Hindalco Industries Limited — Q2 FY25 earnings call

Call held 12 Nov 2024

Management summary

Hindalco delivered a strong Q2 FY25 performance, driven by record beverage packaging shipments at Novelis, effective cost control in the India aluminum business, and an all-time high for the copper segment. The company reported significant growth in consolidated EBITDA and net profit, while also outlining substantial capex plans for upstream expansions in aluminum and copper, reinforcing its commitment to sustainability and value-added product development.

Highlights

  • Consolidated business segment EBITDA was INR 8,564 crores, up 24% YoY.

  • Overall reported EBITDA reached INR 9,100 crores, a 49% increase YoY.

  • Consolidated net profit after tax stood at INR 3,909 crores, up 78% YoY.

  • Hindalco India business reported EBITDA was INR 5,139 crores, up 100% YoY.

  • Hindalco India net profit after tax increased 135% YoY to INR 2,850 crores.

  • Novelis shipments were 945 Kt, a 1% increase YoY.

  • Hindalco India upstream aluminum EBITDA was INR 3,709 crores, up 79% YoY, with EBITDA per ton at $1,349/ton, up 80% YoY.

  • Quarterly copper EBITDA achieved an all-time high of INR 829 crores, up 27% YoY.

Concerns

  • Elevated scrap prices and increased competition for scrap (Novelis)

Key financials

  1. Consolidated Business Segment EBITDA ₹8,564 Cr +24%YoY
  2. Overall Reported EBITDA ₹9,100 Cr +49%YoY
  3. Consolidated Net Profit After Tax ₹3,909 Cr +78%YoY
  4. Consolidated Net Debt ₹36,033 Cr
  5. Consolidated Net Debt-to-EBITDA 1.19×

What they filed

Q1 FY27: revenue up 32.1%, net profit up 75.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue58,203 58,390 64,890 64,232 66,058 +13%66,521 +14%78,133 +20%84,825 +32%
EBITDA7,883 7,583 8,836 7,906 8,966 +14%7,991 +5%10,014 +13%13,932 +76%
Net profit3,909 3,735 5,284 4,004 4,741 +21%2,049 −45%2,597 −51%7,013 +75%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Hindalco India Business
    ₹5,139 Cr Overall Reported EBITDA₹2,850 Cr Net Profit After Tax₹2,269 Cr Net Cash
  • Hindalco India Upstream Aluminum
    — Shipments— Revenues₹3,709 Cr EBITDA1,349 $/ton EBITDA per ton41% EBITDA Margins
  • Hindalco India Downstream Aluminum
    103 kt Quarterly Shipments₹154 Cr EBITDA179 $/ton EBITDA per ton
  • Copper Business
    117 kt Overall Metal Shipments90 kt CCR Volumes₹829 Cr Quarterly EBITDA
  • Novelis
    945 Kt Shipments462 Mn Quarterly EBITDA489 $/ton EBITDA per ton₹39,261 Cr Net Debt

Guidance & targets

Capex

  • Capex (India) Capex · FY25 · High confidence INR 6,000 crores
    This year, if you remember, we have guided about INR6,000 crores, and I think we're going to be around that number.

    — Satish Pai, Managing Director

  • Capex (India) Capex · FY26 · High confidence INR 8,000 crores
    Next year, right now, we think it's going to be around INR8,000.

    — Satish Pai, Managing Director

Capacity

  • Aluminum Smelter Commissioning Capacity · Oct '27 · High confidence October 2027
    I think that we are saying that the aluminum smelter should come on stream in October of '27

    — Satish Pai, Managing Director

  • Copper Smelter Commissioning Capacity · FY29 · High confidence 2029
    and the copper smelter will be in '29.

    — Satish Pai, Managing Director

  • Alumina Refinery Commissioning Capacity · CY '27 · High confidence 2027
    The refinery will be also more or less coming on stream in '27 calendar year.

    — Satish Pai, Managing Director

  • Inner Grooved Tubes Plant Launch Capacity · Jan 2025 · High confidence January 2025
    In January of 2025, we are set to launch India's first 25 Kt greenfield Inner Grooved Tubes plant

    — Satish Pai, Managing Director

  • Novelis Bay Minette Project Completion Capacity · H2 CY26 · High confidence H2 CY26
    This is expected to be completed in the second half of calendar year '26

    — Satish Pai, Managing Director

  • Novelis Bay Minette Project Targeted Capacity (Beverage Packaging) Capacity · High confidence 420 Kt
    with 420 capacity targeted to beverage packaging, which is fully contracted.

    — Satish Pai, Managing Director

Debt

  • Additional Debt (India) Debt · next 3 years · Medium confidence INR 1 billion to INR 1.5 billion
    we'll probably have to add debt of about INR1 billion to INR1.5 billion over these 3 years.

    — Satish Pai, Managing Director

Cost of Production

  • COGS (India Aluminum) Cost of Production · Q3 FY25 · High confidence up 1-1.5%
    The guidance for Q3 is that it could be up by about 1% to 1.5%.

    — Satish Pai, Managing Director

Profitability

  • EBITDA (Copper Business) Profitability · Q3, Q4 FY25 · High confidence INR 650 crores
    Q3, Q4, we stick to a guidance of around 650.

    — Satish Pai, Managing Director

  • EBITDA per ton (Novelis Bay Minette Project) Profitability · High confidence ~$1,000
    about $1,000 per ton is a very, very reasonable expectation from Bay Minette alone.

    — Dev Ahuja, CFO - Novelis

Demand

  • Beverage Packaging CAGR Demand · through 2031 · High confidence ~4%
    going at an approximate 4% compound annual growth rate through 2031.

    — Satish Pai, Managing Director

Sustainability

  • Total Renewable Capacity Sustainability · H1 CY25 · High confidence 300 megawatts
    This aligns with our target to achieve 300 megawatts of renewable capacity by H1 of calendar year '25.

    — Satish Pai, Managing Director

Risks & concerns

  • Elevated scrap prices and increased competition for scrap (Novelis)

    high

    China's growing scrap melting capacity and global competition are expected to keep scrap prices elevated, posing a challenge to Novelis's margins.

    Both acknowledged

  • Global economic moderation and geopolitical tensions

    medium

    Global economic growth is moderating in H2 CY24, and geopolitical conflicts remain a key risk to disinflation and overall economic stability.

    Management acknowledged

  • Volatility in international commodity prices, specifically copper TC/RCs

    medium

    Copper TC/RCs are at historically low levels, which could impact copper smelting profitability, though management expects normalization in the long term.

    Management acknowledged

  • Protectionist activities altering scrap trade flows (Europe)

    medium

    New regulations in Europe are anticipated to disrupt scrap trade patterns, potentially affecting Novelis's sourcing and margins.

    Management acknowledged

Areas of evasion (2)

  • Quantification of near-term scrap spread impact on Novelis EBITDA/ton
  • Exact quantification of one-off gain in copper EBITDA

Q&A highlights

1 direct, 1 evasive
Novelis scrap spreads and impact on EBITDA/ton Evasive
So, Sumangal, this is exactly where we don't want to go right now because we are 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 the too aggressive side or too conservative side.

Management explicitly declined to quantify the near-term financial impact of rising scrap prices on Novelis's EBITDA/ton, a key concern for investors given recent trends.

Asked by Sumangal Nevatia

Sustainability of copper business EBITDA and one-off gains Partial
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.

While acknowledging one-off gains contributed to the record copper EBITDA, management refused to quantify the specific amount, making it challenging for analysts to model sustainable earnings accurately.

Asked by Amit Dixit

Indian capex guidance revision and cost inflation Direct
Yes. I think that, again, you're absolutely right. I think on the smelter side, we had put it at around $800-or-so-million. And yes, 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 a certain amount of inflation on the equipment as well.

Management confirmed an increase in the estimated capex for the smelter expansion from an earlier $800 million to approximately $1 billion, citing current pricing and equipment inflation, which is a material change for future investment plans.

Asked by Parthiv Jhonsa

3 min read 8 chapters

Detailed narrative

Strong Q2 FY25 Performance Across Segments

Hindalco reported a robust Q2 FY25, with consolidated business segment EBITDA up 24% YoY to INR 8,564 crores and overall reported EBITDA surging 49% YoY to INR 9,100 crores. Consolidated net profit after tax increased by 78% YoY to INR 3,909 crores. The India business saw its overall reported EBITDA jump 100% YoY to INR 5,139 crores, with net profit after tax up 135% to INR 2,850 crores, reflecting strong operational performance.

Novelis Navigates Scrap Spread Headwinds

Novelis achieved 945 Kt in shipments, a 1% increase YoY, driven by record beverage packaging. However, quarterly EBITDA was $462 million, down 5% YoY, and EBITDA per ton was $489, a 6% QoQ decline. This was primarily attributed to reduced metal benefits from rising aluminum scrap prices and an unfavorable product mix. Management acknowledged that scrap spreads are expected to remain elevated due to increased competition and China's policies, but maintained confidence in the long-term EBITDA target of $600/ton.

India Aluminum Upstream and Downstream Highlights

India's upstream aluminum business demonstrated strong performance, with EBITDA rising 79% YoY to INR 3,709 crores and EBITDA per ton increasing 80% YoY to $1,349, achieving 41% margins. This was largely due to lower input costs and favorable macros. Downstream aluminum shipments grew 10% YoY to 103 Kt, though EBITDA was down 1% YoY to INR 154 crores, with EBITDA per ton at $179, impacted by an unfavorable product mix.

Record Copper Business Performance and Future Outlook

The copper business delivered an all-time high quarterly EBITDA of INR 829 crores, up 27% YoY. This was supported by good operational efficiencies, higher realizations from byproducts like sulfuric acid, and increased precious metal sales, including a one-time favorable derivative accounting impact. Despite these tailwinds, management guided for a sustainable EBITDA of approximately INR 650 crores for Q3 and Q4 FY25.

Strategic Upstream Expansion Plans in India

Hindalco announced significant capex plans for upstream expansion, including a brownfield aluminum smelter in Aditya and a copper smelter in Dahej, each estimated at roughly $1 billion. The aluminum smelter is projected to be operational by October 2027, and the copper smelter by 2029. Additionally, a greenfield alumina refinery of 850 Kt, in partnership with OMC, is expected to come online in calendar year 2027, aiming to enhance cost savings and margins.

Commitment to Sustainability and Renewable Energy

The company maintained its leadership in the S&P Corporate Sustainability Assessment ranking for the fifth consecutive year, achieving a score of 87/100. In Q2 FY25, 79% of total waste was recycled, and 9.34 million cubic meters of water (25% of total usage) was recycled and reused. Hindalco's total renewable capacity currently stands at 183 megawatts, with a target to reach 300 megawatts by H1 calendar year 2025, including a recently commissioned 10-megawatt solar project at Taloja.

Focus on Value-Added Products and Recycling

Hindalco is expanding its downstream capabilities, with the Aditya FRP project set to commission in FY26, increasing total downstream capacity to 600 Kt. New facilities are being developed for high value-added aluminum products such as AC coated fins, battery foil (25 Kt capacity), and battery enclosures. In the copper segment, India's first 25 Kt greenfield Inner Grooved Tubes plant is slated for launch in January 2025, alongside a new 50 Kt e-waste and copper scrap recycling facility.

Capex and Debt Management Outlook

The company provided capex guidance of approximately INR 6,000 crores for FY25 and INR 8,000 crores for FY26. Management indicated an expectation to add INR 1 billion to INR 1.5 billion in debt over the next three years for these projects. Despite these investments, Hindalco maintains a strong balance sheet, with a consolidated net debt-to-EBITDA of 1.19x at the end of September 2024, which is lower than the corresponding period last year.

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