Hindalco Industries Limited (HINDALCO) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the earnings conference call of Hindalco Industries first quarter results for FY27. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-down phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Subir Sen, Head of Investor Relations at Hindalco. Thank you, and I want to wish you, Mr. Sen.

Thank you, and a very good morning and evening, everyone. On behalf of Hindalco Industries, I welcome you all to the earnings call for the first quarter of financial year 2027. In this call, we'll refer to the first quarter of financial year 2027 investor presentation posted on our company's website. Some of the information on this call may be forward-looking in nature and is covered by the safe harbor language on slide number 2 of the set presentation. In this presentation, we have covered the key highlights of our consolidated performance for the first quarter of financial year 27 versus the corresponding period of the prior year. A segment-wise comparative financial analysis of Novellis and Indian aluminum and copper business is also provided. The corresponding segment information of prior periods have also been reinstated accordingly for a comparative analysis. Today, we have with us on the call from Indalco's Management, Mr. Satish Pai, Managing Director, and Mr. Bharat Goinkas, Chief Financial Officer. From Novelis' Management, we have Mr. Steve Fisher, President and CEO, and Mr. Dev Ahuja, Chief Financial Officer. Following this presentation, this forum will be open for questions and answers. Post this call and audio replay will also be available on our company's website. Now let me turn this call to Bukhavi to take you through the company's performance and key highlights in the first quarter of Financial Year 2027.

Thanks, Subir. Good morning and good evening, everyone. Thank you for joining Hindalco's earnings call today. On slides 5 to 9 of this presentation, you can see our achievements and progress across quarterly metrics of safety and sustainability for this quarter versus prior periods. I will now take you through the key highlights of these initiatives. At Hindalco, safety is always our highest priority, and I am pleased to report that there were no fatalities this quarter across all our Indian operations. Our LTIFR for this year stands at 0.21, showing significant improvement over the prior period. As a significant step, we have strengthened our emergency response capabilities. Through realistic scenario-based mock drills conducted in collaboration with key agencies, including NDRF. These exercises help our team sharpen their response, coordination, and decision-making during critical situations. We also took a proactive step towards preventing incidents by implementing the Risk AI Advisor, which helps us identify potential serious incidents at an early stage. By combining technology with on-ground vigilance, we are improving our ability to anticipate risk, intervene early, and create a safer working place for everyone. At Hindalco, we continue to make strong progress on circularity and responsible waste management. This quarter, 80% of all total waste generated was recycled or reused, indicating strong waste management performance. We achieved 142% recycling of bauxite residue excluding Utkar, 95% recycling of ash, and 127% recycling of copper slag this quarter. Let me briefly touch upon our circularity initiatives. Demand for fly ash and bauxite residue remains strong across cement, road construction, and quarry backfilling applications, although fly ash dispatches were temporarily impacted by the rail rake availability. A key milestone was the Dala stone quarry backfilling project, the first initiative of its kind in India, supporting degraded forest restoration while contribution to the creation of additional carbon sinks. In our copper business, recycling of copper slack continues to gain traction, driven by demands from the abrasives and ready-mix concrete industries. Together, these initiatives demonstrate how we are turning industrial by-products into valuable resources while advancing our sustainability goals. We have made consistent progress in improving water efficiency across our operations through a series of focus interventions, such as adoption of zero-liquid discharge systems, optimization of cooling tower operations, and reuse practices. These initiatives have helped us significantly reduce dependence on fresh water sources while improving overall process efficiency. In our aluminum business, higher recycling rates of 29% this quarter, up from 27% a year ago, along with focused optimization initiatives at Aditya and Utkal operations, helped us reduce fresh water consumption on a year-on-year basis. Sequentially, water consumption was higher in this quarter, mainly due to the seasonal impacts of the summer months. In our copper business as well, specific water consumption improved year on year, largely due to lower freshwater requirements during the plant shutdown. These efforts reflect our continued focus on improving resource efficiency and reducing environmental footprint of our operations. Together, these Our efforts score a strong commitment to sustainable water stewardship and resource conservation across the value chain. We remain deeply committed to preserving and enhancing our biodiversity in and around our areas of operation. Biodiversity conservation remains an integral part of our sustainability agenda. As of the end of Q1 FY27, our cumulative tree plantation has crossed 6.3 million trees, with nearly 80,000 samplings planted during the quarter to strengthen greenbelt coverage and enhance local biodiversity around our operations. We launched the Madhu Palanam initiatives at our Bhatrimalli bauxite mines to promote apiculture, support pollinator conservation, and further enrich local ecosystems. In addition, at our Aditya Aluminium Biodiversity Park, we have created artificial islands within a water body to support avian conservation and provide a conducive habitat for bird life. These initiatives reflect our commitment to go beyond compliance and actively contribute to ecosystem restoration and biodiversity enhancements in the region where we operate. Renewable energy remains a key pillar of our decarbonization strategy. As of the end of Q1, we have 470 megawatts of renewable energy capacity across solar, wind, hydral resources, along with 35 megawatts of pump storage tie-ups under our round-the-clock renewable energy program. We remain on track to add another 414 megawatts of solar and wind capacity, as well as 90 megawatts of RERTC pump storage capacity during the year. With these additions, our renewable portfolio is expected to reach 884 megawatts of solar wind highly capacity, along with 125 megawatts of RERTC capacity by the end of FY27. These investments underscore our commitment to reduce carbon intensity, strengthening energy security, and building a more sustainable and future-ready Indalko. Our aluminum-specific greenhouse gas footprint stood at 19 tons of CO2 per ton of aluminum in Q1, lower than the comparable period last year. What is encouraging is this is not a one-time improvement, but a part of a sustained structural reduction in our emission intensity. This reflects the progress we are making through our decarbonization initiatives, greater use of renewable energy, improved recycling, and ongoing operational efficiency. As we move forward, we remain focused on building a globally competitive low-carbon aluminum business that meets the evolving expectations of our customers while creating long-term sustainable value. Let me now give you a glimpse of the current broader economic environment on slide 11. IMF projects' global growth at 3% in 2026, moderating from 3.5% during 2025. A significant drag is arising from the Middle East and Central Asia region, which is expected to witness slowing growth down to 0.7% in 2026 from 3.7% a year ago due to the direct disruptions associated with the conflict. While the war has created a negative supply shock through higher energy and commodity prices, its impact has been partially offset by strong technology-led investments and demand. The U.S. economy is projected to grow by 2.3% in 2026 versus 2.1% in 2025, supported by favorable financial conditions, fiscal support, technology investments, and its net energy exporter status. China is expected to slow from 5 to 4.6 as high energy prices, persistent uncertainty, and structural headwinds weigh on activity. Global growth remains vulnerable to renewed geopolitical escalation, commodity price volatility, tighter financial conditions, trade fragmentation, and a possible correction in the technology-related expectations. Global inflation is projected to rise from 4.1 in 2025 to 4.7 in 2026, reflecting higher energy, food, and fertilizer prices and signaling a temporary pause in the global disinflation process. Indian economy continues to navigate this challenging global environment. RBI projects GDP growth in FY27 at 6.7% against 7.7 in 2025. The performance of high-frequency indicators suggests that growth momentum remains buoyant. Industry activity continues to hold, driven by strong progress in manufacturing. Sustained momentum in the service sector continues to support economic activity, while agriculture remains on a stable footing. Domestic demand conditions remain healthy, with both rural and urban consumptions showing steady growth. Investments remain stable, led by government capex. However, downside risks persist particularly from geopolitical uncertainties, volatility in global financial markets, external headwinds, and weather-related disruptions. Inflation is expected to rise to 5% in FY27 from 2.1% in FY26. With upside risk emerging from global commodity price shocks, uncertainty around the monsoon and El Nino conditions. Reflecting this balance of opportunities and challenges, the RBI has retained a neutral policy stance, allowing it the flexibility to support both sustainable growth and price stability. Moving on to the industry outlook on slides 12 to 14. On slide 12, from a pricing perspective, the quarter was marked by significant volatility. Even before the Middle East conflict escalated, aluminum prices had strengthened to around 3,150 per ton, largely due to the closure of the Mozaal smelter. Heightened concerns over potential supply disruptions then drove prices sharply higher, peaking at nearly $3,850 per tonne, before moderating down to $3,200 following the ceasefire. Looking ahead, we remain constructive on aluminium. The market is expected to have a deficit of 1 million tonnes in calendar year 26, compared to pre-conflict expectations of about 0.3 million tonnes. While demand remains relatively subdued, supply-side constraints continue to support market balances and prices. That said, higher prices are likely to incentivize the supply response, including smelter restarts in Europe and West Asia and faster ramp-ups in Indonesia and Southeast Asia, which should help rebalance the market over the medium term. Looking at the global aluminium market in quarter one of calendar year 26, Chinese aluminium production grew about 3% year-on-year to nearly 11 million tons, supported by capacity additions in regions such as Yunnan and Inner Mongolia. This was partially offset by capacity rationalization in Shandong. Outside China, production declined by around 8% to 7 million tons, largely due to disruptions related to the Middle East conflict and the closure of Mosul, although higher outputs from

Indonesia and Europe provided some support.

As a result, global aluminum production stood at 18 million tons, down 1% year on year. On the demand side, China continues to see healthy growth with consumption up 2% to around 12 million trunks, driven by strong demand from new energy vehicles and robust exports of semi-fabricated and finished products. However, the property sector remains weak. Outside China, demand declined by around 2% as softer conditions in Europe, North America, and Middle East more than offset growth in India. Overall, global aluminum consumption increased 1% year-on-year to approximately 19 million tons. While demand is continuing to outpace supply, the global aluminum market remains in deficit by roughly 1 million tons this quarter, providing continued support to market fundamentals. Turning to India, demand continues to be relatively resilient and remains ahead of most global markets. We estimate aluminum demand in quarter one of FY27 at around 1.5 million tons, representing growth of approximately 3% year-on-year. The key growth drivers were automotive demand supported by GST 2.0 related benefits and continued vehicle production growth, along with stable demand from the packaging, industrial machinery, and consumer durable segments. The only area that saw some moderation was the electrical segment, where certain contractor-led projects were deferred due to price volatility during the quarter. Overall, India continues to outgrow global aluminium demand and remains one of the most attractive long-term growth markets for the industry. Within domestic products, flat-roll products perform particularly well, with demand growing by more than 10% year-on-year, driven primarily by strong demand from packaging and consumer durability. Turning to the Indian copper industry on slide 14. In India, refined copper demand remained somewhat subdued during the quarter, driven by inventory optimization by customers and a more cautious purchasing approach amid uncertainties arising from the West India conflict. Total demand, including domestic supplies and scrap in quarter one of FY27, stood at 359 KT compared to 396 KT in the same period last year, reflecting a 9% year-on-year decline. In quarter 2 of calendar year 26, the global copper production grew 2.6% year-on-year to 7.2 million tons, while consumption increased more modestly to 7.5 million tons, resulting in a net global deficit of around 0.3 million tons for the quarter. On the copper concentrate side, the quarter remained quite challenging. Availability of concentrate was tight across the industry, and treatments and refining charges stayed at historically low levels, and at times even negative, levels at the range of minus 26 to minus 30 cents per pound. This reflects a broader trend where global smelting capacity continues to grow faster than the availability of mine supply. While stronger by-product credits provided some support to smelter economics, Concentrate supply remains the key constraint. Looking ahead, we expect these tight market conditions to persist, with concentrate availability and TCRCs likely to remain under pressure throughout the rest of this year. Continuing, coming to slide 16, our consolidated business segment EBITDA was up 58% year-on-year at 13,481 crores this quarter. The consolidated profit after tax was up 75% on a year-on-year basis at 7,013 crores this quarter. At Hindalco India Business, our business segment EBITDA was up 73% year-on-year at 8,606 crores this quarter, whereas our quarterly profit after tax was 5,301 crores, up 86% on a year-on-year basis this quarter. Before we get into the details of our quarterly segment-wise performance, I would like to highlight two structural tailwinds that we believe will provide incremental support to our profitability and long-term growth trajectory. In India, our move to the new tax regime is a structural benefit that permanently lowers our effective tax rate to 26%, creating an uplift to profitability ratios of EPS and return on equity. Secondly, Novelis' dollar-denominated earnings get a significant uplift in console financials in an environment where the rupee depreciates against the U.S. dollar. Together, these advantages improve the quality, predictability, and growth potentials of our earnings, supporting long-term shareholder valuation. Coming to our business-wide performance this quarter on slide 17. The India upstream aluminum shipments were up 3% year-on-year, and revenues were up 44% year-on-year. Our quarterly EBITDA was a record 7,390 crores, up 81% year-on-year, backed by favorable macros and our strong performance across the value chain. This delivered an all-time high EBITDA of $2,331 per ton this quarter. EBITDA margins were at a record 55% and continue to be amongst the best in the global industry. Our hedging positions in aluminium for the rest of FY27 stands at around 29% on the commodity at 3,004 per ton and 18% in the currency at 91.63 rupees per dollar. Our Indian downstream aluminium business continued to deliver a strong performance, where quarterly shipments were up 3% year-on-year at 104 kp. Aluminium downstream delivered a quarterly EBITDA of 298 crores, up by 30% year-on-year this quarter, versus 229 crores in the prior period. This was driven by higher volumes, product mix, and premiumization. The resulted EBITDA per ton stood a little more than $303 a ton this quarter. On India's copper business performance, this quarter, our overall metal shipments were at 105 KT, down 16% year-on-year due to the planned maintenance shutdown. The CCR volumes were at 96 KT, down 8% year-on-year due to tighter market conditions. Our quarterly copper EBITDA stood at a record 918 crores, up 36% year-on-year, on account of better realizations in byproducts and operational efficiencies. Our planned maintenance shutdown during the quarter impacted anode production through the concentrate route. Excluding the shutdown effect, our EBITDA per ton this quarter would have been around $1,000, reflecting the underlying strength of the business. Novelis recorded shipments of 916 KT, reflecting a decline of 5% year-on-year over 963 KT shipments in the same period last year. Adjusted EBITDA for the quarter stood at $516 million or $563 per ton, reflecting a 24% and 30% increase respectively year-on-year. This includes an 18 million net positive impact from the Oswego fires and is inclusive of 47 million insurance proceeds received during the quarter. With another quarter of solid execution behind us, that run rate cost savings are now at 225 million as we accelerate all cost efficiency initiatives. Looking ahead, we remain committed to our three-year goal of permanently reducing our cost structure by $350 million to $400 million by FY28 exit. Additionally, scrap prices continue to move in a positive direction, supporting margin improvement. Turning to slide 19, we continue to maintain a strong and resilient balance sheet. As of June 2026, our consolidated net debt to EBITDA stood at 1.95X, below our stated threshold of two times. Despite the temporary impact of the Oswego fire incident, our businesses continue to generate healthy cash flows, demonstrating the strength and resilience of our portfolio. We remain disciplined in our capital allocation approach and committed to maintain net leverage at around two times on a console basis. At the same time, we continue to strike the right balance between investing and high-growth opportunities that enhance our long-term value and deliver attractive returns to our shareholders. Details of the operational and financial performance in each of our business segments this quarter, compared to the corresponding period of last year, as well as the previous quarters, are covered in further slides and annexures to this presentation.

Now, let me conclude today's presentation with some key takeaways.

At Novelis, our first quarter performance once again demonstrated the strength and resilience of the underlying business, despite the temporary impact of the Oswego fire last year. We have successfully restarted the mill in June, and it is now ramping up steadily towards normal operating levels. We view the impact of the outlets largely as a timing issue rather than a structural one, with significant portion of the current year's headwinds expected to be recovered over the course of the next fiscal year. Importantly, our long-term EBITDA per ton guidance of 600 remains unchanged. This confidence is supported by the accelerated execution of our 350 to 400 million structural cost reduction program, which is delivering sustainable improvements in productivity, efficiency, and margins across the businesses. At the same time, we continue to make significant progress on our growth agenda. The 600 KT Bay Minette Greenfield Rolling and Recycling Facility, which is on track for completion this year, represents a transformational mind stone for Novel. With the initial commissioning of key assets already underway, Bay Minette will further strengthen our operating footprint, expand our recycling capabilities, and position Novel for its next phase of long-term profitable growth. Coming to our India business, we have once again delivered an exceptional quarter, achieving record and industry-leading EBITDA per ton and margins across both our upstream and downstream aluminum businesses, alongside a record EBITDA performance in copper. This reflects the strength of our integrated business model, relentless focus on operational excellence, disciplined cost management, and consistent execution across market cycles. On the growth front, all our key upstream expansion projects, including the Aditya alumina refinery and aluminum smelter expansions, are progressing well and remain on track. These projects are integral to our strategy of doubling upstream capacities while strengthening our integration and cost leadership. We are also making steady progress on our captive coal mine development projects, including Chakla, Banda, and Minachi. As these mines become operational, they will strengthen our resource security, lower production costs, and support margin expansions, and further enhance the earnings profile of our upstream business. On the downstream side, we continue to make good progress on our growth projects. The Aditya FRP plant is ramping up well and is already making a meaningful contribution to overall production. We also commissioned our Aditya battery foil and the Taloja AC fin facilities last quarter, and both projects are progressing well with customer qualification process currently underway. In Specialty Alumina, our precipitated hydrate facility is advancing through customer approval stages, bringing us closer to commercialization. In copper, the business continues to demonstrate resilience and strong execution. Our copper smelter expansion, e-waste recycling projects, and other sustainability-led initiatives are progressing as planned. In addition, the Inner Group Tubes project will further strengthen our downstream portfolio and enhance our value-added product capabilities. Looking ahead, our strategic priorities are clear in India. We are accelerating our upstream expansion in both aluminum and copper while building a significantly strong downstream portfolio with the ambition of delivering a four-fold increase in EBITDA, downstream EBITDA by FY30. At Novelis, we remain focused on executing the mid-to-long-term 3x30 strategy, which is aimed at driving sustainable growth, higher profitability, and stronger returns. Overall, Hindalco is exceptionally well-positioned for the future, backed by our integrated business model, strong resource-based, disciplined capital allocation, and growth investments across the value chain. We remain committed to our purpose of engineering better futures while creating long-term sustainable value for our stakeholders. Thank you very much for your attention, and the forum is now open for questions.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Satyadeep Jain with Ambit Capital. Please go ahead.

Hi, thank you. Mr. Pai, I just wanted to check on, if you can clarify, in the Novelist 10Q, it is mentioned that Novelist will pay up to 0.25% of revenue as royalty to an entity, not if it's a promoter entity. Can you clarify what that is and why is that royalty being paid from Novelist?

So I think that, you know, as far as the grand royalty is concerned, let me just give you an update. I think the ownership of the Aditya Birla brand has remained with the Birla Group Holdings Private Limited. And in the past, this BGH has not charged any royalty for the use of ABG marks all these years, making it one of the exceptions among large Indian conglomerates. So what is happening is that this brand royalty, this framework, marks a transition from family-driven stewardship to structured governance. So, I think, you know, investing in the brand, keeping it better for the future. So, I think Nobelis declared it in its 10Q. Hindalco comes under SEBI regulations. So, under SEBI LODR, all our related party transactions will be disclosed biannually through exchange filings due in October. So, I think even Hindalco will be paying that same type of royalty to Birla Group Holdings Private Limited.

And ALCO would also be 0.25%.

Yes, and you know, it's capped at 225 crores, and I think it's important to note for us, this royalty amount is below what we say is our materiality threshold.

That 225 crore is for six months for this year, right? But otherwise, on a certain basis...

No, for the year. For the year.

For this year, because it's starting from September, but otherwise, for next year, should we put that 225 crore cap?

It's for 12 months capped at 225 crores.

Okay. For Novelis, you're saying, right? And Hindalco will be exactly the same. Okay. So, this is going to apply. I'm sure you can't talk about other entities, but it's going to apply generally to all the other entities also. I cannot. Yeah, so the other one was, just I know Novelis again, we thought we'll get more clarity on, there have been many investor questions on the $70 million of tariff impact at Novelis. Yes, I know. The team tried to clarify that on the call, but if we exclude that $70 million, it looks like EBITDA per ton would have been more than $600 per ton for nobodies. Just trying to understand why did the tariff impact increase so significantly from $24 million last quarter to $70 million, and why is that not excluded from EBITDA to report an adjusted EBITDA?

Steve, Dave, you want to... Yeah, no, we cannot take it out of adjustability. Number one. Number two, I mean, I can basically just amplify what I said at the call the other day. You have to think about this as related to the fact that we are not able to produce enough yet in the U.S. We have to depend on more imports. As far as capacity is concerned, theoretically, if all the assets start running optimally, We will have enough onshore capacity. But given the fact that we have had to reconfigure so many things post the Oswego fire, and particularly in this quarter, you know, we have had to really keep our customers. So this is related to keeping customers as much as we can fully serviced. So net-net, this is an impact that will stay with us for some time. Now, be careful about literally, you know, sort of adding that back and taking the EBITDA per ton at over 600. I mean, I would not recommend you do those kind of adjustments. There are many moving parts on a macro level, metal prices and so on. I mean, you know. We just need to be careful. For the next couple of quarters, there will be some level of tariffs. I cannot say exactly how much. I mean, we still need to work on reconfiguring our supply chain. So be careful about just literally adding it back. All that I'm telling you is that it's not like the 70, unfortunately, will go to zero until the time we have just set all our supply chains back in order. So, so that's really the best answer that I can provide to you.

So, so just let's say one source figure is up and running in two quarters from now. So there's $70 million. So, basically, when Oswego production was impacted, some of it was being fulfilled by procuring metal from the competitors in the U.S. It seems like this quarter you used some of the other facilities to bring more imports into U.S., is that correct? And so, the impact was mainly to fulfill Oswego shipments. In one queue. And what about the other roles and all other material that you were seeing tariff impact in the previous quarters? That impact was not there at all this quarter.

I mean, this is such that we are really getting into the weeds and, you know, to explain the entire supply chain is really complicated. I think let's just bring this back into, you know, sort of why, why this quarter, you know, why not so much earlier quarter. Look, as much as possible, we are trying to, you know, sort of cut dependence on third parties and use our own system because there are benefits of quality, of reliability, of more consistency. So as much as possible, we are, you know, sort of trying to use our system, our network to bring in materials. Earlier, you know, we had to really We, you know, really get a lot of third party, and that goes in the cost of the fire. So be careful. What we get from third parties goes in the cost of the fire, which is below the line. This is from our own network. We don't basically classify this tariff below the line in cost of fire, and that is the difference. So, you know, I'm not kind of, it's very difficult to explain, you know, the entire material flow and, you know, and the supply chain. I can only, you know, sort of... Give you a direction and guidance to say that we'll have to live with some level of courage in the coming quarters. And it is not like, you know, Oswego is up and everything, you know, sort of just starts going back to normal. No, it takes time. It takes time. There are materials in the pipeline. There is production that is already happening. So it is not like you can time things so perfectly, right? So that's why I'm staying away from giving very specific guidance. Let's just take the next quarter by that time you will have a little more clarity and, you know, we will talk about it again. So, for now, I would leave it at this. All right? Okay.

Thank you so much.

Thank you.

Thank you. Next question comes from the line of Vinakind with HSBC. Please go.

Yeah, thank you very much, sir. Just three quick questions. Keeping prices aside for a moment, there was an operational impact in aluminum, downstream, and copper. Should we expect these volumes to recover from QQ onwards?

Yeah, I think the volumes in Q2, both for copper and downstream aluminum, will be higher. I mean, as I said in my prepared remarks, the electrical sector was a little bit weak. In copper, we had a planned shutdown of a smelter. So I think for Pinnakin, the volumes in two quarters, both for aluminium downstream and copper, will be higher.

Got it. My second question is, at the console level, we still see an exceptional hit of roughly 2,300 crores in this quarter. There was no exceptional one-time impact in Novelis. So, given Oswego has restarted, should we continue to see exceptional losses from second quarter in the console P&L? How should we look at this?

Look, Inakin, it's a difference between U.S. GAAP and INDS. In INDS, we have to show it as exceptional. I think in U.S. GAAP, it comes in unallocued. So, we can explain that to you offline. It's a difference between U.S. GAAP and INDS.

So, do you see your plant, will you start to achieve this quantum to reduce or to console level, will you see a similar hit?

No, no, no. As the Oswego plant restarts, then it should go away.

It should go away.

Got it. And the insurance recoveries will start to come in then.

Okay, okay, okay. And the last question is just on the net debt guidance of the year, and we heard from the novelist call of their expectations of leverage to come down below 4x. At the consult Dalko level, should we expect the net debt to be steady at these levels as of March and come down? Because the underlying cash flows are very, very strong.

Yeah, I think on the India side, Pinnakin, this is a high capex year for us. So I don't expect our net debt to EBITDA to materially change across the coming quarters. So, I think that, you know, if Novelis net debt to EBITDA starts to come down in Q4, then the console should go down.

Thank you very much. Thank you.

Thank you. The next question comes from the line of Sumangal Nivatia with Quotex Securities. Please go ahead.

Yeah, good evening. Thanks for the chance. The first question on the downstream aluminum business, the $300 margin is multi-quarter high. So is it something unsustainable there or with the ramp up now of the FRP plant, should we sustainably see these sort of levels in future as well?

So, I think, you know, we have been sort of targeting more around the 250. There is also, you know, with the metal premiums and all going up, we have been able to hold our pricing in the downstream. So, I think, you know, we will have to, because the downstream pricing net to the customer is metal plus MJP plus the conversion premium. So high MGP has helped us get those margins on the downstream also up. So, I would, you know, I would say more around 250 is a more sustainable number.

Understood. Just a couple of more clarifications. On the royalty, for how long is it fixed? And, I mean, will it come for review every now and then in terms of percentage of sales?

I don't know, Sumangal. I think that I would expect this to be there for a while at this level.

Okay, okay. But generally, we've seen there is an agreement for three years, five years, and then it is reviewed. So, no such time period. You have any clarity today?

I don't have the clarity. I can check and get back to you. Sure, sure. That's fine.

And I just want to understand for next year, say, FI-28, what sort of domestic coal, sorry, captive coal production are we expecting for the full year, say, from Chakla and Banda?

We are expecting about a million tons from Chakla. Banda will only start from the middle of the year. So I would say about a half a million tons from Banda.

So one and a half for next financial year, FY28, I'm asking for. Yes.

Yes. Okay. Okay.

And just last thing, do we expect any contribution from Aditya Refinery and the Phase 1 smelter anytime next year or it's largely going to be end of year and then FY29 contribution?

I think FY29 because it commissions December to January of this fiscal, sorry, next fiscal. So I would put FY29 as the full contribution, meaning full numbers coming in.

Got it. And just one last bookkeeping, there's an intercompany profit in the India financials. What exactly is this? It's increased significantly quarter-on-quarter, around 750-odd crores.

Yeah, I think that's because of intercompany eliminations because when upstream sells to downstream. And there is a mismatch between the price at which it was bought, and then we have to revalue if the LME goes up. So that is sitting in that correction there. Again, better Subir will explain to you offline the details.

Sure, I will follow up. Alright, thank you and all the best.

Thank you.

Thank you. Next question comes from the line of Pallav Agarwal with Antics Talk Broking Limited. Please go ahead.

Yeah, good evening, sir. So the first question was, is there any division to our copper quarterly EBITDA guidance? Do we expect sulfuric acid prices to stay elevated?

Well, they are staying elevated, so I think it would be fair to say a similar number like Q1 for Q2.

Okay, and maybe some tapering off in the second half?

I hope not, because with the TCRC so low, we are counting on sulphur. See, sulphur prices are impacted by West Asia crisis, so its sulphuric acid prices are driven by the sulphur index. So if you follow the sulphur index, it's pretty high right now.

Sure. Also, if you could just give us the quantum of external alumina sales this quarter.

The external energy sales, we actually missed one ship, so it was 138 KT. So, next quarter, we will be selling about 190 KT. We missed one ship sale, that's why the volume is 138 this quarter.

Sure, and lastly, have we seen an uptick in global aluminum prices, you know, because of its historic lows, so are they picking up?

They are slightly picking up. I mean, right now, it's around 330, 340. So, yes, it's a slight uptick, yes.

Yeah, thank you so much. Thank you.

Thank you. Next question comes from the line of Indrajeet Akarwal with CLSA. Please go ahead.

Hi. Firstly, a bookkeeping question.

How has the cash cost been quarter over quarter in

this quarter, and how do we expect this next quarter?

Yeah. So, you know, I think this quarter, it was up by 5% Q1 versus Q4. Actually, around 4%. I think I had guided 5%. It came in more or less at the same level. And Inderjeet, I think, actually, we benefited from some of the low-cost inventories during quarter one. And quarter two, the coal prices in the northern region have gone up in the monsoon period. So we are expecting maybe another 5% to 6% increase Q2 to Q1.

Sure, this helps.

Secondly, if you can help with what is happening in the MJP physical market premiums.

See, MJP is, yeah, sorry, go ahead, please, finish your question.

So, that has been elevated for a while, right? So, how do you see that panning out?

So, the MJP is up because, you know, the Middle East supplies to Japan, Korea have been impacted. So, I think that as long as that metal is out of the market, the NJP will stay slightly high, and probably next year it will come down once mid-lease smelters are back.

So, are we changing our domestic and export sales mix because of this, or not?

No, I think that, you know, we certainly are trying to, on the exports, We try to get as much as we can, but no, I mean, because of our downstream requirements as well, and the Indian market is also still giving us a fairly good return. So I think we will try to catch a bit more exports, but not significantly change. No. Yeah.

Thank you. Next question comes from the line of Amit Lahotier with Aditya Birla Capital, Institutional Equity. Please go ahead.

Thanks. My first question is on the copper business. So, given that TCRCs continue to remain negative and byproduct prices are also normalizing, especially gold, and when China is not closing its excess melting capacity, how do we think about the backward integration plan in the medium term? Can we look for more copper deposits within the country and move towards self-dependence for the concentrate supply? That's my first question.

We are trying to do that. We have got one copper exploration block that we are actually evaluating and drilling holes right now. And we are expecting some more blocks to come. We are looking at copper mines around the country and in the neighboring countries. The copper mine prices, if you go to South America, Australia, at these elevated LME levels is very high. And we have got 85% of our concentrate requirements blocked in. So it's not a question of, can we get concentrate? We will get the concentrate. So then the question becomes, why would you go and pay money to get an equity in a mine at these elevated prices of LME? There's no problem with the security of supply for concentrate is what I'm trying to say. And the backward integration, we are trying to look for mines, we are exploring mines within the country.

So, any timeline when we could have some of the blocks ready with us, maybe is it two years or is it like five years from now?

I think, you know, this block that we are evaluating, we'll get to know in another year. The preliminary samples are looking good, but the extent and the volumes, which will probably take another year to evaluate it.

Sure. My second question is on Novelis. As we target net leverage of four times, which is essentially a function of either net debt coming down or EBITDA going up, and given that we are close to $2 billion of EBITDA run rate, which implies that $8 billion of net debt, we are already pretty likely at four times. So can we rather not expect a level which is well below four times?

Dave, I think we got the question in your call as well.

Yeah, so I've already said that based on all the visibility that I can see right now, we will be below four. Now, your other question is about, you know, what is it, you know, between a function of Lower net debt and EBITDA, that's what? I mean, we will be releasing some cash into the system. Why? Because we will get more insurance returns. We will release some working capital as our supply chains normalize. That basically brings in more cash and reduces net debt, cross debt as well, because our short-term borrowing facilities like ABL will go down. So it's not one factor, it is both factors that will help us move in a positive direction and that's right, I mean from a level of 4.5. And we are saying it will go, and by the way, the peak will be probably a little bit higher at the end of September. That will be the peak net average. So from there for it to come down, you know, so sharply, I mean, it has to be a function of both. Sure. Thanks, Dave.

Perfect. Thanks. Thank you. Next question comes from the line of Ritesh Shah with Investec India. Please go ahead.

Hi. Thanks for the opportunity. A few questions. First one, no one is, would it be possible to quantify the extent of working capital to these or next recorders?

Dave. Dave. Sorry, I wasn't mute. Sorry.

Yeah, I mean, you know, it's difficult to be a very precise, but I think that three to four hundred million is something that...

Your voice is breaking. Can you come in the range and talk?

Oh, one minute. One minute. Give me a moment. Let me see. I'll just keep my headphones off.

One minute.

Sure. Thank you.

Are you getting better now?

Yes, please go ahead. Okay.

All right. Yes, so what I was saying is that, look, I mean, being very precise right now is a bit difficult. We are working on many fronts, but if you want something directionally, I can see 300 to 400 kind of the system in the next couple of quarters, which is a reduction of inventory. But also instead of reduction of payables, because, you know, we have been buying a lot of third-party material, and, you know, as we normalize our working capital cycle, you know, all the payables on that account will go away. So net-net, I think for monitoring purpose, you can take 300 to 400 over the next couple of quarters. We'll see if we can do better than that. Sure.

My second question is, I think you had a prior question on tariffs of $70 million. If you could put in context, how does USMCA stack up for things? So there's certainly a yo-yo going on between the government over there, between the Canadian and the US government. So what is the sort of impact? In this $70 million, so basically you did indicate that $70 million can actually go towards nil by end of the fiscal. So what is the underlying assumption with respect to the material which moves to Kingston and back to U.S.?

Yeah, so it has nothing to do with the U.S. NCA, to be clear. But when I say that it will go down as we normalize the supply chain, it's that it will depend less on imports, and imports attract 232 tariffs. Okay. So basically, our 232 net status will go down by the end of the year because of less dependence on imports as, you know, Oswego normalizes and post that our supply chains normalize. So it's as simple as that. As far as USMCA is concerned and global status, honestly, nobody knows. This is going to be a bit long-drawn from the best that we can read in the current environment, so we're not expecting that to be any major impact. If something happens, we'll have to see, but right now, there is no basis to believe that anything quick will happen there.

Sure. And this third question on payment, we indicated that we have certain contracts until end of the year. We have kept certain contracts open. I just wanted to have your comfort, assuming, say, 9.2% VAC for Novelis. Will we be able to cover our cost of capital over here? The ask will be significantly steep, upwards of $1,000. So are we still comfortable over here?

We are very comfortable. We don't agree with the 9%, honestly. Our rate is lower. But I can give you a very confident assurance that we will cover the cost of capital. This project has potential. I mean, despite the higher cost that happened, this project has potential to unlock value. So, on that front, we are very confident.

If you can help me correct on the VAC numbers, should we bake in, say, 8, 8.5?

I mean, it is not 9. It is light in the high. We don't do this, but, you know, I mean, all that I'm telling you is that our cost of capital is not 9. It is lower than that. If you want to take 8, you're not far off.

Sure, that helps. My second question is for Mr. Pai. Sir, when we look at the KPEX that we have announced for India operations, when we look at KPEX intensity, specifically for the Sambalpur smilter, on a pertinent basis, it looks very steep as compared to the recent announcements in the country. I presume a part of it could be because of RTC facilities that we have, or I'm not sure whether we have coupled downstream assets also inside that KPEX. So, what is the best way to appreciate this?

I think that, you know, I think I've answered now to a couple of media people as well. Don't go by CapEx by people announcements. Go by CapEx for people who actually have done the projects. I think, you know, just making an announcement, I'm going to do X in X. I think the reality only happens when you actually place orders and, you know, there's been reality on the ground of what has happened with inflation, metal prices and all that. So my only thing is that whatever we say and do, we have calculated and we are quite sure of it. What others have claimed and said, those are announcements, in my opinion.

Perfect. And just the last question on ESG, there's a recent proposal with respect to a single default value on carbon. This is more to simplify CBAM and avoid distortions. If there is a single default value for, say, India, basically, how should one look at it? Specifically, we are focusing on ESG and our KPIs is also high. So if something of this sort comes, how are we approaching it?

I just wanted to sort of a little bit challenge. I don't think our capex is high. If you look at any of the Western world smelter announcements and the cost, I think we are highly competitive. The second part, when you say single pass, are you talking about the cost of carbon?

Yes, carbon intensity per ton of aluminium.

No, per ton of aluminium, look, there is no single number there. People are, you know... They have taken like six tons per ton to be sort of the limit at which they will start to say this is low carbon aluminium. But let me be clear that there is no consistency across any of the markets today on what really constitutes low carbon aluminium. And if you look at the Platts index, the sort of upside on low carbon aluminium is $15 to $25, which is negligible. So I don't think that right now what worries me more is things like CBAM, where there is an actual price of carbon, which is found out by trading on the European market, or there's a cost of carbon actually that developing in India on the CTS platform. So I think those are the things to watch, because in Europe, it's more like 80 euros per ton of carbon, which is pretty high. Sure.

Just the last two questions I'll squeeze in. One is outlook on alumina, and secondly, specifically on bauxite, I think Bapimalli, we have adequate lease life. There were two other blocks, Damchua and Surbena. Would you like to comment on what the status is over there and any color on basically participating in the bauxite auctions which are going on in the country?

Have you seen the results of the auction that just finished today? So, Karlapath just finished at 175 premium, which takes the cost of bauxite like 8,000 rupees a ton. So, let me say that we are not new entrants to this field. Again, we have bauxite mines in Chhattisgarh, Jharkhand, and Odessa, and we will maintain, I think, a far more prudent financial way of looking at how we participate and what we are prepared to pay. And those two mines you mentioned, I've never heard of them. Okay, sir, I'll send you a mail on that, sir. The Odisha options are ongoing right now. So, Karlapath just finished and there are other four more mines that will happen over the next month. Okay. Thank you. And on Elevina Outlook... So, alumina, look, the prices are around $330, $340 now. I think that there is, as long as the Middle East smelters are out, that alumina, because that's the largest third-party alumina market, because China is more or less self-sufficient now. So, I think that, you know, until the Middle East smelters come back, it will remain in that range.

This is helpful. Thank you so much. All the very best.

Thank you.

Thank you. A reminder to all the participants, please restrict yourself to two questions. Next question comes from the line of Rahul Gupta with Morgan Stanley. Please go ahead.

Hi, thank you for taking my question. So, if you remember, last year in your analyst day, you had guided to four times of your EBITDA for downstream business in India by fiscal 30. Now, if I look at fiscal 25 and 26, cumulatively is around 36 to 38 billion rupees of EBITDA. Now, can you help us understand how are you planning to get to 145 to 150 billion rupees of EBITDA in four years? And to that extent, how should we think about margins for downstream aluminum and copper business? Thank you.

So first, let me clarify what we meant by the downstream. So in that downstream, we include aluminum downstream, aluminum specialty sales, as well as the copper downstream. So, these three put together is what we consider the Indalco downstream business, and that, we said, is going to go 4x, not just the aluminium downstream.

No, that's true. I take into account all these three. I'm just giving an example that when you talk about $300 are not sustainable for downstream aluminum and maybe $250 is more sustainable at least beyond the near-term volatility. How should we think about it maybe from a fiscal 29-30 perspective? And how should we think copper business ramping up beyond the near-term benefits?

So, again, the 250, I said, was for the remaining quarters of this year because Aditya FRP is just ramping up. So, I think the longer term aluminum downstream EBITDA for ton, we have always said, is going to be over $300. And I think that what we probably will have to do is to give more clarity on the copper downstream because today we merge it all together. So, I will try to give more clarity on the total downstream probably in the next quarter. You will see that we are progressing quite well. The margins on that downstream time tend to be much higher than what we were expecting. The real challenge there is getting the products qualified and the volumes going up on the downstream side.

That's reassuring. So what the thing that we are trying to understand is that how should we model from, say, 40 odd billion rupees to 140 odd billion rupees over the next three, four years? But yeah, we'll wait for more color on that. My final question is, can you help us understand more in detail how to look at the royalty payments that you're talking about? I'm sorry to harp on it again, but just to understand this better, if you have any clarity on this.

No, I don't have any further than what I said. I mean, the brand is held by Builder Group Holdings Private Limited, which has not in the past charged any royalty. Now, we are putting in a framework where royalty will be charged, investments will be done to enhance the brand, and it has a percentage of the revenue capped at 225 crores a year. So, Hindalco and Novelis will pay 225 crores per year.

Yeah, no, that I understand. Sorry, one follow-up on this. Does this in any way distort the dividend payout policy for the company?

No, no. I mean, just again, I'll repeat, this is significantly below any materiality point, I'll go. It doesn't change capital allocation, dividend, nothing, no. Got it.

Thank you so much. Wish you all the best.

Thank you. Next question comes from the line of Vikas Singh with ICICI Securities. Please go.

Good evening, sir, and thank you for the opportunity, and congratulations on a very good set of numbers. Sir, my question pertains to the insurance claim in Mabale. If I remember, we claimed that at least 75% of all the business losses would be recoverable from the insurance claim. So since we got the first Sancher, Any idea if, so, what is the total sum which we will get, and how this will be coming to in the next quarter, or how this will be spread out in the next few quarters?

Yeah.

Dave?

Yes. So, I think that we have explained that. So, look, as of the end of this quarter, Our cumulative cash flow impact has been of the order of 1.4 billion net of all recoveries, which is 300 million so far. We expect steady insurance recoveries. It is almost impossible to exactly time them. It's a process. Net-net, what I can guide you is that at the end, when all insurance recoveries come, our net loss, cash impact on the fire will be about $600 million, right? So the $1.4 billion impact so far will keep coming down with insurance recoveries, and at the end, we'll be left to bear net about approximately $600 million. Now, timing, we expect, as I said, steady recoveries, but a couple of hundred million may go into the following fiscal year, i.e. fiscal year 28, but a good, decent recovery will happen within this fiscal year.

No good, sir. Sir, I probably missed out on our total hedging on the aluminium side as well as the cost inflation in the Q2. If you could repeat that, Simta?

I'll repeat it. So, for FY27, we are hedged 29% at $3,004 a tonne and the currency 18% at $91.63. Our costs went up by about 5% Q1 to Q4, and we are expecting another 5-6% Q2 to Q1, in rupee terms.

Now, just one clarification, if I remember correctly, last quarter, we said that we have stopped hazing once the war has erupted. So, while this is still on the blend, seems to be on a lower side, so just...

No, no. I think this year, if you take FY27, we stopped because it's in a deep backwardation. So, this year, we are not adding any more. The hedging that we are doing from now on is for FY28. FY27, if you take the number that I had last time, and now there is no change.

Noted, sir. Noted. And for FY28, how much is hedged? At what price?

So, 28, currently now, FY28, we are at, where are we? 21% at 3160. And we are trying to catch levels at 3200. Our view on FY28 is that once the Middle East smelters come back, we think that 3200 is a good level for FY28. It's a high capex year for us, so we want to protect our cash flows for FY28.

Very well, sir. Thank you, and all the best for future.

Yeah, thank you.

Thank you. Next question comes from the line of Rajesh Majumdar with 361 Capital. Please go ahead.

Yeah, thanks for the opportunity, sir. My first question is on the copper smelter expansion. With the current crisis going on in the concentrate market, how, I mean, bad or good is the timing for the copper smelter expansion? A related question is that can we be using scrap instead of concentrating the smelter to get a different product mix? And you have the smelter going to be commissioned in FY21, yeah.

Really, my theory always has been that you should do a smelter when it's the most adverse condition, because by the time the smelter comes up, it will be three years out. So, we look at these things in the long term, and I think that... If you look at the downstream copper demand in India, you look at the supply chain of precious metals and all that, we think it will still give us a good return. And having the capacity in India, where the market demand is very strong, we think will be economically beneficial. On the scrap, yes, the smelter uses some scrap, but we also have the scrap melting project in Pakhajan commissioning this year. So we'll be using quite a lot of copper scrap as well. And that is certainly more financially viable.

And what are the economics of the waste recycling project, which is going to commission in 5.7, a brief idea on that?

So actually, you know, we'll have to wait till some of these metals that we're looking at comes out. But on a pure copper term, the return right now is quite attractive compared to the copper smelting. And when I say copper smelting, I'm taking the sulfuric acid sale along with it. It's still recycling is quite more attractive than that.

You see, if I pay you down to a kind of payback here, it will be possible for you to give that on the research.

So the IRR of the project is in the high teams. So that should tell you a payback.

That's useful. And so my other question is on Aditya Aluminor refinery, because that is already 95% purchase order has been played, and that will come probably somewhere in the middle of FY28, if I'm not mistaken. So I think maybe for a year, we'll be... Okay, so, and because Aditya Aluminium smelter will not come before FY29, so what is the kind of emergent alumina will be selling, say, an FY28 and, you know, that kind of filler, or FY27, FY28?

The first, the 180 pots of Aditya smelter will come at exactly the same time as the refinery coming up. The expansion is in two phases, 180, 180. The first 180 will come in December of 27. The next 180 will come in December of 28. We will still be net long of alumina of about 800, which we will continue, which is just our position today.

And sir, can you give me the combined impact of the cost savings of the captive coal mines, Chakla, Banga, and Minakshi, then fully commission? What is the combined impact of the coal in total basis of aluminum making cost?

I think I'll leave it at to say that it will be fairly attractive. I think you will see it in our results as they come in. Thank you.

Is it possible to give up, you know, per ton cost for a 528 reduction on the coal of 1.5 or whatever, 1.6 million tons you talked about from September?

No. No, no. I can't. I won't do that.

Thank you.

Thank you. Ladies and gentlemen, due to time constraints, this was the last question. You can connect with the IR team for your further questions. I now hand the conference over to the management for closing comments.

Thank you very much for listening, and I think that the important part to note this quarter, besides the numbers, was that all the sectors of our business, upstream, downstream, novelists, copper, did very well. And I think the significant part for us was the strength of Novelis' performance in Q1, which I think is going to get better as we go forward this year. So overall, I think that, you know, Hindalco is poised for a good FY27. Thank you for your attention. Thank you.

On behalf of Hindalco Industries Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.