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Ladies and gentlemen, good day, and welcome to Hindalco Industries Fourth Quarter FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded. I now hand the conference over to Mr. Subir Sen, Head of Investor Relations of Hindalco. Thank you, and over to you, sir.
Thank you, and a very good afternoon, morning, everyone. On behalf of Hindalco Industries, I welcome you all to this earnings call for the fourth quarter of financial year '22. In this call, we will refer to the Q4 FY '22 investor presentation available on our 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 all the businesses for the fourth quarter of the financial year '22 and a segment-wise comparative financial analysis of India business and our subsidiary, Novelis. Please note that the unallocable corporate AS&D expenses, which has been used to apportion to individual business segments, is now clubbed under unallocable expense to -- or income to truly reflect individual business segment's EBITDA in the Indian operations. The corresponding segment information for the prior periods have also been restated accordingly for a comparative analysis. We have with us on the call, from Hindalco's management, Mr. Satish Pai, Managing Director; Mr. Praveen Maheshwari, Chief Financial Officer. From Novelis' management, we have Mr. Dev Ahuja, Chief Financial Officer. Following this presentation, this call will be open to any questions you may have. An audio replay of this call will also be available on our company's website. Now let me turn this call to Satish.
Thank you, Subir. Hello, everyone, and thank you for joining today's conference call on Hindalco's earnings for the fourth quarter of FY '22. Let me now start with our progress for the financial year 2022 across the various sustainability metrics on Slide 5 and 6. On the environment front, with our continued focus on water waste, air emissions and biodiversity, we have achieved 86% of total recycling and reuse of waste, 102% of bauxite residue utilization at 3 out of our 4 alumina refineries. Utkal Alumina Refinery is conducting 2 pilot pits for the reuse of bauxite residue by backfilling of mine and construction of road, of which Pit 1 is ready and Pit 2 is under construction. We have already applied to the Indian Road Congress for accreditation of bauxite residue as a replacement of natural material for road subgrade and embankment construction. On the fly ash recycling, I'm very happy to inform you that we are now within 114% of fly ash recycling this year, which means in this year, we have recycled beyond what we generated and sent to cement and other users. On water, in FY '22, we have achieved 9% and 25% (sic) [ 27% ] reduction in specific water -- freshwater consumption in terms of meter cube per ton in aluminum and copper, respectively, which is well in line with our target of 20% reduction by FY '25 from the base year of FY '19. We are also adding 1 site each year to achieve 0 liquid discharge by the year 2025. We are working on several fronts like increasing the rainwater harvesting, reducing the consumption of freshwater and ensuring zero liquid discharge at all our facilities. Till date, we have created 3.14 million cubic meters of rainwater harvesting capacity through our CSR activities. Overall, we have achieved water recycling of 16.1 million meter cube in FY '22. We are on our way of reaching net water positivity by 2050. On green cover and biodiversity, in line with the International Union for Conservation of Nature guidelines, we have implemented the BMP at 2 of our plants and mines. We are also implementing this at 4 of the other mine sites and further be implementing green belts at all our sites. And this is now spread over 5,100 acres, of which 3,300 was developed in this fiscal year. Coming to the renewable energy and safety updates on Slide 6. I'm happy to announce that we have reached our FY '22 target of 100 megawatts of renewable capacity, of which 50 megawatt solar was installed at Renukoot, Renusagar, Mahan, Mouda and Taloja facilities. Currently, 33 megawatts of renewable projects is under execution and another 45 megawatts is under finalization, which includes floating solar, wind power, renewable hybrid, et cetera. We are targeting to reach 200 megawatts of solar and wind without storage and another 100 megawatts with storage by the end of 2025. We are also working on large-scale renewable hybrid project with a third party on pumped hydro, which can provide up to 100 to 300 megawatts for our Aditya plant with connectivity to the 400 kV National Grid, targeted by December 2023. The aluminum-specific GHG emissions was recorded at 81.5% in FY '22 from the base year of FY '12. On safety, we are committed to zero harm and have been continuously upgrading our safety programs and systems to meet international standards to provide a safe environment. The LTIFR was recorded at 0.28. However, unfortunately, there were 2 fatalities of contract workmen recorded at our Indian operations in this fiscal. Coming to Slide 8 on the key highlights of our performance in Q4 FY '22. Novelis recorded quarterly shipments of 987 Kt in Q4 FY '22, which was up from 983 Kt in the corresponding quarter of last year. EBITDA stood at $431 million, down 15% year-on-year, primarily due to cost inflation, semiconductor chip shortage in automotive and short-term operational challenges. EBITDA per ton was at $437 per ton versus $514 in Q4 FY '21. Net income from continuing operations was recorded at $217 million, up 21% year-on-year, this quarter versus $180 million in the corresponding period last year. Novelis recently announced its $2.5 billion greenfield, fully integrated rolling and recycling plant in the U.S. that will support the strong demand for aluminum beverage packaging and automotive solutions in this region. Moving on to Hindalco's India Aluminum business performance in quarter 4. Our business EBITDA for India aluminum was at a record high of INR 4,050 crores, up 123% year-on-year. EBITDA margin was at 41% and continues to be one of the best in the industry. Aluminum metal sales were up 2% at 336 Kt, while our value-added product quarterly sales was at a record 93 Kt this quarter, up 1% year-on-year. During the quarter, Hindalco won the Meenakshi captive coal mine with an annual capacity of around 12 million tons to enhance our coal security. Turning to the quarterly performance of the Copper business on Slide 9. Our cathode production in this quarter was 94 Kt, while CC rod production was at 69 Kt. Metal sales was at 105 Kt, while CC rod sales were at 74 Kt, up 2% year-on-year, in line with market demand. Copper EBITDA was at INR 387 crores this year, up 20% year-on-year, on the back of higher volumes, better operational efficiencies and improved byproduct realization. Coming to our quarterly consolidated performance. Hindalco EBITDA stood at INR 7,597 crores, up 30% year-on-year. Quarterly consolidated PAT for continuing operations was at INR 3,860 crores, up 98% year-on-year, compared to INR 1,945 crores in the corresponding period last year. Hindalco continues to maintain its strong treasury balance of around $1.1 billion in Novelis and INR 16,000 crores in India at the end of March 2022. Net debt-to-EBITDA continues to remain well below 2x at the end of March 2022 at 1.36x versus 2.59x at the end of March 2021. On rewards and recognition, I'm pleased to share with you that Hindalco retains its position as the world's most sustainable aluminum company in the DJSI 2021 ranking and the only aluminum company in the prestigious DJSI World Index 2021. Hindalco has also retained its prestigious Gold Class distinction in the S&P Global Sustainability Yearbook of 2022. Please refer to the annexure of this presentation on Slide 33 for our other awards and recognitions. Turning to the broader economic environment on Slide 11. Global economic growth is expected to moderate to 3.6% year-on-year in calendar year '22 after a post-pandemic rebound of 6.1% in calendar year '21. The Russia-Ukraine war, lockdowns in China and an aggressive tightening in monetary policy by advanced economies pose downside risks to the near-term growth outlook. These concerns, however, are being tempered by the resilience in economic activity outside China, visible in the global PMI numbers and U.S. economic activity data. Rising global inflation continues to remain a concern, as broadening price pressures and firm commodity prices are expected to keep inflation elevated for a longer period. China's zero COVID policy is further exacerbating global supply chain pressures and inflation concerns. IMF has projected a global inflation of around 7.4% in calendar year 2022. Volatility in the commodity and financial markets as well as supply chain disruption are expected to continue in the near term until geopolitical tensions deescalate. On the domestic front, despite global challenges, economic activity has shown resilience due to solid fundamentals and favorable policies. Recovery in the contact-intensive service sector, increasing vaccination and gradual improvement in domestic demand is expected to support the ongoing pace of growth. The government's focus on CapEx, improving capacity utilization of the manufacturing sector, strong corporate balance sheet and comfortable ForEx results can shoot the economy to external shock. Merchandise exports have recorded double-digit growth for 14 consecutive months. And then growth in imports has also signaled firm domestic demand. On the other hand, any worsening of the external environment, persistent supply bottlenecks and spillovers from monetary policy normalization in advanced economy shall pose a downside risk to these growth projects. The RBI has projected FY '23 GDP growth of around 7.2% year-on-year. Global inflation dynamics are the driving part of inflation in India with both headline and core inflationary pressures rising in the last 4 months. Persistent global supply chain disruptions may keep prices higher for longer with some easing expected in the second half of FY '23. The RBI has projected an inflation rate of 5.7% in FY '23. Let me now take you through the aluminum industry overview on Slide 12 and 13. In calendar year '21, the global production of aluminum grew 4% to around 67.4 million tons, while global consumption rebounded sharply by 10% to around 69 million tons due to the base effect. Hence, the global markets were in a deficit of 1.6 million tons in calendar year '21. On a region-wise split, the Chinese production increased by 5% year-on-year to 38.5 million tons. The Chinese consumption was primarily driven by a sharp increase in demand for electric vehicles. This offsets the subdued Chinese construction market and lower ICE vehicle production on account of the semiconductor chip shortage. Therefore, the overall Chinese consumption grew by 6% to 40 million tons in calendar year '21, resulting in a market deficit of 1.6 million tons. The rest of the world production grew by 3% year-on-year to around 29 million tons, whereas consumption grew by 14% year-on-year to around 29 million tons due to the low base effect, resulting in a balanced market in calendar year '21. In Q1 calendar year '22, the overall world production was flattish, while consumption grew marginally, leading to a small deficit of 0.1 million tons. Talking about the region-wise split of Q1 calendar year '22, the Chinese production fell by 1% year-on-year to 9.6 million tons, whereas consumption grew by 2% year-on-year to 9.3 million tons, leading to a surplus of 0.3 million tons in China. In the rest of the world, there was some disruption in production due to rising gas prices. Despite production cuts, the overall production grew by 2% year-on-year to 7.2 million tons, consumption grew by 3%, reaching 7.6 million tons. This resulted in a deficit of 0.4 million tons in the rest of the world metal balance. As the global markets remain in deficit, inventory levels continued to decline. Consequently, the global aluminum prices continued to grow at $3,280 per ton in Q1 calendar year '22 from an average of $2,762 per ton in Q4 of calendar year '21. The rally in aluminum prices in Q1 calendar year '22 was driven by Russia-Ukraine geopolitical situation and depleting global inventory. Global aluminum prices average for the current quarter is at $3,100/ton, factoring in the impact of COVID-related restrictions in China. Coming to Slide 13. The domestic demand for aluminum in Q4 FY '22 is likely to reach 1,038 Kt, reflecting a degrowth of 3% year-on-year and a 1% growth sequentially. The demand for aluminum packaging demand continues to rise in line with the rising demand for aluminum mainly from the pharmaceutical segment. Sentiments in the real estate sector were optimistic owing to the robust residential and commercial deals and government infrastructure products -- projects like AIMS, IITs, airports, railway stations, metro stations, et cetera. Growing e-commerce penetration is also benefiting the consumer durable sector. The automotive sector continues to face headwinds due to the semiconductor chip shortage. With a record vaccination of 192 crore doses and supportive government policy, the economic sentiments are likely to improve, driving a broad-based recovery in demand across all the sectors. Moving to Slide 14. The global FRP demand is expected to grow about 6% in calendar year '22 versus 10% in calendar year '21. The market demand for beverage can sheet is expected to grow by around 5%, driven by consumer preference for sustainable packaging options and a package mix shift towards infinitely recyclable aluminum. The automotive segment is estimated to grow at 10% in calendar year '22. The mid- to long-term outlook remains robust, supported by growing consumer demand for vehicles that use the higher share of aluminum like SUVs, trucks and electric vehicles. However, in the near term, continued semiconductor shortages are impacting the automotive industry, combined with supply chain challenges on account of China's zero COVID lockdown and the ongoing conflict in Ukraine. These headwinds may impact the automotive builds in the current year. The demand in specialties segment is expected to grow by around 4% in calendar year '22, with strong customer demand across markets, including building and construction, consumer electronics, container foil packaging and EV battery enclosures. The aerospace segment is expected to grow by 30% in calendar year '22 as order bookings are now improving with the resumption of air travel and is expected to be back to prepandemic levels by fiscal year-end. The domestic FRP demand is expected to grow by 7% year-on-year this quarter, while it's expected to grow 9% sequentially. Demand remains strong in the packaging and consumer durables sector. The building and construction demand improved due to government projects. However, automotive sector continues to face some headwinds. Demand is likely to grow in Q1 FY '23 due to stable demand in packaging, consumer durables and B&C demand. Turning to the global copper industry on Slide 15. In calendar year '21, the global production increased by around 4% year-on-year, while consumption increased by 6%. In calendar year '21, production in China increased by 9% year-on-year and consumption by 5%. In the rest of the world, excluding China, production remained at similar levels on a year-on-year basis, while consumption grew by 7% year-on-year. In Q1 calendar year '21, global copper production grew by around 3.2% and consumption grew by 0.9% on a year-on-year basis. During this period, Chinese production grew by 3.8% year-on-year, while consumption increased by 0.3% on a year-on-year basis. In the rest of the world, excluding China, production grew by 2.9%, whereas consumption increased by around 1.4% on a year-on-year basis. The spot TC/RC was higher at $0.171 per pound during Q4 FY '22 as compared to $0.157 per pound in Q3 FY '22. This increase was on account of multiple disruptions in smelters, mainly driven by the temporary closure of the Chinese smelter, Zhenjiang, of around 400 Kt capacity. It is likely that this smelter shall restart in June of '22 and is likely to coincide with multiple Chinese smelters restarting their facilities post plant maintenance. The higher demand from all these smelters could have a negative impact on the spot TC/RC during the latter part of FY '23. However, with new mines being commissioned during the second half of FY '23, the spot TC/RC are expected to improve during this period. Coming to Slide 16. On the domestic side, in Q4 FY '22, the overall market demand increased by around 6.8% year-on-year to 172 Kt in Q4 of FY '21. Imports declined by around 21% year-on-year at 33 Kt in Q4 FY '22. On a quarter-on-quarter basis, the market demand increased by 6%, while imports declined by 13% sequentially. The trend of operational and financial performance for each of our business segments this quarter and that of the corresponding period of last year are covered in further slides and annexures of this -- to this presentation. But let me now conclude today's presentation with our key focus areas on Slide 30. Our focus on cost optimization, integration and ESG has helped the company deliver consistent overall performance quarter-on-quarter in fiscal FY '22 despite rising input costs and inflationary challenges. Our focus on stakeholder value enhancement is at the core with our emphasis on value enhancing growth through organic expansion across our business in India and Novelis. Our recent acquisitions in copper and aluminum in the value-added sectors during FY '22 in India as well as our growth CapEx plan are helping us reach our long-term goal. Hindalco's product portfolio enrichment continues to help increasing the share of high-end value-added products in the overall product mix to strengthen its position as the world's largest aluminum downstream company. Hindalco also continues to move strongly towards its ESG 2050 commitments and is driving towards its integral way to become the industry leader in sustainability. Lastly and most importantly, Hindalco, based on strong balance sheet, is ready to fuel the next phase of organic growth across its business. All our growth CapExes planned for the next 5 years shall be funded in line with our overall CapEx allocation framework, while keeping the overall leverage, at a consolidated basis, well below 2.5. Thank you very much for your attention. And the forum is now open for any questions you may have.
[Operator Instructions] The first question is from the line of from Sumangal Nevatia from Kotak Securities.
Congratulations on a very strong quarter yet another time. First question is to Mr. Pai. So this is a very topical one given we've seen last week the government has imposed export duty on steel. Is there any talk? Can you share any risk of any similar action by government on aluminum as well?
Sumangal, our situation in aluminum is a little bit different because we export because the domestic market is oversupplied, largely due to scrap coming in. As you know, 40% of India's aluminum is met through scrap imports. So I think if the government wants to do anything, they should increase the duty on scrap because when we export aluminum, as you very well know, the realizations are lower than in the domestic market, so -- which is why I think that it doesn't make any sense to put export duty on aluminum exports.
Yes, sir. So reason is we've got a lot of questions from investors on this. And given that they put also on stainless steel, it looks like government is looking more from a top-down rather than a bottom-up industry-specific...
Yes.
Got it. Got it. Sir, second question is on the cost inflation. If you can just share how are we seeing cost on the carbon front, on the coal front in the coming quarters versus 4Q? And what will be our coal position in terms of inventory, in terms of sourcing mix?
Yes. Yes. I was expecting the first opening ball of high speed. So yes, our situation on the cost inflation and coal. So look, I think we had guided Q4 cost inflation and we have come in at 9.5%. So Q4 to Q3, the cost increase was 9.5%. The current situation, I think, is that it's -- the rest of the cost has sort of -- they remain high. But the majority of our problems today are related to coal. So let's talk a little bit about the coal. So what has happened is that with the power demand going up, the government has diverted majority of the coal to power plants. And hence, the nonregulated sector, which is where aluminum and all come in, the domestic coal situation has become extremely tight and the e-auction premiums have shot up, which is why our situation is quite tight right now. We are not -- normally, we would have been at about 20 days inventory. Currently, we are at 10 days inventory. I have to say that it has been steady. So it's quite tight, but we are able to lift by road. And we are -- this is where I think a lot of the management time is going on coal right now. Now as far as guidance on the cost for Q1, it is -- before we had quite a tight handle. So it's a little bit difficult, but my expectations is it's going to be in the mid-teens. We're going to have another mid-teens increase over Q4 is what I can say at this stage.
Okay. And just a follow-up. I mean what will be our mix? I mean are we resorting to a lot of imports now given domestic supply is limited? And this mid-teens kind of cost inflation, I mean are you also considering carbon cost, et cetera, and that also is increasing with a lag?
All costs included, Sumangal. 15% is not just coal, everything put together.
Okay. And the mix of...
Yes, the mix -- we have, for the first time, put in a few parcels of the import in Q1. We did not in Q4, but in Q1, we have, both for Dahej and part of Utkal. So we have unfortunately started to import a little bit of coal. We are, of course, trying to ramp up our own mines as much as possible. The linkage percentages, which used to be running at around 60% of our total coal, are today running sort of 52% to 55% because even linkage, they have capped it of what they give to the nonregulated sector.
The next question is from the line of Pinakin from JPMorgan.
Sir, I have 2 questions on Novelis. My first question is that there has been some media talk about the current U.S. administration removing all the extra tariffs that were put between 2016 and '20, including Section 232. If that were to happen, how would it impact the North American market for Novelis? Midwest Premium should come off. Would it impact the margins substantially at Novelis in North America?
Dev, can you take it? I think you covered it in your call, but maybe you can repeat it.
Yes. So we are also reading the same thing that you are reading in the recent days about the President talking about, reviewing the duties that were imposed, mainly the entire dumping duties that were imposed on China. Now...
I'm sorry to interrupt, sir. We're not able to hear you clearly.
It was coming across clearly to us. Pinakin, can you hear this?
Yes, sir. I can hear him very clearly.
Okay. Just go ahead.
All right. So then -- so here is the situation [indiscernible] we don't expect anything happening on this too quickly, number one. Number two, that we are contracted for the whole of this year for sure, both on price and volume. Third, that if you simply look at the geopolitical -- sorry the supply chain situation, just the cost of importing material from China, I mean we can be paid as much as $500 a ton today to the importing material. So it's most like sort of the economics are anyway very favorable. And you know very well that the direction in which China is going, it's no longer going to be like the past where it's going to be an export-based -- subsidized export-based strategy. So for a number of these reasons, we don't expect this to be a major impact. And in any case, if at all, hypothetically, if something like this happens, there is enough safeguard because nobody here -- no administration here wants to impact local manufacturing based upon [indiscernible]. So I honestly think that regardless of any scenario, we see a limited impact of this happening or not. I hope that will -- it answers your question.
Sure. Just following up from the call in Novelis. We have got some investor confusion regarding the $2.5 billion facility and the expected returns. Now when we look at post-tax returns of mid-teens, it works out to around $1,000 per ton from that facility of 600 Kt. So is that a fair assumption that when that facility gets commissioned, the EBITDA per ton will be $1,000? Or are we misunderstanding the return profile from the project?
So I would not comment on specific EBITDA per ton numbers from the project. What I can tell you is that -- and what we have been saying consistently is that the pricing on these contracts is going to be significantly better. We are going to be seeing an exponential increase in the margin as compared to what it is today. And it is not just on the output that is generated from the $2.5 billion greenfield. We are going to get the higher pricing on all the volumes, which is not what we have counted. What we have counted in the mid-teens IRR is only the pricing and the volumes from the new plant. But the other benefit that we are getting is that we will get a higher pricing from all the plant volumes. So all that I can tell you is that we have complete confidence in the economics of the project and nobody should doubt that this project is going to be extremely attractive.
The next question is from the line of Indrajit from CLSA.
I have just one question actually. On the new smelter in India, any progress on the power supply arrangement? Any kind of time line that you can indicate right now?
No. I think that, quite honestly, if you heard, in the prepared remarks, we talked about the pumped hydro, which is the only stable power source that we can trust with the smelter. So we actually, by December of this year, get -- try to get that power and see how it works before committing to anything. What we will do, if you remember the investor call, is that some additional [ ports ] that we can add in both Aditya and Mahan, we are going to go ahead, which will probably give us about 50 Kt more metal. But any large smelter expansion will wait till we get power sorted out.
Sure. And one housekeeping question. Approximately how much alumina sales we have done, external sales from fiscal this quarter? And what would be our outlook for FY '23 in terms of alumina sales volume?
Yes. So for Q4 FY '22, we sold 216 Kt. So the whole of FY '22 was 359 Kt. I think we'll be in that 400 Kt type of sales for FY '23.
The next question is from the line of Amit Dixit from Edelweiss.
Congratulations for a good set of numbers. I have 2 questions. The first one is essentially on the working capital buildup, which is like approximately INR 8,000 crores this year. Now since we have seen the aluminum prices, I think, going down compared to Q1, so how much normalization -- how much working capital blocking we can expect in FY '23?
So FY '23, we don't expect further buildup to a large extent. See, I don't know if you're referring to the consolidated numbers or the stand-alone numbers.
No, consolidated. Consolidated.
So consol, yes -- consol, we had in Novelis because LME has shot up in this period. And the copper also in Indian business, if we are comparing year-on-year, did shoot up significantly. And that is the reason why you're seeing the working capital blockage between these 2 businesses largely. In aluminum business, we are more impacted by the cost of the -- to some extent, impacted us, but it is not such a large amount in the last year. Going forward, in FY '23, if the LME remains where it is for both copper and aluminum on a consolidated basis, you will not see much impact there. But to some extent, small impact will be maybe there in aluminum because of the higher cost of inputs depending on where they are.
When does the working capital release will happen?
So in Novelis, if the LME -- it depends on where the LME is. And if it is at today's level, for example, it has come down slightly compared to March level and there is...
Okay. The second question is essentially on CapEx. If you can give guidance, consolidated CapEx as well as stand-alone CapEx for FY '23 and FY '24.
So Dev, do you just want to give the Novelis CapEx first, then I'll just give the Hindalco India one?
Yes, yes. So just to repeat the guidance that we have given at our recent call, $1.3 billion to $1.6 billion would be our growth -- would be our -- sorry, our total CapEx for fiscal year '23. That's the number we have guided to.
Yes. And in India, we are going to be spending this year about INR 3,000 crores of CapEx. So in the investor or the Capital Markets Day call we did in March, the projects that we had announced, on basis of that, these are the numbers for FY '23.
The next question is from the line of Ritesh Shah from Investec.
A couple of questions, sir. Firstly, on hedges, how has it moved? How do you look at for the next year?
So there is nothing much. I mean the hedge position has not really moved much. For FY '23, the total position is 30% at an average of $2,500 and 14% of the rupee at 81.4. So no real movement on the hedge position.
It has only marginally increased, right? 30%, [ you are set at ] $2,500, right, sir?
Yes. I think the last set, we bid -- when we got about $3,300 or $3,400, we got the last bid, which sort of made it to around 30% with the average going to $2,500 now.
Sure, sir. That's useful. Sir, given you have indicated hedges, how should one understand the realization into next quarter? What I'm trying to understand is LME plus premium. How has the premiums trended basically? Sir, basically, if you can give some color in the next 3 and 6 months, that would be great.
I didn't get the question. You understood it?
No, no. So see, hedging -- as far as hedging is concerned, it is only for the LME. Premiums are not -- and premiums, as they move up or down, go directly into our bottom line.
Yes. Sir, the question is how have the premiums moved? We understand LME has corrected. I just wanted to get a sense on premiums...
I think the Midwest has remained -- Dev, correct me if I'm wrong, more or less at the same level and so has the MJP. So there's not been much movement of the premium.
Not much movement. It is still well into the 800. So the premiums are continuing to be strong. And we don't expect that to change anytime in the near future just given all the global situations around supply chains, lack of supply and difficulty in material movement and all of that. So yes.
Sure. Perfect. And sir, last question. Sir, if at all government had to tame inflation, is there scope for government potentially reducing import duty on aluminum as well as scrap? And if that is the case, how should one look at the impact on the company?
So look, I don't think you realize, but the aluminum that is sold in India is not sold at import parity because the domestic market is oversupplied. And hence, there is a discount to what we sell. So frankly speaking, by playing with the duty of the aluminum, there's nothing to do with inflation. Majority of the aluminum cost is based on LME plus premium. Unlike the steel market, which does not have a worldwide benchmark for pricing, aluminum has.
We move on to the next question. That is from the line of Prashanth Kumar Kota from Dolat Capital.
Sir, my questions are two. Sir, first one. Sir, broadly if you look at the business as a whole, one is aluminum; two, alumina; three, aluminum downstream, four, copper; five, Novelis. On one end of the carbon footprint spectrum is aluminum, although over there also, we are doing a lot of green efforts -- incrementally green efforts.
And the other end is Novelis, wherein we are the poster child of reducing carbon footprint for the world in terms of beverage cans, light weighting, et cetera. So different ends of the spectrum. And alumina is different. And over there, we have a very good strategy on red mud disposal, et cetera.
On the downstream side, in the past, once you'd also alluded that generally downstream businesses get good valuation multiples. And copper is countercyclic. So these are 5 businesses, just from the carbon footprint and even otherwise on the business dynamics side, somewhere is the value proposition lost. Is there any merit in trying to -- if we do something like a demerger and list separately. I just want to know your thoughts -- strategically broad thoughts.
I think it's very difficult on a call to give you broad strategic calls. But I'll give you a broad answer to say that we are constantly evaluating all options to increase shareholder value.
Understood. Sir, and what about the -- once the Meenakshi block is up and running, By when do we expect that to start producing? And by then, what will be our mix, sir?
Look, once -- I tell you -- [indiscernible] will start by December of next year, Meenakshi will take at least another year or more. Let's say, it's about 36 months from today. When both those mines are running, and we also have a mine called [ Banda ], that [ SL ] should bring on by next year. Then as I said, the amount that we will require from non-captive sources will be about 5%, because Dahej you will still have to bring because it's from the jetty. It's far away from these mines. So Utkal, you will have to take a little bit. So we'll be at about 5% from the outside. We will be completely self-sufficient.
The next question is from the line of Pallav Agarwal of Antique Stockbroking.
Can you just explain a little bit on this cash flow hedges. I think this consolidated, we have a loss of about [ INR 4,087 crores ] at the [indiscernible] level. So does this pertain to a normal hedging activity? How will this flow through in the P&L and balance sheet in FY '23?
So you're referring maybe to the OCI number.
Yes. Yes.
OCI is a mechanism which is more notional. And it is basically based on the current level of hedges and current forecast of the prices. They calculate what could be the potential loss. And that loss could turn into profit, depending upon how it actually turns out.
So OCI is purely a notional number. And tomorrow, it'll be, let's say, LME turns around and this could be -- this could turn into profits as well.
So we should -- it's only for reference and I don't think we can say for sure that this will be the loss or profit going forward.
Sure. So to understand this, so if the LME comes down, then some of these losses can reverse, will that be a correct understanding?
Absolutely. Absolutely.
Okay. But it may have a corresponding negative impact on the P&L?
No, no. So if LME turns around, then on hedges, you will not [indiscernible] much as you might gain. But the unhedged portion, then we suffer a loss because, I mean, that is not hedged and the LME goes down.
So hedging is a defensive strategy for us. It ensures a certain level of realization. And when you look at losses or profits, you are looking at the market opportunity in comparison to that.
So let me -- the other simple way is that, as I said, we have 30% hedged at 2,500. This 30% is hedged over April to March of this year. So every month as it gets unwound, the difference between the current LME and the 2,500 is that negative that you're seeing, which will get coming into the P&L.
Sure. We are -- as a matter of policy, do we go above 30% or is that something that you say at? Is that a number that's fixed?
No. So the 25% to 30% is our defensive position that we take for the following year. So like, for example, by October of this year to December, we would want to take the defensive hedge position for FY '24.
Now during the current year, if we see the opportunity of getting any spikes or anything, we can increase beyond 30. But generally, the defensive position that we have communicated and we stick by is the 25% to 30%. As I just told you, it went from 25% to 30% because we got the last 5% in Q4 at a very high LME, that is what we grabbed.
The next question is from the line of Vikash Singh from PhillipCapital.
In the past, you have given us a metric like every $100 LME coming down release roughly about $60 million of working capital in Novelis. Do we have similar metrics that every $100 Midwest premium coming down, how does it impact our EBITDA?
Dev?
So these are not numbers that we gave out publicly. But what I can tell you is that the way the metal for -- sorry, the way premium impact us is that we have hedges on LME at a premium given it's primarily exposed. We don't have any hedging mechanism on the premium.
So what you see in our result is a big metal price lag impact last year, yes? If metal prices come down, we will see the other way, we will see metal price lag becoming a negative factor.
So really, it is not an EBITDA sensitive thing largely. The largest part of that is really the metal price lag impact because of the unhedged premiums that we have. Now on the other side, to be completely sort of open that when prices come down or when the premiums come down, it also impacts a little bit on the spread side, and that's the overall reduction in the price of metals.
So basically [indiscernible] impacted now. These are not the numbers that we disclosed publicly. What I can tell you is that we will watch for the metal price lag. For the time being, we don't see any big impact. And the premiums are going to be steady and strong at some point there will be some correction, and we have to be ready for that.
Understood, sir. Sir, in terms of our total growth CapEx, which we have planned roughly about over INR 8 billion, how much of this is committed basically? What I want to know that even if the global growth softens, how much of this CapEx, what percentage you will still go ahead in terms of commitment?
So look, let me first give you a little broad answer on that. This -- we have run a 5-year scenario using very, what I would call conservative assumptions to satisfy ourselves that this CapEx can be done with internal accrual. So that is point number one.
Point number two on what is committed in the Novelis side, the EUR 2.5 billion just got committed as we announced it. And on the India side, we have got about INR 3,500 crores -- INR 3,000 crores is actually committed.
But assumption for the 5 years have not -- have been done with what I call historically conservative numbers because we have done what you may call a stress test, just to convince ourselves for about the question you asked. So even if we go through a little bit of a downturn, especially on the commodity prices, that can happen, we wanted to ensure that we can do our CapEx plan with our internal accruals.
Of course, many of the projects that have not been approved can always be shifted out a little bit.
Understood, sir. And sir, just one last question -- sorry. Please go ahead.
Yes. On the economic downturn question because if you confirm is what happens in case of an economic downturn, I think that the clarity that we need to give you is that we are today out of capacity when it comes to beverage cans.
Now our assessment is to expect the market to be growing much, much, much more than what we are expecting. I mean our baseline growth is more like 3% to 4% on the conservative side, customers are expecting it to be much stronger. And cans is a countercyclical business.
So even if you say worst case scenario, if the growth is like 2% hypothetically. I mean nobody is looking at that scenario. But even if it that we don't have any capacity.
So you can see that a good part of the investment we are making is catering to the growing can market where anybody don't have capacity. So downturn or no downturn we will need more capacity regardless. So you just need to kind of keep that at the back of your mind.
Understood, sir. And just one last question. If we already reached our bottom debt or since we have the CapEx plan going ahead or there is a potential for the debt to come down further?
No, I think that, again, we covered that in March. For us, in Novelis, there is a small $300-odd million of term loan left that will get paid back. And in India, we had said that the INR 6,000 crore bond that is coming due, we will pay back and about INR 2,500 crore of long-term loans. So the last remaining debt reduction will be largely in India of INR 8,500 crores this year. But on the Novelis side, we are more or less done. Our net debt-to-EBITDA commitments remain firm there, and we are going to put the cash generated into organic growth CapEx.
Thank you. The next question is from the line of Kamlesh Bagmar from Prabhudas Lilladher. Please go ahead.
One question on the part of Novelis, like we are highlighting that there would be a big supply-demand gap. But if we see in 2003 -- 2023, a lot of supplies are going to come up there. And apart from that, like I wanted to know like how much of our contracts are going to get reset or repriced? And like this EBITDA run rate which we are guiding, like the $500-odd plus levels. So how that would pan out over the coming years?
No doubt you have guided like say, mid-teen IRRs on the new project. Now let's say the situations improve from these levels or back to pre-COVID levels, let's say, are we in the position to generate an EBITDA pattern of $600, because like over the last couple of years have been volatile, but as things improve what on that we are looking at, because that is the guidance really required from you sir.
I think I'll let Dev answer. But look, I don't think we can give you an EBITDA pattern guidance over the next 5 years. But I'll let Dev answer your overall question on supply-demand?
Yes. So a couple of things: one, for all the new expansion, particularly the 2.5 that we have just announced. We have it all backed up by contracts, and these are volume and price contract. The market is very, very constrained. I mean we are in the situation where anything that we produce today like the customers want it. So the market is already constrained and will continue to be constrained for the next many years. Actually, there is not enough capacity even despite this expansion, right.
So really speaking, we don't expect any kind of an uncertainty around the ability to sell this capacity. You may have mentioned that you expect a lot of supplies to come in '23. I don't know where that information is coming from, well, there are not going to be many new sources of supply in FY '23. But really to keep it short, the market is conceivable, continues to be constraint to your point about future EBITDA. I mean will not talk about long-term guidance.
All that I can tell you is that there is a lot of earnings potential coming ahead of us. And for the time being, let's just stay at about $500, but there's a lot of earnings potential that would come as some of our expansion get commissioned.
But [indiscernible] so confident about mid-teen IRRs on new CapEx, which is going to come up let's say roughly around, it would be free operational 5 years from now. So can't we have the visibility for 1 year down the line?
So, look, we are, I think from a guidance point of view, we are maintained that we will have $500 plus, which is what Novelis has said. And the reason why we stick with this and not give exact numbers is because the market environment can be quite volatile. You have geopolitical issues going on. You have supply chain issues going on, you have semiconductor chip shortages coming on. So to give a guidance like that, then I'm going to ask, am I -- can I conclude that there's no more semiconductor chip shortage, et cetera, which is why we give you a guidance saying that we are quite confident in the mid- to short-term, and we are quite confident that we'll make that $500 plus. I think we cannot go beyond that to give an exact number.
And lastly in India, like in aluminum value-added here is around, roughly around 28-odd percent mix. So how do we see this mix going forward over the next 2, 3 years?
Sorry, what 28% mix?
Yes. Yes, that like value-added products in -- or a downstream in aluminum India.
So aluminum India out of 336 kt we sold, 93 was value-added. Okay. So it's now running at roughly 100 kt a quarter, and our production on the prime is about 330 kt a quarter. So we are at about 33% types and the expansions that we have announced to Silvassa extrusion, which is another 30 kt will come online by sometime early next year. And the FRP expansion actually will take 2 more years, which will add another 170 kt. So these are already publicly announced projects.
And when do we plan to give breakup between downstream and upstream EBITDA and those periods?
Very soon.
The next question is from the line of Ashish Kejriwal from Centrum Broking.
I am [indiscernible]. Sir, my question is on [ world cost curve ], we have seen that world cost [indiscernible]. So given after this decision of increase [indiscernible] number?
Sorry, you're breaking up. I got up to cost curve, you want me to quantify what?
What's the first quartile of the world cost curve right now?
I do have -- if you take the CRU, you will probably get that number what the first quartile is. We know we are in that, but I will -- I think we'll give you the CRU cost curve.
Okay. I'll take it once [indiscernible]. Second is on the coal cost...
Sir, your audio is not clear. Can you have your handset mode while speaking? Or if you could get into an area of connectivity...
Is it better now?
Yes.
I was looking at [indiscernible] now, you mentioned that our 15% increase in cost of production in FY'23 first quarter mainly is because of the coal cost. So a...
Yes, I think we lost him.
As there is no response from the current participant we'll move on to the next. [Operator Instructions] We'll move on to the next question that is from the line of Tarang Agrawal from Old Bridge Capital.
Two questions. One on Novelis to an earlier participant's response, they suggested that procurement volumes are contracted for the year and so are the prices. Did I hear it correctly?
Dev?
Yes. So if it was in the context of the duty question, I was talking about the yearly volumes, which would be the impacted part. I mean the antidumping duties are essentially relevant for the specialty business. So yes, what I said is that for the specialty business, we have annual contracts, and so the volumes and the prices are contracting. So it was in that context. I mean for our other businesses, of course, there are longer-term contracts to be clear.
Got it. The second question is the TC/RC charges for the year that went by and for the upcoming year?
The TC/RC in the year that went by was 15.5 -- let me give you the number. 15.3. And the current year TC/RC benchmark is 16.7, which is an increase of 9% over last year. These are calendar year numbers by the way.
The next question is from the line of Bhavin Chheda from Enam Holdings.
India, INR 3,000 crores CapEx is including a maintenance CapEx or this is a growth CapEx number?
Including maintenance.
The next question is in the line of Vishal Chandak from Motilal Oswal Financial Services Limited.
Sir, my question was with regards to your continuity of CapEx. Do you have [indiscernible] mentioned that most of your CapEx would happen through your internal accruals. And on the second hand, you've also mentioned that your threshold for your net debt to EBITDA would always be around 2.5x. So currently, the net debt to EBITDA stands at about 1.4x. And I'm not sure if your net debt also includes working capital if you may kindly clarify that as well. So is it fair to assume that in case your earnings falter because of the commodity cycle, you would still continue with your CapEx trajectory and raise debt to the extent of hitting the 2.5x for internal ceiling?
We just said raise debt. No, we will only be funding our CapEx through internal accruals. Yes, I confirm that. And I keep saying that we have, at this stage, committed like in Novelis, the $2.5 billion project in Hindalco, the FRP, Lapanga and the remaining CapEx projects, we have the flexibility to decide when we started, if we do get into, I don't know, severe trouble with the earnings.
That's pretty clear. So that implies that in case commodity cycle goes down below our threshold levels, there is a possibility of deferring the uncommitted part of the CapEx?
Yes. We will not allow the net debt-to-EBITDA to go above our guidance. And at this stage, we have no plans with the CapEx that we have announced to add any debt to finance that.
And lastly, the debt number that you have included in the presentation also includes your working capital debt or it's only part of the long-term debt.
It includes all debt, including working capital.
The next question is from the line of Samuel Chen from AllianceBernstein.
Just one quick question. This is regarding the potential renewable power that you guys are evaluating. I'm not sure this is mentioned in the previous call, is there any possibility to reveal the potential size of that power? Maybe just a range? That would be great. And also -- let's assume if that, just assume for the moment, the plan is -- everything goes well. Relative to your existing smelter operations, where is this potential plan in terms of cost curve? Thank you.
No, I think that a, the potential of the pump hydropower theoretically, the numbers are quite large. But what we want to ascertain is the load -- plant load or the loading factor at which we can get it, because the problem with renewable is people will tell you 70%, 75%, 80% load factor. But that is over a period of 1 year, and there are times when they can go down to 50%.
So which is why this pumped hydro promises more than 90% steady. So we want to take the first 100 megawatts at Aditya, the existing plant to check out the viability. And once that viability works the price of that power is not going to be much higher than what we have for our thermal coals. So it's not a cost-driven issue. It is more from getting a green power, which is driving our thought process.
The next question is from the line of Satyadeep Jain from AMBIT Capital.
Just a follow-up to the questions around the CapEx. On the India smelter-1 that you outlined brownfield 180 kv. First of all, the capital intensity seems a little higher for a brownfield standalone smelter of almost $4,000 per tonne if you look at $685 million for 180 kv, what is driving that kind of capital cost inflation for a brownfield standalone smelter?
And tied to that would be the decision to ultimately go ahead with it. This is still under review as per the presentation at the Capital Markets Day. Now you also have, I believe, finalized the pump hydro contract. The decision to finally give it a go ahead or not will be predicated on the economics or aluminum price? If aluminum prices don't pan out in a certain range, what do you look to just not go ahead with the project? And those are the 2 questions on smelter.
So let me say that first, the current priority is our downstream projects that we have already announced, and that's where the next 2 years CapEx is going. Point number two is that we will get this power, hopefully, by December of this year, and we're going to try it out for at least 1 year to see how the stability cost, everything goes. So I think that we have at least another 2 years before we do anything with this smelter. So I would not honestly spend too much time worrying about smelter expansion at this stage.
Okay. And the capital cost for that smelter?
So the capital costs, I don't think it's a very high intensity. Those are the current pricing. If you actually look at most equipment and pricing now, it is relatively on the higher side compared to the [indiscernible]. This is a sort of a budgetary allocation we have taken, but it's not out of the WACC, is all I can say.
Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.
Yes. Thank you. I think that -- thanks for the attention. I just wanted to reiterate that fundamentally, whether it's Novelis or Hindalco, we have a very strong operational base and a very strong balance sheet now. So I think that demand looks very good. We may have macroeconomic uncertainties, cost inflation. But I think that we are quite confident that we will be delivering steady and good results going forward. So thank you very much for your attention.
Thank you. Ladies and gentlemen, on behalf of Hindalco Industries Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.