Hindalco Industries Ltd (NSE: HINDALCO) Q2 2025 Earnings Call dated Nov. 12, 2024
Corporate Participants:
Subir Sen — Head of Investor Relations
Satish Pai — Managing Director
Dev Ahuja — Chief Financial Officer
Steve Fisher — President and Chief Executive Officer
Analysts:
Sumangal Nevatia — Analyst
Amit Murarka — Analyst
Amit Dixit — Analyst
Indrajit Agarwal — Analyst
Tarang Agrawal — Analyst
Parthiv Jhonsa — Analyst
Ritesh Shah — Analyst
Ashish Kejriwal — Analyst
Prateek Singh — Analyst
Pathanjali Srinivasan — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Hindalco Industries Financial Year 2025 Second Quarter Earnings Conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Subir Sen, head of Investor Relations at Hindalco. Over to you sir. Thank you.
Subir Sen — Head of Investor Relations
Thank you and a very good afternoon or morning everyone. On behalf of Hindalco Industries, I welcome you all to this earnings call for the second quarter of the financial year 2025. In this call we will refer to the Q2 financial year 2025 investor presentation available on our company’s website.
Some of the information on this call may be forward looking in nature and is covered by the Safe Harbor language on slide number 2 of the said presentation. In this presentation we have covered the key highlights of our consolidated performance for the second quarter of financial year 2025 versus the corresponding period of the previous year. A segment wise comparative financial analysis of Novelis, India Aluminium and Copper business is also provided. The corresponding segment information of prior periods have also been restated accordingly for a comparative analysis.
Today we have with us on this call From Hindalco’s management, Mr. Satish Pai, Managing Director and Mr. Praveen Maheshwari, 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 question and answers. Post this call, an audio replay of this conference call will also be available on our company’s website.
Now let me turn this call to Mr. Pai to take you through the company’s performance in the second quarter of fiscal 2025.
Satish Pai — Managing Director
Thank you, Subir, and hello everyone. Thank you for calling — joining Hindalco’s earnings call today, I’m happy to share an incredible milestone for Hindalco. We retained our leadership position in the S&P Corporate Sustainability Assessment Ranking 2024 for the fifth consecutive year. Our score of 87 out of 100 was an improvement to our last year’s score of 78, and our highest score till date. Our commitment to sustainability, responsible practices and innovation continues to drive us forward, and this recognition reflects the hard work and dedication of our teams across location.
On slide 5 to 9 of this presentation, you can see our achievements and progress across metrics of ESG for this year versus the prior period. I will now take you through some of the key highlights in this quarter. In Q2 FY ’25, 79% of the total waste generated was recycled and reused. We achieved recycling of 111% of bauxite residue excluding Utkal, and 99% of the ash in this period. I am pleased to share updates on our sustainable water management initiatives key to our environmental goals.
In partnership with CII Triveni and following NITI Aayog’s Water Positivity Framework, we are undergoing certification assessments at five sites — Aditya, Utkal, Hirakud, Alupuram and Belagavi. This is a vital step towards ensuring that that these facilities actively contribute to regional water replenishment.
On zero liquid discharge, 15 of our 19 sites now meet ZLD standards, eliminating wastewater discharge. Our projects at Kuppam and Renukoot are on track with target completion in FY ’25, enhancing our environmental performance. Additionally, we achieved a notable progress in water recycling in H1 FY ’25. We recycled and reused 9.34 million cubic meters of water which is 25% of our total water usage of 37.74 million cubic meters, showcasing our commitment towards conservation of water. These initiatives highlight our dedication to efficient resource management and our commitment to supporting sustainability in the communities where we operate.
On the biodiversity front, we have completed a pilot project at Renukoot to remove the invasive species of plants, replacing them with 2,000 native saplings. Additionally, biodiversity management plans are under assessment for three plants and 11 mines. We have already implemented BMPs at 21 locations covering nine plants and 12 mines. These initiatives demonstrate our commitment to preserve and enhance local ecosystems across our operations.
Our total renewable capacity now stands at 183 megawatts primarily from solar and wind. Recently we commissioned 10-megawatt solar project at Taloja. We are set to add another 6 megawatts and 9 megawatts of solar projects, and a 100-megawatt hybrid project with storage in the first half of calendar year ’25. This aligns with our target to achieve 300 megawatts of renewable capacity by H1 of calendar year ’25.
Our aluminium specific GHG emissions was recorded at 19.62 tonnes of carbon dioxide for producing a ton of aluminium in this quarter, which was flattish compared to the same period last year. On safety, our LTIFR was recorded at 0.29 in H1 which was higher compared to H1 of the last financial year. We continue to focus on reducing the LTIFR by continuously upgrading our safety enhancements and monitoring systems. We are very sad that we had one fatality of a contract workman that was recorded at our Indian operations this quarter.
Let me now give you a glimpse of our quarterly consolidated performance this quarter versus the same quarter of last year on Slide 11. This quarter’s performance on a consolidated basis was driven by record beverage packaging shipments at Novelis, and better cost control in the Aluminium India business backed by a continuous record performance by the copper business. Our consolidated business segment EBITDA was up 24% year-on-year at INR8,564 crores, whereas our overall reported EBITDA was up 49% year-on-year at INR9,100 crores this quarter. The consol net profit after tax was 78%, up year-on-year at INR3,909 crores this quarter.
At the Hindalco India business level, our overall reported EBITDA was up 100% year-on-year at INR5,139 crores this quarter. The net profit after tax was up 135% on a year-on-year basis at INR2,850 crores.
In our Indian aluminum business for the second half of FY ’25, we are currently hedged at around 30% commodity at a price of $2,579 per tonne, and around 15% of the commodity is at a zero collar with a bottom of $2,262 and a ceiling of $2,547 per tonne, and we have hedged around 15% of the currency at INR88.
On the balance sheet side, our consolidated net debt stands at INR36,033 crores. In the India operations, we have a net cash of INR2,269 crores, while Novelis’ net debt stands at INR39,261 crores at the end of September 2024.
Hindalco, the consolidated level continues to maintain a strong balance sheet with a net debt to EBITDA well below 1.5 at 1.19 times at the end of September 2024, which is lower than the corresponding period of last year. All our strategic capex in India is mapped with cash flow generations in the business, and is in line with our capital allocation policy.
Coming to our business wise performance this quarter, Novelis shipment was at 945 Kt versus 933 Kt in the prior period, up 1% year-on-year, backed by record beverage packaging shipments. Novelis delivered a quarterly EBITDA of $462 million, down 5% year-on-year, due to reduced metal benefits from rising aluminum scrap prices, an unfavorable product mix, and a $25 million impact from the flooding at our Sierre plant. The result in EBITDA per ton stood at $489 versus $519 in the previous quarter, down 6% year on year. All our expansion projects including the Bay Minette project in Novelis are on track, with a new 240 Kt automotive recycling and casting center at Guthrie being in the initial production and ramping up phase this quarter.
On Hindalco’s India upstream aluminum performance this quarter, shipments were down 2% year-on-year, and revenues were up 16% year-on-year. EBITDA was at 79%, up year-on-year at INR3,709 crores primarily supported by lower input costs and favorable macros. The resultant EBITDA per tonne stood at $1,349 per tonne, higher by 80% year-on-year. EBITDA margins were also higher at 41% this quarter and continue to be the best in the global industry.
This quarter, the India downstream aluminum quarterly shipments were up 10% year-on-year at 103 Kt on account of market recovery. EBITDA was down 1% year-on-year at INR154 crores this quarter versus INR156 crores in the prior period. The resultant EBITDA per tonne was at $179 per tonne, lower by 11% year-on-year this quarter, impacted by unfavorable product mix.
Our copper business continues to deliver its best ever performance this quarter as well. The overall metal shipments were at 117 Kt, down 13% year-on-year, of which the CCR volumes were at 90 Kt, down 10% year-on-year. The quarterly copper EBITDA was at an all-time high of INR829 crores, up 27% year-on-year on account of good operational efficiencies coming out of the shutdown in Q1, higher realizations in byproducts like sulfuric acid and higher sales of precious metals. This higher EBITDA includes a one-time favorable impact of derivative accounting as well.
Now let me give you a glimpse of the current broader economic environments on slide 13 and 14. Global economic growth remains resilient despite some moderation in pace in H2 of calendar year ’24. Pace of global economic expansion remains uneven with the service sector growth holding up, while manufacturing momentum is moderating. While the U.S. is well positioned for soft landing, economic activity in China and the euro area continues to remain sluggish. Going forward, IMF projects GDP growth to remain steady in 2024 and 2025 at 3.2%, moderating slightly from the 3.3% we saw in 2023.
Growth in the U.S. is expected to moderate to 2.2% in 2025 from 2.8% in 2024, and in China to 4.5% in 2025 from 4.8% in 2024. Downside risks from increasing geopolitical tensions, negative spillovers from the China slowdown and financial market volatility continue. Disinflation is expected to continue with global headline inflation expected to moderate from 6.7% in 2023 to 5.8% in 2024 and further to 4.3% in 2025. Geopolitical conflicts remain a key risk to this disinflation trajectory.
On the domestic front, economic activity moderated to 6.7% in Q1 FY ’25 from 8.2% in FY ’24. Recent high frequency indicators present a mixed picture. There has been some slackening of momentum with softening manufacturing growth and moderating urban consumer demand. RBI, however, has retained its full year FY ’25 growth at 7.2% owing to encouraging investment activity, steady services growth and consumption spending shaping up for a festival season revival. The central bank expects growth to pick up to 7.4% in H2 of FY ’25 compared to an estimate of 7% in Q2 FY ’25.
Risks to this outlook are geopolitical tensions, geo-economic fragmentation, and volatility in international commodity prices that continue to remain. RBI projects inflation to moderate from 5.4% in FY ’24 to 4.5% in FY ’25, with significant upside risk from adverse weather conditions, geopolitical conflicts and volatile commodity prices. RBI thus continues to remain cautious and is committed to maintaining the 4% inflation target.
Moving to aluminum industry outlooks on slide 15 and 16, starting with slide 15 in China, production rose to 11 million tonnes while consumption held steady at 11.4 million tonnes, resulting in a deficit of 0.4 million tonnes in Q3 calendar year ’24. This steady demand was supported by strong drivers including a 20% surge in solar installation, a 32% increase in new energy vehicle production and a 21% boost in electric grid investment, and an 18% rise in semi-fabricated product export. Despite this, the construction sector continued to face significant challenges.
Looking at the rest of the world, Q3 calendar year ’24 production reached 7.5 million tonnes while consumption was 7.1 million tonnes, resulting in a surplus of 0.4 million tonnes. Consumption remained soft in Europe and North America with continued challenges in the Middle East, particularly Turkey. However, growth in regions like India, Thailand, Vietnam, Brazil, South Korea and Taiwan remained positive. As a result, the overall global production and consumption were balanced in Q3 calendar year 24, maintaining equilibrium in the global market this quarter.
Moving to slide 16 the domestic demand for aluminum in India during Q2 FY ’25 is projected to reach 1.433 Kt, reflecting a robust 7% year-on-year growth. This growth was largely driven by strong electrical demand spurred by increased cable and conductor requirements as well as rising solar energy demand. Packaging demand also provided a boost while the building and construction sector remained stable. However, the automotive sector experienced some softness due to weaker demand in passenger and commercial vehicles. Additionally, imports excluding scrap showed a significant uptick driven by increased solar frame imports and an inventory buildup in anticipation of BIS certification requirements.
The global aluminum FRP demand excluding China is expected to grow by 4% in calendar year ’24 and 6% in calendar year ’25 with demand recovery across all major segments of beverage packaging, automotive, specialty and aerospace. Beverage packaging sector shows strong growth driven by favorable consumption and sustainability trends. Automotive growth reflects steady to positive outlook for aluminum in North America. Electric vehicles continue to gain share globally but are growing at a more tempered pace.
Specialty products align with global GDP aided by a construction boost from lower interest rates, though automotive specialty demand is softer. Aerospace remains strong with high orders despite OEM supply chain constraints and labor issues. The Indian FRP demand in financial year ’25 is expected to grow by 7% to 8% on a year-on-year basis, led by strong demand from the packaging segment.
Turning to the copper industry on Slide 18 and 19, in Q3 calendar year ’24, the Chinese production reflected a growth of around 4.5% year-on-year, reaching 3.1 million tonnes, while consumption increased by 7.6% year-on-year at 4.1 million tonnes, resulting in a deficit of nearly 1 million tonnes. In the rest of the world, production increased 1% year-on-year to 3.6 million tonnes, while consumption increased by 0.8% year-on-year at 2.7 million tonnes, leading to a surplus of 0.9 million tonnes in Q3 calendar year ’24. As a result, the overall global production of copper increased by 2.6% at 6.7 million tonnes and consumption increased by 4.7% at 6.8 million tonnes, leading to a deficit of 0.1 million tonnes this quarter.
On the domestic front in Q2 FY ’25 market demand increased by 9% year-on-year at 218 Kt versus 201 Kt in Q2 FY ’24. Domestic producer share decreased to 63% in Q2 FY ’25 versus 73% in the same period last year. In the first half of FY ’25, the concentrate availability was limited and spot TC/RCs remained at a historically low level. However, recent global smelter disruptions have led to slight improvements in spot TC/RC. The annual TC/RC benchmark negotiations for calendar year ’25 are scheduled to commence during the World Copper Conference and the CESCO Asia Week in Shanghai this month.
Details of 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.
Let me now conclude today’s presentation with the way forward as India Business and the Novelis growth story. We are making significant progress to increase our downstream capabilities to meet the growing demand for high-value products in India. Our Aditya FRP project is set to commission in FY ’26, taking our total downstream capacity to 600KT. We are also creating facilities to develop high value-added products in aluminium like AC coated thin battery foils, battery enclosures that are targeted towards enhancing our India downstream margin.
On the upstream side, we have announced a smelter expansion of 180 Kt powered by renewable energy sources resulting in a total upstream capacity of 1.52 million tonnes, allowing us to boost our sales of low carbon aluminum in the coming days. With definitive agreements now signed with ONCG, we are moving forward with our Greenfield alumina refinery of 850 Kt, that will supply low-cost alumina to our existing smelters, and will also lead to substantial cost savings and improved margins. In addition, we are also in discussion for long term partnership to export our surplus alumina that will result in strengthening our international presence in alumina sales.
In copper, our plan to expand this smelting capacity by 280 Kt to 300 Kt will lead to an upstream capacity of around 800 Kt, ensuring the full benefit — full integration benefits of our CCR mills while capitalizing on India’s growing copper demand. In January of 2025, we are set to launch India’s first 25 Kt greenfield inner group tube plant that will help in reducing the country’s reliance on imports of IGT for manufacturing air conditioners. In addition to this, we are also creating India’s first e-waste and Copper scrap recycling facility with a capacity of 50 Kt that will drive a formal recycling ecosystem in the country.
We are also building new capacity for high performance alloy rods and battery foils that will help us — help position us to capture the opportunities in these additional market segments in copper. In Novelis, our 600 Kt Greenfield Bay minute project is on track with steel installation and equipment foundation work rapidly progressing. This is expected to be completed in the second half of calendar year ’26 with 420 capacity targeted to beverage packaging which is fully contracted. The near and long-term demand for beverage packaging across regions remains very strong, growing at an approximate 4% compound annual growth rate through 2031.
Novelis’ 250 Kt Guthrie recycling center is ramping up to enhance the overall recycling inputs that will help mitigate near-term pressures on scrap supplies in North America. Thank you very much for your attention. The forum is now open for any questions you may have.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Sumangal Nevatia
Yeah, thank you for the chance, and congratulations on great set of numbers. My first question sir is on the capex. So, on the slide, there’s an announcement for the alumina smelter and even the copper. So, just want to know all the three individually what is the capex you’re looking at? And over the next two, three years, how is the scheduling of the spends lined up?
Satish Pai
Yeah, so Sumangal, the two smelters which I have to say are both brownfield because the aluminium smelter expansion is in Aditya and the copper smelter is in Dahej. So, both these will be roughly a $1 billion each. So, on top of what we have already declared, if you put $2 billion so we are roughly going to be between $4 billion and $5 billion of declared projects, and majority now are going to be on the upstream side because we finished most of our downstream projects, and we are going to let them ramp up. Now these projects are going to happen over the next three and a half years. So, we believe that over these three years, we will probably use the cash we are generating but also probably in India we will probably have to add debt of about $1 billion to $1.5 billion over these three years, which taking into account our sort of zero net debt to EBITDA place where we are now, should be fairly comfortable for us to manage. But we believe that the way we are and the demand we see for aluminium and copper, and the fact that we’ll be largely doing brownfield expansions for smelting, I think we should take advantage of our strength of the balance sheet and our market position.
Sumangal Nevatia
Sir, just to get some more details. So, FY ’29 is the year when we expect these projects to kind of come on stream. So, three years of gestation, ’26, ’27, ’28.
Satish Pai
Yeah, I think that we are saying that the aluminum smelter should come on stream in October of ’27. Okay, and the copper smelter will be in ’29.
Sumangal Nevatia
Understood. And sir, the refinery?
Satish Pai
The refinery will be also more or less in coming on stream in ’27 calendar year.
Sumangal Nevatia
Okay, FY ’28, Got it, got it. And sir, given this smelter will be powered by renewable energy what is the cost difference at the hot metal level we are looking at? And generally for these three projects what sort of IRR are we baking in?
Satish Pai
Yeah, I mean, as you know Sumangal, the IRR will depend on what sort of alibi you are assuming. But even with our conservative estimates, we will be in double digits IRR, and I think the power cost because three years out when we look at the blended power cost in that whole Aditya complex it’s not going to be much higher than the inflated rate of coal cost that we had seen so far. If you take our current power cost and you use the normal coal inflation by 6% that we see every year, this power cost is more or less in that same line. The only difference being the renewable power then gets fixed at the same rate for next 20 years.
Sumangal Nevatia
Understood. Understood. If I may just ask one more question that is on Novelis. So, there’s been a lot of investor concerns now after the caution on scrap spreads which we spelled out at the time of Novelis result, is it possible just to quantify in the near term what sort of pressure are we looking at in terms of impact on margins EBITDA per tonne, at least in the near term. I mean, some quantification would be very useful, sir.
Satish Pai
Dev, you want to take that?
Dev Ahuja
Yeah, yeah. So, Sumangal, this is exactly where we don’t want to go right now. Because we are [Technical Issues] the size of the situation. We want to be responsible if we say anything and if we force ourselves to quantify anything at this stage, we’ll be making an error of being either on the two aggressive side or two conservative side. So, we are trying to ensure, trying to size up the situation and see where spreads go. We need to see one or two more cycles, so you’ll have to hold off that and as soon as we have some clear visibility we will come back. I mean, once again I will say this that there are a number of mitigation actions at this time in the pipeline, and we are going to accelerate, but in terms of to give any quantification we would rather wait.
Sumangal Nevatia
Understood, understood. Just to stretch this point in a different direction scrap prices which used to be around 60%, 65% of Midwest in U.S., is around 70%, 75% now and this used to be the case five years back. So are we, I mean, of course the mitigation efforts apart, are we looking at structurally over the next few years, scrap prices now being in the range of 75% odd, like the previous regime, or we expect this also to go back to 65% of what we see during COVID years.
Satish Pai
Well, so what we have is short-term visibility on everything that we see, on the macros with the change in the China policy. So, in principle if the China policy states the way they are talking about it and reason to believe that they will back away from that, then spread and scrap are going to stay elevated. There is also more competition coming for scrap, which will also mean that there will be some pressure on scrap prices. So, these are things that at least from all the visibility that we have will be dead. Our job at this point is to just accelerate all the mitigation actions, open up new sources of supply, and thereby, you know, mitigate the impact. So, without getting into specific quantification which would not very responsible on this stage, this is a direction I can give to you.
Sumangal Nevatia
Got it. Yeah and just one last thing, as a thumb rule is it possible to explain 5% or 10% higher scrap prices, how does it impact EBITDA per tonne.
Satish Pai
No, we [Technical Issues] into specifics of that guidance, Sumangal. No, I mean we don’t want to get into that qualification.
Sumangal Nevatia
Got it, got it. This is very useful. Thanks for patiently answering all the questions, and all the best.
Operator
Thank you. [Operator Instructions] We have the next question from the line of Amit Murarka from Axis Capital. Please go ahead.
Amit Murarka
Thanks for the opportunity. Just going back to the Novelis question, a lot of our contracts are contract based on contracts, right. And if my understanding is not wrong, a lot of them are on a cost-plus basis as well. So, in that context, just wanted to understand like is it also a case or possibility that sometime down the line the higher scrap pricing in a way is passed on to the refreshed contracts that happen with the customers, like how we saw for energy inflation.
Dev Ahuja
So, are you asking if gas prices are also going to have some pass-through impact? Is that your question?
Amit Murarka
Yeah, yeah, yeah.
Dev Ahuja
Well, so I think that we need to be clear about the operating model. When it comes to inflation accrues, they are related to operating cost. As far as metal is concerned, we pass on the metal cost and market premiums anyway to the customer, you know, so therefore there is no case for passing on anything more than that. I mean, you know, the business model is really to pass on aluminum prices.
Subir Sen
Okay, okay. So, it’s only the energy inflation and all which is part of the contract, and the scrap prices and the differential of the scrap prices all flows into your P&L.
Dev Ahuja
Yeah, it’s not just energy inflation by the way. I mean we have PPI closets. So, it is overall inflation. We have specific energy inflation pass through clauses, that’s a fact. But the general way the contract structured is that they have PPI clauses which cover broader inflation rather than energy inflation to the extent.
Amit Murarka
Understood. Okay, that’s very clear. And also, the guidance that was there for the longer term wherein you had said that you are visible to $600, does that also hold or you would also be willing to kind of reevaluate that and come back later on that?
Dev Ahuja
Yeah. So, as we have been saying that longer term, we did have a clear understanding scrap prices will go up with more competition and all the other factors. So that was something that we expected in our long-term projections. Our heads are more because of the accelerated scrap price increases that we have been seeing. So, to your point, in the longer term we had factored in strengthening of scrap prices. So once again, as we see the markets evolving, we will come back if we want to talk about anything new. Most particularly on the short-term guidance. On the long term, we have a lot more confidence because there are no new factors which we did not already take into account in that guidance.
Amit Murarka
Sure, that’s very reassuring. And just one question on the India business, Mr. Pai, this may be to you, sir. What was the COP in this quarter for aluminium? Looks like it’s fallen Q-o-Q. So could you just spell that out and also give a guidance for Q3.
Satish Pai
Yeah. So, as I normally give, I’ll tell you that the COGS for this Q2 was down by 1.6% versus Q1. The guidance for Q3 is that it could be up by about 1% to 1.5%. Largely we are seeing the coal spot premiums go up a little bit. So, I think that Q3 could be up by 1% to 1.5%.
Amit Murarka
Okay. And in terms of the captive coal mines, what will be the status of Chakla, the startup of that?
Satish Pai
So, Chakla we are right now in the sort of forest clearance stage one. That’s where we are. Meenakshi, we will be starting the exploration — Meenakshi West, we’ll be starting the exploration program in the coming month. And on Meenakshi itself we are still waiting for the allotment to happen to us.
Amit Murarka
And any timelines for the start of the production from these mines.
Satish Pai
Yeah, I think the Chakla we are still hoping to do a box cut sometime in the latter half of next year, yes.
Amit Murarka
And Meenakshi, maybe Meenakshi West maybe ’27, is it?
Satish Pai
Yes, because that’s an exploration block. Yes.
Amit Murarka
Okay, so I’ll come back in the queue now. Thanks very much.
Operator
Thank you. The next question is from the line of f Amit Dixit from ICICI Securities. Please go ahead.
Amit Dixit
Yeah, good evening, everyone, and thanks for the opportunity. Congratulations for a good performance. I have two questions. The first one is again on copper division. We have seen that the copper EBITDA from INR400 crores per quarter. Now it is upwards of INR800 crore for two quarters in a row. In your prepared remarks you highlighted that there is one one-off gain. If you could reiterate that. And also, what kind of sustainable performance should we consider for this division? TC/RC is down but still EBITDA just keeps going higher.
Satish Pai
Yeah, I think that the copper chain because it is so wide, I mean this quarter when the government reduced the duty on gold, we had quite a lot of extra gold sales. I mean, we cleaned out our inventory in selling the gold. Sulfuric acid prices were stronger than what we expected. So, some of these tailwinds were there. So, I think that still we thought about this question. Q3, Q4 we stick to a guidance of around 650.
Amit Dixit
And is it possible to quantify that one-off thing in this quarter?
Satish Pai
We don’t really want to just give you an exact number for that. But if you sort of take that into account our guidance going forward is around 650.
Amit Dixit
Okay, very well. The second question is on downstream EBITDA per tonne. Now while sales have gone up, you mentioned that market was favorable, but adverse product mix caused EBITDA per tonne of downstream aluminium to go down further. So just want to understand, you know, at what could be the trough level? Are we really seeing the trough levels here and what are the product mix pressure exactly in which all sector we are seeing it.
Satish Pai
By the way, the EBITDA per tonne, if you see sequentially and all has been smartly going up, it’s not been going down. I think it’s — you are talking year-on-year, it looked a little bit lower. But I think that what you are going to see, what happened this quarter is a lot of imports came in because people were expecting the QCI to have an impact on imports coming in. So, there was a lot more imports. But I think you will start to see Q3 and Q4, this EBITDA per tonne starting to pick up quite nicely because the local demand is quite strong.
Amit Dixit
Okay sir. Is it possible to let us know the coal mix for this quarter [Speech Overlap]
Satish Pai
Yeah, the coal sourcing linkage was 50, e-auction was 47, and our own mines was about 2%.
Amit Dixit
Okay, thank you so much and all the best.
Operator
Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Indrajit Agarwal
Hi, thanks for the opportunity, sir, and congratulations on a good set of numbers. My question is on the alumina demand-supply balance globally. While you gave a great picture of what is happening in aluminum and to an extent in copper as well. So, where is exactly the bottleneck in alumina globally? What is keeping prices elevated, and by when can we expect things to normalize at alumina level?
Satish Pai
Well, I think you must be following, Indrajit. So, you had this disruption of bauxite supply from Guinea. Then Alcoa declared a force majeure major on their alumina project in Brazil. So, all these are sort of caused that tightness to happen in the market. So unclear to know when it will get sorted out. But that is what has caused alumina prices to jump to $700 per tonne right now.
Indrajit Agarwal
And what is the kind of contracts that you have? Like is it how much is the long term, and if it is long term or contracted, what is the duration of that contract in the sense that what is the kind of realization we are seeing on alumina sales currently, and what can we see in the following two quarters?
Satish Pai
Yeah, I think that you know, most of our alumina is on an N-1 pricing, which means benchmark minus one month, and about 20% is on spot. So, 80% is on that N-1. So, I think that in this third quarter you will start to see the full benefit of the higher prices.
Indrajit Agarwal
Sure. Thank you. This is helpful. That’s all for my side.
Operator
Thank you. We have the next question from the line of Tarang from Old Bridge. Please go ahead.
Tarang Agrawal
Good evening, sir, and congrats on a very strong set of numbers. Couple of questions, one on Novalis and the second on the capex plans at Hindalco, India. So, on Novalis, if while it’s too soon to call out till when the scrap dynamics might work against us but structurally there are negative changes in scrap dynamics. Then from a supplier’s vantage, how amenable are customers in absorbing the cost push going forward?
Dev Ahuja
So, here’s the thing. The fundamentals of the end markets are great. To your point about customers absorbing. Well, I mean, we are having contracts ahead of us which are at much higher prices, and that was all we had already, you know, conveyed to all of you saying that we will see higher prices. They are coming. Just given the positive demand supply dynamics, there could be some more, some more price upsides as we look forward, particularly on the beverage packaging side. That is as far as, you know, the price side is concerned. The rest is what I said earlier. We don’t have so much worries around inflation and cost path. They’re all baked in into the contract as far as metal is concerned. As per the contract, the customers always pay us for cost of prime and you know, local market premiums. That is about all that we can expect. So that’s really how the business structure works. For us, it is about really solving the problem by investing in new scrap sources, that solution to the problem including investing in technologies and you know, really for investment in supply chain. So that’s really the solution to the problem and that’s exactly what we are working on. I hope that helps.
Tarang Agrawal
Okay, I’ll probably connect offline because I was losing you in the middle, but I get a gist of the answer. But for more clarity I’ll connect offline. My second question to Mr. Pai. Sir, you know, India capex, you know, there are two sets of capacities that are getting created. You know, your allocation towards, say backward integration in coal or the alumina refinery are actually fairly lucrative capacities from the point of view of IRRs. But the same math probably doesn’t hold true with all the downstream investments that are coming through, and even for a copper smelter because at 300 Kt, 350 Kt, a billion-dollar investment translates to about $3,000 per tonne. Given that it’s a reasonably working capital intensive business. At the current margins, the matches doesn’t add up. So, I understand that the blended IRR for all these projects is positive, but the question really is then, would it not be more lucrative for the business to probably focus on the upstream capacities like alumina and copper — I am sorry, alumna and say coal right now, and hopefully wait for allocations to the other capacity? I mean, how do you look at it strategically on the financial side? How are you looking at this?
Satish Pai
Yeah, I think that that’s exactly the point. I mean we, these projects are going to come on stream three years down the line. And if you look at the growth rates for both aluminium and copper, copper is actually more stark because India has got a big deficit. So, we have a copper rod capacity of 500 Kt and a copper smelting capacity of 350. And we are putting a new rod mill because India needs more and more copper rod. So, you cannot make rod if you don’t have cathodes. And today, cathodes are coming into India from Japan and elsewhere. So, when we look at the projected demand for copper in India, we are going to get some amount of copper from the recycling facility and some amount from the smelting, because the downstream end of it, as you said, when you put together, it makes a lot of sense, because of the rate at which the copper usage in India is going up. Now the 180 Kt of aluminium is the same story in the sense that we are going to make it with renewable energy, low carbon, high purity, and for that again there is quite a lot of demand and we are getting good premiums on that. So, we think that both these investments, when they come on stream three years plus, with the rate of growth of both aluminium and copper that we are seeing, we think we are going to be in a good position.
Tarang Agrawal
So, you are essentially looking at probably the reasonable amount of margin expansion by the time these capacities come through. And therefore, it’s probably not prudent to look at it from a rear-view lens. Would that be the right way to look at it?
Satish Pai
Especially for copper, if you take today’s TC/RCs and say why are you putting up a smelter? It makes no sense. But if you look at it of taking that cathode, making copper rods, then copper tubes and all the downstream where the conversion premiums are very high, then three years down the road when TC/RCs also pick up a bit to normal levels, you will see that it makes a lot of sense. In fact, I really believe that the downturn is the best time to invest if you have the balance sheet strength. And that is what Hindalco has in India right now.
Tarang Agrawal
Got it sir. And the last question, if I look at China’s demand supply imbalance for aluminum, now looking at the data for the last 18 quarters, and for last 18 quarters, almost 17 of 18 quarters, they’ve been at a net deficit, with demand far outstripping supply. Whereas in the world like China you have a contrary positioning where supply is far exceeding demand. I mean is there something that can be made out of this trend? What’s happening there and what’s not happening in the world? If you could give us a sense.
Satish Pai
So, it’s a very interesting question. So, two important points there. One, you’re absolutely right, China is running at a deficit, and that deficit today is being met by Rusal 1 million tonnes of aluminium coming in from Russia. The second point is that they seem to be quite serious about the 45 million cap, and they don’t want to do more coal fired smelting expansion. So, what they have done which has impacted Novelis is that they are now putting in lot more scrap smelting capacity. So nearly 20 million tonnes of scrap smelting capacity is being put up in China, and hence a lot of scrap is being bought in there. So, this is the two things that you have to make out. Now, over time China has been using more than 50 million, 60 million tons of aluminium. They will have enough scrap of their own. But in the short term, it is creating a tightness in the scrap market because they’re bringing this capacity on stream. So, these are the sort of broad things that are happening.
Tarang Agrawal
Got it. Thank you.
Operator
Thank you. The next question is from the line of Parthiv Jhonsa from Anand Rathi. Please go ahead.
Parthiv Jhonsa
Thank you for the opportunity, sir. Just to take the Indian capex point forward, I believe, you know, somewhere a couple of quarters back you had indicated in one of your Analyst Meet that, you know, the capex is around $760 million which has now been revised today to about say $1 billion. So, is that reading correct or am I missing something out here? Can you just please explain this in detail?
Satish Pai
Yeah, I think that again you are absolutely right. I think on the smelter side, we had put it at around $800 million or so, and yet as we get in the current pricing, I mean even this $1 billion, to be fair, I’m just taking a round number, we are working on the capex, we have to get the quotes and then as we get clarity we’ll give you the exact number. But there is certain amount of inflation on the equipment as well. So, I think that as soon as we get the capex sorted out, and as we are using renewable energy, we do have to do some additional steps to use that renewable energy in Aditya. So, all those are adding into the cost.
Parthiv Jhonsa
All right, so I just wanted to get some clarity because I think I missed early in the remarks. The current hedge is around 30% at about 2,517 and then you have additional 15% at a bottom of 2,262 and a ceiling of — what was the ceiling, sir?
Satish Pai
Yeah, the ceiling is five — one second, I’ll just give it to you. The ceiling is 2,547. It’s a zero-cost collar that we had put in quite early on. I’ve been I think last few quarters mentioning it.
Parthiv Jhonsa
Thank you so much, sir. Thank you so much.
Satish Pai
And on that edging point we have also now hedged about 14% for next financial year at 2,700.
Parthiv Jhonsa
Okay, thank you so much, sir.
Operator
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Ritesh Shah
Hi sir, thanks for the opportunity. A couple of questions. Sir, first is you explained nicely on the copper rods and hence the need for the smelter. But then also there’s a linkage to TC/RC, and TC/RC you did indicate that it has been actually dipping effect. What gives us comfort on TC/RCs three years out, specifically given end copper demand. It’s just like a blue sky scenario. However, when it comes to concentrate supplies, is there comfort that we have which gives us confidence in putting on the smelter, looking at the end value add demand.
Satish Pai
In fact, you know very interestingly some of the big miners are already in discussion with us to sign up long-term contracts for the smelter expansion, because they also want to diversify away from China. So, there are new mining capacity coming in. So, this is very cyclical. If you go back and look at TC/RCs, generally they will go down for a period of time. In this case, copper prices go up and a lot of new mining capacity comes in, and then TC/RCs pick back up to reasonable levels. So, from the outlook we have and talking to the miners, they are quite interested that in India we set up this smelting capacity and they are actually ready to give us long-term contracts with even a floor of the TC/RC in the initial years. Now the other thing you will see is that some of these marginal custom smelters in Philippines and all will probably shut down in this low TC/RC space. Certain amount of that cleaning up will also happen.
Ritesh Shah
Sure. And sir, my second question was on crap. You did indicate that China is looking to process some 20 million tons of scrap. I don’t know, I think the year is 2025-2026. So, the question is, does China have this sort of scrap processing capacity? That is one. Second, I think Dev did indicate that one of the mitigating variables is we focus on technology. I remember we have a recycling center in Germany wherein we have like 18, 20 different types of scrap that we process. Is it something very different to everybody else in the world which gives us an advantage of certain type of scrap, but we will still enjoy a higher discount to LME. And is that number significant to help us tide through this particular crisis? And I have a related question, sir, first, if you please answer this.
Satish Pai
Dev or Steve, you want to take that on the different types of scrap and the impact.
Steve Fisher
Yeah, sure. So, on the first question, China has been setting up the recycling capacity over the years and continues to. And so, the quantity and increase continue to come online as they open up the border to take in more different types of scrap. So, they will have the capacity, as Satish said, to cap the primary aluminum production at 45 million metric tons and start to produce downstream aluminum for recycled material. As far as technology, yes, we do have new technology at our new automotive recycling center at Guthrie, working with Sortera, we have put new — we worked with another company with robots that we put in at Korea. And so when we talk about different technologies, a lot of these technologies are sorting technologies in order to take on dirtier types of scrap or to be able to sort pre and post consumer automotive scrap to get the right alloys that today if we could not take that sortation in, we would not have the ability to consume that scrap. So, it is increasing the different types of scraps that we can process at our facilities which will make a big difference. It’s just going to take some time for us to continue to scale these technologies and put them into not only the new plant but into other plants that we already have in existence. So, lots of work going on with our R&D and ops groups, partnerships across the world, to find ways to continue to get more different types of scrap that we have not been consuming at Novelis, which does give us a competitive advantage.
Satish Pai
[Speech Overlap] Sorry, keep in mind one more thing that there is like 750 kilotons to 800 kilotons of scrap in the U.S. that goes into landfill. As demand for scrap goes up, economics of really preventing the scrap to go into landfill becomes very, very attractive, and there will be more investments coming in to prevent scrap to go into landfill. So, we also expect that given the opportunity, there will be more opening up of this scrap that is now going into landfill that will start become available in any case. You know, I mean it’s just an attractiveness of doing that. So, there are a number of mitigating factors besides all the things that we are doing which will help.
Ritesh Shah
Right. So, just to, just to scratch on this a little bit, you have always indicated that we did expect this coming. Now, given we have the technology to process different types of scrap, can you give some broad numbers on total market sizing for scrap? And out of that million tons, what part of that million tons is something that is unique to us that we can also process, which is more dirtier or the competition can’t process? Just trying to have some comfort on the sourcing and the underlying economics.
Steve Fisher
Yeah, it’s a significant amount of scrap. Oh, go ahead Dev.
Dev Ahuja
No, on the quantification, I’ll just answer that question. So, you can think about this that, and we are talking about U.S. because a lot of the focus is on the U.S. markets. Like there would be about 1.5 million tons of [Technical Issues] half of it goes into landfill. And so, it’s the other half that particularly comes into the market which are grabbed by all the current consumers of scrap. That is a quantification of the scrap volumes that we are talking about. And you know, then it’s about, you know, really you can further get more out of the 750 that is not coming to us today. So that’s really what it is. But let me hand it over to Steve to add anything more.
Steve Fisher
No, just besides what’s going in the landfill, there’s other types of scrap that are getting downcycled, post shredded vehicles, that’s sorting technologies that we’re putting in to be able to take back some of the aluminum, that content that’s in those vehicles back into our processing. So, both pre and post consumer automotive scrap types that are coming. So, there’s a very sizable amount of scrap out there that with the right technologies we can bring into Novelis. But again, this will take time to scale into our operations. So, it will take us some time.
Ritesh Shah
Sure. Can I squeeze one more, sir?
Satish Pai
Yeah, go ahead.
Ritesh Shah
Yeah, so recently I think there has been an amendment in Europe pertaining to regulation of waste shipments. I think that’s also something which is likely to alter the scrap trade patterns. How is it that we are looking at it? Are you looking at European spreads to be far higher as compared to North America going forward? How are we thinking about this?
Steve Fisher
Are you referring to scrap flows or are you referring to primarily aluminum flows?
Satish Pai
No, no, he is talking scrap flows from Europe, there are probably restrictions that don’t allow European scrap to come out.
Steve Fisher
Yeah. So, you know, we, I mean, we do expect a number of different protectionist activities that is going to alter trade flows as it relates to scrap. And this is one of the other factors that’s gone into our thinking of. We need to see stabilization of some of these trade flows as well to understand what some of those impacts are, so that we can be more articulate with our ability to tell you how and when the margins that we’ve achieved in our business will come back ultimately bring this up to that $600 per ton on a longer-term basis. But we anticipate there will be disruption in trade flows due to protectionist activities.
Ritesh Shah
Sure. Thank you so much for the answers. Thank you.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ashish Kejriwal from Nuvama Institutional Equities. Please go ahead.
Ashish Kejriwal
Yeah. Hi, good evening, everyone. Thanks for the opportunity. Two questions. One is in light of our recent announcement of putting our smelters aluminium and copper, what could be our capex guidance for FY ’25, ’26 for India?
Satish Pai
You’re talking about the guidance for next year. I think, see next year it’s going to be probably around. We have not finalized the plans yet, but it’s going to be more like INR7,000 crores, INR8,000 crores is what next year’s will be. This year if you remember, we had guided about INR6,000 crores, and I think we’re going to be around that number.
Ashish Kejriwal
Okay. And so, in this quarter is it possible to quantify how much alumina we have sold at what rate?
Satish Pai
Yeah, we sold 170 Kt, let me just confirm, 197 Kt of third party alumina we sold in Q2.
Ashish Kejriwal
And at what rate sir? Blended rate if possible.
Satish Pai
We don’t give out the blended rates.
Ashish Kejriwal
Okay, no issues. And lastly sir, in this quarter how much hedge volume was there? Because now earlier we used to have 22% at 2550. So is that the same in the second quarter which we realized.
Satish Pai
Second quarter was the same, no? The percentage was in Q2. Yeah, 27%. Yes.
Ashish Kejriwal
So, 27% was hedged at 2550 in this quarter.
Satish Pai
Yeah, 2539.
Ashish Kejriwal
Okay. Okay, good. Thank you so much, and all the best, sir.
Operator
Thank you. The next question is from the line of Prateek Singh of DAM Capital. Please go ahead.
Prateek Singh
Hi. Thanks for the opportunity. The question is for Steve and Dave. So, basically, first I want to understand what is the kind of lag that we see between scrap procurement and that flowing into numbers? So, the reason I ask is given that the scrap prices have gone up sharply off late only, and we had earlier mentioned that this will flow through to 3Q and 4Q as well. So, from my understanding, in 2Q we saw an impact of ballpark $40 per ton due to scrap tightening. Do we see it worsening further? So, the impact maybe even $50, $60, or do you think it would be even higher? And certainly, you’re not giving any guidance, but the lag would kind of help us get a sense as to how much more impact would be over the coming quarters.
Dev Ahuja
I was struggling to hear the question, at least the first part. I mean, broadly what I understood was from the second part as to whether we expect Q3 and Q4 impacts to worsen, but can you please clarify the first part of your question again?
Prateek Singh
Yeah, the first part was largely on what kind of lag do we see between the spot scrap prices that we see right now and between our procurement. So, is it a one- or two-month kind of a lag or a quarter kind of a lag? So that would help us in kind of, you know, tracking the scrap price and getting the sense as to what kind of an impact can be in coming quarters.
Satish Pai
So, Dev, he is asking from procurement to usage of scrap, what’s the time difference, how many months?
Dev Ahuja
Oh, okay. It was lag. Okay. So, between procurement and the scrap coming back, broadly there’s a 60 day to 90 day lag, can vary in seasons, but let’s say 60 days to 90 days is a reasonable time gap between the [Indecipherable] and then coming back to us, as we will see.
Prateek Singh
Sure. So which kind of means that if the scrap prices have gone up very recently over the last one month or so, the impact of $40 per ton that we saw in 2Q can be worse in 3Q and 4Q. You’re not giving any guidance, but just to get a sense if I stay correct in that way.
Dev Ahuja
Yeah. So, to be clear, in the short term we do expect some worsening of scrap prices. This is what we have been saying in our earnings call also. There could be some worsening. We are watching. We are in uncharted territory right now with this new situation. So, we will see where it goes. Keep in mind that what we will see in Q3 is also going to be a seasonality impact. Q3, absolutely [Technical Issues] by now probably is a seasonally low quarter given annual shutdown, just given that there is lower pull in this quarter. So, keep in mind that Q3 will also have a seasonality factor. But to be very specific to your question, yes, we do think that there could be some worsening in Q3 and Q4 due to a number of factors that we have discussed.
Prateek Singh
Sure. Thanks Dev. And my last question is on my reading about the Europe flood impact. When you say that there is an impact of around $25 million odd on 26 Kt of capacity, that kind of implies an EBITDA per turn of $1,000 odd per tonne from that facility. So given that Europe is not in a very great environment, can we assume that once Bay Minette comes in, we will have our [Indecipherable] also happen by that time, Bay Minette’s profitability would be decently higher than what we are seeing at Sierre right now, which appears to be around $1,000 [Phonetic] per tonne, but, or is that calculation not entirely correct on my part?
Dev Ahuja
Well, no, I think that you are kind of going in a bit of a tangent here on assuming the fear impact and the EBITDA per ton because that has a contribution element to it, you know. I mean the fixed costs have gone below the line. So, the $1000 per ton would not be a right calculation. Also, you know there is a blend in that of automotive, some specialties and some can impact. So be careful before implying any calculations in that number. But let me go to the other part of your question which is about Bay Minette. So, on Bay Minette, we have been pretty consistent that Bay Minette comes at a much higher price, at a much lower operating cost, and will be significantly more profitable from a margin acquisition perspective. I mean directionally we have already said in earnings call that about $1,000 per tonne is a very, very reasonable expectation from Bay Minette alone.
Prateek Singh
Understood. Thanks. Thanks a lot, Dev. And all the best.
Operator
Thank you. The next question is from the line of Pathanjali Srinivasan from Sundaram Mutual Fund. Please go ahead.
Pathanjali Srinivasan
Yeah, thank you for the opportunity. I have a couple of questions. One is for the FRP battery foil and enclosures that we are coming up with capacities, what would be the margins for this? And also, in terms of capacity, would they be interoperable between AC coated or battery enclosures or how would it be? Could you explain a bit on this?
Satish Pai
So, on the battery foil, aluminum battery foil in Aditya, it’s about 25 Kt. So that makes battery foil and can make other types of foil, so it is fungible. And as far as the margins go, we think they are pretty, good but we are not going to give you the number.
Pathanjali Srinivasan
Sure. So, the overall addition is about 200 Kt, is that correct?
Satish Pai
No. 25 Kt of aluminium battery foil plant that is being put up in Aditya. The battery enclosure plant which we set up in Chakan in Pune is to make the enclosures for the batteries that go into SUVs. So that has just come on stream and starting to ramp up for one of our big auto customers.
Pathanjali Srinivasan
Okay, got it sir. Sir, and one more thing, with respect to our coal prices, could you tell me like what was the increase in premium for us for e-auctions and all in the last couple of quarters? Is there any change, because general thing what we were noticing is that the auction prices are tapering down. So, what you said was slightly different from what we noticing.
Satish Pai
No, the Q2, actually the coal prices were slightly lower. In fact, they were flattish with Q1. So that’s why our cost of production was quite good. In Q3, as we get in some of the auction prices, it’s only in the NCL region, not in the NCL in the Odisha side. You remember we have Renusagar and we have Mahan. In those places we are seeing a little bit of the option premiums being higher than what we saw in Q2. It’s not very much just to be fair.
Pathanjali Srinivasan
Okay sir. Yeah, got it. And last question, just on the capex guidance that you’ve given. So, can you just tell us what would be your capex guidance numbers for ’26 and ’27 for the India business?
Satish Pai
So, I think previously I said that next year will probably be about INR8,000 crores. ’27, you’ll have to wait because we have to see how these projects actually start and how the cash out happens. So, this year’s guidance of INR6,000 crores, we will be around INR6,000 crores. Next year right now we think is going to be around INR8,000 crores. The year after you will have to wait.
Pathanjali Srinivasan
Sure. Thank you so much.
Operator
Thank you. Thank you. Ladies and gentlemen, due to paucity of time, we will take this as our last question. For further questions, you can connect with the investor relations team. I now hand the conference over to Mr. Satish Pai for closing comments. Over to you, sir.
Satish Pai
Yeah, thank you very much. I think that one point I probably wanted to highlight. I mean we have gone through all the businesses. The India business is seeing pretty good numbers. Novelis, just to repeat, had a very good Q2 compared to most of its competitors. The forward-looking scenario on the scrap spreads was a little bit not that good. But my point that I wanted to make is the integrated model of Hindalco between upstream and downstream means that some parts can have headwinds, some parts have tailwinds, and that’s why when you look at our consolidated results, we are doing very well compared to most of our competitors in the industry. So just wanted to leave you with that comment, and thank you for your attention.
Operator
Thank you. [Operator Closing Remarks]