Hindalco Industries Ltd (HINDALCO) Q3 FY22 Earnings Concall Transcript

Hindalco Industries Ltd (NSE: HINDALCO) Q3 FY22 Earnings Concall dated Feb. 10, 2022

Corporate Participants:

Mr. Subir Sen — Head of Investor Relations

Mr. Satish Pai — Managing Director

Mr. Praveen Maheshwari — Chief Financial Officer

Analysts:

Anuj Singla — Bank of America — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Pinakin Parekh — JP Morgan — Analyst

Prashanth Kumar Kota — Dolat Capital — Analyst

Indrajit Agarwal — CLSA — Analyst

Amit Dixit — Edelweiss — Analyst

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Ritesh Shah — Investec Capital — Analyst

Bhavin Chheda — Enam Holdings — Analyst

Samuel Chen — Alliance Bernstein — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Hindalco Industries Third Quarter FY22 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 of Hindalco. Thank you, and over to you, sir.

Mr. 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 the earnings call for the third quarter of financial year 2022. In this call, we will refer to the Q3 FY22 investor presentation available on our company’s website. Some of the information on this call may be forward-looking in nature and is covered by the Safe Harbor language on Slide #2 of the said presentation.

In this presentation, we have covered the key highlights of all the businesses for the third quarter of the fiscal year 2022, and a segment-wise comparative financial analysis of India business and our overseas subsidiary, Novelis. Please note that the unallocable corporate AS&G expenses, which used to be apportioned to the individual business segments, is now clubbed under unallocable expense or income to truly reflect our individual business segments, EBITDA in the Indian operations. The corresponding segment information for the prior periods have also been restated accordingly for a comparative analysis.

We have with us on the call from Hindalco’s management Mr. Satish Pai, Managing Director; 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 the presentation, this call will be open to any questions you may have. An audio replay of this call will also be available on our website. Now let me turn this call to Satish.

Mr. Satish Pai — Managing Director

Thank you, Subir. Very good afternoon and morning, everyone, and thanks for joining today’s conference call on Hindalco’s earnings for the third quarter of FY22. Let me start with our progress for the first 9 months of FY22 across various sustainability metrics on Slide 5 and 6. On the environment, we continue to focus on water-based air emissions and biodiversity. We have achieved 81% of total recycling and reuse of all waste generated in the first 9 months of FY22. We have achieved 95% bauxite residue utilization at three out of our four Alumina refineries. Utkal Alumina Refinery is conducting two pilot fits to reuse bauxite residue for mine backfilling, of which pit-1 is ready and pit-2 is under construction. We have already applied to the Indian Road Congress for accreditation of bauxite residue as a replacement of natural material for roads upgrade and embankment construction. 105% of the fly ash from power was reused year-to-date FY22.

On water, our fresh water consumption in the first 9 months was 54.2 million cubic meters with the continuous reduction in consumption of water at all locations over the year. Hindalco is adding one site each year to achieve ZLD, Zero Liquid Discharge at all sites by year 2025. On green cover and biodiversity in line with the International Union for Conservation of Nature guidelines, we have implemented biodiversity management plans at two of our plants and two of the mines, and we are in the process of implementing this at four of the other mine sites. The cumulative green belt at all our sites in the first 9 months of FY22 is now spread over 4,980 acres, an increase of 308 acres from last financial year.

Coming to renewable energy and safety update on Slide 6. I’m happy to announce that we have reached our FY22 targets of 100 megawatts of renewable capacity. We have identified nearly 69 megawatts of renewable projects, including floating solar, wind renewable hybrid power, etc. We are targeting to reach 200 megawatts by the end of FY25. We are also exploring emerging technologies in the space of energy storage, carbon capture and utilization and hydrogen as a fuel. The specific energy consumption in aluminum was recorded an 82.4% in the first 9 months of FY22 from the base year of FY12. On safety, we are committed to zero harm and have been continuously upgrading our safety programs and systems to meet international standards. The LTIFR was recorded at 0.25. Unfortunately, there have been two fatalities recorded of contract workmen at our Indian operations in the first 9 months of this fiscal year.

Coming to Slide 8. On the key highlights of our performance in Q3 FY22, Novelis recorded quarterly shipments of 930 Kt in Q3 FY22, which was flat year-on-year as quarter 3 is seasonally a low shipment quarter and was also impacted by ongoing semiconductor chip shortage, unplanned downtime and supply chain bottlenecks. EBITDA stood at $506 million, up 1% year-on-year and EBITDA per ton was $544 a ton, up 1% year-on-year. Net income from continuing operations was $259 million, up 33% year-on-year this quarter versus $195 million in the corresponding period of last year. Novelis has announced an investment of $365 million to build an highly advanced recycling center with recycling and casting capacity of around 240 kt per annum in Guthrie, Kentucky.

Moving on to Hindalco India Aluminium business performance in quarter 3. Our business EBITDA for Indian aluminium was at a record high of Rs. 3,376 crores, up 131% year-on-year. EBITDA margin was at 41% and continues to be one of the best in the industry. Aluminum Metal sales were up 3% year-on-year at 325 Kt whereas while our value-added product sales were up 8% year-on-year at 86 Kt this quarter. Hindalco acquired Hydro’s high-end extrusion facility with a capacity of 15 Kt at Kuppam, Andhra Pradesh. This highly specialized and customized product portfolio at Kuppam will significantly enhance Hindalco’s capability in high-end extrusions. During the quarter Hindalco successfully renewed its 5.35 million tons of coal linkages with Coal India to ensure resource security.

Turning to the quarterly performance of the Copper Business on Slide 9. All our smelters ran optimally and delivered a consistent performance in quarter 3. Our Cathode production in this quarter was at 102 Kt, up 99% year-on-year, while the CC Rods production was at 77 Kt, up 15% year-on-year. Metal sales were at a high at 110 Kt, up 50% year-on-year, while CC Rods sales were at 71 Kt, up 9% year-on-year, in line with market demand. Corporate EBITDA was at Rs. 390 crores, this quarter, up 63% year-on-year on the back of higher volumes, better operational efficiencies and improved byproduct realization.

Coming to our quarterly consolidated performance, EBITDA stood at Rs. 7,624 crores, up 38% year-on-year. Quarterly consolidated PAT for continuing operations was at a record Rs. 3,660 crores, up 81% year-on-year, compared to 2021 crores in the corresponding period last year. Hindalco continues to maintain its strong treasury balance of around $808 million in Novelis and Rs. 15,870 crores in India at the end of December 2021. Net debt to EBITDA continues to remain well below 2. At the end of December 2021, it was at 1.62 versus 2.59 at the end of March ’21. I’m pleased to share with you that Hindalco retains its position as the world’s most sustainable aluminum company in the DJSI 2021 ranking, and the only aluminum company in the prestigious DJSI World Index 2021. Hindalco has also retained this prestigious Gold Class distinction in the S&P Global Sustainability Yearbook of 2022.

Now, turning to the broader economic environment on Slide 11. The global economy is expected to expand by 4.4% year-on-year in calendar year ’22 after a post-pandemic rebound of 5.9% in calendar year ’21. While the Omicron wave has not disrupted economic recovery, it may prolong the current high inflation scenario by accentuating the supply chain disruptions for a longer period of time, then it was initially expected. However, at central banks and governments normalized policy by way of fiscal consolidation and interest rate hike, inflation is expected to ease in the second half of calendar year ’22. Faster pace of vaccination and resilience of business to respond to new COVID base will continue to support economic recovery. However, slower growth in China and geopolitical tensions are some of the downside risks to grow.

On the domestic front, Indian economic activity is gaining pace with most high frequency indicators bouncing back to pre-pandemic levels in Q3 FY22. Government of India’s economic survey projects India’s real GDP growth of 8% to 8.5% in FY23 on back of 9.2 estimated growth for financial year ’22. The union budget of FY23 will provide further impetus to this growth via public capex push, leading to a multiplier effect on other sectors of the economy. On the backdrop of rising global inflation through inflationary pressures have also been building up in India. While the fed’s tightening cycle will influence RBI monetary policy response, it will be mindful of domestic growth and inflation tradeoffs.

Let me now take you through the aluminum industry overview of Slides 12 and 13. In calendar year ’21, the global production of aluminum grew by 4% year-on-year to around 67.5 million tons, while the global consumption rebounded sharply by 9% to 68.5 million tons. This has resulted in a deficit of 1.1 million tons of aluminum in the global market. On a region-wise split, the Chinese production increased by 5% year-on-year to 38.5 million tons in calendar year ’21, whereas the Chinese consumption was up by 6% year-on-year. This was primarily driven by 60% growth in EVs and around 10% growth in installed solar capacity, which went to 53 gigawatts in calendar year ’21 from 48 gigawatts in calendar year ’20. This was offset by the subdued Chinese construction market and lower ICE vehicle production on account of semiconductor chips shortage. On the other hand, the overall Chinese consumption reached around 40 million tons in calendar year ’21, resulting in a market deficit of 1.4 million tons in calendar year ’21. In the rest of the world, production grew by 3% year-on-year to around 28.9 million tons, whereas consumption grew by 14% year-on-year to 28.6 million tons, due to the low base effect. This led to a small surplus of 0.3 million tons at the end of calendar year ’21.

In Q4 of ’21, the overall world production reported a marginal growth of 1% to around 16.8 million tons, while consumption was flattish at 17 million tons, leading to a market deficit of around 0.2 million tons. The Chinese production fell by 2% year-on-year to 9.5 million tons, due to the power rationing and an accident in Yunnan. Consumption faced some headwinds from lower ICE vehicle production and softer construction demand. This led to a consumption de-growth of 1% year-on-year to 9.9 million tons in Q4 calendar year ’21. As the production was lower than the consumption, the Chinese market was still in a deficit of 0.4 million tons in Q4 of calendar year ’21. In the rest of the world, despite some smelter production cuts due to rising energy prices, the overall production grew by 4% year-on-year to 7.4 million tons this quarter. Consumption expanded by 5% year-on-year, reaching 7.2 million tons, supported by the vaccination led economic recovery and strong packaging growth.

Consequently, the markets we’re in a small surplus of 0.2 million tons in Q4 of calendar year ’21. As the global markets remain in deficit with rising global consumption and low inventories, the global aluminum prices continued to grow to $2,762 a ton in Q4 calendar year ’21, from an average of $2,648 per ton in Q3 calendar year ’21. This rally in aluminum prices in calendar year ’21 was driven by power shortages, production cuts and depleting global inventories. However, as we speak, aluminum prices average at over $3,000 a ton in the current quarter, sustained by sustained global recovery, positive in investor sentiment and low inventory levels.

Coming to Slide 13, the domestic demand for aluminum is likely to reach 1,033 Kt, a 1% growth year-on-year and a 10% growth sequentially this quarter. This is mainly attributable to a broad-based sustained recovery across all the sectors. The building and construction sectors witnessing a recovery in demand on account of government spending on projects like AIMS, metro stations, the IITs, airports, railways stations, etc. A higher demand for aluminum in the consumer durable segment is witnessed with the penetration of e-commerce in India. The aluminum packaging demand continues to rise in line with growth, especially in the pharma sector. Despite the slowdown in automotive production due to semiconductor shortage, scrap imports increased marginally by 3% year-on-year, as other domestic producers are exporting higher quantity of alloy ingots to China. The domestic sales of primary producers increased by around 10% year-on-year to 419 Kt this quarter.

Moving to Slide 14, the global FRP demand is expected to grow by 6% in calendar year ’22 versus 10% growth in calendar year ’21. The market demand for beverage can sheet is estimated to grow by around 5% in calendar year ’22, increasing demand of cans is driven by increasing can share as a sustainable packaging option for most beverages. The automotive segment is estimated to grow by 20% in calendar year ’22 by new program adoption and increased consumer preference for SUVs, pick-up trucks, electric and premium vehicles. The semiconductor shortage uncertainty continues to impact OEM production and auto sheet demand. The demand with specialties is expected to grow by around 4% in calendar year ’22 with strong customer demand across markets, including building and construction, consumer electronics, container foil packaging and EV battery enclosures.

The Aerospace segment is expected to grow by around 30% in calendar year ’22, as order bookings are now improving with the resumption of air travel. However, the recovery in this sector could be a bit uneven. The domestic FRP demand is expected to grow by 19% year-on-year this quarter, while it is expected to grow by 17% sequentially due to the seasonal impact. Demand remained strong in packaging consumer durables. DNC demand has now improved due to government projects. However, the auto sector continues to face headwinds due to the chip shortage.

Turning to the global copper industry on Slide 15. For the calendar year ’21, the global production of copper grew by 2.4% year-on-year, while consumption increased by 4.7% year-on-year, as compared to the previous year. In calendar year ’21, production in China grew by 6.3% year-on-year whereas consumption grew by 2.5% year-on-year. In the rest of the world, production declined by 0.2% whereas consumption grew by 7.3% year-on-year. On a quarterly basis in Q4 ’21, global copper production declined by around 2% while consumption of copper in Q4 declined by 1.6%, as compared to the corresponding period of last year. During this period, production in China declined by 2.8% year-on-year, while production declined by 2.9% on account of lower demand. In the rest of the world, production and consumption were flat year-on-year in Q4 calendar year ’21. The annual benchmark TC/RCs of calendar year ’22 settled at $0.167 per pound, which is an improvement of around 9% over calendar year ’21.

During Q3 FY22, disruptions at one large Peruvian mine, Las Bambas, on account of some local community issues, has led to tightness in the spot market. However, there was no major impact on spot TC/RC as demand for copper at the spot rates by the smelters was relatively low, as they were focusing on the final settlement price at the annual benchmark negotiations. The spot TC/RC during the quarter was around $0.157 per pound compared to $0.146 per pound during Q3 FY21. Spot TC/RCs are now expected to improve from current levels during the second half of calendar year 2022, as a couple of new mines are expected to be commissioned in this period, resulting in additional concentrate supplies in the market.

Coming [Technical Issues] in Q3 FY22, the overall domestic copper market declined by 2% year-on-year at 162 Kt on account of low demand in segments like BMC, railways, transformers, consumer durables, etc. Imports too declined by 36% year-on-year. On a sequential basis, the domestic copper demand was almost flat while imports declined by 12%. The trend of operational and financial performance for each of our business segments this quarter and that of the corresponding period of last year are covered in further slides and annexures in this presentation. But let me now conclude today’s presentation with our key focus areas on Slide 13. Our focus on cost optimization and integration has helped the company to deliver consistent performance over the quarters despite input cost and inflationary challenges.

With a focus on stakeholder value enhancement, Hindalco continues to focus on profitable growth to its investments in organic expansion in the stable and predictable downstream businesses in India and Novelis. Our recent acquisitions in copper and aluminum both in value-added segments in India is also helping us grow in line with our long-term goals. Hindalco’s product mix diversification continues to help in enriching its product portfolio by increasing the share of high-end value-added products in the overall product mix to strengthen its position as the world’s largest aluminum downstream company. Hindalco continues to move towards its ESG 2050 commitments. We have consistently been positioned at the top in the Aluminum segment at the DJSI index and have been awarded the Gold Class distinction, the S&P Global Sustainability Yearbook of 2022 as well. These are leading examples of our commitment of making ESG an integral way of our business while we strive to become the most sustainable company in the world.

Lastly, and most importantly, Hindalco, on the basis of strong — on the basis of a strong balance sheet, is now ready to embark on the next phase of organic growth. The consolidated net leverage is well below 2 at 1.62 at the December 21, 2021. Thank you very much for your attention, and 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 Anuj Singla from Bank of America. Please go ahead.

Anuj Singla — Bank of America — Analyst

Yeah. Thank you very much for the opportunity. So Mr. Pai, my first question is on your last line. You are now deleveraged to an extent where you are comfortable with the new organic growth opportunities. So if I were to juxtapose that with the high aluminum prices, $3,000 plus, which was the level which we had indicated a couple of quarters back for a new smelter. Should we be expecting a new smelter on the upstream aluminum side in India? And secondly, if not that, what are the other kind of segments you will be looking at for pursuing the growth opportunities?

Mr. Satish Pai — Managing Director

Yeah, Anuj, I think that we have announced both in Novelis and in Hindalco whether it is the Silvassa extrusion facility, the Rs. 3,000 crore FRP expansion in Sambalpur. And I think now you will be seeing the next announcement that’s coming out will be a PLI- linked on aluminum things and in a group copper tubes that we’ll be announcing in India soon. And I think that just taking your question and going forward, we are looking at further expansion of alumina, because we think that that is also going to be a fairly remunerative going forward. And as far as the smelter expansion go, we are actively considering brownfield expansion, but looking at energy sources that can help us reduce the carbon footprint. And today in India, those energy alternatives are available. So long story short, I think that over the next 6 to 8 months, both from Novelis and Hindalco in India, you will be seeing a number of organic capex projects announcements that are going to come. As you said, we think that we are now past that deleveraging stage. I have to add that, in India, we still have the Rs. 6,000 crore of bonds that we told you will repay, which will that complete the India sort of deleveraging story as well. Novelis at 2.3 is at a very comfortable position. We had said 2.5, we have come. So I think that you know this year, the cash generation was a little bit lower because of working capital blocks with the high LME, but next year, that cash will now come and we will be generating quite a lot of cash. So we will be very actively looking to announce more organic projects. So fairly long but I anticipate this is a question many will ask.

Anuj Singla — Bank of America — Analyst

Thank you very much for the elaboration, sir. Sir, second question is on the coal sourcing and the available in India. So can you talk about what kind of cost escalation we should be anticipating in aluminium in 4Q? And what is the coal situation in India and the 5.35 million coal linkage renewal, has it happened at the same terms or there is some higher premium where will be paying to Coal India for this renewal? Thank you.

Mr. Satish Pai — Managing Director

So starting from the latter part, the 5.3 actually came at a slightly better price than our existing linkage. So that’s the first question. The second is the total cost of production escalation Q3 to Q2 was 7.5%, To be fair to say in that 7.5% cost inflation, Coal did not play a major role. It was largely costly carbon that played more higher room. We had a lot of coal inventories, that means we didn’t have to hit the spot market a lot. So we managed to keep that cost inflation compared to some of our competitors at much lower levels at 7.5%. I think that some of the coal inflation will now come in, in Q4, because the supply of coal was very much diverted towards the IPPs, and we had to buy some more new options. So my guidance for cost increased Q4 to Q3 is going to be another 9.5%.

Anuj Singla — Bank of America — Analyst

Okay. Got it. Got it, sir. Thank you very much.

Operator

Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yeah. Thank you for the opportunity, and congratulations on another great set of results. First question just continuing on the previous commentary on the brownfield smelter expansion of aluminum. So if I understood correctly, are we now evaluating or actively considering smelter brownfield expansion given that we have some better clarity on the alternate source of power other than Coal? Is that the right understanding? And is that, I mean what could be the ticket size in terms of capex? And given brownfield, any further details in terms of timeline, if you could share?

Anuj Singla — Bank of America — Analyst

So look, I cannot go much, I mean I have already sort of said that we are evaluating. I mean, we had always said that both in Aditya and Mahan, we have sufficient land, water and all the other things. So we are evaluating that. As I said, the largest part of the valuation is around the energy source. So for example, in Aditya, we’ll soon be connected to the 400 kV grid, which allows us now, as you know, lot of people are providing 80%, 85% renewable power on the National Grid. So I think, give us some time there, because the capex and all that, we’ll get back. We are very concerned on still trying to meet our energy, carbon reduction targets at the same time. So please bear with us for another quarter or so when we finish our evaluation.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. Got it. On the second, is it possible to share our hedge position and outlook on the aluminum?

Mr. Satish Pai — Managing Director

So I think compared to last quarter, the only thing that we have done now is we have added for next year another 60 Kt at an average of $3,000 a ton. So since we last stopped, we felt that $3,000 was a good level, so we locked in another 60 Kt. So the total hedge position of FY23 now is 28% at 2,360. The last 60 Kt which we added at $3,000 a ton.

Sumangal Nevatia — Kotak Securities — Analyst

Understood, understood. And just one last question on the value-added mix on the Indian aluminum business, we’re still locking 80 Kt, 90 Kt of quarter. We have done some inorganic growth and also we are spending on the organic front, so over the next 2, 3 years, when do we see a meaningful increase in this volume run rate?

Mr. Satish Pai — Managing Director

Sumangal, let me give you the exact numbers. Silvassa will add 30 Kt, 35 Kt of extrusion. Kuppam, as we have taken over, has added 15 Kt of extrusion. The Sambalpur expansion will add 170 Kt of rolled products. So those are already within the announced. Now the aluminum stream that we’ll announce will be another 20 Kt. So we are steadily heading towards that 600 Kt, if you remember, I’ve been always talking about. So many of those projects now capex approved, statutory clearances. Silvassa by the way the first project should be commissioned by December of this financial year.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. And what should we expect in terms of margin or profitability delta from these value addition, maybe around $150, $200 in data broad range?

Mr. Satish Pai — Managing Director

Yeah. I think more towards $200, and I think that we will probably be starting to break out the downstream EBITDA probably from Q1 of next year to months.

Sumangal Nevatia — Kotak Securities — Analyst

Okay. That would be great. Thank you so much, sir, and all the best.

Mr. Satish Pai — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead.

Pinakin Parekh — JP Morgan — Analyst

Thank you very much, sir. Sir, my first question goes back to the smelter now, over the past few quarters, Hindalco management has been consistent about not wanting to focus on upstream aluminum and not wanting to add smelters, even in the last capital allocation day, management clarified that all the capacity additions and capex would be in downstream in India versus Novelis. Now, while you did mention about renewable energy and everything, ultimately the smelter economics would be a function of LME prices. So what has changed for management to be open to considering a smelter addition, even though if it’s not decided yet? Because the issue is that by the time the company starts working on a project even if it’s a brownfield expansion, it could easily take 3 years for the project to be fully up and running, and we don’t know what happens to aluminum prices after that?

Mr. Satish Pai — Managing Director

So a fair question, Pinakin. I think the real issue that we have seen over the last year is that the demand for aluminum because of its various uses from a sustainability angle, which is electrification, electric vehicles, packaging, all that continues to grow, whereas the supply side is constrained. So we don’t see lot of new capacity that’s going to come in, whereas the demand is going to continue to grow. So I think that most of the people now are going to look at and the problem of primary aluminum smelting is energy intensive and hence you have to be careful of the energy source. So why we are considering is because we believe that there is the LME is got a strength over the next 5 years. I don’t know whether it will stay about 3,000 for the 5 years, but it’s certainly going to stay at a reasonably good level because demand is strong and supply is going to remain constraint. So that’s why we are considering it, and I would again try to remind you of the sequence, in which I answered most of our capex’s we are announcing are all downstream, then I talked about the alumina and then I talked about smelter, Pinakin. So just for the record.

Operator

Any other question, Mr. Parekh?

Pinakin Parekh — JP Morgan — Analyst

Yes. Just to clarify, at this point in terms of the smelter. I mean we understand that management is not finalized anything, but between the two variables, which will go into the decision making process, one is the LME aluminum price outlook, which as you now believe is very strong, and the second is the energy source. Now if the energy source non-coal is not available, would it mean that the smelter expansion will not be considered even if it’s a high LME aluminum price environment?

Mr. Satish Pai — Managing Director

Pinakin, I am considering it because I have got offers for non-coal energy. So it’s not a “variable” anymore. The point that we are looking at now is how will it work, what is the landed price because sometimes it has to be reeled from outside the state. So it’s not a question of if there is no coal or not. We have firm offers for energy to be delivered at 85% renewable in front of us.

Pinakin Parekh — JP Morgan — Analyst

Understood, understood.

Mr. Satish Pai — Managing Director

And I think you have seen that in the market. Lot of players are providing that. So they balanced it out with about 50% thermal and with our installed capacity of power, which means that I’m not adding any more new carbon, I could be able to balance that do brownfield expansion.

Pinakin Parekh — JP Morgan — Analyst

Understood. Makes sense. And sir, last point just being that you mentioned that 60 Kt of hedging has been done on $3,000 aluminum. Now, sir, given that where prices are and given that 1.3 million ton portfolio and only 28% volume being hedged, why would the company not consider more volumes to hedge at $3,000? Does management believe that aluminum prices should even rally further from here over the course of the next 12 months?

Mr. Satish Pai — Managing Director

So two points there. I think that first of all, Pinakin, the aluminum curve is in a huge backwardation. For us to get this 60 Kt at $3,000, the aluminum had to cross that $3,200 for us to get $3,000.

Pinakin Parekh — JP Morgan — Analyst

Okay.

Mr. Satish Pai — Managing Director

Because of the backwardation. And in fact, if you go to FY24, I think yesterday we did about 6,000 tons with small amount to get 3,000 was very difficult. So the curve is in a huge backwardation, that’s first. The second thing is, yes, in the next 3 to 6 months, aluminum prices could go higher because of various reasons, one being geopolitics which is happening in Europe as well as very constrained aluminum in China. So yes, it could go higher. So that’s why we have put ourselves that we need to get at least 3,000 before we look at it, and we rather keep it a little bit open now, because when you are in backwardation curve than every quarter rather itself is a good, you don’t need to overexposure yourself.

Pinakin Parekh — JP Morgan — Analyst

Understood, understood. Thank you very much sir.

Operator

Thank you. The next question is from the line of Prashanth Kumar Kota from Dolat Capital. Please go ahead.

Prashanth Kumar Kota — Dolat Capital — Analyst

Hello, good evening, sir. Thanks for the opportunity and congratulations for a good set of results across the board. Sir, my question is regarding the fear for carbon and decarbonization story. To better express myself, I’ll give it — I’ll ask my question as a small example — with a small example. Sir, there is just a housing colony where there are two families, family I and family W. Family I is agricultural or historically been in agriculture. Now they have five sons who have all grown up. One is into banking, one is into IT, one is in small-scale enterprise, one is in small garment export, things like that. And with a lot of struggle, just now they bought a secondhand car, for a family car, which is probably more polluting. In the same house neighborhood, there is family W, since 90s, they run a huge industry. They also had a huge rail business in the transportation business, that generated a lot of emissions over the last 50, 60 years, but they become very, very rich now. And since it’s the same commodity, same neighborhood. Now W says to I, we are very rich. Our tolerance to any kind of pollution exercise is very low. So you better not by that, you better scrap year old car and buy a Rs. 1 crore Tesla EV or something, and it’s literally being forced upon family I. So now, coming back to the larger frame of things. So family I is India, W is the West and the housing colony is earth. Sir, we have just — India as a whole and it’s even aluminum sector in India, we have just started to make some money. We are just starting to move out of that poverty and still we have so many deaths due to malnutrition, this that, etc. And livelihood is still a big thing in India. Sir, should we be bogged down by the demands of the West? They have been polluting from 1960 and we have just started to pollute. So should we not have permission to have that allowed? And I think ourselves [Technical Issues]?

Mr. Satish Pai — Managing Director

No. I understand what you’re trying to say, and I understand the point that maybe, but you see the problem is that Hindalco is large multinational. 50% of our metal gets exported to international countries and international companies. So I don’t think, and by the way the positioning of Hindalco and its subsidiary Novelis, which is more than 60% of the combined company in the international world, is very — from a sustainability angle is very important. So I get what you’re saying and that’s why I think that some of our Indian competitors who don’t add such compulsions have already announced large smelter expansion. So it’s not that in India some people will not do it, though I personally believe that it doesn’t matter whether you are rich or poor, I think that environment is something that all of us should be concerned about. But let’s forget that philosophical thing. I think for Hindalco, we are one of the largest and most reputed aluminium companies in the world now with international customers, international shareholders and hence, our sustainability positioning is important, and we have big commitments on that we will get to net carbon by 2050. So I think that we have to stand by the commitments we make.

Prashanth Kumar Kota — Dolat Capital — Analyst

Understood, sir, understood. Sir, just now from India perspective, sir, our neighbor — rich neighbors, who is having 10 times our capacity, and if we are restricted by this passport — pollution passport if you have to, where will be from — how will we grow sir, how will our sector or how will our country maybe make room for growth? And how will — if they fund for the company, let’s say they give us a zero cost 50-year loan, yes, we will take care of all the — whatever reasons.

Mr. Satish Pai — Managing Director

But I think that…

Prashanth Kumar Kota — Dolat Capital — Analyst

The thing is that a challenge…

Mr. Satish Pai — Managing Director

You should just testify what your Pinakin was asking our smelter expansion if we can pull it off, which I’m fairly confident with 85% renewable power, that’s the direction. It can be done.

Prashanth Kumar Kota — Dolat Capital — Analyst

Okay, sir. Thank you. Thanks for your time.

Operator

Thank you. [Operator Instructions] The next question is from the line of Indrajit from CLSA. Please go ahead.

Indrajit Agarwal — CLSA — Analyst

Hi. Thanks for the opportunity. Again, going back to the growth outlook between aluminum and alumina, how do we see the tightness of the market, because as you mentioned you’d first consider alumina and we are in even a long alumina right now? So would we be comfortable exporting or selling out large quantities of alumina initially maybe next 2 years, 3 years, 4 years, and then when our capacities of aluminum comes up, then we utilize that? So how should we look at overall alumina thing?

Mr. Satish Pai — Managing Director

Yeah. Actually, that is the right sequence you have said. We think that with our bauxite capacity and what, if we get now the next mine in Odisha, we can get fairly quickly with not a lot of capex, another million tons capacity setup. There are aluminum producers in the Middle East will happily sign an index-based pricing for as much as we want to give them on this alumina. So you’re right, we would want to do that alumina and then let the aluminum maybe catch-up, yes.

Indrajit Agarwal — CLSA — Analyst

And will all we have to Utkal only, the entire rich?

Mr. Satish Pai — Managing Director

Well, it will be in Odisha.

Indrajit Agarwal — CLSA — Analyst

Okay.

Mr. Satish Pai — Managing Director

It will be in that area, need not be from that same Utkal, because Utkal is now already at 2 million tons capacity. There are more and more mines that are going to come up in that part of Odisha.

Indrajit Agarwal — CLSA — Analyst

Sure. And if I may ask a couple of housekeeping questions, what was the alumina sales this quarter? And the working capital block and capex for 9 months for consol, if you can help with them?

Mr. Satish Pai — Managing Director

So the alumina sales for the third quarter was a 100 Kt and in Q4, we are planning to sell 150 Kt. And your second question was, what is the working capital block in the first 9 months.

Indrajit Agarwal — CLSA — Analyst

Yes, at consol level, yes. working capital and capex amount for the first 9 months consolidated.

Mr. Praveen Maheshwari — Chief Financial Officer

So we’ll give you separately for India and Novelis. You can just add back up. In India, we have seen for the first 9 months about Rs. 2,400 crores or so in terms of working capital block. It does vary quarter-by-quarter, because particularly the copper business concentrate arrival sometimes gets delayed or sometimes gets early. So it does change based on that. Aluminum working capital by and large goes along with the cost increases and so on. But I can assure you that quantity-wise, I don’t think we block unnecessarily any working capital anywhere. So primarily any working capital changes reflect the rate changes that take place. On the capex side, this year has been a little slow in terms of cash outflow. We have spent about Rs. 1,000 crores in India on capex so far, but I think we intend to catch up in the last quarter this from payments are due in the last quarter. The total guidance for the year would be not more than Rs. 2,000 crores for this year.

Mr. Satish Pai — Managing Director

Yeah. It’s actually a little bit disappointing, I think, even on the Novelis call, some of their capex got delayed and in India too because of COVID and trying to get requisite clearances, so the capex that we wanted to spend, we have not been able to. But we think that next year we should be having a very strong capex here.

Indrajit Agarwal — CLSA — Analyst

Sure. Thank you so much.

Operator

Thank you. The next question is from the line of Amit Dixit from Edelweiss. Please go ahead.

Amit Dixit — Edelweiss — Analyst

Yeah. Thanks for taking my question, sir and congratulations for good performance. My first question is on coal sourcing mix. So what was the sourcing mix in Q3 and how is it going to change in Q4? If you can group them in Coal India versus your own mind and inputs, that kind of bucket?

Mr. Satish Pai — Managing Director

Yeah. So 60% was linkage, 26% was e-auction, 9% was our own mines, and import was about 4%.

Amit Dixit — Edelweiss — Analyst

Okay. And how is it going to change?

Mr. Satish Pai — Managing Director

We hope that the linkage percentage will go up, because they diverted a lot of the linkage coal to the power plants. In the month of January, the diversion was still there. We are told after 15th February, we will get more of our linkage. So I hope it will at least in the second half of this quarter and in the quarter 1 of next year, the linkage percentage should go up.

Amit Dixit — Edelweiss — Analyst

The second question is on your smelter again. So only open to setting up with smelter or brownfield expansion in India and not looking at greenfield, let us say, smelter and there the renewable sources are available largely, the lesser carbon footprint sources are available, for instance, in Middle East. Are you open to that option as well?

Mr. Subir Sen — Head of Investor Relations

Not really. I think the Middle East, they may have gas by the way, and gas is not, of course, the carbon footprint is lower than coal, but it is not zero. So if you look at [Indecipherable] they’re also struggling so and they have no bauxite there. Saudi as a little bit but Middle East doesn’t have bauxite. So I don’t think we will be interested in looking at a greenfield smelter anywhere outside of India. No.

Amit Dixit — Edelweiss — Analyst

Okay, fair enough. I will transfer and all the best.

Operator

Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal Financial Services. Please go ahead.

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Thanks for the opportunity, sir. Continuing with this question on smelter. Just a couple of thoughts I had. First of all, you highlighted that the aluminum is now the backwardation and for FY24 even getting 6,000 tons is getting difficult to over $3,000, and at the same time we are saying that the aluminum outlook looks very promising on the back of issues, which could be temporary, which could be permanent, we don’t know, for example, the Russia, Ukraine, there could be a pullback, so the energy crisis could actually go down, China economy slowdown, can actually pull them back into production, and whatever we are seeing right now over the last 6 to 9 months can actually unwind over the next 3 to 6 months very quickly. So in that light, because quarter-on-quarter, you have been highlighting that simply because one year is a good year, we will not commit to next 3 years and we look, I mean is just a U-turn. So how do we kind of look at this going forward?

Mr. Satish Pai — Managing Director

So first, I don’t — again, I have to tell you when I talk about the capex, I came to this at the end and I said I’m evaluating it, so it’s not a U-turn. All my announced capexes are all downstream. But I think that it is, it makes sense for me to at least evaluate economics, and as I told to Pinakin’s question, I don’t think that just the Ukraine thing sorting itself output, the production will lastly increase because China has been very clear on its ESG commitments, and is not increasing capacity, so people are saying that China will never produce more than 40 million tons of aluminum, and in fact people are actually seeing China will go into deficit. So I don’t think that in the longer term, they are going to be new supply coming in that easily. So there could be strength in aluminum for the next few years, and which is why I think that we should evaluate it. I don’t want to give the impression on this call that we have decided to do a smelter expansion, not really. We are evaluating it. Whereas the downstream projects are being rolled out as we speak.

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Okay. Sir, because my point was more from China perspective, two days ago China rolled back the peak emission deadline for steel industry from 2025 to 2030. So given the slowing economy, so they gave them 5 year reader. That means steel production in China should essentially move up. If we see something like this on an aluminum front, the whole thesis of aluminum being a scarce commodity and the pricing should move up, but I understand you are still on the drawing board stage. So the second question was how we’re looking at smelters in places where you have renewable hybrid power, etc. like Scandinavian countries or having alumina over here and then smelting over there. Does that as an option or doing a smelting under Novelis where cash flows are really very strong, was that also an option being discussed?

Mr. Satish Pai — Managing Director

No. Not with Novelis, and by the way, just take a look at the EBITDA per ton of Nor-Cargo even now with $3,000 LME prices. So, yes, they have hydro power that is cheap, but every other thing cost 5 times more. And I don’t think if you walk in today, you’re going to get a new power agreement at those prices. The reality of Iceland, Norway and all is that, there are no new smelter projects being announced there, why, if they have excess hydro power and they green, why is Nor-Cargo not announcing any expansion? They are a Norwegian company, because they don’t have more hydro. That was a historical thing that they had. Number two, there are various ESG studies that have come out that if you put new hydro capacity by damming or something, you actually create more environmental damage. So I do not think you’re going to get new hydropower being installed that easily as well.

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Yeah. It makes sense, sir. Thank you very much. Thank you.

Mr. Satish Pai — Managing Director

I think that just for the questioning guys, don’t go down the smelter changed so much. We are just evaluating it.

Operator

Thank you. The next question is from the line of Ritesh Shah from Investec Capital. Please go ahead.

Ritesh Shah — Investec Capital — Analyst

Hi, sir. Thanks for the opportunity. Sir, my first question is coming from that point you indicated, was sourcing for coal was possible to indicate how much would account on a rupees per kcal basis?

Mr. Satish Pai — Managing Director

No. We don’t give out that number. We think that’s our competitive advantage.

Ritesh Shah — Investec Capital — Analyst

Okay. I wanted to ask…

Mr. Satish Pai — Managing Director

We give you the overall COP increase percentage. So as I said, ours grew by 7.5% Q2 to Q3.

Ritesh Shah — Investec Capital — Analyst

Sure. Sir, the reason I ask this is, I wanted to ask the second question, which was linked to the first one. I think you indicated that we are looking at alternative sources of energy and 85% renewables. It’s something that can be actually tied up. So it was great that we are moving in the right direction from a yield standpoint, but just trying to understand from a unit cost economics point of view, how much is that incremental cost will have to incur towards this quarter?

Mr. Satish Pai — Managing Director

So that’s exactly the point that we are looking at and working with the government, but fair to say if you look at our solar installations, which we crossed 100 megawatts already, Aditya and Mahan both at 35 megawatts, 35 megawatts, there the cost of power is much lower than thermal as well. Now, the problem is the willing and cross subsidy charges that the state electricity grids put on, which is why my answer said that once we can get on to the national grid, and if you take the benefits of the green energy, meaning we don’t have to buy RECs and all that, we think an economic case can be made, which is what we are evaluating.

Ritesh Shah — Investec Capital — Analyst

Okay. Sir, this is Ritesh, sir. Earlier you had indicated on pumped hydro and also part of that you have possibly switched on to gas and whether the negotiations that are going on with the government. Any update over here, sir?

Mr. Satish Pai — Managing Director

So we think that a couple of things have happened the gas pipeline in Sambalpur should be ready by the end of this calendar year, somewhere around December because it also got delayed because of COVID. But the problem with gas now is that because of what has happened in Europe, etc., gas prices have gone through the roof. And if you remember what I told you before, we need gas landed at about $5 in MMBTU, whereas today it’s running at $15 to $18 in MMBTU. So economically it makes no sense right now.

Ritesh Shah — Investec Capital — Analyst

And sir, on pump hydro, sir.

Mr. Satish Pai — Managing Director

Pump hydro can be quite cheap. In fact it is as cheap as solar. There the installed capacity is in Andhra, they are talking about new projects in Madhya Pradesh, etc., if it crosses the straight boundary, then the billing charges, etc. make the price a little bit too high.

Ritesh Shah — Investec Capital — Analyst

Okay. Sir, the reason I asked that I think we had indicated earlier that we were looking at 200 megawatts of hydro and you had indicated green co as well, the company that we’re working with previously, any update?

Mr. Satish Pai — Managing Director

So we continue to work. There are other people now also coming into the market. There are lot of players today who are trying to provide majority renewable power mix on a high PLF basis. So we are evaluating with a lot of them. So we’ll probably do some pilots in the near future.

Ritesh Shah — Investec Capital — Analyst

Sure. And so you use about hydrogen in the initial commentary, any thoughts on liability, what is the fact that that you’re are looking at?

Mr. Satish Pai — Managing Director

We have been doing a couple of pilot projects on carbon capture and utilization as well as hydrogen. So those are pilot projects at this stage. We are more focused on the carbon capture by the way. Because if you can actually make that successful, then coal becomes very much usable. So the carbon capture and utilization is where we are trying to really focus on so.

Ritesh Shah — Investec Capital — Analyst

Sir, would it be possible for you to comment on the opex over here? To my understanding, it is at the $40, $50 per ton of carbon, which is quite high. Is that the broad number that one should look at it or are you looking at economics, which is actually better than that?

Mr. Satish Pai — Managing Director

I think that the number you’re talking about was in the carbon capture and storage. It was around $40, $50. Yes, now actually what we’re looking at is after capturing the carbon whether the by-product can be sold in a profitable way. That can change the economics rather than sequestration, if you can use that carbon.

Ritesh Shah — Investec Capital — Analyst

Okay. And sir, last question, if hypothetically we had to go for a smelter, is there some different technology possible on the B2B side, something like IGCC which can receive supercritical, which can actually make more sense from a carbon intensity standpoint? Is it something that we are looking at exploring at?

Mr. Satish Pai — Managing Director

We are certainly looking at the latest technology, if we do anything. Yes. Sure. That does answer my questions. Thank you, sir.

Operator

Thank you. The next question is from the line of Bhavin Chheda from Enam Holdings. Please go ahead.

Bhavin Chheda — Enam Holdings — Analyst

Yeah. Good evening, sir. Question on the India capex, you mentioned you spend Rs. 1,000 crores in first 9 months, this is including maintenance capex because I believe your maintenance capex run rate is roughly around that number, which means we have not spent anything on growth capex?

Mr. Praveen Maheshwari — Chief Financial Officer

So the growth capex part that’s why most of the orders are going out now. So we’ll do that catch-up mostly in Q4. So we are hoping to hit about Rs. 2,000 crores by the March.

Bhavin Chheda — Enam Holdings — Analyst

Okay. So that’s including growth plus maintenance India capex or is it roughly around Rs. 2,000 odd crores?

Mr. Praveen Maheshwari — Chief Financial Officer

That is what — Yeah, if you remember our original guidance we were planning to spend, Rs. 2,700 crores this year.

Bhavin Chheda — Enam Holdings — Analyst

Yes, right. The highest number in the capital allocation framework, then you have to pay that.

Mr. Satish Pai — Managing Director

Yes, yes. So you know we had April, May, June, which was one way, then we had November-December another way. So it’s not been easy. Lot of public, someone poor public hearing and clearance which we thought will be done by April-May is now going to happen in this March. So lot of delays have come in unfortunately.

Bhavin Chheda — Enam Holdings — Analyst

Yeah. The second question on the brownfield expansion of smelter. So when you consider this decision, you consider the renewable source of energy for this incremental brownfield or are you thinking of the eventually the total smelter has to be run on renewable energy over next 15 odd years, so you have to transition that. So how is the internal IRR you think when eventually you decide on this brownfield expansion?

Mr. Satish Pai — Managing Director

No. I think any brownfield will be looked at from an IRR perspective on its own merits. It won’t be mixed up with the existing things, especially when it comes to the power source. As I said, we already have land, we already have water, we have already got logistics, we have all the rest is sort of a positive. But when it comes to the energy source, it will be looked at on its own merits. One of your colleagues asked it will be based on what is the price of power that we can afford.

Bhavin Chheda — Enam Holdings — Analyst

Sure. And my last one, sir. On the coal sourcing mix, what is the actual leakage you are supposed to receive versus 60% you caught in this quarter?

Mr. Satish Pai — Managing Director

It should be roughly 75% linkage if we got everything that we are supposed to get. By the way, you never — just so that you know you never get 100%, but we normally used to get around 90, that percentage is now officially gone to 75, because they are diverting the coal to IPPs.

Bhavin Chheda — Enam Holdings — Analyst

Yeah. Thanks a lot, sir.

Mr. Satish Pai — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Samuel Chen from Alliance Bernstein. Please go ahead. Samuel Chen, your line is open. Yes, we can hear you now.

Samuel Chen — Alliance Bernstein — Analyst

Awesome. Thank you. Thank you for your time and I promise I won’t ask another smelter question. So just a couple of quick ones. That’s a couple of quick ones. You mentioned about the eventual Gulf getting to about 600,000 tons for the downstream aluminum in India. I think if I may rough calculation plus 320 annually right now, maybe a little more than that, and then you bought at 15,000 tons for hydro, can you kind of layout what’s the pace? Just going to take about 2 years, 3 years to get to 600,000 tons, if you can give me a timeline, that would be great?

Mr. Satish Pai — Managing Director

Yeah. I think your 320 number is right. I think that we will get to that 600 in 3 to 4 years. It was in Sambalpur 170…

Samuel Chen — Alliance Bernstein — Analyst

And that’s more or less even, right. That’s more or less kind of even pay strategy, so that’s about 280 over 4 years. So we’re looking at about 60, 70 coming up every year. Is that the pace?

Mr. Satish Pai — Managing Director

When the Sambalpur expansion happens, that’s a 170 Kt, which we should be able to commission probably within the year. So you’re going to see a sharp jump when that project commissions.

Samuel Chen — Alliance Bernstein — Analyst

Okay. All right. Thank you. That is very helpful. Second question is so fairly simple. Vodafone-Idea is continuously looking for money. I know it’s part of the group and you guys own about 2.6%. Can I assume that you guys will automatically subscribe to that 2.6%?

Mr. Satish Pai — Managing Director

No. First, Sam, I think as publicly be on record that Hindalco will not be a thing in Idea anymore.

Samuel Chen — Alliance Bernstein — Analyst

Okay. All right. Thank you.

Mr. Praveen Maheshwari — Chief Financial Officer

And has already got diluted, right, from the government to cover, so we did not participate in the recent thing.

Mr. Satish Pai — Managing Director

Yes.

Mr. Praveen Maheshwari — Chief Financial Officer

And therefore we are even now at 1.9 or something.

Mr. Satish Pai — Managing Director

So we have already gone down from 2.6 to 1.9 after the government increased its stake, which we did not participate.

Samuel Chen — Alliance Bernstein — Analyst

Okay. Got it. And I’m assuming you wouldn’t be looking to sell at the current price level. So you leave the stake the way it is.

Mr. Satish Pai — Managing Director

Yes. We’ll just leave it.

Samuel Chen — Alliance Bernstein — Analyst

Okay. All right. Thank you very much for your time. All the best.

Mr. Satish Pai — Managing Director

Thank you.

Operator

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

Mr. Satish Pai — Managing Director

Yeah. Thank you everyone for your attention. I think my only closing remark is that we, our mindset twice now moved from a deleveraging focus because we think now we are strong on the balance sheet and now we will be focused on growth projects going over, so that is both in Novelis and in the Hindalco, the focus going forward will be on growth now. So with that, I thank you for your attention. Bye.

Operator

[Operator Closing Remarks]