Global Trade Headwinds May Not Deter Aluminium Makers’ Healthy Margins

The profitability of Indian primary aluminium manufacturers1 is expected to remain healthy this fiscal, despite some moderation amid global headwinds, including higher US tariffs. Strong operating efficiencies, low-cost operations, and favourable global demand-supply balance will keep margins over a solid $650 per tonne.

The robust profitability will support healthy operating cash flow required for the ongoing capital expenditure (capex) by domestic primary aluminium players and will keep credit profiles comfortable.

Effective March 2025, the US raised tariff on aluminium imports to 25% for all countries. For India, the increase in tariff from 2.55%2 to 25% will have a limited direct impact as the US accounted for less than 5% of India’s aluminium exports over the past five fiscals.

Nonetheless, with nearly 50% of India’s annual primary aluminium output exported, Indian producers may face heightened competition in their regular overseas markets, as key exporters to the US divert supplies to other geographies. Despite this, trade volume is unlikely to be drastically disrupted, given the historical tight match between global primary aluminium demand and supply, which is expected to continue this fiscal as well (see annexure).

Ankit Hakhu, Director, Crisil Ratings, said, “While global demand growth may moderate this fiscal, surplus will still be limited. This is because the global aluminium market faces limited risk of oversupply, as smelters in major aluminium-producing countries, including India, have consistently operated at utilisation rates well above 90%. Moreover, there is limited primary aluminium capacity in the US3 — which has been relying on imports to meet over 80% for its primary aluminium demand — and setting up new smelter capacities has a long gestation period. Moreover, India’s position as one of the lowest-cost primary aluminium producers globally provides a comfortable cushion against potential increase in competition in overseas markets.”

The cost competitiveness of Indian players is driven by highly integrated operations — with more than 80% backward integration on average — mainly through captive bauxite resources, alumina refineries, and domestic coal linkages, which together account for around three-fourths of the production cost.

While favourable global demand-supply and comfortable position in global cost curves should support heathy utilisation rates, the risk of price volatility could impact profit margins for domestic primary aluminium players. Realisations for domestic producers are linked to London Metal Exchange (LME) prices which rose ~20% on-year to $2,528 in fiscal 2025. This resulted in earnings before interest, taxes, depreciation and amortisation (Ebitda) per tonne improving to more than $900 per tonne in fiscal 2025, a three-year high.

However, aluminium prices on LME have been volatile and moderated to ~$2,350 per tonne in April 20254 from a peak of $2,700 per tonne in March 2025 (refer to annexure), amid uncertainties regarding global macroeconomic growth post the tariff announcements by the US.

Ankush Tyagi, Associate Director, Crisil Ratings, said, “Despite the volatility, aluminium prices on LME could stay above $2,300 per tonne on average this fiscal, given the limited risk of oversupply and the fact that anything materially below these levels will make sizable global capacities economically unviable. This, along with the steady cost of production for Indian primary aluminium players, will keep their operating margins over $650 per tonne this fiscal, compared to a ten-year average of ~$530 per tonne.”

The robust profitability will support the ongoing capacity expansion to meet growing demand, especially in the domestic market, and to increase the share of value-added products in the capacity mix. Furthermore, healthy balance sheets with net leverage below 2.5 times as on March 31, 2025, and comfortable liquidity should support credit profiles.

That said, lower-than-expected metal prices and signs of economic slowdown impacting demand will bear watching.

FMCG Sector Revenue To See A Mild 100-200 bps Recovery to 6-8% Next Fiscal

Urban demand recovery to be gradual, rural demand to remain steady, credit profiles to be stable

The fast-moving consumer goods (FMCG) sector should see revenue rebound 100 to 200 basis points (bps) to 6-8% in fiscal 2026, compared with a more modest 5-6% expected in fiscal 2025* as volume rises 4-6% on a gradual recovery in urban, and steady rural, demand.

Traditional FMCG companies will continue to target acquisition of direct-to-consumer (D2C) brands, increase adoption of digital channels, and introduce more lower price packs and products amidst rising competition to support volume growth, which has remained subdued over the past few fiscals.

Another ~2% revenue uptick should come from realisations as FMCG companies partly pass on the impact of inflation in key categories such as soaps, biscuits, coffee, hair oil and tea. The pricing actions will be driven by elevated prices of key inputs such as palm oil (a key input for all three segments – F&B, personal care and home care), coffee, copra and wheat.

Operating profitability is expected to stay flat but healthy at 20-21% in fiscal 2026, after a 50-100 bps decline in fiscal 2025. All said, credit profiles of FMCG companies are expected to remain stable.

A Crisil Ratings study of 82 FMCG companies, accounting for a third of the sector’s estimated Rs 5.9 lakh crore revenue this fiscal, indicates as much.

The urban segment accounts for ~60% of revenue and rural markets the rest. By category, food and beverages generates nearly half of the sector’s revenue, and personal care and home care a quarter each. 

High food inflation, elevated interest rates and sluggish wage growth impacted urban consumption across segments in fiscal 2025, with personal care and certain F&B sections taking a bigger hit. Rural volume has recovered and outpaced urban in the past few quarters after another spell of adequate monsoon.

Anuj Sethi, Senior Director, Crisil Ratings, said, “We expect a modest recovery in volume as moderating food inflation, easing interest rates and tax relief measures announced in the Union Budget for next fiscal encourage urban demand. Rural demand will grow steadily given continuing allocation to welfare schemes^ and a hike in minimum support prices.”

Apart from the macro factors, traditional FMCG companies have had to contend with rising competition. Regional and local companies have been gaining with consumers downtrading to lower-priced brands. Besides, rising preference for digital channels has opened distribution avenues on a much larger scale for D2C companies.

Aditya Jhaver, Director, Crisil Ratings, says, “On their part, traditional FMCG companies have been taking steps to push growth. Apart from seeking D2C brand acquisitions and increasing digital advertising to push premium products, they have introduced affordable packs and increased distribution reach across hinterland. With quick commerce now accounting for ~30% of the e-commerce channel, companies have been introducing exclusive packs for such platforms. These measures are gradually enabling traditional FMCG companies to withstand competitive intensity.”

Despite the modest revenue growth, the credit profiles of FMCG companies in the Crisil Ratings portfolio remain stable, supported by their healthy cash generating ability, strong balance sheets and sizeable liquid surpluses.

Going ahead, input price, monsoon and utilisation of higher disposable incomes by households will bear watching.

^ - Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS); Pradhan Mantri Gram Sadak Yojana (PMGSY) and Pradhan Mantri Awas Yojana (PMAY):

For FY26, the allocation has increased by 23.7% on-year as per budget documents.

*- This is lower than Crisil Ratings estimate of 7-9% for fiscal 2025 owing to subdued urban demand. Please refer the link of the previous press release:

https://www.crisilratings.com/en/home/newsroom/press-releases/2024/07/fmcg-sector-to-see-revenue-growth-of-7-9-percent-this-fiscal.html