Hindalco Industries Limited (500440) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Hindalco Industries Q4 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 and morning to 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 fourth quarter and financial year 2021. On this call, we will refer to the Q4 investor presentation available on the 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 said presentation. In this presentation, we have covered the key highlights of all our business segments for the fourth quarter and the financial year 2021 and a segment-wise comparative financial analysis of India business and our overseas subsidiary, Novelis. All primary financial numbers have been regrouped or reclassified as per the Ind AS. We have with us from Hindalco's management, Mr. Satish Pai, Managing Director; and Mr. Praveen Maheshwari, Chief Financial Officer. From Novelis' management, we have Mr. Steven Fisher, President and CEO; and Mr. Dev Ahuja, Chief Financial Officer. Following this presentation, the call will be open to any questions you may have. An audio replay of this question of this call will also be available on our website. Now let me turn this call to Satish.

Yes. Thank you, Subir. Good afternoon, and morning, everyone. Thank you for joining today's conference call on Hindalco's Q4 earnings. So I hope you and your families are keeping safe as we continue to manage through the challenges of the second wave of the COVID pandemic. So to start with, I want to give you an update on the actions we are taking to combat COVID-19 on Slide 5 and 6. With the second COVID wave surging through India, Hindalco's management is fully engaged in efforts to take care of our employees and their families. We have also extended strong support to the communities around our plant and to various government bodies. So starting on Slide 5. Vaccination is the key to protect our employees and Hindalco has facilitated over 200,000 vaccines. With 80% of the eligible employees, that's about 45 and families vaccinated, including contract workers. Hindalco has also enhanced the medical coverage to cover special reimbursement for home care and to meet all hospitalization expenses beyond the insurance. This is applicable not only to our employees and families, but also to contract workers, third-party employees and their families. Other steps, including a dedicated hotline for teleconsultation with Apollo Hospitals, a 24/7 helpline for medical and mental health support and a team of 300 dedicated volunteers to help those in need. We have also announced ex gratia benefits to support families of deceased employees, again, including contractual workers for housing, medical, schooling and other expenses over the next few years. All essential and safety steps have been implemented at our facility to ensure minimal impact on our operations. Coming to Slide 6 on our actions for helping the community, Novelis has donated 1,000 oxygen concentrators, which, by the way, have since yesterday, already been distributed to in various cities and villages to government hospitals. And Hindalco has procured another 1,500 oxygen cylinders that are being distributed to various hospitals and COVID care centers around our plant locations. We have supplied 1,600 tons of liquid oxygen so far from our copper plant at Dahej to hospitals in Gujarat. We have revised the defunct [indiscernible] oxygen plant in U.P. and are now supplying 300 refilled oxygen cylinders daily to hospitals in U.P. PSA oxygen plants are also being set up in Utkal and Renukoot. We have a dedicated medical team of 77 doctors and 275 paramedics working day in and day out. Over 450 hospital beds equipped with ICUs, ventilators, BiPAPs and oxygen concentrators have been made available for the community across our various locations. We are also setting up RT/PCR testing labs and CT scan facilities in Utkal to support the larger community there. So with that, I'm going to switch over on Slide 7 to some key highlights of our business for Q4 FY '21 versus the corresponding quarter last year. Hindalco delivered a record financial performance in Q4 across all businesses backed by improved macro trust on operational efficiencies, cost optimization, better product mix, higher volumes and strong market recovery. Novelis recorded an all-time high quarterly shipment of 983 Kt and an EBITDA of $505 million in Q4 FY '21. EBITDA per ton stood at $514 a ton, up 9%, while net income from continued operations grew 186% year-on-year at $180 million. Novelis also successfully placed at 3.375% EUR 500 million senior unsecured green bonds in Europe for 8 years due in 2029. Novelis also received credit rating upgrades from Moody's and S&P in March of 2021. Moving on to Hindalco's India Aluminium business performance in Q4 FY '21. Business EBITDA for Hindalco India aluminium was at a record high of INR 1,610 crores, up 54% year-on-year. The EBITDA margin was at a healthy 27%, up 729 basis points year-on-year. This margin was the highest in the last 12 quarters. Metal sales were up 5% at 329 Kt, with record value-added product sale at 92 Kt, up 21% on a year-on-year basis, supported by the continued revival of the domestic market. Our 500 Kt Utkal expansion project is on track with mechanical completion by this current quarter end and commercial production to begin in Q2 of the current financial year. Turning to the quarterly performance of the copper business on Slide #8. Cathode production was at 97 Kt, up 28% year-on-year on account of stable operations. Metal sales was at 107 Kt, up 24% while copper rod sales were in line with the corresponding quarter of the previous year. Copper EBITDA was recorded at INR 269 crores in Q4 of FY '21. Coming to the quarterly consolidated performance, the business EBITDA was up 33% year-on-year at INR 5,597 crores. PBT from continuing operations before exceptional special items was up 41% year-on-year at INR 3,134 crores and consolidated PAT for continuing operations before tax-affected exceptional and special items was up 42% year-on-year at INR 1,866 crores. Hindalco continues to maintain a strong treasury balance of around $1 billion in Novelis and INR 11,200 crores in India at the end of March 2021. The consolidated gross debt was down by around INR 18,200 crores, while net debt was lower by around INR 14,900 crores from the peak on June 30, 2020, resulting in a significant improvement in net debt-to-EBITDA to 2.59x at the end of March '21. CRISIL upgraded Hindalco's credit rating outlook to positive while reaffirming its AA rating. On global recognition, Hindalco has been included in the S&P Global Gold Class category as a sustainability leader in the Dow Jones Sustainability Yearbook in 2021, reflecting our strong commitment to its ESG. Turning now to the broader economic environment in Slide 10. While global economic activity is gradually recovering from the pandemic Indus slowdown, it remains uneven across countries and sectors. The GDP growth is projected to contract 3.3% in calendar year '20 and is expected to rebound to 6% in calendar year '21 and 4.4% in calendar year '22 as per IMF's latest forecast. The global output is projected to reach its pre pandemic level by mid-2021. The rebound in 2021 will be supported by ongoing vaccination drive sustained accommodative monetary policy and sizable fiscal stimulus. A huge U.S. fiscal stimulus of $1.9 trillion is expected to have a positive spillover effect on global growth as well. However, 2021 will be a year of divergence recoveries. This recovery will be largely contingent on the pace of vaccine administration and its efficacy against emergent variance of the virus. As per IMF, China with 8.4% growth and India with 12.5% growth will lead this recovery within emerging economies, while the U.S. will lead the recovery with a 6.4% growth rate amongst the advanced economies, thanks to the massive fiscal stimulus. Multispeed recoveries are linked to start differences in the pace of vaccine rollout. The extent of economic policy support and the resurgence of virus and containment measures as well as structural factors. China returned to its pre-pandemic GDP levels of 2020. While the U.S. and India are expected to return to pre-pandemic levels by H2 of 2021. Containing the resurgence of COVID cases, especially the new variant, remains the key focuses for governments globally. On the domestic front, the second COVID resurgence continues. Thus, the key focus now is on containing the spread of the second COVID wave to mitigate its impact on the economic recovery. The GDP growth contracted 16% year-on-year in H1 FY '21, with only a marginal recovery of 0.4% was seen in Q3 of FY '21. Economic risks have been mounting among state level restrictions and partial lockdown due to which services particularly those which have high contact risk, mainly hospitality, travel and tourism have been impacted. This has had a ripple effect on manufacturing as well. Early high-frequency indicators like PMI data had eased in the month of April compared to March. Contraction in fuel demand, GST eBay business and certain employees at indicators in April suggest that the economy has started to feel the pain. The second COVID wave adds uncertainty to the Q1 FY '22 outlook, but recent data suggests that the worst may be over. The RBI has stepped up and announced liquidity support measures for health care sectors and support for small enterprise and borrowers to counter the crisis. Stepping up the vaccination drive remains the biggest stimulus for economic recovery in the country. Let me now take you through the aluminium industry overview on Slides 11 and 12, the global production in calendar year '20. The world grew by 2% to around 65 million tons, led by a 4% increase in the Chinese production, while the rest of the world growth was flattish. Global consumption declined by around 3% to around 63 million tons because of contraction in demand of nearly 12% in the world ex China, partially offset by the Chinese consumption growth of 4%. Consequently, while China was in a deficit of a little over 1 million tons, rest of the world was in a surplus of 3 million tons. Hence, the globe had an overall surplus of 2 million tons in calendar year '20. It must be noted that in Q1 CY '20 accounted for the majority of the surplus, coinciding with the onset of COVID-19 last year. Hence, with the strong stimulus measures of around 20% of the world's GDP, the economic sentiments were lifted and the global surplus has become narrower over the year. In Q1 of CY '21, the overall world consumption saw a growth of 16%, largely due to the base effect reaching 6.2 million tons, while the production expanded by 6% at 16.8 million tons. Hence, there was a very small surplus of 0.6 million tons. World excluding China, the consumption grew 5%, supported by growth in auto electrical and consumer durables demand. The production grew by 1%, leading to a marginal surplus of only 1 -- of 0.1 million tons. In China, strong automotive real estate and solar demand led to sharp growth of aluminium consumption by around 27% year-on-year to 9.1 million tons, while the production grew by 9% year-on-year to 9.7 million tons, leading to a surplus of about 0.5 million tons in Q1 of calendar year '21. With the improvement in global consumption, aluminium prices have recovered sharply by 9% to $2,096 per ton in Q1 of calendar year '21, from an average of $1,916 per ton in Q4 of calendar year '20. On a quarter-to-date basis, the Q2 CY '21 global aluminium prices continue to grow and have reached about $2,370 per ton. Coming to Slide 21, the domestic aluminium industry in Q4 of FY '21 is estimated to reach the highest ever sales in any quarter on the back of a strong recovery in transport and consumer durables. The import of scrap, particularly is likely to witness a sharp growth of 20% to 415 Kt given the healthy growth in the transport and auto sector, while imports, excluding scrap, is likely to grow by 44% to 240 Kt. It is estimated that the domestic producer sales growth will be around 12% year-on-year at 422 Kt. The government stimulus package with a strong trust on infrastructure, housing and manufacturing sector, is helping the revival of economic sentiment. Auto and packaging demand has continued to remain robust, in line with the growth in pharma and flexible packaging segments. We are observing some signs of recovery in the demand in the electrical power, building and construction sector. However, the economy may face headwinds as the second wave of COVID-19 related lockdown continue to restrict economic activity. Moving to Slide 13. The global FRP demand is expected to grow by about 8% in calendar year '21 versus a contraction of around 5% in calendar year '20 on account of recovery and demand and the base effect. You must have gone through the details of the segment wide end market outlook in the Novelis presentation earlier. I will, however, quickly refresh some specific end market outlook for calendar year '21. Beverage cans continue to show its resiliency with the higher at-home consumption that favors a package mix shift towards increased demand for sustainable aluminium cans across all regions. The overall market demand for beverage can sheet is estimated to grow by 3% to 6% in calendar year '21. In the automotive market with OEMs focusing on sustainability and consumers adopting electric vehicles, there's an increased demand for aluminium in this segment across regions. 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 semiconductor shortage is expected to have a limited short-term impact on OEM production and sheet demand. The demand for premium aerospace sheet from OEMs is expected to remain at similar levels at fiscal 2021 with an uneven recovery to follow as vaccination rollouts are a positive step towards increasing consumer air travel. The overall demand in the aerospace sheet is expected to grow in the range of 5% to 6% in calendar year '21 as air travel normalizes. India FRP demand is estimated to surpass the pre-COVID levels of Q1 or Q2 FY '20 in Q4 as the domestic demand continues to revise. Stable demand is expected from pharma and food package industry, while the auto and B and C sectors may see some headwinds due to the surging second wave of COVID. Turning to the copper industry globally on Slide 14. In calendar year '20, on a yearly basis, global copper consumption declined by 1% to 23.2 million tons. China consumption grew by 7%, whereas the world ex China consumption declined by 8%. On a quarterly basis, global copper consumption grew by 14% to 5.5 million tons in Q1 CY '21 compared to 4.9 million tons in Q1 CY '20. Chinese refined copper consumption grew by 37% as China was severely impacted by COVID in Q1 of calendar year '20 compared to the rest of the world. The world ex China is still struggling with the second wave of COVID as a result of which consumption has declined by 2% year-on-year compared to the corresponding quarter of the last year. On global levels, slow recovery was observed in Q1 calendar year '21, and the average global quarterly consumption has still not reached the pre-COVID levels of 6 million tons. Throughout the end of 2020 and the opening of 2021, copper rises rose to an 8-year high of around $8,000 per ton. Slow but continued recovery in copper demand, coupled with COVID-related mine disruptions compared to smelters is driving the copper prices. On the concentrate side, mine's output remains impacted due to COVID, resulting in downward pressures on spot TC/RC, while affecting the entire value chain of customer smelters or -- value chain of custom smelters in the current scenario. Coming to Slide 15, owing to COVID spread, the refined copper market dipped by 24% to 566 Kt in FY '21 from 750 Kt in the last year. Because of the CVD implementation on buyer imports by the government, the share of imports declined to 31% in FY '21 from 45% in FY '20. On a quarterly basis in Q4, the overall domestic market reached 161 Kt, which is still lower by 15% compared to 190 Kt during pre-COVID quarters. In this quarter, sales of domestic producers increased by 2%, whereas imports declined by 24% on a year-on-year basis compared to the corresponding quarter of the last year. The market share of imports has decreased to 26% in this quarter versus 32% in the corresponding quarter. Praveen will now take you through the performance highlights of each of the business segments during 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 18. Novelis clocked a record financial performance in both their existing business as well as the acquired business of Aleris. Novelis achieved record operational and financial results on almost all parameters. It recorded an all-time high shipment of 983 Kt, up by 21% year-on-year with a significant progress across all the product segments. We are also progressing equally well with respect to the various ongoing expansion projects. The automotive finishing lines in both Guthrie, U.S. and Changzhou, China were commissioned during FY '21 and have started their commercial shipments. The recycling, casting and rolling expansion project at Pinda, Brazil is on track and is expected to be commissioned by the end of the next financial year. The groundbreaking for the new cold mill project in Zhenjiang, China is expected in the middle of next financial year. On Slide 19, you can see the comparative financial performance trend of Novelis, reflecting its record quarterly performance on the back of higher volumes, cost control and product mix improvement. This also includes an EBITDA contribution of $60 million in Q4 and $200 million in FY '21 by the acquired Aleris business. Slide 21 shows the details of the performance of the Indian aluminium business segment. The aluminium metal production was at 316 Kt, in line with the sharp recovery in the market. The production of downstream products was higher by 13% year-on-year at 89 Kt in this quarter. However, alumina production was at 697 Kt in Q4, 3% lower Y-o-Y due to a maintenance shutdown at Utkal refinery. On the sales front, the share of domestic sales has reached 50% in this quarter. VAP sales were at a record high of 92 Kt, reaching 28% of the total metal sales, reflecting a sharp recovery of the domestic VAP market in this quarter. Moving on to the financial performance of the Indian aluminium business on Slide 22. This segment posted revenue of INR 5,969 crores in this quarter, reflecting a growth of 13% year-on-year on account of higher global aluminium prices. aluminium EBITDA was at a record high of INR 1,610 crores, up 54% Y-o-Y on account of favorable macros, lower input costs, better efficiencies and strong market recovery. The EBITDA margins this quarter were highest in the last 12 quarters at 27%, up 729 basis points year-on-year. Moving to Slide 24. The overall copper metal production was at 97 Kt in this quarter, up 29% on account of stable operations. The metal sales were also higher by 24% year-on-year on account of higher demand. The production of CC rods was higher by 7% at 76 Kt, while sales stood at 73 Kt, which was in line with the corresponding period of the last year. The financial performance of the copper segment is on Slide 25. Revenues were up 80% year-on-year at INR 8,508 crores because of higher global prices of copper and higher volumes. EBITDA was higher by 33% sequentially at INR 269 crores in this quarter on account of higher volumes. Let's turn to our consolidated financial numbers for quarter 4 on Slide 27. Hindalco reported an outstanding consolidated financial performance with Q4 revenues of INR 40,507 crores, up 38% year-on-year. Business EBITDA of INR 5,597 crores, up 33% year-on-year. Before exceptional and special items, profit before tax and profit after tax for continuing operations were up 41% and 42% year-on-year at INR 3,134 crores and INR 1,866 crores, respectively. The detailed quarterly comparative financial numbers are attached as an annexure to this presentation on Slide 37. The Indian business of Hindalco also reported a remarkable performance in this quarter, with revenues of INR 14,471 crores and business EBITDA of INR 1,886 crores, both up around 45% and 30%, respectively. Profit after tax was at INR 653 crores, up 72% year-on-year in Q4 FY '21. These details are provided as an annexure to this presentation on Slide 38. Slide 28 shows the reduction of over INR 18,200 crores in our consolidated gross debt and of INR 14,900 crores in our consolidated debt from the peak in 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 2.59x at the end of March '21. Let me now hand over this call back to Satish to give you a perspective on our sustainability updates and our key focus areas.

Thank you, Praveen. So coming to Slide 30, I would like to share Hindalco's progress across various sustainability metrics and trends over the last 4 years. On the environment, there's a strong focus on waste air emissions and biodiversity and water. Freshwater consumption reduced by 8.5% in FY '21 year-on-year to 71.7 million meters cubed. With a continuous reduction in the consumption of water at all locations over the years. Hindalco has added 1 more site in our Zero Liquid Discharge League with a target to reach all site 0 liquid discharge by 2025. On waste recycling in terms of waste that is hazardous, non-hazardous and bulk waste such as fly ash and bauxite residue, we are committed to 100% recycling. Last year, we have announced recycling of waste and usage in other industries to 79%, which is a 15% increase over previous years and reducing the landfill. The commitment is to reduce landfill by another 5% year-on-year, moving towards 0 landfill by 2030. On the green cover and biodiversity, the company did very well to increase the green cover by another 5% year-on-year in FY '21. With the scientific biodiversity management plan evolving with the IUCN, International Union for Conservation of Nature at 4 sites, with 3 additional sites getting added every year. Green cover at all sites is being enhanced with 3-tier plantations. On Slide 31, on the renewable energy and safety updates, we remain committed to our target of 100 megawatts of renewable capacity in FY '22. We are also exploring and evaluating emerging technologies in the space of energy storage, carbon capture and utilization and hydrogen to be used as fuel. The specific energy consumption in aluminium was recorded at 83% in FY '21 from the base year of FY '15. The LTIFR was 0.46 in FY '21. We stay committed to 0 harm and have been continuously upgrading our safety programs to meet international standards and provide the safest it most year for all our employees and contract workmen. Coming to Slide 33. Let me conclude today's presentation with our key focus areas. We delivered yet another strong and resilient performance across all our segments, while maintaining safe and stable operations, as we are catching up with a sharp recovery of markets supported by improved macros. The cost competitiveness of Hindalco smelters continues to position it in the first quartile of the global cost curve. We continue to strengthen our balance sheet with robust cash generation both in India and overseas, while accelerating the pace of deleveraging to reach the optimum leverage of 2x to 2.5x in this sector. The Aleris integration is providing accelerated synergistic benefits, along with positive EBITDA contribution. As we continue to unlock and capture the entire value of this acquisition. This year, Aleris contributed around $200 million to the EBITDA, including synergies. We recently announced our capital allocation framework with a clear road map to deleveraging profitable growth via organic expansion and distribution of shareholder returns. Another critical area where Hindalco has done remarkably well over the last few years is on ESG. We shall continue to strive on our 3R model of sustainability with a strong focus on our ESG commitment, while creating a greener, smarter, stronger and sustainable world together. We continue to thrive on our downstream strategy, supported by product innovation, complete digitalization organic expansions with a diversified product mix and continue to be the global leader in aluminium downstream value-added segment. With that, I want to thank you for your attention. The forum is now open for any questions you may have.

[Operator Instructions] The first question is from the line of Anuj Singla from Bank of America.

My first question is with regards to hedging in the aluminium business. Now aluminium prices, this is $2,400, $2,500 we are seeing after a 3-year lag. And these are very attractive price levels. So how do you look at the hedging policy for the -- next year? Would you rather overhedge at these prices given that these are multi and high levels? Or would you still stick with your 20%, 25% kind of hedging on an ongoing basis?

So that's a very good and difficult question, Anuj. So I mean I think that to answer it, first I have to tell you that the -- our view on the macro continues to be very bullish for aluminium. So we really believe, after having looked at all the reports and the strong demand in China and the U.S. and the fact that in China, they are very convinced that the production is going to be capped at the max of 45 million tons. So we believe that the supply demand tightness is going to continue, and hence, aluminium prices will remain firm. So that is why we are not going to overhedge at these current levels yet. So what have we done so far? So the last quarter, we had told you that our hedged position for Q1 was around 28%, I think, at $1,800 and something. So we have added another 5% at $2,344 a ton. So that's all we have done so far, and we think that we will be very cautious before we commit anymore. And I think that even in FY '23, we added another 5% at $2,500 a ton. So even if we do now, we're going to do an extremely thin slices because we still think that this aluminium price rally has got more legs, Anuj.

Understood, sir. Very clear. Sir, the second question is regards to how do you see the cost thing on the aluminium side is shaping up? We have seen the aluminium prices obviously rebounding. But I think there is some kind of cost escalation we have seen across the various heads, maybe primarily on the energy side as well. So how do you see the interplay working out in terms of profitability for us?

So I think in Q4, honestly, we were pleasantly surprised because even though I had guided 1.5%, 2%, the cost increase Q4 to Q3 sequentially was only 1%. And that was largely because we could still all the coal that we had bought, so coal prices in Q4 compared to Q3 were flat. Now April and May, we have already seen these back of the newer coal prices, which we bought on auction during February, March. CP coke pitch going up. So we are factoring that Q1 versus Q4, the cost of production will be up 4%. And this is largely as a result of coal, CP coke and pitch.

Okay. And sir, lastly, 1 data question. Any CapEx guidance for the Indian operations for FY '22?

To be able to spend about INR 2,700 crores. I mean, last year, if you remember, once COVID hit, we cut back the CapEx to about INR 1,500 crores. We actually spent about INR 1,600 crores. And this current year, we plan to spend about INR 2,700 crores, largely doing many of the downstream projects, the Silvassa expansion, all that will largely come in this year.

Next question is from the line of Pinakin Parekh from JPMorgan.

Sir, my first question is that on aluminium upstream smelting, you sounded very positive on the aluminium outlook. And it looks like China's decarbonization could really move the industry out of what has been a very long 10-year-plus pricing sum. In that context, sir, if the company is positive on LME aluminium prices, when can we see smelter upstream expansions in India? Or is this something which is not on the table?

So Pinakin, to be fair, it's still not on the table because the -- there are 2 issues that we need to resolve. One is our own ESG commitments. I mean, China's commitments is they are not expanding because they also have the same commitments to come reduction that we have. So to announce a coal-based smelter expansion, I would be very hesitant. But the more important point is that still the coal prices outlook over the next 5 to 10 years, does not give us a good rate of return for a smelter expansion. So as a combination of the 2, we will continue to evaluate, but it's not on the cards right now. We have enough projects on the downstream that we want to do first.

Pinakin?

Just to clarify further, sir, that while we see a positive LME aluminium pricing environment over the next few years, overall on a top-down basis, our business portfolio is more downstream oriented. Upstream aluminium would be less than 30% of EBITDA. So going forward, sir, if aluminium prices remain elevated in the $2,500 to $3,000 range, would -- does the company see the business model as being too excessively downstream oriented?

I think that Pinakin, let's see what -- it remains high for many years. This is not the first time aluminium has gone up. And then it has come down within a year, 1.5 years as well. So I think that trying to make a long-term strategy based on current LMEs, I think it is slightly -- let's put it this way. We announced a strategy in our investor meet. We will stick on to that strategy. It's not that we are inflexible. If aluminium prices continue to stay high. And we think structurally, something has changed. And I have to repeat again, we get clarity on energy source and price then as you all know, for Aditya and Mahan, it's very easy for us to do an expansion. So we don't rule it out. But 1 quarter or 2 quarters of high LMEs will not mean that we completely change the company's strategy, Pinakin.

Understood, sir. And sir, just last question. I mean, when the company had given out an investor strategy, and there was a net debt-to-EBITDA target of less than 2.5x, in the last 2 quarters, run rate EBITDA has been over INR 5,000 crores, INR 5,500 crores, and the net debt is at INR 47,000 crores. So on a spot annualized basis, we are approaching 2x net debt-to-EBITDA, so what would be -- if we hit the target earlier than expected, sir, how should we look at the incremental cash generation to be dived up between what were the 3 buckets identified at that point of time?

So the buckets that we have identified were organic expansion, deleveraging and shareholder returns. So if we do get more cash, first priority will always be organic expansion. If we find good projects that will return good IRRs, that is still our first choice. I think then second, we will look at deleveraging. And if you take shareholder return, if you see that we have already made a step change in the dividend that we announced today. That we have committed through in the investor call. So we are going to continue at that level of dividend for a while now.

Understood, sir. So just to triangulate, over the next 2 to 3 quarters, if EBITDA stays at these levels, we should get more clarity on the next round of organic growth projects, right, sir?

Yes. And I think we have quite a few, to be honest. Especially in Novelis, there are some very attractive projects. So if we have more cash, we will be putting it into organic CapEx first.

Just one addition, Pinakin here. You should be also considering that given the LME has gone up, both in copper and aluminium, the working capital requirement going forward is going to be higher. So some amount of money will probably get locked in as well. So that's a good point. I mean it's fair to say that our Q1 net debt to EBITDA, especially in India, may slightly go up because the working capital block, especially in copper, is going to be quite high at $10,000 per ton.

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

Congratulations for a good set of numbers. I have a couple of questions. The first one is on copper. Essentially, the way we see copper prices going up and the kind of bullish scenario that is in copper because of EVs and everything else, and given that TC/RC margins are quite low and going further lower because of concentrate deficiencies, so is there any plan on the table to acquire some copper mining effect there is an attractive in India or maybe overseas?

Amit, this is the worst time to buy a copper asset with the prices so high. If you try to go and get a copper mine, when copper is at $10,000, you are buying at the peak. So really, no, we are not looking at buying into a copper mine at this stage, no.

And also, see, we are not so much in mining. Our main business is manufacturing. Mining is required only to support manufacturing. In case of copper, we find that with long-term contracts in place, we've not had any difficulty in terms of sourcing copper concentrates so far. So we do not even see the need for it at the end of time.

Anyway, this is a wrong time too.

It's a wrong time anyway, so.

Okay. Fair enough. The second question is on essentially your ESG milestones. So Novelis laid out some intermittent milestones of CY '26 such as reducing the carbon emission intensity and all. So have we also thought on similar lines of laying out our CY '26 or maybe CY '25 intermittent? While long-term target remain intact, having to go to 0, ZLD and all that. Are there any intermittent targets that we have in terms of -- yes.

Yes. Yes. Yes. I have given that, no. I said ZLD in all sites by 2025, 0 landfill by 2030 and a 5% reduction year-on-year. So on each one of our water, waste, specific energy consumption, we put every year a target, reaching to a deadline in 2030, 2040 going forward. What about the carbon emission intensity that we have 83% compared to [ 2022 ] guidance.

The most difficult one for us. So we are planning to reduce it by another 5% this year. And it will continue -- at the best, we will get to about, let's say, from the 2015 about 70%, 75%. But then largely, what we are going to do is the offset. That's why we are trying to increase the renewables. We are actually going and trying to get new energy sources like gas. So all that, we have built a fairly detailed model of how we are going to reduce the carbon per ton down to about 12 tons of CO2 per ton by 2035.

Okay. 12 tons per CO2 by 2035.

Yes.

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

A few questions from my side. First, on the entire green aluminium fleet, sorry for harping on it a little more. Some of your competitors in their recent calls have mentioned that they are getting more inquiries on low carbon aluminium. Do we see any bottlenecks or any hindrances for our aluminium sales in the near-term because of that?

No. We have had no problem in getting any sales. I think you have to remember that people are doing a little bit of marketing, and everybody will do it. And in fact, as we get to 100 megawatts of solar, I think I will claim that 5% of my aluminium is green as well. So those tend to be, but we are more -- how should I call it, much more serious about ESG than just playing on the smelting target of carbon right now. And the way we have positioned ourselves is that we are looking across the whole chain. With Novelis, we are leaders in recycling. And I think that what we are trying to say is that just besides the carbon emitted in the smelting process, overall a circular economy of aluminium will bring the carbon footprint down a lot more. And we are appealing from that point of view. So just selling our primary metal from India right now, no problem.

That's helpful. Second, if you can give some guidelines on how was the coal mix in fourth quarter? And what it would be in the first half of this year in the aluminium business?

So Q4, as I was telling you, we were pleasantly surprised because linkage coal was 93%. The full year average was about 74%, but in Q4 linkage coal was 93%. That's why the cost of production in Q4 was only 1% above. I think that we will go back to -- in Q1 to linkage coal being 74%, 75%, e-auction being about 15% and then our own mines being the rest in Q1. That's why we are guiding that COP will be up by about 4% Q1 to Q4.

Sure. That's helpful. And next on -- lastly, on the tax, is there any tax incidence on the dividend that is upstreamed from Novelis to the parent entity?

So see, you should look at the consolidated cash flows. And what we have promised is that we are going to utilize to the extent of 8% to 10% of that consolidated cash flow in terms of shareholder returns. The fungibility of money between Novelis and Hindalco has already been established even in the past. So I can confirm to you, there are no major tax implications when we move the money around between Novelis and India.

Okay. And just on the guidance of stand-alone and consol, tax rate will be similar to FY '20 levels -- '21 levels for the full year next year? Or there could be a sharp variance?

No, no. I don't think there should be any sharp changes from here to next year. Novelis tax rate is a little under 30% normally. Q4 is an aberration because of certain one-timers and because Q4 typically is more sensitive because it has to adjust for the full year. And Indian tax rate is roughly around 36% or so, which is normal. We are not expecting any major changes. Sometimes in case of Novelis, because of the geographical mix of the profit before tax, there may be some changes. But we are not seeing any major significant changes going forward.

The next question is from the line of Amit Murarka from Motilal Oswal. As there is no reply from the current participant, we move to the next question from the line of Ritesh Shah from Investec.

Congratulations for good sort of numbers. A couple of questions. Sir, my first question is on one of the slides, we have given the import number for the aluminium ex scrap basis, which has increased from 166 Kt to 240 Kt for India. Are we speaking with the government on any potential measures to restrict aluminium imports? That's one. And what implication would this have on the downstream CapEx that we have announced on the aluminium side. I do not know the HSN code for the imports or the breakup over that. So if you could put it in context with the expansion plans that we have, that will be very useful, sir.

So the -- as you -- we spent some time analyzing the 240 Kt to 160 Kt. So the first thing you have to realize that in the 240 Kt, any metal sold in an SEZ comes in that. So there's about 26 Kt of metals sold by our competitor from an SEZ which you have to subtract from the 240 Kt. The rest of the 240 Kt when you look at it, it's largely coming from ASEAN countries and China. And there are -- the government is actually working a lot with us. There is a CVD going on against wire rod against Malaysia. There is an FRP antidumping hearing that is just starting. So there's quite a lot of efforts being made by the government to reduce the import of value-added goods coming into India. So we are working with the government. And I think that our part of the bargain, which we have told the government, is we are going to ramp up our downstream capacity. So that we can meet the domestic demand in terms of quantity as well as quality. So which is a key part of why we are doing our downstream strategy. Because in India, the demand for downstream things is growing. And if we don't put in that capacity, it's going to come imported.

Right. Sir, and so should we expect any trade over values here? You did indicate a wire rod against Malaysia, FRP antidumping duties. So my simple question is, basically, when we have looked at this incremental expansions, how should one capture the risk of the threat of imports?

No. So look, one thing I'll tell you, the -- right now, we take into account the current pricing, and we do our IRR calculation based on that. So it's not that the market in India is growing and majority of our customers. If they can buy it from an Indian company in the same quality, they will buy it from us. And many have, in fact, started to tie up because -- I'll give you an example. A lot of western companies in India are slowly trying to diversify their supply chains from China. So many have approached us to put in downstream capacity and extrusions and FRP to meet that demand. So if the government puts in duty, it's an additional benefit to us. But even without that, the business case for expanding downstream in India is still strong. I don't know if not getting clear.

Yes, yes, sir. That helps. Sir, my second question is on the ESG side. I was not there on the Novelis call. But wanted to understand the rationale for a green note wherein the coupons at, say, 3.3-something percent. Had it been different, had we gone for a bond issuance, specifically given Novelis did come out with certain environmental set targets post the green note issuance? That's one. And secondly, the interest cost at Novelis is still upwards of 5%. Is there any room for further green issuances at Novelis level? And something similar at India level, given you indicated that we are working on carbon capture and storage, probably it's too early stage, but is that also a possibility? And a linked question. In the prior call, you had indicated that at $5 per MMBtu of gas supplies, things can actually be worked out. Any particular update over that?

So I'm going to let Dev answer the green bond and the Novelis interest rate. But on the gas, this COVID actually slowed down the gas pipeline that was coming in Jharsuguda and Sambalpur area. So I hope now that after the second wave, it picks up because we really would like to get gas supplies coming in. And I think the government is focused on getting -- increasing the gas. But it is fair to say that because of all these COVID mess, we have lost a year with all these gas pipeline constructions that were going on. Dev, you want to take the...

Yes. Yes, absolutely. So let me take it one at a time. So the first point you made was that would the interest rate of the 3.375% green bonds be lower, had we been announcing all the targets ahead of that? Well, not really. No. I think that we have been fairly articulate about our commitment on ESG. And no, it would not have made any difference at all on the interest rate. It is largely driven by market forces at that time. And so the answer is no. Now when you say that we have an interest rate of over 5%, the only coupon that is sitting at over 5% is the 5.875% 2026 bonds. And our mind will stay open to doing the refinancing of that at the right time at the right opportunity. I mean the call window for that opens in September, but we keep our mind open to doing it at the right time. But outside of that, no, I think that our average long-term rate is now sitting somewhere in the mid 3s or thereabouts. So I think we are in a pretty good place in terms of both the maturity profile of the debt as well as on the long-term interest cost.

That's very useful. And just last question, any particular update on RoDTEP scheme? I think we had certain MEIS benefits. So any update over there will be useful.

Yes, the RoDTEP, we are expecting an announcement anytime. By the way, we have asked for about 5%. I don't know whether the government will have money to afford the 5%, but we should get something. I mean the MEIS was 1% to 1.5%. We lost about INR 100 crores because of that growing of -- INR 200 crores, okay? So I hope that the RoDTEP will come at least at that level, if not more. We have asked for 5%, and it should be retroactive from 1st January when they have notified it. So it should be -- it's expected any time now.

[Operator Instructions] The next question is from the line of Samuel Chen from AllianceBernstein.

A couple of quick questions. And congrats with a great result. Once the Utkal alumina site is operational, what's your plan for the current site, which is at a much higher cost compared to the new site? So that's one. Two, just given all the conversation I hear today, is it fair to say that 5 to 10 years from now, we're looking at the India part of Hindalco, as we know, basically becoming just Novelis in a sense that you would be concentrating on downstream organic operation?

Yes. I think Samuel, the -- answer the second part first. We have articulated the next 5-year strategy. And at least for the next 5 years, we have going to put most of our capital into downstream expansion, both in aluminium and copper in India. And we have reserved the next priority to be maybe another alumina expansion if it makes sense because there is still good money to be made in the alumina side. And the smelter comes in third in that privately ordered. So fair to say that in the next 5 years, if things don't dramatically change. And you need to be -- I think as a business, we need to remain flexible if things do structurally change. But what I'm hesitant to do is to take 2 or 3 quarters of high aluminium prices and then change my strategy. And then by the time the smelter comes up, by the way, Aditya and Mahan were actually launched when aluminium was at $2,500. And by the time they came, it has gone down. So I think that we will stick with our strategy for the next 5 years, at least. The second part of your question was on the Utkal alumina 500 Kt coming in. We will probably -- it will take us a while to ramp up, but we will reduce Utkal more -- sorry, Renukoot. Because Renukoot refinery is quite old, and we have cost as well as safety concerns there. So our plan is that roughly half of the expansion we will use internally, and the other half, we will sell on the third party market. This is a broad plan we have right now.

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

First question is on the Corporate division. So the CC rod volumes still remain subdued given the macro situation versus the capacity. So how do we see that ramping up in coming quarters? And then given what we have locked in for TC/RCs for this year, what sort of annualized EBITDA should one expect in FY '22?

So on the CC rod, in terms of production and operations, we are having absolutely no issues. We are fully equipped to handle it. It's a question of market demand. Just to tell you a little forward in terms of Q1, we are seeing subdued demand in copper, more subdued than in aluminium. And primary reason also is because of the high LME prices because at $10,000, our customers and their customers need a lot of working capital to be able to sustain their level of operations. So we have seen a drop in demand in the current quarter in copper business. And really speaking, the Indian business is all road business. And whatever is surplus, we can always export as cathodes. So that is as far as rods are concerned. Capacity-wise, we have sufficient. In the last quarter also, the level of 73 Kt is not a bad number, actually, but we could go a little higher from there. But March was the period when the LME had started going up. And the other reason for the demand impact is also COVID because in COVID periods, we are seeing some of our customers' lines are impacted because of workers, falling ill, et cetera. But I think that impact is more transient. It may not last for long because as the country comes back to normalcy, that impact will go away. But LME prices will continue to have an impact. In terms of TC/RC, you see about 80%, 85% of our sourcing is based on long-term contracts. In most of those, we -- it is linked to the benchmark TC/RC, which is announced sometime in November-December for the next calendar year. So that is more or less fixed for the full calendar year '21. What is available is in terms of the spot TC/RC for the remaining part of the open business. And that we do opportunistically in terms of where we get the best prices, where we get the best TC/RC for ourselves. But going forward, in terms of your guidance, I will say the guidance is divided into 2 parts: first is quarter 1. Now quarter 1, there are 2 things which will weigh heavily upon the results. One is the market size impact, as I mentioned to you. And the second is the -- we are having a smelter 3 shutdown in this quarter. This shutdown happens once in 4 years or so, this kind of a big shutdown. And for that reason, we will not have a significant amount of production coming from the concentrate route in this quarter. So this quarter will be impacted for that. But the rest of the 3 quarters should actually be reasonably good because melters after shutdowns perform very well. The rest of the equipment that we have, whether it is refineries, smelter 1 or rod mills, they are doing pretty well, actually. So really speaking for the next 3 quarters, and hopefully, the demand should come back in the coming quarters because underlying demand is there. The potential for that pent-up demand will remain. And most of the projects, the government is going to spend upon in terms of infrastructure, et cetera, all that will add up to demand coming back. So our hope is, last 3 quarters of this year, Q2, Q3, Q4 should be good. Q1 is likely to have some impact.

Understand. That's very good color. Second question is on the Novelis business. There is notes to account, note #14, which says about a court case with regards to a tax issue. So is there any material thing to take note of that, Steve?

Yes. I think, Dev, do you want to handle that? I think the question is around the tax case in Brazil.

So no, I mean, beyond what we have already said in the note, no, I mean, we really don't think that at this moment, anything more than the fact that we are still undergoing the legal process is, it is all that we can say. But no, I mean, from a materiality perspective, not really.

The next question is from the line of Ashish Jain from Macquarie.

I had 2 questions. One on -- with the AC PLI scheme being announced, you had a touched upon it during the CapEx outlook that you had given. So how are we looking at that going ahead?

So this production linked incentive scheme, the immediate thing that we are trying to utilize is on the air conditioner thing. So we are -- the air conditioner guys have got the PLI and we are benefiting because the provide the AC pin to them. So that is the first one. We are trying to get -- because they have got it only on some very specific things that they are putting it on. So we are trying to also get it a little bit on bicycle, some amount on the auto. But the immediate benefit of the PLI will be on the AC itself.

So something like a copper tube and all, will we be kind of participating in...

Yes. So that is -- but honestly, that is our future project for us. So the -- in a group, copper tube is a downstream project that we plan to -- this year, we are going to do the sort of stacking out and probably do it next year. Because that's a very critical technology that we have to get in as well. So it is in our plans to make it. As a part of that same air conditioner PLI by the way. So the aluminium part is the fin and the copper in group tubes is the copper tubes, yes. But that's -- to be fair, that will take us 2 to 3 years to get that manufacturing facility up.

Sure. And sir, secondly, on the upstream expansion. Now I know this has been touched upon. But what markers will you look at to reassess that even within the next 5-year time frame, given like last time you had alluded to that U.S. says demand in India could be 7 million tons. Incrementally, china is talking of picking off production at 45 million tons, 46 million tons. So is there any price marker that you would look at? Or it's more driven by ESG focus at this point of time?

So it's a balance, both. And I think that we will have to -- I think as Pinakin was saying, let me stay about $2,300 for a couple of years. Because in the past, it has gone up and then it has come down. So we would like to see where the LME will stay. We would like to see the Indian demand, as he said, continue to grow. And then we need to see where, at what price will we get the power in India. Because ultimately, the cost of production of aluminium, 40% is the cost of power. And if you take the coal price today in India, we -- to get more than a 12% to 13% IRR, you will not get it. And coal price will keep escalating. So I think the price of power is also very important. You have to remember that most of these hydro power guys, they get power at the equivalent of INR 2.6 a kilowatt hour. They all have very cheap power sources, whether it's Canada, whether it's Norway, whether it's in China. So for us to compete on them on a sustainable basis, what we have been trying to tell the government is that the price of power has to be in that INR 2.8 to INR 3 per kilowatt hour.

Sir, at $5 MMBtu gas, that number look achievable? Or...

No. That just replaces coal today. So that's just from a pure ESG point, to reduce the carbon emissions of our existing production. But $5 an MMBtu will not give you INR 3 per kilowatt hour.

Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Satish Pai for closing comments.

Yes. So thank you very much. I think that we are in a very tough year. I just wanted to conclude that majority of the management bandwidth has actually been spent on employees and their safety. I spent more than 50% of my time on COVID-related issues. And I think that it's all kudos to our employees in the plants, who have managed to keep the plants running and the sales guys who have managed to do the sales. And hence, we have been able to take benefit of a very favorable macro environment. But really, the performance of this quarter or the whole of last year is to all the employees of Hindalco and Novelis. So with that, I thank you for your attention, and we close the call. Thank you very much, and stay safe.

Ladies and gentlemen, on behalf of Hindalco Industries, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.