Hindalco Industries Limited (500440) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. We welcome you to Hindalco Investors Day 2021. [Operator Instructions] I now hand over the proceedings to Mr. Satish Pai, Managing Director, Hindalco Industries Limited. Thank you, and over to you, Mr. Pai.

Yes. Thank you very much, and I would like to welcome everyone to Hindalco's Investor Meet 2021. For the opening remarks, I would like to hand over to our Chairman, Mr. Kumar Mangalam Birla. Over to you, Mr. Birla.

Good evening and good morning to all investors who joined us today. I hope you and your families are well and safe. On behalf of the Aditya Birla Group, I would like to thank you for joining this Hindalco Investor Day. We are connecting at a time of steadily increasing global optimism that's been powered by a combination of rapid vaccinations and improving economic parameters. These give us cautious reason to hope that we are now firmly on the path to normalcy. The investor community, all of you of course have been present in betting on a sharp rebound in economic activity. As a business group, we have always believed that we are trustees of our businesses and it is our role to generate significant shareholder returns and stakeholder value. We actively engage with our stakeholders and have robust mechanisms to seek and incorporate their feedback. While our companies have been doing a fine job at this, I thought it would be interesting for me to get an outside-in perspective on our businesses and get a sense from our investors on what we are doing well and where we can do better. Towards this, I recently met with a wide spectrum of investors over the last few months, the experience I'd say has been both enriching and energizing. One insight that clearly emerged is a hope for us to engage even more meaningfully, in order to help our investors understand our business models and our levers for value creation even better. This Investor Day has been conceived to achieve exactly that. Hindalco, as you know, has grown from being India's largest and leading non-ferrous metals company to becoming a world global leader. Over the last decade, as Satish mentioned in his presentation, Hindalco has transformed itself from a company that was heavily dependent on the volatility of the LME to one that is a portfolio of stable and value-added earnings today. It has consistently delivered to its stated commitment of size, scale, operational excellence and profitable growth. This journey has been punctuated by some bold bets and many patient investments. Novelis, which was acquired more than a decade ago, was one such bet. It was viewed with skepticism by many in the investor community then, but has today, as you saw in Steve's presentation, emphatically established itself as one of the best large acquisitions overseas by any Indian corporate. Aleris, which was recently acquired by Novelis is integrating well, and in just a few quarters, has surprised us positively both on synergies and operations. Much before ESG became the new buzzword, Hindalco and Novelis embraced good corporate citizenship, and made deep commitments and investments in driving this critical agenda. I want to reiterate what Satish said with you that, “Hindalco has been Ranked as the Most Sustainable Aluminum Company Globally in the Corporate Sustainability Assessment Rankings by the Dow Jones Sustainability Index.” Hindalco is the only Indian company to be recognized as an industry leader. Novelis on its part is a world leader in sustainability, with exemplary credentials of being the world's largest recycler. In fact, good corporate citizenship has been a key pillar of our leadership and business philosophy. And this is something that we have reinforced with our actions across the ten countries in which Novelis and Hindalco operate. Despite a well proven track record of world-class management team and consistent operating performance, over a long period of time, Hindalco's market cap does not reflect the inherent strength of the business and the quality of the strategic pillars that form its foundation. This investor interaction, as you have heard, a comprehensive response to all your inputs, questions and feedback. The leadership has taken you through a broad sweep of issues from explaining the purpose of the company to articulating the strategic pillars of value creation to sharing deeper insights on Novelis's business model to help you to understand the conscious ESG choices the company is making. The team has also articulated for the very first time, the company's capital allocation strategy as also the dividend distribution policy. I would like to reaffirm my own commitment and that of the company and that of the group to creating long-term shareholder value. I'm sure that you will find this interaction insightful and I look forward to more conversations and even more meaningful outcomes. Thank you once again for joining the Hindalco Investor Day.

Yes, thank you, Mr. Birla. I would now like to begin the presentation by first introducing the management team that are there with me here today to take you through this presentation. So besides me, there is Steve Fisher, President and CEO of Novelis; Praveen Maheshwari, CFO of Hindalco and the CEO of the Copper business; and Dev Ahuja, who is the CFO of Novelis. With that, I would like to now start the presentation. So today, as Mr. Birla told you, we're going to engage with you comprehensively to tell you a lot deeper about Hindalco and Novelis. I will take you through the purpose, our focused approach of how we run operations and then come to 4 important points that are going to clearly articulate what we, as a company, are going to do in the next 5 years. We will talk about the market outlook and the organic growth strategy, both for India and Novelis. We will talk about our ESG strategy and the projects. We will talk very clearly about our deleveraging plans. And then finally, we will articulate our shareholders' returns plan. After that, we will open it up for a Q&A session. But let me first start by introducing you Hindalco Industries Limited. Hindalco Industries Limited is today one of the world's largest nonferrous companies. On one hand, we have the India operations, which has aluminum and copper; and on the other hand, you have Novelis, which is a flat-rolled products company. If I now draw your attention to the bottom part of the slide, Novelis is the world's largest aluminum rolling company with 4 million tonnes of capacity. Novelis is also the largest and the global leader in aluminum recycling with 2.5 million tonnes recycling capacity. Coming to the India businesses, Utkal with the exploration now at 2 million tonnes of alumina is the world's most economical alumina producer. We have in Dahej, the largest custom copper smelter integrated in one location. We have global operations across 10 countries with the previous year's revenue of $16.7 billion, $2.2 billion of EBITDA and 40,000 employees worldwide. This is comprehensive description of what Hindalco Industries Limited is. We have, in India and in Novelis, engaged very deeply with our employees over the last 2 years and articulated a purpose. Our purpose recognizes that we are a manufacturing company that manufactures aluminum and copper, both metals that are critical to the world from a sustainability and for the electrification process and the decarbonization that's taking place. Our purpose, that's why emphasizes on the greener, stronger, smarter and a sustainability angle. Both the purposes of both Hindalco and Novelis are very closely aligned towards this common goal of making the world a sustainable place. We believe that our strengths and foundation lies in running safe and reliable operations. The way we manage the company is, on the right-hand side, you see here the 3C+2S model of customer, cash and cost with sustainability and systems. All our management team's KRAs are defined along these 5 pillars, which are evaluated on an annual basis. Novelis as well works through the focus 5 model, also focused on safety, customer centricity, quality, operational efficiency and ROCE. These -- in each one of these pillars, there are very clearly defined metrics that are evaluated every quarter and every year and this is how the performance of the management is based. So I wanted to assure you of what you see is a company that gives great emphasis on running safe and reliable operations. Now I want to get to the main part of the presentation. We wanted to clearly articulate here, as Mr. Birla said, what are we going to do in the next 5 years. We are going to focus on 4 critical pillars that we are going to take you through today. The first part is growth, organic growth for both Novelis and Hindalco in India, which we will describe by taking you through the end markets, the growth potential and the CapExes that we plan to spend there. We're going to articulate to you our ESG strategy, which is very critical, and the specific things that we are doing on a whole variety of items, both on the environment, social as well as the governance point of view. We will then take you through our deleveraging strategy, with numbers on how much debt we intend to pay back and our net debt-to-EBITDA target. And finally, we will describe to you shareholder returns, shareholder value creation and our dividend policy. So these 4 are what we are going to cover over the next hour in great detail. With this, to take the first part of the growth strategy, I hand it over to Steve Fisher to take you through Novelis' market outlook and growth strategy. Over to you, Steve.

Great. Thank you, Satish, and good morning, good evening to everybody, and thank you for joining us today. As Satish said, I'll spend just a few minutes with you walking through who Novelis is as far as what markets we serve and some of the absolutely fantastic growth opportunities that we have in front of us. So for those of you that are not as familiar with Novelis as others, we are the world's largest aluminum flat-rolled producer. But even just as important, we're the world's largest recycler of aluminum. Now when you take a look at the global FRP aluminum market here on the left side of this slide, it is a very large and diverse market, as you can see, 28 million tonnes delivered in 2019 through a number -- operator, can you hear me okay? Satish, can you hear me?

Yes.

Yes, sir. You are loud and clear. We can hear you.

All right. I just had some feedback that someone was not hearing. And you can see the diversity in the marketplace of which flat-rolled products goes into now. Most importantly here is that this is a growing market at 3% compound annual growth rate through 2025. And Novelis itself participates across many of these end markets, but with a focus on our premium end markets that drive higher margins such as beverage can, automotive sheet, aerospace, plate and sheet and a variety of specialty products. Our geographical footprint is across 4 regions, 33 operating locations and truly gives us the ability to leverage our global scale and footprint to serve our largest global customers but also to serve regional needs in each of the 4 regions. And with the recent acquisition of Aleris and our continued focus on organic growth, our 2 auto finishing lines, one in China, one in the U.S. and our rolling, recycling and casting expansion in South America, we are well positioned at Novelis to capture the tremendous market opportunity that is in front of us as the aluminum flat rolled product industry leader. So with that, let me get into a little bit more details by each of these end markets. Starting here with our largest end market, beverage packaging. Demand for lightweight, infinitely recyclable aluminum beverage package is forecasted to grow at a very robust 3% to 5% across the world over the next several years. And at Novelis, we've always looked at can as a very recessionary-resistant part of our portfolio and it continues to be, providing reduced volatility in our business during economic cycles and clearly seen that during COVID. But over the past few years, we've seen a resurgence in can -- beverage can demand due to consumer preferences for sustainable packaging options. We're seeing driving a package mix shift from other substrates such as glass, steel, PET towards aluminum. For example, if you look at the bottom right of this chart here, you can see that just in the past year, in Brazil, beer packaged in aluminum cans has risen from 52% to 58%. There is no doubt that this trend was already beginning before COVID, but got accelerated during COVID. But we simply believe it was an acceleration of the trend and will remain post COVID. Another area to watch is seeing new beverage types being launched more and more in aluminum beverage cans. You can see in the upper right chart here that when these new beverage types such as sparkling water or spiked seltzer or canned cocktails or energy drinks are being launched, they're being launched now much more in aluminum, moving from, in 2014, 30% of that, to now 67% in 2019. And so when you look at these trends, these trends have driven our customers, our can makers to announce significant expansion of can making facilities over the next 2 to 3 years. And certainly, this is absolutely a sign that the can market will be a very, very attractive market post COVID. Now when you look at the global supply and demand for beverage can capacity -- sheet capacity, even when you take in the surplus of can sheet capacity in China, we believe the overall supply and demand is relatively balanced. What's important though is proximity to our customers. That is an advantage. And it's an advantage to Novelis because we are the only aluminum flat rolled product player with can capable production across all 4 major continents. And we continue to invest. We're investing for additional 100 Kt of capacity in Brazil for can. And you combine that with our continuous improvement initiatives further balancing investments to improve our recovery rates, debottlenecking of our facilities and/or driving of operational efficiencies, we are well positioned to capture the demand we see in this marketplace over the next 5 years. Now moving to the automotive end market. Auto OEMs continue to adopt aluminum structures and components to lightweight their vehicles, resulting in a robust demand in this market for aluminum. Global demand for our products remains unchanged at a 10% compound annual growth rate through 2025, even with the modest pullback in vehicle productions that we saw in 2020 due to the COVID pandemic. Now why is that? It's because the mix of vehicles that are selling well are SUVs, pickups, electric vehicles and luxury models. And as these segments that are being protected and prioritized by auto OEMs because of the margins they make on them, which also favors us because these are the models that have higher aluminum usage. For instance, looking at just the truck and SUV segment, it has recovered sharply since the COVID pandemic and is actually at pre-COVID levels at this point in time. And when you just dive into looking at North America truck and SUVs, it makes up 75% of all vehicles produced in the North America marketplace and is continuing to grow its share of the overall vehicle pie. So lightweighting vehicles with aluminum provides a number of benefits, whether it's for regulatory compliance, for safety or performance of these vehicles. But it is also further supported by electric vehicles and the increased mileage that is needed from consumers of these vehicles even when you think about e-commerce deliveries now over the past year increasing substantially in what they want to do with electric vehicles. BloombergNEF 2020 long-term electric vehicle outlook, its report outlines that there will be significant growth in electric vehicles, from today, making up about 3% of global car sales to 10% of global car sales will be electric vehicles by 2025, growing to 58% by 2040. So a large opportunity for aluminum. And again, here, battery electric vehicles have a strong need for lightweighting for this range. Now let's just step back just for a moment to consider the relative size of aluminum versus steel in this market. Aluminum sheet is only a 2 million tonne market versus an 80 million tonne steel market today. This highlights an opportunity for aluminum to continue to penetrate and see adoption across vehicle structures and components. Third-party research firm, Ducker Aluminum, released in -- released a study in July 2020 that by 2030, the average pounds per vehicle of aluminum will reach 570 pounds from today, in 2020, 459 pounds per vehicle. And this will be driven primarily by aluminum flat-rolled sheet, which today represents about 23% of the total aluminum pounds per vehicle, growing to about 30% in 2030. So as we look at this, the growth will certainly come from both a mix of the continued adoption of parts that aluminum sheet provides today, such as hoods, doors, fenders, body-in-white, but we will also innovate to extend aluminum's reach in vehicles to high-strength structural and safety components, like A and B pillars, crash bars and the rapidly evolving battery boxes for electric vehicles. Just last week, we announced our strongest 7000 series aluminum alloy designed for just these type of safety critical applications and offers a clear alternative to the most advanced high-strength steel products. So we will continue to leverage our state-of-the-art Novelis customer solution centers and launch new innovative partnerships, like Alumobility, which we launched just last week to work with our customers to enable the continued adoption of aluminum solutions across the vehicle. Now the Novelis Specialties portfolio serves a diverse array of end markets and customers around the world. We produce both light and thick gauge material, ranging from container foil to electronics to commercial truck and trailers. And with the acquisition of Aleris, we've added significantly to our portfolio, commercial truck -- to commercial truck and trailers, heat exchangers and building and construction, which I'll come back to in a few minutes. Our global footprint and flexible capabilities in this diverse value stream enables portfolio and capacity optimization. And our strategy here will focus on innovating high-recycled content products, portfolio optimization and capturing market tailwinds that we're seeing currently driving increased demand. We see very good market demand in Asia due to growing electronics markets. Obviously, a lot of people needing at home electronics right now driving that marketplace. Very solid demand in Europe as well, where we are providing innovative, sustainable sheet for building and packaging solutions. And tailwinds are probably most pronounced in the North America marketplace, where 50% of our specialties portfolio now resides after the Aleris acquisition. And following that acquisition, Novelis North America is firmly #1 in commercial truck and trailer, in building and construction and in container sheet sales. The demand in North America is supported by strong U.S. housing fundamentals; continued lightweighting trends and increased e-commerce, driving up truck trailer demand; and favorable trade cases. And with the recycled content of the continuous-cast building and construction business we acquired being greater than 90%, that is driving up the average North America specialties portfolio now above 75% recycled content, allowing us to further drive towards a more circular economy. Now lastly, with the acquisition, we gained entry into the premium aerospace market. And while this is a high value-add area and market, it is a relatively small market. Globally, even pre COVID, this is less than a 400 Kt global market. And for Novelis, it's less than 5% of our total shipments. So we're absolutely glad to bring this into our portfolio, to grow this, to use some of the technology in other parts of our business. But as you can appreciate, with the short-term reduction in consumer travel, we are seeing muted demand for the near-term. However, the long-term demand is fundamentally supported by multiyear commercial airframe order backlog. Novelis is well positioned to capture this long-term aircraft demand, first, just due to our financial position. That will be an advantage in an industry needing to recover from distress across the entire supply chain. Second advantage is the shift of aircraft delivery demand towards Asia Pacific, which you can see in the bottom right of this chart. This is uniquely positioning Novelis as the only western supplier with plate qualified in China in an industry with very high barriers to entry. And finally, carbon reduction efforts and conversations with aircraft OEMs are gaining momentum. And we believe here, we can leverage our long history in recycling to help advance a circular economy in the aero industry, like we've done in auto through sophisticated closed-loop recycling systems. Now with the strong market conditions that I just talked about, with innovative products that we continue to work on and launch, with solid customer partnerships, our financial strength, financial flexibility, coupled with decades of manufacturing recycling experience at Novelis, we continue to see robust growth and organic investment opportunities for many years to come. As you can see in the upper left of this chart, we are currently at roughly 4 million metric tonnes of capacity, including the acquisition of Aleris and including the expansion at Pinda. We will then turn our focus to China, where we'll add a cold mill and release capacity at Ulsan, increasing our overall capacity to -- by 0.2. And then we see a line of sight through continued optimization of our operations and balancing investments that don't come with a lot of capital to get to 4.5 million metric tonnes of rolling capacity. With the 2 auto lines nearing completion, that will increase our overall auto shipments to roughly 1,000 Kt, but we will remain committed to the beverage can business and a diversified specialties portfolio. Our strategy to defend and grow and diversify our business remains absolutely unchanged. And while there's nothing new to announce today, we have approximately $1.5 billion of growth capital over the next 5 years earmarked in our strategic plan for further organic growth. We will begin first with our China expansion to fully integrate that facility with our downstream auto finishing lines and drive the $65 million of synergies that we've talked about. We will continue to implement our world-class manufacturing, automation and digital initiatives and advancements in R&D to unlock further capacity, capture further growth that we see in the marketplace and to support our sustainability initiatives. We will also be very focused on further opportunities around casting and recycling capacity. We have identified some projects here, and this will obviously support carbon reductions that we'll be talking about. There will also be further automotive finishing opportunities with a 10% compound annual growth rate that will come over the next 5-plus years. And what's unique here is Novelis has the strength and financial flexibility to invest this $1.5 billion in these areas over the next 5 years and continue to meet our deleveraging and return commitments that we'll be talking about further today. Now here, this is a few of the projects that we've already announced that are underway on this slide. For the most part, the capital spending on the auto finishing lines of Kentucky in the U.S., in Changzhou in China is, for the most part, behind us. Those have started to deliver commercial coils, the U.S. line in December of last year and the Changzhou China line in January of this year. We'll continue to qualify with other customers and ramp up those 2 lines over the next several months and next several years in line with what our customer order book looks like, which is very strong. Pinda is on track, on time. We'll see that commission near the end of fiscal '22. Again, that's a full rolling, recycling and casting expansion for 100 Kt. We'll turn our focus this year to starting and kicking off the China integration, which is approximately $300 million. It's a new cold mill, allowing us to fully integrate the Zhenjiang mill with our Changzhou facility, driving $65 million in synergies, but it also will be the first ever closed-loop recycling system for automotive inside of China, which will also provide a lot of benefits to our customers. And it frees up capacity at Ulsan then to allow us to sell further specialties or beverage can. The timing of that project after we kick it off is roughly 2 to 2.5 years. So again, a lot of exciting opportunities in front of Novelis over the next 5 years and look forward to talking more about some of these organic opportunities and -- when the time comes to talk more publicly about them. With that, I'm going to turn the call over now to Praveen to talk through the Indian downstream opportunities and growth strategy. Praveen?

Thanks, Steve. And -- just like you saw the entire growth strategy for Novelis, I will now take you through the growth CapEx and strategy for the Indian business, which is primarily focused on downstream, as we've been talking to you in various of our communications and interactions. We are focusing more on downstream because we believe downstream is more value added; it is less amenable to fluctuations with LME pricing; it is closer to the customer; and particularly in India, there is a clean runway for us to capture this market because there are not many players which are of our size and scale, and we can actually capture a lot of value out there. So taking you through the different segments, business segments. The first is the aluminum segment, which is the largest part of our business. And as you notice here, the global demand is 90 million tonnes, but the Indian demand at the moment is only 3.7 million tonnes. So average per capita consumption in alumina in India for aluminum is very, very low compared to the global standards. And it shows that there is a huge potential for India to grow in aluminum demand. But if you look at the different market segments, globally, packaging, construction and transport are the big sectors. In India, packaging and construction are still low and transport put together, they are still pretty low compared to the global standard. So there's a lot of scope for growth here. Coming to the product segments, the extrusion and FRP globally are the 2 largest segments. In India, they represent almost half of what global standards are. And this is where we are present in a big way in both FRP and extrusion. In fact, in FRP, we are the only large-scale organized player in this area which is recognized by the customers for its quality products. In extrusion, again, we are the -- we are one of the big ones and therefore, we see a lot of potential out there. We believe that like in case of global demand, extrusion and FRP are going to grow much, much faster than the other parts of the product segments. So we are basically present in the dominant -- we are dominant in those segments which are likely to grow dramatically over the next few years in India. Where is it used largely? So in terms of the segments, we have building and construction segment, where you are aware that India is putting a lot of focus on the housing demand and creating infrastructure for people to live in, and this is going to consume a lot of aluminum going forward. Various applications like doors and windows, roofings, claddings, curtain rolling, et cetera, many such applications for aluminum are present in building and construction segment. Transport and automotive, again, like you've seen in the global context, in India as well, transport and automotive has a lot of potential for aluminum. With BS VI in place in India, this will drive the sales of aluminum and aluminum made cars in a big way because of the lightweighting. Various applications like engine castings, power train parts, cylinder blocks, alloy wheels, et cetera and many of them would use extrusion and FRP is going to drive the aluminum usage in transportation. Packaging, we are already present in a big way in the -- particularly in the foil stock and the foil related areas, which is used in pharmaceutical in a large way, but also food and beverage industry, liquor uses the bottle caps, et cetera. FMCG industry also uses it. So plenty of usages in the Packaging side. And aluminum provides certain unique advantages over other forms of materials, which will help it to grow very, very significantly going forward. There are many other segments like electronics and electricals, consumer durables, aluminum cookware, machinery and equipment, so defense, nuclear, railways, ships and board building, et cetera. There are many areas where aluminum is increasing its presence, and this is going to help us in terms of invading that market. Overall, we believe that the growth is going to be significant. We expect that by 2030, total aluminum consumption will be almost doubling from the current level to about over 7 million tonnes, and large part of that will be from FRP and extrusion, which are the segments where we are currently present and will continue to grow. The next large business segment for us is the copper market. In copper, again, first of all, copper -- refined copper demand is likely to grow by about 7% to 8% in the next 8 to 10 years from the current levels. And as you are aware, we are the only large refined copper manufacturing plant in the country. And we are also the largest rod manufacturers at the moment, which is a downstream product for copper. In India, copper demand is largely in the form of rods, which is the downstream product for copper business. Large applications of copper is in the form of electrical applications, which goes into building and housing wires, automotive wires, railway systems, industrial cables, motor winding wires, et cetera, transformer strips and all that. So really speaking, almost everywhere where electricity is going to be used, copper and copper rods are the ones which are going to actually take the center stage. And we being the big player in this area, we command a premium as well as we are likely to grab the opportunity that is available in the Indian market. On the infrastructure side, railway electrification, there is a major push from the government. Metro network and high-speed railways, they are going to drive the demand for copper and copper alloys in their system. So this is another area where we are going to capture the opportunity that is available. There's one more area which is related to the air conditioning and refrigeration system, heat exchangers and plumbing industry. This is where tubes are used and a particular type of use is -- tube is called inner-grooved tubes which is used for these kinds of applications. This is another part of the segment which is growing very rapidly and is likely to offer a good opportunity for us. We are talking about all these things because our projects are related to these segments, and you will see how we are trying to capture them. There is a third segment, which is called specialty alumina segment. Traditionally, you've seen that this segment is clubbed into aluminum segment for our results, but really speaking, this is a non-metallurgical alumina which is used in certain niche applications, and it is different from the metallurgical use of this alumina. Typically, it's a mix of hydrate and alumina, which are the intermediate products also for aluminum, but we do some special treatments to them and they become value-added products for us and are supplied to various -- different kinds of industries. And the -- this is also a profitable segment for us. Some of the characteristics of alumina actually make it amenable to these usages. And those are that its ability to withstand very high levels of heat, it is very tough and therefore, provide strength. So for example, in refractories, which are used in -- particularly in the steel industry and other industries as well, refractories consume a lot of specialty alumina, which actually help build these refractories. Similarly, in making of glasses, it can provide strength as well as clarity. Ceramics, again, strength plays a lot of role there. Wires and cables, particularly the PVC and composites, that's where these products are used. Today, in India, it is likely to grow at about 7% in the next few years. Globally, the growth is about 3%. We are the only manufacturer of these products in the country. And even globally, there are very few players who actually specialize in these products. But we, in our -- particularly in our Belgaum factory, we have been making this for a long period of time, and we have the expertise to capitalize on the opportunities that are offered in this area. There are many future applications also which are very promising, which include lithium ion batteries, LEDs, advanced ceramics, electronics. All these segments are likely to grow significantly in future. And therefore, this particular segment also has a very bright future in our overall segments. I will now take you through the specific numbers of how we look at the value-added products in terms of capacities and what do we intend to do. These 3 segments are represented in these 3 boxes. So the first one, Aluminum VAP. So you will notice that the primary metal capacity is currently at 1.3 million tonnes, and we do not see this going up over the next few years. It is likely to remain here. But what is actually significantly changing is the value-added products capacity, which is in the downstream segment. We are currently at 320 Kt, which, with the focus that we are putting on this segment, we are likely to see a doubling of this capacity in the next 5 years. Both in FRP and Extrusion, we are likely to invest. While we have not talked about the [Audio Gap] in terms of CapEx beyond 5 years, but our thought process is that we should be able to triple this capacity from the current level in the period beyond 5 years. So really speaking, what we intend to say here is that this is our current focus and this is likely to continue to grow here. The advantages of doing this, as I mentioned earlier, it is dealing from the LME fluctuations, more stable cash flows, higher value-added products and, of course, closer to the customer. And we have the first-mover advantage here because, really speaking, we being the large player here, the only large player, particularly in FRP, we are likely to capture that center stage much, much earlier than any other competitor. In copper value-added products, first, I'll talk about the overall cathode capacity. We have about 421 Kt of cathode making capacity. So this is our refining capacity at the moment in copper business. We intend to get into more recycling. This includes a little bit of recycling as well at the current level, including concentrate and recycling. But we intend to add 100 Kt of recycling capacity here and refining so that the total overall capacity for the primary cathode goes up from 421 Kt to 521 Kt. Beyond 5 years, we believe that there would be a scope for another smelter. And therefore, a 250 Kt smelter should be in place in the period that we envisage with beyond 5 years. But what is important is that the downstream part of it, which is the rods and the tubes and alloy rods, we should be able to take up our current capacity of 315 Kt in downstream to about 445 Kt in the next 5 years and to about 655 Kt beyond 5-year horizon as well. So downstream will continue to gain focus even in copper business as well. In the specialty alumina, the total non-metallurgical hydrates and alumina are at about 400 Kt at the moment, which should grow to 440 Kt and 450 Kt in the 5 years and beyond. But what is important here is that the value-added products within the non-metallurgical grade will move up from 314 Kt to 384 Kt in the next 5 years itself. And we see potential for growing it to 410 Kt going forward as well. So in a nutshell, what we are trying to emphasize here is that the downstream part of all the 3 segments is going to continuously grow, and we are going to put a lot of focus in this side of the segment. It also addresses the question of expanding the ROCE and ROE because these are likely to be highly value-added products in our portfolio. A quick look at some of the projects which are identified. We may not have announced all of them at the moment, but these are -- that shows our thought process. So first is, of course, alumina in Utkal, which is already announced and which is actually nearing completion in the next few months. This is a 500 Kt project, alumina project, as you all know. Utkal is our lowest cost refinery globally, and this really adds a lot of value to us. This is at a cost of $200 million. Other value-added products, including recycling in aluminum are, today, we are looking at about $650 million. There are some part of the projects which are already underway. This is 50 Kt of hard alloys finishing assets. There is a 34 Kt extrusion that we have already announced in Silvassa. So that is already under process now, just begun. And there are more capacities to be added on the FRP and recycling over the next few years. In copper, as we talked about, there will be inner-grooved tubes and alloy rods. There will be some recycling, and there will be some additional rod projects as well, totally amounting to about $200 million. In specialty, again, as I said, 70 Kt will get added at a cost of about $40 million. So close to $1 billion -- a little over $1 million is something that we see as a potential for the downstream projects in Indian operations. All these, I'm sure, will be very beneficial for the company. We have a very detailed process of evaluation of each of these projects, and they all have synergies with our existing operations. So this was a brief summary of the Indian side of growth story. I would like to hand over the mic to Satish now to take us through the ESG part of our initiatives.

Yes. Thank you, Praveen. And now I'm going to articulate to you our ESG strategy. I think we're going to take this investor show to put out in front of you some clear commitments that we are going to take from an ESG point of view. Firstly, on the environment, the consolidated Hindalco will continue with a renewed focus on increasing the recycled content. We commit to net carbon neutrality by 2050. We commit to zero waste to landfill by 2050. We commit to water positivity by 2050 and no net loss on biodiversity by 2050. And I'm going to take you through quite a few specific projects on what we're going to do in the next 5 years along this path. From a social point of view, as I told you, we are focused on running safe operations with zero harm. We commit to a diversity and inclusive policy. We are committed, as you know, to community and society, along with the creation of sustainable livelihood. And we also affirm strongly to human rights. From a governance point of view, we commit to the highest levels of value and transparency, strict adherence to a code of conduct, a best-in-class corporate governance, the highest level of information security and cybersecurity which is pretty relevant in the world today and a very strong customer and supplier centricity. So as we go through now, I just wanted to point out, as I think most of you were aware, that last year, the Dow Jones Sustainability Index ranked us as the #1 aluminum company. In the recently published Sustainability Year Book of 2021, Hindalco has been rated in the Gold Class compared to some of our competitors, well-known ones that you can see in the Bronze Class. And I think that -- the point I want to make which will set the ground for the slides that will follow is that we are focused on net carbon zero, but we also take a much broader holistic view to sustainability and the environment. So we will talk, as you will see, from a carbon point of view, but also on waste, on water, on biodiversity, on the circular economy, all these is what we take under our ESG commitment. And I think this has been recognized by the Dow Jones Sustainability Index, and hence, that they have put us in the Gold Class. With that now, I wanted to let Steve take you through a few of the slides on what Novelis has been doing. Steve, over to you. Steve, you'll have to unmute.

Steve, request unmute.

Yes. Can you hear me now?

Yes.

Okay. Thank you, again, Satish. And as you all can appreciate as the world's largest recycler of aluminum, sustainability has always been at the heart of who we are as a company. And we'll absolutely continue to guide our strategic decision-making as well as where we'll invest to grow our business moving forward. As you can see here, recycling content has increased significantly over the past decade, up 29 points, from 30% to 59%, driving significant carbon reductions. But we've also, as Satish highlighted, made great progress in other areas, whether it be energy reduction, water or waste reduction. Now with the recent acquisition of Aleris, we are currently in the process of evaluating the right framework and standards to adopt to make further strides towards certainly reducing our carbon footprint and towards a number of other KPIs in this area. But most importantly to us is progressing towards the aluminum industry to progress its journey towards a more circular economy itself. Now attaining a truly circular economy will be challenging to any material type. It will be a journey. And it absolutely will need to take into account a product's full life cycle. With that being said, aluminum is infinitely recyclable, highly durable, retains its properties indefinitely, making it a perfect candidate for a circular economy. Nearly 75% of all aluminum ever produced is still in use today. And producing aluminum from recycled inputs requires 5% of the energy requirement versus primary; therefore, 5% of associated greenhouse gas emissions. Just last year, Novelis recycled 74 billion used beverage cans alone. And when we can get those used beverage cans back, we can turn them right back into another can within 60 days and put them right back on the shelf over and over and over, infinitely recyclable. That is what truly a circular economy looks like. But aluminum recycling goes well beyond, for us now, just used beverage cans. It goes into sophisticated closed-loop recycling systems that we've set up with our auto manufacturers, starting with Ford. And here, we set up a system, when we started to deliver to Ford, to ensure that we got all their process scrap right back segregated into our plants so that we could recast it, reroll it, finish it and send it back to Ford. This program is unbelievable in that it produces 30,000 F-150 bodies every month. That is truly a great example again of what we mean by a circular economy. Since 2011, we've invested over $700 million in recycling capacity, bringing our total recycling capacity to 2.5 million metric tonnes. And we've identified further opportunities in this $1.5 billion that we've talked about over the next 5 years to expand further recycling and casting capacity because we know what it does from a carbon footprint and we know this has been a big pull from our customers. But collaboration is going to be key to understanding the product's full life cycle. So we will work with our customers to ensure that we understand exactly what we need to do from aluminum so that we can find ways to continue to expand the use of lightweight, infinitely recyclable aluminum to create more sustainable, recyclable products and promote a more circular economy. With that, Satish, I'll turn it back to you.

So talking about ESG. Let me now take you through what I meant was a more holistic approach. So starting on this slide. The first thing is about water positivity. Hindalco in India uses nearly 76 cubic meters of water. And I think that we recycle about 18 million. So I think that getting to a zero water discharge in our plants is a key consideration. Today, 11 of our 15 plants are zero water discharge. And in the next few years, we would like to convert all the remaining 4, which are really the older plants like Renukoot, Dahej and Hirakud to zero water discharge. This is a firm commitment that we have made. And we are progressing towards reaching this target in the next few years with projects and investments clearly identified. Talking about green cover and biodiversity, as you very well know, from a statutory point of view, we have to cover 33% of the available plant space with a green cover. Hindalco has taken this scientifically and gone much deeper. We have planted about 2.6 million trees via 1,817 hectares covered under green cover. And we will be taking this 33% to much more than 50% over the next few years. Greening it, on one hand, allows you to take up CO2 from the air, but it also gives you oxygen into the air. And there are quite sophisticated models that actually give you the value of doing this green cover. So we track this, and it is in the KRA of each plant manager, the greening percentage of his or her plant. So for us, this is a key KRA for all our management. Now going on to biodiversity. Going on to the next topic, which is the circular economy. Bauxite residue, we generate about 3 million tonnes and on fly ash, we generate about 4.3 million tonnes. In bauxite residue, we actually lead the world when it comes to its recycling. Today, we have reached 62%, a vast majority of it going to cement plants to replace laterite. But we also use it for embankment, road building. And now we have a unique project on mine backfilling that we are working with the government in India, which is actually being monitored on an international level because if you can then take the bauxite residue back to the bauxite mine, then you can establish a complete circular economy with no need for further landfills or tailing dams, as they call it. So in bauxite residue, we think that we are very quickly, in the next few years, going to get to 100% recycling. If you take fly ash, last year, we have reached 82%. But this year, post COVID, we are up actually beyond the 100%. Largely, the fly ash goes to cement plants, but also to making bricks and other technologies that we have invested in. On the fly ash side, we will be over 100% recycled. We are actually taking fly ash from some of our older storage facilities and sending them to cement plants now. The third point, which is Hindalco and Novelis consolidated target, we are all committed to making our sites completely single plastic free -- single use plastic-free. Most of our plants today are single use plastic-free, but we have started to get independent certification. So 3 of our plants from the CII now have been certified as single use plastic-free. And this we intend to do across all sites of the consolidated Hindalco. Let me talk to you a little bit more on biodiversity. As a mining company, this is where Hindalco will really differentiate itself against our international competition. We are working with the international union for the conservation of national -- natural resources (sic) [ International Union for Conservation of Nature ] to come up with biodiversity management plans. We already have them for 4 of our sites, the large mines like Parbat Mali and the Gare Palma sites, where we do a comprehensive no net loss that means flora, fauna as well as life organisms that were there. And this biodiversity plan done with the IUCN actually allow us to reach a point of no net loss of biodiversity. So from an ESG point of view, I think this is very critical, especially for the mining industry and towards sustainable mining, and Hindalco actually is taking a leading role internationally in this no net loss on biodiversity. I told you right at the beginning, both Hindalco and Novelis are committed towards zero harm. So you can see here, we run a very focused safe operations. Our lost time injury frequency rates are among the industry best, both in Hindalco, which I presented, as well as Novelis. It's mandatory for all management to be -- they are held personally accountable for all safety incidents that happen in their plant. So I think from a safety point of view, we can confidently say that the consolidated Hindalco is right up there among the world's best companies. Let me now talk about aluminum specific energy and the carbon footprint. As you know, this is the weakest point for the upstream business in India. Our power for aluminum smelting largely comes from coal, but we have embarked on a very detailed strategy to reduce this carbon footprint. On one hand, we have reduced the specific energy used to make aluminum by 25% from FY '18 to FY '21 and we are committed to progress down that slope with another 25% reduction over the next 5 years. But besides the specific energy reduction, we are focused on increasing the use of renewable energy. As you know, we already have 42 megawatts, and we are going to -- we have already got projects underway for another 42. So we'll be 100 megawatts of solar by the end of -- or middle of next year to end of next year. And we are focused on putting another 200-odd megawatts over this 5-year time frame. We also have probably India's first 20 megawatts renewable hybrid with solar, wind and battery technology being put in place with General Electric for Dahej. Besides that, we intend, in our journey towards the net -- zero net carbon by 2050, to start to use natural gas in a big way in our smelting processes. So currently, we are trying to convert our casting furnaces to natural gas and soon, even the smelting boilers, we are going to start to use natural gas as the pipelines that the Government of India is laying down start to give us natural gas. This is probably, and I'm being very transparent, our most difficult challenge for the whole to get to the net zero -- net carbon zero by 2050. But what I wanted to assure you is that we have specific progress -- specific projects and investments that we are going to make, and you're going to see and we are going to present these every year to show you how we are progressing towards the net zero carbon. Lastly, as Steve was saying, I think the circular economy is really critical to make this world, from a sustainability point of view, there. So I wanted to highlight, in India, we have taken a leading role in converting aluminum railway wagons -- railway wagons to aluminum. We have launched an aluminum trailer, an aluminum bulker. The first aluminum bus, all aluminum designed by the ARAI will be launched by Mr. Birla in the first week of March. The packaging has -- we are working a lot on aluminum laminated jute bags to get rid of plastic bags. And of course, we are working on an aluminum LPG cylinder. If you actually read the slide, you will see that the aluminum usage in bulkers, trailers also reduces the fuel used. 1 liter of diesel actually emits 2.68 tonnes of CO2. So by reducing the amount of diesel consumed, we are reducing the carbon that is emitted. And on the same side, it is also making the energy used a lot more efficient. The bulkers and trailers, they last longer. They don't corrode. The maintenance costs are less. So we are quite focused on product towards strategy in India that will help to reduce the carbon footprint. On the Novelis side, we have already talked to you about the sustainable packaging with the cans and beverages as well as the circular economy that we are working on, on the automotive side. Aluminum battery enclosure, which are going to be needed in electric vehicles, are up to 50% lighter than the equivalent steel design and extends the vehicles range by up to 10% further on a single charge. So if you see our ESG strategy, we talk about carbon, but we talk about waste, we talk about water, we talk about biodiversity, we talk about the circular economy and a life cycle product stewardship. So this, we wanted to highlight to you is a comprehensive ESG strategy that Hindalco has adopted that has positioned us among the leading companies in the world. So we talked to you about growth and the projects that we had in Novelis and in Hindalco India, we talked to you about our ESG strategy and now I'm going to turn over -- turn you over to Dev to talk about the deleveraging and the capital allocation and the shareholder returns. Over to you, Dev.

Thank you, Satish. So a key tenet of our capital allocation framework is the continued focus on reducing net leverage, mainly as a function of a reduction of gross debt. On a consolidated Hindalco basis, we are aiming to reduce total debt by USD 2.9 billion within 2 years from its peak on June 30, 2020, following the Aleris acquisition. The vast majority of the gross debt reduction, that is $2.6 billion since the June 30 position, will come via Novelis through 3 main areas. First is the repayment of the entire $1.1 billion short-term bridge loan that was taken out to finance a portion of the Aleris acquisition. This acquisition has proven its success in our ability to achieve targets and repay this bridge earlier than anticipated as a result of strong cash flow, sale proceeds and stronger-than-expected synergy cost savings. Of the $1.1 billion loan, $500 million has already been repaid through the December quarter with the balance to be paid by the end of this quarter. Additionally, Novelis has also already repaid $900 million of short-term borrowings since June, primarily by reduction of the ABL. Lastly, Novelis has a $1.7 billion term loan due in 2022. We expect to refinance $1.1 billion of this term loan by the middle of the first quarter of fiscal 2022 and repay the balance $600 million before its maturity next calendar year. So of the $2.6 billion reduction at Novelis, $2 billion will have been repaid by the end of this fiscal 2021. The standalone Hindalco business also has a debt reduction plan in place. Hindalco plans to refinance just a portion of its Indian rupee bonds due 2022 and repay $270 million in US dollars by maturity date. As a result of meaningful debt reduction actions, both at Novelis and in India, we have a clear path to reducing consolidated net debt-to-EBITDA leverage to 2.5x, better than pre-Aleris acquisition levels in less than 2 years' time. So we are clearly on the right track to further strengthen our balance sheet, positioning us to share with confidence today how we are thinking about value creation through capital allocation over the next five years. Underpinning this framework is our utmost confidence that the performance at both Novelis and standalone Hindalco is sustainable. At Novelis, we remain confident that the $480 to $500 EBITDA per ton margin guidance can be maintained. The stability of Novelis cash flow post acquisition is enabled by top line sales buoyed by strong end market conditions across regions post-acquisition integration synergies, higher automotive shipments as our new capacity ramps up, ongoing operational efficiencies and focus on cost and metal optimization. And in India, improved operational efficiencies, cost control and better domestic market conditions provide confidence in sustainable performance. As a result, we can generate an average free cash flow from operations after normal working capital and maintenance CAPEX of $1.2 billion or more per year over the next five years. We prioritize that cash flow into three main categories: Growth CAPEX, deleveraging and shareholder returns. I just spoke about the company's sustainable near-term deleveraging plans. At the same time, robust cash generation at both Novelis and Hindalco will allow us to continue to reinvest most of our capital back into the business. We see organic growth cap expand between Novelis and India could approximately be $2.5 to $3 billion over the next five years to capture the many growth opportunities you heard about earlier. We will update on those project plans when identified but rest assured, we will maintain our disciplined approach to capital spending. By this, we mean ensuring that all new investments are in line with the company's strategy and purpose, and that the return on such investments is well above the cost of capital. Notably, this capital allocation has to be considered organic, with no large inorganic growth plans through acquisitions. And lastly, the third pillar of the capital allocation framework is an enhanced focus on shareholder returns. This will be achieved through higher capital appreciation arising from increased earnings and lower leverage as well as increased dividends. In summary, over the next 5 years, we will use the following capital framework as our guide. Roughly 50% of our cash flow from operations will be allocated towards organic growth capital, approximately 30% for debt reduction and approximately 8% to 10% for shareholder returns. The additional cash balance generated would be reserved for additional organic investment or held in treasury to comfortably navigate potential market cycles. So with this now, I'd like to turn the call back to Satish for his closing comments.

Yes. Thank you, Dev. I think that we have now taken you through the 4 pillars of what we were planning to do in the next 5 years, which is the organic growth, ESG, deleveraging and a capital allocation framework with focus on shareholder returns. So I think we will now go over to the Q&A session. So, o, I would like to invite our Chairman, Mr. Kumar Mangalam Birla to give some remarks. I think the remarks at the beginning, there was a technical problem, and many of you could not hear it. So Mr. Birla, can I hand it back to you for your remarks, please?

Moderator, can we be heard?

Mr. Birla, over to you.

Okay. So good evening, and good morning to all the investors who joined us today. I hope that you and your families are well and safe. On behalf of the Aditya Birla Group, I would like to thank you for joining this Hindalco Investor Day. We are connecting, as we know, at a time of steadily increasing global optimism that's been powered by a combination of rapid vaccinations and improving economic parameters. These give us cautious reason to hope that we are now firmly on the path to normalcy. Investor community, all of you, of course, have been prescient in betting on a sharp rebound in economic activity.

Can you just hold on, Mr. Birla. I think the sound is not coming through. Let's just fix it again. Sorry. Operator?

Yes, sir. We'll just check that. One moment.

Yes. We cannot hear Mr. Birla. So can you please fix it? Just 1 second, Mr. Birla.

Yes. Yes.

Sir, we can hear him now.

Yes, we were able to hear him.

Okay.

Could you all hear Dev before me?

Yes.

Yes, sir.

Okay.

Sorry, Mr. Birla. Go ahead.

I think we are connecting at a time of steadily increasing global optimism that's been powered by a combination of rapid vaccinations and improved economic parameters. These give us cautious reason to hope that we are now seeming to be firmly on the path to normalcy. The investor community, all of you, of course, have been prescient in betting on a sharp rebound in economic activity. As a business group, we have always believed that we are trustees of our businesses and it is our role to generate significant shareholder returns and stakeholder value. We actively engage with our stakeholders and have robust mechanisms to seek and incorporate their feedback. While our companies have been doing a fine job at this, I thought it might be interesting for me to get an outside-in perspective on our businesses and get a sense from our investors on what we are doing well and where we can do better. Towards this, I recently met with a wide spectrum of investors over the last few months. The experience, I would say, has been both enriching and energizing. One insight that clearly emerged is a scope for us to engage even more meaningfully in order to help our investors understand our business models and our levers for value creation even better. This Investor Day has been conceived to achieve exactly that. Hindalco, as you know, has grown from being India's largest and leading nonferrous metals company to becoming a world global leader. Over the last decade, as Satish mentioned in his presentation, Hindalco has transformed itself from a company that was heavily dependent on the volatility of the LME to one that is a portfolio of stable and value-added earnings. It has consistently delivered to its stated commitment of size, scale, operational excellence and profitable growth. This journey has been punctuated by some bold bets and many patient investments. Novelis, which was acquired more than a year ago -- more than a decade ago, was one such bet. It was viewed with skepticism by many in the investing community then. But as today, as you saw in Steve's presentation, emphatically established itself as one of the best large acquisitions overseas by any Indian corporate. Aleris, which was recently acquired by Novelis, is integrating well, and in just a few quarters, has surprised us positively both on synergies and operations. Much before ESG became the new buzzword, Hindalco and Novelis embraced good corporate citizenship and made deep commitments and investments in driving this critical agenda. I want to reiterate what Satish shared with you that Hindalco has been ranked as the most sustainable aluminum company globally in the corporate sustainability assessment rankings by the Dow Jones Sustainability Index and Hindalco is the only Indian company to be recognized as an industry leader. And Novelis on its part is a world leader in sustainability with exemplary conditions of being the world's largest recycle. In fact, good corporate citizenship has been a key pillar of our leadership and business philosophy, and this is something that we have reinforced, with our actions, across the 10 countries in which Hindalco and Novelis operate. Despite a well-proven track record, a world-class management team and consistent operating performance over a long period of time, Hindalco's market cap does not reflect the inherent strength of the business and the quality of the strategic pillars that form its foundation. This investor interaction is, as you have heard, a comprehensive response to all of your inputs, questions and feedback. The leadership has taken you through a broad sweep of issues from explaining the purpose of the company, to articulating the strategic pillars of value creation, to sharing deeper insights on Novelis' business model to help you understand the conscious ESG choices the company is making. The team has also articulated, for the very first time, the company's capital allocation strategy as also the dividend distribution policy. Before I hand back to Satish for the Q&A, I would like to confirm -- reaffirm my own commitment, that of the company and that of the group, to creating long-term shareholder value. I'm sure that you will find this interaction insightful, and I look forward to more conversations and even more meaningful outcomes. Thank you once again to -- for joining the Hindalco Investor Day.

Yes. Thank you, Mr. Birla. And I think that we will now go over to the Q&A session. So operator, can we switch over to the Q&A mode, then start the Q&A, please.

[Operator Instructions] The first question is from the line of Pinakin Parekh from JPMorgan.

This is extremely helpful. The company has laid out such a framework. I have 3 questions to start with. My first question is that the company highlighted organic cash flows of $1 billion to $1.2 billion. Can we know what are the underlying assumptions in terms of LME price, Novelis EBITDA per tonne and the maintenance CapEx?

So Praveen, over to you.

Yes. So this is based on -- see, LME assumption doesn't really matter for most part of our business forecast as most of, including Novelis, is something that is really not connected to the LME movements. But yes, this is -- generally speaking, we look at -- the past few years, we look at the projections. And based on that, we really forecast our predictions. We have good understanding of our market size and that's how we really work on it. But if there's any specific question you want to ask, we can answer.

So Pinakin, the LME part, we have taken these actions and not really taken a much higher LME. And the EBITDA per tonne on the Novelis side, we stick to our original guidance of $475 to $500. So that is the second point I can give you to come to $1.2 billion.

And sir, what will be the maintenance CapEx in this?

So the maintenance CapEx that's built in is $300 million for Novelis and $250 million for Hindalco India, on an average for the next 5 years.

Understood. Sir, my second question is that in terms of time...

Pinakin, the $1 billion to $1.2 billion is after maintenance CapEx. I just wanted to make sure you understood that.

Understood. Understood. And sir, just to clarify, at this point of time, in the December quarter, would it be fair to say that the company is running ahead of these numbers?

Yes. It would be fair to say that. But we are giving a 5-year outlook, Pinakin. And hence, to take the point we have tried to stay conservative because cycles can come up and down. So we are saying $1 billion to $1.2 billion. But you're right, at the end of Q3, we are running ahead of that.

Understood. Sir, my next 2 questions are that in terms of the revision of the cash flows, roughly 8% to 10% is towards shareholder returns and roughly 10% to 12% seems to be towards treasury. Now what would it take for the shareholder return to increase from 8% to 10% in terms of the operating cash flow?

Praveen, do you want to take this?

Yes, yes. So as we have written that it's a percentage of the cash flow, as we have defined a discretionary free cash flow, which can be put to either deleveraging, put to growth CapEx and put to the shareholder returns. Now this is -- you should take this as more directional. And as a percentage of the overall cash flow, it is obvious that the cash flow is going to increase once the investment in growth CapEx happens, that will add to the overall profitability and cash flow. This will not remain static. But we are trying to give an overall direction in terms of percentages. So as the basic number increases, the absolute amount of the shareholder returns will also increase.

And sir, my last question is, at this point of time, would the management want to lay out an ROE roadmap as well in terms of over the next 5 years as the cyclical element of earnings reduces and the steadier annuity business stream of Novelis keeps on increasing, should we expect a large ROE expansion as well?

Praveen?

Yes. So yes, there will be an expansion. We would not like to lay down exact numbers here at the moment because there are various projects, as you've seen in the pipeline in Novelis as well as -- mainly in various business segments. Each one of them has a certain return on capital which will add to the P&L for the company as a whole. It all depends on how quickly we can execute, how far we can go and how the business cycles also turn. But our confidence is that this will definitely help and this is different from upstream investments largely, where upstream investments take a lot of time and lot of effort, lot of CapEx which actually subdues the ROE for a short period of time or medium period of time. But these projects are modular, first of all. As you've seen, these are not very large investments per se, per module of investment. And then these are additional. These are incremental. So they leverage on existing trends and the existing infrastructure. So sure, there will definitely be an expansion of the ROE going forward.

The next question is from the line of Anuj Singla of Bank of America.

Thank you very much for the detailed presentation and outlining the -- your strategy focused on downstream and ESG. I mean this is the most extensive presentation we've seen from you in recent times on ESG. So thank you very much for sharing your thoughts. My question is, first, on the downstream expansions in India. You talked about 900 Kt of target in India. My question is what role can Novelis play in that expansion in India? Now we have seen -- you have done a lot of work already. But going further, what kind of collaboration we can see from Novelis side?

Yes. I think that, Anuj, that's a very good question. And if you see the expansion that we first did in what we call the Phase 1 in Hirakud and today, Hirakud is now nearly producing 135 Kt. The amount of technical support that we received from Novelis over these last 3 years has actually enabled us to bring the product quality and consistency up to that point. I'll also share with you that with Novelis' support, the first can body stock is going out of the Hirakud plant in March, going to customers in India. So for us, this -- the second phase, which is the 300 to 600, which is largely going to happen in Hirakud, is very much dependent on that technical synergy with Novelis. And I think that with their expertise on rolling mills, on the rolling process, we are going to be able to do this expansion, which is quite a people, process, quality dependent. So I think that the other part of the differentiator for Hindalco is having that Novelis expertise when we do this downstream expansion.

Okay. The second part is, what kind of collaboration on recycling can we see? So Novelis, has -- obviously the biggest recycler. We have seen your competitors on the steel side, starting a pilot on recycling in Northern part of India. How do we see that shape up for us in India?

So another very good point, Anuj. We are already in deep discussions with the Novelis experts, in fact, down to the point of what technology and what furnaces need to be bought. But we intend, and I think I've been saying it in some of the quarterly calls. We will be putting a big aluminum recycling project in Gujarat over the next few years. And we are doing this very closely with Novelis trying to get the right technology mix right. So that is the next place that we will be expanding. I think Praveen's talked about the 100 Kt of copper recycling that's being put in place, but we are also going to be putting aluminum recycling. So as Hindalco goes into this downstream strategy in India, recycling will be a big part of that, Anuj.

Okay. And lastly, on the CapEx side, on Novelis, you have laid out a very firm plan for $900 million of CapEx. The total target is $1.5 billion for the next 5 years. Where can we see the remaining $600 million going? Any particular segment we should be focusing on?

So Dev, you want to take that, or Steve?

Sure. Sure, I can take it. So just to be clear, the $1.5 billion is our next 5 years. And the only thing that sits in there is the remainder of what's left from a capital standpoint to spend on the 2 auto finishing lines, which is not significant, and then the Pinda expansion and in China, which is $300 million. The remaining part of that, so it's a larger amount than what you had said, is earmarked towards further organic growth. And again, these are going to be a variety of projects. I think you should be thinking about recycling and casting capacity as we further support our customers' pull for high recycled content and lowering carbon footprints. I think you'll see further auto finishing expansions down the road. And then a lot of this is smaller debottlenecking, continued initiatives on automation, on world-class manufacturing to continue to drive further capacity out of the system, which we've been doing over the last several years. We can't probably get any much more specific than that. I can tell you, as Dev said in his comments, we're excited about the opportunities, and we'll do it in a very financially prudent way, but certainly see a lot of market growth and a lot of organic opportunities in front of us.

The next question is from the line of Indrajit Agarwal from CLSA. It seems that we have lost the line. We will move to the next question that is from the line of Satyadeep Jain from AMBIT Capital.

Can you hear me?

Yes. We can hear you. Go ahead.

Yes. I'm sorry if this has already been asked. On the capital allocation front, you outlined $1.5 billion in CapEx, growth CapEx in Novelis. After the debt reduction, there is significant free cash flow that far exceeds the growth CapEx you've outlined. So as you achieve your deleveraging targets over the next couple of years and your use of cash flow is largely going to be growth CapEx on Novelis or is it -- and can you also talk about what kind of leakage do you have for returning capital to India at the Novelis level? So that's the first question.

Yes. I think, Praveen, can you take this?

Yes. So really speaking, on the growth CapEx, Steve has already answered, but to your question about the tax cost, we do not see a very significant tax cost. And that's the point we really wanted to make by saying that we are looking at the overall cash flow of Hindalco consolidated level. And that is why we don't differentiate between the cash flows generated in India versus Novelis. We have earlier also brought in dividends or money from Novelis earlier as well, and that has been demonstrated. So now we look at the company as a whole, and to answer your specific point, we do not see a big tax leakage on this issue as well.

Okay. Secondly, on the growth CapEx opportunities, you mentioned recycling and casting. First of all, as we look at the next 5 years, is it safe to assume that any foray into extrusions at the Novelis level or any hot mill cold mill expansion outside the China are largely off the table? Any expansion that you're going to see is largely going to be what you've already outlined? And secondly, related to that, I mean, recycling economics look attractive and also casting is something we associate with the upstream also. So can you briefly talk about the potential in those segments in different regions for recycling and casting?

So Steve, you want to take the first part and then maybe Dev can talk on recycling.

Yes, sure. So as it relates to expansion again, when we talk about cash, we're talking about sheeting it. So just the front end of ours. And a lot of times, when you couple casting with recycling, it's -- you want to be in the geographical region of where you're collecting your scrap and then you can put it into your hot mills. So hopefully, that clarifies kind of what we're really saying about casting. On the extrusion side, we think we've got a lot of opportunities on the sheet side to continue to penetrate in the markets we're in. So right now, we are not focused in trying to find ways to introduce new shapes such as extrusions into the Novelis portfolio at this point in time. And then as it relates to hot mill expansions, certainly, you saw in my prepared remarks, we're moving it from 4 million metric tons to 4.5 million metric tons, a significant move over the next 5 years. It is on the back of the China expansion, which releases capacity at Ulsan after it integrates with the downstream auto. It's on the debottlenecking and some balancing investments that don't come at a lot of cost. Further hot mill, I think it's something we'll have to continue to evaluate with our customer base over the next 3 to 5 years, but there's nothing planned at this point in time. But as we continue to see these markets grow, these will be conversations that we'll have to have with our customers, understand the contracting around them and make decisions, but nothing at this point in time.

Yes. Right. So let me talk about the recycling and the economics of capacity expansions on recycling. So we actually have a very high level of confidence on the attractive economics of expanding into more recycling, and there are a couple of reasons why we feel so. Number one, all the macros on scrap availability are actually highly favorable. As the focus on sustainability keeps going up throughout the world, we see attractive recycling rates, therefore, ensuring more scrap availability. For example, in the U.S., about 700 million tonnes of the scrap goes into landfill,, and we will really be able to sort of advocate and -- actually the entire system will be sort of working on advocacy of getting more into the system, number one. Number two, we also see the auto end of the life cycle starting to help us from the middle of the decade. So as the first generation, for example, of the aluminum intensive vehicles like the F-150 are phased out, it will increase the availability of scrap and particularly high-grade auto scrap into the system. So really, across the world, the sustainability wave is actually going to make recycling and availability of scrap more attractive. So we see a high potential in expanding further on the recycling.

Steve, just on the debottlenecking, is it possible to share more details on what kind of opportunities do you see in debottlenecking? Where those opportunities are, which regions, which source?

Listen, I would highlight that with the recent Aleris acquisition, applying what Novelis has done over the last 5 to 10 years on what we see as capacity capabilities of our assets, applying it to their system, we do see opportunities in both Koblenz and some of the continuous cast assets in North America. So I think that's one that we'll be focused on. The rest is a number of projects that just continues what Novelis has been doing to increase the system and ability to get more out of the system. I mean we've increased our recovery rates on auto by over 10 percentage point -- 10 points over the past 3 to 4 years. We've increased can by 4 percentage points. These all add tremendous amount of capacity to the system, but it's a number of projects. So nothing big enough to highlight outside of maybe the focus on the new Aleris assets.

The next question is the audio question from the line of Abhijit Mitra from ICICI Securities.

Wonderful presentation. 3 questions from my side. First, on the CapEx that you have sort of chalked out for Novelis. Actually, if we look at next 5 years horizon, there is no new CapEx that you could see, which was not what we were probably expecting in the sense that there's so much tailwind on each of the individual products that we see. So what's the thought process? Do you see sort of tiring out of this product cycle, something similar to sort of what happened in can probably during the time of Novelis acquisitions or -- I mean this product cycle, so you're comfortable with them? Or you do see some sort of situation coming in now for the next 3 years, which sort of explains this CapEx decision? What's the thought process on this?

Steve?

Yes. I mean we want to be clear. We have not -- we're not announcing new CapEx projects today. We will be, in the future, announcing new CapEx projects. What we've talked about is the opportunity, and we at Novelis know where these opportunities exist of at least $1.5 billion worth of strategic capital to be spent over the next 5 years, and that's earmarked already inside of our strategic plan and plans to move forward. Again, they're going to be in the areas that we've talked about, whether it be recycling and casting, additional capacity, the China facility, debottlenecking to continue to drive 2 million to 4.5 million metric tons or above our 2.5 million metric tons of recycling capacity to continue to drive and capture the market opportunities in front of us. So I very much hope you did not take away that there's not opportunities at Novelis. We see good growth in our markets and see very good opportunities, and we'll be certainly back in front to be talking about further organic plans for that as and when it makes sense.