Ladies and gentlemen, good day and welcome to Hindalco Industries' Financial Year 2025 Second Quarter Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Subir Sen, Head of Investor Relations at Hindalco. Over to you, sir. Thank you.
Thank you, and a very good afternoon or morning, everyone. On behalf of Hindalco Industries, I welcome you all to this earnings call for the second quarter of the financial year 2025. In this call, we will refer to the Q2 Financial Year 2025 investor presentation available on our company's website. Some of the information on this call may be forward-looking in nature, and it's covered by the safe harbor language on slide number two of the said presentation. In this presentation, we have covered the key highlights of our consolidated performance for the second quarter of financial year 2025 versus the corresponding period of the previous year. A segment-wise comparative financial analysis of Novelis, India Aluminium, and Copper Business is also provided. The corresponding segment information of prior periods have also been restated accordingly for a comparative analysis.
Today, we have with us on this call from Hindalco's management, Mr. Satish Pai, Managing Director, and Mr. Praveen Maheshwari, Chief Financial Officer. From Novelis's management, we have Mr. Steve Fisher, President and CEO, and Mr. Dev Ahuja, Chief Financial Officer. Following this presentation, this forum will be open for question and answers. Post this call, an audio replay of this conference call will also be available on our company's website. Now, let me turn this call to Mr. Pai to take you through the company's performance in the second quarter of fiscal 2025.
Thank you, Subir, and hello, everyone. Thank you for joining Hindalco's earnings call today. I'm happy to share.
No problem.
I'm happy to share an incredible milestone for Hindalco. We retained our leadership position in the S&P Corporate Sustainability Assessment Ranking 2024 for the fifth consecutive year. Our score of 87 out of 100 was an improvement to our last year's score of 78, and our highest score till date. Our commitment to sustainability, responsible practices, and innovation continues to drive us forward, and this recognition reflects the hard work and dedication of our teams across locations. On slide five to nine of this presentation, you can see our achievements and progress across metrics of ESG for this year versus the prior period. I will now take you through some of the key highlights in this quarter. In Q2 FY25, 79% of the total waste generated was recycled and reused. We achieved recycling of 111% of bauxite residue, excluding red mud, and 99% of the ash in this period.
I'm pleased to share updates on our sustainable water management initiatives key to our environmental goals. In partnership with CII Triveni and following NITI Aayog's Water Positivity Framework, we are undergoing certification assessments at five sites: Aditya, Utkal, Hirakud, Alupuram, and Belagavi. This is a vital step toward ensuring that these facilities actively contribute to regional water replenishment. On zero liquid discharge, 15 of our 19 sites now meet ZLD standards, eliminating wastewater discharge. Our projects at Kuppam and Renukut are on track with target completion in FY25, enhancing our environmental performance. Additionally, we achieved notable progress in water recycling in H1 FY25. We recycled and reused 9.34 million cubic meters of water, which is 25% of our total water usage of 37.74 million cubic meters, showcasing our commitment toward conservation of water.
These initiatives highlight our dedication to efficient resource management and our commitment to supporting sustainability in the communities where we operate. On the biodiversity front, we have completed a pilot project at Renukut to remove the invasive species of plants, replacing them with 2,000 native saplings. Additionally, biodiversity management plans are under assessment for three plants and 11 mines. We have already implemented BMPs at 21 locations covering 9 plants and 12 mines. These initiatives demonstrate our commitment to preserve and enhance local ecosystems across our operations. Our total renewable capacity now stands at 183 megawatts, primarily from solar and wind. Recently, we commissioned a 10-megawatt solar project at Taloja. We are set to add another 6 megawatts and 9 megawatts of solar projects and a 100-megawatt hybrid project with storage in the first half of calendar year 2025.
This aligns with our target to achieve 300 megawatts of renewable capacity by H1 of calendar year 2025. Our aluminum-specific GHG emissions were recorded at 19.62 tons of carbon dioxide for producing a ton of aluminum in this quarter, which was flattish compared to the same period last year. On safety, our LTIFR was recorded at 0.29 in H1, which was higher compared to H1 of the last financial year. We continue to focus on reducing the LTIFR by continuously upgrading our safety enhancements and monitoring systems. We are very sad that we had one fatality of a contract workman that was recorded at our Indian operation this quarter. Let me now give you a glimpse of our quarterly consolidated performance this quarter versus the same quarter of last year on slide 11.
This quarter's performance on a consolidated basis was driven by record beverage packaging shipments at Novelis and better cost control in the aluminum India business, backed by a continuous record performance by the copper business. Our consolidated business segment EBITDA was up 24% year-on-year at INR 8,564 crores, whereas our overall reported EBITDA was up 49% year-on-year at INR 9,100 crores this quarter. The consolidated net profit after tax was 78% up year-on-year at INR 3,909 crores this quarter. At the Hindalco India business level, our overall reported EBITDA was up 100% year-on-year at INR 5,139 crores this quarter. The net profit after tax was up 135% on a year-on-year basis at INR 2,850 crores.
In our Indian aluminum business for the second half of FY25, we are currently hedged at around 30% commodity at a price of $2,579 per ton, and around 15% of the commodity is at a zero-collar with a bottom of $2,262 and a ceiling of $2,547 per ton, and we have hedged around 15% of the currency at INR 88. On the balance sheet side, our consolidated net debt stands at 36,033 crores. In the India operations, we have a net cash of 2,269 crores, while Novelis's net debt stands at 39,261 crores at the end of September 2024. Hindalco, at the consolidated level, continues to maintain a strong balance sheet with a net debt to EBITDA well below 1.5 at 1.19 times at the end of September 2024, which is lower than the corresponding period of last year.
All our strategic CapEx in India is matched with cash flow generations in the business and is in line with our capital allocation policy. Coming to our business-wide performance this quarter, Novelis shipment was at 945 KT versus 933 KT in the prior period, up 1% year-on-year, backed by record beverage packaging shipments. Novelis delivered a quarterly EBITDA of $462 million, down 5% year-on-year due to reduced metal benefits from rising aluminum scrap prices, an unfavorable product mix, and a $25 million impact from the flooding at Sierre plant. The resulting EBITDA per tonne stood at $489 versus $519 in the previous quarter, down 6% year-on-year. All our expansion projects, including the Bay Minette project in Novelis, are on track, with a new 240 KT automotive recycling and casting center at Guthrie being in the initial production and ramping-up phase this quarter.
On Hindalco's India upstream aluminum performance this quarter, shipments were down 2% year-on-year, and revenues were up 16% year-on-year. EBITDA was at 79% up year-on-year at 3,709 crores, primarily supported by lower input costs and favorable macros. The resulting EBITDA per ton stood at $1,349 per ton, higher by 80% year-on-year. EBITDA margins were also higher at 41% this quarter and continue to be the best in the global industry. This quarter, the India downstream aluminum quarterly shipments were up 10% year-on-year at 103 KT on account of market recovery. EBITDA was down 1% year-on-year at 154 crores this quarter versus 156 crores in the prior period. The resulting EBITDA per ton was at $179 per ton, lower by 11% year-on-year this quarter, impacted by unfavorable product mix. Our copper business continues to deliver its best-ever performance this quarter as well.
The overall metal shipments were at 117 KT, down 13% year-on-year, of which the CCR volumes were at 90 KT, down 10% year-on-year. The quarterly copper EBITDA was at an all-time high of INR 829 crores, up 27% year-on-year, on account of good operational efficiencies coming out of the shutdown in Q1, higher realizations in byproducts like sulfuric acid, and higher sales of precious metals. This higher EBITDA includes a one-time favorable impact of derivative accounting as well.
Now, let me give you a glimpse of the current broader economic environment on slides 13 and 14. Global economic growth remains resilient despite some moderation in pace in H2 of calendar year 2024. Pace of global economic expansion remains uneven, with the service sector growth holding up while manufacturing momentum is moderating. While the U.S. is well-positioned for soft landing, economic activity in China and the euro area continues to remain sluggish.
Going forward, IMF projects GDP growth to remain steady in 2024 and 2025 at 3.2%, moderating slightly from the 3.3% we saw in 2023. Growth in the U.S. is expected to moderate to 2.2% in 2025 from 2.8% in 2024, and in China to 4.5% in 2025 from 4.8% in 2024. Downside risks from increasing geopolitical tensions, negative spillovers from the China slowdown, and financial market volatility continue. Disinflation is expected to continue with global headline inflation expected to moderate from 6.7% in 2023 to 5.8% in 2024 and further to 4.3% in 2025. Geopolitical conflicts remain a key risk to this disinflation trajectory. On the domestic front, economic activity moderated to 6.7% in Q1 FY25 from 8.2% in FY24. Recent high-frequency indicators present a mixed picture. There has been some flattening of momentum with softening manufacturing growth and moderating urban consumer demand.
RBI, however, has retained its full-year FY25 growth at 7.2%, owing to encouraging investment activity, steady services growth, and consumption spending shaping up for a festival season revival. The central bank expects growth to pick up to 7.4% in H2 of FY25 compared to an estimate of 7% in Q2 FY25. Risk to this outlook are geopolitical tensions, geoeconomic fragmentation, and volatility in international commodity prices that continue to remain. RBI projects inflation to moderate from 5.4% in FY24 to 4.5% in FY25, with significant upside risk from adverse weather conditions, geopolitical conflicts, and volatile commodity prices. RBI thus continues to remain cautious and is committed to maintaining the 4% inflation target. Moving to aluminum industry outlooks on slides 15 and 16.
Starting with slides 15, in China, production rose to 11 million tons, while consumption held steady at 11.4 million tons, resulting in a deficit of 0.4 million tons in Q3 calendar year 2024. This steady demand was supported by strong drivers, including a 20% surge in solar installation, a 32% increase in new energy vehicle production, and a 21% boost in electric grid investment, and an 18% rise in semi-fabricated product exports. Despite this, the construction sector continued to face significant challenges. Looking at the rest of the world, Q3 calendar year 2024 production reached 7.5 million tons, while consumption was 7.1 million tons, resulting in a surplus of 0.4 million tons. Consumption remained soft in Europe and North America, with continued challenges in the Middle East, particularly Turkey. However, growth in regions like India, Thailand, Vietnam, Brazil, South Korea, and Taiwan remained positive.
As a result, the overall global production and consumption were balanced in Q3 calendar year 2024, maintaining equilibrium in the global market this quarter. Moving to slide 16, the domestic demand for aluminum in India during Q2 FY25 is projected to reach 1.433 KT, reflecting a robust 7% year-on-year growth. This growth was largely driven by strong electrical demand spurred by increased cable and conductor requirements, as well as rising solar energy demand. Packaging demand also provided a boost, while the building and construction sector remained stable. However, the automotive sector experienced some softness due to weaker demand in passenger and commercial vehicles. Additionally, imports excluding scrap showed a significant uptick driven by increased solar frame imports and an inventory build-up in anticipation of BIS certification requirements.
The global aluminum FRP demand excluding China is expected to grow by 4% in calendar year 2024 and 6% in calendar year 2025, with demand recovery across all major segments of beverage packaging, automotive, specialty, and aerospace. Beverage packaging sector showed strong growth driven by favorable consumption and sustainability trends. Automotive growth reflects steady to positive outlook for aluminum in North America. Electric vehicles continue to gain share globally but are growing at a more tempered pace. Specialty products align with global GDP, aided by a construction boost from lower interest rates, though automotive specialty demand is softer. Aerospace remains strong with high orders despite OEM supply chain constraints and labor issues. The Indian FRP demand in financial year 2025 is expected to grow by 7% to 8% on a year-on-year basis, led by strong demand from the packaging segment.
Turning to the copper industry on slide 18 and 19, in Q3 calendar year 2024, the Chinese production reflected a growth of around 4.5% year-on-year, reaching 3.1 million tons, while consumption increased by 7.6% year-on-year at 4.1 million tons, resulting in a deficit of nearly 1 million tons. In the rest of the world, production increased 1% year-on-year to 3.6 million tons, while consumption increased by 0.8% year-on-year at 2.7 million tons, leading to a surplus of 0.9 million tons in Q3 calendar year 2024. As a result, the overall global production of copper increased by 2.6% at 6.7 million tons, and consumption increased by 4.7% at 6.8 million tons, leading to a deficit of 0.1 million tons this quarter. On the domestic front, in Q2 FY2025, market demand increased by 9% year-on-year at 218 KT versus 201 KT in Q2 FY2024.
Domestic producer share decreased to 63% in Q2 FY25 versus 73% in the same period last year. In the first half of FY25, the concentrate availability was limited, and spot TCRCs remained at a historically low level. However, recent global smelter disruptions have led to slight improvements in spot TCRCs. The annual TCRC benchmark negotiations for calendar year 2025 are scheduled to commence during the World Copper Conference and the CESCO Asia Week in Shanghai this month. Details of operational and financial performance in each of our business segments this quarter compared to the corresponding period of last year, as well as the previous quarters, are covered in further slides and annexes to this presentation. Let me now conclude today's presentation with a way forward as India business and the Novelis growth story.
We are making significant progress to increase our downstream capabilities to meet the growing demand for high-value products in India. Our Aditya FRP project is set to commission in FY26, taking our total downstream capacity to 600 KT. We are also creating facilities to develop high-value-added products in aluminum, like AC-coated fin, battery foils, battery enclosures that are targeted toward enhancing our India downstream margins. On the upstream side, we have announced a smelter expansion of 180 KT powered by renewable energy sources, resulting in a total upstream capacity of 1.52 million tons, allowing us to boost our sales of low-carbon aluminum in the coming days. With definitive agreements now signed with OMC, we are moving forward with our greenfield alumina refinery of 850 KT that will supply low-cost alumina to our existing smelters and will also lead to substantial cost savings and improved margins.
In addition, we are also in discussion for long-term partnership to export our surplus alumina that will result in strengthening our international presence in alumina sales. In copper, our plan to expand the smelting capacity by 280-300 KT will lead to an upstream capacity of around 800 KT, ensuring the full integration benefits of our CCR mills while capitalizing on India's growing copper demand. In January of 2025, we are set to launch India's first 25 KT greenfield Inner Grooved tube plant that will help in reducing the country's reliance on imports of IGT for manufacturing air conditioners. In addition to this, we are also creating India's first e-waste and copper scrap recycling facility with a capacity of 50 KT that will drive a formal recycling ecosystem in the country.
We are also building new capacity for high-performance alloy rods and battery foils that will help us help position us to capture the opportunities in these additional market segments in copper. In Novelis, our 600 KT Greenfield Bay Minette project is on track, with steel installation and equipment foundation work rapidly progressing. This is expected to be completed in the second half of calendar year 2026, with 420 capacity targeted to beverage packaging, which is fully contracted. The near and long-term demand for beverage packaging across regions remains very strong, going at an approximate 4% compound annual growth rate through 2031. Novelis's 250 KT Guthrie Recycling Center is ramping up to enhance the overall recycling inputs that will help mitigate near-term pressures on scrap supplies in North America. Thank you very much for your attention. The forum is now open for any questions you may ask.
Thank you very much.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Yeah, thank you for the chance and congratulations on a great set of numbers. My first question, sir, is on the CapEx. So on the slide, there's an announcement for the alumina smelter and even the copper.
So just want to know all the three individually, what is the CapEx you're looking at, and over the next two to three years, how is the scheduling of the spends lined up?
Yeah. So Sumangal, the two smelters which I have to say are both brownfield because the aluminum smelter expansion is in Aditya and the copper smelter is in Dahej. So both these will be roughly a billion each. So on top of what we have already declared, if you put two billion, so we are roughly going to be between four and five billion of declared projects. And majority now are going to be on the upstream side because we finished most of our downstream projects and we are going to let them ramp up. Now, these projects are going to happen over the next three and a half years.
We believe that over these three years, we will probably use the cash we are generating, but also probably in India, we'll probably have to add debt of about $1 billion-$1.5 billion over these three years. With taking into account our sort of net debt to EBITDA place where we are now, should be fairly comfortable for us to manage. We believe that the way we are and the demand we see for aluminum and copper, and the fact that we'll be largely doing brownfield expansions for smelting. I think we should take advantage of our strength of the balance sheet and our market position.
Sir, just to get some more details, so FY29 is the year when we expect these projects to kind of come on stream, so three years of gestation, 2026, 2027, 2028.
Yeah, I think that we are saying that the aluminum smelter should come on stream in October of 2027.
Okay?
And the copper smelter will be in 2029.
Understood. And so the refinery?
The refinery will be also more or less coming on stream in 2027 calendar year.
Okay. FY28. Got it. Got it. And sir, given this smelter will be powered by renewable energy, what is the cost difference at the hot metal level we are looking at? And generally for these three projects, what sort of IR are we looking in?
Yeah. I mean, as you know, Sumangal, the IRR will depend on what sort of LCOE you're assuming. But even with our conservative estimates, we will be in double-digits IRR.
I think the power cost, because three years out, when we look at the blended power cost in that whole Aditya complex, it's not going to be much higher than the inflated rate of coal costs that we had seen so far. So if you take our current power cost and you use the normal coal inflation of 5%, 6% that we see every year, this power cost is more or less in that same line. The only difference being the renewable power then gets fixed at the same rate for the next 20 years.
Understood. Understood. If I may just ask one more question, that is on Novelis. So there's been a lot of investor concerns now after the caution on scrap spreads which we spelled out at the time of Novelis results.
Is it possible just to quantify in the near term what sort of pressure are we looking at in terms of impact on margins, EBITDA per ton, at least in the near term? I mean, some quantification would be very useful to us.
If you want to take that.
Yeah. Yeah. So Sumangal, this is exactly where we don't want to go right now because we are surprised at the situation. We want to be responsible if we say anything. And if we force ourselves to quantify anything at this stage, we'll be making an error of being either on the too aggressive side or too conservative side. So we are trying to ensure, trying to size up the situation and see where will the spreads go. We need to stick one or two more cycles. So you'll have to hold off that.
And as soon as we have some clear visibility, we will come back. I mean, once again, I want to say this: there are a number of mitigation actions on at this time in the pipeline, and we are going to accelerate actions. But in terms of giving any quantitative decision, we would rather wait. Understood. Understood. Just to stretch this point in a different direction, scrap prices, which used to be around 60-65% of Midwest and U.S., is around 70-75% now. And this used to be the case five years back.
So are we, I mean, of course, the mitigation efforts apart, are we looking at structurally over the next few years scrap prices now being in the range of 75-odd% like the previous regime, or we expect this also to go back to 65% of what we see during COVID years?
Well, so what we have is short-term visibility on everything that we see on the macros with the change in the China policy. So in principle, if the China policy stays the way they are talking about it and people believe that they will back away from that, then spreads and scraps are going to stay elevated. There is also more competition coming for scrap, which will also mean that there will be some pressure on scrap prices. So these are things that, at least from all the visibility that we have, will be there. Our job at this point is to just accelerate all the mitigation actions, open up new sources of supply, and thereby mitigate the impact. So without getting into specific quantification, which would not be very responsible at this stage, this is a direction I can give to you.
Sumangal.
Got it. Yeah.
And just one last thing. As a thumb rule, is it possible to explain a 5% or 10% higher scrap prices? How does it impact EBITDA per ton?
No, it's specifics of that. Guidance, Sumangal? No. I mean, we don't want to get into that quantification.
Got it. Got it. This has been very useful. Thanks for patiently answering all the questions. And all the best.
Yeah. Perfect.
Thank you.
Thank you, Sumangal.
Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, we request you to please restrict your questions to two per participant. You may rejoin the queue for follow-up questions. We have the next question from the line of Amit Murarka from Axis Capital. Please go ahead.
Hi. Yeah. Hi. Thanks for the opportunity.
Just going back to the Novelis question, a lot of our contracts are contract-based contracts, right? And if my understanding is not wrong, a lot of them are on a cost-plus basis as well. So in that context, just wanted to understand, is it also a case or possibility that sometime down the line, the higher scrap pricing in a way is passed on to the refreshed contracts that happen with the customers, like how we saw for energy inflation?
So are you asking if scrap prices are also going to have some pass-through impact? Is that your question?
Yeah. Yeah. Yeah.
Well, so I think that we need to be clear about the operating model. When it comes to inflation pass-through, they are related to operating costs. As far as metal is concerned, we pass on the metal costs and market premiums anyway to the customers.
So therefore, there is no case for passing on anything more than that. I mean, the business model is really to pass on aluminum prices. Okay. Okay. So it's only the energy inflation and all, which is part of the contract, and the scrap prices and the differential of the scrap prices is basically all flows into your P&L then. Yeah. And it's not just energy inflation, by the way. I mean, we have CPI clauses, so it is more overall inflation. We have specified energy inflation pass-through clauses. That's a fact. But the general way the contract is structured is that they have CPI clauses, which cover broader inflation rather than energy inflation to the extent.
Understood. Understood. Okay. That's very clear.
And also the guidance that was there for the longer term, wherein you had said that you are visible to $600, does that also hold, or you would also be willing to kind of reevaluate that and come back later on that?
Yeah. So as we have been saying that in the term, we did have a clear understanding scrap prices will go up with more competition and all the other factors. So that was something that we had factored in in our long-term projection. Our heads are more because of the accelerated scrap price increases that we have been seeing. So to your point, in the longer term, we had factored in strengthening of scrap prices. So once again, as we see the market evolving, we will come back if we want to talk about anything new, most particularly on the short-term guidance.
On the long term, we have a lot more confidence because there are no new factors which we did not already take into account and bring that guidance.
Sure. Sure. That's very reassuring. And just one last question on the India business. Yeah. So Mr. Pai, so this may be to you. So what was the COP in this quarter for aluminum looks like? It's fallen QOQ. So could you just spell that out and also give a guidance for Q3?
Yeah. So as I normally give, I'll tell you that the COGS for this Q2 was down by 1.6% versus Q1. The guidance for Q3 is that it could be up by about 1%-1.5%. Largely, we are seeing the coal spot premiums go up a little bit. So I think that Q3 could be up by 1%-1.5%.
Okay.
And in terms of the captive coal mines, what will be the status of Chakla, the startup of that?
So Chakla, we are right now in the sort of forest clearance stage one. That's where we are. Meenakshi, we will be starting the exploration. Meenakshi West will be starting the exploration program in the coming month. And on Meenakshi itself, we are still waiting for the allotment to happen to us.
And any timelines for the start of the production from these mines?
Yeah. I think the Chakla, we are still hoping to do a box cut sometime in the latter half of next year to start.
Calendar year, you mean?
Yes.
Oh. And Meenakshi maybe coming Meenakshi West maybe 27, is it? That's the guidance.
Yes.
Because that's an exploration block.
Yes.
Okay. So I'll come back on the queue now. Thanks very much.
Yeah. Thank you.
Thank you.
The next question is from the line of Amit Dixit from ICICI Securities. Please go ahead.
Yeah. Good evening, everyone, and thanks for the opportunity. Congratulations for a good performance. I have two questions. The first one is again on copper division. We have seen that the copper EBITDA has from 400 crores per quarter. Now it is upwards of 800 crores for two quarters in a row. In your prepared remarks, you highlighted that there is one-off gain. If you could reiterate that. And also, what kind of sustainable performance should we consider for this division? TC/RC is down, but still EBITDA just keeps going higher.
Yeah. I think that the copper chain, because it is so wide, I mean, this quarter, when the government reduced the duty on gold, we had quite a lot of extra gold sales.
I mean, we cleaned out our inventory and selling the gold. Sulfuric acid prices were stronger than what we expected. So some of these tailwinds were there. So I think that still we thought about this question. Q3, Q4, we stick to a guidance of around 650,
and is it possible to quantify that runoff thing in this quarter?
We don't really want to just give you an exact number for that. But if you sort of take that into account, our guidance going forward is around 650.
Okay. Very good. The second question is on downstream EBITDA per ton. Now, while sales have gone up, you mentioned that market was favorable, but adverse product mix caused EBITDA per ton of downstream aluminum to go down further. So just want to understand what could be the thrust level.
Are we really seeing the trust levels here, and what are the product mix pressures exactly in which all sector we are seeing it?
By the way, the EBITDA per ton, as you see sequentially and all, has been smartly going up. It's not been going down. I think you're talking year on year, it looked a little bit lower. But I think that what you're going to see, what happened this quarter is a lot of imports came in because people were expecting the QCI to have an impact on imports coming in. So there was a lot more imports. But I think you will start to see Q3 and Q4, this EBITDA per ton starting to pick up quite nicely because the local demand is quite strong.
Okay. So is it possible to let us know the coal mix for this quarter?
Yeah. Sure.
Yeah. The coal sourcing linkage was 50%, e-auction was 47%, and our own mines was about 2%.
Okay. Thank you so much and all the best.
Yeah. Thank you.
Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi. Thank you for the opportunity, sir, and congratulations on a good set of numbers. My question is on the alumina demand-supply balance globally, while you gave a great picture of what is happening in aluminum and to an extent in copper as well. So where is exactly the bottleneck in alumina globally? What is keeping prices elevated? And by when can we expect things to normalize at alumina level?
Well, I think you must be following Indrajit. So you had this disruption of oxide supply from Guinea. Then Alcoa declared a force majeure on their alumina project in Brazil.
So all these have sort of caused that tightness to happen in the market. So unclear to know when it will get sorted out. But that is what has caused alumina prices to jump to $700 per ton right now.
And what is the kind of contracts that you have? Is it how much is the long-term? And if it is long-term or contracted, what is the duration of that contract? In the sense that what is the kind of realizations we are seeing on alumina sales currently, and what can we see in the following two quarters?
Yeah. I think that most of our alumina is on a N minus 1 pricing, which means benchmark minus one month. And about 20% is on spot. So 80% is on that N minus 1.
So I think that in this third quarter, you will start to see the full benefit of the higher prices.
Sure. Thank you. This is helpful. That's all from my side.
Y eah. Thank you.
Thank you. We have the next question from the line of Tarang from Old Bridge. Please go ahead.
Good evening, sir, and congrats on a very strong set of numbers. Couple of questions. One on Novelis and the second on the CapEx plans at Hindalco India. So on Novelis, while it's too soon to call out when the scrap dynamics might work against us, but structurally, there are negative changes in scrap dynamics. Then from a supplier's vantage, how amenable are customers in absorbing the cost push going forward?
Dev?
So here's the thing. The fundamentals of the end markets are great.
To your point about customers absorbing, well, I mean, we are having contracts ahead of us, which are at much higher prices. And that was all something we had already conveyed to all of you, saying that we will see higher prices which are coming. Probably just given the positive demand-supply dynamics, there could be some more price upsides as we look forward, particularly on the beverage packaging side. That is as far as the price side is concerned. The rest is what I said earlier. But we don't have so much worries around inflation and cost path. They're all built into the contract as far as metal is concerned. Actually, as per the contract, the customers always pay us for cost of prime and local market premiums. And that is about all that we can expect. So that's really how the business structure works.
For us, it is about really solving the problem by investing in new scrap sources. That's the solution to the problem, including investing in technologies and really force investment in supply chain. So that's really the solution to the problem. And that's exactly what we're working on. I hope that helps.
Okay. I'll probably connect offline because I was losing you in the middle, but I get a gist of the answer. But for more clarity, I'll connect offline. My second question to Mr. Pai. Sir, India, CapEx, there are two sets of capacities that are getting created. Your allocation towards, say, backward integration in coal or the alumina refinery are actually fairly lucrative capacities from the point of view of IRRs.
But the same math probably doesn't hold true with all the downstream investments that are coming through, and even for a copper smelter, because at 300-350 KT, a $1 billion investment translates to about $3,000 per ton. Given that it's a reasonably working capital-intensive business, at the current margins, the math just doesn't add up. So I understand that the blended IRR for all these projects is positive. But the question really is, then would it not be more lucrative for the business to probably focus on the upstream capacities like alumina and copper? Sorry. Alumina and, say, coals right now, and hopefully wait for allocations to the other capacity. I mean, how do you look at it strategically on the financial side? How are you looking at this?
Yeah. I think that that's exactly the point.
I mean, these projects are going to come on stream three years down the line, and if you look at the growth rates for both aluminum and copper, copper is actually more stark because India has got a big deficit, so we have a copper rod capacity of 500 KT and a copper smelting capacity of 350, and we are putting a new rod mill because India needs more and more copper rods. You cannot make rod if you don't have cathodes, and today, cathodes are coming into India from Japan and elsewhere.
So when we look at the projected demand for copper in India, we are going to get some amount of copper from the recycling facility and some amount from the smelting because the downstream end of it, as you said, when you put together, it makes a lot of sense because of the rate at which the copper usage in India is going up. Now, the 180 KT of aluminum is the same story in the sense that we are going to make it with renewable energy, low carbon, high purity. And for that, again, there is quite a lot of demand, and we're getting good premiums on that. So we think that both these investments, when they come on stream three years plus, with the rate of growth for both aluminum and copper that we are seeing, we think we're going to be in a good position.
So you are essentially looking at probably a reasonable amount of margin expansion by the time these capacities come through, and therefore, it's probably not prudent to look at it from a rearview lens. Would that be the right way to look at it?
Especially for copper. If you take today's TC/RCs and say, "Why are you putting up a smelter?" it makes no sense. But if you look at it as taking that cathode, making copper rods, then copper tubes, and all the downstream where the conversion premiums are very high, then three years down the road, when TC/RCs also pick up a bit to normal levels, you will see that it makes a lot of sense. In fact, I really believe that the downturn is the best time to invest if you have the balance sheet strength. And that is what Hindalco has in India right now.
Got it, sir. And the last question. I mean, if I look at China's demand-supply balance for aluminum now, I'm looking at the data for the last 18 quarters. And for last 18 quarters, almost 17 of 18 quarters, they've been at a net deficit.
Correct.
With demand far outstripping supply, whereas in the world ex-China, you have a contrary positioning where supply is far exceeding demand. I mean, is there something that can be made out of this trend? What's happening there and what's not happening in the world? If you could give us a sense.
So it's a very interesting question. So two important points there. One, you're absolutely right. China is running at a deficit. And that deficit today is being met by Rusal, one million tons of aluminum coming in from Russia.
The second point is that they seem to be quite serious about the 45 million cap, and they don't want to do more coal-fired smelting expansion. So what they have done, which has impacted Novelis, is that they are now putting in a lot more scrap melting capacity. So nearly 20 million tons of scrap melting capacity is being put up in China, and hence a lot of scrap is being bought in there. So this is the two things that you have to make out. Now, over time, China has been using more than 50, 60 million tons of aluminum. They will have enough scrap of their own. But in the short term, it is creating a tightness in the scrap market because they're bringing this capacity on stream. So these are the sort of broad things that are happening.
Got it. Thank you.
Yeah. Thank you.
Thank you. The next question is from the line of Parthiv Jhonsa from Anand Rathi. Please go ahead.
Thank you for the opportunity, sir. Just to take the Indian CapEx point forward, I believe somewhere a couple of quarters back, you were indicated in one of your analyst meets that the CapEx is around $760 million, which has now been revised today to about, say, $1 billion. So is that reading correct, or am I missing something out here? Can you just please explain this in detail?
Yeah. I think that, again, you're absolutely right. I think on the smelter side, we have put it at around $800 million or so. And yet, as we get in the current pricing, I mean, even this $1 billion, to be fair, I'm just taking a round number. We are working on the CapEx. We have to get the quotes.
And then as we get clarity, we'll give you the exact number. But there is a certain amount of inflation on the equipment as well. So I think that as soon as we get the CapEx sorted out and as we are using renewable energy, we do have to do some additional steps to use that renewable energy in our detail. So all those are adding into the cost.
Got it. Sir, I just wanted to get some clarity because I think I missed early in the remarks. The current hedge is around 30% at about 2,570. And then you have additional 15% at a bottom of 2,262 and a ceiling of what was the ceiling, sir?
Yeah. The ceiling is in one second. I'll just give it to you. The ceiling is 2,547. It's a zero-cost collar that we had put in quite early on.
I've been, I think, last few quarters mentioning it.
Thank you so much, sir. Thank you so much.
On that hedging point, we have also now hedged about 14% for next financial year at 2,700.
Okay. Thank you so much, sir.
Yeah.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. A couple of questions. Sir, first is you explained nicely on the copper rods and hence the need for the smelter. Then also there's a linkage to TCRC. And TCRC, you did indicate that it has been actually dipping a bit. What gives us comfort on TCRCs three years out, specifically given end copper demand? It's just like a blue sky scenario.
However, when it comes to concentrated supplies, is there a comfort that we have which gives us confidence on putting on the smelter, looking at the end value at demand?
In fact, very interestingly, some of the big miners are already in discussion with us to sign up long-term contracts for this smelter expansion because they also want to diversify away from China. So there are new mining capacity coming in. So this is very cyclical. If you go back and look at TCRCs, generally, they will go down for a period of time, in which case copper prices go up and a lot of new mining capacity comes in, and then TCRCs pick back up to reasonable levels.
From the outlook we have and talking to the miners, they are quite interested that in India, we set up this melting capacity, and they are actually ready to give us long-term contracts with even a floor on the TCRC in the initial years.
Now, the other thing you will see is that some of these marginal custom smelters in the Philippines and all will probably shut down in this low TCRC space. Certain amount of that cleaning up will also happen.
Sure. And sir, my second question was on scrap. You did indicate that China is looking to process some 20 million tons of scrap. I don't know. I think the year is 2025, 2026. So the question is, does China have this sort of scrap processing capacity? That is one. Secondly, I think Dev did indicate that one of the mitigating variables is we focus on technology.
I remember we have a recycling center in Germany wherein we have like 18, 20 different types of scrap that we process. Is it something very different to everybody else in the world, which gives us an advantage of certain type of scrap wherein we will still enjoy a higher discount to LME? And is that number significant to help us fight through this particular crisis? And I have a related question, sir. First, if you could please answer this one. Dev, Steve, you want to take that on the different types of scrap and the impact?
Yeah. Sure. So on the first question, China has been setting up the recycling capacity over the years and continues to. And so the quantity and increase continues to come online as they open up the border to take in more different types of scrap.
They will have the capacity, as Stevie said. They've capped the primary aluminum production at 45 million metric tons and start to produce downstream aluminum through recycled material. As far as technology, yes, we do have new technology at our new automotive recycling center at Guthrie, working with Sortera. We worked with another company with robots that we put in at Berea. When we talk about different technologies, a lot of these technologies are sorting technologies in order to take on dirtier types of scrap or to be able to sort pre- and post-consumer automotive scrap to get the right alloys that today, if we could not take that sortation in, we would not have the ability to consume that scrap. It is increasing the different types of scraps that we can process at our facilities, which will make a big difference.
It's just going to take some time for us to continue to scale these technologies and put them through, put them into not only the new plant, but into other plants that we already have in existence. So lots of work going on with our R&D and ops groups, partnerships across the world to find ways to continue to get more different types of scrap that we have not been consuming at Novelis, which does give us a competitive advantage.
Just one more thing. Sorry. Keep in mind one more thing that there is like 750-800 kilotons of scrap in the U.S. that goes into landfill. As demand for scrap goes up, economics of really preventing the scrap to go into landfill becomes very, very attractive, and there will be more investments coming in to prevent scrap to go into landfill.
And so we also expect that given the opportunity, there will be more opening up of this scrap that is now going into landfill that will start to become available in any case. I mean, it gives us the attractiveness of doing that. So there are a number of mitigating factors besides all the things that we are doing, which will help.
All right. So just to scratch on this a little bit, you have always indicated that we did expect this coming. Now, given we have the technology to process different types of scrap, can you give some broad numbers on total market sizing for scrap? And out of that million tons, what part of that million tons is something that is unique to us that we can also process, which is more dirtier or the competition can't process?
Just trying to have some comfort on the sourcing and the underlying economics.
Yeah. It's a significant amount of scrap. Oh, go ahead, Dev.
No, on the quantification, I'll just answer that question. So you can think about this that and we are talking about the U.S. because a lot of the focus is on the U.S. markets. There would be about 1.5 million tons of total scrap, half of it goes into landfill, and so it's the other half that typically comes into the market, which are grabbed by all the current consumers of scrap. This is a quantification of the scrap volumes that we are talking about, and then it's about really you can further get more out of the 750 that is not coming to us today. So that's really what it is, but let me hand it over to Steve. Anything more?
No, just besides what's going in the landfill, there's other types of scrap that are getting downcycled, post-shredded vehicles. That's the sorting technology that we're putting in to be able to take back some of the aluminum content that's in those vehicles back into our processing. So both pre and post-consumer automotive scrap types that are coming. So there's a very sizable amount of scrap out there that, with the right technologies, we can bring into Novelis. But again, this will take time to scale into our operation. So it will take us some time.
Sure. Can I squeeze one more, sir?
Yeah. Go ahead.
Yeah. So recently, I think there has been an amendment in Europe pertaining to regulation of waste shipments. I think that's also something which is likely to alter the scrap trade patterns. How is it that we are looking at it?
Are we looking at European spreads to be far higher as compared to North America going forward? How are we thinking about this? Dev, Steve?
Are you referring to scrap flows or are you referring to primary aluminum flows?
No, no. You've gotten scrap flows.
The scrap flows from Europe, there are probably restrictions that don't allow European scrap to come out.
Yeah. So I mean, we do expect a number of different protectionist activities that is going to alter trade flows as it relates to scrap.
And this is one of the other factors that's gone into our thinking of we need to see stabilization of some of these trade flows as well to understand what some of those impacts are so that we can be more articulate with our ability to tell you how and when the margins that we've achieved in our business will come back, ultimately bring this up to that $600 per ton on a longer-term basis. But we anticipate there will be disruption in trade flows due to protectionist activities.
Sure. Thank you so much for the answers. Thank you.
Thank you. Ladies and gentlemen, we request you to please restrict your questions to two per participant. The next question is from the line of Ashish Kejriwal from Nuvama Institutional Equities. Please go ahead.
Yeah. Hi. Good evening, everyone. Thanks for the opportunity. Two questions.
One is, in light of our recent announcement of putting our smelters, aluminum and copper, what could be our CapEx guidance for FY 25/26 for India?
You're talking about the guidance for next year. I think, Steve, next year is going to be probably around. We have not finalized the plans yet, but it's going to be more like 7,000-8,000 crores what next year's will be. This year, if you remember, we had guided about 6,000 crores. I think we are going to be around that number.
Okay. And sir, in this quarter, is it possible to quantify how much alumina we have sold and at what rate? Yeah. We sold 170 KT. Let me just confirm. 197 KT of third-party alumina we sold in Q2. At what rate, sir? Blended rate, if possible?
We don't give out blended rate.
Okay. No issues.
And lastly, sir, in this quarter, how much hedge volume was there? Because earlier, we used to have 22% at 25/50. So is that the same in the second quarter, which we realized?
Second quarter was the same. No, the percentage hedged was in Q2. Yeah. How much?
27%.
Y eah. 27%. Yes.
So 27% was hedged at 25/50 in this quarter?
Yeah. 25/39.
Okay. Okay. Good. Thank you so much, and all the best, sir.
Thank you. The next question is from the line of Prateek Singh from DAM Capital. Please go ahead.
Hi. Thanks for the opportunity. The question is for Steve and Dev. So basically, first, I want to understand what is the kind of lag that we see between scrap procurement and that flowing into our numbers.
The reason I ask is, given that the scrap prices have gone up sharply of late only, and you had earlier mentioned that this will flow through to Q2 and Q4 as well. From my understanding, in Q2, we saw an impact of ballpark $40 per ton due to scrap tightening. Do we see it worsening further? The impact may be even $50-$60, or do you think it would be even higher? Certainly, we're not giving any guidance, but the lag would kind of help us get a sense as to how much more impact would be over the coming quarters.
I was expecting to hear the question, at least the first part. I mean, broadly, what I understood was from the second part as to whether we expect Q3 and Q4 impacts to worsen.
But can you please clarify the first part of your question again?
Yeah. The first part was largely on what kind of lag do we see between the spot scrap prices that we see right now and between our procurement? So is it a one- or two-month kind of a lag or a quarter kind of a lag? So that would help us in kind of tracking the scrap pricing, getting a sense as to what kind of an impact can be in coming quarters.
So Dev is asking from procurement to usage of scrap, what's the time difference? How many months?
Oh, okay. It was lag. Okay. So between procurement and the scrap coming back, broadly, there's a 60-90-day lag.
Can vary in seasons, but let's say 60 to 90 days is a reasonable time gap between the can leak and then coming back to us as we receive.
Sure. So which kind of means that if the scrap prices have gone up really recently over the last one month or so, the impact of $40 per ton that we saw in Q2 can be worse in Q2 and Q4? You're not giving any guidance, but just to get a sense if I'm correct in that way.
Yeah. So to be clear, in the short term, we do expect some worsening of scrap prices. This is what we have been saying in our earnings call also. There could be some worsening. We are watching. We are in uncharted territory right now. This is the situation. So we will see where it goes.
Keep in mind that what we will see in Q3 is also going to be a seasonality impact. Q3, as we know by now, probably is a seasonally low quarter given annual shutdown, just given that there is lower pull in this quarter. So keep in mind that Q3 will also have a seasonality factor. That could be very specific to your question. Yes. We do think that there could be some worsening in Q3 and Q4 due to a number of factors that we have discussed.
Sure. Thank you. And my last question is on my reading about the Europe flood impact. When you say that there is an impact of around $25 million on 26 KT of capacity, that kind of implies an EBITDA per ton of $1,000 per ton from that facility.
So given that Europe is not in a very great environment, can we assume that once Bay Minette comes in, we will have our price negotiations also happen by that time? Bay Minette's profitability would be decently higher than what we are seeing at Sierre right now, which appears to be around $1,000 per ton, or is that calculation not entirely correct on my part?
Well, no, I think that you are kind of going in a bit of a tangent here on assuming the Sierre impact and the EBITDA per ton because that has a contribution element to it. I mean, the fixed costs have gone below the line. So the $1,000 per ton EBITDA would not be a right calculation. Also, there is a blend in that of automotive, some specialties, and some can. In fact, so be careful before implying any calculations in that number.
But let me go to the other part of your question, which is about Bay Minette. So on Bay Minette, we have been pretty consistent that Bay Minette comes at a much higher price, at a much lower cost, and will be significantly more profitable from a margin acquisition perspective. I mean, directionally, we have already said in earnings call that about $1,000 per ton is a very, very reasonable expectation from Bay Minette alone.
Understood. Thanks. Thanks a lot, Dev. And all the best.
Thank you.
Thank you. The next question is from the line of Patanjali Srinivasan from Sundaram Mutual Fund. Please go ahead.
Yeah. Thank you for the opportunity. I have a couple of questions. One is for the FRP battery foil and enclosures that we are coming up with capacities. What would be the margins for this?
Also, in terms of capacity, would they be interoperable between AC-coated or battery enclosures, or how would it be? Could you explain a bit on this?
So on the battery foil, aluminum battery foil in Aditya, it's about 25 KT. So that makes battery foil and can make other types of foil. So it is fungible. And as far as the margins go, we think they're pretty good, but we're not going to give you the number there. Sure. So the overall addition is about 200 KT. Is that correct? No, 25 KT of aluminum battery foil plant that is being put up in Aditya. The battery enclosure plant, which we set up in Chakan in Pune, is to make the enclosures for the batteries that go into SUVs. So that has just come on stream and starting to ramp up for one of our auto customers.
Okay.
Got it, sir. Sir, and one more thing. With respect to our coal prices, could you tell me what was the increase in premium for us for e-auctions and all in the last couple of quarters? Is there any change? Because the general thing, what we were noticing is that e-auction prices are tapering down. So what you said was slightly different from what we are noticing.
No, the Q2, actually, the coal prices were slightly lower. In fact, I mean, they were flattish with Q1. So that's why our cost of production was quite good. In Q3, as we get in some of the auction prices, it's only in the NCL region, not in the MCL in the Odisha side. You remember we have Renusagar and we have Mahan.
In those places, we are seeing a little bit of the auction premiums being higher than what we saw in Q2. It's not very much, just to be fair.
Okay, sir. Yeah. Got it. And last question, just on the CapEx guidance that you've given. So can you just tell us what would be your CapEx guidance numbers for 26 and 27 for the India business?
So I think previously I said that next year will probably be about INR 8,000 crores. 27, you'll have to wait because we have to see how these projects actually start and how the cash out happens. So this year's guidance of INR 6,000, we will be around INR 6,000. Next year, right now, we think it's going to be around INR 8,000. The year after, you will have to wait.
Sure. Thank you so much. Thank you. Thank you.
Ladies and gentlemen, due to paucity of time, we will take this as our last question. For further questions, you can connect with the investor relations team. I now hand the conference over to Mr. Satish Pai for closing comments. Over to you, sir.
Yeah. Thank you very much. I think that one point I probably wanted to highlight. I mean, we have gone through all the businesses. The India business is seeing pretty good numbers. Novelis, just to repeat, had a very good Q2 compared to most of its competitors. The forward-looking scenario on the scrap spread was a little bit not that good. But my point that I wanted to make is the integrated model of Hindalco between upstream and downstream means that some parts can have headwinds, some parts have tailwinds.
And that's why when you look at our consolidated results, we are doing very well compared to most of our competitors in the industry. So just wanted to leave you with that comment, and thank you for your attention.
Thank you. On behalf of Hindalco Industries, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.