Hindalco Industries Limited (500440) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Hindalco Industries Quarter 3 of FY '21 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. 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 third quarter of FY '21. On this call, we will refer to the Q3 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 the safe harbor language on Slide #2 of the Q3 earnings presentation. In this presentation, we have covered the key highlights of all our businesses for the third quarter and the financial year '21, 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 Hindalco, Mr. Satish Pai, our Managing Director; Mr. Praveen Maheshwari, our Chief Financial Officer and CEO of Copper business. From Novelis' Management, we have Mr. Steve Fisher, President and CEO; Mr. Dev Ahuja, Chief Financial Officer, 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 third quarter FY '21 versus the corresponding quarter of last year. Hindalco 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 aluminium business, supported by higher volumes, better product mix, lower input costs, 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 million, up 46% on the back of higher volumes and improved margins. EBITDA per ton was also at a record high of $537 per ton in Q3 of FY '21, up 25% year-on-year. Net income from continuing operations was at $195 million, up 82% year-on-year while net income, excluding special items, stood at a record high of $209 million, up 58% year-on-year in Q3 FY '21. The Aleris integration work continues with $54 million annualized run rate combination cost synergies already achieved till Q3 FY '21, with a potential of $120 million in combination of synergies to come. Coming on to Hindalco's India aluminium business performance in Q3. Business EBITDA for Hindalco India Aluminium was up 27% year-on-year at INR 1,323 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 '21 compared to Q3 FY '20, but were higher by 4% sequentially. Value-added product sales were at 80 Kt in Q3 FY '21, 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 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 '22. Turning to the quarterly performance of the Copper business on Slide #6. Cathode production was low at 51 Kt in Q3 FY '21 due to planned maintenance shutdown in one 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 '21. The Copper business recorded its highest ever fertilizer sales volume at 156 Kt, up 135% year-on-year on the back of robust demand. Copper EBITDA in Q3 FY '21 was at INR 202 crores. Coming to the quarterly consolidated performance for the quarter. Hindalco reported a standout performance across businesses by leveraging market demand, strong operational efficiencies and improved macros. Hindalco's consolidated business EBITDA was up 40% year-on-year at INR 5,242 crores compared to INR 3,733 crores in Q3 FY '20. PBT for continuing operations before exceptional and special items was up 77% year-on-year at INR 3,153 crores in Q3 FY '21. The consolidated PAT for continuing operations before tax-effected exceptional and special items was up by 74% year-on-year at INR 2,166 crores in Q3 FY '21 versus INR 1,247 crores in the corresponding quarter of the last year. Hindalco continues to maintain its strong liquidity and cash position with a total liquidity of $2.4 billion and a cash of $1.16 billion 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 June 30, '20, resulting in a significant improvement in the consolidated net debt-to-EBITDA to 3.09x at the end of December '20 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 most -- World's Most Sustainable Aluminum Company in the Dow Jones Sustainability Index, DJSI, and in its S&P Global CSA score. Furthermore, the company's rating in the MSCI index has improved to BBB from the earlier BB rating, an 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 '21 and 4.2% in calendar year '22 amidst hopes of a vaccine-powered strengthening of economic activity, especially in the second half of calendar year '21. Except for China, where the calendar year '20 growth was a positive 2.3%, the GDP in most advanced and emerging economies is expected to contract in calendar year '20. A strong fiscal stimulus under the new administration is expected to drive the U.S. economic growth in calendar year '21, 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 intervention and structural reforms undertaken by policymakers. 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 '21 to ensure sustainable growth. A second wave, new variance of the viruses and rising government debt remain a concern. On the domestic front, the worst is behind us with a sharp slump in economic activity in H1 financial year '21. Growth in H2 FY '21 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 '21 projects a V-shaped recovery with 11% real GDP growth in FY '22, 6.5% in FY '23 and 7% in FY '24, on a contracted base of 7.7% in FY '21. This translates into a 2.4% growth over the absolute levels of FY '20, 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 '21 and pegged at 6.8% for FY '22 as per the Finance Minister's budget speech, with a glide path to fiscal consolidation by FY '26 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 million 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 0.9 million tons, the rest of the world has a surplus of about 3.5 million tons. In calendar year '20, the global consumption declined by around 4% to 62 million tons because of the contraction of demand of nearly 13% in the world ex China, partially offset by Chinese growth of 4%. Hence, there was an overall surplus of 2.6 million tons. It must be noted that though the overall surplus is 2.6 million tons, nearly 80% of this surplus came in Q1 of calendar year '20. 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 '20, the world overall saw a growth of 5% each in production and consumption; and hence, a very small surplus of 0.1 million 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 construction grew by nearly 13% in November '20, boosting the demand for building and construction sector. The production was flattish, leading to a marginal surplus of 0.3 million tons. In China, strong automotive and real estate market supported aluminum consumption that grew by around 9% year-on-year at 9.8 million tons. The production also grew sharply by 9% year-on-year to 9.6 million tons, leading to a deficit of approximately 0.2 million tons in the Q4 of calendar year '20. Aluminium prices recovered sharply by 27% to $1,912 a ton from an average of $1,497 a ton in Q2 calendar year '20. 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 '21 is estimated to reach pre-COVID levels of Q1 and Q2 of FY '20 on the back of strong recovery in transport and consumer durables. The impact -- the import of scrap particularly witnessed sharp growth of 31%, while imports, excluding scrap, de-grew marginally. We estimate the domestic producer sales grew by 6% year-on-year. The government stimulus package of INR 27 lakh crores, which is 13% of the GDP, is a strong thrust on infrastructure, housing and manufacturing sectors, 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 '21/'22. 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 '21. Moving to Slide 11. The global FRP demand is expected to grow about 7% in calendar year '21 versus a contraction of around 6% in calendar year '20 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 outlook across end markets remains positive. You must have gone through the details of the segment-wise end market outlooks in the Novelis presentation. I will quickly reflect some specific end market outlooks for calendar year '21. Beverage can continues to show its resiliency in economic cycles, and we see the benefits from higher at home consumption that favors the package mix shift towards increased demand for sustainable aluminum cans. The overall market demand for beverage can sheet is estimated to grow by approximately 6% in calendar year '21. 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 '21 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 '21, 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 '21 is estimated to reach pre-COVID levels of Q1 or Q2 FY '20 as the demand revised in major segments like consumer durables that are supported by increasing penetration of e-commerce sales and B&C demand that is expected to reach pre-COVID levels by Q4 FY '21. Stable demand from the pharma and food packaging industries, coupled with auto sector, is 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 '20 compared to CY '19. China has fully recovered from the COVID-19 impact and grew by 2%, whereas the world ex China, still recovering from COVID, contracted by 9% compared to CY '19 level. In Q4 CY '20, global refined copper consumption recovered to pre-COVID levels and grew by 1% to 6 million tons. This recovery was driven by China, which saw an upturn of 6%, whereas consumption in the rest of the world contracted by 5% year-on-year in Q4 calendar year '20. Mines' output remained impacted, resulting in short supply of copper concentrates. The benchmark TC/RC for CY '20 settled at $59.5/$0.0595, lower by 4% compared to the CY '19 benchmark. Spot Tc/Rc too remained stretched during the quarter. Coming to Slide 13. On the domestic side of the copper industry, the refined copper market in Q3 FY '21 was at 166 Kt, which is 85% of the Q3 FY '20 levels of 192 Kt as major copper consuming sectors recovered post lifting of the lockdown, leading to the resumption of industrial activities. Post CVD imposition of imports from ASEAN countries, market share of imports has continued to decrease to 35% in Q3 FY '21 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 16 and 17. Novelis clocked a stellar performance on all fronts for both their existing business as well as acquired business of Aleris. Driven by excellent operational performance, favorable macro environment and focus on achieving synergies, Novelis achieved record operational and 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 Pinda, Brazil, the rolling expansion is on track and expected to be commissioned in mid next financial year. Novelis recently entered into the auto alumobility 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 Aleris 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 Utkal refinery. On sales front, the share of domestic sales has reached 41% in this quarter compared to 36% in the previous quarter. Similarly, VAP 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 a growth of 11% sequentially on account of higher global aluminum prices. EBITDA was up 24% sequentially at INR 1,323 crores 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 276 basis points sequentially. Moving to Slide 22. The overall copper metal production was at 51,000 tons 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 '21 on Slide 25. Hindalco reported an outstanding consolidated financial performance with revenues of INR 34,958 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% and 21% sequentially at INR 3,153 crores and INR 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 INR 11,425 crores and business EBITDA of INR 1,528 crores, both up around 20% and profit after tax of INR 495 crores, up 51% sequentially in Q3 FY '21. 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 '20 levels. This, along with increasing EBITDA, has led to a substantial improvement in the net debt-to-EBITDA ratio from a peak of 3.83x in June '20 to 3.09x at the end of December '20. Let me now hand over this call back to Satish to give you a perspective on our sustainability updates and a summary.

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 world's most sustainable aluminum company in the Dow Jones Sustainability index based on its S&P global CSA score of 2020. We have scored in the 100th percentile in most of the aspects in all 3 dimensions of sustainability metrics. 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 one notch higher this year to the BBB rating from BB. This reflects our commitment to ESG. Coming to Slide 21 (sic) [ Slide 29 ] 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 '21, the LTIFR was at 0.44, water consumption was at 53.6 million meter-cubed, while recycled water was at 12.2 million meter-cubed, reflecting continuous improvements in all these metrics over the years. The bauxite residue recycled was at 62%, and specific energy consumption in aluminum was at 85% from the base year of FY '19. 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 '18 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 '22. 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 third 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's smelters continues to position it in the first quartile of the global cost curve. The capacity expansion at Utkal alumina 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 Aleris 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 million worth synergies and $370 million EBITDA in the next 3 years. We are fine-tuning our capital allocation framework in light of the improved business outlook 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 Hindalco 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 #1 and are recognized as an industry leader globally. We shall continue to strive on our 3R 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.

[Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss.

Congratulations for a good set of numbers. I have 2 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 plant maintenance or something?

No. Actually, what happened, Amit, was that during the COVID times, we could not -- the pots have a life cycle. And as the pots in our terminology, die, we reline them and bring them back. We could not do the relining 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 315 levels versus 320, 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 the -- we have seen that imports have come down. So even when your copper production improves, is tolling 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 customer 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 planned 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, one just -- one follow-up question on this. So what could 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 smelters. So in October, November, we had smelter 1 coming under shutdown. And from 15th of March till about 15th of May, there will be a shutdown of smelter 3, which is the bigger 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.

The next question is from the line of Pinakin Parekh from JPMorgan.

It is very interesting and exciting to see that the company is now ready to come out with formal capital allocation and growth capital expenditure plans. In that context, sir, what I would like to understand is that if we take spot EBITDA of roughly INR 21,000 crores, INR 22,000 crores, Hindalco's net debt-to-EBITDA is just over 2, 2.5x. And hence, the company has a lot of flex. What we would like to understand is that when the company frames this capital expenditure policy, does it look on a consolidated basis? Or does it take a view across stand-alone and Novelis 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. We have seen Adani ask for approvals for a 1 million ton copper smelter and Vedanta ask for a 0.2 million expansion aluminum. So 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 this, 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 we 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 -- of 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 1 set of shareholders for Hindalco, Novelis 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 lot more details. Now coming to the second part of your question, I don't think you will hear me talking about aluminum smelter or copper smelter.

Understood. Understood. Sir, 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 cost remain depressed for the aluminum segment?

So in Q3, if you remember, when we did the Q2 earnings call, I think I had 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 Coke, 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.

The next question is from the line of Indrajit Agarwal from CLSA.

Congratulations on a good set of numbers. I have a couple of questions. First, on the copper business. So are we getting any sense on calendar '21 TC/RC margins, where they are settling at? What are the kind of negotiations that are going on?

Yes, calendar '21 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 TC/RC 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. Second, on Utkal smelter -- Utkal refinery, 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 we can see because I assume you will not be selling alumina part of this extent. You will mothball one of the Renukoot smelter -- refineries, right? So what is the kind of cost saving you can see from that?

So our current thinking is that we will still be running Muri and maybe one of the lines of Renukoot. So we won't completely shut down Renukoot in year number one. So we will use some part of the production for Renukoot. 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 cost of alumina are nearly half of what the other refineries are. So you can back calculate the savings.

That's helpful. And 2 housekeeping questions. Can you help with the stand-alone gross and net debt?

Standalone meaning Hindalco India?

Yes, India will also do.

Yes. I think India, the gross debt was INR 24,464 crores, and the net is INR 14,874 crores. Is that correct?

Yes.

And the usual hedge position?

It has not changed. I wish -- it's still the same, 58% at $1,715.

And anything on FY '22? How much are you hedged?

So we are hedged 28% at $1,840.

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

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-auction, et cetera 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 76% linkage, 22% e-auction. 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 on 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 and 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, it's a fair assumption.

The next question is from the line of Amit Murarka from Motilal Oswal.

So I just wanted to check on the downstream announcement which you had made, so INR 730 crores at Silvassa. So like, what would be the pace of such downstream projects which you'll 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 Silvassa extrusion project, which is INR 730 crores we announced, 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 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 flows generated in India.

Also, like, in this budget, we saw the government actually reduce the import duty on copper while you guys have been advocating for a raise in duty. So -- on the scrap side, I mean. So like how do you see the situation now?

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 are 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 expect any such measures in the future then?

So the import monitoring cell that Praveen was talking 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 standards, 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, et cetera, 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 on.

The next question is from the line of Ritesh Shah from Investec. We take the next question from the line of Pallav Agarwal from Antique Stockbroking.

So sir, we have a couple of questions. One is on the outlook for aluminums. So with the Chinese -- after the Chinese Lunar New Year holiday, do you expect the momentum that has been there in aluminum prices to sustain given that we are still looking at a global surplus situation and inventories also have probably been stable or 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's also a reduction in gold and silver custom duties. So is that just a cloud pass through? Or do we get some benefit from the higher duties in our copper business?

We -- our main business is copper and the sulfuric acid and DAP, et cetera. 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 this really should not really impact in a material way our copper profit?