Hindalco Industries Limited analyst Q&A

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions]. Your first question comes from the line of Sumangal Nevatia with Kotak Securities. Please go ahead.

Yeah. Good evening and congratulations on a very strong set of numbers. A couple of questions. First one, I just want to understand the hedges better. We understand the aluminium part. So the currency part, when you're saying 14% of the currency is hedged at INR 90. So is this broadly the right understanding when we say that, say, half of the alumin ium hedges, the dollar is also fixed, currency is fixed, and half will be at the spot currency rate for the 30%?

And the currency is full India level or only aluminium?

No, it's at the India level because it's a R upee. But it's with the hedge accounting, it will be towards the aluminium sales. It won't be applied towards copper.

Okay, alright. Okay, that's clear. On overall, on the cost, can we share what is our outlook on the aluminium cost of production going up or down in the coming quarters? And with respect to the coal mines, given now we are very close to commissioning, is it possible to share what sort of volumes we are expecting in FY27, FY28 from captive coal?

So on the cost first. In Q4, the costs were up 2.5%, 2.4% versus Q3. And in Q4, we were just starting to see the impact of the war. So I think in Q1, we are anticipating a 5% increase over Q4, and the majority is driven by furnace oil. Furnace oil prices have really gone up high, followed by CP coke and pitch, but furnace oil being the biggest one. The coal prices are more or less still under control. So we think that Q1, we are going to see about a 5% inflation in cost versus Q4. On the coal mines, we did the box cut of Bandha, but it's a very high strip ratio, so you're goin g to see first coal only in FY 28. Chakla, we are expecting to box cut in the next 2 months and the first coal may start to come from Q4 itself. So that's the plan on the mines.

Okay. So '27 also given it is back ended, very minimal incremental volumes from captive coal, right?

That's correct. You're going to see meaningful coal starting to come in only in FY 28. And that too Chakla will be the main one because Bandha has a high box , high strip ratio. It will take us a while to ramp up the production there.

Okay. And just one last question. For the Aditya Refinery, which is coming up, is the margins completely linked to the index alumina prices? And at the current spot levels around $300, what sort of margins do we expect from a thumb rule perspective from specialty alumina?

No, it's nothing to do with the specialty alumina business, there are two bits of it. Some part of it is linked to the index, some part, which is especially the very high value-added VAPs are not linked to it at all. So, in our specialty business, probably roughly 50% is index-linked and 50% is value -added, which is not linked to the index. So as the precipitated hybrid project comes in and other, slowly, our plan is to move the specialty business completely away from the index-linked business.

The next question comes from the line of Pinakin with HSBC.

So, my first question is the copper EBITDA rose sharply Q -on-Q, and you highlighted higher sulfuric acid prices. So just wanted to understand the sulfuric acid prices have gone parabolic. So, does Q4 reflect the entire surge in sulfuric acid realizations? Or should more of it come through over the next 2 quarters?

So, Pinakin, the sulfur prices are up largely because of the conflict in the Middle East. So Q1 prices are looking slightly higher than Q4 as well. But I wanted to caution that the moment any Strait of Hormuz opening or thing comes, then you will have to see there will be a correction in the sulfur prices because they're really high right now.

My second question is FY26 capex was INR31,619 crores, primarily given the surge in capex at Novelis. Now can you give us a sense of the consol capex across India and Novelis over the next 3 years, how it will play out between the two businesses?

Next three years, maybe not -- let me give you next year's. In FY 27, the India capex will be about INR12,000 crores, and the Novelis capex will be between, I think, Dev has already announced on the call about 2.3 billion to 2.4 billion, largely Bay Minette. I think it will be fair to say that when you go into FY 28, Novelis capex will sharply drop once Bay Minette is commissioned and they go into more of a maintenance capex frame. The India capex will go much higher than INR12,000 crores because we'll be then getting into the full copper smelter, the Aditya Phase 2 ramp -ups. But I think FY 28 numbers, I'll give you more closer to Q3 or Q4.

Sure, sir. So, is it fair to say that the consol capex should broadly remain in the INR30,000 crores range for the next few years? Or will the pickup in India capex would still be lower than how -- where Novelis capex is today?

India capex, Pinakin, INR 12,000 crores this year, next year will be, I don't know, INR 15,000 crores to INR17,000 crores, but it's not going to be at the same level as Bay Minette was. So, I do think the consol capex of the two will be lower.

The next question comes from the line of Raashi Chopra with Citi.

Could you just tell us a little bit about the TC/RCs?

Yes, the spot TC/RCs are running at negative $0.21, like negative $100 right now. And that's largely because the supply and demand is completely out of skew. There's a shutdown or problems in Grasberg. The Cobr e mine in Panama is down. So, TC/RCs are right now at a negative and probably this year will continue to be negative.

Okay. So, for this year you haven't contracted yet or?

No, we are contracted. More than 85% is contracted at the benchmark. So, we are going to frankly get TC/RCs at close to zero or slightly negative.

Okay. What was the fourth quarter hedges in aluminum?

Fourth quarter, we were hedged about -- where is it, yes, 64% at INR 2,807, and currency was 26% at INR88.

Yes. The fourth quarter alumina sales were 211 KT, and in Q1, we expect to sell about 170.

170 you said?

Yes.

Okay. And just last question from me. How do you break up the net debt for the company on a consolidated level? I think what was the India cash and Novelis net debt we have, what is the India cash?

Yes. So, India gross debt is INR 12,200 crores, cash is INR 18,000 crores, so net debt is minus INR6,000 crores. Novelis gross debt is INR 75,000 crores, cash is INR11,000, gives you a net debt of INR63,000 crores.

The next question comes from the line of Indrajit Agarwal with CLSA.

Congratulations on a good set of numbers. A couple of questions. Can you throw some light on the mid-Japanese port premium that we are seeing? It has rocketed up? And how do you see that panning out? And are we better off more in the export market than domestic as of today?

It's a good question. I think Midwest are now at $380. So, the delta between domestic realization and exports has narrowed down. So, it's a call -- I mean, I guess in Q1, probably our exports may be slightly higher. The Midwest, the MJP has jumped up because of the supply tightness as well as the freight prices going up, which is what the premiums reflect.

Sure. And secondly, do you have a peak net debt number in mind? I understand you have a net debt-to-EBITDA number in mind, but absolute net debt number, do you have something in mind on that?

Absolute gross debt or net debt?

Net debt?

So consolidated net debt peak should be between INR80,000 crores and INR90,000 crores over the next 2 years.

The next question comes from the line of Vikash Singh with ICICI Securities.

Congratulations on a very good set of numbers. Sir, my first question pertains to Novelis. This Bay Minette co ld mill, which we are going to operationalize, just wanted to understand how would be the spreads on the cold rolling only until your hot mill comes into play? And given that the overall commissioning would take a year's time, how should we look at the fixed cost associated with that startup?

Steve, do you want to take that?

Sure. So, when we talk about commissioning, we're just commissioning each asset as it comes up. So, we started commissioning the cold mill. The commissioning process is typically in the 4- to 5-month timeframe from cold commissioning to -- and through hot commissioning. So, we will begin commissioning of the hot mill next month. And so, as that finishes commissioning, we will then also complete the commissioning of the remainder of the equipment. So, by the back half of this year, the full calendar year, we will have all the equipment needed and commissioned so that we can begin qualifying coils or product with our customers and believe that we will enter fiscal '28 with commercial coils being sold at that point in time. Obviously, we've also talked about 18 to 24 months to fully ramp up and get to the capacities that we've talked about of 600 KT. So, as we continue to ramp up the facility, we'll size our labor force as much as possible towards what we need at that point i n time. So, there will be some start-up costs that get excluded from EBITDA as we fully commissioned the plant. I don't know, Dev, if you want to add anything more on the fixed cost outlook.

Yes. So, when it comes to start -up costs during the ramp-up phase, principally the fixed costs that are not getting absorbed from the point of view of the low-capacity utilization are typically in principle, classified as start -up costs and they would basi cally go below the line, below EBITDA. That is the way we would do it. And as Steve mentioned, our ramp-up period is 18 to 24 months. So, by implication, we will reach the full potential of Bay Minette on a run rate basis somewhere in that timeframe as we ramp up. That's really how it is.

So just a follow-up. When we talked about the $600 per ton long-term plans on a blended basis, do we factor in the start-up cost below the item as well as the current scrap spreads or the scrap spread is lagging behind a couple of quarters in our assumptions?

Yes, absolutely. We factor in the fact that during the ramp-up phase, the fixed costs that are not getting absorbed are below the line in net income. We have not factored in current scrap spreads. I mean these current scrap spreads and the current scrap market conditions; we take it as not sustainable. Things will come back to normal, and there will be some tightness, which we are aware about. We have factored that in all our plans, including when we talk about $600 per ton. To your specific question, no, we are not assuming such optimistic metal prices nor are we assuming spreads staying at current levels. We are assuming that there will be tig htening both on pricing as well as on spreads. So, $600 per ton is more like we will achieve it on a sustainable level, not with special tailwinds that we are enjoying now.

Noted, sir. My second question pertains to our coal. Once we get our own coal, given the current prices between the SSAs and e-auction versus our old coal extraction. On a landed cost basis, any idea what kind of savings we could still make because coal prices when we bought the coal mines versus right now spot prices, there's a huge difference.

Well, the whole point about having your own mines is that the coal prices go up and down in the market. So, you're absolutely right, Q4, the coal prices were low, but we are heading into a monsoon quarter. All we need is one good hard rain in some NCL mine and suddenly, the spot premiums will jump up. So, I think the way we should look at our captive mines is that our cost curve gets completely standardized and flat because we control the coal and the pricing for the next 15, 20 years with these mines. So, to your point, if we take today's price of coal on the sort of auction price, yes, it is low. So Chakla and Bandha will probably be at the same level. Meenakshi will still be substantially lower than today's prices. But I again urge you to look at what it's doing to our cost curve on a sustainable basis.

The next question comes from the line of Parthiv Jhonsa with Anand Rathi.

My first question pertains to the copper business. Now considering Grasberg is not ramping up as expected, number one. Number two, your asset prices are up and your TC/RCs are -- because as you mentioned, you are 85% already contracted. So do you expect that this INR 900 crores of EBITDA on a quarterly basis is a new normal till the time global headwinds are not clear? Or should we expect this...

Our guidance has been INR600 crores is what we were targeting.

Absolutely. Yes, absolutely. That is the reason. INR 600 crores and INR 900 crores, there is a substantial gap between the two . And considering the global macros where copper is already sustaining over $13,300, $13,400 level, and also the crunch is expected to continue for some time now. Do you expect this to remain around say, INR 900 crores to INR1,000-odd crores on a quarterly basis?

No. I think that Q1, to be fair, will also be in the same range because sulfuric prices are high. But I'm not going to stick my neck out to Q2 and Q3. I would still go back to the 600, 700 per quarter there.

Okay. That's actually helpful, sir. And just continuing on the question around Novelis, considering 18 to 24 months of a timeframe for completely ramping up the facility. And would it mean that you would have a certain timeframe to actually ramp it up beyo nd a certain level would take at least another 2 to 3 years. So, will the volume expansion remain within a certain band for next 2 to 3 years?

Actually, Steve, if you got the question, you can answer it.

Yes. So, the ramp -up from -- once we get to fully qualified coils, we will -- it will ramp fairly evenly over those 18 to 24 months. At times, we'll have to add a shift here or there as we go up. But the guidance that Dev said that as we complete the full commission or the full ramp-up after 24 months, we would be at the run rate of 600 KT and the overall EBITDA per ton that we've been talking about off that facility would be north of $1,000 per ton.

We will do that closer to time. But it's not going to be a humongous number. I mean it will be - - if you ask me to say it now, it will be more like in the 100 million to 150 million range annually. But let's just park that for closer to time as we commission Bay Minette.

Your next question comes from the line of Satyadeep Jain with Ambit Capital.

Just another question on sulfuric acid, the most topical thing right now. So, you talked about the West Asia crisis leading to these prices. Also wanted to understand there's a lot of news flow around China restricting export of sulfuric acid. Have you sta rted seeing that in the market? Is that impacting supplies? And I believe most of sulfuric acid that you said is it to Indian fertilizer and chemical industries. And if that is the case, is government worried about prices or looking at controlling prices in any way? Just trying to understand what's happening on sulfuric acid.

The sulfuric prices actually are set by a global index on a dollar term just like LME is. And China restricting exports means that in the current April month and all the sulfuric prices have actually gone up further. And no, we don't only sell domestically, we also export sulfuric acids abroad as well.

So, let's say, you mentioned if West Asia crisis, if Strait of Hormuz opens, then sulfuric prices will come down. But this China restricting export of sulfuric acid, is there a possibility that these prices stay elevated?

So Satyadeep, I have no problem if they stay elevated because it helps us because TC/RCs are negative.

That I understood. I was just asking for your opinion on...

Sorry, go ahead.

Secondly, on the Meenakshi mine, I know you mentioned Bandha has high strip ratio, it's going to take a long time, slightly longer ramp -up for some box cut. Meenakshi has a very low strip ratio. So, should we assume -- I know it's still early for clearance , but should we assume some volume in FY29 and the ramp-up from there would be similar to Chakla?

It would be even faster than Chakla because it's got less than 1 strip ratio. So, you should see a reasonably substantial volumes coming in, in FY29 from Meenakshi.

Lastly, the aluminum smelter that you're expecting in '28 and the other one in '29, can you maybe talk about -- you placed some purchase orders, but what is the visibility in terms of civil construction and all for this smelter to get commissioned in FY28?

So, calendar year December '27, the first 180 pots of Aditya will get commissioned. And calendar year December '28, the next 180 pots of Aditya will get commissioned. We are -- the timelines look fairly firm to us. The first 180 for sure by next year, December.

A couple of questions. Sir, first is on Novelis. We have operations in Ontario. Trump tariffs are still there. There are shipments which move from US to Canada and back. Is there any derisking mitigation moves at your plant, specifically with this particular aspect?

Steve, do you want to take that?

Sure. Yes, we do have a rolling facility in Ontario, Canada, Kingston. It is fed from our Oswego, New York facility, and then that product is then dispersed primarily into the auto industry, some specialty products as well. So, as we've been talking about on the last several calls, we have an overall mitigation strategy as it relates to tariff impacts by sourcing more domestic coal mill capacity inside of the US. So that now we can -- as Oswego comes back from the fires here in the next few weeks, we're able to utilize some of the cold mill capacity in the US to mitigate the full impact associated with the tariffs, and we continue to work with both governments for further potential scenarios of relief associated with that.

So just to take it further, with the new cold mill expected for 6 months out, is it fair to assume that we won't ship cargo to Canada and there could be incremental savings given we will say something on the tariffs?

So, the cold mill capacity that I'm referring to is not the Bay Minette cold mill capacity. So that is even additional. We've secured additional cold mill capacity with our partnership at Logan. So that's the cold mill I'm referring to and it is more key to getting Oswego hot mill back up and running so that it can be supplied. And then we just need to work through the longer -term planning associated with the Kingston mill that also does serve aut o with some finishing equipment.

Perfect. That's helpful. Mr. Pai, a few questions for you, sir. Current coal mix, if you could please highlight, I think that's the first question. Second is if you could give some sense on basically where is -- where does the 90th percent of the cost curve currently stand? And the third question is power has been chased by several other industries, primarily data centers globally. Given we have the advantage of procuring local coal, how do you see the cost of differential, say, for Hindalco versus Rest of the world? How structural you see and some outlook over there would be quite helpful.

So, the coal mix for quarter 4 was 61% linkage, 30.7% e -auction and the last few were sort of own mines. Your second question was where is the larger cost curve of the aluminum? So, I think it would be fair to say that the majority of the Western smelters, etcetera, they are at least $300, $400 higher than what we have in India. So that cost curve is, I think, more about $2,000 to $2,200 per ton. Your third question, I think, was on power costs. So, you're right. If you are drawing power from the grid, then you are competing with hyperscalers of data centers. But generally, aluminum smelters, whether it's Middle East, us, Norway, Canada, have long -term PPAs with the government, and hence are not really buying power from the grid. Where they have a problem like Mozal, they have already shut down or where you have a grid- based power, there the prices of power are going way higher than what a smelter can sustain.

Sir, any sense on what percentage of global production or as a percentage of, say, million-ton capacity, which would be on grid-based power wherein we will see this escalation?

Sorry, it's based on what green power did you say?

Grid-based power?

It's a grid-based.

Even if it's grid, let's take Dunkerque or it is based on the grid, but it has a long-term PPA with the energy provider. So even if it's on the grid, a smelter will not be running on spot power, let me tell you that. So, they'll have a long-term, whether it's 2 years, 3 years, they will have a long- term contract with the provider. So, I think that the hyperscaler demand is largely a US phenomena right now. And there are very few smelters in the US , as you know, there's only Century and probably Alcoa has a small one. So that hyperscaler power thing is largely a European thing where there's very little smelting today.

Perfect. Sir, just last question. Would it be possible to provide some color on off -the-shelf inventories? And secondly, you did touch upon Midwest. If you could provide some color specifically on Europe and MJP premiums as well. The reason to ask this is hypothetically, if Fed increases rates, where do you see the larger impact? Will it be on premiums? Or do you see it on LME?

So, look, that's -- I will let Steve talk about Midwest. But generally, aluminum inventory worldwide is around 8 million tons, which is 40 days. So, it has dramatically come down, especially with the West Asia conflict. The second thing is the premiums generally reflect local phenomena. So MJP is up because of freight going up and Japan availability being low. ECDP will go up because of other factors. Midwest is up because of the Trump tariffs of 50% have been baked into the premium rather than the LME because it's a regional issue. So, the LME tends to work on the supply/demand, whereas the premiums reflect loc al availability and the cost of transportation. Steve, do you want to add anything more on the Midwest?

No, no. I think you've highlighted the tariffs because the majority of the primary aluminum coming from Canada into the US, the 50% tariffs is what's driving the higher Midwest premium.

Congratulations on good set of numbers, sir. Sir, can you give us some detailed update on our mitigation efforts for scrap sourcing, which we discussed last year, for example, diversion of landfilling scrap. Do we get any approvals on it? Has it started? Some details will be helpful.

Steve?

I'll take that.

Dev, okay.

I'll take that. Okay. So, we are working on a number of fronts, as we have been saying to diversify scrap sources. So, to some of the things about landfill, no, we don't need any approvals. Here, it is more about working with the municipal recycling facilities, putting in technology and extracting UBCs or scrap that would otherwise go into landfill. So, this is not like a few months’ initiative. This is an initiative that we have started to pilot, and then over time, we will expand it to a larger number of these facilities. But the main thing, which is actually very exciting, and that is what we should be really feeling very good and positive about is that we will have a lot more scrap inputs coming from end-of-life automotive where we already have a partner who has brought in the technology for scrap sortation. As we speak, the aluminum intensive vehicles, which have been produced over the last about 15 years, will start more and more to reach scrap yards. And that is where we are creating a supply chain to be able to get very valuable end- of-life scrap for automotive, and that will have a very positive impact on the margin. It is part of the strategy that will give us access to over $600 per ton of EBITDA. On the other side, our initiatives are focused on more diversified scrap versus overdependence on UBCs. So basically, we want to really get into more scrap types. So, there's a pretty comprehensive slew of initiatives on all the matters that I just mentioned, and we are expecting to get positive results from that over time in short.

Understood. And sir, on domestic, can you give some more details on the smaller projects which we are doing on copper side. So, we are around spending around INR 5,000-odd crores like battery grade copper foil, e-waste IGT. So, any EBITDA potential at full ramp-up will be helpful.

So, one by one. Copper inner grooved tubes project is undergoing qualification with customers today. So that's 35 KT of copper tube that will go for air condition manufacturing. 50 KT recycling Pakhajan plant will commission in August. So once that is commissioned, we are going to process copper, then e-waste scrap to get 50 KT of copper. So, these are the two projects that are in the immediate horizon that are going to immediately impact the copper performance over the next year. The copper smelter will be a few years out. We are just starting that, that will take 3 years.

Yes, we are going to commission a much smaller one because honestly, we are seeing that the battery manufacturing in India has not really taken off as fast as we expected. So that's why we are going to time it a little bit, but a smaller capacity based on even exports, we will be coming up with in the next 2 years.

Ladies and gentlemen, due to time constraints, this was the last question. You can connect with the Investor Relations team for your further questions. I now hand the conference over to Mr. Pai for closing remarks.

Yes. Thank you, everyone. So, as you can see, I think the India business is on a solid footing. But I think more important is that Novelis is now coming back. Q4 was a good quarter. And then if Oswego starts in Q1 of this quarter and Bay Minette gets commissioned. So, I think that Novelis is heading to a recovery year in FY 27. So, I think overall, that's an important point for us. So, thank you very much for your attention.

Thank you. Ladies and gentlemen, on behalf of Hindalco Industries, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines.