Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the commercial paper of Hindalco Industries Limited (Hindalco).

 

The rating continues to factor in the strong business risk profile of Hindalco, driven by established position in the Indian aluminium industry, cost-efficient domestic operations, diversified product mix and robust profitability at Hindalco’s wholly owned subsidiary, Novelis Inc (Novelis, rated ‘BB/Negative’ by S&P Global Ratings) which is mainly a conversion business.

 

The strong operating performance is reflected in the performance during the first nine months of fiscal 2025, wherein the company reported consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) of around Rs 25,200 crore. This was driven by healthy demand for aluminium, strong prices for aluminium as well as alumina, supporting domestic business, as it has surplus alumina capacity. While higher input costs, especially aluminium scrap cost, resulted in moderation in margins for Novelis, it remained robust at more than USD 400/t during the period (was USD 510/t during FY2024). Additionally, the company’s financial profile remains strong with consolidated net debt (including supplier’s credit and unfunded pension obligation) to EBITDA ratio of around 1.8 times as on December 31, 2024 (1.9 times as on March 31, 2024 and March 31, 2023).

 

With expected average London metal exchange (LME) aluminium prices of ~ USD 2,500-2,600 per tonne during the next fiscal (averaged ~ USD 2,550 per tonne in 9M-FY2025 and ~ USD 2,250 per tonne in FY2024) on the back for healthy metal demand and potential deficit in global aluminium demand-supply, Crisil Ratings expects consolidated EBITDA to be around Rs 28,000-30,000 crore in fiscal 2026 (was Rs 25,728 crore in fiscal 2024 and estimated at around Rs 30,000-32,000 crore in fiscal 2025).

 

Crisil Ratings has taken note of the recently announced tariffs by the U.S. administration on imports of aluminium (along with other goods and metals) from Canada and Mexico. Given, Novelis imports significant amount of input material from Canada for its U.S based plants (North America operations constitute ~ 40% of Novelis’ revenue), the imposition of the said tariffs can result in supply chain disruptions for the company. However, Crisil Ratings understands that Novelis’s business is generally a cost-pass through and could mitigate the impact of the potential higher input cost due to the increased tariffs. Further, the leading market position of Novelis in global flat rolled aluminium product segment, robust capital structure and healthy liquidity profile provides comfort. That said, full impact of the tariff imposition between the US and Canada is uncertain and will be a key monitorable.

 

Crisil Ratings has also noted the planned consolidated capital expenditure (capex) of around ~Rs 60,000 crores over the medium term. This is mainly in the form of organic expansion in downstream capacities in Novelis and downstream as well as upstream capacities in India businesses. Of the total planned capex, ~Rs 13,500 crores has already been incurred upto December 31, 2024, while ~Rs. 20,000 crores is likely to be incurred in fiscal 2026, and the balance will be incurred thereafter. As per the capital allocation approach, capex plans are to be primarily funded via consolidated annual cash accruals, which continue to be healthy, thus limiting the potential increase in consolidated leverage to below 2.5x on sustainable basis.

 

The ratings continue to factor in strong liquidity of Hindalco and Novelis, and the proven fund-raising ability of Novelis to meet any cash flow shortfall for the project in a timely manner. Further, against no major consolidated debt obligations during fiscal 2026, the company had outstanding consolidated cash & cash equivalents of around Rs 21,879 crore as on December 31, 2024.

 

These strengths are partially offset by susceptibility to volatility in metal and input commodity prices, mainly in domestic aluminum business. Any significant decline in global demand or supply chain disruptions, impacting sales volume of the company, and sharp fall in aluminium prices will be a key monitorable.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Hindalco and its subsidiaries, including Novelis and Utkal Alumina International Ltd, as these entities have strong business and financial linkages.

 

Profit after tax (PAT) and networth of Hindalco have been adjusted for amortisation of goodwill arising from acquisitions. Also, consolidated adjusted debt includes net deficit related to the unfunded portion of the post-retirement benefit obligation for Novelis and supplier’s credit at consolidated level.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established position in the domestic non-ferrous industry: Hindalco is one of the leading players in the domestic non-ferrous industry, with more than 40% share in the flat-rolled products market. It is also a leading copper producer in India, with its integrated smelting complex in Gujarat being one of the largest single-location custom copper smelters in the world. Thus, it has strong economies of scale to compete globally, and thereby diversify its revenue mix. In fiscal 2024, Hindalco generated around ~22% of its revenue from exports. Geographical diversity in revenue should sustain over the medium term.

 

• Healthy operating efficiency of domestic aluminium operations: Hindalco benefits from its low cost of production for aluminium, with its smelters occupying the first or second quartile position in global cost curves. The company also benefits from full alumina integration with captive bauxite mines and stable coal cost with around 90% coal security through a combination of linkages from Coal India Ltd and operational captive coal blocks. Coal security for the domestic business is further supported by the Chakala mine (reserves of around 50 MT, acquired in fiscal 2021) and Meenakshi mine (reserves of 286 MT, acquired in fiscal 2022). Chakla mine would operationalize by February/March 2026 while Meenakshi mine would operationalize by December 2026, and thus, enable the company to meet more than 90% of its coal requirement internally. The operating margin has been healthy, supported by an increase in aluminum prices and robust input cost and integrated operations, supported by steady demand. The margin is expected to remain range bound at 12-14% with a reduction in prices and material cost. Focus on increasing the share of value-added products shall also support profitability over the medium term.

 

• Product and geographical diversity of Novelis, with healthy and stable conversion margin: Novelis is the world’s leading producer of auto and beverage can sheets. As it primarily converts aluminium into value-added products, it is less susceptible to volatility in aluminium LME prices. Investment towards enhancing product mix in the high-margin auto segment and the stable can-body-stock segment have supported growth in operating margin. Its position as the world’s largest aluminium recycler (more than 60% of its aluminium consumption in fiscal 2024) also supports cost structure. Acquisition of Aleris in 2020 has further strengthened the product and geographical diversities of Novelis with addition of the high-margin aerospace and speciality segments, and better access to the Asia-Pacific region. Adjusted EBITDA per tonne witnessed moderation majorly impacted by higher aluminium scrap prices and was around USD 474 per tonne in the first nine months of fiscal 2025 (ended December 31, 2024) from USD 510 per tonne in fiscal 2024. It is further expected to remain stable at USD ~475-485 per tonne.

Contribution of Novelis to consolidated profitability was over 60% for fiscals 2023 and 2024 and more than 45% in the nine months fiscal 2025. The company’s strategy to expand downstream aluminium, along with increased share of high-margin product segments, should support profitability over the medium term.

 

• Strong financial risk profile: High profitability led to net cash accrual of more than ~Rs 17,500 crore in fiscal 2024. The consolidated net debt (including unfunded pension obligation) was stable at Rs 40,654 crore as on March 31, 2024, from 45,168 crore in the previous fiscal. Net leverage (including unfunded pension obligation) was steady around 1.6 times and interest coverage ratio was slightly higher of 6.7 times in fiscal 2024, as against around 1.9 times and 5.9 times, respectively, in fiscal 2023, despite large capex of around Rs ~17,400 crore. Further, with no expected payment in the domestic business in fiscal 2025, leverage levels may remain at the same level, supported by strong net cash accrual of Rs 17,000-18,000 crore.

 

Going forward, with an expected increase in capex (to be funded through internal accrual), net debt may remain stable. However, with an expected rise in EBITDA, net leverage may decrease from levels of fiscal 2024 in the short term, yet sustain comfortably at ~2.0-2.5 times over the medium term. Financial flexibility will remain strong, supported by healthy cash surplus and strong refinancing ability.

 

Weakness:

• Susceptibility of the domestic aluminium business to volatility in metal and input commodity prices: The domestic aluminium business remains exposed to sharp fluctuation in aluminium prices, as witnessed in fiscal 2016 and the first-half of fiscals 2021, 2023 and 2024. Operating margin is susceptible to increase in prices of raw material (coal, coke, and pitch), which the company may not be able to completely pass on to customers. While coal linkage security has increased and stands at 40%, and may improve further over the medium term, it remains susceptible to a hike in prices by Coal India Ltd, and non-fulfilment of linkage. However, this is mitigated by the conversion nature of Novelis and the copper business, which cumulatively contribute around ~55%-60% to the consolidated EBITDA.

Liquidity: Strong

Consolidated annual cash accrual (post-dividend) of Rs 17,000-19,000 crore is expected during fiscals 2025 and 2026, against planned capex of ~Rs 18,000 crore and ~Rs 20,000 crore, respectively, and minimal scheduled term debt. Furthermore, consolidated liquid investments were around ~Rs 21,800 crore as on December 31, 2024. Consolidated liquidity is also supported by unutilized fund-based limits in Hindalco and Novelis.

 

ESG profile of Hindalco

 Hindalco has a dominant position in the non-ferrous metals industry in India. Novelis supplies aluminium sheets and foils to the automotive and transportation, beverage and food packaging, construction and industrial, and printing industries. These two businesses account for over 90% of the EBITDA. Hence, for the ESG assessment, Crisil Ratings has evaluated the aluminium business of Hindalco, along with Novelis.

 

Crisil Ratings believes the ESG profile of Hindalco supports its already strong credit risk profile. The metal and mining sector has a significant impact on the environment, owing to high greenhouse gas emissions, waste generation and water consumption. This is because of the energy-intensive manufacturing process and its high dependence on natural resources such as coal as key inputs. The sector also has a significant social impact because of its large workforce across operations and value chain partners, and also because its nature of operations affects the local community and involves health hazards.

 

Key ESG highlights:

• The board-level sustainable committee, chaired by the managing director, meets periodically to monitor performance and discuss areas of improvement.
• A task force has been set up at the plant level to work on initiatives related to energy, water, waste, and air quality management. Energy-intensive operations have prompted Hindalco to focus especially on adopting efficient ways of using energy.
• Share of renewable energy contribution in the portfolio, rose to 173 megawatt (MW) in fiscal 2024, from 108 MW in fiscal 2023. The company also added ~100-300 MW of pumped hydro storage during fiscal 2025.
• Hindalco aims to become carbon neutral and water positive in all mining locations and reduce its net loss on biodiversity to nil by 2050.
• The loss-time injury frequency rate of 0.45 in fiscal 2024 (0.26 in fiscal 2023) is among the lowest in the industry.
• The governance structure is characterized by 50% of the board comprising independent directors (one having tenure exceeding 10 years), split in chairman and MD positions, a dedicated investor grievance redressal mechanism and healthy disclosures.

 

There is growing importance of ESG among investors and lenders. Hindalco’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets (mainly at Novelis).

Rating sensitivity factors

Downward factors

• Sustained weakening of profitability, resulting in lower-than-expected cash accrual, with net cash accrual to annual debt repayment ratio reducing to less than 1.0 time
• Steady increase in net debt to EBITDA ratio to more than 2.5-2.7 times
• Significantly higher-than-expected debt funded capex resulting in material dilution in capital structure and weakening in liquidity profile of the company

About the Company

Hindalco, the flagship company of the Aditya Birla group, commenced operations in 1962, with an aluminium unit in Renukoot, Uttar Pradesh. The company is the second-largest aluminium manufacturer in India, with capacity of 1,340 kilo tonne per annum (KTPA) of aluminium and 3,740 KTPA of alumina. It has a custom smelter with copper cathode capacity (including recycling) of 421 KTPA in Dahej, Gujarat.

 

Novelis, a 100% step-down subsidiary of Hindalco, was acquired in May 2007, for USD 6 billion. It supplies aluminium sheets and foils to the auto and transportation, beverage and food packaging, construction and industrial, and printing industries.

 

Aleris, a wholly owned subsidiary of Novelis, was acquired on April 14, 2020, for USD 2.8 billion. It manufactures aluminium-rolled products and has 13 plants across North America, Europe and Asia, serving diverse industries, including aerospace, auto, building and construction, commercial transportation and industrial manufacturing.

Key Financial Indicators - Consolidated; Crisil Ratings-adjusted numbers

As on / for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	215,962	223,202
PAT*	Rs crore	10,155	10,097
PAT margin*	%	4.7	4.5
Adjusted debt / adjusted networth*	Times	0.80	1.0
Interest coverage	Times	6.67	5.69

* Adjusted for the treatment of goodwill, mining rights and other intangible assets

Any other information: Not Applicable