Q3 20/21

Feb 9, 2021

Ladies and gentlemen, good day and welcome to Hindalco Industries Quarter 3 of FY 2021 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Subir Sen from Investor Relations of Hidalgo. Thank you, and over to you, sir. Thank you, and a very good evening or morning, everyone. I hope you all are safe and in good health. On behalf of Hindalco Industries, I welcome you all to this earnings call for the Q3 of FY 2021. On this call, we will refer to the investor presentation available on our company's website. Some of the information on this call may be forward looking in nature and is covered by Safe Harbor language on Slide number 2 of the Q3 earnings presentation. In this presentation, we have covered the key highlights of all our businesses for the Q3 and the financial year 2021 and a segment wise comparative financial analysis of India and our overseas subsidiary Novelis. All the prior period numbers have been regrouped and reclassified As per the Ind AS, on today's call, we have with us from Indalco Mr. Satish Bhai, our Managing Director Mr. Praveen Maheshwari, our Chief Financial Officer and CEO of for copper business. From Novelis' management, we have Mr. Steve Fisher, President and CEO Mr. Dev Ahuja, Chief Financial Officer of Novelis. I will now hand over the call to Mr. Pai for his opening remarks. Thank you and over to you sir. Yes. Thank you, Subir. Very good afternoon and morning to all of you. So let's start from Slide 5. Here are some key highlights of the businesses for The Q3 FY 2021 versus the corresponding quarter of last year. Indalco delivered an excellent performance in Q3 across all businesses backed by strong macros and a sharp recovery in all the relevant markets. The results were driven by strong performance by Novelis and the India Aluminum Business, supported by higher volumes, better product mix, lower input cost, Stability in operations and cost saving actions. Novelis recorded an all time high quarterly shipment of 933 kt, up 17% year on year, driven by strong demand across product end markets. Novelis also achieved an all time high EBITDA of 501,000,000 up 46% on the back of higher volumes and improved margins. EBITDA per tonne was also at a record high of $5.37 per tonne In Q3 of FY 2021, up 25% year on year. Net income from continuing operations was at $195,000,000 up 82% year on year, While net income excluding special items stood at a record high of $209,000,000 up 58% year on year in Q3 FY 2021. The LRS integration work continues with $54,000,000 annualized run rate combination cost synergies already achieved till Q3 FY 2021 with a potential of $120,000,000 in combinational synergies to come. Coming on to Hindalco's India Aluminum business performance in Q3. Business EBITDA for Hindalco India Aluminum was 27% year on year at INR 13.23 crores compared to the same quarter of the previous year on account of favorable macros and lower input costs. The EBITDA margin was at a healthy 25%, up 593 basis points year on year, which continues to be one of the best in the industry. Metal sales were lower at 315 kt in Q3 FY 2021 compared to Q3 FY 2020, but were higher by 4% sequentially. Value added product sales were at 80 kt in Q3 FY 2021, up 7% on a year on year basis, but grew sharply by 28% on a sequential basis with the continued revival of the domestic market in Q3. Our thrust on operational efficiency supported by lower input costs continues to keep continues to help in keeping the cost of production low. The Utkal expansion project of 500 kt is expected to be commissioned at the end of Q1 of FY 2022. Turning to the quarterly performance of the copper business on Slide number 6. Cathode production was low at 51 kt in Q3 FY 2021 due to planned maintenance shutdown in 1 of the smelters. The CC rod sales were up at 65 kt, up 12% year on year, Although metal sales were lower at 73 kt in Q3 FY 2021, the copper business recorded its highest ever fertilizer sales volume at 156 kt, up 135 percent year on year on the back of robust demand. Copper EBITDA in Q3 FY 2021 was at Coming to the quarterly consolidated performance for the quarter, Hidalgo reported a standout performance across businesses by leveraging market demand, strong operational efficiencies and improved macros. Indalco's consolidated business EBITDA was up 40% year on year at INR 5,242 crores compared to INR 3733 crores in Q3 FY 2020. PBT for continuing operations before exceptional and special items was up 77% year on year at INR 3,153 crores in Q3 FY 2021. The consolidated path for continuing operations before tax affected exceptional and special items was up by 74% year on year at INR 2,166 crores in Q3 FY 2021 versus INR 1247 crores in the corresponding quarter of the last year. Hindalco continues to maintain its strong liquidity and cash position with a total liquidity of $2,400,000,000 and a cash of $1,160,000,000 in Novelis and INR 9,560 crores in India at the end of December 2020. The consolidated net debt is down by INR 8,500 crores from 30 June 2020 resulting in a significant improvement in the consolidated net debt to EBITDA to 3.09 times at the end of December 2020 from a peak of 3.83 at the end of June 30, 2020. I'm happy to announce that Hindalco has been recognized as the world's most sustainable aluminum company in the Dow Jones Sustainability Index, DJSI and in its S and P Global CSX Score. Furthermore, the company's rating in the MSCI index has improved to BBB from the earlier BB rating, and affirmation of our sustainability approach and initiatives. Turning to the broader economic environment in Slide 8. The IMF expects the global growth to rebound to 5.5% in calendar year 2021 and 4.2% in calendar year Except for China, where the calendar year 2020 growth was a positive 2.3%, the GDP in most advanced and emerging economies is expected to contract in calendar year 2020. Our strong fiscal stimulus under the new administration is Expected to drive the U. S. Economic growth in calendar year 2021, 5.1% year on year faster than other advanced economies. Strength and speed of global economic recovery is expected to vary across countries and sectors depending on the extent of policy support, Health sector interventions and structural reforms undertaken by policy makers. Vaccine deployment And controlling the spread of the pandemic remains immediate policy priority. However, facilitating the investment cycle will be the key policy focus in the second half of calendar year twenty twenty one to ensure sustainable growth. A second wave, new variants of the viruses and rising government debts remain a concern. On the domestic front, the worst is behind us with a sharp slump in economic activity in H1 financial year 2021. Growth in H2 FY 2021 has been supported by the government's fiscal stimulus measures as well as an expansionary monetary policy. The Government of India's economic survey of FY 2021 projects We shaped recovery with 11% real GDP growth in FY 2022, 6.5% in FY2023 and 7% in FY2024. On a contracted base of 7.7 percent negative in FY 2021. This translates into a 2.4% growth over the absolute levels of FY 2020, in line with the latest IMF projections. Growth is expected to be uneven across sectors as industries like travel, tourism and hospitality are recovering only gradually. Consumption driven growth and rural economy resilience will continue to drive GDP growth initially, with investments only recovering later. An expansionary budget unveiled by the Finance Ministry is likely to boost growth through a multiplier effect. The infrastructure boost and financial sector reforms are expected to provide much needed impetus to growth. However, the execution of major infra projects meeting disinvestment and monetization targets will be a key. The fiscal deficit of as a percentage of GDP is expected at 9.5% for FY 2021 And PEG debt 6.8 percent for FY 2022. As per the Finance Minister's budget speech, with a glide path to fiscal consolidation by FY 2020 6 with fiscal deficit expected at 4.5%. Let me now take you through the aluminum industry overview on Slides 9 and 10. In terms of global production, world grew by 2% to 65,000,000 tons by leading by a 4% increase in Chinese production, while the rest of the world was flattish. Consequently, while China is in a deficit of a little over 900,000 tonnes, the rest of the world has a surplus of about 3,500,000 tonnes. In calendar year 2020, the global consumption declined by around 4% to 62,000,000 tonnes because of the contraction of demand of nearly 13% in the world ex China, partially offset by a Chinese growth of 4%. Hence, there was an overall surplus of 2,600,000 tons. It must be noted that though the overall surplus is 2,600,000 tons, Nearly 80% of this surplus came in Q1 of calendar year 2020. In the background of strong physical measures to the tune of 12% of world GDP, The economic sentiments were lifted and the global surplus narrowed over the year. In Q4 of calendar year 2020, The world overall saw a growth of 5% each in production and consumption and hence a very small surplus of 0,100,000 tons. The world excluding China consumption saw a strong recovery in demand and has reached pre COVID levels. For instance, in the U. S, growing housing starts on new residential constructions grew by nearly 13% in November 2020, boosting the demand for building and construction sector. The production was flattish, leading to a marginal surplus of 300,000 tonnes. In China, strong automotive and real estate market supported aluminum consumption that grew by around 9% year on year at 9,800,000 tonnes. The production also grew sharply by 9% year on year to 9,600,000 tonnes leading to a deficit of approximately 200,000 tonnes in the Q4 of calendar year 2020. Aluminum prices recovered sharply by 27 percent to $19.20 a tonne from an average of $14.97 a ton in Q2 calendar year 2020. In January 2020, the global aluminum prices Continued to hold at over $2,000 per ton. Coming to Slide 10, the domestic industry in Q3 FY 2021 is estimated to reach pre COVID levels of Q1 and Q2 of FY 2020 on the back of strong recovery in transport and consumer durables. The import of scrap particularly witnessed sharp growth of 31%, while Imports excluding scrap degrew marginally. We estimate the domestic producer sales grew by 6% year on year. The government stimulus package of Lakh 27 lakh crores, which is 13% of the GDP, is a strong thrust on infrastructure, housing and Manufacturing Sector, thereby supporting economic sentiment. Automotive sales is likely to grow with the recent announcement of the vehicle scrappage policy by the government in the union budget FY 2021 2022. Packaging demand has continued to remain robust in line with growth in the Pharma and Flexible Packaging segments. We are also observing some signs of recovery in demand in the Electrical and Power, Building and Construction sectors. Overall, we believe that domestic aluminum demand should continue to surpass pre COVID levels in Q4 of FY 2021. Moving to Slide 11, the global FRP demand is Expected to grow about 7% in calendar year 2021 versus a contraction of around 6% in calendar year 2020 on account of recovery in demand and of the base effect. Industries like beverage and food packaging, pharma will lead this demand for flat rolled products in the coming years. We believe that the positive global demand trajectory for aluminum products will not be significantly impacted by COVID in the long term. Similarly, with the exception of Aerospace, our short term 1 year outlooks across end markets remains positive. You must have gone through the details of the segment wise and market outlooks in the Novelis presentation. I will quickly refresh Some specific end market outlooks for calendar year 2021. Beverage can continues to show its resiliency in economic cycles And we see the benefits from a higher at home consumption that favors a package mix shift towards increased demand for sustainable aluminum can. The overall market demand for beverage can sheet is estimated to grow by approximately 6% in calendar year 2021. Novelis is already operating near to its full capacity in can sheet to cater to this growing market demand. In the automotive market with OEMs focusing on sustainability and consumers adopting electrical vehicles, There is an increased demand for aluminum in this segment across regions. The pandemic has triggered a desire for safer personal mobility. And there is a shift towards vehicle types, which use a higher share of aluminum such as SUVs, trucks and electric vehicles. This segment is estimated to grow between 25% to 30% in calendar year 2021 due to the base effect and continued revival of demand. The demand for premium aerospace sheet from OEMs is expected to remain muted through the first half of this calendar year due to lower consumer air travel. As travel picks up, it should drive the demand for FRP in the Aerospace segment. Demand in Aerospace is expected to grow in the range of 5% to 6% in calendar year 2021 depending on the revival in the industry in the latter part of the year as air travel normalizes. In India, the FRP demand in Q3 FY 2021 is estimated to reach pre COVID levels Q1 or Q2 FY 2020, as the demand revives in major segments like consumer durables that are supported by Increasing penetration of e commerce sales and B and C demand that is expected to reach pre COVID levels by Q4 FY 2021. Stable demand from the Pharma and Food Packaging Industries coupled with the auto sector helping towards the quick recovery in this sector. Turning to the copper industry globally on Slide 12. Global refined copper consumption declined by 3.3% in CY 2020 compared to CY 2019. China has fully recovered from the COVID-nineteen impact and grew by 2%, Whereas the world ex China, still recovering from COVID, contracted by 9% compared to CY 2019 level. In Q4 CY 2020, global refined copper consumption recovered to pre COVID levels and grew by 1% to 6,000,000 tons. This recovery was driven by China that saw an upturn of 6%, whereas consumption in the rest of the world contracted by 5% year on year in Q4 calendar year 2020. Mine's output remained impacted, resulting in short supply of copper concentrate. The benchmark TCRT for CY20 settled at 59.55.95, lower by 4% compared to the CY 2019 benchmark. Spot TCRCs too remained stressed during the quarter. Coming to Slide 13, on the domestic side of the copper industry, the refined copper market in Q3 FY 2021 was at 166 kt reaching 85 percent of the Q3 FY 2020 levels of 192 kt As major copper consuming sectors recovered post lifting of the lockdown, leading to the resumption of industrial activity. For CBD imposition of imports from ASEAN country, market share of imports has continued to decrease to 35% In Q3 FY 2021 compared to 51% during the quarter same quarter last year. Praveen will take you through The performance highlights of each of the businesses during the quarter 3. Thanks, Satish. In this part of the presentation, I shall take you through the operational and financial performance of each of our businesses. Starting with Novelis on Slide 1617, Novelis clocked a stellar performance On all fronts, for both their existing business as well as acquired business of Elerus, driven by excellent operational performance, Favorable macro environment and focus on achieving synergies, Novelis achieved record operational financial results on almost all parameters. We are doing equally well on the various ongoing projects to sustain the growth. In Guthrie, U. S, the new automotive finishing line has shipped its first customer coils in December. At Changzhou, China, the automotive finishing line is under qualification and the first commercial shipments are to begin in the current quarter. At Pindar Brasil, the rolling expansion is on track and expected to be commissioned in mid next financial year. Novolix recently entered into the auto Alu Mobility Partnership to make mobility more sustainable going forward. On Slide 17, you can see the comparative financial performance trends of Novelis reflecting its best ever Quarterly performance in terms of revenue, EBITDA and EBITDA per ton on the back of high volumes, cost control, Product mix and addition of the acquired LRIS business. Slide 19 shows the details of the performance of Indian Aluminum Business segment. The aluminum metal production was higher by 3% sequentially at 315 kt. In line with sharp recovery in the market, The production of downstream products was higher by 37% sequentially at 84 kt in this quarter. However, alumina production was sequentially lower at 675 kt due to a maintenance shutdown at Othkal Refinery. On sales front, the share of domestic sales has reached 41% in this quarter compared to 36% in the previous quarter. Similarly, WAP sales as a percentage to total metal sales has improved to 25% in this quarter versus 21% in the previous quarter, reflecting a sharp recovery of the VAP market sequentially. Moving on to the financial performance of the Indian Aluminum business on Slide 20. The segment posted Revenue of INR 5,294 crores in this quarter reflecting growth of 11% sequentially on account of higher global aluminum prices. EBITDA was up 24% sequentially at INR 13.23 crores on account of favorable macros and sustained low input costs. The EBITDA margin in this quarter continues to be one of the best in the industry at a healthy 25% of revenues, up to 76 basis points sequentially. Moving to Slide 22, the overall copper metal production was at 51,000 tonnes in this quarter, lower sequentially due to planned maintenance shutdown during this quarter. However, production and sales of CC rods were higher by 2% at 67 kt and 65 kt respectively in this quarter. The financial performance of copper segment is on Slide 23. Revenues were up 8% sequentially at INR 6,133 crores because of higher LME. EBITDA was maintained sequentially at INR 202 crores in this quarter. Let's turn to our consolidated financial numbers for quarter 3 on FY 2021 on Slide 25. Hindalco reported an outstanding consolidated financial performance with revenues of INR 34958 crores and business EBITDA of INR 5,242 crores, both up 12% sequentially. Before exceptional and special items, PBT and PAT for continuing operations were up 26% 21% sequentially at INR 3,153 crores and 2,166 crores, respectively. The detailed quarterly comparative financial numbers are attached as an annexure to this presentation on Slide 33. Similarly, the Indian business of Hindalco also reported a remarkable performance in this quarter with revenues of 11 INR 1,425 crores and business EBITDA of INR 15.28 crores, both up around 20% and profit after tax of INR 4.95 crores, up 51% sequentially in Q3 FY 2021. These details are provided as an annexure to this presentation on Slide 35. Slide 26 shows The reduction of over INR 12,000 crores in our consolidated gross debt and of INR 8,500 crores in our consolidated net debt from June 2020 levels. This along with increasing EBITDA has led to a substantial improvement in the net debt to EBITDA ratio from a peak of 3.83 times in June 2020 to 3.09 times at the end of December 2020. Let me now hand over this call back to Satish to give you a perspective on our sustainability updates and assembly. So coming to our sustainability updates on Slide 28. As I had covered in my opening remarks, We are proud to announce that Hindalco has been recognized as the most sustainable aluminum company in the Dow Jones Sustainability Index based on its S and P Global CSA score of 2020. We have scored in the 100 percentile in most of the aspects in all three dimensions of sustainability Thanks. Hindalco has achieved 75 points against an industry average of 51 points in 2020, which includes 61 industries in the DJSI. To add to this, also an improvement on our ESG ratings in the MSCI index where Hindalco has moved 1 notch higher this year to the BBB rating from BBB. This reflects our commitment to ESG. Coming to Slide 21, I would also like to share Hindalco's progress across the various sustainability metrics and trends over the last 4 years. In year to date FY 2021, the LTFR was at 0.44, Water consumption was at 53,600,000 meter cube, while recycled water was at 12,200,000 meter cube, reflecting continuous improvements in all these metrics over the years. The bauxite residue recycle was at 62% And specific energy consumption in aluminum was at 85% from the base year of FY 2019. We have also been continuously upgrading our safety programs to meet international standards and provide the safest atmosphere for all our employees. Coming to the environment, Hindalco has achieved 0 liquid discharge at 11 out of its 15 plant locations With a target of increasing the ZLD to one site per year to reach 100% 0 liquid discharge at all its locations in India. On water consumption, we are targeting a 5% reduction year on year with FY 2018 as a base. On waste recycle, in terms of all waste, including bulk waste such as fly ash and bauxite residue, we are committed to 100% recycling and reducing the landfill by 5% year on year. On the renewable energy front, we are in line to reach our target of 100 Megawatt capacity by FY 2022. As a step towards reducing carbon footprint, we are also converting our oil fired furnaces with natural gas at all our locations. Novelis has already covered its sustainability metrics and trends in their Q3 earnings presentation last week. On Slide 31, let me conclude today's presentation and try to summarize our performance in the 3rd quarter and our broad key focus areas. We delivered yet another record performance across all our segments as we are catching up with the sharp recovery of market supported by improved macros and better efficiency. The cost competitiveness of Hindalco Smelters continues to position it in the 1st quartile of the global cost curve. The capacity expansion at Utkalalumina refinery by the end of this year will further reduce the overall integrated cost of production and will ensure future competitive readiness. We continue to strengthen our balance sheet with robust cash generation, while accelerating the pace of deleveraging. The Alaris integration is also providing accelerated synergistic benefits, And we shall unlock and capture the entire value of this acquisition and reach our target of $185,000,000 worth synergies and $370,000,000 EBITDA in the next 3 years. We are fine tuning our capital allocation framework In light of the improved business outlooks across all our business segments and intend to present this in an Investor Meet, which we shall be holding in a couple of weeks. This framework will provide direction on intended use of free cash flow, on growth CapEx, management of net leverage within targeted range and distribution to shareholders. Another important area where Indalco has done remarkably well over the last few years is on ESG. The most recent example is the recent improvement in DJSI ranking, where we reached the number 1 and are recognized as an industry leader globally. We shall continue to strive on our 3 hour model of sustainability in Hindalco with the focus of shaping a sustainable world together. Our vision and strategy is to continue being a global leader in the downstream value added products, Driven by our India downstream capacity expansion, product innovation, complete digitalization and organic expansions in Novelis and a diversified product mix. Thank you very much for your attention and this Forum is now open for any questions you may have. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead. Thanks for taking my questions, sir, and congratulations for a good set of I have two questions. The first one is on aluminum production. So if you see Y o Y the production is down, In fact, every month in Q3, we saw production declining Y o Y. Any specific reason for that? I mean, is it due to some planned maintenance or something? No. Actually, what happened, Amit, was that during the COVID times, we could not The ports have a life cycle. And as the ports in our terminology die, we realign them and bring them back. We could not do the realigning during the COVID quarters because normally it's done with a lot of contract labor. So that pace has picked up now. So we are at about 3.15 levels versus 3.20, which is so we will be getting back there by the next 3, 4 months as we start to bring back pots online. Okay. That is helpful. The second question is again on copper. So copper, while we saw that production was down, but your sales were much higher than production. Some of it might be due to tolling that you might have done for both CC rod As well as the metal. So since we have seen that imports have come down, so even if any of copper production improves, Is toning going to be the way forward if it is there? See, in copper business, there are many variables which play along. And we use a very agile strategy in terms of how to keep our market customers satisfied. Since we are the market leaders in the country Today, we also see this as a major responsibility on our part. So even if our smelters, for example, go through a plant shutdown, We make sure that we have either by way of anodes, which we can use in our refinery or we have cathodes procured locally or imported Such that we are able to supply the rods to our customers. So that is how we try to maintain our sales even when smelter production is down. Okay. Sir, Bhan, just one follow-up question on this. So what would be your overall Guidance for production in copper in this quarter? We don't give guidance quarter wise, but what I can tell you is That the in January, the smelters have run smoothly, and we expect the same to continue in this quarter. We have planned a shutdown for our other smelter. So in October November, we had Smelter 1 coming under shutdown. And From 15th March till about 15th May, there will be a shutdown of Smelter III, which is the biggest smelter for us. But that we don't expect to impact our sales, as I mentioned, because we follow this agile strategy of organizing material much in advance. These are Planned shutdowns, so nothing comes as a surprise. Okay. Fair enough. Thank you and all the Yes, thank you. Thank you. The next question is from the line of Pinakin Parikh from JPMorgan. Please go ahead. Yes. Thank you very much. Good afternoon, everyone. It is very interesting and I think to see that the company is now ready to come out with formal capital allocation and growth capital expenditure plan. In that context, sir, what I would like to understand is that if we take spot EBITDA of roughly INR 21,000 INR 22,000 crores, Hindalco's net debt to EBITDA is just over 2x, 2.5x and hence the company has a lot of flex. What we would like to understand is that when the company frames its capital expenditure policy, does it look on a Solidated basis or does it take a view across standalone and Novelist separately? And secondly, while The company has spoken about downstream aluminum CapEx in India. We have not really heard much on copper smelting and aluminum smelters. And we have seen competitors filing approvals filing to get approvals for expansion plans in copper smelting And aluminum smelters, Vinodani asked for approvals for a 1,000,000 ton copper smelter and Vedanta asked for a 200,000 expansion aluminum. Sir, we'd like to understand how do you see how does management see growth optionalities across each of its businesses? So the first part of your question, Pinakin, I think just if you hang on for a couple of weeks, we'll come out with the capital allocation. The growth CapEx For Novelis will be from Novelis' cash flow and the growth CapEx for Hindalco will be from Hindalco cash flows. There'll be no Sort of cross movement for growth CapEx. Once you finish the growth CapEx, the second part, which is the deleveraging, also will be Novelis, And a large part of the deleveraging will happen on the or the reducing of the net debt will happen mostly from the Novelis point of view. I think finally, when it comes down to return for the shareholders, well, there's only one set of shareholders for Indalco and Novanis combined. So that's where it will all come together. But I recommend that if you give us the 2 weeks when we articulate our capital allocation strategy, You will get a lot more details. Now coming to the second part of your questions, I don't think you will hear me talking about aluminum smelter or copper smelter. Understood, understood. So that is very clear. And lastly, sir, just a color on how costs are trending in the aluminum business. Are we behind the cost tailwinds in coal? Or should we see coal costs remain depressed for the aluminum segment? So in Q3, if you remember when we did the Q2 earnings call, I think I said that our costs could go up in Q3 by 1% or 2%. Actually, they are flat. And I think that our procurement team had been procuring quite early And that sort of benefited us in Q3 because our cost of production is flat. Now I think the input costs are going up. CP Co, pitch all are up by nearly 20%, and the coal premiums have also gone up. So Q4, we will see our cost of production rising. And I think that we should see roughly about 3% increase in Q4. Understood, sir. Thank you very much. Thanks, Pinakin. Thank you. The next question is from the line of Inderjit Agarwal from CLSA. Please go ahead. Hi, sir. Congratulations on good set of numbers and thank you for the opportunity. I have a couple of questions. First on the copper business. So Are we getting any sense on calendar 2021 TCRC margins where they are settling at? What are the kind of negotiations that are going on? Calendar 2021 is already announced, which is at 59.5%. So this is 4% lower than the previous calendar. And yes, copper business from that point of view, low TCRC is an impact. But on the other hand, sulfuric acid prices have gone up. DAP has been good last year. We don't know what's going to happen next year, but some of the other factors have helped us go through it. Plus the higher LME, while it's an offset model, but at the end, there is some positive impact coming from the higher LME as well Because our pricing is linked to that in some sense. Sure. 2nd, on Utkal Finally, what is the update on the commissioning? So we should finish the commissioning in Q1 of next year. So By June, we should be up and running. And any indication on what kind of cost savings that can be? Because I assume you will not be selling alumina out of You will mothball 1 of the REN Equipment Refinery, right? So what is the kind of cost that we can see from this? So our current thinking is that we will still be running Mori and maybe one of the lines of Renault Koot. So we won't completely Shut down Renukut in year number 1. So we will use some part of the production for Renukut And probably in Q4 of next year, do some third party sale as well. So it's going to be a mix of both. The Utkal costs of alumina are nearly half of what the other refineries are. So you can back calculate the savings. That helps. And two housekeeping questions. Can you help with the standalone gross and net debt? Standalone meaning Hindalco India? Yes. India will also do. Yes. I think India, the gross debt was 24,000 INR464 crores and the net is INR 14,874 crores. Is that correct? Yes. Yes. And the usual hedge position? It has not changed. I wish it's still the same 58% at 17, 15. And anything on FY 2022, how much are we hedged? So we are hedged 28% at 18.40. Okay. That's helpful. Thank you so much for answering the questions. Yes. Thank you. The next question is from the line of Samangal Nivedhya from Kotak Securities. Please go ahead. So first question is with respect to the coal mix, can you share what is the current run rate? And say next year will our dependence on outside purchase, e option, Viktav will end and maybe we might see some further benefits on the coal cost front? Not really. I think, see, currently in Q3, we were 6% linkage, 22 percent e option. So I think that this trend will continue because our own mines, We will do a little bit more production, but not much. And I think on the coal side, we don't expect coal prices to Dramatically go up because there is adequate supply, but I think the prices we saw in Q2 and Q3 were Probably the bottom. So there will be some coal price inflation. Understood. Mr. Pai, the second question is with respect to the future growth plans. Now you touched upon this from the previous question, but just to get some more color, In the past, we've grown both organic, inorganic and also upstream and downstream. Is it fair to assume that in future, Given the size now, the growth will come largely inwards than organic and also it will be only downstream and not upstream. Are these 2 a fair assumption over the next 3 to 4 years? Yes, the fair assumption. Understood. Thank you so much, sir, and all the best. Yes. Thanks, Sumanga. Thank you. The next question is from the line of Amit Muraka from Motilal Oswal. Please go ahead. Yes. Hi, Good afternoon. So I just wanted to check on the downstream announcement which you had made, so 7:30 floors at Silvasa. So like what will be the pace of such downstream projects, which you will keep announcing given the cash flows are strong? And how do we think about the margins in this business? So the extrusion business, The margins are quite strong. I mean, if you remember, overall, downstream, we had guided that we'll do $150 per ton EBITDA. The extrusion margins are higher than that average. So the Silvasa extrusion project, which is INR 7.30 crores we announced, I I think in the next couple of months, we'll announce the expansion of the FRP in, Hirakud as well. And we also have a smaller expansion of the Specialty Chemicals business that we'll be announcing. So So these are the 3 things in our pipeline that will come out in a staged manner now. But as I keep repeating, all these will be within the cash Actually reduced the import duty of copper while you guys have been allocating for a raising duty, so on the scrap side, I mean. So like how do you see the So copper scrap duty is reduced from 5% to 2.5%, and this does encourage The import of copper scrap, however, there are countermeasures as well, which is like import monitoring system will be in place. It is under implementation at this point of time. There are also standards which are coming up with respect to the usage of scrap For copper scrap for specific applications. So we presume that while this initiative by the government is To promote the MSMEs who can live on copper scrap, there might be some impact in terms of pricing. We have yet to understand and estimate What impact it will have? There is no immediate or short term impact. But yes, in the longer run, we'll have to assess and see How we can either participate in this side of the industry or how do we counter it? And on aluminum, would you all expect any such measures in the future then? So the import monitoring cell that Praveen was About is being put across aluminum and copper. The coal ministry, by the way, has already implemented it, and steel were the ones who did it Nearly 6 to 9 months ago. So the way the system works is all importers have to register with the ministry and have to give an end use certificate. So I think that along with the standard, this will make sure that the market segments that are correct Do not get impacted by scrap. I mean like in copper, the industry is very worried if transformer cables, etcetera, the scrap gets used where it should not be. And in Hindalco for aluminum, we are worried about cookware and all that where the scrap should not go. So these are a couple of the things that the import monitoring cell will focus Okay, sure. Thank you. Thank you. Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead. The line for Atisha has dropped. We take the next question from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead. Yes, good evening. So, I just had a couple of questions. One is on maybe the outlook for aluminum. So with the Chinese after the Chinese On New Year holidays, do you expect the momentum that has been there in aluminum prices to sustain given that you're still looking at Global surplus situation and inventories also have probably been stable or are gradually rising? So look, the period before the Chinese New Year right now is the time where aluminum prices should be the weakest. Actually, now LME is running at 2,075. So I think that the supply and demand is tight. And as I explained to you in my prepared remarks, Majority of the surplus came in calendar year Q1 and Q2. Since that point, the surplus has been minimal. So the market is now extremely tight. So we do believe that the momentum of economic growth in China is not going to slow down. With the U. S. Stimulus, we think that the U. S. Economy will also do well. You know the Indian economy is also doing well. So we don't see a demand problem and we think that the commodity prices should hold. Sure. Okay. Also in the budget, there is also reduction in gold and silver customer duties. So is that just a clear path forward? Do we Get some benefit from the higher rupees in our copper business? We our main business is copper and the sulfuric acid and DAP, etcetera. Gold and silver actually come as more like an impurity for us in the copper concentrate, which we have to deal with. So it's a smaller portion of our business. Okay. So there is not any impact on a material On a consolidated basis, there is any impact, I would say. Then finally, copper on a standardized basis, we used to be at a Made of close to INR 1,000 crores to INR 1500 crores panel. Now the 9 month performance is only about INR 450 crores. And if I keep Q4 flat, we probably end at INR 650 crores. So with TCRs you also lower, do you expect that the The profitability base for copper or do you expect that we can revert to 1,000 crores or higher than that at some point of No, Vivek, we surely expect this to go up. See, this year has been a very special year, particularly COVID related disruptions have been more prominent in copper business. Unlike aluminum where smelting lines are many, so you have thousands of pots running and you can always reduce the current and take a few pots out. In copper, you just have 2 big smelters, and it's a continuous process where end to end process has to run for us to be able to make copper anodes and then cathodes. So in Q1, if you recollect, the biggest impact was in Q1. Right now, it's not such a big impact. In Q2 and Q3, it's not so big. Q1 was a complete washout for us, and that is what has impacted us largely in this year. As I mentioned earlier, There are 2 shutdowns which have been planned. 1 has been done successfully of both the smelters. So one is already over. It's behind us, And the smelter is running fine. And the second one, which is planned in between March May, I think after that, the operational performance also will improve significantly, And we hope to see better levels than current levels going forward. You asked about TCRC. Yes, that's a cyclical factor for us. And we again look at many ways of perpetrating that. As I mentioned, to some extent, it gets compensated by Higher LME and our dominance in the market. We also look at opportunities where we can enhance even if we are not smelting ourselves In terms of various trading opportunities or tolling opportunities, so there are many value drivers in this business. Sulphuric acid, I mentioned, another one fertilizer is the other one. So It's not one particular driver. So certain things go up, certain things go down. We hope to get back to the same levels again. Sure, sir. Thank you so much. Thank you. The next question is from the line of Noelle Vaas from Ashika Stock Broking. Please go ahead. Hello, sir. Good evening. Just one question. Most of my questions have already been answered. But regarding the Recent announcement of the auto scrappage policy, what kind does Hindalco expect Some kind of a positive impact for the aluminum sector? And if so, how is the company aiming to take advantage of it? So a large part of our aluminum actually goes in the commercial vehicle, which is trucks, bulkers, trailers. And we think that the scrappage policy will be mostly or initially a lot used in that sector. So we are actually quite anticipating a bigger demand of aluminum because of the scrappage policy, Especially in this commercial vehicle segment. So that is where a lot of our aluminum goes today. So approximately, I mean, how much of aluminum usage is used by the commercial vehicles right now? I mean, if you were to get a like a ballpark estimate? I can't give you a sector wise aluminum usage there, but I think that all I can tell you is that with this scrappage policy, the Consumption of aluminum in the auto sector is going to go up. Okay. Okay. That is all. Yes. Thank you. Thank you. Thank you. The next question is from the line of Kamlesh Jain from Prabhudas Lilach. Please go ahead. Yes. Thanks for the opportunity, sir. So one question on the part of like, so you had highlighted that In a 2 weeks' time, you will come out with a proper CapEx policy, capital allocation policy. So on that front, like you Taking it out, sir, what will be the CapEx in Indian operations going forward? Are you going that 2,000 crore CapEx Run rate for next couple of years or is it going to differentiate further from the earlier run rate which we have been So look, as I told you that depending on the cash generation on India, taking into account, As I said that we don't have a plan to reduce the gross debt in India at this stage. Large part of the cash generated in India, we will be using for growth CapEx. So I think that Just like we announced, Silvasa, we'll be announcing the FRP. And I think that you will see that it's difficult for me to just give you Average CapEx over the next few years, but depending on our cash generation, the CapEx levels will go up. Last year, we had the $2,200 plan and we went Down to 1500 because of COVID. I think you'll be seeing a 2,000 plus, but I will give you that guidance once we have finalized our plans. And sir, lastly, are we looking at any investments related to like the PLI scheme? Would that be in concentration? Sorry, what scheme? That production linked scheme, Randall, which have been announced by the government. Yes. Those are more where you are B2C type of customers. So for us, there is no sector where we will get it. We are actually Waiting for the RODTP to be announced because if you remember from an export incentive, the MEIS was removed And the RODTP scheme was has been notified from 1st January. But the percentage of return that we will get for exporting has not been communicated yet. So we are So we are actually waiting for that. That will have a benefit because 50%, 55% we export. Okay. So the FRP and all those product segments, which we are expected to announce or to work on Would be majorly focused on exports part. No. See, let me be clear. The FRP and the extrusion that we are working on is largely for the Domestic market to do import substitution. When we export, it's largely ingot primary aluminum. So most of our downstream that we are working on is for the Indian market where the demand is growing up and we are doing A lot of import substitution projects. Great, great. Thanks a lot. Yes, thank you. Thank you. The next question is from the line of Vivek Ramakrishnan from DSP. Please go ahead. Hi. This is again the question on the debt level. So Mr. Pai, about a couple of quarters ago in the call, you had mentioned that In the domestic aluminum business, the absolute level of debt is important and that your target is to bring down the long term debt that is Excluding the working capital, debt to about INR 12,000 crores. Does it still stand because you were talking about a higher gross debt number now? No, I was not I have grossed it. I said that largely the deleveraging focus that we are going to announce will be focused on Novelis, Reducing INR 1,000 to INR 1,000 we are at about our long term debt net debt in India is around INR 14,000 crores. So reducing Another INR 2,000 crores is we could do it. It's neither here or there. I think from a capital allocation, what we are saying is that We will delever on the Novelis side more. We have no intention of adding any debt in India. Okay, great. Thank you very much. Yes. Thank you. The next question is from the line of Satyajit Jain from Ambit Please go ahead. Your line is unmuted. Please unmute the line from your side and go ahead. Hi, am I audible? Yes, you are. Thank you. Yes, thank you so much for the opportunity. Most of my questions have been answered. Just one question on ESG, on the entire Green Aluminum Drive globally. So Rio Tinto and other producers have come up with an initiative of a label called chart to The Carbon Footprint and Other Criteria. So I mean with Hindalco, there's always that caught me that Novolish has extremely good sustainability metrics, but the power source of The source of power for smelting in India has always been a challenge and some of these labels will track these metrics, right? So how As you look at the capital allocation plan, the growth strategy, evaluate all of that, how do you think of addressing some of these challenges that ESG investors So maybe grappling with when they look at Hindalco? So the as you quite rightfully put off on the Novelis side because of the recycling will be well. But the way we position Hindalco as a consolidated, which is what I tried to do in today's presentation and which is an approach that The Dow Jones, MSCI, all have taken is that it's not just the carbon. You have to ESG stands for environment, safety and governance. So we are quite right that we are on the back foot when it in India when it comes to the source of power. But there are so many other parts where we intend to be world leaders. And that's how we are going to position ourselves. And the number 2 thing is that In India itself, as I told you, we are going to increase the usage of natural gas and solar, and we'll try to bring it down as much as we can. But can I ever become 0 carbon in smelting in India? The answer is no, and we know that. So which is why When we talk about green aluminum or even if you look at Rio Tinto, what they have announced is lot more sectors. They talk about red mud, They talk about biodiversity, water, all of those are taken into account. So I think the challenge is to get the investor to understand A holistic environment sustainability policy, and that is what Hindalco is sort of taking the pressure and the lead in doing. Okay. Thank you so much. Yes. Thank you. The next question is from the line of Abhijit Mitra from ICICI Securities. Please go ahead. Yes, thanks for taking my question. Question is on your consolidated net debt So on a sequential basis, we can see almost INR 4,500 crores of net debt reduction As against a consolidated EBITDA that I can see of around INR 5,100 crores. So can you sort of create a bridge, a broad bridge As to how this was achieved and any working capital impact or benefit that you would Any other benefit that would have helped this number? No. I mean, really speaking, it's largely internal cash flows. We are seeing in line with the EBITDA generation. Obviously, the cash flows have been pretty strong. There is a very focused attention on the working capital management as well. CapEx has been under control, so all that is resulting into better cash flows. I would simply put it that way. And of course, Part of it is helped by the divestiture as well. We got a Louisport divestiture was done in this quarter. So that has helped. So really speaking, it's a mix of all things, but operational improvement and cash flows is one major factor, which we intend to continue. But I think that, Dave, why don't you chip in and tell about the actual debt reduction that Novelis did in Q3, Dave? Yes, absolutely. So we reduced debt by about $700,000,000 in Q3 And there was a mix of factors. One was we got the divestiture proceeds of Louis Ford, during the quarter, we had received the duffle proceeds right on the borderline on September 30, so we were holding that cash ready to pay down debt. So essentially if I broadly tell you about $500,000,000 rounded, I'm just rounding numbers. They're coming from all the divestiture proceeds and the rest From is coming from other internal cash. So that's really the way we have brought down 700,000,000. Got it. Two questions more from my side. One, What has been the consolidated CapEx for 9 months and for the quarter? And second is in your India Operations in Dalvik India operations, the depreciation has come down from around INR640 crores to around INR497 crores on a sequential basis. Any reason that you would sort of ascribe to that? So maybe I can take the India part to begin with. The second question, basically last quarter, we had an impairment of So that had inflated the depreciation and impairment number. Otherwise, they are in line with each other. And on the CapEx, we are in India, we are at about INR 11.50 crores or so for the 1st 9 months. Dev, Novelis first 9 months CapEx? Novella's 1st 9 months CapEx, I have to just take a couple of moments. Can you just move on and come back to that? That data is That data is available actually in the public domain. So thanks for this India number. That's all from my side. Okay. Great. Thank you. Thank you. The number is 333 by the way, why today, sorry. Just took me a moment. Yes, sure. Thanks. Thank you. Ladies and gentlemen, we'll take the last question from the line of Pratesh Shah from Investec. Please go ahead. Hi. Thanks for the opportunity. Apologies, I got disconnected earlier. I just Two questions. One is, how has been the transformation or transition from MEIS to ROD TEP? Have the rates been already notified? How are we baking it in our P and L address now? That's the first question. So the as I was I think I said in the earlier question, the MEIS got taken out somewhere in Q2, 1st September. And since then, we have not had any MEIS benefit. The RODTP has been notified from 1st January. And but the percentage that they give, MEIS was roughly 2 So we are expecting RODTP to come up at least at 2, if not more. But that they will do and then it will be retrospectively Applied from 1st January of 2021. That's useful. My second question is a bit hypothetical, Mr. Pai. Do you see a day in India probably emerge wherein you will be substituting coal with gas With some policy action, do you see that something of this sort being actually viable in the country or Government being doing something about it or have you heard about any potential pipelines being laid off? And is this something which might come to use And something of this sort being a possibility? So it's not hypothetical. In fact, in the Jarsigoda area, the gas pipeline is being laid. COVID delayed it by about a year. And our plan is to make all our boilers dual fired, meaning part coal, part gas. So we intend to be the first ones to immediately do that. In fact, an interesting statistics we have told MOPNG that if they can get Gas landed in India at about at our plants at about $5 an MMBtu, then you can actually start to substitute coal. So that discussion is quite actively ongoing. The problem as you realize is that gas will be important. Domestically, we have not got enough gas yet. Okay. Sir, you said $5 per MMBtu at the plant? Yes. Today, by the way, this year, we were buying at about 8% to 9%. Right. But is there willingness from the government to step in and make Something of this sort possible like to bear the cost to decarbonize the industry, something of that sort? So I think there is there are different parts of the government that look at it differently. But yes, there is because as you know, Mr. Modi has made commitments for the reduction of carbon. So that discussion today is largely on adding more solar capacity. But as you know, solar will not help to decarbonize industry in a big way. So this discussion of gas, at least from my side, I'm Putting it on the table more. That's very useful and look forward to hear more on the subject going forward. Thank you so much for the answers. Yes. Thank you. Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. So yes, I just would like to thank everyone. I think that this Q3 is where we are generally feeling we are back from the COVID related issues that happened in Q1, Q2. And we think that going forward, there has been a good recovery in demand. The macros are looking strong. And we are operationally a lot more efficient now. So we think that the next year for Hindalco Novelis It's going to be a good year. And we also look forward to articulating our capital allocation policy, which we think will be important in the coming weeks. So thank you so much for your attention. Thank you very much, sir. Thank you. Ladies and gentlemen, on behalf of Hindalco Industries Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.