Hindalco Industries Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Hindalco Industries Ltd (HINDALCO) Q2 FY24 Earnings Concall

• Financial Performance
  • Consolidated Q2 revenue rose 2% sequentially to INR54,169 crores.
  • Consolidated EBITDA increased 14% QoQ to INR6,896 crores.
  • Novelis, India aluminum downstream, and copper business recovered strongly.
  • Consolidated PAT declined 11% sequentially to INR 2,196 crores.
• Novelis Performance
  • Novelis Q2 shipments rose 6% QoQ to 933 kt on higher beverage can volumes.
  • EBITDA increased 15% YoY to $484 million on higher volumes and scrap usage.
  • EBITDA per ton rose 8% sequentially to $519.
• Copper Business Performance
  • Strong Q2 performance driven by higher volumes of copper cathodes and rods.
  • Also benefited from byproduct credits like gold, silver, sulfuric acid.
  • But will moderate to INR500-550 crores EBITDA per quarter going forward.
• Aluminum Business Costs
  • Coal costs down 15% QoQ in Q2, costs of production down 6%.
  • Seeing some upward pressure in coal costs in Q3 but other costs trending down.
  • Guiding for flattish costs of production in Q3 versus Q2.
• Aluminum Price Outlook
  • Demand in China remains steady, in significant deficit.
  • Macro environment sensitivity causing price volatility.
  • Sticking to price outlook of $2100-2300 per tonne, expect upside if macros improve.
• Aluminum Hedging Strategy
  • Not taking forward positions given price outlook positivity.
  • Hedged 5% for FY25 using zero collar strategy.
  • Collar has floor at $2200 per tonne and ceiling at $2517 per tonne.
• Alumina Sales
  • Sold 138 kt of alumina in Q2.
  • Will see higher 3rd party sales in coming quarters.
  • As 350 kt brownfield expansion at Dahej onstream.
• New Alumina Refinery Project
  • Planning 2 mtpa alumina refinery in Odisha in two 1 mtpa phases.
  • First phase capex slightly below INR 6000 crores, to be completed in 36 months.
  • Secured bauxite supply from Odisha government, have land and clearances.
  • Plan to sell alumina in third party market currently.
• Coal Sourcing
  • Linkage coal was 53% of mix in Q2, e-auction 40%, own mines 5%.
  • Good materialization of linkages at 90% enabled lower costs.
  • Power demand increased recently, impacting October costs.
  • Guiding for flat aluminum production costs in Q3 vs Q2.
• Coal Mine Update
  • Chakla coal mine on track for October 2024 box cut.
  • Won adjacent Meenakshi West mine, awaiting clearances for Meenakshi.
  • If both secured, will take call on optimizing usage.
• Alumina Strategy
  • Going long on alumina due to attractive regional market.
  • Focusing on Middle East smelters within regional proximity.
  • Securing bauxite supply to support refinery expansions.
  • Returns are healthy based on index-linked pricing to LME.
• Utkal Alumina Refinery
  • Currently operating Utkal refinery at 2.5 mtpa capacity.
  • Expanding further would deplete Baphlimali bauxite mine reserves fast.
  • Therefore, new Odisha alumina project to preserve Baphlimali life and secure additional bauxite source for the long term.
• Coal Linkage Auctions
  • Secured Tranche 2 & 3 of expired linkages in previous auctions.
  • Now focused on renewing Tranche 4 expiring in January 2023.
  • Tranche 4 is another 3 mt, auction process ongoing.
  • Managed to renew prior tranches at moderately higher prices
• Mark-to-market Losses
  • MTM losses of INR 2272 crores on cash flow hedges.
  • For LME, currency and commodity hedges undertaken.
  • Includes hedges by both India and Novelis operations.
  • No P&L impact currently, can change next quarter.
• Capex Spending
  • Novelis FY23 capex revised down to $1.5-1.8 billion, at lower end of range.
  • India FY23 capex INR4,000-4,500 crores. FY24 guidance will come in February.