Kotak Institutional Equities has downgraded Hindalco Industries to Reduce from its earlier stance, slashing the target price to ₹705 from previous estimates, after the company’s US subsidiary Novelis reported a weaker-than-expected performance in Q1FY26. The brokerage noted that adjusted EBITDA came in below expectations due to both lower margins and shipments, with additional pressure expected in the upcoming quarter from higher US tariffs.
Novelis reported Q1FY26 net sales of $4.7 billion, up 13% year-on-year, with total flat rolled products (FRP) shipments inching up just 1% YoY to 963kt. Adjusted EBITDA fell sharply by 17% YoY to $416 million, while EBITDA per tonne declined 18% to $432, compared to street expectations of $445–$450 per tonne. The performance was impacted by elevated scrap prices versus last year, an unfavorable product mix, and net negative tariff effects.
Tariffs under the US Section 232 framework have already had a $28 million impact in Q1, with the company guiding for this to rise to $60 million in Q2 following an increase in the tariff rate to 50% from the earlier 25%. Kotak cautioned that while Hindalco management is working on mitigation measures and expects margin pressures to ease in the second half of FY26, the near-term picture remains challenging.
The brokerage warned that the risk of demand destruction from elevated tariffs is being underestimated by the market and poses a downside risk to its base case assumptions. It believes the combination of softer margins, subdued shipment growth, and higher tariff-related costs could weigh on Hindalco’s earnings trajectory in the near term.
At the current market price of ₹672, Hindalco has a market capitalisation of ₹1.51 trillion. Kotak’s revised target implies limited upside from these levels, with the brokerage advising caution until there is greater clarity on tariff impact mitigation and margin recovery.
Disclaimer: The above views are those of the brokerage cited. Investors should consult a certified financial advisor before making investment decisions.
