HINDALCO - Hindalco Industries Ltd. Share Price

In the Q1 FY26 earnings conference call for Hindalco Industries, management provided a positive outlook, highlighting several key forward-looking points:

1. Overall Financial Performance: Consolidated net profit after tax increased by 30% year-on-year to INR 4,004 crores, with segment EBITDA remaining flat at INR 8,539 crores. The managing director emphasized the resilience of the integrated business model.

2. Aluminum Operations: The Indian aluminum business displayed robust growth with a 13% increase in segment EBITDA year-on-year, reaching INR 4,982 crores and a net profit increase of 45% to INR 2,847 crores. Expectations were set that EBITDA per ton could reach between $250 and $300 within the year.

3. Hedging Strategy: The company hedged around 20% of the aluminum commodity at a price of $2,666 per ton and 18% of the currency at INR 87 per dollar for Q2 FY26.

4. Cost Reduction Program: Management announced an accelerated target for the structural cost reduction program, now aiming for over $100 million in savings, up from the previous estimate of $75 million. This was driven by operational efficiency improvements and organizational redesign.

5. Capital Expenditure Plans: Capital expenditure for the current year is projected to be between INR 7,500 crores to INR 8,000 crores, with expectations to rise to around INR 15,000 crores in the next year as key projects progress.

6. Expansion Projects: All strategic expansions, including Novelis' projects, are on track. Notably, the Bay Minette project in the U.S. is progressing well, pointing to a robust pipeline aligned with long-term sustainable aluminum demand.

7. Market Demand Outlook: The aluminum demand in India is projected to grow by 10% year-on-year, bolstered by the electrical and solar panel segments, indicating a strong demand environment.

Overall, management indicated confidence in navigating the macroeconomic landscape, emphasizing operational efficiencies and strategic expansions to enhance long-term growth.

Q&A Section Summary from Hindalco's Q1 FY26 Earnings Call Transcript

Question 1: What is driving the strong margin in the downstream aluminum business? Can we expect this to continue with the Aditya FRP starting?

Answer: The margin improvement is primarily due to our strategy of moving up the value chain, such as selling battery enclosures for EVs, which enhances our earnings per ton. With the planned FRP plant, we expect aluminum downstream shipments to increase to 150 Kt, leading to continued improvement in EBITDA per ton, targeting between $250 and $300.

Question 2: What is the scheduled commissioning status for FRP, and what volume should we expect this year?

Answer: We target around 70 Kt for this year with sales already starting in June and July. If ramp-up proceeds smoothly, we hope to exceed that target.

Question 3: Can you provide guidance on the aluminum cost of production for Q1 and expectations for Q2?

Answer: Q1's cost saw a 3% decrease due to an increase in linkage coal. However, in Q2, costs are expected to rise by about 3% because of monsoons and higher prices for CP coke.

Question 4: What is the impact of the tariff, particularly regarding the $60 million figure discussed earlier?

Answer: The $60 million figure reflects a 50% tariff on imports impacting our pricing assumptions. The critical sensitivity lies in the Midwest premium, currently near $1,500, while the underlying aluminum prices have less impact.

Question 5: What are the projected volumes from captive coal mines Chakla and Bandha?

Answer: Chakla is expected to produce 0.5 to 1 million tons from early FY27. For Bandha, production starts later due to a high stripping ratio. Together, these mines are projected to provide 20 million tons at full capacity.

Question 6: What capital expenditure (capex) guidance do you have for the next few years?

Answer: This year's capex is approximately INR 7,500-8,000 crores, with next year projected at around INR 15,000 crores as significant projects complete. FY28 capex will generally be lower as we phase our investments.

Question 7: What insights do you have regarding the acquisition of AluChem?

Answer: We acquired AluChem to access advanced technologies like tabular alumina, essential for producing high-margin specialty alumina, aiming to grow our specialty alumina offering from 500,000 tons to 1 million tons in three to four years.

Question 8: Can you elaborate on cash flows expected from copper-based recycling?

Answer: Projected returns on copper recycling are above mid-teens in IRRs, with margins 2-3 times higher than smelting, aiming to improve long-term profitability despite current low TC/RCs.

Question 9: What's the status of Novelis' performance compared to peers?

Answer: Novelis is currently showing steady shipment growth despite external headwinds like tariffs and elevated scrap prices. We are focusing on cost-reduction strategies, anticipating improvements in EBITDA levels moving forward.

Question 10: What is the cash position of Hindalco in India?

Answer: Hindalco's cash position is around INR 18,000 crores, with net cash around INR 11,000 crores after debt considerations, supporting our ongoing investments.