The Chairman's Address to Shareholders of Hindalco Industries Limited at the 63rd Annual General Meeting

23 August 2022

Dear Fellow Shareholders,

A very good afternoon to each and every one of you.
Welcome to the 63rd Annual General Meeting of your Company.

For the last three years, I have had to use the word ‘unprecedented’ much too often in business reports and conversations. Since 2020, we have faced several unforeseeable setbacks that have had global reverberations – Covid 19, the supply chain whiplash, and the fallout of the Russia-Ukraine war. It is tempting to call these Black Swan events. But that is not the answer. Instead, we need to acknowledge that we are in an era where businesses need to be more agile and resilient than ever before to deal with disruptions.

I am happy to say that your Company is one of these. Hindalco has faced all these shockwaves and has emerged stronger. It has carried with it an ecosystem that nurtures entire communities and value chains. And it continues to deliver innovative metals solutions that enable a whole slew of industries to be greener, stronger and smarter.

As we stand here in August, the macroeconomic picture shows a merging of various trends. Let me talk about some highlights.

Economy overview

2022 saw global economies recovering from the pandemic shock on the back of supportive fiscal and monetary policies and mass vaccination programmes. However, in recent months, the war in Ukraine and looming fears of a global recession have posed macro headwinds. The International Monetary Fund (IMF) now expects the world economy to grow at 3.2 per cent in CY22, slowing further to 2.9 per cent in CY23, well below its pre-war projections.

There are two major concerns around the current global crisis. One is the tightness in energy markets and the fallout on energy security of some regions. Secondly, elevated energy prices have spurred a chain reaction, fueling inflationary impulses and volatility. Global supply chain disruptions that were triggered by pandemic-induced lockdowns in China have continued because of the war in Ukraine. This has dented consumer confidence and dampened risk sentiment in financial markets.

We are also seeing greater turbulence in currency markets. The dollar has strengthened, while the euro and emerging economies have witnessed downward pressure on their currencies.

The Indian economy has not remained unscathed by these global developments. India has also witnessed upward pressures on inflation, rate hikes by the RBI and a widening trade deficit.

Nevertheless, there are several bright spots in India’s overall economic narrative – and these support us to stay steady through the broader global economic turmoil.

First, the economic recovery cycle in India remains strong thanks to the significant progress on vaccination and the upswing in public capex. Even during Covid, various government schemes had helped small and medium enterprises and the worst affected sections of the population to weather through the crisis. Activity indicators are now well ahead of the pre-Covid levels, and most estimates peg India’s likely economic growth during FY23 at 7 per cent-plus.

Second, while India’s inflation rate has been above the RBI’s tolerance range for some time, the overshoot has not been as severe as in many other countries. Monetary and fiscal authorities have taken steps to dilute the inflationary pressures, and a normal monsoon this year should help soften these pressures further.

Third, even with a rising trade deficit, India’s external indicators remain supported – with foreign exchange reserves equivalent to more than nine months of imports. With these silver linings, India appears to be well placed to ride through an uncertain global economic environment.

India has a robust pipeline of infrastructure projects. In addition, the government’s pragmatic policies such as the production-linked incentive schemes are helping. Many industries have witnessed fresh project investment announcements. Foreign direct investment flows have remained strong. The burden of non-performing assets in the banking sector has eased. Start-ups and technology-based new age enterprises have acquired critical mass in India. These sectors are exhibiting a strong momentum – providing new jobs, and enhancing customer experiences.  Dynamism in India’s digital ecosystem, diversification of global supply chains away from China and the greater emphasis of investors on sustainable finance also offer new opportunities for India.

Thus, while businesses will need to remain on guard regarding financial market volatility and cost pressures this year, one expects the economy to show medium-to-long term growth recovery.

Let me now shift to your Company’s performance in FY22

I am happy to inform you that despite a market ambience of volatility and disruption, your Company has exhibited exemplary performance and crossed some notable milestones. Hindalco continues to raise the profile of the nation and the Group as the Most Sustainable Aluminium Company in the World. You may be pleased to note that we are the only aluminium company in the Dow Jones Sustainability World Index 2021.

In FY22, your Company delivered an exceptional financial and operational performance culminating in record-breaking profitability for the year. Consolidated Net Profit for the year grew four times to Rs.13,730 crore. Consolidated EBITDA was up 59 per cent, at Rs.30,056 crore in FY2021-22. This was achieved against the backdrop of the pandemic, steep inflation in input costs, volatility in commodity prices, and global supply chain disruptions.

The excellent financial performance has further strengthened your Company’s balance sheet. It has significantly reduced consolidated net leverage ratios from 2.59x in FY21 to 1.36x at the end of FY2021-22.

In FY22, Novelis continued its stellar performance and hit several significant milestones:

  • Net sales peaked at an all-time high of $17.1 Bn
  • Net income crossed the $1 Bn mark
  • Capacity crossed 4 Mn MT, reinforcing our position as the world’s largest producer of FRP (or Flat Rolled Products).

Coming to the Indian Aluminium business

All our aluminium plants achieved record production with the lowest raw material consumption. With our focus on operational excellence and cost control, supported by strong macros, the Aluminium India business EBITDA touched Rs.13,025 crore, a 139 per cent growth year-on-year. EBITDA margins at 41 per cent remained one of the highest in the industry. The results were backed by an improved performance by our downstream business, validating the strength of our diversified business model that is delinked from metal cycles.

We also completed the acquisition of Hydro’s aluminium extrusions business in Kuppam, Andhra Pradesh. The acquisition is aligned with Hindalco’s strategy to increase downstream capacity to serve the growing market demand.

Turning to the Copper business

The Copper business recorded a strong performance despite the pandemic-induced volatility, rise in LME, and global supply chain disruptions. The business achieved its highest ever domestic sales supported by stable operations. EBITDA for the year stood at Rs.1,390 crore, a 60 per cent growth over the previous year.

Moving to Specialty Alumina

Like our downstream business, your Company’s Specialty Alumina business too has come of age. The business delivered impressive growth in the face of multiple pressures.

Specialty Alumina is a versatile value-added product with applications across various industries like ceramics, wires and cables, as well as niche applications like water treatment, medical, and petrochemicals. In FY2021-22, the business diversified its product offering with multiple new high-tech products for value-added applications in the wire and cables, refractories and abrasives segments.

Capital Allocation Strategy

On the back of solid financial performance and a strong balance sheet, your Company is well-positioned to drive a new wave of transformational growth fuelled by organic expansion. We have announced a total capital expenditure of about $8 Bn over the next five years in Novelis and India. Novelis has identified potential investment opportunities of  approximately $4.5 Bn. In the India Business, we have identified potential investment opportunities of nearly $3 Bn. 70 per cent of our consolidated cash flows will be allocated towards high-growth downstream segments - EVs, Mobility, Packaging, Batteries, B&C, and Consumer durables.

Having provided you with a brief overview of the major developments during FY22, let me now move on to dividend. Your Directors have recommended a 400 per cent dividend of Rs.4.00 per equity share of face value Rs.1 each.

Let me touch on the Outlook for the period ahead

We have started FY23 at a strong pace, recording our highest-ever profits in the first quarter despite rising costs and inflationary pressures. Consolidated Net Profit for Q1 FY23 peaked at an all-time high of Rs.4,119 crore, a 48 per cent growth YoY and 7 per cent sequentially.

Looking ahead, I am happy to say that Hindalco’s operating efficiencies backed by our diverse product mix and strong balance sheet give us the confidence that we can deliver our best in all market cycles.

Let me now talk about our ESG focus

For years, we have been working to build a greener tomorrow in line with our commitment to reducing our footprint on the environment.

Hindalco’s ESG commitments include achieving net carbon neutrality, water positivity, no net loss of biodiversity and zero waste to landfill by 2050. I am happy to share that we have made good progress on all fronts.

We are leading the nation in Sustainable Mining through our engagement with Xynteo.

When it comes to clean energy, we are breaking new ground. We have achieved our targets of 100 MW renewable capacity, and going ahead we intend to achieve a renewable capacity of 300 MW by FY2024-25, including 100 MW solar power capacity with hybrid storage.

Bauxite residue disposal is a global concern, and your Company has pioneered a circular solution where the residue is used as an input in the cement industry. In the year gone by, Hindalco has achieved global benchmarks by showing near 100 per cent bauxite residue utilisation at three of our refineries. We have also achieved 114 per cent fly ash utilisation.

Our target of achieving No Net Loss on Biodiversity by 2050 is being driven by our strategy developed alongside IUCN (International Union for Conservation of Nature).  It’s a matter of pride that the cumulative green belt in FY2021-22 has grown by 10 per cent over the previous year.

Your Company’s focus on increasing recycled content in manufacturing downstream products is stronger than ever, with Hindalco subsidiary Novelis emerging as a world leader – it has reached a remarkable level of 57 per cent recycled inputs.

Another example of sustainability in action is the way we have pioneered green, efficient transport solutions for logistics and freight industries

Hindalco has led the lightweighting of India’s commercial vehicles industry starting with an aluminium trailer, bulker, and bus. These sturdy, durable corrosion-free vehicles can save up to 300 tonnes of carbon per vehicle over their lifetime. We now have a formidable new addition to the fleet. I am pleased to announce that Hindalco has developed India’s first all-aluminium railway wagon in response to the government’s vision for the Railways. Made from lightweight, high strength Aluminium alloys, the aluminium rake is about 3.2 tonnes lighter than a steel rake. This is a gamechanger in many ways. It allows an extra payload per trip of 180-190 tonnes. It enables savings of 1,500 tonnes in carbon emissions a year. It boosts logistics efficiency of coal transportation and also fast-tracks India’s decarbonisation journey. Even if 5 per cent of the 2 lakh railway wagons that the government plans to introduce are made of aluminium, potential CO2 savings will be in the region of 15 million tonnes per year. Hindalco drives R&D in aluminium solutions because these can play a big role in delivering climate action and sustainable decarbonisation for the nation.

Our sustainability-first approach to business has received global recognition. Hindalco is one of only five Indian companies on the Dow Jones Sustainability World Index. We will continue to lead with our greener, stronger, smarter approach.

We have always taken our social responsibilities seriously and during Covid, our teams went all out to protect employees and workers across ranks as well as our communities. Our CSR initiatives have enriched over 1.26 million lives across India. Our community investment for FY22 stands at Rs.87.6 crore on a consolidated basis.

None of this would have been possible without the courage, commitment, and collective efforts of our people. Our employees have always been a key source of competitive advantage.

As the world changed, the needs of our people changed as well. Keeping in mind the new normal, we are continually innovating our Employee Value Proposition to give our people holistic and meaningful employee development. One key focus area is gender diversity, and we continue to push for greater diversity in hiring at the entry level. I am happy to share that at Hindalco hiring of women GETs (Graduate Engineer Trainees) has gone up from 18 per cent in 2018 to 41 per cent in 2022.

Another noteworthy people initiative is the Hindalco Technical University – an online open learning platform that offers world-class learning programmes to our engineers, supervisors, and workers on the shop floor. During the pandemic, HTU’s learning programmes benefitted over 60 per cent of technical role holders. Our initiatives for various segments of the workforce make for a great employee experience. Our efforts were recognised with the Great Place to Work Certification by Great Place to Work® Institute

On behalf of your Company's Board, I would like to record our deep appreciation to the banks, financial institutions, stakeholders, business associates and the state and Central Governments. Their support has been invaluable in extending your Company’s business. I would also like to thank our shareholders who have always stood behind us. We are grateful to you for your continued faith and support.

Having given you a quick overview of your Company, I bring forward the first resolution relating to the adoption of financial statements for the year ended 31st March, 2022 and the Reports of the Directors' and Auditors for your consideration and approval.

Kumar Mangalam Birla

(This document does not purport to be a record of the proceedings at the Annual General Meeting)