly. Every $100 per tonne movement in aluminum prices increases EBITDA and EPS by 4-5%,” he said. Demand factors such as electric vehicles, renewable energy, AI infrastructure and lightweighting across all sectors continue to support long-term aluminum consumption growth.
Bay Minette IRR lower, but still economically viable
Axis Securities has noted that Bay Minette’s internal rate of return (IRR) has fallen from double digits to high single digits. However, Welekar believes that pricing power, loosening of scrap spreads and higher premiums from the Midwest (currently around $1,800 per tonne) should help Novelis pass on rate-related costs to customers.
“Any further escalation of capital expenditure remains a significant risk, but if execution remains on track from here on out, the long-term prospects remain intact,” he warned.
EBITDA per tonne: meaningful increase from FY28
Novelis’ EBITDA per tonne is expected to remain in the $450-500 range in the near term, with an increase likely once Bay Minette becomes a meaningful contributor. On a blended basis, EBITDA of $600 per tonne appears achievable in FY28, once new capacity is fully ramped up.
Indian operations: stronger, more stable growth engine
Welekar highlighted that Hindalco’s Indian aluminum and copper businesses are emerging as a more stable and sustainable profit engine than Novelis.
Upstream aluminum EBITDA in India has shifted structurally to almost $1,500 per tonne, supported by higher aluminum prices and first quartile cost positioning. Coal mines are expected to increase coal self-sufficiency to 50% in FY28, while renewable energy use could reach 30% in FY33, further strengthening cost competitiveness.
Downstream aluminum EBITDA has already exceeded $60 per tonne, with management targeting an increase towards $300 per tonne as capacity expansion gains momentum. For copper, while processing and refining costs (TC/RC) remain weak, higher byproduct and downstream conversion revenues are expected to soften margins.
Outlook for the Stocks
While execution risks remain controllable at Novelis, Axis Securities believes any sharp correction could present a buying opportunity, supported by strong domestic operations and favorable long-term aluminum fundamentals.
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