Ladies and gentlemen, good day and welcome to Hindalco Industries FY 2023 second quarter earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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. Thank you, and a very good afternoon, morning, everyone. On behalf of Hindalco Industries, I welcome you all to this earnings call for the second quarter of the financial year 2023. In this call, we'll refer to the Q2 FY 2023 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 two of the said presentation. In this presentation, we have covered the key highlights of all our businesses for the second quarter of the financial year 2023, and a segment-wide comparative analysis of Indian Aluminum, Copper business, and our overseas subsidiary, Novelis. We have presented our aluminum upstream and downstream financial operational performances separately to truly reflect the individual business segment performances in Q2 FY 2023. The corresponding segment information of the prior periods have also been restated accordingly for a comparative analysis. We have with us in this call from Hindalco's management, Mr. Satish Pai, Managing Director, Mr. Praveen Maheshwari, Chief Financial Officer. From Novelis's management we have Mr. Steve Fisher, President and CEO, Mr. Dev Ahuja, Chief Financial Officer. Following this presentation, this call will be open to any questions you may have. Post this call, an audio replay of this call will be available on our company's website. Now let me turn this call to Mr. Pai to take you through our company's performance in this quarter. Thank you, Subir. Good afternoon, morning, everyone, and thanks for joining the call. Let me start with good news, that for the third consecutive year, Hindalco along with Novelis has been recognized as the world's most sustainable aluminum company in the 2022 S&P Global Corporate Sustainability Assessment at the Dow Jones Sustainability Indices. Hindalco secured an ESG score of 83 out of 100, which is 10 points more than last year. The company achieved the highest score out of 26 companies assessed in the aluminum industry and has a full score in materiality, environmental reporting, water-related risks, social reporting, human capital development, and customer relationship management. This reflects Hindalco's deep-rooted commitment to maximizing sustainability across the value chain. On slide six and seven of the investor presentation, you can see our progress across metrics of ESG. We are aligned to our commitments of 2050. This is reflected in our increasing share of recycling and reusing of waste in terms of bauxite residue and fly ash. In the first half we have achieved recycling of 82% of bauxite residue and 111% of fly ash. In addition to this, we are now single-use plastic-free at eight of our sites being certified and shall soon attain this certification for all our plants in India. We are committed to zero liquid discharge at all our sites and 20% reduction in specific water consumption by 2025 from the base year of FY 2019. We are on our way of achieving net water positivity by 2050. For this, we are also taking steps like working with global startups to identify effluent recycling monitoring technologies, implementing water audits for assessing rainwater harvesting and recycling capabilities at our plant locations. On the green cover and biodiversity front, we have cultivated Miyawaki patches across our mine sites. We have conducted studies by CII on biodiversity index and carbon sequestration at all our locations. Currently, we are using biomass as a coal substitute in Hirakud up to 5%, and also we have started to use biomass in Aditya and Utkal. On the renewable side, we are in line with our target of reaching 300 MW by 2025. We have implemented 100 MW of renewable in the last financial year. Of the remaining 200 MW, 9 MW is already commissioned during the first half of 2023, and another 109 MW of renewable projects are under execution and finalization. Our large-scale renewable hybrid project of 100-300 megawatts at our Aditya plant with the connectivity to the 400 KV grid is expected to be completed by December 2023. Aluminum specific GHG emissions at the end of the first half of FY 2023 was recorded at 19.18 tons of CO2 per ton of aluminum produced, clocking improvement of 2.4% compared to the last financial year. On safety, we are committed to zero harm at all our plant locations. The LTIFR in India was recorded at 0.33 at the end of first half of this year. One fatality of a contract worker was recorded at our Indian operations in the first half. Let me now give you a glimpse of quarterly consolidated performance for the quarter. This quarter performance on a consolidated basis was impacted by rising input costs, inflationary pressures, and unfavorable macros, which was partially offset by better operational performance of copper and the downstream businesses. Our quarterly consolidated EBITDA declined by 29% year-on-year to INR 5,743 crores, whereas the consolidated PAT for continuing operations declined by 36% year-on-year to INR 2,205 crores. Hindalco at the consolidated level maintains its strong balance sheet with a net debt to EBITDA well below 2x at 1.47 at the end of September 2022. Consolidated net debt stands at INR 42,063 crores. At India operations, net debt stands at INR 4,812 crores, and for Novelis it is at INR 37,251 crores. All our strategic CapEx in India as well as in Novelis are mapped with the cash flow generation in the businesses and are in line with our capital allocation policy disclosed at the beginning of this financial year. On our India hedge position for aluminum business, we are hedged at 30% for the second half of FY 2023 at $2,500 a ton, and at 5% at $3,000 a ton for FY 2024. Coming to our business-wise performance for this quarter, Novelis delivered yet another strong quarter with 2% higher shipments, year-on-year EBITDA per ton well above 500 at $514 per ton in this quarter, and a net income from continuing operations at $184 million, which was 23% lower than the corresponding period last year. Novelis broke ground on the new U.S. recycling and rolling plant in Bay Minette, Alabama. Hindalco's India aluminum business performance, upstream aluminum performance this quarter was impacted by rising input costs and unfavorable macros. EBITDA was 57% lower at INR 1,347 crores. EBITDA per ton was at $495 a ton, whereas EBITDA margins were at 16.4%, though they continue to be one of the best in the industry in the current challenging business environment. Overall shipments of the primary aluminum were 341 Kt. Of this, third-party shipments were 245 Kt and 96 Kt was transferred to the downstream business in quarter two. On the project side, our Utkal Alumina 350 Kt expansion is expected to be commissioned by next year. The downstream aluminum business delivered an all-time high EBITDA of INR 200 crore this year, up 163% year-on-year on account of better pricing. EBITDA per ton was also up 120% year-on-year at $264 a ton with a sales volume of 95 Kt this quarter, which was up 11% year-on-year. During this quarter, Hindalco developed India's first aluminum freight rake for the Indian Railways. This was a big step by Hindalco towards decarbonizing in rail transportation. All our expansion projects in aluminum downstream are progressing well and as per schedule. On the copper business, our copper business continued to deliver improved performance with an all-time high metal and copper rod sales in this quarter. Copper EBITDA was higher by 55% year-on-year at INR 544 crore on the back of higher volumes and improved by-product realization. Now let me give you some glimpse of the current broader economic environment. The global economy continues to face steep challenges shaped by three powerful forces. The Russia-Ukraine war, persistent and broadening inflationary pressures, and the slowdown in China. As per IMF, global growth is expected to slow down from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023, led by three large economies, namely the U.S., Euro area, and China. The 2023 slowdown is expected to be broad-based, with almost one-third of the global economy expected to contract. Inflationary pressures have been persistent and have permeated well beyond fuel and food. This has had a twofold impact in terms of the tightening global monetary condition and strengthening of the U.S. dollar against most currencies. IMF forecasts the global inflation to rise from 4.7% in 2021 to 8.8% in 2022 before decelerating to 6.5% in 2023. Despite global headwinds, the Indian economy remains resilient. High-frequency data provide a mixed picture about growth drivers. While slowdown in external demand and tightening monetary conditions are weighing down on export growth and capital flows, the government's thrust on CapEx, strong service sector activity, and private consumption are expected to drive India's growth momentum. The RBI projects India's FY 2023 GDP growth to be 7% year-on-year with broadly balanced risks. High domestic inflation above the RBI's target of 4% (2%-6%), and tighter global monetary conditions have prompted the RBI to hike policy rates by a cumulative 190 basis points in the last six months. RBI projects FY 2023 inflation at 6.7%. On the aluminum industry outlook, in the first nine months of 2022, the global aluminum production grew 2%, while the global consumption grew 1% year-on-year, resulting in a marginal deficit of 0.3 million tons. In those first three months, the Chinese production increased in certain provinces, but there was a decline in production in Sichuan due to power supply issues. Hence, the overall production in China grew by only 3%. Chinese consumption was flattish due to the zero COVID policy. This has resulted in a deficit of 0.1 million tons in the first nine months of calendar year 2022 in China. In the world ex-China, production grew in the Middle East, whereas production declined sharply in the European regions due to rising energy prices. Therefore, the overall production was flattish while consumption improved by 2% due to strong demand in the packaging segment. The overall market balance reported a deficit of 0.3 million tons on a year-to-date basis in calendar year 2022. Now, if you just look at calendar year Q3, the global aluminum production increased by 4% while consumption improved by 1%, resulting in a marginal supply surplus of 0.1 million tons. Chinese production grew sharply by 6%, whereas consumption, supported by strong new energy vehicle sales, improved by 2%. This led to a deficit of 0.2 million tons in Q3 2022. In the rest of the world, the overall aluminum production and consumption was flattish, resulting in a surplus of 0.3 million tons in Q3 2022. The global aluminum prices on an average declined to $2,354 a ton this quarter, and continued to fall to $2,250 per ton on a QTD basis in 2022. This fall is led by worries of a weaker demand in China and Europe and recession concerns, combined with the hawkish monetary policy. However, the domestic demand of aluminum in Q2 was 25% higher on a year-on-year basis, and is expected to reach 1.178 million tons due to the base effect. On a sequential basis, the domestic consumption is likely to be strong in the electrical and automotive sectors. There may also be some headwinds in the building and construction sector on account of rising interest rates. On an overall basis, the domestic demand of aluminum is expected to remain strong, supported by resilient economic growth and stable macro. The global FRP demand is expected to grow at about 3% in calendar year 2022 compared to 11% in calendar year 2021. The market demand for resilient beverage can sheets is expected to remain stable. Automotive demand segment is led by elevated levels of pent-up demand, supported by growing consumer demand for vehicles that use a higher share of aluminum. The demand in specialty segment is expected to remain strong with high order backlog in the B&C segment, while some softness is seen on account of seasonality and the macroeconomic environment. The aerospace segment is expected to remain strong with the resumption of air travel and the long order backlog with OEMs. Domestic FRP demand is expected to grow by 37% year-over-year in Q2 FY2023. This growth is supported by strong demand in the packaging and B&C segment. Talking about the global copper industry, global production of copper grew by 2%, whereas consumption grew by 6% in the first 9 months of this calendar year. Chinese production grew by 3% year-over-year, whereas consumption grew by 8% year-over-year. In the rest of the world, production of copper increased by 1.9%, whereas consumption grew by 3.6%. On a quarterly basis, global production of copper has increased by 3.1% year-on-year, whereas consumption has grown by 7.7% year-on-year. Chinese production of copper increased by 6.5%, whereas consumption growth was at 8.4% on a year-on-year basis. In the rest of the world, production increased by 0.7% year-on-year, whereas consumption grew by 6.9% year-on-year. During Q2 of FY 2023, the spot TC/RCs showed improvement compared to the previous quarter on account of lower spot purchases by smelters globally and several Chinese smelters taking their maintenance shutdown, along with the expectations of new mines coming on stream. The spot TC/RCs improved to $0.215 per pound levels currently from the $0.18 cents per pound during June-July 2022. On account of new mines coming in and improved availability of clean material, the spot TC/RC is expected to remain elevated during Q3 and Q4 of financial year 2023. On the domestic side, the overall market demand grew by 18% year-on-year at 188 Kt in Q2 of FY 2023, whereas imports grew by 6% year-on-year at 45 Kt. Further details of our operational and financial performance in each of our business segments this quarter compared with the corresponding period of last year and prior quarters are covered in the slides and annexures to this presentation. I will now conclude today's presentation with our strategic priorities and way ahead. Our topmost priority is maintaining our robust capital structure with a strong balance sheet to fuel the next phase of our growth. Our value-enhancing growth is directed towards expanding capacities in various business segments and diversifying our portfolio to provide not only products but solutions. Expanding downstream businesses in both aluminum and copper organically. Our focused approach on the 2050 ESG commitment to become industry leader in sustainability. Our portfolio enrichment strategy of advancing from a manufacturing company to a manufacturing solutions provider in the long run, in line with our downstream strategy. I also want to reiterate that we are committed to all our ongoing projects, and we will moderate and pace new strategic CapEx both in India and Novelis to be in line with our generated free cash flows. Thank you very much for your attention, and we will now open the forum up for any questions. Back to you, operator. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Indrajit from CLSA. Please go ahead. Hi, good evening. Thank you for the opportunity. Two questions from my side. First, sir, what is your outlook for aluminum prices going into next year? With that in mind, does it make sense to increase our hedging for FY 2024 right now? I think the way to look at how the LME can perform is to say that on one hand, the fundamentals of supply and demand of aluminum is extremely tight. There is no real surplus anywhere. European smelters are down. Inventories are, you know, at 15-year lows. You know, it's less than 10 million tons of aluminum in inventory. Supply-demand is tight. I guess what happens to the LME now is dependent on these macroeconomic factors that everybody is watching. I think that the most important ones are what happens in China. Will the zero COVID policy be eased, and will the economy start to grow? Because that's 50% of aluminum production and consumption. The second thing is the state of the U.S. economy. Third is, you know, in some ways, what happens in Europe with the war, will it drag Europe down deeper or not? As you can see from what happened yesterday, the slightest positive news that comes that U.S. inflation is sort of not as high, immediately the U.S. dollar dropped and all commodity prices today have jumped up. I think it's a fairly volatile situation, and the market is waiting for the broader economic volatility to go out and see is, are the economies going to be okay, or is there going to be a recession? I think the LME is going to depend on that. Now, one thing is very clear, is that it does look like the 2,200-2,300 is sort of a baseline based on the high cost of production that has emerged. It's from that level it can go up or down. We intend not to hedge at current levels and wait because we think that there could be upside next year. Sure. Thank you. On copper, are we at a stage of determining the TC/RC negotiations for next year, or is it too early? No, that's going on in China. Normally in November it happens. It should be declared any time, but we are fairly confident you're going to see a number, you know, somewhere between $0.80 and $0.20 per pound, much higher than the sort of $0.16, $0.17 we saw this year. Sure. Lastly, any color on aluminum cost of production? What was the increase this quarter, and any guidance for next quarter? Yeah, yeah. Look, the cost of production in Q2 was, you know, it went up by 20%. I think now we have sort of peaked, and it will start to go down as coal prices and all are going down. Now, I think in Q3, the decrease will probably be in the order of 2%-5%. I'm sort of giving a range because I really need to see how much the coal prices go down by. Now, just anticipating a question. This cost of production is what we see on an ongoing basis. On a realized basis, I just wanted to come upfront and say that Q2 saw the benefit of about INR 300 crores of low cost inventory starting position. Whereas in Q3 we will not see that benefit because you're now going to have higher cost inventory of Q2, which will get sold during the first months of Q3. Sure. Thank you. That's all from my side. All the best. Yeah, thanks. Thank you. Next question is from the line of Pinakin from JP Morgan. Please go ahead. Thank you very much for this opportunity. So a couple of days back, when Novelis held their call, they severely guided down the second half EBITDA per ton guidance after the increase in guidance seen in August. The one question that we have consistently got from investors is that what are the key variables that would need to change or remain steady in terms of the macro environment for FY 2024 EBITDA per ton to go back to $525 per ton? What is it aluminum price? Is it scrap profitability? Is it demand? Just trying to get a sense of what would lead to a normalized margin and what are the risks to that margin recovery in FY 2024? Steve? Sure. Pinakin. As we talked about a few days ago, the overall top line market stays very strong across our end markets that we participate in, whether it be beverage packaging, whether it be automotive, aero, many of the specialty markets. The one specialty market that we are looking at closely, driven by interest rates, is our B&C both in Europe and North America, and a potential pullback there. We think that could be offset against stronger demand actually even coming in in some of the other markets. We stay committed to the $525+ EBITDA per ton as our sustainable long guidance for Novelis. What's bringing us down in the near term is lower metal benefits, the rising inflation that even Satish spoke about, and then the higher cost of inventory that's in our books today that will be coming out in the third quarter. We do believe in our fourth quarter we'll be able to start to pass through contractually a lot of the inflationary costs. We think there'll be some easing of inflationary costs as we get into the fourth quarter. We also see that metal spreads will be improving. We believe in the fourth quarter, not necessarily due to an increase in overall aluminum prices, but because of some of the dynamics that we experienced primarily in our South America business, in the second and third quarter here, some squeezing of spreads. As that returns, and the top line shipments stay, we believe that $525 is achievable again, as we get through the next couple of quarters. Sure. That's very helpful. Just to, you know, clarify that, in the event if the U.S. economic situation or demand deteriorates materially, leading to lower LME aluminum prices, would lower LME aluminum prices combined with a weaker demand in the U.S. be the single largest downside risk to the $525 number in FY 2024? I won't comment on aluminum prices. I think Satish said that they believe 2022, 2023 is a floor of aluminum prices. Certainly, further deterioration in aluminum prices will put pressure on the recycling business. There's no doubt about that, if it was to occur, but I think Satish has a better view there. As it relates to overall recessionary environment in the U.S., listen, 60% of our business is beverage packaging, and beverage packaging has proven itself over and over to be a recession-resilient end market. There you go from on-premise to take-home consumption of beverage packaging. That is gonna help us very much in our portfolio. There's still tremendous pent-up demand, strong balance sheets of consumers, on the auto business. The one business that we look at is the B&C business that certainly the order book with rising interest rates is starting to dampen a little bit, but that's not, you know, we think that can be offset again by some of the other businesses. It's hard to predict exactly what a recession could look like. But ultimately, we think we've got a very good product mix to ease any headwinds we might see in that condition. Thank you. That's very detailed color. My second question for Mr. Pai is that, given this backdrop of very high volatility and increasing uncertainty, especially on Western demand, there has been a CapEx push out this year in, you know, at Novelis level. But at a consolidated level, does the CapEx pushout mean that there is a risk of CapEx getting bunched up over the next two years, at a time when the macro could be even weaker? Or there are projects which could get pushed out and the spending plans accordingly adjust to the level of cash flows? Not this year, just likely over the next 18-24 months. Pinakin, that's why I'm going to read out my prepared last statement again. We are committed to all our ongoing projects. Ongoing projects is like Bay Minette, FRP expansion in India, Silvassa. These are going to go on as planned. My next part was we will moderate and pace any more new projects that we start, both in India and Novelis to be in line with our generated cash flows. I think the point we are trying to say is that the projects that are already off the ground, we are committed to them and will continue. Any new projects we start, we are gonna take a look at the environment and make sure. See, our point is not the current economic environment. We just want to make sure that we are within our cash flows and what we have committed to on the net debt to EBITDA, and that is driving us because we are fairly confident that one year, one and a half years down the road, the demand for aluminum product is going to be quite strong. We intend, if we can, within our cash flows, continue to do as many projects as we can. Otherwise, we'll take them out if we are not able to finance them. We will not add debt to do projects, Pinakin. Again, to repeat. Understood. That is very, very clear. Thank you very much, sir. Yeah. Thank you. The next question is from the line of Amit Dixit from ICICI Securities. Please go ahead. Hi, good evening, everyone, and thanks for taking my questions. I have two questions. The first one is on copper business. We have seen copper business consistently hitting INR 5 billion plus EBITDA over a few quarters. Do you believe that this kind of range is sustainable, particularly in light of, you know, TC/RCs going up and, of course, the by-product prices, as well as prices also being high? I think that, you know, it's, I'm wary to just go and give a higher projection, straight away. I would say that $450-$500 is, sustainable. It's not just the TCRCs. What's benefiting the copper business is, higher sulfuric acid prices as well, which in Q3 will come off a bit. I think that, you know, I would be comfortable to say $450-$500 is, sustainable. Okay. Got it. The second question is more of a bookkeeping question. If you can, let us know the third-party alumina sales and the margin. I can tell you the sales, not the margin. The sales was about 250 Kt in Q2, because some of Q1 spilled over to quarter two. In Q3 we will be selling about 150 Kt more. Though the benchmark alumina has, in Q2 it was about $340. In November, it's running at about $320 right now. Okay. Sure. That's very helpful. Thank you and all the best. Yeah, thanks. Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead. Hi. Thank you for the opportunity. My question pertains to the Indian downstream business. Mr. Pai, in interviews you've indicated increased adoption likely of aluminum in the Indian auto and logistics sector. A couple of questions on that. On the first one we've heard, we've seen the first aluminum rake in India. We've also seen this year a full aluminum body metro body Maha Metro. This I would have believed is a cost-conscious customers, the government, but now it is looking at full life cycle cost and CO2 savings. Just want to understand the total market. If I understand, the steel requirement in railways is about maybe 2-3 million tons, but a lot of that is rails. What could be the potential market size for you in this, in this particular segment? That's the first question. Look, the total market size is going to gradually evolve. I mean, you know, the longer term demand could be quite large. If you just take the EV, the battery vehicles, the two-wheelers where aluminum is used, the truck bodies, we think that this can, in the sort of next three to five years add at least another 100 Kt of extrusion and rolled product demand in India. The longer term can be even much larger than that. Okay. In the next three to five years we're looking at 100 Kt. Yes. Sir, on that particular one, so we've seen Indian Railways and Metro actually look more favorably at aluminum. You've also introduced aluminum trailers, aluminum bulkers. Outside we've not really heard any, let's say, I'm using an example, maybe Ashok Leyland talk about using aluminum trailer because it has lower CO2 in life cycle. We've not seen cement companies outside of UltraTech yet talk about bulkers there. Are you sensing maybe certain reservations about costs? Or you maybe think that maybe customers are open to the idea, maybe it just, it's a matter of time? I think they are not talking about publicly because there is serious negotiations going on with all those parties you talked about. If they come out and say, "This is very great for us," then, you know, they are trying to squeeze us on the pricing right now. Okay. There is a lot of discussions going on in bulkers, trailers, two-wheelers, battery enclosures for electric cars. A lot of, you know, and direct customer discussions going on for us. Our extrusion project in Silvassa is becoming very important because the first press will come online this December, and hopefully by middle of next year all three presses are coming because the demand for all this, there's quite a lot of extrusions in these transportation sector. Mm-hmm. Just for understanding sake, the Indian freight rake is a plate. But when you look at the Hirakud facility, is there a capacity that you've outlined for plates and some for rolled sheet and coils, or is it fungible? Just want to understand how those segments work. Look, it's a bit technical, I'll give you just one example. On the rake side, it uses a harder 5,000 series alloy, and that can only be made in the Hirakud facility. That's why the Hirakud hot mill is the strongest and the largest in the Hindalco system. By the way, it's hardly utilized today, that's why we are putting up more cold mills in Aditya and Hirakud to take advantage of it. The 5,000 series will have to come from Hirakud. Okay, sir. Thank you. Thank you so much. Yeah, thanks. Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead. Yeah, thank you for the opportunity. A couple of questions. First, from the coal mix, if you could explain what was our coal mix, and when we say the deflation of 2%-5%, what is the coal mix going forward that we are factoring? Yeah, good question, Sumangal. In Q2, roughly, we had about 47%-48% of linkage coal and nearly 30% of e-auction. The remaining part was, you know, own mines, private parties, import. When we say the prices are coming down, we are expecting we were getting 75% linkage, as you know, from the government. We are expecting this to start, this percentage to go up, that they will go back to ninety percent is what we are expecting. The second thing is that the remaining 30%, that is a large amount we were buying in e-auctions. The premiums have drastically started to come down compared to the very high numbers we saw in Q2. That's built into our assumption of the two to five percent reduction in costs. Okay. The captive mines, we are running full, right? I mean, there's no change in the near future in terms of volumes and contribution from there. No, but you see, in Q2, only Gare Palma 4/4 was running. Kathautia, we had run out of land. Now we have procured more land, and in Q3, Kathautia will also start producing. That will help Mahan. I mean, this is a gradual change in terms of increasing linkage. Once we move to our old ratio of linkage and e-auction, I mean, in broad, is it double-digit kind of a deflation should be built in for coming quarters? I mean, see, compared to even the previous quarter or the same quarter last year, our energy prices compared to the same quarter last year are more than double. Just the order of magnitude, huh? Okay. There is a huge space for our pricing, cost of production to come down if coal prices come back to the normal linkage levels that we had. Got it. Understood. Sir, with respect to other RM in terms of carbon, caustic, I mean, what sort of movement are we seeing in this 2%-5% deflation factors in all the RM put together? Yeah, yeah. We have, you know, I think this 2%-5%, believe me, we have done enough scenario analysis to do that. You see, furnace oil has started to come down. Pitch is still high. AlF3 has come down. It's a bit of a mixed bag. The others, it's a bit of a mixed bag. There's only, let's say, pitch has gone up dramatically. The rest are flattish. Furnace oil is actually down. The rest of the ones are not adding too much to further inflation. Our biggest headache now is the price of coal. Mm-hmm. Understood. Just for a calculation point of view, I mean, what absolute level of this, I believe, is at hot metal level. What is the absolute level of hot metal level to then build the inflation and deflation in future? Is it, like, somewhere around $2,000 odd? Sorry, I didn't get the question. You mean the cost? Yeah. The cost. No. The absolute cost, we don't give out that number. I think you can back calculate it. Okay. That's fine. Sir, just one last question on the CapEx. I mean, you said new projects we will evaluate as per the cash flows. These are projects beyond what we had already basically articulated in our investor day. Within that only the under appraisal projects can be flowed down as per the cash flows? The latter. The underappraisal one. Got it. What is guiding, sir? Is it the absolute level debt which we are, which we have an eye on or the scenario? I mean, what exactly is the guiding point for these decisions? Look, in India, because in Novelis we have committed to a 2.5 net debt to EBITDA. For Novelis cash flow, CapEx, that is the guiding point for us. In India, I just want to stay within the cash we have generated so that we don't have to take any more debt to do the projects. Because we have, you know, India is an upstream business, bit more volatile, so the absolute debt levels are as important. We have now got the gross debt in India down to about INR 14,000 crores. We have a healthy treasury position of INR 10,000 crores at the end of the quarter, of course, largely because of cash generated in the previous six quarters where we had a good LME. We do not want to add any more debt, and we want to keep our CapEx projects within the cash flow we generate. Understood. That's very helpful, sir. All the best. Thank you. Yeah. Thank you. Thank you. The next question is from the line of Prashant Kumar Kota from Emkay Global Financial Services. Please go ahead. Sir, good afternoon and thanks for the opportunity. My first question is to Satish Pai. Sir, at Hindalco we have a very resilient and sturdy business model when we look at the business combined, that is India. India within India operates a bit counter-cyclical. We have Novelis. The only cyclical component is in the aluminum business. Alumina is again quite sturdy. In this situation, should we based on transient one or two quarters of a dip in EBITDA or EBITDA margins or EBITDA per ton for aluminum. Should we slow down or should we moderate our pace of CapEx, or should we just go all guns blazing? Because other, we have a very resilient business model. We have a very good, financial reputation with the lenders, solid group. Even if we for a quarter or two, if the financial leverage ratios move here and there, isn't that okay, sir? Why not, the more the merrier and the faster the better, the more sweeter the fruit will be and if we do the hard work, you know. No, I thank you for your confidence in our business model and all. I think that, you know, we have been very clearly articulating the capital allocation strategy. We have been articulating net debt to EBITDA targets. That's why I again think that, you know, it's not. I repeat again, we are pacing the CapEx. We are not reducing anything. We are not canceling anything. We just want to make sure that, you know, because the current environment is very cloudy, so we just want to be a little bit prudent and, I think that, you know, saying that we will remain in India within our cash flows is okay. I think that it's not guns blazing, but it's still sticking to the strategy that we have. Understood, sir. My second question is to Mr. Steve or Satish. Given that at Novelis, yeah, one quarter, maybe the EBITDA pattern would be one and a half quarter. Maybe it is dipping below the previously guided $525, but there's a lot of uncertainty volatility out there in Europe and some parts of America. Now that auto is coming back and there is pent-up component of auto, the aerospace, the travel-related segment is coming up, coming back very well. There are cost pass-throughs that are expected to be fully done by the end of Q4 or largely done. The other tailwinds are let's say hopefully the rate hiking cycle peaks before March or versus June, earlier expectation based on yesterday's trend, et cetera. All these things falling in place. Is there a possibility that the zero-COVID policy substantive changes are done in China, assuming that. Is there a possibility that in FY 2024, maybe from second quarter onwards, the EBITDA per ton guidance could be increased? I like your very optimistic outlook, but Steve, go ahead. Yeah. I think you've articulated well the headwinds that we're seeing in the near quarters and how we will manage through those. Combination of easing, pass-throughs, and spreads returning. We are very confident of returning to $525 per ton as a sustainable EBITDA. That's the guidance that we're giving. Long term, as we ramp up our Bay Minette asset and other organic expansions and some of our newer contracts come in place, we have said there's upside to the $525 with those contract prices. Sure, Mr. Steve. Understood. Satish, sir, actually, I'm just stating the facts. I hope you're right with your calls on the macro. Absolutely with you. Well, thank you so much, sir. I wish you all the best. Yeah, thanks. Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal. Please go ahead. Yeah. Thank you very much for the opportunity. My first question is, with respect to your slide 37, where you have mentioned the EBITDA and sales reconciliation. Now, we all generally understand there is an inter-segment profit element, which gets adjusted when we do a consolidation. For example, now the upstream unit sells aluminum to the downstream. There is a profit embedded. On the reconciliation, that inter-segment profit gets eliminated. In this quarter, there is an element of inter-segment loss of about INR 437 crores. Could you please guide us on how to read this particular line item? No. Praveen here. I'll just explain to you. You know, when you have a couple of segments within a company and one segment transfers the material, its output to another segment, there is a certain profit element that sits in the inventory at the end of the period. As per the accounting standard, we are required to remove it. Typically, profit elimination will be a loss. Q1, for example, in our case, whatever elimination was done got reversed in Q2, so that becomes a profit for Q2. Similarly, Q2 end, we have some profit which is sitting in the inventory, which is removed. The number that you see here is a delta between the reversal and the elimination. In this case, what it signifies is that the elimination in Q1 was higher by INR 437 crore compared to the elimination done in Q2. That depends entirely on the value of the inventory and the profit sitting in that and the quantum of inventory. INR 437 is that kind of a net delta between Q1 and Q2 profit elimination. I hope that clarifies. Yeah. In that case, it would be a fair assumption, or a simplification to say that in a falling aluminum scenario, typically you would see inter-segment losses coming up. It depends, you know. It depends on the delta between the opening position and the closing position. Because last quarter you would have eliminated, which will be reversed in the beginning. If that is higher, for example, in this case it is higher compared to the elimination that you do at the end of Q2, then you will see a profit. For example, whatever elimination has taken place, let's say at the end of Q2, if at the end of Q3 the elimination is still lower, you might still see a profit coming up. You are right. The higher the drop in a quarter, the higher the loss at the end of the period because of the elimination. Of course, the number will be positive or negative depending upon the delta. Yes. My second question was with more regards to disclosure in terms of the downstream aluminum business. The volumes are low. The EBITDA itself is not very significant, but we still want to highlight. Is there somewhere down the line an element of understanding that this business gets listed separately? I think that's far too premature at this stage. I think what we are trying to do is to build an integrated business model because we produce 1.3 million of primary aluminum. If you see, we are at about 400 Kt of rolled products, extrusions, wire rod, et cetera. We have stated that our strategy, if you see now just Silvassa and the thing, we'll add another 200 Kt. Really we want to get to about 800-900 Kt of rolled products. I think that all the other business models, listing and all that will come once we have executed all of this. Exactly. You rightly said once you achieve the scale, that would be the second objective. I completely agree with that. Yeah. My second question was with regards to your coal production. You've mentioned that, you know, by the next two-year timeframe, you would be largely self-sufficient probably by the end of FY 2024. If you could just help us with the progress made on that front, especially on the captive coal mines that we recently won. Yeah. I don't think I said FY 2024. It'll be more like FY 2025. Chakla, which is 5.5 million tons, will come on stream hopefully by December 2023, so next year, December. It will take some time to ramp up to its capacity. The Meenakshi mine, we are still waiting for the government to do the formal notification to us, so we have not been able to start that. I think of the 16 million tons, you know, we will get about 6 of our own by end of, let's say December 2024. The Meenakshi mine is another critical one, so we are awaiting its notification to us. Only after that one comes in, then we'll be completely clear of Coal India. Meenakshi, we should not assume anything, I don't know, anything coming in FY 2024. Best case scenario would be FY 2025. That's correct. That's correct. We can expect costs to be slashed drastically. Yeah. I mean, the, you know, what's going to happen if you look at overall Indian captive industry side, everyone has got mines, and everyone's mines are going to come on. So the demand for e-auction coal and Coal India coal will start to moderate. So then you may, you know, even your linkage coal availability and pricing will start to moderate. So it's not just our coal mines. Most of the others have own coal mines, and all of those should be coming on stream from, let's say, 2023 and 2024. So I'm hoping that, you know, in the next two years, this tightness in the coal market will sort of disappear. Just a related question to the coal mine. While we completely agree on the coal mine production coming through, but how are we planning for the evacuation? Because I think more than the production, I think the bottlenecks are also on the evacuation part, whether it's rail, merry-go-round or the trucking system. How do we plan with that? Absolutely right. That's why, you know, for Meenakshi, we know very well there is a siding because there's a rail line very close by. Meenakshi is in the Sundargarh area, which is well connected from a coal point of view. Chakla as well, we will have a rail siding into the coal mine. Actually majority of the CapEx cost of a coal mine goes into land acquisition and then the railway siding. Thank you, Mr. Chandak. May we request that you return to the question queue for follow-up questions. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants on the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Arijit Dutta from Kotak Mutual Fund. Please go ahead. Hi, Arijit. If you note the current high cost inventory, I mean, if the current high cost inventory will be out of the system and the current cost of raw materials will be replacing that. The second thing is the renewed cost, which you are saying will be much better rewarding as you are guiding. Given these two scenario, do you think if all other things remaining constant, for example, the current spread, current aluminum price of say $2,300 and the current auto can and aero demand Can we reach the $525 mark or you need some more assumption benefit to go to that $525 mark? In short, if we assume that the high cost inventory is out and the current cost of inventory will be replacing, and the new negotiations are already by virtue of the formula of negotiation will be better rewarding, will you be able to reach the $525 mark that you are guiding? Thank you. Yes, please. Yeah. Just a couple of comments. We've said that we start to pass through costs, you got the inventory right. Inventory, the higher inventory costs will come out over the next quarter, and we have already started seeing some easing of various costs such as the higher ocean freight that would have been embedded in that inventory and some other easing already occurring. That will work through the system. We will start to contractually pass through higher inflationary PPI clause in our contracts starting at the beginning of calendar 2023, but those are not all reset on January 1, so that will continue through the second quarter of calendar 2023 as well, as we reset those. We do need some level of return to normal scrap spread in particular South America. We've guided that we are confident that that will occur starting in the fourth quarter, but that does need to occur. Then the only cautionary item that I would put out there is the European energy situation. Today we have seen some dramatic dropping of spot prices for natural gas and electricity. We've guided that if we continue to see the spot prices where they are at today, we would see similar impacts on energy that we've been seeing in the last couple of quarters. However, if energy did spike again, in Europe, that could dampen or be another headwind that we'd have to deal with as well. Hopefully that helps you. Again, we do stay confident in our $525 EBITDA per ton guidance and ability to get back to that level. If I can probe you a bit more on what you have just said. Apart from the high cost inventory and the new contract, you also need the spread to normalize in order to reach the $525 mark, assuming that the European energy situation will not come in with any high cost. I mean, energy prices will not move up further. Is my understanding correct? The three variables which are like the inventory moving out and the renewed contract, and only the futuristic assumption will be the scrap spread to normalize, then only we will reach the $525 mark. Is that my understanding correct? Your understanding is correct. Obviously we're assuming the strong market conditions in our end markets that we've articulated for FY 2023. Yes, your understanding is correct. The spreads, again, are not based off of an assumption that we need to see a dramatic increase in overall aluminum prices, but normalization of the tightness in the overall scrap market moderating over the next couple of quarters. Thank you, Mr. Dutta. May we request that you return to the question queue for follow-up questions. The next question is from the line of Pallav Agarwal from Antique Stock Broking Limited. Please go ahead. Yeah, good evening, sir. I just want to clarify that we do not have any mark-to-market inventory losses during the quarter. Some of the steel companies have reported some losses, but I mean, we didn't have any of those losses this quarter, right? No, no. Inventory is valued at cost and, there is no interim losses there. I think what we said was that, you know, Q2 results, if you look at it, were, if you just take the cost of production and put it, the results were a bit better because we benefited from the opening inventory at the end of Q1 being produced at a lower cost. Whereas in Q3, the opening inventory will be the Q2 one, which is produced at the higher cost. That will have a negative impact in Q3, is what we said. There's no mark-to-market loss. Sure. With the LME, you know, close to, at one point in time, close to $2,200 per ton, which is probably not very far from, you know, the cost of production. Q3 also, we don't really expect to see any of these. No, no. You see, the net realizable value of the inventory is still higher than the cost of the inventory, and that's why we make the money as well. The profit has been lower, but it is not as if we are making losses. Losses. Yeah. Sure, sir. Also, just, you know, some, if you could just help us with the availability of rakes, et cetera, because I think this was probably, an issue faced by some of the companies where they had to shift from, you know, rail to road, and that led to higher logistics costs. Is that something we are facing as well? I mean, it has started to ease out, but it's a good question because it allows me to tell you guys that we now have the aluminum rake that we launched in the Aditya sector is owned by Hindalco. That rake is now providing up and down coal runs only for us. We also got our own rake in the Mahan Renusagar sector. We now have two coal rakes fully owned by Hindalco, which is helping to ease the situation. The current government rake situation is still a little bit tight. All this is factored in this 2%-5% reduction or probably you could have a higher reduction in cost in Q3? I hope we have a higher reduction, but I think that, you know, I'm just trying to give as realistic as I see it now. Okay, sir. Yeah. Thank you. Thank you. The next question is from the line of Bhavin Chheda from ENAM Holdings. Please go ahead. Good evening, sir. Overall good results in the challenging environment, and good to see your downstream bifurcation. It gives much more data for us. A few questions. First on the coal mines. I missed out a point, I think what you said in quarter two, the coal mix at 22%, balance was from own mines/private party/imports. The imports portion would be almost negligible, and should we assume that this 22% would be largely your own mines? No, no. Let me repeat again. It was about 47%-50% was linkage. Right. 30% was e-auction, so that's remaining 20%. That remaining 20%, roughly 6% was of our own mines, and the remaining 14 was private and imported. The imported ones, whenever it is slightly better than like for some time Indonesian coal and all happened, we took some. Generally, imported for us is less than 5%. Sure. Now, sir, I see your coal mine details, I think the which. Yeah. I think you have some five mines. This Gare Palma IV and V, I think, the peak run rate annually should be 4 million. Are you doing 1.5, 2 kind of a thing? If less, then any specific reason how and when this would be ramped up? See, IV by V we have officially already returned nearly one year ago. Mm. Okay? Dumri never started because of various regulatory reasons. We are running two mines, Chakla and Kathautia. Two of them combined should be giving you nearly about 1.5-1.75 million tons. Gare Palma Chakla in Q2 was running full. We had some land availability issues in Kathautia, which we resolved. In Q3, Kathautia is also producing. I think Gare Palma IV, the capacity to run annually is close to 1.2-1.3 only. No, no. Between Kathautia and Gare Palma. Yeah. Because Kathautia had 0.8 million annual run rate. That's correct. Right. That's correct. Which means the balance of Gare Palma IV should be INR 1 million only. No, no. Chakla 4 by 4 is 0.8, and Kathautia is also about 0.8. The nameplate capacity of these two mines is 1.6 million. Sure. Dumri, Chakla, whenever they start, Dumri should be 1, Chakla should be 5, and Meenakshi should be 12? We are focusing on Chakla as number one to start by next year. That's 5.5. Right. Meenakshi is 12. Okay. What's the status of Dumri? Sorry, I didn't got that. Dumri is still, how should I call it, mired in regulatory issues. Okay. Anytime soon? It's 12-24 months away still, right? Yes. More than that. Okay. Okay, thanks a lot, sir. Yeah, yeah. Thank you. The next question is from the line of Ashish Kejriwal from Nuvama Wealth Management. Please go ahead. Yeah, hi. Good evening, everyone. Thanks for the opportunity. Sir, this, in this quarter, when you are talking about 3%-5% reduction in cost, and at the same time you are saying that your linkage coal will increase from around 48-50 to maybe around 60%+, and the auction prices have also come down. You know, then this 3%-5% seems to be very, very low. Is it possible to quantify, you know, what kind of reduction in premium, e-auction premium you observed and, in linkage coal, what kind of proportion you will see in third quarter? See, the reason is because we are already mid-November. October is over. This easing has started. By the time the full impact of all of this happens, it will go to Q4, which is why I'm saying that in Q3, even if we start to get this coal, it's a first in, first out basis we'll consume it. The full impact of these reductions will not be seen in Q3. Mm. That's the only reason. What about linkage coal proportion in third quarter, sir? Will it increase from 50 to 60 or? Not really. It will stay at that because, you know, one of our existing linkages has lapsed. We have to go to replace. That new auction will only come probably in January. Whereas the existing linkages will go up to 90%, one of the linkages that lapsed, we'll have to get on the auction. That's why Q3 is still tight. I'd like to hand the conference over to Mr. Satish Pai for closing comments. Yeah, thank you. I think that, you know, this quarter, in a sort of challenging environment, I think we have shown the benefit of our diversified business model. I think that the couple of points that are very important to us is that we will remain focused on our sustainability goals and targets. The second thing is that the strength of the balance sheet will not be compromised. We will make sure that we stay within the targets that we had outlined during the capital allocation presentation that we did. Thank you all for your attention, and wish you a good day. Hindalco Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.