Our first question is from the line of Sumangal Nevatia from Kotak Securities.

My first question is, sir, with respect to the copper division. So if you can just elaborate, what are the drivers for such a strong performance? Is it value addition, by -product credits or better TC/RCs? And should we extrapolate this sort of run rate of both volumes and profitability in the future?

So I think that it's a combination of all. It's certainly not higher TC/RCs because TC/RCs were not that high because we bought concentrate which were more richer in gold. So I think that the higher thing is because of higher volumes. So we took the opportunity of a higher market demand. And besides our cathodes, Sumangal, we also imported cathodes and converted to rods. So if you look at the sales volumes that we achieved, these contributed to this very strong quarter, besides the other value streams that we have, which is gold, silver, sulfuric acid, et cetera. Now on the run rate going forward, I think that we would stick to a guidance of INR 500-550 crores a quarter. I would not extrapolate from the INR650 crores.

Yes. I think that, first, the coal cost Q1 to Q2 was 15% down sequentially. So our cost of production was down 6% Q2 to Q1. Now in the month of October what -- September, October, with power demand again going up, we have started to see spot auction rates coming up again. So we have looked at the mix of coal and the other input costs. I think coal is going to be slightly up in Q3, but some of the other input costs are continuing to trend down, like caustic, furnace oil, CP coke. So what we are guiding now is that in Q3, you should see a flattish cost of production versus Q2.

Understood, understood. And just one last question. Last quarter, sir, you said your outlook in aluminum prices, and you set a range of 21 to 23, and looks like the prices is stuck in this range. Incrementally, are you turning more cautious or bullish given the recent development of maybe Chinese weak demand and offsetting by some production cuts in Yunnan? Any incremental update on your thoughts on medium-term price outlook?

So look, what is clear to me after the London Metal Exchange week is that demand for aluminum in China remains quite steady. So any down in the demand due to B&C seems to have been more than made up with solar and electric vehicle aluminum demand. So I think that if you look at the supply-demand that I had in my prepared remarks, China is in a quite a big deficit for the metal. And in fact, it's being made up by the Rusal metal coming into China. So I personally believe -- and now Yunnan, again, the water ha s got less so they have had to announce production cuts. So I think that, personally, the market seems to be very sensitive to any remarks coming out on either the Chinese economy or interest rates. So I think that till things settle down, I stick with our guidance of 2,100 to 2,300. I still believe that supply and demand remains very tight and that any clearing up of the macroeconomic environment, you should start to see a positive trend in the prices.

Our next question is from the line of Indrajit from CLSA.

Two questions from my side. Following on from the earlier question, given that you are still positive on aluminum price outlook, any change in thought process or what is our current hedging in -- for FY '25?

Good question. So, what we did is -- we don't believe that this is a time to take a forward position. So what we did for FY '25 is that we actually hedged around 5% taking a zero collar, the bottom at 2,200 and a ceiling of 2,517. So it's a -- we hedge for insurance, not to take a forward look. So for next year, we started at that 5%, taking this collar. So at one hand, we are protecting the downside at 2,200. And of course, we are accepting a ceiling at 2,517. So that's what we have done for next year, Indrajit.

Yes. We don't give that out, Indrajit. I'm quite sure with your model, you can back calculate, but I -- we don't give out the exact cost of production number.

Okay. Then I'll put it differently. At current levels, is there either a 2Q or a spot basis, where are you on the global cost curve?

So look, we are firmly in the first quartile. And Aditya, Mahan, Renukoot are fully in the first quartile. And Hirakud the only one which is sort of on the right-hand side. So as a consolidated Hindalco, we are firmly in the first quartile and well to the left.

Sure. One last housekeeping question. If you can give the quantum of alumina sales…

Yes. This quarter, we sold 138 Kt of alumina. I just wanted to remind you that our brownfield expansion of 350 Kt is now on stream. So I think you will start to see third-party sales in Q3 and Q4 being at a higher level.

So we are not looking to take some shutdowns in the earlier legacy refineries?

No. We'll evaluate that because what is happening in Muri is that even though the cost is higher there, we are not using it for smelters. We are actually selling it into the third-party market where there's a good demand for hydrate.

Our next question is from the line of Amit Murarka from Axis Capital.

On alumina, so you have mentioned that you plan to set up this 2 million ton facility. So could you just provide some more details around that, like -- as to when will that come up exactly? And will that be fully for market sales? Or you plan to kind of back it up with some smelter capacity as well in the future?

So look, this Aditya alumina refinery is actually a very old project. And we had actually put it on hold because the -- we did not have the bauxite mine security. Now what has happened is that with the Odisha government, we have signed an MOU to get that bauxite supply. And hence, we are putting it up because we think it makes great economical sense. I think that the first 1 million tons will go in 2 phases: 1 million plus 1 million. The first 1 million is around slightly below INR 6,000 crores of capex that will come up in the next 36 months. Because we already have the land, we already have the environmental clearance, we have already done the public hearing, so that's done. Now we -- our current plan is to sell it in the third- party market. As you rem ember, I have frequently reminded that until we try out the 100-megawatt of round-the-clock power in Aditya for next year, we will only expand aluminum capacity when we have more renewable power in the mix. It will not be coal-based.

Sure, sure. Got it. Also, regarding the Chakla coal mine, I believe you had said that this will start operating in October '24. So those time lines are still holding or we should...

Okay, okay. And any update on Meenakshi?

The good news is we won Meenakshi West, which we have got notified and we'll start to work. On Meenakshi itself, we are still awaiting the CBA land issue. We are optimistic about it, but we do not know when that will come. But the next door mine, Meenakshi West, we bid on it and we have got the order and things like that. So we'll take a call -- if we get both mines, we will take a call on probably to keep Meenakshi. But at this stage, we are worki ng with Meenakshi west.

Our next question is from the line of Amit Dixit from ICICI Securities.

The first question is, if you can detail about the coal sourcing mix in this quarter?

Yes, sure. So the coal mix impact, we had very good materialization of the linkage. So linkage coal was 53%, e-auction was 40%, own mines were 5%, and import and others were 2%. So I think that this was the mix that we had. And as I said, our coal costs were sequential ly on a consumption basis down by 15%.

Sir, going ahead, since the Coal India’s production is continuously increasing and they are also satisfying power demand fully, you expect a further materialization now -- further higher materialization of linkage? Or 33% is something that we are looking at the optimum level?

No. You see 53% towards of our mix. Our materialization of the linkages were nearly 90% this quarter. That's why we could get the coal costs down. So they are giving -- whatever linkages we have, they're giving -- in Q2, they gave a good materialization. As I said, towards the end of September and in the month of October, the temperatures still were very high, the power demand in India was high. Then they again started to divert coals to IPP, which is why the spot auctions in October, again, premiums jumped up. So that's why we are a bit cautious and we are saying that in Q3, coal price could be a little bit higher. But we'll balance it up with the lower input costs from the other side, and we are guiding for a flat cost of goods production.

Okay. That's very helpful, sir. The second question is on the note number nine of the consolidated financial statement wherein you mentioned that in October '23, you have decided to close the cold-rolled and finishing line in the U.S. So just wanted to understand the -- what are the typical products for which segment they are being closed down? And when you have mentioned that the total expense would be $25 million to $35 million. Some of it is accelerated depreciation. So just wanted to understand the cash outgo out of the $25 million to $35 million.

You are talking about the shutdown that we have announced of our plant in Clayton ?

Guidance is that the cost of shutting down could be $20 million to $25 million. It's in one of the notes. So, Dev, if you can just give an update on that.

Yes. So yes, I wasn't able to hear the question earlier. But basically, just as a full background. So this is a plant which economically simply does not make sense because of the kind of products we are making there. We don't see any future. It's an old plant with high fixed costs. And so most of the impairment or write-off is going to be basically book value of assets. And it's going to be a couple of million of severance costs. So it is simply good economics and just makes sense to get the Facility to closure. As we announce the next quarter, we will give some more details. But the headline is that these products don't have too much of a future. They are in a highly competitive segment. Fixed cost is -- fixed cost savings is going to be extremely good in order to sort of really quickly pay back on the onetime cost that we are going to incur to close the plant. That's really what it is.

Are there any other sites that might be in your radar at this point in time that are having high fixed cost and uneconomical product that you might decide to close later on?

Well, we keep looking at it. I mean there is -- we always keep looking at rationalization opportunities. And so it's like never say no. This is a continuous evaluation that we keep doing based upon market, based upon sort of really what makes sense in the overall strategy. So at this moment, this is what we have, but it's a continuous process of review.

Our next question is from the line of Satyadeep Jain from Ambit Capital.

Just a follow -up on the alumina question, Mr. Pai. It seems like the company is increasingly going along alumina. What's the strategy or thought behind that? Do you see a shortage of alumina globally? Do you think the mines, the facilities you're looking at could be maybe lower cost compared to some of the other refineries? What's the thought process behind? Will you already long alumina and you're going further long. That's the first question.

Yes, good question. I think that what we look at is a fairly regional market, largely taking the Middle East smelters into view. So if you look at the whole spectrum from EGA to Sohard, to Alba, I mean, for us to sell about 1 million to 2 million tons of alumina in this market. And we found that the pricing we get is linked to -- indexed to LME. And as you rightfully said, the cost of production of alumina that we can achieve, there is a very healthy return on these investments, so which is why we are doing it.

So on this new facility you're looking at and the new OMC, just tied to that would be there is no further potential to expand Utkal? And also the Baphlimali mine that you have is one of the cost- competitive advantages you have in producing alumina at Utkal. Would you not have capability to use that mine? And if not, would OMC mine also have similar characteristics to be able to give you that kind of advantage?

No. See, the issue with Utkal is we started, I think, the 1.5 million tons when we originally set up Utkal. Today, its capacity is already 2.5 million tons, so 2.5 million tons into 3 million tons. So what is getting clear is that if you keep expanding in Utkal, the Baphlimali mine will run out very fast. So we wanted to preserve at least a certain mine life in Baphlimali and open up a new source of bauxite. This is really looking into the next 10, 15 years for the company, so which is why we did as much brownfield expansion, which is nearly 1 million tons we added to the Utkal capacity. And we think the time is right now. And by the way, as I said, it's not a new project. This was always in our plan ever since I joined Hindalco, but we didn't have that bauxite security, which is why we waited until we got that do this project. And alumina certainly seems to be a pretty safe investment and a good return right now.

Okay. Just one quick question on the linkage coal. I think a couple of quarters ago, you mentioned the 3 million ton of tranche 2 and 3 that expired, and you were in the process of auction, and maybe they will get settled by 1Q. What's the update on those auctions that we got those 3 million tons back?

Yes, yes. We got tranche 2 and tranche 3. In fact, now we are focused on tranche 4, which is going to expire in January of next year and the upcoming auctions and all to secure that. So tranche 2 and tranche 3, we got and we got it at reasonably good prices. I mean it's slightly higher than what we had but not much.

And how much is tranche 4?

So tranche 4 is another 3 million that will come up in January, largely in the NCL region. And we are working on securing that now.

Wish you all a happy Diwali.

Yes. Thank you.

Our next question is from the line of Kirtan Mehta from BOB Capital Markets.

Going back on alumina, do you plan to enter into any long -term offtake agreement with the Middle East smelters that you're talking about? Or would you largely follow the spot model?

No, no. We will do -- we have already been with the expansion that we did in Utkal. We are signing annual to bi -annual contracts, which are indexed prices to LME. You get a percentage of LME price. So we will be doing a reasonable amount of longer -term contracts. No, we will not be doing -- trying to sell 1.5 million tons on the spot market.

Right. Another related question was we have seen sort of the alumina capacity expansion in China and effectively, China turning into sort of an exporter rather than an importer. So looking forward over, say, 5, 7 years, do we expect aluminum market to still remain in deficit globally with...

See, it's a little bit, as I was trying to explain, of a regional play. I don't think that China will become a big exporter of alumina per se. I do know that they are sending a lot to Russia now to Rusal. But for us, the market that we are looking at is really the Middle East. And the Middle East, we will be tying up with longer-term contracts, which they're quite happy to do.

So these are just MTM gains and losses on the cash flow hedges, which is the hedging that we take. And this basically reflects the movement of LME or the currency, depending upon where the hedge lies. So this just goes to the other comprehensive income, and it does not have a direct impact on our P&L because it can change next quarter again.

This is the 5% hit that we have taken for 2025 or the 25% hedge that we had for '24? Corresponding entries are here marked-to-market?

It is for all the existing hedges that exists on the date of the balance sheet or, let's say, the quarter end.

But apart from the aluminum price hedges, do we hedge any other component as well?

So basically, it's LME. Then we have currency hedges in certain cases, then we have sometimes the furnace oil. So those are the hedges that we typically take, commodity hedges basically.

Is it primally for the India operations? Or is it all for Novelis as well?

So it includes Novelis as well because Novelis also takes hedges. These are offset hedges typically for their operations because they deal with aluminum.

Our next question is from the line of Pallav Agarwal from Antique Stockbroking.

So the first question was on the Novelis term loan that we've taken. So given that interest rates are going up, so is it that the new borrowings are at a higher rate of interest than the earlier one? So what exactly is the rationale for this new borrowing?

Actually, that's at a more favorable spread. It's floating, right? So you are right that right now, SOFR and in general, interest rates are at an elevated level. But as far as the spread goes, we have refinanced our $750 million at a more favorable spread on SOFR. We also believe that sometimes starting middle of next year, interest rates will start coming down. But to your precise question, this has been refinanced on slightly more favorable t erms. And the rationale is basically that this term loan would have matured in early 2025. So we just wanted to refinance it well in time. So that's really what it is.

The existing loan was also on a SOFR plus X basis points.

Exactly. So it's had a more favorable spread on SOFR, basically.

So given that our credit metrics have improved substantially, so I guess that would also help get a more favorable rate of interest?

Yes, you can say that.

Sure, sir. Sir, the other question was on the alumina expansion. Now if I look at probably the Chinese cost of production of alumina is probably north of $300. So whereas we have very competitive cost of production at the Indian facilities. So is that som ething of an arbitrage that can sustain going ahead as well?

Yes. I think the Chinese alumina -- the existing alumina they have is boehmitic. So it's not -- the high cost will remain. And then they have to bring in bauxite from Australia and out. So -- but you see, it's not a market that we export to. So the difference in alumina costs will remain, but it's not something that was a part of our decision-making. I repeat again, we looked at the market in the Middle East and which we are already selling to now based on the excess long alumina position we have.

Yes, yes. But that set that probably helped support global alumina prices as well, right, so the Chinese...

Yes. So -- and the way our contracts are built is as a percentage of the LME aluminium price, so normally running at roughly 14% or 15%. So it is also linked to how aluminum moves.

Sure, sir. So also, if you could just throw some more color on the aluminum pricing because crude oil has come off significantly from the recent highs. So even though it's winter and probably natural gas prices could go up, but how do you see the energy cost push playing out in the short term with respect to aluminum prices?

So -- I'm sorry, I didn't get your question. Energy costs in India or in Europe?

Globally. I'm talking about crude oil prices have declined pretty sharply off late. So would that offset some of the cost push from higher natural gas prices?

Not really. I mean we see crude oil comes down. The linkage for crude oil to us is a little bit of a linkage to the furnace oil, and furnace oil prices are also coming down, which is why I said in our Q3 cost/mix, even if coal goes up a bit, CP coke, furnace oil, caustic prices are down. So -- and the natural gas prices, the only effect for us is Novelis in Europe, which has no real linkage to crude oil prices. That's going to depend on how severe the winter is there.

Our next question is from the line of Rajesh Majumdar from B&K Securities.

Sir, I had a couple of questions. One is on the working capital side. We have seen a release of working capital in this quarter, which was aided in our capital expenditure. So what is the outlook for that and whether we can see the same kind of run rate to complete all expansion project on time?

I'm sorry, I was on mute. So we have a pattern where in the first 6 months of the year, we build inventory and we basically have use of cash when it comes to working capital. And in the second part of the year, most pronouncedly in the fourth quarter, we have a big release of converting capital primarily because of inventories going down. So we build up using capacity in the earlier part of the year while shipments are more weighed towards the end of the year. And so we have a release of working capital. So basically, what has happened this year is that there is a use of cash. And the use of cash is related to buildup of in ventory, number one; number two, it is reduction of payables. Because we had purchased metal and we are now processing that metal and we are not replacing that metal, and so therefore, they don't build new payables. So that is really the dynamic. So it's basically a seasonal dynamic that happens. In short, that's really what it is.

Right. And sir, at the company level, what is the guidance for capex for the next 2 years?

So look, I'll go ahead and -- Dev give the Novelis and I'll give the India. Go ahead.

Yes. So basically, at the Novelis level, we expect the capex now to be much lower than our earlier guidance. We expect the capex to be in the $1.6 billion to $1.8 billion and most likely, it will be at the lower end of the range. So basically, that is what we are at right now.

Yes. And I think for India, this year, we will be between INR4,000 crores to INR4,500 crores. I think that for the coming year, we'll give you that guidance probably in the February call once we firm up our plan.

Okay, sir. And sir, my last question on what is our cost of production of alumina and the current realization you've made for this quarter, alumina.

We don't -- both for aluminum and alumina, we don't give you our cost of production. That's a little bit of a competitive information.

But alumina also, you are in the first quartile? I'm just talking specifically the merchant alumina business in terms of COP.

I think in alumina, it's not just the first quartile, but the number one rated lowest cost in the world for the third-party market we sell from Utkal.

And could you share the realization for 2Q for aluminum and alumina that you can share in dollars per ton?

Yes. I mean the NR realization for -- I think for alumina, it was in Q2 was about $337 per ton was the metal bulletin price in Q2. And th e aluminum NR for the quarter -- you, guys, have it handy? It's INR199 per kg, the net realization of aluminum.

Our next question is from the line of Aditya Welekar from Axis Securities.

On the aluminum downstream side, sir, do w e expect higher shipments next year as our Sambalpur FRP will come online? And also correspondingly, our EBITDA per ton will improve because in this quarter, it was almost flat sequentially despite the shipments rising by 15%.

Yes, we are runni ng at about $220 per ton. So what will happen is that the Silvassa extrusion , which is a 30 Kt expansion we did and is ramping up, you will see all 30 Kt of that come in next year. The Sambalpur 170 Kt of FRP will start sometime end of next year. So you wi ll only see that the year after.

Understood. One -- and the last one, if you can just confirm on the commissioning date of Bay Minette facility? And will it ramp up to the full 600 Ktpa once it gets commissioned? Or it will have some ramp-up time? And do we have all the downstream facility to consume that 600 Ktpa?

Yes. So the commissioning time frame is late calendar year 2025. That is what we guided to last quarter as well. The 600 Kt, we have all finishing equipment to be able to supply primarily the beverage packaging and the automotive markets.

Ladies and gentlemen, that is the last question of our question-and-answer session. I would now hand the conference over to Mr. Pai for closing remarks.

I just wanted to again reiterate that we had another steady quarter with great performance coming from Novelis, the Copper business in India. And based on a good cost of production performance, the upstream aluminum business, even though LME was down 5% we improved the EBITDA margin Q1 to Q2. So with that, I thank you for your attention, and wish you all a very Happy Diwali. 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.