Hindalco Industries Limited (500440) Earnings Call Transcript & Summary

A very good evening or morning, everyone. I hope you all are safe. On behalf of Hindalco Industries, I welcome you all to the earnings call for the first quarter of the financial year FY '22. In this call, we will refer to the Q1 FY '22 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 the businesses for the first quarter of financial year '22 and a segment-wise comparative financial analysis of India business and our overseas subsidiary, Novelis. Please note, in this quarter, unallocable corporate AS&D expenses, which used to be apportioned to our individual business segments on certain basis, so far, is now clubbed under unallocable expense or income in order to truly reflect individual business segment EBITDA in India operations. The corresponding segment information for the prior period were also been restated accordingly for a comparative analysis. We have with us from Hindalco's management, Mr. Satish Pai, Managing Director; Mr. Praveen Maheshwari, Chief Financial Officer. From Novelis' management, we have Mr. Steven Fisher, President and CEO; Mr. Dev Ahuja, Chief Financial Officer. Following this presentation, the call [indiscernible] any questions you may have. An audio replay of this call will also be available on our website. Now let me turn this call to Satish.

Yes. Thank you, Subir. A very good afternoon and morning, everyone. Thank you for joining today's conference call for Hindalco Q1 earnings. I hope you and your families are safe and vaccinated as we continue to manage through this challenging pandemic situation. Let me start with a short update on COVID-19 and our preparation. Hindalco's management is fully prepared to tackle a third wave of COVID by fortifying its efforts to protect employees and the community. Hindalco has already vaccinated 93% of its employees and families with at least 1 dose, including third-party partners. In some states, the government is collaborating with Hindalco to vaccinate the local population at the company's own hospitals and health centers. Hindalco's dedicated team of 77 doctors, 245 paramedics is working round the clock to serve its employees and the community. Hindalco has boosted medical infrastructure and equipment in its own hospitals and health centers with critical care equipment, such as CT scan machines, set up oxygen lines in remote locations to serve patients needing ICU care and enhance its lab testing facilities. Hindalco has also strengthened its medical teams, including adding pediatricians and upskilling its paramedics. Let me now take you through Hindalco's progress across various sustainability metrics in Q1 FY '22 on Slide 5 and 6. On the environment, there's a strong focus on water, waste, air emissions and biodiversity. Fresh water consumption was at 18.4 million cubic meters in Q1 of FY '22 with a continuous reduction in the consumption of water at all locations over the years. Hindalco is adding one site each year to the 0 liquid discharge to achieve water positivity at mines and downstream units. This is being done along with the development of healthy watersheds and rainwater harvesting, and moving towards its target of all work sites 0 water discharge by 2025. We are committed to 100% waste recycling in terms of all waste that are hazardous, nonhazardous, and bulk waste such as fly ash and bauxite residue. We have achieved 82.7% recycling and reuse of waste in Q1 FY '22. We have been consistently achieving 100% bauxite residue utilization at 3 out of the 4 alumina refineries. Utkal Alumina Refinery is currently running several research projects to reuse bauxite residue for mine backfilling and road construction. We are committed to reducing landfill usage by 5% every year while moving towards our target of 0 landfill by 2030. On green cover and biodiversity, the company continues to do well to increase green cover with the scientific biodiversity management plan. Our green belt enhancement plan developed for 10 non-biodiversity management plan sites based on revised forest department SOPs for Flora and Fauna conservation. Our Aditya smelter cum power plant has implemented its first Miyawaki patch, a 3-tier scientific afforestation in a 400-meter square area with the laid-down SOPs under biodiversity management plan by the IUCN. Our cumulative green belt at all our sites is now spread over 4,684 acres. On Slide 6, the renewable energy and safety update. We have assessed the total potential on-site solar projects across all our units to be around 246 megawatts. We are committed to attain our target of 100-megawatt capacity by the end of March 2022. Of this 100 megawatts planned for FY '22, 49 megawatts have been implemented and the balance 52 megawatts are now currently under implementation and expected to come up by FY '22 end. We have so far identified and are in the process of finalizing 32 megawatts solar projects to be executed in FY '23. We are also in discussion with developers of renewable hybrid with pumped hydro storage for 100- to 150-megawatt power for our Aditya unit. The exploration and evaluating -- evaluation of emerging technologies in the space of energy storage, carbon capture and utilization and hydrogen to be used as a fuel is also being done. This is expected to improve with technology maturity and time. Currently, the cost is high and utilization areas are hazy. We are planning pilot projects in FY '23. The specific energy consumption in aluminum was recorded at 84.6% at the end of Q1 FY '22 from the base year of FY '15. The LTIFR was recorded at 0.35 in this quarter. There was 1 fatality recorded in Q1 FY '22 of a contract workman in our Indian operation. We are committed to 0 harm and have been continuously upgrading our safety programs and systems to meet international standards and provide safest atmosphere for our employees and contract workmen across our organization. Coming to Slide 8 of the key highlights of our performance in Q1 FY '22. Hindalco delivered its best ever financial performance in Q1 across all businesses backed by improved macros, better operational efficiencies, improved product mix and strong market recovery. Novelis recorded quarterly shipments of 973 Kt, up 26% year-on-year and an all-time high EBITDA of $555 million, up 119% year-on-year on the back of higher volumes, favorable product mix, favorable metal benefits and a $47 million gain related to a favorable decision in a Brazilian tax litigation. EBITDA per ton also stood at $570 per ton, up 75% year-on-year and is $522 per ton, excluding the gain related to the Brazilian tax litigation. Net income from continued operation was at $303 million in this quarter versus a loss of $61 million in the corresponding period last year. Novelis launched an offering of 2 unsecured senior notes of $750 million each at a coupon of 3.250% and 3.875% due in 2026 and 2031, respectively. Novelis also received credit rating upgrades by S&P Global Ratings to BB from BB- on 22nd July 2021. Moving on to Hindalco's India Aluminum business performance in Q1. Quarterly business EBITDA for Hindalco India Aluminum was at a record high of INR 2,352 crores, up 142% year-on-year. The EBITDA margin was at a high of 37.5%. This quarterly margin was the highest in the last 13 years of the company and continues to be the best in the industry. Metal sales were flat year-on-year at 303 Kt on account of a delay in shipment of around 10 Kt. Value-added product sales were up at 82 Kt, up 137% year-on-year, supported by a continued revival of the domestic market. Our 500 Kt Utkal expansion project's commercial production is beginning in Q2 of the current financial year. Turning to the quarterly performance of the Copper business on Slide #9. Copper Smelter-3 ramped up well post the maintenance shutdown during this quarter. Cathode production was at 63 Kt, up 52% year-on-year, while CC rod production was at 44 Kt, up 67% year-on-year. Metal sales was at 80 Kt, up 36% while CC rod sales were at 46%, up 50% year-on-year, in line with market recovery. Copper EBITDA was recorded at INR 261 crores in Q1 FY '22. Coming to the quarterly consolidated performance. The EBITDA was at a record INR 6,790 crores, up 188% year-on-year. Quarterly consolidated PAT for continued operation was at INR 3,254 crores versus a loss of INR 569 crores in the corresponding period of last year. Hindalco continues to maintain its strong treasury balance of around $872 million in Novelis and INR 9,425 crores in India at the end of June 2021. The consolidated gross debt was down by about INR 16,345 crores, while net debt was lower by INR 10,389 crores from the peak on 30th June 2020, resulting in a significant improvement in the net debt-to-EBITDA to 2.36x at the end of June '21. I'm happy to share the recent credit rating upgrade for Hindalco. July '21, CRISIL upgraded Hindalco's credit rating by 1 notch to AA+ with stable outlooks for bonds. CARE Ratings also affirmed the AA+ credit rating with an outlook upgrade from negative to stable for long-term loans and bonds of Hindalco. Turning to the broader economic environment on Slide 11. As per IMF's latest estimates, global economy is expected to expand by 6% in calendar year '21 after contracting by 3.2% in calendar year '20, largely supported by post-recession rebound in major economies. The deepening divide between advanced and emerging economy growth performance is led by differences in the pace of the vaccine rollout and the extent of fiscal policy support provided by the government. Close to 40% of the population in advanced economies has been fully vaccinated compared with 11% in the emerging market economies and an even smaller fraction in low-income developing countries. Growth in advanced economies is firming up, led by large-scale fiscal support and the easing of pandemic restrictions, primarily in the U.S. and to some extent, Europe. Recovery in emerging economies is also supported by pent-up demand and rising commodity prices to some extent. On the domestic front, the momentum in economic recovery in the H2 of FY '21 was interrupted by the second wave. However, recent uptick in indicators like CMI, exports, GST suggests that economic activity showing signs of recovery in Q2 of FY '22. The easing of supply-side pressure, gradual rise in pent-up demand and expected acceleration in the pace of vaccination should see improvement in economic activities. Downside risk in the form of third wave, limited direct fiscal support and rising inflation continues to remain a challenge. We believe that the government's targeted fiscal support and the RBI's accommodative monetary policy shall support economic recovery. The market estimates GDP in the range of 8.5% to 10.5% for FY '22. Now let me take you through the aluminum industry overview on Slides 12 and 13. The global production in H1 CY '21 grew by 6% year-on-year to 34 million tons, led by a 9% increase in production in China and a 3% growth in the rest of the world. Global consumption in HY -- CY '21 also rebounded sharply by 14% year-on-year to 34 million tons due to the low base effect. In H1 CY '21, the Chinese consumption grew by 12% year-on-year, while the rest of the world grew by 18%. With both production and consumption at 34 million tons, the markets were balanced as the Chinese deficit of 0.3 million tons, was offset by a surplus of 0.2 million tons in the rest of the world. However, in Q2 CY '21, the overall world consumption saw a growth of 12% year-on-year due to the base effect reaching 17.5 million tons while production expanded by 7% year-on-year to 16.9 million tons. Hence, in Q2 calendar year '21, the markets were in a deficit of 0.6 million tons. In the world, excluding China, consumption grew sharply by 33% year-on-year to 6.9 million tons, primarily due to the base effect. The production grew by 4% year-on-year to 7.2 million tons leading to a marginal surplus of 0.3 million tons. In China, consumption grew by 1% year-on-year to 10.6 million tons. Demand for ICE vehicles in the auto sector has softened due to the shortage of semiconductors and the withdrawal of some of the subsidies offered by local governments. However, the Chinese government's encouragement for EV and renewables, especially solar is expected to boost Chinese consumption. The production increased by 9% year-on-year at 9.7 million tons with a consumption of 10.6 million tons in Q2 calendar year '21. The Chinese markets were actually in a deficit of 0.9 million tons. With the markets balanced and improvement in global consumption, aluminum prices continued to grow by 14% year-on-year to INR 2,399 per ton in Q2 calendar year '21 from an average of INR 2,096 per ton in Q1 of calendar year '21. On a quarter-to-date basis, the Q3 CY '21 global aluminum prices continue to rise and have reached $2,487 per ton. Coming to Slide 12. In Q1 FY '22, the domestic demand is estimated at 884 Kt, up 54% growth year-on-year on account of the low base effect. However, if you compare Q1 FY '22 sequentially, the consumption dropped 18% year-on-year due to the COVID second wave. Lower automotive production has led to a 10% drop in the importer scrap compared to Q4 of FY '21. Furthermore, with lockdowns and phased unlocking in the country, trade markets were also soft during the quarter. Consequently, electrical, building and construction, consumer durables, industrial machinery were also affected in this quarter. However, the bright spot in this quarter was a strong demand in food and pharma packaging. Hence, sequentially, the sales of domestic primary producers was lower by 19% year-on-year at 173 Kt. Due to the weak -- due to weak demand sentiment, imports, excluding scrap, also sharply de-grew by 27% year-on-year in this quarter. Going forward, with declining COVID cases, the economic sentiments are likely to revise. Moving to Slide 14. The global FRP demand is expected to grow by 9% in calendar year '21 versus a contraction of around 4% in calendar year '20 on account of recovery in demand and base effect. You must have gone through the details of the segment-wise end market outlook in Novelis -- in the Novelis presentation. I will just quickly refresh some specific end market outlook for calendar year '21. The overall market demand for beverage can sheet is estimated to grow by approximately 3% to 6% in calendar year '21 as beverage can continues to show its resiliency with increased demand for sustainable aluminum can across all regions. Due to the higher demand in this segment, significant can-making expansions have been announced in the next 2 to 3 years. The automotive segment is estimated to grow between 20% to 25% in calendar year '21 due to the base effect and continued revival of demand. The semiconductor shortage is expected to have a short-term impact on OEM production and demand. The overall demand in the aerospace sheet is expected to grow in the range of 5% to 10% in calendar year '21 as air travel starts to normalize. As vaccine rollouts are a positive step towards increasing consumer air travel, demand for premium aerospace sheet from OEMs is expected to remain at similar levels as fiscal 2021 with an uneven recovery to follow. India FRP demand will grow year-on-year due to the low base effect, while it is expected to decline sequentially due to the impact of lockdowns in the country in Q1 FY '22. Demand is strong in pharma and food packaging industry whereas other segments, including consumer durables, automotive, B&C sector faced headwinds this period. Domestic demand of FRP is estimated to recover in Q2 FY '22 in a phased manner with unlocking in the country. Turning to the copper industry globally on Slide 15. In H1 CY '21, global consumption of copper increased by 9% year-on-year due to the base effect. China production and consumption both grew by 9% year-on-year. World ex China production grew by 2.5%, while consumption grew by 9% year-on-year. The economic rebound with the push in demand for EVs and green energy has also boosted the global process of copper to a lifetime -- global prices of copper to a lifetime high of $10,700 a ton in May '21. In Q2 calendar year '21, global production of copper grew by 6%, whereas the consumption increased by 5% year-on-year to 6.1 million tons as compared to the corresponding period last year. This was mainly on account of recovery in the World ex China, where consumption grew at a faster pace by around 22% year-on-year. Chinese demand de-grew by 6% during the same period on account of lower physical demand for copper in China due to the steep rise in global prices of copper. On concentrate supply side, there were major disruptions at the mine in Chile and Peru, which contributes about 40% of global production of copper. The COVID situation as well as the community unrest in Peru has caused several mine disruptions in the first few months of the year. The spot TC/RC was very tight during Q2 calendar year '21, reaching a level of $0.09 to $0.10 per pound. However, Chinese smelters advancing their maintenance shutdown plans and replacing the concentrate with blister has led to an improvement in the spot TC/RC to reach $0.14 to $0.15 a pound level during July of '21. The TC/RC is expected to improve further from these levels in the second half of calendar year '21, as some new copper mines are being commissioned in the South American region. Coming to Slide 16 on the domestic side. The overall domestic market grew by 30% year-on-year at 118 Kt versus 91 Kt in the corresponding period of last year. On a sequential basis, the domestic refined copper demand de-grew by 27% at 118 Kt compared to 161 Kt in Q4 due to lower demand on account of COVID-related lockdowns in the country. This demand is expected to improve steadily to a normalized level in the next few quarters due to the declining COVID cases and the phased unlocking in the country. Praveen will now take you through the performance highlights of each of the business segments.

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 19. Novelis clocked or record quarterly financial and operational performance. Novelis recorded shipment of 973 Kt, up 26% Y-o-Y compared to the corresponding quarter of the last year. On the shipment mix, in quarter 1, cans were about 58%, auto was about 17% of the total volume, specialties were 23% and Aero was about 2%. We are doing equally well on the various ongoing expansion projects. Automotive finishing lines in Guthrie, U.S. and Changzhou, China were commissioned last year, and now are ramping up in line with expectations, along with customer qualifications. The recycling, casting and rolling expansions in Brazil are on track and are likely to commission in the current quarter. Our expansion project in Zhenjiang, China, which is a part of our overall Asia growth strategy, is expected to begin in the current year. This will entail an investment of about $375 million and is expected to take about 3 years to complete. This project will include a new cold mill, automotive casting house, recycling capabilities and hot mill upgrade in China. On Slide 20, you can see the comparative financial performance trend of Novelis, reflecting its record quarterly performance in terms of revenue, EBITDA and EBITDA per ton. This is on the back of higher volumes, product mix, favorable metal benefits and a $47 million gain related to a favorable decision in a Brazilian tax litigation. Excluding this one-off gain, the EBITDA was $522 per ton in this quarter. Slide 22 shows the details of the performance of the Indian aluminum business segment. The aluminum metal production was 319 Kt, up 9% Y-o-Y and 1% sequentially. The production of downstream products was also higher by 150% Y-o-Y at 86 Kt in this quarter. Alumina production stood at 718 Kt in quarter 1, up 15% Y-o-Y and 3% sequentially, with the ramping up of Utkal post the maintenance shutdown in the previous quarter. On the market front, the domestic market was rather soft due to the second wave of the pandemic, although it shows a huge growth compared to the corresponding quarter of the last year, which was even more impacted by the first wave in the lockdowns. The share of domestic sales in this quarter was 44%. VAP sales were at 82 Kt, which was 27% of the total metric sales in quarter 1. Moving on to the financial performance of the Indian aluminum business on Slide 23. This segment posted a revenue of INR 6,267 crores in this quarter, reflecting a growth of 41% Y-o-Y on account of higher global aluminum prices. Aluminum EBITDA was at a record high of INR 2,352 crores, up 142% Y-o-Y on account of favorable macros, better efficiencies, improved product mix and a strong market recovery. The EBITDA margins in this quarter were highest in the last 13 years at 37.5%. Moving to Slide 25. The overall copper cathode production was at 63 Kt in this quarter, up 52% Y-o-Y. Related to the capacity cathode production was low due to maintenance shutdowns in Smelter-3 during the quarter. This smelter has now successfully ramped up and is performing well. On a competitive basis, production of CC rods was higher by 67% year-on-year at 44 Kt while sales stood at 46 Kt higher by 50% Y-o-Y with the corresponding period of last year. Sequentially, overall metal and CC rod sales were low due to lower production and softening of the domestic market in this quarter. The financial performance of the Copper segment is on Slide 26. Revenues were up 134% Y-o-Y at INR 7,094 crores because of higher global prices of copper. EBITDA was at INR 261 crores in this quarter compared to INR 66 crores in quarter 1 of FY '21. Let's turn to consolidated financial numbers for quarter 1 on Slide 28. Hindalco reported an outstanding consolidated financial performance in this quarter with revenues of INR 41,358 crores, EBITDA of INR 6,790 crores and PAT for continuing operations at INR 3,254 crores. The detailed quarterly competitive financial numbers are attached as an annexure to this presentation on Slide 34. The Indian businesses of Hindalco also reported a remarkable performance in this quarter with revenues of INR 13,349 crores, EBITDA of INR 2,513 crores and profit after tax at INR 1,037 crores. These details are also provided as an annexure to this presentation on Slide 35. Slide 29 shows the reduction of over INR 16,000 crores in our consolidated gross debt and over INR 10,000 crores in our consolidated net 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 2.36x at the end of June '21. The improved performance and strong balance sheet have resulted into a rating upgrade of both Novelis and Hindalco by the respective credit [ rating agencies. ] Let me now hand over the call back to Satish to summarize and take you through our key focus areas.

So let me conclude today's presentation with our key focus areas. We continue to deliver a strong performance across all our business segments while maintaining safe and stable operations, supported by improved macros and operating efficiencies. Our focus on cost optimization has helped the company to position itself in the first quartile of the global cost curve. With the prime driving force towards stakeholder value enhancement, Hindalco continues to focus on profitable growth through its investment in recycling, debottlenecking and organic expansion in the stable and predictable downstream businesses in India and Novelis. Hindalco's product mix diversification will help enriching its product portfolio by increasing the share of high-end value-added products in the overall product mix so as to strengthen its position as the world's largest aluminum downstream company. Another critical area where Hindalco has done remarkably well over the last few years is on the ESG front. Hindalco continues to focus on its ESG commitment while creating a sustainable greener, stronger and smarter world together and strive to be the most sustainable aluminum company in the world. Lastly and most important, Hindalco is focused on strengthening its capital structure with a strong balance sheet by accelerating the pace of deleveraging through robust cash generation in line with its capital allocation framework. Thank you very much for your attention, and we will now open up for questions.

[Operator Instructions] We have the first question from the line of Anuj Singla from Bank of America.

So first question is on net debt. While on a Y-o-Y basis, we -- it's a pretty impressive performance, more than INR 10,000 crores of deleveraging. But I look at on a Q-o-Q basis, there seems to be a buildup of around INR 4,500 crores. If I -- just thinking about this could be due to working capital requirements in copper. But if you can just throw some more light on that and give us some more color, that would be great.

Yes, you are right. So in the Indian operations, the main reason is the copper requirement working -- of working capital. And this is largely driven by the higher LME in copper. You remember that it's really gone up very high. And this has resulted into extra working capital blockage. But you must remember that copper working capital is funded by a very low-cost buyers' credit and dollar-denominated working capital loans. So really speaking, it doesn't really matter much for us. And this is working capital requirements at transitory. They move up and down with the LME movements. So it is not really a cause of major worry for us.

Okay. Understood. So if I were to exclude this, will it be fair to assume on the debt side, excluding this buyers credit, we would be down maybe on a Q-o-Q basis, is it?

So when you look at it in rupee terms, you see Novelis debt is the same as before. But when you convert this into rupees, there's a little bit of a dollar-rupee exchange impact as well in the -- on the rupee side. There's INR 1,000 crores coming purely arising from that. So that's the other part of it.

Okay. Okay. Secondly, one data reconciliation. So you mentioned in the presentation on the first slide that the business EBITDA is INR 2,513 crores. But when I add up the segmental EBITDAs for aluminum and copper, it comes to INR 2,621 crores. So can you help me -- I think probably it includes a part of other income as well, which is a part of these 2 numbers. Can you help me reconcile these 2 numbers? And if we were to just focus on the operational EBITDA, which is a number which you refer to?

Yes. Yes. So really speaking, as we mentioned at the beginning of this call, one change that we have made in the definition of segment EBITDA is that corporate overheads that were earlier apportioned between the 2 businesses in India, they are no longer apportioned there. So it comes as a kind of unallocable expense below the segmental EBITDA line. That minus the treasury income, so for this -- for example, in this quarter, we had about INR 200 crores of the corporate overhead, which is coming below and INR 100 crores of treasury income, which is coming in there. So there's a net of INR 100 crores, which is a negative net unallocable expenses, which has to be reduced from the overall segmental EBITDA. That's the difference between 26 and 25.

Understood. Understood. And lastly, given the cost pressures and the inflationary concerns, can you talk about how should we look at the cost of production in aluminum over the next quarter? And given the aluminum prices are also high, any change in the hedging strategy there?

Yes. So if you remember last quarter's guidance, so Q1 to Q4, the cost was up 4%. And what we are seeing is Q2 to Q1, the cost will be up 5%. And the cost inflation is starting to kick in because coal is sequentially up by 8%, CP coke is the biggest culprit up 25% now. So we are seeing Q2 at 5% more than Q1 cost of production. So that's the first part. Second part, hedging, as I said, this year, we don't intend to do any more. Our last time, whatever I had said for this year, which was 32% at an average of [ 1,913 ], we have not done anything. Next year, we were at 18%. We have now done 5% more at the -- in fact, we just did it last few days, we got about 2,560. So we are 23% hedged at 2,229 for next year. So we have more or less reached our insurance level for next year.

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

First question on the copper side, now that the maintenance shutdown is behind us, can we now expect for a quarterly run rate volume related capacity into 200 Kt every quarter? And then on the profitability side, what sort of quarterly EBITDA should we bake in, given that large part is already fixed at annual TC/RC?

Yes. So copper, you see is driven by many value drivers. And therefore, sometimes, some of the things like sulfuric acid prices, what is happening on the DAP side, all these things also sometimes make a difference. But you're right, we -- in a broad sense, you should see a sustained performance now. Looking at what has happened in July, we are expecting Q2 to be a reasonably -- operationally a strong quarter. And therefore, on the other hand, of course, the market has been a little soft as we mentioned in the call earlier. Going forward, again, market is likely to improve. Let's wait and watch how much does it improve. The more the domestic market improves, the more is the profitability for us. Exports are less profitable in copper business. So really speaking, it's driven by many of these factors. But if you want the kind of guidance on the new definition of Copper segment, as we have called it out now, you should expect INR 300 crores or thereabouts to be the normal level of reported EBITDA now, maybe a little higher or lower depending upon how these things work. Some of the accounting noise also comes in Copper business reporting. So really speaking, in some cases, you will see derivative accounting playing some role there. But if the LME and the rupee remains stable, then that should not contribute to too much volatility there, but this is the broad guidance.

Understood. And the maintenance shutdown taken behind us, right, so 100 Kt every quarter is -- and volumes in the coming quarters should be stable?

Yes. Yes.

Yes. Roughly about 90 Kt is the quarterly production that we target. But we also do some kind of additional sales [indiscernible]

So the sales is around 100, production is around 90, yes.

Okay. The second question [indiscernible] so you've seen in the last couple of months, a few of our peers announcing some debottlenecking and expansion of upstream capacity. So any updated thoughts on that? Just want to understand from medium to long term, and what sort of sustainable LME level would you like to see and for what period before reviewing our thoughts on capital allocation on upstream?

So I think that on the debottlenecking side, even we had one line in Renukoot shutdown, we have ports in Hirakud that we can bring back on. So we are working on all those. I think from a longer-term sustainable strategy, I think you've asked me this question before. We stick to our capital allocation to value-added downstream for now. The issue, Sumangal, is not just the LME, it's the source of power and the cost of power as well. Because LME today is at 2,600, and I keep reminding people the last expansion was done in 2008 when LME was at the same 2,600. So in 3 to 5 years when the projects come in, the LME goes down. So I think we will stick with our strategy of putting most of the CapEx that we will generate during this high LME period into our downstream value-added...

Okay. And Satish, you mentioned about some bit of debottlenecking, what sort of volumes can we add with this in mind?

About 50 Kt more.

Understood. Understood. And just one last question. We've seen some credit rating upgrades even on Hindalco side. So any translation of interest cost savings do we expect in the coming quarters?

Our current loans are mostly bank loans, project loans. They are not impacted directly by this credit rating upgrade. And our existing bond is actually due for repayment next year has a fixed coupon. How it can help is, in case we decide to raise any money through bonds and refinance depending upon the cost, et cetera, then those can be availed at a much cheaper rate. So that is how it can help.

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

Sir, my first question is on coal. We have recently seen thermal coal auctions take place for new blocks. From Hindalco's perspective, sir, is it fully covered on thermal coal because you've not seen any aggressive participation by the company in the coal block auction?

No, Pinakin, we participated in Burapahar, and we were the only bidder. So that's why it not happened. But if you know the process, the government will bring it back. And then if we are still the only one, we'll get the coal block. So you -- we are -- so Chakla, we got for $5 million and Burapahar is also another $4 million, $5 million. So we would love to get majority of our coal, 75% to 80% in-house now rather than be exposed to e-auctions and linkages, et cetera.

Understood. Sir, just going back on the aluminum smelting capacity addition, I know you've answered this before as well in the previous calls. But if tomorrow, over the next few months, if the company has more visibility on captive coal production within its own mine, then will it relook at smelting capacity expansion?

All I can tell you is, Pinakin, we will continue to evaluate. And I'll tell you that it's not related to coal. It is very unlikely we will put new smelting capacity that's coal based. We are actually -- if you look at even my remarks, which we are talking about in Aditya, we can get now 130, 150 megawatts of power from pumped hydro. So we would like -- if we have to put some additional ports in all in Aditya, we will try to do it with a cleaner source of energy. So that's what we are evaluating, not coal based. So Adi is looking at other energy so that we can put more smelting in Aditya and Mahan, yes, but it's not related to coal based.

Understood. Sir, my second question is on copper. Now copper smelting over the years has been -- I won't use the word difficult, but it has been a volatile business in terms of quarter-to-quarter. At this point of time in terms of the overall EBITDA contribution to Hindalco, it's less than 5%, but there is a meaningful working capital block. And from quarter-to-quarter, there is volatility. How do you see the future of the copper smelting business within the overall Hindalco framework? Will it grow? If it won't grow, will it remain within the company? Or do you think that at some point of time, divestment is potentially an option?

So Pinakin, let me just tell you what our next 3- to 5-year plan for copper is. I think that in the next 3 to 5 years, we are going to add further downstream capacity in copper, in copper rod, in copper tubes. We are going to add about -- we are looking at about 100 Kt of copper cathode production coming from the scrap route to be added. So these are the 2 things that we are going to do. So I think that as a part of our sustainability strategy, both aluminum and copper fit in quite well, both are in high demand for the electrification. So this is why we think at least in the next 3 to 5 years, our strategy is to expand copper downstream as well as scrap-based copper production.

So that CapEx should happen over the next 18 to 24 months? Or is it slightly more medium term?

I think that we will probably finalize that -- the copper rod one you're going to see fairly quickly, just hold on.

Moving to the next question from the line of Amit Dixit from Edelweiss.

Congratulations for a good set of numbers. I have 2 questions. The first one is on the recent board approval on INR 3,000 crore investment on -- for a production capacity of 170 KTPA. So what kind of incremental EBITDA do you expect from this?

So look, I'm not going to give you our RFA details, but it's 170 Kt of high-end FRP products that are going to come out of the Hirakud Aditya complex.

So what would be those FRP products, I mean, if you can just detail those products?

Yes. So mostly, we are going to do a combination of hard alloys, which go into defense and industrial. It's going to do ACPs that go into B&C. It's going to be a certain amount of can body stock. So these are probably the 3 major products that it's going to do. Certain amount of [indiscernible] as well. By the way, one thing I wanted to tell you guys, in general, is that we are flat out on the FRP side trying to meet the local demand. Really, we cannot meet the local demand right now.

Okay. So I mean it's a follow-up on this is the local demand remains as strong as it is then can we expect for more capacity expansion at Aditya and Mahan?

Well, look, this -- what we announced, which I think I've been talking about -- good you got the Board approval today, is the second phase of Hirakud, which is 170 Kt. That will take us 2 to 3 years to execute. Simultaneously, the extrusion expansion in Silvassa is going on. So I think the next 2 to 3 years, we are going to focus on implementing these two. And then, of course, the Phase III will come as well because the hot mill in Hirakud is about 450 Kt. So with this expansion, we would have reached 270. So we still have more place to expand in Hirakud.

Understood. That's very helpful. The second question is on coal sourcing mix. If you can let us know for this quarter, how much was linkage your own coal and import refill? And what is the likelihood of this mix in FY '22, going ahead?

So this quarter was -- linkage was 69, e-auction was 22, own mine was 5. I think that, going forward, the own mine part will go up a little bit because we are getting now coal from Kathautia as well. So that 5% may become 10% in Q2, Q3.

Next question is from the line of Ritesh Shah from Investec.

A couple of questions. Sir, first on ESG, you did touch upon your election remarks about renewable projects with storage from hydro and you did indicate a number of 130 megawatt, an incremental scope of smelting capacity. Sir, is it possible, can you detail more on the contract from the hydro? That's one. And secondly, you also touched upon CCUS, pilot project by FY '23. So just wanted to understand what is the eventual basically gain plot over here and the sort of investments it will attract? That's the first question on ESG.

Yes. So the first part, I think you should check out companies like Greenko, which I think you probably are following in India. In Andhra, they have a pumped hydro. So basically they pump the water up and then use it to generate energy. And we have been trying to work with them to see if they can at least replace 1 full unit of Aditya, which is 130 to 150 megawatts. And if we can get that at a reasonable economics, that is the project that we have been discussing with them. And on the second part, on carbon capture and sequestration, the fact that makes coal dirty is the high CO2 emission. So there is a lot of work going on and seeing how you can capture the carbon and sequester it. It's not a new concept. The cost of sequestration can be quite high. There are many western projects going on. But as those things pick up momentum and the technology evolves, we are trying to work with some companies to see if that we can do a pilot in India as well.

Sir, specifically on pumped hydro, any specific numbers on the call that we are looking at for a hurdle rate for us to shift for 1 specific unit, 130, 140 what you indicated?

So look, something around INR 4 to INR 4.5 will make it economically viable.

Okay. That's useful. Sir, my second question is, you touched upon the FRP investment of 170 Kt that only implies around $2,300. What sort of IRR are we looking at over here? And I think earlier in our commentary, we have indicated that we were looking at certain sort of trade measures from the government before the embark and think material on the downstream side. So any update over there? And you did indicate the hot mill capacity was 450 and the current -- post current announcement, it will go to 270. So can you help reconcile the bit, I think, 34 Kt is extrusion, 170 recent announcement and finishing assets was 50. So there is some missing leg over there, if you could help reconcile that number, please?

Don't mix extrusion with rolling. Extrusion is completely a different process from billet. So the hot mill is for rolling products, so take 450, if we are at 100, 170 added, you're at 270. So you have another 180 Kt, 170 Kt more to do for another cold mill further down the road. That's the reconciliation on the Hirakud hot mill. Does that make sense?

Yes. Yes, sir. And sir, on the CapEx intensity, it comes to around $2,300, how should one look at the IRR and ROC over here, specifically with respect to trade measures?

So the IRR of the project with the current product mix we are looking at should be around north of 15%.

Sir, is that number a bit conservative?

You could say because it depends on the pricing and the product mix, but IRR of 15% on a base case, I think I'm quite happy to launch the project.

Okay. And sir, last follow-up, are we expecting anything from the DGTR on any of the projects we are putting on capacities? I think you had indicated twice...

Yes. There are 3 trade cases going on right now. So the first one is under Malaysia for wire rod, foil stock from ASEAN as well as FRP from China. So all 3 are in fairly advanced stages. So I guess we'll just have to wait and see. The government is quite serious about these cases.

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

A couple of questions from my side. First, on the Utkal Alumina expansion. So I think in the presentation, you have mentioned it will commissioned in this quarter, the second quarter. So have you tied up fires for that alumina or what stage we are in? Or are we in advantage of like reducing the utilization of our existing refineries?

So as I had mentioned before, some part of it will be internal, some part, we are talking to one domestic user of alumina and trying to finalize that.