Hindalco Industries Limited (500440) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Hindalco Industries Limited Q3 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Subir Sen from Investor Relations of Hindalco. Thank you, and over to you, sir.

Thank you, and a very good evening or morning, everyone. On behalf of Hindalco Industries Limited, I welcome you all to this earnings call for the third quarter of financial year '20. On this call, we'll refer to the Q3 investor presentation available on the company website. Some of the information on this call may be forward-looking in nature and is covered by the safe harbor language on Slide #2 of the investor presentation. In this deck, we have presented the consolidated quarterly financials, included all segments of India business and our overseas subsidiary, Novelis, to give you a comprehensive view of all our businesses. For this purpose, standard principles of consolidation has been applied as per the Ind AS. For comparison purposes, all the prior period consolidated financial numbers are presented in a similar manner. On today's call, we have with us from Hindalco, Mr. Satish Pai, Managing Director; Mr. Praveen Maheshwari, Chief Financial Officer and CEO, Copper business. From Novelis, we are joined by Mr. Steve Fisher, President and CEO. I will now hand over the call to Mr. Pai for his opening remarks. Thank you, and over to you, sir.

So thank you, Subir. Greeting to everyone, and thanks for joining this earning conference call for the third quarter of FY '20 of Hindalco today. Let me start with a quick review of our quarter 3 results. Praveen will then present the operational and financial performances of all our businesses in detail later on. Coming to Slide 5. Hindalco delivered yet another steady quarterly result, driven by strong operational and financial performance by Novelis, supported by resilient show by the Indian aluminum business and partially offset by the copper business performance, which was impacted by lower realization and volumes. Novelis reported its best-ever Q3 EBITDA of $343 million, up 7% year-on-year and adjusted EBITDA per ton of $430, up 7% year-on-year. Net income without exceptional items was at $132 million, up 31% year-on-year. Overall shipments were flat year-on-year at 797 Kt in Q3, with can sheet and automotive body sheet shipments higher by 4% and 3%, respectively, over the previous year. In January, Novelis also successfully issued $1.6 billion bonds at 4.75% during in 2030. These replace one of our existing USD 1.15 billion bond at 6.25% due in 2024. This offering extends the debt maturity profile at an attractive rate with a net interest savings of around $17 million per annum. On the Aleris acquisition, we have received the antitrust approval from China. The European Commission is currently evaluating the suitability of the proposed buyer of Aleris' automotive plant in Duffel, Belgium. The U.S. arbitration proceedings are in progress. As indicated by Novelis earlier, this transaction could take some more time, but we remain committed to close this transaction at the earliest. Moving on to Hindalco's Aluminum business. The domestic market for aluminum contracted by 14% year-on-year and 5% on a year-to-date basis. Global aluminum prices in the quarter have declined significantly by around 11% year-on-year to an average of $1,754 per ton. Hindalco's operations remained stable with alumina and aluminum metal production at 662 Kt and 330 Kt, respectively. Metal sales were up 2% year-on-year at 328 Kt in Q3. Sales of aluminum value-added products, excluding wire rod sales, were flat year-on-year at 75 Kt compared to the same quarter last year. The aluminum business, including Utkal reported an EBITDA of INR 1,036 crores versus INR 1,252 crores in the prior period. This drop in EBITDA was mainly on account of lower realizations. This was partially offset by lower input costs and the reduction in renewable power obligation. The EBITDA margin was at a healthy 19% despite volatile and challenging market conditions. Turning to the Copper business on Slide 6. The domestic copper market growth moderated to 2% year-on-year in Q3. Value-added CC rod sales grew 3% year-on-year at 58 Kt, with the share of VAP to total sales at 69% in the third quarter of FY '20. Copper EBITDA stood at INR 256 crores in Q3 versus INR 490 crores in the quarter 3 of the previous year. This was comparatively lower year-on-year due to lower volumes and realizations in this quarter. The benchmark TC/RC for calendar year '20 has settled at $0.159 per pound, which is 23% lower than last year. Now let's take a look at the consolidated performance of the quarter. Hindalco reported a consolidated EBITDA of INR 3,676 crores for the third quarter of FY '20 compared to INR 4,080 crores a year ago. Consolidated PBT before exceptional items was INR 1,487 crores as compared to INR 1,931 crores in Q3 FY '19. Consolidated profit after tax for the third quarter was INR 1,062 crores compared to INR 1,394 crores year-on-year, down 24%. Finance cost in Q3 FY '20 was INR 889 crores, lower by 4% on account of reduction in interest rates during the quarter. The consolidated net debt-to-EBITDA stands at 2.65 at the end of December 2019 as against 2.48 at the end of March '19. I'd like to share that -- one of our recent recognitions in the field of finance. Hindalco was awarded the Silver Shield for Excellence in Financial Reporting for FY '18/'19 given by the Institute of Chartered Accountants of India. Turning to the broader economic environment in Slide 8. The U.S. economy grew by 2.3% in 2019 versus 2.9% in 2018, propelled by public spending and government expenditure. Economic activity in the euro area remained subdued. The Chinese economy slowed down to a 29-year low of 6.1% in 2019, mainly due to subdued demand and the U.S.-China trade war. According to the IMF, the estimated global growth is expected to moderate to 2.9% in 2019 versus 3.6% in 2018, reflecting the weaker-than-expected growth in emerging markets. Global growth is expected to rise from 2.9% in 2019 to 3.3% in FY 2020. The coronavirus outbreak presents a threat to economic recovery, though the full impact is not yet clear. Moving to the Indian economy. In FY '20, the economic growth moderated over a number of factors: subdued consumption, slowdown in investments and due to political issues such as trade tensions. However, the latest manufacturing PMI shows a positive outlook. It rose to 55.3 in January from 52.7 in December. Some of the measures announced in the recent union budget for the rural economy infrastructure as well as rationalization of personal income tax augur well for the economy. According to the first advance estimates of the Government of India, the economy is likely to grow by 5% in FY '20. Let me take you through the aluminum industry overview on Slide 9. Global consumption growth in 2019 declined by 1%, the lowest since the global financial crisis. The prolonged U.S.-China trade war, uncertainties around Brexit and sluggish industrial activity across the region dampened consumption growth during the year. In 2019, demand in the world, excluding China, contracted by minus 3% versus a growth of 2% in 2018 due to subdued demand in regions, notably the U.S., Latin America, France, Italy, Japan and South Korea. Chinese demand moderated to a marginal growth level of 0.5% in 2019 as compared to 4% the previous year. Across regions, slow growth in the end-user industries such as automotive, construction, electric and power, machinery and equipment were the major reasons for the growth -- for the drop in demand. On the supply side, the global production declined by 300 Kt to around 64 million tons in 2019. This was mainly due to Chinese production declining by 2% due to a disruption at 2 major smelters, whereas in the rest of the world, production grew by 1%. The overall market deficit in 2019 was around 840 Kt versus 1.2 million tons in 2018. Global demand in 2020 is projected to rise by 2% with the easing of trade tensions between the U.S. and China and the likely Brexit deal. We expect manufacturing activities to revise in 2020. Moving to the domestic aluminum segment. Domestic demand registered consecutive decline in Q3 FY '20 by 14% to 863 Kt. The continued slowdown in user industries such as automotive, building and construction and electric sectors were the primary reasons for the sluggish growth in consumption during the quarter. Year-to-date FY '20, domestic demand declined by 5% to 2.8 million tons. Imports, including scrap, also recorded a degrowth of around 17% in Q3. Year-to-date imports, including scrap, degrew by 7%. Despite the degrowth, imports maintained the market share of around 60% in FY '20. The factors that will drive demand in FY '21 are withdrawal from the RCEP trade deal; revisiting some of the other trade deals focusing on country of origin; the trust of the government on infrastructure, housing and electrical sector, especially renewables. Moving to Slide 10. Global FRP demand continued to grow at a steady pace of around 3% in calendar year '20. Global demand for beverage can stock is growing strongly on account of a continued shift in the packaging material to aluminum and products like new energy drinks, sparkling water and crafted beer, resulting in a growth in the range of 3% to 4% in the beverage can sheet market; strong and steady demand for automotive body sheets in the transportation segment, like trucks, electric and premium vehicles due to global adoption of strong lightweight formable aluminum in vehicle parts and structures. This market is expected to grow at a CAGR of 10% between CY '20 to '25. Domestic FRP demand declined by 4% year-on-year in Q3 FY '20 with subdued demand in the construction and transportation sector. Year-to-date, the Indian market on FRP is contracted by 1% year-on-year. The domestic FRP market is expected to grow next year at about 6%. Turning to the copper industry on Slide 11. Global consumption for refined copper contracted by 0.3% in 2019 versus a growth of 3% in the previous year. In China, consumption growth moderated to 1% in 2019 versus 5% in 2018, where consumption in the rest of the world contracted by 1.7% in 2019 versus a growth of 1.3% in 2018. On the supply side, mine disruptions in 2019 were high, notably in Peru, Chile and Africa. Copper concentrate consumption grew negligibly by 1% to 16.7 million tons in 2019. And the concentrate market recorded a deficit of 142 Kt in 2019 versus a surplus of 95 Kt in the previous year. Going forward, agreement on Phase 1 deals should encourage consumer confidence. In addition, new semis capacities across several regions will support strong consumption in 2020. However, the full impact of the coronavirus outbreak on copper demand is not yet clear. We expect the market next year to grow in the range of 1% to 1.5% from a decline of 0.3% in 2019. On the supply side, the benchmark TC/RCs dropped by 23% in 2020 due to an increase in demand and the lower productivity of mines. The concentrate market is expected to be in a deficit of 200 Kt in calendar year 2020. In the domestic market, consumption recorded a marginal growth of 2% in the third quarter to 193 Kt as consumption from strips and transformers, winding wires and railway was sluggish. During the same period, imports touched 99 Kt, taking a market share of imports to 51% from 40% in Q3 FY '19. We expect demand to remain flat in Q4 FY '20. In FY '21, recovery in demand from sectors like auto, railways and transformers will increase copper consumption. Imports from ASEAN and other FTA countries continues to put pressure on domestic pricing. On the positive side, on the 8th of January, the Government of India imposed CVD, or countervailing duties, on the imports of wires from Malaysia, Indonesia, Thailand and Vietnam to support the domestic producers. Praveen will now take you through the business performance highlights of each of the business segments in quarter 3.

Thanks, Satish. Let's review our operational performance on Slide 14. Novelis delivered yet another steady quarterly performance with its best-ever Q3 adjusted EBITDA, adjusted EBITDA per ton and a very strong net income in Q3 of FY '20 year-on-year. This performance was on the back of strong operating and financial performance, supported by favorable market conditions. Global demand for aluminum FRP remained steady, with overall shipments of Novelis at 797 Kt in Q3 FY '20. Beverage can sheets and automotive body sheets also grew in this quarter, driven by growing consumer preference for sustainable packaging and automotive light-weighting globally. Progress on all 3 major strategic capacity expansion projects is quite satisfactory. These projects, as you know, are in the U.S., China and Brazil. Out of this, the 200 Kt greenfield automotive finishing plant in the Guthrie, Kentucky, has begun commissioning and will be ready in the coming months. Satish has already explained to you in the previous slides about the position of Aleris acquisition and the fact that Novelis successfully issued $1.6 billion bonds, and we'll explain more at the time of Q&A. Moving to Slide 15. Novelis achieved an adjusted EBITDA of $343 million and EBITDA per ton of $430, both up 7% Y-o-Y in Q3 FY '20. This growth was on account of increase in share of can and auto sheets and operating cost efficiencies, partially offset by less favorable recycling benefits due to lower aluminum prices. Slide 17 shows the details of the performance of Indian aluminum business, including Utkal. Alumina production in Q3 FY '20 was 662 Kt. Aluminum metal production was 330 Kt in Q3 FY '20, reflecting stable operations during the quarter. Value-added products, excluding wire rods, recorded a production of 80,000 tons in Q3 FY '20 versus 82 Kt in Q3 FY '19. Coming to Slide 18. Aluminum metal sales volumes grew 2% at 328 Kt in Q3 versus 323 Kt in the previous year. The VAP sales, excluding wire rods, were flat year-on-year at 75 Kt, but grew 5% in 9 months year-on-year. Share of VAP in total sales was about 24% in this quarter. Moving on to the financial performance of the aluminum business, including Utkal, on Slide 19. This segment recorded a revenue of INR 5,467 crores in Q3 FY '20 versus INR 6,019 crores a year ago on account of lower LME in Q3 FY '20. EBITDA, including reversal of provision of regulatory changes related to RPO in Q3 FY '20 stood at INR 1,036 crores versus INR 1,252 crores in Q3 FY '19, which is down 17% Y-o-Y. The EBITDA margin was at a healthy 19% of revenue in this quarter despite the current challenging macroeconomic business environment. Moving to Slide 21. The overall copper metal production was lower by 18% at 86 Kt in this quarter compared to 105 Kt in the previous year. Quarterly production of CC rod was lower by 8% at 60 Kt in Q3 FY '20, driven by market conditions. DAP production was higher by 6% at 80,000 tons versus 76,000 tons last year on account of stable operations in this part. Coming to Slide 22 on sales volume of copper and its VAP. Copper metal sales were lower by 14% year-on-year at 84,000 tons due to lower production. Copper value-added products with, which is CC rod sales in Q3 FY '20 were higher by 3% Y-o-Y at 58 Kt, which was in line with the current market growth. The financial performance of copper segment is on Slide 23. Revenue stood at INR 4,774 crores versus INR 5,943 crores a year ago, down 20%, mainly due to lower LME and volumes. EBITDA stood at INR 256 crores in Q3 FY '20 versus INR 490 crores last year as a result of lower volumes and realization. Let me now hand over the call back to Satish to give you a brief on our consol results and an update on our key focus areas.

So on Slide 24, Hindalco reported a consolidated revenue of INR 29,197 crores, an EBITDA of INR 3,676 crores, a PBT before exceptional items of INR 1,487 crores and a PAT of INR 1,062 crores in Q3 FY '20. The detailed quarterly comparative financial numbers are attached as an annexure to this presentation on Slide 28. The Hindalco India business reported a revenue of INR 10,254 crores, an EBITDA of INR 1,388 crores and a PAT of INR 262 crores in Q3 FY '20. These details are also provided as an annexure to this presentation on Slide 29. Let me now end by giving you an update on Hindalco's key focus areas on Slide 25. There are 3 crucial broad focus areas for Hindalco. First, the company's continued focus on cost efficiency through integration and resource security, the ongoing Utkal Alumina expansion of 500 Kt is 70% completed, and the expected commissioning is in December of this year. This expansion will help in the cost reduction by getting the best and most economical alumina to strengthen the existing resource security further. Dumri captive coal mine coming up next in the next financial year will add up to the company's overall coal security apart from its current coal linkages with Coal India. Second, Hindalco's focus on a sustainable business model with a downstream strategy of product expansion in India, where it will increase its flat-rolled product capacity by 2x and extrusions by 3x in the next 5 to 6 years. And this will enhance the share of value-added products to insulate the consolidated Hindalco EBITDA from LME volatility further. Hindalco has already made certain investments towards enhancing capacities in the extrusion breadths and capabilities in products such as circles and hard alloys with investments in a new scrap furnace in Hindalco's Hirakud facility. Novalis' use of recycled content has reached 62% in Q3 FY '20, driving its sustainability journey. Hindalco also launched India's first all-aluminum freight trailer towards its sight for aluminization in India. Coming to ESG initiatives. Novelis has achieved the ASI certification for its Ohle plant in Germany in terms of responsible production sourcing and stewardship of aluminum. Hindalco has also made investments in the fuel gas desulfurization for control of SOx and NOx in its sustainability initiatives. Third, Hindalco's focus on organic and inorganic growth initiatives. Organic growth initiatives in India include a $1.2 billion aluminum downstream expansion and a $200 million Utkal expansion project, which are progressing well as per the company's strategy. Novelis' strategic expansion in U.S., Brazil and China of $700 million will come online in the next 2 years. In addition to these organic plans, Novelis' acquisition of Aleris will provide strength to its existing product mix further, diversifying its product portfolio and will also provide integration and synergistic benefits. The intent is that these 3 focus areas will support Hindalco in following a sustainable path to become resilient, reliable and responsible metals media. Thank you very much for your attention, and we'll now open up the forum for questions.

[Operator Instructions] The first question is from the line of Pinakin Parekh from JPMorgan.

Yes. Sir, my first question is on the Copper segment. For the last 3, 4 quarters, we are running at some 90,000 tons in terms of production. When can we go back to 100,000 tons of production, which was there in F '18?

Yes. You're right. In the last 2, 3 quarters, we have seen those problems. Quarter 2, particularly, we had the issue of floods in Gujarat. Those were unprecedented floods, which created havoc in that area. Quarter 3 also, we some -- we saw some of the impact of similar issues coming up in Q3. Basically, one fundamental difference between aluminum and copper business is that unlike aluminum, where if there's a problem with a pot, you can take it out and repair it. In case of copper, it is one full smelter. It's a large -- it's a very large smelter and many parts are there. If anything goes wrong anywhere, the whole line stops, and then it has an impact on the production. Also, the production gets impacted in the quarters where we have a planned shutdown as well because then the whole plant is kind of stopped. So in Q3 as well, we had a couple of such issues, which were unplanned shutdowns. And gradually, we are expecting that these issues will go away. Q4, so far, is running all right. Some of the impact of Q3 will come in Q4 as well. But post the repairs, the plants are running well at the moment. We have scheduled shutdowns also in quarter 1 and quarter 3 going forward. And we'll update you on those activities as we go along.

Sure, sir. Just containing with the copper business, while the company mentioned that CY '20 TC/RCs have been negotiated -- have been set lower, given what is happening in China and news flow about smelters, custom smelters not picking up copper concentrates, that ideally would have led to spot TC/RCs moving sharply higher. Now in terms of the company's exposure, does it have any exposure to the spot market? Or everything is locked in to the annual contracts?

Typically, we have about 85% of our requirements locked in with long-term contracts. It works both ways. Today, you're seeing spot TC/RCs -- you may see an opportunity. But it has also helped us when cases like even last year and before that as well, where spot TC/RCs were very low, and therefore, it actually helped us sustain our profitability as well. So we may have some small pockets of opportunities there, but it's not big in terms of a portion of our requirement.

Sure, sir. And sir, just last question on the Duffel plant, now what we know is that it's a $50 million EBITDA, but we don't know as to what value has the plant been sold to the new buyer. Now Aleris was acquired at a transaction multiple of roughly 7x the EBITDA, now would the Duffel plant divestment be at a higher multiple than that because it's in the auto business and auto is seen as something which is structurally more positive?

I'll let Steve answer that. But Pinakin, I think, at this stage, we will not be able to give you any guidance on that till we get approval from the European Union on the acceptance of the buyer. But Steve, do you want to add anything more?

No, Satish, I think that's appropriate at this point in time. I have to leave it there.

The next question is from the line of Sumangal Nevatia from Kotak Securities.

First question is with respect to our Utkal expansion. I mean, is our strategy completely to replace existing high-cost production? Or we'll be selling in the market as well? And if we are just replacing, what sort of cost benefits one should expect?

So look, I think it will be fair to say that it will be a mixture of both because though we have restarted Muri, and Renukoot is a very old refinery, we would take that -- the first part will be to replace some of the alumina of Renukoot with the Utkal. And I think the benefits -- currently, the market price, which we are transferring at is around $280 to $300. And both Renukoot and Muri cost of production is actually in this range whereas Utkal is half of that. So any replacement will mean nearly $150 benefit.

Understood. All right. Secondly, with respect to the Copper business, now the TC/RCs we read is settled at around 20%, 25% lower. So in our overall profitability, say EBITDA of around INR 1,100 crores, INR 1,200 crores, how much is linked to TC/RC and how much -- what portion of this is with respect to byproduct credits, DAP, et cetera?

Broadly, if I divide this into 3 parts, TC/RC is roughly 50% of our contribution; 25% is towards the value-added products and markups, et cetera, in the domestic market; and balance 25% is towards the byproducts, we have sulfuric acid and DAP.

Okay. So it will be fair to estimate that the 50% will be down 20%, 25%, and the remaining 50% is -- should continue at the existing run rate and whatever is the market changes?

That is by and large true, but there are many other factors which go into it. So there are input prices, which also, for example, in case of the byproducts, input prices have been lower; coal and LNG have been lower. So it is difficult to just straight away put it. But broadly, I can say, you're right.

Understand. Okay. And with respect to our CC rod, the ramp-up appears to be quite slow. So is there any -- I mean, is there a demand issue or some teething troubles with the plant?

No. So there are no teething troubles or any kind of troubles with the plant. In fact, the rod production has been running very smoothly. It has also been improving its quality now. So it's a very good and stable operation. It is unlike the smelter operation, where I just mentioned that it's one large plant, and CC rod is more like a downstream operation. If there are problems, you can always correct it. We are planning to use some digital analytics as well as we go along. But so far, it has run very well. Q3, you saw the numbers are little low because of the market conditions. The market in Q3 was very depressed. And as we mentioned, the imports have been coming into India. The CVD has come only from January 2020. So hopefully, going forward, you'll see a better utilization of CC rod capacity.

Okay. Just one more question, if I can squeeze in. With respect to our long-term plan of $1.2 billion spend towards the downstream aluminum, I mean, what sort of ROCs one can expect here? And I mean, it's a 5-, 6-year investment. So I mean, how will it be spread in the next 5 to 6 years? Because, I mean, I think, we've been aiming this and talking about since last 2 years, but I believe the progress on this has been quite slow.

So as we said, let me first tell you that this year's INR 2,000 crores CapEx, about INR 800 crores was the sustaining CapEx; INR 500 crores, INR 600 crores was Utkal; and we put in the downstream about INR 300 crores this year. So if you remember in my closing comments, I talked about the scrap furnace came up in Hirakud, extra circle line, attention leveler, many of the -- an extrusion press in Renukoot, all these are now coming onstream by the middle of this year. So what we will do, and frankly, as I said, I want to remain within our cash flows as well. So we are going to maintain around a INR 2,000 crore CapEx, INR 800 crores being sustaining. So since the Utkal is coming to an end, next year, I'll be able to put instead of INR 300 crores, maybe about INR 600 crores into the downstream. So this is the way we'll do it. And the IRRs, we are getting out of these are around 13% to 15%, is the way we target these projects.

The next question is from the line of Amit Dixit from Edelweiss.

Sir, I have 2 questions. The first one is on domestic demand dip in Q3, which is like quite, I would say, acute at 14%, I'm talking about aluminum here, whereas our VAP sales actually remained flat. So what all segments do you see the maximum pain? And how do you see it going forward in FY '21?

Yes. So the maximum pain for us, you see the largest aluminum consuming sector in India is the electric sector, which is conductor cables. And that is where we saw quite a lot of market pressure. So this was where quite a lot, though I have to say, in December, the orders did start to pick up. Now the sectors like packaging and pharma, we saw very strong orders. So you're right, Q3 was probably the slowest quarter we have seen in a long time. Though end of sort of December, middle and January, the electric sector orders have started to pick up. So we are expecting that Q4 will be a good quarter. I mean, it's also the final quarter. So government budgets and all tend to get spent, and Q4 normally is our best quarter. So seeing the results of January, I can say that the electric sector demand is starting to pick back up.

Okay. The second question is on Dumri coal block. So when the -- once your captive mines start, what kind of savings per GCV we can expect?

So look, honestly, the captive mines are not really a cost saving. They are actually providing us the coal during the times when Coal India production gets very tight. The cheapest coal in the Hindalco system is linkage coal. And normally, we run at about 70% -- 60% to 70% is linkage coal. In fact, Q3, our aluminum business performed very well, if you notice the EBITDA as well as the percentage. It's because the linkage coal percentage went up and our cost of production fell by 5% Q3 to Q2. So what Dumri will do is it will bring in just like the Gare Palma coal during the next monsoon period, et cetera. We will have a backup when Coal India supplies start to get tight and when they prioritize the power sector. So we normally use our own mines as a swing producer. The cheapest coal in the system is still the linkage coal from Coal India.

The next question is from the line of Ashish Kejriwal from IDFC Securities.

Sir, as you mentioned in the last comment that cost of production of aluminum was down 5% quarter-on-quarter. So is this because of just higher linkage? If it is, is it possible to share the linkage share in this quarter versus last quarter? And what is the current cost of production?

Yes. We don't give out the cost of production, but the cost of production was down 5%. So first, you have to realize that, as usual, our efficiencies and operations are running smooth. Now the cost of production was down because linkage coal went from 60% in Q2 to 69% in Q3. And linkage coal, as I told you, was our cheapest. Besides that, the other input costs have also sharply come down. So the carbon, normally, CP coke, pitch, even caustic, all these prices have come down. So as a combination, our cost of production, if you remember, I was guiding to flat to 1% or 2% down. Actually, it went down by 5% in Q3. And anticipating your next question, in Q4, I expect it to be down by another 2%.

And this other 2% is, again, on account of linkage coal? Or...

And other input costs as well.

Okay. So sir, is it possible to share power cost per GCV for this quarter?

No. We don't give out that. Because our power cost is a combination of a number of CPPs. So we don't give that out. No.

Okay. No issues, sir. And in terms of copper profitability, because, now, we have changed our last quarter numbers as a means...

That is the chat -- cost allocation.

Yes. So if I'm looking at -- is this the new normal for Copper business, excluding the lower TC/RC, which we are going to recognize from fourth quarter?

Yes. So I would generally say that next year is going to be a difficult year for Copper business, and TC/RC surely has a big impact. We are also anticipating a longer kind of shutdown for DAP part of DAP production because of 1 particular inspection, which is due at the moment for ammonia tank. So copper, next year, is a little difficult one. But this is probably the bottom as we see. The hints we get from the miners and the bodies, CRU, et cetera, is that the $0.159 is probably the bottom in the current cycle. And we should see some comeback in the next year, that is, calendar '21 in terms of the TC/RC.

Sir, assuming if it remains like this for the entire year and we come back with our production numbers of sort of maybe around 400 Kt, then will it be making sense to make around INR 1,000 crore EBITDA also?

So I cannot give you any guidance on EBITDA numbers at the moment. I can only tell you that the TC/RC is low, which is a fact. But we will make sure -- we'll try to make up, by good amount of production, operational efficiencies, et cetera. And we will try to counter this as much as possible.

Sure. And, sir, lastly, on this $1.2 billion CapEx plan for the next 6 years, how it is -- the first 2 years, okay, it will be somewhat on a lower end. But when you are -- when we are seeing it as a peak CapEx as well as when we start getting some benefit out of it?

So look, the downstream is modular. There will not be a big sharp spike in CapEx spending because there are multiple projects that we keep doing over a period of time. So the rate at which we'll do the projects, which I tried to explain earlier, will depend on the cash flow generated in India. And with the current LME, I can afford to put about INR 2,000 crores of CapEx. If the LME goes up, we will accelerate a few more projects.

The next question is from the line of Abhijit Mitra from ICICI Securities.

I have 3 questions. Firstly, on the coal consumption for the quarter, if you can give up a breakdown of the tonnage between e-auctions, linkage and captive, that would be great. Secondly, just to understand the 2% cost savings that you are highlighting for the next quarter, it does not factor in any benefit despite the start of Muri because it's almost at the same price at what the market price is? Thirdly, 2 questions, 2 quick questions on Novelis.

Sorry, can you just hold, otherwise we'll lose track of the questions.

Sure, sure. Yes.

So coal mix, linkage 69%, e-auction 15%, and between own and imported was the remaining -- own mines and imported was the remaining. So Q3 was largely linkage and e-auction. Dumri does not start till April 1, after which we'll start to remove the overburden. So production will really start in the subsequent months. And I repeat, again, Dumri will not bring my overall coal costs down. But during the monsoons, when I get tight on coal, it will help me, okay?

Sure.

So now your questions on Novelis?

Yes. The one more question on the restart of Muri. I mean, it's not going to change the cost structure much as -- at this market price of alumina. Was the understanding right?

Okay. So what it will do, and nobody has asked the question yet, but Muri's impact in Q3 was INR 77 crores. So it has been -- if you remember, in Q2, it was another INR 80-odd crores. So that expense will not be there in Q4. So it will not help -- save money on the alumina, but the cost impact of the fixed cost, the mines, which all we had to take the -- some of the repair costs that we had to do, all that effect will not be there in Q4.

Great. Great. And 2 quick questions on Novelis. First, with the restart of the auto finishing plant in Kentucky, there will be a further shift of specialty portfolio towards autos, right? So that can again surprise The Street on the margins. Is the understanding right? I mean...

Steve?

Yes. So as we talked about yesterday, the finishing -- auto finishing line coming up in Guthrie, Kentucky, of 200 Kt will be fed from our Logan Kentucky facility, which will have a mix shift away from specialty, some can towards auto over the next couple of years. And obviously, margins on the auto business -- or EBITDA margins on auto business are higher in the U.S. than the other businesses.

Right. And lastly, regarding the selection of the buying or sort of interested party for Duffel, it looks a bit odd given the sort of news flow that we keep on reading about Liberty Group. Will that come as an impedance for getting the approval of the EC? Or is -- it is something that you've already factored in and you are okay with possible outcomes?

So the European Commission in January has already stated that there is no competition concerns with the Gupta Family Group or Liberty House. We've done our diligence associated with Liberty House and believe that they are very much a suitable buyer for Duffel that will provide long-term strategic investment in the downstream auto business that comes out of that plant. And so we're confident that, ultimately, we will get the European Commission's approval of the Gupta Family Group.

The next question is from the line of Pallav Agarwal from Antique Stock.

So my question is again on the Copper business. So what kind of recoveries are we seeing in copper at our smelter? And is the amount of free copper, is that also impacting our profitability in the Copper business?

Sorry. What is the second part of your question? What is recovery...

So I'm seeing -- yes, because the LME prices are down, so is the lower free copper revenue also impacting our profitability over there?

But that impact is not much actually because that's a very small part of the overall profitability. Theoretically, yes, I mean, there is some free copper which comes. But at any movement because of that, the impact is not so much. And recovery, yes, recovery is important. That's one of the driving factors. So whether it is uptime of the plant, whether it was a feed rate, whether it is process loss or recovery, as you call it, all these factors do play into the profitability.

Okay. So even the duty differential on finished copper would not be very material for the profitability, then, I guess?

What do you mean by duty differential on refined copper?

The differential between finished copper and the import duty on concentrates?