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Hindalco Industries Ltd
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Ladies and gentlemen, good day, and welcome to Hindalco Industries FY ‘24 First Quarter Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded.
I now hand the conference call over to Mr. Subir Sen, Head of Investor Relations at Hindalco. Thank you, and over to you.
Thank you, and a very good afternoon and morning, everyone. On behalf of Hindalco Industries, I welcome you all to the earnings call for the first quarter of financial year 2024. In this call, we will refer to the quarter 1 FY ‘24 investor presentation available on the company’s website. Some of the information on this call may be forward-looking in nature and is covered by the safe harbor language on Slide 2 of the said presentation. In this presentation, we have covered the key highlights of our consolidated performance for the first quarter of the financial year ‘24 versus the corresponding period of the previous year. A segment-wise comparative analysis of Novelis, India aluminium and copper business is also provided. This presentation covers our Indian operations, aluminium upstream and downstream financials and their operational performances separately to reflect their individual business segment performances in quarter 1 versus the corresponding period of the previous year. The corresponding segment information of the prior periods have also been restated accordingly for a comparative analysis.
Today, we have with us on this call from Hindalco’s management, Mr. Satish Pai, Managing Director, Mr. Praveen Maheshwari, Chief Financial Officer. From Novelis’ management, we have Mr. Steve Fisher, President and CEO; and Mr. Dev Ahuja, Chief Financial Officer. Following this presentation, this forum will be open for any questions you may have. Post this call, an audio replay of this conference call will also be available on our Company’s website.
Now let me turn this call to Mr. Pai to take you through our company’s performance in this quarter.
Thank you, Subir. A very good afternoon and morning, everyone. Thank you for joining today’s earnings con call of Hindalco’s performance for the first quarter of FY ‘24. On slide 5 and 6 of this presentation, you can see our progress across the metrics of ESG for this year versus prior year. In our continuous efforts towards increasing green cover and biodiversity, we have successfully completed an all-season study under our biodiversity management plan for 12 of our mine sites and 6 units in Hindalco. We are also pursuing plantation drives across all our buffer zones.
Hindalco continues to increase its share of recycling and reuse of waste. In this quarter, 90% of total waste were recycled and reused versus 88% in the previous year. We have achieved recycling of 127% of bauxite residue and 105% of ash in this quarter, which is a significant achievement over the last year. In addition, we are now single-use plastic-free certified at 14 of our plant sites this quarter and progressing well to become 100% single-use plastic-free certified company in India so.
In terms of our progress in renewables, we have already reached 50% of our target of 300 megawatts by 2025 this quarter and completed 150 megawatts of renewables. Further, 140 megawatts of renewable hybrid, wind and solar projects are under execution and expect it to be completed over the next few years. At the end of this quarter, our aluminium specific greenhouse gas emission was recorded at 19.45 tons of CO2 per ton of aluminium, which was a bit higher than last year on account of higher power consumption at some of our smelters. This is expected to settle down with better efficiencies across our plants in the coming quarters.
On safety, the LTIFR in India was recorded at 0.22 this quarter, reflecting an improvement over FY ‘23 levels and remains amongst the best in the industry. We have taken several initiatives to inculcate the safety culture, not only in our employees, but also in their families. In addition to this, we have taken digitalization initiatives to develop the contractor safety management and comprehensive safety audit and assurance software to further strengthen our systems to monitor safety with a target implementation date of October 2023. There were no fatalities recorded in our Indian operations this quarter.
We are on our way of achieving net water positivity by 2050. We stay committed to our zero liquid discharge at all our sites and a 20% reduction in specific water consumption by 2025 from the base year of FY ‘19. On the water positivity front, two of our mines that is Samri and Bagru have achieved water positivity rate this quarter. All these initiatives are in line with our target of achieving water positivity across all mines by 2025. In addition to this, our Silvassa and Taloja facilities have completed zero liquid discharge erection and installation, while its commissioning is underway.
We are not only implementing water audits for assessing rainwater harvesting and recycling capabilities at our plant location, but have also initiated various desalination and other projects to achieve this goal. Our Dahej plant successfully commissioned its tertiary water recycling unit, leading to 700 kilometers per day freshwater savings this quarter.
Let me now give you a glimpse of our quarterly consolidated performance in quarter four versus the previous quarter on Slide 8. This quarter’s performance on a consolidated basis was driven by recovery in the Novelis and India – aluminium India downstream businesses backed by a steady performance by the copper business. Our consolidated revenue was INR52, 991 crores this quarter, which was down 5% sequentially. Consolidated EBITDA was up 5% Q-on-Q at INR6, 109 crores, whereas the consolidated PAT was up 2% on a sequential basis at INR2, 454 crores this quarter. Hindalco at the consolidated level maintains a strong balance sheet with the net debt-to-EBITDA well below 2x at the end of June 2023.
On the balance sheet, our consolidated net debt stands at INR38, 463 crores. The India operations net debt was INR1, 904 crores and Novelis was at INR36, 559 crores at the end of June 2023. In India aluminium business, we are currently hedged at around 11% at a price of $2,755 per ton for the financial year 2024. All our strategic CapEx in India as well as in Novelis are mapped with cash flow generations in the business and are in line with our capital allocation policy.
Coming to our business-wise performance this quarter, Novelis shipments were at 879 Kt, down 6% Q-on-Q, largely on account of lower beverage can shipments and specialty, especially the Building & Construction segment. This was partially offset by record automotive shipments this quarter. Novelis delivered an EBITDA of $421 million, up 4% year-on-year on account of better cost control and favorable product mix. EBITDA per ton was $479 versus $431 in the previous quarter, up 11% sequentially.
On Hindalco’s India aluminium business performance, upstream aluminium performance this quarter was impacted by unfavorable macros. Total upstream shipments were up 5% Q-on-Q at 341 Kt, whereas revenue was flattish sequentially at INR8, 064 crores. Upstream EBITDA was 12% lower sequentially at INR1, 935 crores. EBITDA per ton was at $691 per ton and EBITDA margins were at 24% and continue to be one of the best in the global industry in the current challenging business environment. Total third-party shipments were 336 Kt of which upstream was 255 Kt and downstream was 81 Kt this quarter. The downstream aluminium business shipments were down 9% Q-on-Q at 81 Kt this quarter, while revenues were down 11% sequentially at INR2, 435 crores this quarter. However, aluminium downstream delivered an EBITDA of INR147 crores, up 31% Q-on-Q on account of better product mix this quarter.
Our copper business continues to deliver consistent performance despite the impact of the planned shutdown we had this quarter. The overall metal shipments were at a record high of 118 Kt, up 1% Q-on-Q, of which CCR volumes were at 98 Kt, up 4% sequentially this quarter. Revenue was up 3% Q-on-Q at INR11, 502 crores on account of higher sales volume. The quarterly EBITDA was at INR531 crores, down 11% Q-on-Q due to lower cathode production on account of the maintenance shutdown this quarter.
Let me give you a glimpse of the current broader economic environment. After a resilient Q1 calendar year ‘23, global economic recovery is losing steam amidst wide divergences across sectors and economy. High-frequency indicators for the second quarter point to a broader slowdown in activity. As per IMF global GDP growth is projected to moderate from 3.5% in 2022 to 3% in both 2023 and 2024. Slowdown is concentrated in advanced economies where growth is expected to decline from 2.7% in 2022 to 1.5% in 2023, while emerging market economies are expected to grow at a steady pace of 4% in 2023. Restrictive monetary policy, slow recovery in China and sluggishness in manufacturing and trade activity are weighing on growth.
On the upside, services sector expansion continues to drive growth. The battle against inflation is not yet over with central banks focused on achieving sustained disinflation, especially with respect to poor inflation. Food and energy prices have come down considerably from the war-induced peak level. Global headline inflation is expected to fall from 8.7% in 2022 to 6.8% in 2023 and 5.2% in 2024. However, coal inflation is projected to decline more gradually. On the domestic front, economic momentum is holding up despite a challenging global environment. Economic activity remains resilient, albeit with some sequential moderation in the June economic data.
Strong domestic demand, robust service sector activity and healthy public CapEx momentum will drive growth in FY ‘24. However, the impact of tighter monetary policy and slowdown in global growth may weigh on domestic growth going forward. RBI projects real GDP growth for FY ‘24 at 6.5%, moderating from 7.2% in FY ‘23, with risks being evenly balanced. Headline inflation has remained below 5% since April ‘23, driven by both core and non-core inflation. However, going forward, food price dynamics are likely to shape the headline inflation trajectory. RBI projects CPI inflation to moderate to 5.1% for FY ‘24 from 6.7% in FY ‘22 on softer commodity prices and core inflation. RBI kept the policy rate unchanged in the last two meetings at 6.5% stating durable disinflation and core inflation would be assessed stating that durable disinflation and core inflation would be essential for a sustained cost.
Talking about the aluminium industry outlook. In the first half of calendar year 2023, global aluminium production grew at 2% year-on-year, while global consumption degrew by 2%, resulting in a surplus of 0.7 million tons. In Q1, calendar year ‘23 Chinese production declined in certain provinces like Yunnan and Guizhou and Shandong due to tight power supply. In Q2 of calendar year ‘23, with improved hydropower situation, the government has released power to the smelters, resulting in an increase in aluminium production, especially in the provinces of Yunnan and Guizhou. Hence, overall production in China grew by 3% year-on-year in the first half of calendar year ‘23 to 20.1 million tons. The Chinese consumption in H1 calendar year ‘23 faced headwinds due to weak construction demand and led to a decline in consumption by 2% year-on-year to 20 million tons, resulting in a surplus of 0.1 million tons.
In the world, excluding China, production increased in South America, whereas it declined sharply in Europe. Hence, production was flattish at 4.3 million tons in the first half of calendar year ‘23. Aluminium consumption faced headwinds across all sectors, except the automotive segment. As a result, consumption grew by 7% to 13.7 million tons, leading to a surplus of 0.6 million tons. On a quarterly basis in Q2, global aluminium production increased by 1% to 17.3 million tons, whereas consumption increased by 2% to 17.7 million tons, resulting in a deficit of 0.4 million tons.
During this period, Chinese production grew by 1% to over 10 million tons. Consumption improved to 10.8 million tons, up 6% year-on-year due to the base effect of the Zero-COVID policy in last year. Increased solar capacities and electrical vehicle production partially offset the demand weakness from other sectors during this period. This resulted in a deficit of 0.6 million tons in China. In the rest of the world, overall aluminium production grew marginally by 1% to 7.2 million tons, while consumption continues to weaken across all sectors except in automotive, which led to a 4% drop in consumption at 6.9 million tons, resulting in an overall surplus of 0.2 million tons this quarter.
The global aluminium prices in Q2 calendar year ‘23 fell to $2,258 a ton against $2,395 a ton in the previous quarter. On a quarter-to-date basis, the global price of aluminium is around $2,150 a ton. In Q1 ‘24, the domestic demand is likely to reach 1.14 million tons at a 14% growth year-on-year, whereas sequentially, this demand is expected to grow marginally by 1%. This sharp year-on-year growth is supported by strong demand from the electrical, building and construction sectors and a recovery in consumer durables. However, packaging an auto faced headwinds due to weakness in the export led demand.
The global FRP demand is expected to grow at 1% in calendar year ‘23 versus a 3% growth in the last calendar year. The global demand for resistant beverage can sheet is expected to grow in the long run at a CAGR of 3%, although the customer inventory reduction now is largely complete. The return of promotional activities in North America shall boost consumption of beverages in the second half of fiscal 2024. The automotive segment demand is expected to grow at a CAGR of 11% over the next 5 years, driven by vehicle growth rates, light weighting needs for fuel efficiency, performance and electric vehicle range. This growth is led by elevated levels of pent-up demand and EVs are gaining share of the vehicle mix.
The demand in specialty, especially in Building and Construction segment showed some softness on account of seasonality and the macroeconomic environment. While some optimism is seen in U.S. building and construction market full recovery in specialty demand is depending on the economic stabilization across Sweden. The Aerospace segment demand for premium aerospace plate in sheet is positive and is expected to remain strong. Aircraft OEMs are forecasting a strong growth in aircraft build rates over the next decade. In this sector, sustainability is also gaining importance, leading to higher consumption of aluminium. In FY ‘24, Indian FRP demand is expected to grow marginally by 8% year-on-year due to stable building and construction demand and pick-up in consumer durable demand. This demand is likely to remain firm in the following – in the coming quarters.
With respect to the global copper industry in the first half of calendar year 2023, overall global copper production grew by approximately 4% at 12.5 million tons, whereas consumption grew by 4% year-on-year at 12.4 million tons, resulting in a surplus of 0.1 million tons. On a half yearly basis in calendar year ‘23 China’s production increased by 5% at 5.4 million tons, whereas consumption grew by almost 7% at 6.6 million tons, resulting in a deficit of 1.2 million tons. The world, excluding China, increased their production by 3%, whereas consumption grew by 1% on a year-on-year basis, resulting in a surplus of 1.3 million tons in H1 calendar year ‘23.
In the second quarter of calendar year 2023, the overall global production of copper increased by 3.4% year-on-year, while consumption grew by 5.9% compared to the corresponding period last year, resulting in a deficit of 0.5 million tons.
In Q2 calendar year ‘23, Chinese production increased by 4.5% year-on-year while consumption grew by 10.8%, resulting in a deficit of 1.1 million tons. In the world, excluding China, production increased by 2.5% and consumption was flattish year-on-year, resulting in a global surplus of 0.6 million tons this quarter.
In Q1 FY’24, the domestic market demand increased by approximately 10% year-on-year to 190 Kt versus 173 Kt in Q1 FY’23. On a sequential basis, in Q1 FY’24 market demand increased by 5%, while domestic producers’ share was close to 73%. During Q1 FY’24, spot prices of TC/RC are around $0.21 to $0.22 a pound that remained below the annual benchmark of calendar year ‘23, which is $0.225 per pound, owing to the supply disruptions due to adverse weather conditions in South America and export license delays in Indonesia.
Spot activity remains subdued as smelters are being sufficiently well staffed. This was coupled with weak spot demand from China, mainly on account of delays in commissioning of committed smelter projects, combined with extended maintenance shutdown. Easing of supply disruptions in the near-term will lead to improvements in spot TC/RC during the second half of FY’24. Details of our operational and financial performance in each of the business segments this quarter compared to the corresponding period of last year as well as the previous quarters are covered in further slides in the next years to this presentation.
But now let me conclude today’s presentation by some key takeaways. We, as a company, are working proactively to mitigate the current macroeconomic headwinds and cost pressures. Our Resilient India business is providing solid financial prudence with its strong balance sheet for our organic growth strategies. We also continue to focus on research security in terms of coal and bauxite, thereby reducing our dependency on external sources while expanding our value steams in terms of downstream products.
Our copper business continues to deliver a consistent performance despite the impact of a planned shutdown this quarter. We continue to focus on our value-added products that will cater to the niche segment of special alloy and high-purity copper rods and tubes. Novelis continues to show recovery backed by better cost control and a favorable product mix. This is reflected in the sequential improvement in EBITDA and EBITDA per ton this quarter. Our approach to ESG continues to be comprehensive across value chain and in line with our interim as well as long-term targets of 2050.
We have already achieved 50% of our target of 300 megawatts in renewables by 2025. Our LTIFR continues to be among the industry best this quarter as well. We continue to moderate and pace our new strategic CapEx, both in India and Novelis in line with our generated free cash flows. We stay focused with our value-enhancing growth strategy directed towards organic growth and diversifying our portfolio to provide not only products but solutions while expanding downstream business in both aluminium and copper.
Thank you very much for your attention, and the forum is now open to any questions you may have.
Thank you. [Operator Instructions] The first question comes from the line of Indrajit Agarwal from CLSA. Please go ahead, sir.
Hi, thanks for the question. I have two questions. First, on the Bay Minette cost inflation. In the last quarter’s call, we had mentioned that we are expecting some support under the U.S. Inflation Reduction Act. Any update on that given that we have about $200 million to $300 million cost inflation. Will it be offset by that? Or it will be fresh outflow from our side?
Yes. Steve, do you want to take that?
Sure. Not a large [indiscernible] you have filed or requests under 48 scheme. We will now have clarity as to the allocations towards either depending on the project or capital recycling project and [indiscernible] probably the end of this fiscal year, so March of 2024. And in the new capital range of 2.7 to 2.87 that does not include any [indiscernible] allocated towards [indiscernible]
Actually, the line was not clear. So we are expecting any kind of support in the subsequent years? Or it is still something to watch out for?
It’s still something to watch out for. We have put in our application. We will not putting our stake as to how much would be allocated to us until late this fiscal year, so likely March by 2026. And inside the 2.7 to 2.8 range does not include any benefit.
Sure. That’s helpful. My second question is on the India aluminium business. So we have seen global coal prices falling much sharply versus our coal cost being largely stable other than our e-auction coal prices. So with that respect and with other cost deflation, what kind of cost reduction we expect in 2Q? And does that make us – where does that put us in the global cost curve for aluminium?
So Q1 to Q4, our costs came down by about 2%. And Q2 to Q1, we expect it to come down by a further 3%. So most of the coal that we have been buying in the last few months, we have started to see quite a good reduction in coal prices. So we are quite encouraged now and we think that Q2 will be down another 3%. Now where we are on the cost front, Hindalco is very firmly in the left-hand side of the first quarter. I mean if you look at our EBITDA margins of 24% in the aluminium business compared to most of our peers who have already declared, you will see that our EBITDA margins are much better than most others.
Sure. I have more questions, I will come back in the queue.
Yes. Thank you.
Thank you. The next question comes from the line of Sumangal Nevatia from Kotak Securities. Please go ahead, sir.
Hi, yes. Thank you for the opportunity. So my first question is with respect to our coal mix. If you could share what was it in 1Q? And how do we see it changing in the coming quarters? And also on the cost front, if you see international thermal coal prices back to almost 2-year low versus what we are kind of guiding for next quarter and maybe on a normalized basis, it’s still much higher versus what we were, say, 2 years ago – 3 years ago before the COVID era. So what – I mean, what is the change over the last 3 years? Is there a significant mix change in coal and change in the cost of linkage coal as well?
So look, you have got quite a few questions there. So let me first start by your – first thing was in Q1, our linkage was 41% and the auction was 53%. In Q2, we think that the linkage is going to be more like 57% to 60%, which is why we are guiding that we’ll be cost-wise down another 3%. Now your second point is the international prices of coal, you have to remember, went up much, much more than what domestic prices went up. I mean international prices have gone up $240 per ton. They have since moderated down, but it’s still quite patchy. So the third part of your question is coal prices in India, you’re right, are still a couple of hundred rupees per million kilocal higher than what they were pre-COVID.
Now I personally believe that it’s only after the captive mines that most of us in the steel and aluminium industry have got. Once our captive mine starts, then only you will see the coal cost going back to those early levels. I think as long as we are participating in auctions, we are going to see ups and downs. Structurally, the cost will change when our own mine start. I hope that clarifies, Sumangal.
Yes. Sir, in terms of linkage coal, given that we participated in the auction, is the cost which is getting consumed now is very different from what it was 2, 3 years back with premiums elevated as well?
It’s not very different, but it is higher. I mean 2, 3 years ago, what we got in linkage and today, compared to what we have gone through in the last few quarters is much lower. But if I compare it to 3 years ago, it is higher. And you have to remember that, generally, in India, there is at least a 6% inflation in Coal India notified price every year anyway.
Okay. Okay. Got it. And sir, what would be our – so you said 60-odd percent linkage from next quarter. Is that a normalized level? Or we’ll see further increase in linkage proportion in the coming quarters?
I don’t think so. I think that normally 60% is what our linkages are like? Because you have to remember, these linkages are a rolling phenomena. So older ones get finished, new linkage starts. So that keeps going. So if you go back and look, I think generally, the best we have done is about 60%, 62%.
Okay. Got it. And sir, any update you would like to share on our coal mine, captive coal mine, Chakla Meenakshi, where are we? Which approvals are pending? And what’s the latest time line we are seeing?
So no real change. Chakla continues to move ahead as our plan. I think we have a box cut planned in FY’25, that is next year somewhere in October. Meenakshi. We are still hoping for Meenakshi allotment, but we just – maybe it’s the time to tell you that last week, we participated in Meenakshi West which is just sort of west of the existing Meenakshi mine, and we won that as well at 33.75% premium. So we are still hoping to get the Meenakshi mine allocated, but we have a plan B, which is Meenakshi West that we won last week which is another 6 to 7 million tons per year coal mine. So at least we are adequately covered and hopeful we can start Meenakshi West. This Meenakshi does not get allocated.
Okay. And sir, just one last question, sorry. So what is the reason for this delay in allocation because we’re seeing this across many companies. So if you could just share what [indiscernible] 2 years?
There is a fundamental regulatory issue related to what they call land acquired under the Coal Bearing Act. So to allocate a mine to a private industry besides the subsurface rights, you will have to allocate the land as well to a private company. And the law did not really allow the CBA land to be transferred from a public sector unit to a private. So the government has had to deal with that regulatory aspect. That’s why many mines are stuck on this, but I think it’s getting resolved now.
Okay, got it. Thank you so much, sir. And all the best.
Yes. Thanks, Suman.
Thank you. The next question comes from the line of Pinakin Parekh from JPMorgan. Please go ahead.
Yes. Thank you very much. Sir, I have only one question, which is on aluminium prices. Now essentially this year was supposed to be a story of Yunnan production cut, China deficit and sharply higher aluminium prices, and there has been a complete reversal of that situation and the market worries is that without drought, Chinese aluminium production surges further from here, which could push aluminium well below the cost curve. So at this point of time, how is the company looking at aluminium prices for the next two to three quarters? And is there any recalibration of the near-term CapEx plan with the outlook on aluminium prices?
So let me handle the second part first. There is no recalibration of CapEx plan because most of our CapEx is towards the downstream type of aluminium. We already have sufficient cash reserves to fund our CapEx. So we are not changing any CapEx plan both in Novelis or Hindalco. Now to go back to your outlook on LME, it’s fair to say that every month or every week is a new story when it comes to China. And it’s sort of a couple of weeks back, everyone was very optimistic that stimulus in China and every LNG prices jumped up by 100, 150. Today, they are pessimistic.
So I think, Pinakin, we can all speculate what China is going to do. But our feeling is that LME will be between $2,100 and $2,300. The good news for us is the cost curves are moderating. So we should be able to go through even if it’s a tougher second half of the year. And I think that largely the outperformance of Hindalco will rest on its downstream businesses, whether it’s Novelis, whether it’s India aluminium or it’s copper. I think on the upstream side, we will be compared to our competitors in much better shape, which is all the best we can do. I think from an LME side, it’s going to be tough until the situation in China gets clarified, which, by the way, the new story comes out every week.
Understood. So just to continue with that, are you – given the view of aluminium prices of $2,100 to $2,300, the company – are you locking in more volumes as forward sales hedges at this price point? Or you have reduced your volume hedges for the next 12 months?
We have not hedged. I mean if you looked in my prepared remarks I made, there is no change from the previous analyst call. So we said 11% hedged at $2,755. No, we don’t think the current levels are worth hedging.
Understood. That is very clear. Thank you very much, sir.
Yes. Thanks, Pinakin.
Thank you. [Operator Instructions] The next question comes from the line of Amit Dixit of ICICI Securities. Please go ahead.
Yes. Hello, good evening, everyone. And thanks for the opportunity. I have a couple of questions. The first one is on downstream aluminium, so India business. If I look at downstream aluminium appetite from above $200 per ton, while you indicated in the prepared remarks that this was due to the better product mix and last two quarters, we have been highlighting that consumer durables and all the things were down. So what is the change in product mix that we have witnessed in this quarter? And do we expect this level to be sustained?
So we have – our calculation is $220 a ton. So what has happened is the consumer durable, which is the cookware and things like that also went through a bit of a destocking. Actually, April was still a little bit tough, but May, June, the volumes have bounced back. So the product mix is that the consumer durable sector has come back, which is quite profitable to us. And what we are seeing in the July and even August is that the demand is quite strong. So we are fairly comfortable that this 81 Kt volume, which is slightly on the lower side, will cross 90 in Q2, and the EBITDA per ton will actually be – remain well above $200. We are quite confident about Q2 in the downstream aluminium side.
Thank you. The next question comes from the line of Pallav Agarwal of Antique Stock. Please go ahead, sir.
Yes. Good afternoon, sir. So I had a couple of questions. First was, if I look at the slide on the India business. So the revenues over there, if I take Q1, let’s say, INR20,230 crores, so they are higher than the stand-alone revenues. So is this due to – mostly due to the Utkal Alumina external sales?
No, no. So you’re asking whether the stand-alone revenue is higher than the consolidated India operations?
No – yes, the reverse actually. I’m asking if the India consolidated revenues have been…
Obviously. So Utkal gets started. Utkal has a third party aluminium, but copper is there in the standalone also but Utkal yes, Utkal gets started for the third party.
So, Utkal Alumina external sales are being added over there.
Yes.
In Q1, we had 95 Kt of third-party sales in Utkal.
Okay. So has that come down because – I think probably in earlier quarters, we have run rate of about 150 to 200 Kt very strong side.
Yes, it is lower because every sort of second half of March, first half of April, we have the annual shutdown of the [indiscernible] in Utkal for maintenance. So yes, that’s why Q1 was a bit lower.
Sure. Also, in the annual report, the suppliers traded figure has – was at a level of about INR5,600 crores. So is this primarily on account of copper concentrate. This is expected that we avail or it’s also on account of some other suppliers side?
Sorry, INR5,600 crores of what?
Suppliers traded in the annual report.
Yes, absolutely. That’s kind of a trade payable supported by financing arrangements. So it’s a suppliers credit.
For copper. Yes. Copper concentrate.
Sure, believing the discounting rate would be lower than the normal rates of interest that we would pay on other borrowings.
Interest rates are different for different kinds of borrowings. So on project loans today, that is the most expensive one. earlier, you remember we had the bonds which were the highest ones, which we paid off last year. And now project loans are...
We think supplies credit interest rate...
So it’s lower than the project loans. We have basically two types of loans only now.
Sure, sir. Sir, if I can also just ask we had mentioned that India was net debt free in our last call. So – but if I look at the annual report, there is still some amount of net debt there. So is this because Utkal is net debt free or the whole India operations are net debt free.
So when we talk about India operations, we combine Utkal into that. And then that was – there was a small mandate which was still there. So we have, I think, 0.03 or something as the net debt to EBITDA. There was small net debt from INR300 crores.
Right. Thank you so much.
Thank you. The next question is from the line of Amit Dixit of ICICI Securities. Please go ahead, sir.
[Technical Difficulty]
Yes. Go ahead, Amit.
Amit, your line is still not very clear. We’ll move to the next question, and we’ll wait for Amit to come back in the queue.
Yes.
The next question comes from the line of Ritesh Shah of Investec. Please go ahead.
Hi, sir. A couple of questions. Sir, first is on Meenakshi, you used the word backup. Sir, why do you use the word backup specifically, I think the recent amendment, it takes into consideration the issue that you highlighted on the surface. And sir, if the allotment comes through, what will be the timeline that we will be looking at. That’s the first question.
Yes. I think that Meenakshi, the strip ratio is very low. So, I think we should be able to get coal there in about 2 years. The reason I used the word backup is that until I have the paper in the hand, there was a – the mine next week came up for auction. So, we decided to participate and take that.
Okay. That’s very helpful. Sir, my second question is on Novelis. I think in the Q1 call for Novelis, what it was indicated is EBITDA run rate in second half of the first year at $450 to $500. Earlier during the Capital Markets Day, we had indicated a number of $525. So, just wanted to get a sense what there any change in communication or the interpretation was not right from my end?
Yes. Dev, do you want to take that one?
Yes. No. I think our communication, first of all, is not inconsistent at all Ritesh. We continue to say that as we close this fiscal year, which means in the Jan-March quarter, our confidence has gone up even more as compared to what it was at the Capital Markets Day that we will be getting to $525 per ton. Now until then, we have said that we should be prepared for $400 to $450. And as you would have heard at our earnings call, we are now saying that we will be confidently in the range of $450 to $500. So, in fact, the journey has become a lot better as compared to what we indicated at the Capital Markets Day. So, there is no inconsistency whatsoever. In fact, looking at the latest business environment and everything that is happening, we have actually come back to say that we will be better than what we have said at the Capital Markets Day. So, I think there should be no confusion.
Perfect. That helps. And last question for Mr. Pai. Sir, you have always emphasized a lot on operating leverage when it comes to Novelis. This quarter reported a pretty decent set of numbers despite negative impact of operating leverage, product mix was a little different and recycling spreads were not so favorable. So sir, if one had to balance each of these three variables and better appreciate the quality of earnings, if you could point some color that would be very helpful, sir. Thank you.
You want me to go, Satish?
Yes, go ahead. But I was just saying that he pointed out himself all the positives of the Novelis, but go ahead Dev.
So, Ritesh, again, I don’t think there should be a much of any kind of ambiguity on why we are saying that there is a lot of dry powder when it comes to operating leverage. We are at a level of volume, which is unprecedented on the low side post-Aleris acquisition. So, the point we are making is that this quarter was like third quarter last year, was a low point on EBITDA, we are telling you that this quarter is a low point on volumes. And from here onwards, we are pretty much seeing a deep stocking behind us. So, that itself is a positive trigger when it comes to volume. So, basically, the incremental volumes that will come in can in particular because, all the way good [ph] specialties in the given situation is also good. So, what will happen is that all the incremental volume from here onwards to bounce back to a line handle on volume is going to bring in a very high operating leverage. That should not be very difficult to sort of acknowledge because also plan comes with a relatively higher recycled content. So, we have a double positive year. One is the volume – incremental volume and the other is the recycling benefit, which is disproportionate with can, even if the metal prices are not great at this point in time. So, that is really what is about to happen in the forthcoming quarters.
Sure. Sir, last quick one for Mr. Pai. Sir, would you be seeing an inorganic chase something on the copper smelter, if at all? I know we have a capital allocation framework in place, but what will be our thought process if hypothetically some copper smelters are scraps at the right valuation?
So, hypothetically, we will continue to look for any opportunity that makes sense for Hindalco and its shareholders.
Okay. This is helpful. Thank you so much. Really appreciate it. Thank you.
Thank you. The next question comes from the line of Anupam Gupta of IIFL Securities. Please go ahead.
Good evening sir. A couple of questions. Firstly, if you look at the India debt that has risen 1Q versus fourth quarter, any specific reason which drove the increase?
We said the India debt has increased. Actually, India debt has not increased. I think there has been a little bit of a working capital block on the copper side.
Yes. So, quarter one typically is a quarter where we see some buildup of inventory, etcetera. So, working capital debt does go up in the first quarter. That’s about it. There is no increase in the long-term loans.
Okay. Thank you. And secondly, on copper business, what was the outlook for volumes for second quarter given that we had the shutdown and there was no [Technical Difficulty] shipments?
It’s not that there will be a much upside in volume, but what we have to tell you is that a large part of the volumes this time, we had actually imported the cathode and then converted and sold. So, the margins were not as good. So, in Q2, it will be more with our own cathodes, which we get from our concentrate. Hence, the performance in Q2 will be better than Q1.
Okay. And volume wise, it should be stable?
Yes, volume should not be that different.
Phase volume will not be different. Production volumes get cathode production and go up.
Sure. Okay. Perfect. That’s it for me, sir. Thank you.
Thanks. Yes.
Thank you. The next question comes from the line of Satyadeep Jain of Ambit Capital. Please go ahead sir.
Hi. Thank you for the opportunity. My first question is on the business update that you have given in the press release on collaboration with Tata Motors to build aluminium cargo body for Tata Ace EVs. So, just wanted to know what kind of aluminium would go into maybe one car and what additional demand could we see from that section?
So look, the amount of aluminium is roughly about 55 kg to 60 kg to make that box at the back. Now, the second part you have to know is that when we get into these downstream businesses, it’s not just the weight of the aluminium, because we are actually doing some machining welding to make that box. So, we are getting more and more doing extra machining and things like that. We have up-to-date – year-to-date in the last six months, delivered 1,000 and now the run rate is more like 200, 300 per month. The next thing is that those last-mile vehicles, everybody is electrifying it and hence need to light weight it. So, we are in talks with another two or three clients who want to build more of these aluminium boxes on their last-mile vehicles.
Okay. Thank you. And my second question is on the capacity expansion. So, we had a 170 KTPA container casting plus cold-rolling facility coming at Aditya Aluminium, any update on its commissioning timeline?
Yes. Just reviewed the project last week, so it’s going as per plan. I think the first coil should come out somewhere in end of FY’24 – ‘25 sorry, yes. 2025, next year.
Okay. Thank you so much.
Thank you. The next question is from the line of Gaurav Singhal of Aspex Management Hong Kong Limited. Please go ahead.
Yes. Hi. Thanks for taking my question. So one is, you mentioned that aluminium, you expect LME to be roughly around, let’s say, $2,100 to $2,300 and thereabout, which is only slightly lower than I think the average this quarter. So, for the India upstream business, should we expect like $650 a ton to be like a normalized EBITDA level for this kind of LME price? And also once mines come online, how much can the cost reduction benefit on a dollar per ton basis to be in the upstream?
So, I think that, yes, I mean your first – I would say is roughly in the right ballpark. If it is in that range, the number that you had is more or less right. I think how much you can get once the mines will come, it’s better we wait till the mines get commissioned and then we will give you a more accurate number because the cost can come down by another 5% or 8% more with our own mines.
Got it. Okay. And then the second question more on the Novelis side. So, for the Bay Minette facility, where I understand we have contracts with our customers. So, are these like take-or-pay contracts? Because let’s say if macro weakens and for whatever reason, the situation is very bad, how firm are these contracts? Does the customer bother those have to pay? And is it like take-or-pay, or is there a risk that you may not get the price that we contracted at?
Yes, Steve, do you want to take that?
Yes. So, as we said on our call last week, we are virtually fully committed with some contracts in very late stages than other contracts or two-thirds of the payment of that facility that will be for beverage packaging, in line with our contract on the auto side. As it relates to the contracts, they are multiyear contracts with PPI tax requirements like our current contracts and with take-or-pay arrangements inside of them, so very firm.
Got it. And if I may ask, like, do the – so when we signed these contracts, these are with the can companies or is it like a tripartite arrangement with the ultimate brand owner as well, or do we just sign with the can company and then the can company would sign separate contract with that…?
Yes. It’s a combination in North America directly to some client owners. We announced, I think a couple of months ago, a long-term contract relationship with Coca-Cola Company and then also some contracts that are obviously directly with the can makers, so it’s a mix.
Got it. Okay. Thank you. That’s it.
Thank you. The next question is from the line of Kirtan Mehta from BOB Capital Markets. Please go ahead.
Thank you for giving this opportunity. You mentioned that we are formally on the left side of the cost curve in the global aluminium market. Would you be able to indicate the advantage that we have on aluminium and coal versus the midpoint of the cost curve, some sort of quantitative indication on the numbers?
I can’t give you, much more to say that probably our biggest part of the advantage is our alumina cost because we have Utkal. The alumina cost is certainly one of the big ones besides other benefits that we may have. So, a large part of our differentiation comes because of the cost of alumina.
Sure, sir. And in terms of sort of the – from the perspective, the thermal coal has been sort of weakening in the international market. So, what level of – at this point of time, are the sort of the global thermal coal still in the positive area, or are there any sort of the I just want to understand how much the cost support we have at the current price level, would you be able to give some indication around that?
Look, a few have asked me, but let me tell you that international prices of coal and domestic prices of coal, while there could be some correlation largely, it’s not – both are not related because the Indian domestic coal market is driven by its own supply/demand and what happened last year is it was a very hot summer. So, a lot of coal got diverted to IPPs. And hence, the e-auction coal in India went up. Now yes, coincidently, the war in Ukraine happened and the international prices of coal went up. But it’s not a direct one-to-one correlation. We are, in India, besides Dahej, which is on the coast, so takes imported coal. Large part of our aluminium is run on domestic coal. And we do not normally import coal for our aluminium smelting needs. So, I am more interested in Coal India’s production, how hot the Indian summer was, which was not so much, availability of coal in India and hence the auction prices coming down.
Thanks for clarifying this. I had a slightly different question in terms of – I wanted to understand for the global smelters who are running on the global price, are they currently profitable at the current price levels, or there is a x percentage of the smelters, which are sort of in the red at this point of time?
So, you see what happened in Europe is that most of the smelters shutdown when gas prices went above $15 per MMBtu and most of them remain shutdown. There is quite a lot of Chinese smelters that are the closest to India, which run on coal and it depends on the coal prices in China, and some of them are on the right-hand side of the cost curve. Large parts of the Middle East run on natural gas, which is provided by the government and Heathrow and Rio Tinto run on hydropower. So, the basket of international smelting is quite varied. So, it’s only India and China that are very much coal dependent.
Alright. Thanks for this color. Thank you.
Thank you. The next question is from the line of Vikash Singh of Phillip Capital. Please go ahead sir.
Good evening sir. Thank you for the opportunity. I have just one question, sir. Sir, like in Novelis, you said that you have taken a price hike in Europe after the energy cost appreciation, is there any rigs to re-pricing these to a lower range because now the energy costs have come down significantly and you have to pass on certain benefits to the customers?
Yes. Dev, Steve, do you want to take that? Dev?
You want me to go. Yes. So, first of all, for the largest part, our contracts are driven by PPI. And a lot of the cost pass-through happens through PPI clauses, and they remain consistent. Second of all, we have long-term contracts. And so there is really no pricing volatility. Generally, the direction of pricing on the can side is upward. And so on that front, we don’t have any real concerns of any margin dilution. In fact, as inflation is settling down, we will see some accretion in margins. Now, coming to the main point of your question, in the case of specialties, we have annual price negotiations. And just given the overall deflationary environment, which includes energy deflation, when it comes up for price negotiation, we have to get some part of it and that includes some contracts where we had a specific indexation of energy. But what I can tell you is that net-net, we do not expect any margin dilution because overall inflation with – all the settling down of overall inflation, we will still be able to preserve our margins. So, all that I want to say is that we don’t foresee any margin dilution even though there may be some price adjustment as we get into the next round of negotiations given inflation is settling down. I hope that’s a helpful answer.
Thank you, sir. That’s all from my side.
Thank you. The next question is from the line of Vishnu Kumar from Avendus. Please go ahead.
Hi. Good evening sir. Most of my questions have been answered. But just on the CapEx – capital expenditure number for full year for both Novelis and India, if you could just remind us the total number and how much has been spent for the first quarter?
So, for India, this year, we will be at roughly INR4,000 crores to INR4,500 crores. And in quarter one, we spent INR800 crores plus was spent. Dev, your guidance for this year?
Yes. So, $1.6 billion to $1.9 billion is our annual guidance for CapEx. And in the first quarter, our CapEx was $333 million. So, we expect that to ramp up as the project – as the growth projects, including Bay Minette are ramping up.
Got it. My second question is on India downstream side. What could be a theoretical number that we can do, assuming if we can put on full blast. And when the new projects kicks in from next year, I mean ‘25 and ‘26, where this theoretical number can get to?
No, theoretical…
Sorry, I meant capacity.
Yes. So, the Silvassa 34 Kt extrusion commissioning has started in the last few months. So, we will add 34 Kt of extrusion. And then the rolling capacity is 170. So, you will add another 200, we are roughly at around 400 plus now. So, in the next 2 years, we will get to about 600 Kt. EBITDA per ton is running north of $200 already. So, that’s your number.
Got it, sir. Thank you and all the best.
Thank you.
Thank you. Due to the time constraints, that was the last question. If you have any other questions, you can connect with the Investor Relations team for your future queries.
Yes. Thank you.
With this, I would like to hand over the conference to Mr. Subir Sen for any closing comments.
No, I think that on behalf of Hindalco and Novelis, we thank you all for participating in the call. And I hope, we have managed to cover all the questions that you had, and we look forward to talking to you in another three months. So, thank you.
Thank you. Ladies and gentlemen, on behalf of Hindalco Industries Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.