Hello everyone, and welcome to Hindalco and Novelis' Investor Day. To give the opening remarks, I would like to welcome our chairman, Mr. Kumar Mangalam Birla. Mr. Birla, all yours.
Satish, good evening and good morning to all of the investors who joined this call. On behalf of the Aditya Birla Group, I welcome you to Investor Day of Hindalco. In our endeavor to engage more deeply with all of you, our investor community, last year we started the cadence of having an annual Investor Day. This was planned as a comprehensive response to all of your inputs, questions, and feedback. The maiden edition of the Investor Day last year met with a very strong response, and I hope that this will be a very engaging session today as well. We are connecting at a time of heightened volatility globally, and over the last 12 months, the macroeconomic backdrop has changed considerably. In fact, within the span of this quarter itself, we have seen significant shifts to the global economic outlook.
Inflationary pressures, as you know, and a tightening rate cycle amidst geopolitical uncertainty have dampened the global market sentiment. India, on the other hand, however, is relatively well-poised on the back of strong domestic demand driven by the twin engines of growth, conventional and new economy. I believe that in this context, Hindalco has delivered an exceptional financial performance enabled by robust volumes, better operational efficiencies, and a strategic product mix and stronger growth in our downstream business. This, coupled with favorable macros, has led to significant stakeholder value creation. As you perhaps know, Hindalco is the best performing Nifty stock in the last 12 months. In fact, the market cap of Hindalco has almost doubled since we met last year. Our downstream business, powered by Novelis, has a proven track record of investing, building, and utilizing new capacity to drive strong return on investments.
Novelis' EBITDA crossed $2 billion in the trailing twelve months ending December 2021. Its EBITDA per ton has reached $500+ levels currently from levels of $300 in FY 2014. Facilities from the Aleris acquisition have far exceeded our initial expectations. The integration is well on track to deliver over $220 million in total synergies as against the initial estimate of $150 million. Two years after this acquisition, Novelis has deleveraged rapidly and brought down the net debt to EBITDA from 3.7x in September 2020 to 2.3x in the December quarter of this fiscal year. Our India aluminum and copper businesses have also demonstrated record performance. The India business recorded its highest ever EBITDA in the first nine months of this fiscal year.
We successfully completed the inorganic expansions in the aluminum and copper businesses with the acquisition of Hydro's Sapa Extrusions and Polycab's Ryker Copper Rods facility, both in India. The acquisition of the Ryker copper rod facility has catapulted the company to be amongst the top three rod manufacturers globally outside of China. Utkal Alumina accelerated its organic 500,000 tons expansion project by ramping up to its full capacity much ahead of scheduled time. The India business also deleveraged sharply and net debt to EBITDA at 3.4x in September 2020 to 0.7 times in the December quarter of this fiscal year. This strong performance by Hindalco has also been bolstered by the company's sharp focus on ESG.
At the Aditya Birla Group, we believe that ESG credentials are not just a marker of good corporate citizenship, but in fact a driver for sustainable growth. Hindalco has been rated as the most sustainable aluminum company in the world for the second year in a row by the Dow Jones Sustainability Index rankings, and is now a part of the DJSI World Index. Novelis, of course, is the largest aluminum recycler in the world. It recycles 74 billion cans annually, enabling the recycled can to be back on the shelves in just 60 days. Both the India business and Novelis have committed to becoming net carbon neutral by 2050, and have also laid out an interim decarbonization roadmap. I believe that Hindalco is in a sweet spot.
The global macroeconomic climate, combined with the inherent supply-demand mismatch in commodities, signals that a strong metal cycle is here to stay. Additionally, the transition to clean energy and pressures on sustainability will increase the demand for aluminum and copper globally. These forces provide a tailwind for both of our upstream and downstream businesses. A few months ago, I wrote about an upcoming decadal rally of investment spending in India, a sort of CapEx Mahotsav or a CapEx fest. The sound financial health and balance sheet strength of Hindalco positions it well to embark on a new wave of investments and of growth. As I hand over to Satish, Steve, Dev, and Praveen to lay out the roadmap for this ongoing growth trajectory, I would like to reaffirm the commitment of the group to creating high quality long-term stakeholder value.
I look forward to an engaging discussion between all of you and the Hindalco team, and even more meaningful outcomes. Thank you.
Thank you, Mr. Birla. We will now take you through the Investor Day presentation. Before I do that, I would like all of you to go through the safe harbor statement that is there in that presentation, and of course, physical copies of what we have put on our website. We're gonna talk a little bit and give you an overview of Hindalco and Novelis, our growth strategy, update you on some very specific things that we're doing from a sustainability point of view, talk about shareholder returns that we have achieved so far, our broad capital allocation framework going forward, and then we summarize and open it up for questions and answers. Let me first start by giving you an overview of Hindalco. Hindalco, along with Novelis, is probably one of the world's largest non-ferrous companies.
Novelis, of course, as you know, is the world's largest rolling product and recycling company in the world. Hindalco in India is the largest fully integrated aluminum player going from alumina right up to downstream products. Utkal Alumina is the lowest cost producer of alumina in the world, and we, of course, in Dahej have one of the largest custom smelters in the world. We operate across 10 countries with 40,000 employees worldwide. I now show you the slide that we had showed last year as well. If you take the four points that we talked about last year, I'm happy to say that we have achieved our net debt to EBITDA targets much ahead of time. As Mr.
Birla said, we are now at 1.62 on the consol against a target of 2.5 that we had given you before. Now that the deleveraging has been accelerated, then on the basis of a strong balance sheet and cash flows, we are now strongly focused on expanding and growing the business. This presentation will heavily focus on that growth pipeline that we see both for Hindalco and Novelis. ESG, as Mr. Birla also said, is extremely important for us. We think it's gonna be a license to operate, and we have taken some very ambitious commitments, but we will talk about specific projects and initiatives that we are doing from an ESG point of view. Lastly, we will talk about shareholder value enhancement based on this return-based allocation to growth CapEx, the net debt reduction, and shareholder returns.
With that, I'm going to hand it over to Steve to talk about Novelis. Over to you, Steve.
Thanks, Satish. Let me spend a few minutes just talking about the overall global FRP market and the growth we see ahead, and specifically, how that translates into the business segments for Novelis. As Satish said, and I'm sure many of you know, we are the world's largest aluminum flat rolled products producer. We're also the world's largest recycler of aluminum. We do this through 33 operating locations around the world, providing a very unique footprint to take advantage of our global scale, but also to meet local and regional customer needs. On a trailing twelve-month basis, we've shipped almost 3.9 million tons to high-end product markets such as beverage packaging, automotive, aerospace, and high-end specialties.
Our vision is to lead the aluminum industry as the partner of choice for innovative solutions, and we think we're in an absolute right place to capture the growth we see in front of us. Talking about the growth, the overall aluminum FRP industry is a very diverse and large industry. The overall growth over the last 15 years is upwards of 80%. In 2021, there was a market of 30 million tons, which was an 11% growth over 2020, which was impacted by COVID. As we look at the forecast going forward, we see another 6% growth in 2022 versus 2021, bringing the market to 31.6 million tons.
We see a 4% compounded annual growth rate over the next five years through 2026. This growth, robust growth forecast, is right in the heart of the markets that we serve at Novelis, can, automotive, specialty, high-end specialties, and aerospace. Let me go a little bit deeper into each one of our segments. We'll start here with the beverage can market, which is our largest market. We are the global leader in aluminum beverage can sheet, and we're the largest buyer of and recycler of used beverage cans.
Beverage can sheet makes up 58% of our portfolio, which brings us to approximately a 40% global market share when you exclude China. It really allows us to leverage our first mover advantage as it relates to our recycling capabilities, where we can produce can sheet with recycled content north of 75%. Our recycling and sustainability leadership are closely partnering with our customers, our global footprint that allows us to maximize a unique global network, and our innovative collaboration really makes Novelis the platform that can take advantage of this growing market. Let's talk about the growth in the beverage packaging market.
We see a growth of an increase of 4% compounded annual growth rate through 2028, mainly driven by sustainability trends. Now, this comes in conversion from other substrates such as glass, steel, and PET, but it's also coming with new innovative different drinks, energy drinks, hard seltzers, mixed cocktails, teas that are increasingly being packaged in aluminum. Where we see the largest increase and gap between the demand and supply is in North America. In North America, our customers' can makers have invested $4.1 billion since 2018 for new greenfield and brownfield expansions, bringing 38 billion new cans into the marketplace, which requires 680 KT of additional can sheet.
You can see from the chart in the upper right here that the market's already short of capacity by 300 KT. That capacity is being filled by imports right now, but over time, that is just not sustainable as you see the gap continue to grow north of 500 KT. So when you start to think about the geopolitical risks, supply chain disruptions, the long lead times, quality issues, and the high carbon footprint associated with imports, our customers, the can makers, will absolutely prefer to have a regional supply source, which Novelis' unique position around the world allows us to take advantage of that, and we'll talk about some of the potential growth projects when Dev speaks in a few minutes. Moving on to auto body sheet.
In the near term, auto builds have been impacted by COVID and semiconductor shortages, but neither of these are systemic to the future automotive automobile demand production or the aluminum body sheet that's required in that production. You can see in the graph in the upper right, we are expecting an 11% compounded annual growth rate from 2021 to 2028 for aluminum automotive body sheet, and that's being driven by increased automotive production as well as electrification, which requires more aluminum. In the bottom left, you can see the light vehicle production estimates, and you can see that in 2022 the production levels are projected to exceed the pre-COVID levels and then continue to grow with pent-up demand associated with replacing vehicles.
In addition, you can see in the light blue line because of higher emissions requirements and various incentives for electric vehicles, the growth in electrification inside of vehicles as a percentage versus the traditional combustion engine. What you can see on the right is that when vehicles are electrified, when you look at like a battery electric vehicle itself, it will take 75 lbs more aluminum in that vehicle in order to get the performance that they're looking for. Again, both of these trends are very powerful towards the growth of aluminum automotive body sheet. Moving to the specialties markets, which is a very diverse market. We play in the high end, stay focused on the high end.
It allows us to have flexibility in our capacity, portfolio optimization. With the sustainability trends that we are seeing, we are seeing favorable pricing here. Favorable pricing combined with growth from 2020 to 2025 of a 4% CAGR continues to benefit the end markets that we're in. Building and construction, both in Europe and North America, is quite significant. Pent-up demand for single-family homes and remodel and renovation projects has driven a lot of demand. In the thick gauge, the transportation and commercial truck area is benefiting from the same trends that we're seeing in light vehicles from aluminum penetration. Strong demand for electronics, whether it be TVs, tablets, phones, battery components driving further market opportunities.
In the light gauge container and foil packaging will be driven by overall GDP, and then automotive fin stock will also benefit from the rising production levels in automobiles. Finally, you know, taking a look at the aircraft plate market and sheet market, Novelis has been able to get into this high-end market with the acquisition of Aleris two years ago. Overall, these are very high margin products. When you look at the overall market, it's a roughly even pre-COVID less than 400 KT market. Even when we get Novelis back to pre-COVID levels, it will still be less than 5% of our overall portfolio.
Still, as we benefited from the commercial plate business with commercial engineering solutions over the past couple of years, we will be able to replace some of that commercial plate with this high-margin aircraft plate in the near future with a strong order book where we think we'll get back to recovery pre-COVID levels by the end of this fiscal year. Strong order book here, recover by the end of the year. The other trend is that we're seeing aircraft builds really move towards China and India. Novelis is the only Western company with a plate facility already qualified inside of China. We think that provides a real differentiated capability for Novelis to serve local customers.
With that, I'm gonna turn it over to Dev to talk a little bit about what this translates into from a growth standpoint.
Thank you, Steve. Let's talk about our investment track record and our blueprint for future investments. Novelis has a proven track record of building new capacity to drive strong return on investments. Nearly a decade ago, Novelis launched a multi-year strategy to transform Novelis as the world's largest premium FRP supplier with an aggressive sustainability agenda, investing over $2 billion between fiscal year 2011 and 2016 to expand rolling and recycling capacity and significantly expand in automotive finishing sheet production. By doing so, Novelis has positioned itself as the undisputed global industry leader in flat roll products and recycling. As a result, by fiscal 2020, we nearly doubled adjusted EBITDA with tremendous improvement in EBITDA per ton from just below $300 to $450, grew and diversified our shipment portfolio, and increased recycling content to 59%.
In fiscal 2019, we launched our second transformation investment phase through a mix of both organic and inorganic investments to further diversify and grow the business. On the organic side, we recently completed three projects aimed at adding automotive finishing capacity in the U.S. and China and rolling, recycling, and casting capacity in Brazil. All three projects are complete and now in production. We also closed on the $2.8 billion acquisition of global aluminum flat roll producer Aleris in 2020, providing us a more diversified product portfolio, including entry into high-value aerospace and a larger high recycle content footprint in the building and construction markets. This acquisition also provides a strong financial profile with significant value capture over $220 million, both from a cost synergy standpoint as well as by fully integrating our automotive business in China and providing additional capacity in Asia.
Novelis has deleveraged rapidly post the Aleris acquisition and faces an attractive opportunity to expand capacity to serve growing demand for sustainable aluminum products. We have identified approximately $4.5 billion of potential investment opportunities between fiscal 2023 and 2027, spanning regions and end markets. Starting with North America, our investment program is targeted to adding much-needed rolling and recycling capacity due to very strong market conditions. Projects include the previously announced Oswego hot mill debottlenecking and automotive process upgrades project, completing the Greensboro recycling expansion, and launching a state-of-the-art recycling center in Guthrie. We are also in an advanced planning stage for a fully integrated greenfield mill in the U.S. This will be a highly automated, highly efficient rolling and recycling mill with an estimated initial capacity of 600 kilotons focused on supplying beverage can sheet, but also some production of automotive and flexibility for specialties.
We estimate a capital investment of approximately $2.5 billion, and this will take about three years to complete after announcement. In Asia, as part of the Aleris acquisition business case, we will be adding a new cold mill and robust automotive recycling to fully integrate our automotive business in China. Last month, we announced a new recycling and casting center at our joint venture Ulsan Aluminum Plant in South Korea. We also have under appraisal some brownfield debottlenecking in Korea and in Europe, some rolling and recycling expansions in Germany as well. Lastly, in South America, in addition to some debottlenecking, we are in early stages evaluating another rolling and recycling expansion in Brazil to meet growing demand for can sheet. More information on these projects under appraisal will be announced as plans are finalized, but it is anticipated within the next 12-18 months.
There is a very compelling business case to invest in highly efficient, greenfield automotive facility, including recycling in the United States. First is the real step change in global can market growth, driven by macro trends and increasing consumer demand for sustainable packaging, and validated by the more than $4 billion investments in recent times by can makers in North America. Importantly, we are in advanced discussions with customers with a willingness to commit volume, price, and terms that support this investment. Investing allows us to seize the first-mover advantage and support customer growth ambitions in North America. Novelis will leverage its successful track record in recycling quality and innovation to add capacity and maintain its market leadership.
While this mill would be primarily producing can sheet, it would also produce some automotive coils for finishing at our Guthrie or Oswego auto plants, significantly contributing to the investment rationale. Novelis is also investing in new recycling capacity to promote a low-carbon circular economy and reduce dependence on third-party suppliers and lower costs. Earlier this year, we announced plans to construct two new recycling and casting centers, one in the U.S. and one in South Korea. The $365 million investment in Guthrie will add a new state-of-the-art recycling and casting center focused on recycling automotive scrap and decrease carbon emissions by an expected one million tons annually.
The $50 million recycling center investment at our joint venture, Ulsan Aluminum in South Korea, will be 100% funded by Novelis and will add approximately 100 kilotons of new recycling and casting capacity, reducing carbon emissions by 420,000 tons annually. With phase two projects now in production and significant investment opportunities over the next five years, we have a roadmap towards significant capacity expansion, both on the rolling and recycling side. When we met with you one year ago, we discussed a plan to increase capacity from 3.9 million tons to 4.5 million tons after investing in Brazil and China, and through efficiency and debottlenecking projects. We now see opportunities to add another 1.3 million tons of additional rolling capacity over the long term through the new U.S. integrated mill and other projects under appraisal.
We also have several new recycling investment opportunities to bring recycling capacity to 3.9 million tons. With this, I hand it over to Praveen now. Thank you.
Thank you, Dev. I will take you through the India business, growth strategy and related projects. Before that, I'll take you through the key developments in our business segments in Indian operations and how the markets are performing. Starting with aluminum is growing at a good pace. The average CAGR is about 6%-8%, and it is expected to double from the current four million tons of consumption in the country to about eight million tons in the next 10 years. As you can see, all the business segments under aluminum, like building and construction, transport, packaging and others, they are all, they're all growing very fast and doing very well, demanding higher consumption of aluminum in the country. In building and construction, it is being driven by increasing housing demand and premium projects coming up.
We are expected to be the third largest market in the world by FY 2032. Transportation is being driven by share of EVs increasing and light weighting happening in this market. Packaging as it is with pharmaceutical, liquor, food, and beverage is growing. Other segments like electricals and consumer durables are also growing in India. Coming to copper is growing even at a faster pace in the country, and it is expected to more than double in a decade from current about 1 million ton consumption to about 2.4 million tons by FY 2032. This is again being driven by various segments. For example, e-mobility is driving because of the EVs and light weighting, et cetera. The batteries, electrical motors.
Urbanization and smart cities is also giving it a fillip because of the government's focus on the infra investments in the country. Various sectors are getting IoT-enabled, and that is causing electrical motors and sensors and similar products being demanded. New-age lifestyles like ACs and refrigerators, et cetera, are causing demand to go up. Clean energy and other segments also are driving the demand very high. Different sectors are growing between 6%-12% in copper consumption. The third business segment that we have is on the specialty alumina consumption. That is also growing both domestically and even globally. Alumina is a special product which has applications in areas other than metal as well. It is coming because of its special qualities of being a hard substance, being abrasive, and also being fire retardant.
It has applications in ceramics, defense, automotive, petrochemicals, similarly, wires and cables, electrical and electronics, steel industry for refractories, cement and glass, automotive, medical, and aerospace for electronics. It has multiple applications, and this is also growing globally at about 4%-5%, and domestically between 10%-18%. This, we believe, has a huge potential going forward. Coming to the growth capital expenditures in these segments. As you're aware, we recently completed two acquisitions helping us to grow in our downstream sectors value-added products. One was in the copper segment, which was Ryker. We acquired the copper rod facilities having 225 KT. This has been already completed and is continuously adding value to our business.
The other was in aluminum segment, where we acquired extrusion facilities of Sapa, and that is 15 KT, but high-end, high value-added product is being produced. That is also completed in this quarter. Coming to the various growth organic CapExes that we are pursuing. In aluminum upstream, there are various debottlenecking opportunities that we see both in alumina and smelter expansions in the existing plants of Utkal, Aditya and Mahan. There are other greenfield and brownfield opportunities that we are pursuing. In case of alumina, we are looking at alumina expansion of 1 million ton, potentially in Odisha, at a cost of $850 million.
The brownfield smelter expansions we are looking at Aditya and Mahan, but this will be with the third party renewable power, so that our ESG focus remains, and we are able to expand without adding to the carbon footprint. In the downstream, we have announced various projects, importantly the FRP project, which is a large project, $400 million. 170 KT facility being added there. Extrusion at Silvassa is already underway, and the coated AC fin stock, which is a part of the PLI scheme under Atmanirbhar Bharat program, is also under various stages of implementation. We are also evaluating can recycling and battery foil mill as two new areas under the downstream aluminum businesses.
In copper, you are aware of the inner grooved tubes for the air conditioning business and a Litz rod project which we already announced, but we are also looking at recycling and e-waste recycling, particularly with about 100 KT capacity, and once this is evaluated, this will be announced. Specialty alumina, we already announced two projects here, which is on Precipitated Hydrate and white hydrate, as well as synthetic aggregates. There are other projects under pipeline which are being evaluated, multiple projects, and this can add up to 165 KT additionally in the specialty alumina program. The other big and important segment for us is the energy security for us. As you are aware, we recently acquired, we won Chakla coal mine and Meenakshi coal mine as a part of the auctions.
These mines will produce significant amount of coal over a period of time once they are up and running, and will help us secure our coal resource for the existing smelters. These are the various growth CapExes that we are looking at. Where does it lead us to? It leads us to growing our aluminum production from 1.3 million tons today to 1.53 million tons. It also almost doubles our downstream capacity from the current 350 KT to about 600 KT. Alumina capacity will go up from 3.6 million tons to 4.9 million tons. Our copper VAP has already gone up because of the CCR acquisition, but from here onwards, from 540 to 565, it will go up.
Cathode capacity also with the recycling, et cetera, will go up by 100 KT from 421 to 521. Specialty alumina, as we talked about earlier, the VAP projects will take our capacity from 361 to 666 KT over a period of next about five years. I'll now hand over to Satish for an update on sustainability.
Thank you, Praveen. Right now, we're gonna describe a little bit in detail on our various ESG initiatives that we have launched to meet the commitments that we have made. First, let me remind you of our commitment. This is the same slide we used last year. I'm gonna start in the middle from safety, because I think for us, in Hindalco and Novelis, safety is paramount. We are very focused on improving our safety performance and reaching a zero-harm status. We are quite focused on diversity and inclusion, and I think that the Aditya Birla Group's efforts in CSR and sustainable livelihood are quite well known. We are also committed to a very high level of governance as well as customer centricity.
I think now for the remaining part of the presentation, we will dive a little bit deeper into the E part. We have made some very ambitious commitments of reaching net carbon neutrality by 2050, zero waste to landfill by 2050, water positivity and no net loss of biodiversity by 2050. I think in the remaining part of this presentation across Novelis and Hindalco, we'll try to show you specific projects that we have launched for this. But before that, I just wanted to remind you, as Mr. Birla said in his opening comments, we have been ranked again for the second year running as the number one sustainable aluminum company in the world by the Dow Jones Sustainability Indices. We are only one of the only five Indian companies that constitute the DJSI World Index.
International recognition of the sustainability efforts being put out by Hindalco. I will now hand it over to Steve to talk about Novelis and ESG there.
Great. At Novelis, we have an ambition to be the world's leading provider of low-carbon sustainable aluminum solutions that not only advance our business, but advance the industry and society towards the benefits of a more circular economy. In line with Hindalco, we have also set a goal to be carbon neutral no later than 2050, and a near-term goal to have a 30% reduction in our carbon footprint by 2026. You can also see that we've set a 10% reduction both in energy and water intensity by 2026, and a 20% reduction in waste to landfill again by 2026.
Now, in order to achieve the 30% reduction in our carbon footprint and ultimately the longer-term goal, it's gonna take a lot of actions, and a lot of work. It's gonna take more recycling capabilities, capacity. It's gonna require redesigning of our alloys for low-carbon alloys, redesigning processes in our operations to reduce carbon there. This will take some time. We're off to a great start with a number of actions that we've already put in place. We've invested in recycling capacity in all four of our regions, and will continue to invest in recycling capacity. We are looking for ways to reduce carbon in our operations.
One great example here is the establishment of the collaborative Net Zero Lab that has been set up at our Sierre, Switzerland facility. Here, the lab is developing carbon neutral solutions for the manufacturing of aluminum. Our near-term goal or one goal coming out of this is to find carbon neutrality for Scope 1 and 2 at our Sierre, Switzerland plant itself by 2030. We'll continue to design low carbon alloys. Here a great example is our pre-anodized specialties high recycled content specialties alloy that has greater than 90% recycled content in it. We'll continue to do what we have been doing and maximize the circularity of a closed loop recycling systems with our customers.
We've got a lot of successful examples there. We've certified 14 of our plants with the Aluminum Stewardship Initiative, and just shows our responsible sustainable commitment. Three alloys in our North America building and construction business have been independently certified by GreenCircle with a recycled content north of 99%. We'll continue to be very balanced and find sustainable sourced primary aluminum as well. Now, our sustainability report will be out in a month, a little bit more, and we'll give you all the updates on a number of metrics. I wanted to spend just a little bit of time just talking about our journey in decarbonization off our baseline of 19.8.
We've set 30% as our target for FY 2026, and as I just talked about, a number of very significant initiatives that is making a meaningful reduction in our carbon footprint. Now, this comes in the face of of us having higher carbon footprint because of the expansion projects that Dev mentioned. Those are coming because of real sustainable solutions competing against other materials. It doesn't matter, we're still set on getting the overall 30% reduction. Even taking those into account, the pluses and minuses, you can see we are very close to achieving what we set out to for FY 2026 of getting down to 13.9 all-in emissions.
The other really powerful message here is the reduction on a CO2 intensity per ton reduction from our baseline of 47%. A lot of great work going in here. Very proud of what we've been able to accomplish over the last few years and what we have in front of us mapped out. With that, I'm gonna turn it back over to Satish.
Now to talk about sustainability at Hindalco, I just wanted to just recap some of the recognitions that we have received in the last year. Our products like Eternia, which is doors and windows, Everlast, which is our roofing solutions, have got the GreenPro certification. We are creating products that actually are sustainable and reduce the carbon footprint. Hindalco actually released their first integrated report last year. From the Institute of Chartered Accountants, we won the Silver Shield. Hindalco's plants in India, we have started the process of ASI certification, and Mouda has been certified. We have won various other awards from CII, Frost & Sullivan, that recognizes some of the work that we are doing from an environment and sustainability point of view. Let me now talk about Hindalco's journey towards net zero carbon.
This is probably the most ambitious and most difficult target for Hindalco in India, as majority of our power, which is captive, comes from coal. We are now working on this issue on a couple of fronts. The first one is, of course, efficiency improvement by reducing the kilowatt hour per ton. As you can see, every year we steadily get more and more efficient using different technologies, some of which we have now patented. On the renewable side, we already reached 100 MW of solar. We now have a line of sight for another 100 MW . We have started to work on other renewable energy sources like biomass.
We are working now on a large scale renewable hybrid project with a third party, pumped hydro, which can give us probably up to 100 MW-300 MW, and this is related to the brownfield smelter expansion project that Praveen talked about. Besides that, other initiatives like what I've talked before, we're gonna hopefully start the LNG or the gas to fire 50% of the fuel to our turbines in Odisha. We are working on a pilot for carbon capture and storage and utilization. We are even close to launching a pilot on green hydrogen. A number of initiatives to work towards the net zero carbon.
The FY 2025 target for us is to reach 200 MW of renewables, largely solar and wind, and try to get about 100 MW with storage, which is above a 75%-80% load factor, so that we can expand our smelting capacity. We have also taken a specific target to reduce our carbon footprint. As you can see from the baseline of FY 2012, we're gonna reduce it by 25% and steadily moving towards it with many of the projects that I just outlined on the previous slide. Now, let me talk about some of the other commitments. Water positivity, net water positivity by 2050. We are roughly using about 65-70 million cu m of water.
To get to net positive, we are working on a number of fronts: increasing the rainwater harvesting, reducing the consumption of fresh water, and making all our plants zero liquid discharge. We think that, you know, we are well on our way. As you can see in the blue box, a number of projects that are ongoing, and we think we are quite confident of reaching net water positivity by 2050. I think in the next couple of years, our mines will be the ones that we will be net water positive, and then the downstream plants, and then, of course, the smelters. Large part of our water usage is in the power plants for the smelters. We have committed to no net loss of biodiversity as well by 2050. We have developed four biodiversity management plans with IUCN and four more are under preparation.
We actually launched a sustainable mining charter that we developed with an international body like Zinteo. This has been appreciated by Indian ministries, including the MoEF, and there is a movement now to try to get this charter to be adopted by the Indian mining industry. We do a lot of work on increasing the green belt development, and you can see the statistics on the left-hand side. In each one of our plants, I have listed, like in Utkal, Aditya, Garepalma, and Baphlimali, specific projects to increase the green coverage. We have committed to zero waste to landfill by 2050, and in FY 2022, we have reached 82%. I think this is quite a remarkable achievement, and Hirakud FRP now is a zero waste to landfill downstream plant.
Again, a number of technical and other process work that we are doing to get to zero waste to landfill by 2050. On the circular economy, on the red mud side, besides Utkal, the other three refineries are nearly 100% being reused in cement making. The Utkal plant, the pilot project of mine backfilling is making good progress, and once that pilot has been approved by MoEF, then all the bauxite residue will go back into mine backfilling, which will be truly a first of its kind in the world. On the fly ash recycling, I'm very happy to tell you that we have now reached 112% this year. That means, beyond what we generated, 12% from landfills has been sent to cement and other usage.
Now, with that update on the environment and sustainability, I'm going to turn it over to Praveen to talk about shareholder returns.
Thanks, Satish. So as you're aware that we are now experiencing enhanced all-round performance. This has been possible mainly because our operational performance has been very consistent, our plants have been running very well, well-maintained, and all the processes, et cetera, are being looked after. We'll be able to complete our projects in time. You've seen both in Novelis and Hindalco, we've been able to complete these projects within time, not only time, but also cost, and additional returns are getting generated from them. You heard about Aleris acquisition, where synergies are flowing in as planned and in fact better than planned. Of course, macros have also been supportive. As a result, you are seeing outstanding financial results both in Indian operations and Novelis operations for Hindalco. This is resulting into very stable cash flows and reduced leverage.
As a result, we have a very strong balance sheet now. We have improved ROEs and ROCs, which is finally converting into higher shareholder returns. As an example, if you just look at the net debt to EBITDA charts for Novelis India business and consolidated, you see a significant decline in the leverage, which is helping the company to become almost debt-free. We are at 2.29 in Novelis compared to 3.79. We are below 1 in India compared to 3.34 couple of years ago. On the overall basis, consolidated net debt to EBITDA is 1.62 as of December 2021. Going forward, we believe that we have de-leveraged our companies very well and therefore our focus needs to be now on growth CapEx.
We intend to allocate 75% of our free cash flows, discretionary cash flows to growth CapEx going forward. Here we define the free cash flow. Just to refresh, the free cash flow is the cash flow after meeting normal working capital and maintenance CapEx requirements. This is truly a discretionary kind of a cash flow. About 15% of this will go further into net debt reduction due to certain scheduled repayments that are happening both in Novelis and in India. Therefore, the amount available for shareholder returns is about 8%-10% of such cash flow on a sustained basis. We see this as a strategy going forward. I hand it over back to Satish for his closing remarks now.
Thank you very much. I think now to summarize, if you have seen through our presentation, we have committed to be from an ESG point of view an industry leader in sustainability. I hope that you have seen that there are a lot of very specific numbers that we are tracking and projects that we are doing to get to our very ambitious commitments that we have made for 2050. I think as Praveen just outlined, we have worked on enhancing value to our shareholders by the various inorganic and organic methods projects that we have done in these many years.
I think that now with the deleveraging behind us, I just wanted to emphasize again that going forward, majority of our free cash flow after maintenance CapEx will be directed, 75% of it, towards our internal growth projects, which we have shown you the pipelines for both Novelis and Hindalco. I think we also remain committed, if you see our wide and diverse portfolio, to providing products and solutions that will bring value to our customers. With that, I thank you for your attention, and we will now open up the floor for questions and answers.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, please click on the video or audio question button on your screen. An operator will check your connection and put you through the question queue, where you can address your questions to the management when your name is announced. We will wait for a moment while the question queue assembles. We will start the Q&A session with audio questions followed by video. We take the first audio question from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Good evening, everyone, and thanks to the management for organizing this event and giving us this opportunity to better understand the company and also sharing such informative presentation. A couple of questions. First, I mean, a lot on the new projects which have been announced, all of these projects, especially the upstream CapEx, have been categorized as under appraisal. Just want to understand at what stage of appraisal these projects are and given that we've shared exact timelines and even CapEx for these projects.
Just to give you a broad overview, many of these under appraisal projects are in fairly advanced stage of approval. We have to, of course, given the size of these projects, get mandatory board approvals, etc. It would be fair to say that many of these projects are in fairly advanced stages, but some of them are in fairly early stages as well. Like some of the upstream projects in India, I would say are sort of, you know, still under appraisal and will take some time before we launch them.
Understand. Mr. Pai, in terms of, I mean, the schedule of the CapEx which we are looking over the next five years, if I add the Novelis CapEx of around $4.5 billion in India and then some bit of a maintenance CapEx, roughly we are looking at spending $9 billion in the next five years. Do we expect a return of around $2 billion from next year, or it's largely gonna be back-ended? Any thoughts on the schedule of these CapEx spends?
I think I'll just answer it. You have done the math correctly between five and three, so you have roughly on a consolidated basis about $8 billion worth of projects that we have outlined. I think that our assumption is that we will be generating between close to, let's say, around $2 billion of cash flow after maintenance CapEx. That is our plan over the next five years. We're quite confident about Novelis cash flow. Fairly confident, but as you know, the Hindalco part is a little bit LME-dependent.
Fair to say that we think that we will be generating around $2 billion worth of cash flow, and hence, we can adequately fund this $8+ billion of projects that we have outlined in this presentation.
Understood. If I just may squeeze in just one last question. I mean, we are announcing these projects at probably the peak or at least one can say it's a very strong cycle, and these projects will be quite value accretive or return accretive at this stage of the cycle. At what level of aluminum prices and even, say, Novelis margins on the lower side will these projects still make sense from a return perspective? Any sensitivity or any scenario analysis that you would have done that you would like to share?
No, I think that, again, talking at a fairly high level, the Novelis business, as you know, is not that sensitive to LME, and hence, we have always aimed for a very high level of IRRs. I think for the first time in Novelis, you will see large greenfield projects where the minimum baseline will be mid-teens IRR. The brownfields normally give you a lot more. I think that the India business is where the LME level becomes more sensitive. We are quite conscious that currently we are going through probably some of the highest levels of LME, but that's a different question. On the macros, we think that the LME is going to be fairly flat at reasonable levels going forward.
Even if you see the India business, the downstream ones is where we have prioritized and already got approval and started. Some of the upstream expansions could be sensitive to different levels of LME.
Understood. Thank you so much, and all the best.
Thank you.
Thank you. We take the next audio question from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Thank you very much, sir. Sir, I have two questions. First, I would just try to understand the framework in terms of the earnings outlook that the company has, because one of the consistent themes that we keep on hearing from investors is about demand destruction, especially if aluminum prices remain above $3,000 a ton, we could see end demand destruction in U.S. and Europe, particularly in the segments that Novelis operates at, which are consumer-facing segments. At this point of time, does management see that, if aluminum prices were to sustain above $3,500, we could see demand destruction for the business segments of Novelis, which could bring margin compression as well?
Are those demand segments immune to aluminum prices, even if they go above $4,000 a ton?
Good question, Pinakin. I'm going to give a generic comment, and I'll let Steve add. I actually reviewed a presentation, which was interesting for me because on the auto sector, we were looking at, you know, steel versus aluminum, because the demand, if you don't use aluminum, you have to use something, and in autos it was normally steel. What has happened very interestingly is that it's not just aluminum, even steel prices have gone up substantially. At the current levels of LME, actually the balance or the choice between steel and aluminum has not changed. Now, this being said, what can lead to a demand destruction is if only aluminum prices keep going up and the other commodities, especially steel and all, don't go up.
I think that is the factor that will be critical towards any long-term destruction of demand point of view. Otherwise, the tailwinds of aluminum, which is driven largely by ESG, sustainability, the high recycling that you can do with aluminum, provides it with quite a lot of tailwind even at these higher prices. Steve, you wanna add any more comments to that?
No. I think you answered it very well. As Satish said, all prices are rising, so whatever we're competing against, whether it be steel or PET, are all rising, and we're just not having those conversations with our customers. Quite frankly, we're having just the opposite conversations about the sustainability trends and long-term solutions, which aluminum plays very well in. From our prepared remarks that we made earlier, we see all of our markets very strong right now. I don't think it'll be a specific aluminum disruption. Other things, geopolitical risks and other things can drive different buying behaviors potentially, but I don't think it's an aluminum issue versus other commodities issue.
I think we're in a very good place based on, kind of, some of the things that we outlined in our presentation.
Sure. Just to push this question a bit more. We have not seen a proper Fed rate hike cycle in 20 years, and now there is talk about the Fed aggressively raising rates because inflation is moving very high. If the Fed actually does end up raising interest rates sharply in the U.S. over the next 12-18 months, do we expect an impact on consumer spending, you know, negatively to flow through to the key end markets that impact Novelis? Or again, are the Novelis business segments would be immune to higher inflation and higher interest rates?
Yes, Steve.
Yeah. Majority of our business, 58% as we outlined, is beverage cans, and we don't really see that as impacted by interest rates. What parts of our business could be impacted by interest rates would be potentially the automotive sales, people leasing vehicles, housing starts that could have some impact. I guess I would just reference back to kind of the comments coming out of the Fed, which is they believe that they can control this with some rate increases and keep the economy moving in the right direction. Of course, if they overshoot, there could be some risk to portions of our business, but not the vast majority of our business.
Thank you. My second and last question is on the ESG footprint and ESG initiatives that the company has announced. At the same time, under the India CapEx, there is nearly half a billion dollars spent on captive coal mine production increase. Does it mean that, while the company remains committed to greener aluminum, reducing carbon footprint, it's fair to say that over the next few years, coal would remain the mainstay for aluminum smelting?
Pinakin, it's a very interesting question, and I want to give you this point of view. The coal that today we buy is mined by Coal India or, let's say, third parties in a specific way. Our assertion is that when we take these coal mines, we will mine this coal using the latest technology with our efforts on water biodiversity. Hence, our coal consumption is not going up, but the coal is being bought captive and being done in a much more efficient way. We don't think this actually improves maybe in some ways our carbon footprint, because we will not mine this coal with as much energy and with as much pollution as maybe some of the others would have done. That's, I think, my first point.
Really, the second point is, yes, in the near term, no business in India can substantially reduce its exposure to coal-based power. I would just point out to all the different projects that we are doing, whether it's solar, whether it's wind, whether it's with biomass, we are probably, compared to many of my other competitors in other parts of the world, putting a lot more money and effort into finding alternatives to reduce our carbon footprint. Fair point to say that in the next couple of years, will this sharply bring coal power down? The answer is no.
I think that's why, the whole point of the presentation was to say that we made the commitment and hence then we are putting money where our mouth is and you know, investing in these projects to try to reduce that carbon footprint going forward.
Understood. Thank you very much, sir.
Thank you. The next audio question is from the line of Ritesh Shah from Investec. Please go ahead. Ritesh Shah, your line is in talk mode. Please go ahead with your question. As there is no response from the current participant, we move to the next question from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi, good evening, and thank you for this elaborate presentation. I have two questions. First, on the repatriation or dividend from Novelis to the Hindalco parent business. Does that policy still stand, or there is any change to that policy as of this month?
Change in the policy.
Hello?
I said there is no change to that policy.
All right. Thank you. My second question is relating to the current power cost inflation that we are seeing, particularly in Europe. How does that impact our Novelis business? I understand we have three-quarters of our cost is hedged, so what is the duration of these hedges, and when do these hedges come for rollover, and what kind of impact do you foresee in FY 2023-2024?
Dev, can you take that question, please?
Yes. Indrajeet, I think you got it right that we have a significantly decent hedged position when it comes to energy. Three-fourths of our energy is hedged in Europe, and really, same applies for gas in North America. Also some electricity in North America. Now the thing that has happened in the quarter that is ongoing now is that energy prices, because of the geopolitical situation, have just gone through the roof. I mean, it's a situation that nobody ever remembers having seen in any recent or midterm memory. As a result of that, even the residual non-hedged portion is hurting.
You know, when energy prices go up 2-3 times, even if you are 25% unhedged, you know, I mean, it just becomes a bit of a burden. As we speak in this quarter, inflation and particularly energy prices are going to hurt us, so you should be prepared to see that. These are headwinds which are really driven by geopolitical factors, and it will have some impact in the short term.
The hedges which are coming up for renewal, are you renewing them at the higher level or you are just probably not hedging or waiting out, to see how the prices settle?
The thing is that for the next fiscal year, we are hedged to the extent of three-fourths. We don't feel the urgency of taking any hedges now for future in these abnormal geopolitical times. We can afford for things to stabilize. We are very confident that, you know, in the short to mid-term, some of these headwinds, abnormal headwinds, will go away and then we will take a position.
Thank you so much. That answers my questions.
Thank you.
Thank you. The next audio question is from the line of Amit Murarka from Axis Capital. Please go ahead.
Yeah. Hi. Good evening and thank you for the opportunity. Just on a comment that you made that you are looking to do more captive coal production. But in the past, like, I remember you mentioning that the captive coal blocks are generally more expensive and you use it as a last resort only during the monsoon period when availability from Coal India is lower. Is there a shift in strategy on coal now from you?
No, I think you're mentioning the first coal mines like Gare Palma, Kathautia, that we got, I think about three or four years back now. Those, when the first auctions had happened, we had taken them, and at that time, we had bid a little bit aggressively and we had said that we were countering imported coal prices. The current blocks that are coming on, they tend to be more of a greenfield. The pricing that we will get from these captive, I mean, if you look at Meenakshi, 12 million, Chakla, 5.5, these are below the linkage auction prices.
One thing that we have to note is that in 3-4 years, when these two mines come on, the power cost, let's say stability that you will have in the Hindalco smelters will be quite remarkable because we will not be exposed to e-auction or imported coal or linkages for that matter, going forward.
Important. Got it. Thanks. Just lastly on the objective of achieving a net zero emission, like that's by 2050, right?
Correct.
Is it more like a desirable goal or is it like a an informed commitment at your end?
It's a fair question, and I think that in India it's a real challenge. I wanted to assure you that we are building a model and, you know, we are going to run it through the science-based target guys as well, with specific targets to be put for every five and 10 years. I think that, you know, we will make our best efforts to reach that goal. It's gonna require not just Hindalco, but as a country, India has to find alternate sources of energy which are much cleaner. This is, if you know, Prime Minister Modi has, I think, taken a slightly longer one, 2060 or 2075, I'm not wrong. Generally, the country right from the political establishment is all committed towards finding greener sources of energy going forward.
I think that as Hindalco, as a technology leader, we are playing our part in trying to be at the front of that game, taking different projects, whether they are carbon capture and utilization or green hydrogen or using natural gas in the boilers. We are trying to be on the forefront of some of that experimentation and pilot projects that have to happen before we can actually reach that goal. I guess that's our strategy. We think that, it's not whether we can reach it. I think for the sake of humanity, the countries have to get to that goal of zero carbon by 2050.
Sure. Thanks. That helps. Thank you.
Thank you. We take the next audio question from the line of Abhijit Mitra from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my question. My question is to Steve. You know, just to retrace back the history a bit. You know, when the first expansion was announced in FY 2011, and I think you have mentioned it in the slides also, it was a $2 billion expansion. At that point of time a guidance was given that your EBITDA per ton will increase from $300 to $450. This is almost a $1 billion of additional EBITDA that we were supposed to get by spending $2 billion of CapEx. From which we achieved that. We did achieve that, but the scenarios were not ideal in the sense that we required the scrap aluminum spread to expand to achieve it.
Now, on the contrary, today when I see, you know, $4.5 billion of, you know, incremental CapEx, along with increase in volumes, would you also like to give an increase in EBITDA guidance? Or else the, you know, return ratios look, a lot different than it was looking back in FY 2011 on the incremental money that is being spent. That's my first question.
Yeah, I think I'll ask Dev probably to answer that question, and request Dev not to give any guidance on EBITDA.
I think that what I'll say to your point is that we are in an extremely different environment when it comes to our end markets as compared to way back in the early to the middle of the last decade, which you are referencing. For example, the kind of market conditions that we see are both on the demand side and related to that on the pricing side in can, driven by sustainability, new generation drinks, the acceleration of sustainability agenda also impacting the demand for aluminum in automotive, the shortage in the building and construction market in the U.S., for example, and even beyond. The fundamentals of the business are in a very different place.
At this time, you know, we are obviously not going to give you guidance, but what we can tell you is that these projects are going to be very significantly accretive to our earnings. We really don't have any concerns about the ability of these projects to drive earnings up and give us attractive returns. That's where I would leave it.
Okay. Fair enough. On the medium term and on the near medium term, can you lay down the tailwinds and the headwinds that you see in Novelis business? We can understand some of the tailwinds in the form of higher or rather headwinds in the form of higher energy costs and probably higher working capital requirements also. What are the tailwinds that you see, you know, as this sort of, you know, unforeseen scenario evolves?
Steve, you want to take that question?
Yeah. Maybe start with the tailwind, but we'll mention a little bit of the headwinds that we are seeing too. Obviously, market conditions are very robust right now. Everything that we can produce, for the most part, we can sell. The constraint on the sales only comes with semiconductor chips, so it's at our customers or supply chain issues at our customers where they can't produce at a given point in time. We also, obviously, with our recycling business, and the increases in overall aluminum prices, we do see a benefit in that side of the business as well. Now, offsetting that, there are headwinds that we are having to deal with and significantly coming at us in the fourth quarter.
Semiconductor chips has continued in the fourth quarter, similar to what we've seen in the first three quarters, maybe will be a little bit worse, with our overweight to our large customer in North America, who seems to have had further issues with the ability to source the chips. Second is the geopolitical Ukraine-Russia war that's driven the energy prices up that Dev's talked about. That's a significant headwind that we're experiencing in the fourth quarter as well versus what we would have seen in the third quarter. Supply chain interruptions. We've had a trucker strike at the Canadian border. We continue to see disruptions in supply chains on ocean freight.
Ability for us to source the right materials to the right place at the right time has caused some operational issues driven by some of the supply chain disruption. Those are not permanent. When you start to think about the medium term, those will come off. It's hard to predict exactly when. As we think about, you know, the very, very near term, it's a difficult market conditions to deal with outside of the very, very favorable market conditions that we see in the end markets that we could get to. Maybe I'll just ask Dev if he wants to add a little bit more and maybe give a little bit more quantification of any of that.
Yeah. Thank you, Steve. I think that we really need to emphasize on two things as far as the immediate quarter and maybe the short term is concerned. The two themes are inflation and supply chain disruption. Inflation is what I already said earlier to Indrajeet's question, that energy prices, particularly energy prices in Europe, but globally, are on a runaway track. You know, they have delinked themselves from metal because typically some inflation was there even in the earlier quarters, but we were able to offset them with metal and recycling benefits keeping pace. This quarter it has got a bit delinked because of the abnormal geopolitical environment.
In general, inflation, most of it being energy, we could have an impact of somewhere in the vicinity of INR 40 million in this quarter as compared to, you know, sort of, let's say, the earlier quarter, maybe the earlier two quarters, in some ways. Supply chain disruption is the other theme. I mean, at least in my memory, I've never seen supply chain so disrupted as we are seeing now. The ability to source material in time in many cases or sometimes source material at all has been a headwind. As a result of that, combined with the continuing chips issue, which got a bit exaggerated, exacerbated this quarter, you know, we are seeing some immediate short-term headwinds.
All in all, I would say, as I mentioned, you know, in the vicinity of, like, INR 40 million inflation impact, another about INR 30 million-INR 35 million or so of, you know, sort of supply chain and other, you know, disruptions, including some extra impact of chips over the normal INR 25 million that we have been seeing, is something that we are facing, at this point as we speak. That's just to give some color.
Thank you.
Great. That's all from my side. Thanks.
Thank you. We take the next audio question from the line of Ashish Jain from Macquarie. Please go ahead. Mr. Ashish Jain, your line is in talk mode. Please proceed with your question. As there is no response from the current participant, we move to the next question from the line of Ritesh Shah from Investec. Please go ahead.
Hi. Thanks for the opportunity, and sorry for the earlier miss. I had a specific question. I have two questions. One is, if I look at slide number 37 and slide number 40, we have indicated carbon emissions. I just wanted to check whether it includes Scope 3 emissions or not, for both India as well as Novelis.
Yeah. I think, for the Novelis one, for sure it includes Scope 3. In India as well, you have to remember that for the India business, Scope 2 is the majority because it's mostly power, and power tends to be captive. Yes, in both cases. Though, I have to say in India, the calculation of the Scope 3, we are not as systematic as we could have been. In the Novelis case, yes, it includes the Scope 3.
My question over here is specifically for India, wherein we have given a target of FY 2025 basis, it is excluding Scope 3. If one had to go for incremental coal mining, if the company had any incremental sustainable bonds, would you benchmark it to Scope 1, 2, and 3 together, or would it be only Scope 1 and 2, taking into account our enhanced focus on having more captive coal mining going forward?
I just want.
I'm linking two things. I'm just trying to get a flavor of it.
Yeah, but let me tell you again, the coal mining is Scope 2 for us because power is captive. This number that you see includes, and that's why you can see the growth projects, just like Novelis, we add when we have growth CapEx, growth projects coming in, that increases the carbon. The calculation of the carbon emissions for Hindalco in India, which is Scope 1, Scope 2, is majority 90% of the emissions that we generate.
Right.
The coal mining is not in Scope 3, it's in Scope 2.
It's in Scope 2. Okay. And specifically if I look at the estimated number for FY 2022 versus the stated target for FY 2025, the reduction honestly doesn't look much from 19.7 to 18.1. It looks good on a baseline of FY 2012. How do you look at our placement versus other global peers, wherein they talk about black aluminum versus green aluminum? Is it something what we have indicated even on a target basis? Is it like, is it good enough to match up with the global peers?
Look, the global players are largely divided into three categories. People who have hydropower and have had it for the last 60 years, like Norsk Hydro, RUSAL, and some parts of Rio Tinto. Then you have another bunch of global players like EGA, Alba that are natural gas. You go from about 4-6 tons to get about 8-10 when you get to natural gas. Then you come to vast majority of China and India, which is in this 17-18 type of tons per ton of aluminum. I think that what we are trying to do from an India point of view, as I said again, you are not going to see a coal-based power get much below.
To bring this down to 18, we are adding renewable power to the mix. The way we can get this further down is if our pumped hydro projects, which I talked about, which is the 100 MW-300 MW works, then we will actually start to increase the power consumption from that more. It will sharply start to go down from 18 towards the 10s and 12s. From a pure aluminum smelting point of view, as I said, in India, this is where we are the most handicapped, and this is where most of the projects are, most of our efforts are going.
Let me tell you, when you go and look at someone like S&P Dow Jones looking at an ESG ranking, we are industry or world leaders when it comes to water, biodiversity, zero waste to landfill. This is where we get a lot of the additional brownie points that takes our ESG ranking up. That's why I go out to when I made my presentation to say, when it comes to carbon, because we are coal-fired, that's where we are weakest. Let me remind you that most of the knowledgeable bodies who look at ESG look at the holistic picture of the whole environmental impact, and that's where we tend to do well. That being said, to get this to 18 is still a challenge for us with coal.
We have, if we have to bring it much more down than that, we have to get to another energy source.
Right. Sir, I just want to probe a little bit over here. You indicated again on pumped hydro. I think we have given a range in the presentation. Are we looking at incremental solar and wind corresponding to the pumped hydro commitment? I'm more referring to it from an incremental CapEx standpoint. If one has to look at something like ArcelorMittal India recently made an announcement of $600 million, but they are actually setting up nearly 975 MW of solar and wind to cater to a particular pumped hydro capacity. How should one understand this when we look at it from an incremental capital allocation standpoint? I'm more trying to understand from an incremental ROC standpoint when we allocate incremental capital.
I get you. I think that our CapEx we are putting towards our sort of internal solar wind projects. When it comes to the third party that we mentioned on the pumped hydro, I think our commitment, all I can say at this stage will be limited to the 26% so that it becomes group captive. I think we'll leave it at that. I think our CapEx will be at around 26% of what the project needs, so that we qualify for the group captive.
Okay. Sir, would you put a particular CapEx number specific to all the ESG related CapEx? Is there a particular number which has been carved out, say from now till April 5?
Number four?
CapEx which is related specifically to get the carbon intensity down for the India operations. Is there a particular number that one should look at?
No, I think that, you know, it'll be fair to say that if you look now at our internal maintenance CapEx, many things like water, FGDs to reduce the NOx, SOx, sorry, all those we are now building into our maintenance CapEx. The one specific thing I'll tell you is that we used to guide our maintenance CapEx as around INR 1,000-INR 1,200 crore a year. That now we have raised it to INR 1,500 crore because some of those, these things we are putting into our normal maintenance CapEx. Because again, on all these things, it's going to be a license to operate so that we have built it into our system. Whenever we give a CapEx guidance, we include all those going forward now.
Right. Thank you so much. Sir, last question, on bauxite. Do we have 100% backward integration with all the captive mines? Or do we still have tie-up with external, merchant miners on long-term basis? I'm just trying to get a sense on that. Thank you.
We are fully self-sufficient in bauxite except for Belgaum. Belgaum, which is the specialty alumina plant, we do buy bauxite from third-party sources. For Renukoot, for Muri, as well as for Utkal, we are 100% self-sufficient in bauxite.
Sure. Perfect, sir. Thank you so much. Thank you so much for the answers.
Yeah, thank you.
Thank you. Before we take the next question, a reminder to the participants, please limit your questions to two per participant. For follow-up, you may be requested to rejoin the queue. The next question is from the line of Vishal Chandak from Motilal Oswal. Please go ahead.
Yeah, thanks for the opportunity. My first question is to Steve. Steve, if you can just highlight what is the kind of threat from compostable or biodegradable packaging options that you are seeing currently? Can that be looked at as a sustainable alternative to aluminum can packaging because it's more cheaper and obviously it's biodegradable, so matches with your concept of recyclability, sustainability?
Yeah. I mean, I think there's gonna be more solutions than just aluminum. You know, I think what's unique about aluminum is the infinite recyclability of it. So if we can get it back, we can produce another can, put it right back on the shelves in 60 days. So it just keeps looping, and that's the closed loop recycling that we talk about and the closed loop circular economies that we talk about, that we think the aluminum beverage package has a distinct advantage. As it relates to biodegradables, you know, in all of our discussions in what we're projecting from a growth standpoint, we don't necessarily see it as a threat to growth that we've laid out today.
Certainly believe in the product, and our customers believe in the product that of aluminum and the recyclability of aluminum.
Okay. My next question was with regard to the brownfield expansion in India. At what LME do you think would be the break even for this brownfield expansion? As you mentioned, Novelis cash flow is fairly ascertainable, fairly predictable, but India is quite volatile in terms of LME. At what level of LME do you expect this facility to be breaking even?
I don't know about breaking even because, you know, the input costs are also something that goes up and down with the LME. Let me put it this way, I don't think you can just take an LME price and decide to do a project. What has caused us to relook is that there is fundamentally a supply-demand situation, and aluminum seems to have changed. It has changed for a couple of reasons. One is that China has shown remarkable restraint, and people believe that probably China will not produce more than 40 million tons of aluminum.
Second thing is that, for various ESG and other reasons, the demand for aluminum seems to be extremely strong. If you looked at the presentations, both from the Novelis side and what Praveen made in India, aluminum seems to be, in many ways, a metal of choice for many of the green initiatives, whether it's electric vehicles, whether it's aluminum cans going forward. What you're fundamentally seeing is that there is a strong demand, and then you're going to see supply very constrained. Why that supply is constrained is because everybody who needs to bring in new supply needs to find a very low carbon source of energy. This is why we believe that, the aluminum prices are going to remain, quite firm.
This is why if somebody can come up with an alternative way of powering a smelter, which is what we are trying to do with the pumped hydro project, then we believe that it is going to be financially very lucrative return. It's not just purely dependent on an LME price anymore. I mean, LME's in the 2,000s would have given you a reasonable return, but at that time we didn't consider it.
Got it, sir. Just last, if I may squeeze in one more. What kind of premium do you look at when Novelis talks about green aluminum or when your competition talks about green aluminum? What kind of premium over LME does that command?
I think, you know, this is where, as a seller, you will want a premium, but I'll let Steve answer as a buyer, 'cause I'm quite sure he doesn't wanna give a premium.
Listen, we are very diversified in our buying and are not seeing anything significant as it relates to green aluminum premiums from our perspective right now.
Basically, the green aluminum does not drive any premium, but it drives up the cost. Fundamentally, the whole question of sustainability from the buyer's end is that we continue to push in more cost, but bear that on our end.
Which is why my point was that fundamentally, the supply and demand of aluminum has changed going forward because of the big demand for aluminum that has to be produced. Any new capacity has to be a low carbon source. It's frankly low carbon sources are either expensive or very difficult to get, which is why I think you're going to see the price of aluminum to be quite firm going forward. A lot more recycling, which is why
Got it. Thank you.
If you look at the whole thing with the Novelis, we are gonna increase the amount of recycling.
Thank you.
Thank you. The next audio question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead.
Hi. Good evening. Thank you for the opportunity. A couple of questions. One is on capital allocation. You previously outlined 15% hurdle rate. When you look at all the projects you've outlined in your presentation, do you feel comfortable that they will meet the hurdle rate? Or put it another way, did you evaluate capital return versus CapEx in all your capital decisions? It ties to the CapEx, greenfield CapEx, for hot mill expansion in U.S. It's probably the first expansion of hot mill greenfield in the last 20 years. There are two schools of thought there. One is the market is somewhat tight, the buyer is entering into longer term contract, pricing is somewhat attractive and take the first mover advantage.
The other one is, as an industry leader, wait for the pricing to improve further before you generate ROC rather than committing capital and not letting the market tighten as much as it could. How do you evaluate that decision in that kind of framework? And have you identified a site for the greenfield CapEx for hot mill expansion? And could there be a subsequent downstream possibility there? That's the first question.
It's a lot of questions in one. I think that the first part of your question, we absolutely evaluate the rate of returns on the projects. As I think I said earlier, majority of our projects have a very good rate of return. The specific ones that you talked about, large greenfields, is where our minimum hurdle rate is in the mid-teens. I think that it's a fairly good rate of return before we commit capital. I'll let Steve now answer on the specific question you had on the greenfield U.S.. Steve.
Yeah. On the U.S. greenfield, I'm not so sure it's an either/or. I think we've been discussing that we would need to see the right terms and conditions inside of contracts to move forward with any significant expansion anywhere in the world. As I think Dev mentioned, in discussions with our customers and with support of our customers, we have seen that, and we are in a position to be able to put something in the ground in a greenfield manner in the U.S. to meet the returns that Satish has spoke of. We're very confident in that.
We didn't just speak of the U.S., our global presence. We have spoken of investments all over the world to support this growth.
As it relates to the site selection, we're down to the last piece in getting to the site selection, but the site is not something that we would disclose at this point in time.
Did we get all three? Second question was related to the brownfield optionality in the portfolio. Kind of surprised to see significant optionality in both Europe and Brazil, especially the CapEx for Europe was pretty low for brownfield compared to just the industry average. Specifically on Brazil, you've outlined almost 0.5 million ton expansion. I believe Novelis is the market leader with kind of a monopoly in that market. You've outlined sizable increase in capacity in that market, almost doubling the capacity there. Do you see the trend of two-way glass substitution for aluminum or the market being able to absorb that kind of supply in the next few years?
I know the market is somewhat tight, but do you see the demand growing to that kind of level to be able to absorb that capacity?
Steve?
We highlighted what we're looking at from a capacity expansion standpoint. We're not saying that we would absorb in Brazil all that capacity in the next five years. The market will not drive that level of increase in demand in Brazil. It's a great forecast of growth, but not at that level. We also have learned that we need to stay ahead from a capacity standpoint, specifically in Brazil, but also globally. When we're running at full capacity right now and we have customers knocking on our door trying to get more product, we're late to the game in some of these expansions.
The other notion here is that we can utilize for a few years the Brazilian overcapacity to be able to support other parts of the world and support other customers. Don't take the 450 as over the next five years, 450 KT expansion, that will be full in Brazil, but it will be highly utilized throughout the world.
Okay. Just one more question, if I can squeeze one quick question. On the aluminum center expansion that you've outlined on field in India, you mentioned bids for ongoing supply of power, maybe from Greenko and from hydro. Is it possible to outline what kind of pricing you're looking at for supply of power, and how does it compare to the existing cost of production? I believe it's gonna be higher than what your current cost of production for power is. Is it maybe possible to outline what kind of difference could you be looking at?
Very good question. Let me tell you, the way we looked at it is, the cost of power from the third party will be higher. But when you take in the cost of the RECs that we have to buy for thermal, and the fact that the pricing of the RECs, I don't know if you follow it, is starting to go up as well. The norms are tightening. If you look at a combination of the coal pricing going up, the RECs, the renewable certificates that you have to buy, we actually think that we have a reasonable NPV being generated. Not too much, but a break-even type by doing this.
Yes, it's slightly higher, but taking into account some of the other costs that go with thermal, we think that it makes sense.
Okay. Thank you so much.
Thank you. The next audio question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Yeah. Thanks for taking my question and thanks for the elaborate presentation. I have two questions. The first one is essentially on Novelis. While you outlined the supply demand gap that is going to increase from 2022 to FY 2030 in North American beverage can market, is there any such supply gap number you might have in auto? How is it increasing? Just wanted to understand why people are not setting up the beverage can facilities in the U.S. and not with the same way that you are if the market looks so attractive. That is on Novelis.
Okay. Steve, you wanna take that?
Yeah, sure. I'm not I can't speak to what our competitors are gonna do or not do. I think we're in a very unique position with our balance sheet and our global footprint and our relationships with our customers that we feel very good about the decisions that were made, supported by investments that our customers have made in North America, $4.1 billion since 2018 in new capacity that's driving a significant gap as you highlighted. And so from that perspective, we you know, we think that we have a unique position to play here. I don't remember the other question.
The auto.
Oh, auto. Yes. Okay. Now coming back to auto. As Dev had mentioned, even the greenfield facility that we are potentially gonna put in the ground in the U.S. It is not all can. There is a portion of that facility that will be dedicated to auto. We do see continued growth in that market. The cap's not nearly the size of can, but certainly it's one that we have to continue to find capacity as a market leader there for it as well. Certainly that's part of that project.
I think that maybe I can just add.
The second question is on India business, AP.
Just wanted to add one view when you asked about the competitors. I think that to take the point that Steve was saying, if you see the size of the investment that's required, you will find that most of our competitors and others will need to have those levels of balance sheet strength to make an investment of that size. So that is the first point. The second is, as one of your colleagues said, it's probably the first new hot mill that will be put in the ground in over the last 20 years. So I think that the confidence of the customers as to who can put a brand-new hot mill and get that commissioned in time, I think that they trust Novelis as the industry leader there.
I think that many of the questions that have been asked, should you wait longer? Should you try to squeeze the market more? I think as an industry leader and with the push of many of our customers, we are actually thinking that this is the right time to do it.
Okay, great. Thanks for that extension. The second question is on specialty alumina business as we see it. I mean, as I see it in the slide, it does look very attractive with so much global opportunity. First of all, what kind of incremental EBITDA margins we generate over specialty alumina when you compare it with metallurgical-grade alumina? Secondly, is there an option the company's exploring for exports of both specialty and, you know, the metallurgical-grade alumina? Can there be a switch between, you know, well, putting up more specialty alumina capacity in place of metallurgical-grade alumina if the market deems to be attractive? Because we are talking about, you know, a fairly long horizon and things can change midway.
Okay, Praveen, can you take that question?
Yeah. Yes, you know, this is definitely value accretive, and that is why we are looking at it more seriously now. We are the only player currently, the only manufacturer in the country, so that gives us an extra edge. The question about global market, yes, we today also export in a significant way, but really speaking, there's a huge potential out there. You asked about the switch between the metal-grade alumina and specialty alumina. Yes, it is possible, and we are actually gradually seeing that happening. We have a potential to convert part of Muri. We today also do some specials in Muri. Belgaum is purely specials, but Muri can also be, the amount can be increased going forward. Yes, maybe the answers to all your questions is yes.
Okay. Can I squeeze in just one more question? Okay, thanks. You know, when I see the recycling content at Novelis, you know, from 59%, if I look at the full phased capacity, 3.9 over five days, it would be like almost 67%. Is it possible to let us know the product-wide recycling content that you have currently, let us say in auto, beverage can, I'm sure it would be the maximum, and specialties. What is it now and how is it going to change at the full-blown 67% kind of recycling content?
Steve, you wanna?
Yeah, we showed you on the slide that we're north of 75% in recycled content for beverage cans. We still think there's further opportunity to increase the amount of recycled material inside of can sheets, so we do see that as expanding. Our building and construction business in the U.S. is 90%+ recycled content. Very efficient. The assets that we acquired from Aleris, we don't see that moving or necessarily growing because that's the continuous cast business versus the expansions that we're putting in. The other specialty categories vary, so it's hard to talk through all those. Auto is on the lower side.
This is where we just announced a few months ago the addition of recycling capacity associated specifically with auto body sheet. Getting more back in the closed loop from our customers, as well as going after now end-of-life recycling for aluminum sheet on automobiles. We do see the recycled content growing in the auto sector in our auto sheet. Then finally, aerospace is very, very low. We're working, that will take a long time to qualify, but we are working from virtually no recycled content with a number of aircraft OEMs to figure out how we can increase recycled material in that as well.
Primarily, it'll come in further penetration, in can, and then more in auto as we get more scrap back.
Great. Thanks for the elaborate answer. That's it from my side. Thanks all. All the best.
Thank you. The next audio question is from the line of Prashanth Kota from Dolat Capital. Please go ahead.
Thanks for the opportunity and to the management team, I really congratulate and appreciate the growth project plan that you have put out as promised only a couple of months ago. I have two questions. First question is on, sir, we have outstanding projects across India and Novelis over the next five years, and now our leverage ratios are quite modest and quite low, net debt to EBITDA kind of numbers. Is it possible that, and even now you say you plan to reduce debt further.
Why not, instead of doing all this in five years, as in, why not do it in three years and allow some tolerance for net debt to EBITDA to, you know, go up to 2.5, three during growth CapEx years that are reasonable and so that this is more firepower earlier, and, you know, just wanted to know your thought process on this.
I think that, you know, one of your previous colleagues had asked, it's not that we have planned this project cycle just based on how much cash is available, because these projects, many of them require a lot of planning. We are going through quite a tough life cycle. You know, we'll try to order equipment now. Some of the lead times that the manufacturers give you is also quite long. I think that, you know, we will try to accelerate some of the approved projects as much as we can, but the ability to suddenly shift large projects from five to three-year time frame is a little bit not practical. The other thing is, why are we de-leveraging? Because, see, we have been very consistent in our communication.
In India, we have a $600 million bond coming due. This is the highest interest rate, you know, 9.35% or 9.5%. That we are going to repay next year. In India, we also intend to repay about INR 2,500 crore of Utkal long-term loans. In India, we are quite still vulnerable to LME fluctuations, so getting the gross debt down by another INR 8,500 crore, I think in good times is a prudent thing to do from the India time. Now, when it comes to Novelis, we don't have any large repayment planned at all. I think there is only a tail $300 million of a term loan left. Otherwise, most of the Novelis cash flow is going into its projects.
Okay. Understood. Sure. Understood. My second question is on again aluminum smelting capacity. We are, as a country also, we have committed something 2070 to be net zero carbon. As a company also we have 2060 for that. Absolutely why not temporarily let the emissions go up at an absolute level, but the intensity will be lower. That is what I mean to say. Why not add more smelter capacity until 2027 or 2030 or 2035, and then maybe after 2030 we'll have breakthrough disruptive technologies which we are not able to foresee now for carbon capture storage and disposal or usage.
Maybe if we go too conservative on not adding aluminum smelting now, in 2035 or 2030, in hindsight, we may see aluminum, you know, something disruptive does come, and there's good chance that something could come up. We say, "Okay, we missed, we probably could have, we get that, you know, and take a more. That we feel that we should have done something." Just wanted to know your thought process on that question.
Well, look, our thought process, let me be very clear. I mean, people like you who have been following what we have been saying over the last few years, this is a very India-specific question, and my answer will be India-specific. We have said that we are going to invest to increase the downstream content going forward in India. You know, most of the capital allocation has been towards those value-added downstream, and that is actually starting to pay off. We are starting to gain good high sort of value-added products coming in. I think that is the first pillar of our strategy. We produce nearly 1.3 million tons of primary aluminum and our downstream portfolio is only about 350 KT.
We want to replicate Novelis in India by getting at least to 600-900 KT of downstream products. Because I think that the valuation, the multiples that the market gives to a downstream business is a lot more than the upstream going. That part of the capital allocation and on our first strategy, we are not changing. Now, what we are also saying is at this elevated high LME levels and with the increased cash flow we have, keeping in mind our ESG commitments, because we have to look at the larger Hindalco Novelis picture here and how our investors look at it.
We can't just throw away everything and say we're gonna add coal-fired smelting in a big way because that is going to damage the shareholder value and our investors who look at Hindalco and Novelis as a consolidated stock right now. We are trying to do the balancing by saying that we will look at smelter expansion, but we will look at it from a carbon point of view as well, which I think is the responsible way to look at it. I don't think we can just put in smelting and say, "Oh, we hope by 2030 some breakthrough will happen." What if it doesn't?
Understood. Just one small follow-up on that. Assuming capital and carbon is not a constraint, at Aditya and Mahan, what is the max capacity that can be added, sir? What is the feasibility?
With the existing environmental clearances we have, we can double both. They are 360 KT each. We can double both of them. We have enough land. I mean, these projects were built with that expansion in mind.
Wonderful. Thank you, sir. Thank you. That's clear. Thank you.
Thank you. The next audio question is from the line of Vikash Singh from Phillip Capital. Please go ahead.
Good evening, sir. Thank you for taking my question. Sir, I just want to understand in terms of Novelis, like we said that we have taken some $14 million impact from the energy. In our contract, have you built in the charge also? Just wanted to understand, like the steel companies are-
Sorry, built in what?
Have we been able to?
Can you please repeat?
Am I audible, sir, maybe?
Yeah, now go ahead. Now a little bit louder, sir. Yeah. Please repeat.
Yeah. Just wanted to understand, like the energy cost hit, which we are talking about, like steel companies, have we been able to put some additional surcharge to our customer to recover part of this cost, or it is not feasible in our case?
Yeah. Okay. Dev, can you take that?
Yeah. Vikas, I think I can take that question. We have a very good majority of our contracts where we have a PPI pass-through, which basically enables us to pass through cost increases, of course, in some areas. As we approach the future quarters, we have already started invoking the PPI clauses. As we invoke them, we will start getting the compensation for the inflation in general. Just to broaden your question to make sure that we explain the whole pass-through situation, a vast majority of the freight that we are incurring is already being passed through fully to customers. A vast majority of it is being fully passed through to customers.
Basically, with the help of PPI clauses, some direct pass-throughs, particularly freight, and third, just the overall very strong pricing conditions, I think that we are in a very good situation. The only exception that I'm making, which I spoke about elaborately earlier, is that we are just in a very special and abnormal time at this point on energy inflation. Some part of that, you know, in the short term, we'll have to swallow it, and we don't expect that this is a sustainable situation and things will get back to a more stable situation, hopefully, not too long from now. That's really what it is.
Understood. My second question pertains to our rolling and recycling ratio. Our presentation says that we would remain in 65%-67% kind of the recycling content. Just wanted to understand, are there any product specific requirement which doesn't allow us to go above the recycling percentage above that limit, or is this a specific design which actually we just think that 65%-70% is good enough for us?
Yeah. Steve, you wanna take that?
No, I think we'll continue to strive for more than 65%-67%, and I gave a few examples of high recycled content alloys that we're developing and getting qualified in our building and construction business, and in other areas. That takes some time. As we build out the kind of plans that we laid out for you all today, it doesn't always take into account all those initiatives that will continue to drive it up. We've got a good path forward to the 65%-67%. We feel really confident in that, and we're gonna continue to innovate and find ways to increase that over time.
Just to follow up on this. Right now there are some constraints which don't allow us to go beyond that level. Is that a correct presumption?
In majority of the situation, the constraint is actually getting the recycled content. If you think about automobiles, we're waiting for end-of-life aluminum to come back, find ways to collect that back. We know that if we can collect it back and segregate it, we can increase the recycled content in the alloys that we sell back to. In the vast majority of the situation is constrained by us getting the scrap back in that closed loop, circular economy system. When you think of beverage cans as an example, we're starting to meet the limits, but we're continuing to innovate and push past some of those limits as well with support and collaboration with our customers. It's mixed depending on each product.
Understood. Thank you for taking my question.
Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the floor back to the management. Over to you.
Yeah, no, I would like to thank everyone for participating in this investor call. I think that you know, we try to elaborate our capital allocation framework, where we stand from an ESG point of view, and give you clarity as to the thought process going through the management-wide. I hope we have managed to give you a clear picture of what we are targeting over the next five years. Thank you for your attention. Thank you.