Ladies and gentlemen, good day and welcome to JSW Steel Limited Q2 FY21 Earnings Conference Call hosted by Kotak Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an option for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumangal Nevatia from Kotak Securities. Thank you, and over to you, sir.
Yeah, thanks, Neetha. Good evening, everyone. Thanks for joining today for JSW Steel's Q2 FY21 earnings call. I would first like to thank the management of JSW Steel for giving Kotak Securities the opportunity to host the call today. I would now like to hand over the call to Vishesh Pachnanda from Investor Relations at JSW Steel to introduce the management and take the call forward. Over to you, Vishesh.
Thank you very much, Sumangal. Thank you, Kotak, for organizing this call. A very good evening to all the participants. I'm pleased to welcome you to the second quarter of fiscal year 2021 results call of JSW Steel. We have with us today the management team of JSW Steel, represented by Mr. Seshagiri Rao , the Joint Managing Director and Group CFO, Mr. Jayant Acharya, Director of Commercial and Marketing, and Mr. Rajeev Pai, CFO. We will start with a few minutes of opening remarks by Mr. Rao, and then we can open the floor for Q&A. With that, and without any further delay, over to Mr. Rao. Thank you.
Participants, please stay connected. Line for the management is dropped. Ladies and gentlemen, thank you for your patience. We have the line for the management connected back to the call. Sir, you may go ahead with the opening remarks.
Yeah, good evening. Welcome you all again. We have started the quarter with the economic recovery contraction. Very, very deep comments coming in that contraction would be very, very deep and very, very large. As the quarter progressed, the severity of contraction is becoming lesser and lesser. Let's say we have seen IMF revising their economic growth in India, negative 4.4%, as against 5.2%, which they have given earlier. In line with this trend line, global steel demand also we have seen similar pattern. The demand recovery is uneven. One side, the $550 billion of stimulus package that has been announced by China, more than 50% was intended for industries where steel demand can go up. That was quite positive. The result of that is Chinese steel production went up quite substantially, and their imports have increased also significantly. Their exports have fallen by 20%.
All led to very good consumption growth as far as China is concerned, which is not the scenario if I look at the rest of the world. If I see the total production numbers in the first nine months or first eight months of the calendar year, the rest of the world has reduced the production in line with the slow recovery in the demand, whereas China is concerned, increased the production during the same period. Therefore, the recovery what we are seeing, either in the steel demand or economic recovery, is uneven. It is not even across all locations. China is doing extremely well, and at the same time, the rest of the world is very, very slow.
Even the WSA short-range outlook, which they have released very recently, is also anticipating that the 2020 calendar year, the steel demand will be lower by 2.4%, which is 42 million tonnes. Whereas China's steel demand growth will be 8%, which is 72 million tonnes plus. The rest of the world is interesting. That is, 114 million tonnes will be lower steel demand over previous year. That is 13% lower. It is also in line with supply adjustments. What is today bringing balance as far as steel industry is concerned? Wherever demand recovery is slow, there the supply adjustment is very steep in line with the recovery in the steel demand. Whereas wherever there is a strong recovery like China, production also increased, and their exports have fallen, and their imports have more than doubled.
Because of these reasons, we are seeing a good recovery in the steel prices, and the situation is expected to continue in this quarter and the next quarter. That is how we are seeing as regards to steel industry outlook is concerned. In India, the business sentiment improved, and there is a broad-based recovery across all the sectors we are seeing. There is a good traction we are seeing in the coated steel products, appliances, packaging, solar, and also government-aided projects. This is also reflected by way of improvement in the consumption over Q1. In Q1, the fall in steel demand was over 50%, whereas in quarter two, it is around 10%. Therefore, there is a good recovery even in the Indian steel consumption is concerned.
In the light of these developments, if I look at JSW Steel, we have improved our capacity utilization to 86%, and we have posted the crude steel production of 3.85 million tonnes. We could have done much better than 3.85 million tonnes because of lack of iron ore supply from Chhattisgarh and also in Vijayanagar. Logistics constraints in moving material from our own mines in Barajamda we suffered in improving the capacity utilization better than 86% in the quarter two. The sales consolidated is 4.15 million tonnes, which is also a significant growth year-on-year, 17% quarter-on-quarter, 49% growth. What is very interesting in the volume of sales, our domestic sales quarter-on-quarter went up by two and a half times. Our exports have been reduced to 28% of the total sales.
What is also interesting here is auto sales have gone up by 392% quarter-on-quarter, and year-on-year, it went up by 33%. There is a good traction from the auto sector. Nobody expected this type of revival in the auto sector. Even though commercial vehicle sector is still lagging behind, we are seeing a very good improvement as regards to offtake by auto sector with the increase in sales of 33% year-on-year. The special products and the other products where high margins are there, there the composition has gone up to 51% of the total sales, and it has gone up by 29% quarter-on-quarter. It went up by 100%. In this quarter, we have highest ever coated sales and highest ever appliances sales, and also there is a good traction from solar and other segments of the steel user industry.
The NSR has improved by 11%, but year-on-year, it's still negative by 2%. We have worked on the cost very hard. We have reduced our cost quarter-on-quarter by 5%, year-on-year by 11%. The margins on standalone basis, INR 10,141 per ton, as against INR 5,102 in the Q1 . There is a significant improvement of over INR 5,000 per ton EBITDA. Out of that, INR 1,300 is contributed by cost, balanced by NSR. The EBITDA on a standalone company was INR 4,176 crore, an improvement of 62% year-on-year. The profit after tax on standalone is INR 1,692 crore. The Indian subsidiaries have done well, particularly the coated. Its EBITDA is INR 288 crore. It posted an EBITDA per ton of INR 4,700, a significant improvement in the performance of coated in terms of volumes, in terms of cost, in terms of NSR.
ARCL and Industrial Gases, VIL, all did very well. After adjusting consolidated adjustments and India's adjustments, the Indian subsidiaries have net net contributed INR 289 crore. As far as overseas is concerned, the losses have come down. If I take out one-off items, the cumulative losses for all the locations together in the quarter was INR 213 crore. There are one-off items from Italy where we have made certain provisions, and also there are certain gains which have come in from U.S. operations, either settlement of disputed claims and also PPP program grants. Both together, if I take out the net benefit, is INR 161 crore. INR 213 crore loss and INR 161 crore of gain. Net net, there is a loss of INR 52 crore from overseas.
If I take the benefit of INR 289 crores from Indian subsidiaries and INR 52 crores negative from overseas subsidiaries, net net, there is a contribution in consolidation INR 238 crores. The consolidated EBITDA, therefore, at INR 4,414 crores, which is higher by INR 238 crores. The profit after tax on a consolidated basis is INR 1,595 crores. In this quarter, we could reduce our inventory by INR 475 crores. We have released working capital in this quarter. Over and above that, there is an exchange rate benefit because the rupee appreciated. Both together, our debt is reduced by INR 1,635 crores. The net debt was INR 52,892 crores as of 30th of September. Our debt to equity, debt to EBITDA, all the ratios have improved. As regards to projects, we are happy to share that the migrant workers who left because of the COVID all have come back.
There is a good momentum in the project implementation. In Dolvi, we are confident that we will be able to complete by 31 March 2021. Now, there are more than 14,000 workers working at Dolvi. At Vijayanagar, also, there is a good improvement in terms of workers coming back. We are happy to say that the wire rod mill of 1.2 million tonnes has been commissioned. The trial runs are on the way. The pellet plant of 8 million ton capacity at Vijayanagar is very, very advanced stage. We will commission in this quarter. The other projects, either downstream or Dolvi or other projects at Vijayanagar, we are working on to complete as per the guidance we have given. The capital expenditure cash flow basis, we have spent INR 4,411 crores so far.
As regards to our guidance of 15 million ton sales, we are very confident that we will be able to achieve this sales volume guidance of 15 million ton in this year. As far as the production guidance is concerned, we have lost 1.2 million tonnes in the Q1 . We tried our best to recover part of that quantity in the Q2. As I mentioned, due to iron ore supply constraint, we could only achieve a flat production on year-on-year basis in the Q2. We are making every effort to make up some of the shortfalls we have got in the Q1, in the Q3, and Q4. Therefore, on the production guidance side, there could be some shortfall to the guidance we have given at 16, but sales volume we will achieve.
The acquisition side, the Asian Colour Coated in the NCLT, our resolution plan, it was pronounced in the open court that it was approved with some modifications. We are waiting for the detailed order. It is not yet uploaded. As and when it comes in, we study that, and we will go ahead in implementing the resolution plan in the Asian Colour Coated . In the case of BPSL, it is posted for final hearing on 3rd of November. Once the Supreme Court adjudicates on the matter, we will complete Bhushan Power & Steel Limited . This is how we are seeing as regards to Q3 and Q4. We appear the demand momentum is quite strong in the market. The Indian economy, we expect to recover further.
Majorly, the rural-focused fiscal and monetary policies of the government, that should stimulate more and more demand from the rural segment in addition to the other sectors of the economy. Q3 and Q4, our volumes, whatever we are guiding, we will be able to achieve. With that, I will close it here, and any clarifications we can take. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touch phone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Anyone who wishes to ask a question, you may press star and one. First question is from the line of Anuj Singla from Bank of America. Please go ahead.
Thank you very much for the opportunity. So sir, first question is with regards to the steel price hike which we have taken in the domestic market. Would you be able to quantify what kind of hikes we have taken? There was news flow. There was a INR 2,000 hike in early October. Has it been absorbed by the market? And what kind of pricing recovery we can see on a sequential basis in the Q3 ?
Yeah. So pricing, as we exited the September end, there was a gap between international prices and domestic prices. Domestic prices were at a discount to the international prices by about 5%-6%. In October, we have taken an increase, and by and large, that has got absorbed. As far as Q3 outlook is concerned, I think while quantification at this point would be difficult, what would be a positive is that the quarterly and the half-yearly contracts are due for revision and increase. That is getting finalized. Automotive and other quarterly contracts. That would be a positive as far as the pricing is concerned in this quarter.
Okay. Understood. Can you give us similar maybe guidance on the coking coal cost? What was the cost this quarter and next quarter? What can we anticipate?
Yeah. Coking coal cost, I think last time we had indicated that it would drop in quarter two by $20-25. We have been able to be at around that level. I think the numbers were close to $120 CFR level on a blended basis. We expect that the coal, coking coal, has been a little volatile. You have seen the markets. It went up because of the blast furnaces, some of the supply chains restarting. Again, because of the Chinese restriction on Australian coal, business sentiments on the coking coal side took a dip. Prices have gone down. It is going to be a little volatile. We would say that in this quarter, the price range would be similar, or rather the cost would be similar to the last quarter.
Thank you. Second question, sir, with regards to the iron ore mines in Odisha, while we have started producing there, like you mentioned, logistic constraints are still hampering our supplies from Odisha to our plants. What is the market feedback there? When can we expect that supply to ramp up? Do you see, because of the supply issues in Odisha, is there an upside risk to the iron ore prices in the domestic market?
Shortage of iron ore is definitely perceived today by the steel industry. There are two reasons. One is production is lower in Odisha. All the 19 mines which have been auctioned, only five mines became operational today. They are still to become operational. Even these five mines, they are not able to ramp up capacity because of evacuation issues. The existing mining companies have time up to 31st of October to evacuate their material. Some of them are trying to get extension by going to the courts. We are not sure whether they will get the extension or not. Therefore, the iron ore shortage is a problem. The second issue is more exports of iron ore from India.
Not only iron ore, even pellet exports have gone up quite substantially in the last six months. These two together is a problem which we need to manage. Whereas we are concerned, we are ramping up the production and also trying to evacuate the material by direct shipping, either to Dolvi or Vijayanagar, instead of bringing it through port. That is making us improve the supplies to our locations. If 31st October extension is not given, I think we will be in a better position in terms of evacuation of material from Odisha.
Thank you very much. Sorry to interrupt you, Anuj. I'll request you to come back in the question queue for a follow-up question. I request all the participants please restrict to two questions per participant. If time permits, please come back in the question queue for a follow-up question. Next participant is Amit Dixit from Edelweiss Securities. Please go ahead. Yeah.
Thanks for the opportunity and congratulations for a good set of numbers. I have a couple of questions. The first one is on the other subsidiaries. Is there, I mean, can you indicate when the subsidiaries, I mean, overseas subsidiaries will be profitable, or when do you see the performance improving from this year? That is the first question.
Yeah. Yeah. Please continue.
No, no. I was just asking that when can we expect, what is the roadmap to the improvement of overseas subsidiaries' profitability, particularly when we have seen that prices in Europe and U.S. have also risen in this quarter? Do you expect these subsidiaries to be profitable in Q3 or, I mean, Q4 at least?
If you see, the average operating losses from overseas subsidiaries are gradually coming down, that is one positive. Which used to be INR 335 crore in the Q2 of last year. The number which I just shared with you is INR 213 crore without one-off items. Therefore, there is a significant reduction in the operating losses. We were expecting that Baytown will do well, at least in the Q4. Unfortunately, there is again a change in law there. The imports from Brazil, they have restricted the quota they have restricted. With that, the availability of slabs to Baytown had become a challenge for continuing operations. We have taken the shutdown of Mingo for ramping up, which would come into production only in March 2021. Until that time, Baytown had to depend on the imported slabs.
Due to the restriction on the quota, they are not able to get the slabs. It is decided even Baytown would take the shutdown temporarily until Mingo comes in operation. We have minimized the losses both at Baytown and Mingo. We will restart both of these in the month of March 2021. We can see a good improvement in the operation side starting from quarter one of next financial year. As regards to Italy, there also the operating losses are coming down. There also we expect improvement in Q3 and Q4 over what we have seen in Q1 and Q2.
Okay. Great. The second question is with respect to power and fuel costs in standalone operations. If I see that has gone down both sequentially as well as year-on-year. I mean, what is the main driver of the decline in power and fuel costs year-on-year? Sorry, not sequentially, year-on-year. If you look at per ton basis, it has gone down. Is it, I mean, what is the driver there and is it sustainable, this decline?
Majorly, it is natural gas price. Natural gas prices have come down. You can see year-on-year basis. You must have seen the spot prices, the way it has fallen for LNG. That enabled us to reduce the prices, particularly at Dolvi unit. Over and above that, the power cost is also lower because thermal coal prices have come down. This has contributed for lower power cost and the lower gas prices, which is reflected by the lower power and fuel cost.
Okay. Fair enough. Thanks, sir, and all the best.
Thank you very much. Next participant is Pinakin Parekh from J.P. Morgan. Please go ahead.
Yeah. Thank you very much. Sir, I have two questions. My first question is, when we look at the steel market, there has been a bunch of price hikes between July, August, September, and October. Sorry, not July. Now, these will flow through at different points of time depending on six-monthly contracts, three-monthly contracts, and spot. On the other hand, coking coal has been volatile, but iron ore prices in India have been rising. At this point of time, sir, how should we look at the steel spread? Basically, steel realizations minus iron ore minus coking coal cost. Would they improve in the third quarter versus the second quarter, or would they deteriorate given the lead and lag of the various cost and price impact?
From a price perspective and a cost perspective, on a price perspective, I think we mentioned that internationally, we were at a discount. The domestic prices were at a discount by end of September to the extent of 5-6%, which has been bridged by a price increase in the month of October. Second is that the contract prices, contractual prices for both quarterly, half-yearly, automotive appliances are all due for revision from 1 October. That is in the process of getting closed. Some have already been closed. Some are in the process of getting closed. The price increases there also would be somewhere in the range of 10-12% on their existing price levels. Product to product, it may vary a little. That would also be a positive coming in.
As far as coal is concerned, I think we mentioned that the cost of coal in Q2, coking coal as a blend, would remain similar in this quarter by virtue of the volatility which coal has exhibited. There is also a lag between the supply and the stock which is coming in. We expect a similar level. Iron ore, I think Mr. Rao has already mentioned to you that there is a constraint with respect to supplies. There is an iron ore shortage. Prices have gone up in the last two months. There is some impact of the iron ore cost flowing into the cost profile. I think the effort would be to maintain the margin, if not improve it.
Understood. The second question is that it mentions 27% of iron ore requirement is now met by captive mines. Sir, can we quantify it? A nd can we at this point of time understand how much will this increase to over the next six months?
No, if Odisha evacuation is smoother, then we will be able to meet 100% of Dolvi and 100% of the Salem. That is what really difficult to guess today. But as a number, we can tell you that these mines are capable of producing 100,000 ton per day. Whereas right now, it is producing between 40,000-50,000 tonnes a day.
Understood. Understood. This is very helpful, sir. Thank you.
Thank you very much. Next question is from the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, my first question is on the recent bond issuances that we had. Sir, how should one look at that from a capital structure point of view? Are there any benefits on refinancing? Sir, if you could provide some color over here, that would be useful.
Yeah. I think markets were opportune to raise this money. We have tapped the markets and raised this amount of $500 million. The intention is to use this money for various purposes, including capex, reducing the debt, and also to meet working capital requirements. Therefore, our effort is to maintain adequate liquidity in the overall balance sheet and also maintain our ratios. The way we are guiding, around 3.75 is the direction we would like to move instead of saying which fund where to use.
Sir, are we refinancing any debt on back of this? Are we having interest cost savings on back of this? Interest?
I did not understand the question. What do you mean by that? What do you mean by that?
Sir, if we are refinancing the debt over here, is there any interest cost saving which is likely to accrue, or is it more like from a liquidity point of view, we are just enhancing our vouchers?
Whatever rupee debt, let us say we have raised it around 8.5%, part of that amount we have used for prepayment of the existing rupee loans. There we have saved some cost. The foreign currency which we have raised, if we have to invest that money temporarily, I do not think there will be an increase in the overall cost. It will remain more or less the same.
Okay. That is useful. Sir, my second question is the net debt number which we give in the presentation. Does it include the deferred supply agreement? If yes, how much was the limit drawn on March end basis, and how much is it on September end basis?
This includes the advance drawn under APSA. See, every month we have to export and repay around $13 million. That we have been doing by export of steel products to the Duferco. It gets reduced. I don't remember exactly how much was there on 1 April, how much was there in September. This is gradually coming down.
Okay. Last question, any update on Moitra Coal Block?
Moitra Coal Block, not much progress because of the COVID-19 issues here, either in terms of approval or working on the ground. These six months, we could not do much on Moitra Coal. Again, now we are reviewing to restart the activity in Moitra Coal Mine.
Great. Thank you so much for the answers. I joined, but just you. Thank you.
Thank you. Next question is from the line of Vishal Chandak from Emkay Global Financial Services . Please go ahead.
Yeah. Thank you very much, sir. And congratulations on a very good set of numbers. My first question was with respect to the iron ore that we are bringing in from our Odisha mines. How do you see the cost differential between procuring from merchant miners in Odisha versus our own mines? What would be the difference largely on the landed cost basis at Dolvi?
It won't be cheaper, Vishal. It is always expensive. Because our average premium we have paid for all the four mines together is 105%. If market is 100, I have to pay 105%. Therefore, I don't think if you compare landed cost-wise, it will be cheaper. It will give us the flexibility to operate the plants, either to source it high-grade or low-grade as the plant requires. I think in this quarter, as an integrated plant, we were able to operate the units even at 86%.
The strength is we have got these four mines. Otherwise, it was not possible. Therefore, it is a strength from that point of view. On the cost of production side, gradually over a period of time, it will give the savings in the logistics cost, the way we bring in, the way we handle, the way we mine. In the short term, I do not think it is less expensive compared to the market.
Sir, in fact, my next question was only with respect to how do we plan to reduce the cost over the long period of time? I know we have got slurry pipeline and pelletization lined up, but what are the timelines that we are looking at implementing these projects?
No, this 5% or 7% less mining cost, which we are paying extra. Our focus is how do we equalize at least to the market. In that regard, if you look at JSW Infrastructure, they have made their 18 million ton iron ore terminal at Paradip Port operational. Earlier, we used to get the iron ore both from Dhamra and also Paradip Port. Because JSW Infrastructure has set up all the facilities to handle large capacity, we did not go to Dhamra, and we can handle everything from Paradip. That is how we will be able to reduce to some extent the cost of transportation, port charges in bringing the iron ore. That is one.
Number two is transporting iron ore from the mine to the railway siding. That is another area where we are focusing how to reduce that cost. We are working with transporters. We are working with others to reduce that cost. The third area is mining cost itself. We are given short-term MDO contracts right now. We are also getting experience in this area. We will work on reducing the mining cost further down. This is short-term measures. If I look at long-term, we wanted to set up a slurry pipeline to bring iron ore from the mine to the port. That will take time. Once we do that, I think that is where the game lies. The logistics cost will come down drastically.
Sir, at the port, do we also plan to set up a pelletization plant to further reduce the coastal movement instead of just looking at shipping iron ore fines?
No. Pellet plant already there at Dolvi and also at Salem are central plants. Therefore, we are not planning any pelletization plant at the port right now.
Okay, sir. Thank you very much, sir.
Thank you very much. Next question is from the line of Raashi Chopra from Citigroup . Please go ahead.
Thank you. Just going back to the iron ore mines, given the infrastructure or the logistic constraints, obviously, you can't meet the 80% requirement. Against that backdrop, is there any sort of penalty? One. Second is that if the old miners don't get the extension beyond October, do you think they would want to expedite the sales and therefore that kind of puts downward pressure on the iron ore prices?
As far as the question one is concerned, it's 80% of the average production done by the earlier miner in the last two years. If we take that amount, that time we have 12 months period from the day we signed the mine development agreement. Within 12 months, we have to achieve that. If I do an assessment today, we are reasonably confident we will be able to meet that commitment. The second question which you asked is completely market-determined pricing. We don't know whether prices will come down or not.
Logically, if I evaluate the total iron ore that is produced within Odisha by the merchant mining companies and where they were selling, particularly large buyers of iron ore from Odisha, now some of them are majority of the large steel companies. They got the mines in the auction. Therefore, they are not there in the market. If supply is there in the market, then is there any offtake to a big extent, to a large extent? That is to be seen what is going to happen. More and more players may set up pelletization plants or DRI plants. It is very difficult to hazard a guess what is going to happen. Based on supply and demand dynamics, we feel that the demand which was there earlier, now they have got the mines. That demand may not be there in the future.
Got it. Thank you. Just one more question on continuing on steel pricing. What percentage of your volumes would get covered in these quarterly and the half-yearly contracts? One. Second is, is there room to raise prices for the monthly contracts going into November for flats and long separately?
Yeah. Our quarterly contracts, half-yearly contracts put together would be about 15-16%. We have some other project fixed contractual till the project is completed, which would be under 5%. Maybe 20% overall would be these fixed price kind of contracts. Secondly, with respect to the question on November prices, I think it is difficult to say at this point of time. We do see that internationally, the prices are positively poised. In China also, the prices are showing a slight uptick. But we would review the situation on ground and see how it is getting absorbed and then take a call.
Thank you. Just one last question. What is the acceptances figure?
Revenue acceptances was $1,098 million as on 30th September. And the capital side is $441 million.
Thank you. That's it from me.
Thank you very much. Next question is from the line of Chirag from DSP Mutual Fund. Please go ahead. Good evening. I had a question on essentially the CapEx and the debt levels that will be there going forward. Given that you have reasonable visibility over the next two, at least one quarter, and then hopefully it'll be good for the next quarter also, where will the debt level move on an overall basis? I know you talked about debt EBITDA wanting to bring it down to 3.75. But the absolute level of debt, where will it be?
That's what we want to know, sir. No, as far as the capital expenditure, what we have planned in this year, I don't think debt level will go up considering the cash generation in the company. What is uncertain today is about acquisitions, BPSL and Asian Color. If these acquisitions happen in this year, there could be an increase in the overall absolute number. Even after that, whether we can manage to bring down to the level where we are comfortable with, that is 3.75. That is what the effort from the company.
Sure, sir. That's useful. Any indication on how much debt would be there from JSW for BPSL in terms of the size?
That we will share the details once the transaction is to be closed. As you know, there is a debt and equity structure. Debt is concerned it will be raised in the target company without recourse to main company. Then the equity is concerned that will be contributed in a manner that no consolidation will happen in JSW Steel.
Okay, sir. Thanks a lot, and good luck for the next quarter. Thank you.
Thank you very much. Next question is from Bhavin Chheda from Enam Holdings . Please go ahead.
Yeah. Good evening. So good set of numbers. Can you give the, I know, volume breakup of the captive mines which were at Karnataka and which were at Odisha during the quarter? I think you gave the overall 27% number. But if you can break it up into volumes at Karnataka and Odisha.
Yeah. I don't have the number separately for Odisha and Karnataka. This will be given by our investigation department.
Okay. The Karnataka, all the mines are operational or any mine is pending?
Eight mines are operational, excepting one mine that also will start in this quarter.
Okay. The second one, sir, what would be the downstream capacity now after this acquisition?
You mean Asian Color?
Yeah. Current capacity and Asian Color is, I think, 0.3 million, right?
No. Asian Color is 1 million, both the locations together.
Okay. Our existing would be how much after all the expansions which have already been completed?
Vasind, Tarapur, Kalmeshwar, these 3 units earlier was 1.7 million tonne capacity . That is going up to 3.6 million ton after completing the expansions in these three locations.
Okay. What would be the timeline of that, 1.7 to 3.6?
It will get completed by end of this financial year, excepting CAL line, which is 0.5 million
Except 0.5, everything would be completed. Asian Color, 1 million, will be fully operational or it would take time? We would be almost reaching 4.5 after Asian Color, right?
Yes.
Okay. Asian Color, 1 million, when you acquire, it will take time or do you think it is operational capacity?
It is an operating company today. Both the units at Haryana and also in Maharashtra, both are operating right now.
Okay. Just last one, the INR 228 crores loss you mentioned in the U.S. Is it at Acero or, sorry, INR 228 crores gain? Is it in the U.S. plate and pipeline EBITDA or is it in Acero EBITDA?
No, I mentioned all the numbers together. The overseas losses were INR 213 crores, 213. Okay. After that, there are certain provisions which have been made in Italy, and there are certain gains in the U.S. net-net , INR 169 crore is the net gain. INR 228 crore, INR 213 crore minus this INR 161 crore, net-ne t INR 52 crore is the loss from overseas.
And the plate mill, INR 17 million EBITDA, is it a sustainable number or again, is there a one-off in that number and needs to be adjusted?
There is a one-off item there. That is why it is positive. Otherwise, it was negative.
Okay. Thanks a lot. Thanks, sir.
Thank you very much. Next question is from the line of Prashanth Kumar from InCred Capital . Please go ahead.
Thank you for the opportunity. Two questions, sir. First one is on the downstream projects and the cost-saving projects that are underway. Assuming all these are completed and fully ramped up in FY22. For FY23, assuming a normal cycle, no COVID, what is the kind of positive EBITDA potential that these projects have and that you would have built into your numbers? You could give a broad number is also fine. Incremental EBITDA.
No. Number one, the incremental 5 million ton capacity which is coming up at Dolvi, because of the size of the blast furnace and the process which is involved, the cost of production compared to the existing 5 million ton, it will be cheaper at least by 15%. The second one is the cost savings which can happen at Vijayanagar. One is coke oven plant, second is pelletization plant. Pellet plant will replace the buying of lumps there. That differential goes on changing, but there will be definitely a savings on account of pellet plant. Number one, the differential between lumps and the cost of conversion of fines into pellets. If we compare both, there will be saving.
Number two, overall productivity gains on account of use of pellets in the process. This is the second. Those gains are there. The coke plant which is also starting in the next financial year, not in this year at Vijayanagar. Because of that, the bought-out coke is not required. Bought-out coke means the coke which they are getting right now from Dolvi. When Dolvi completes 5 million ton, there is no surplus coke that would be available from Dolvi. The transportation which they are incurring for sending coke from Dolvi to Vijayanagar, that is the saving which can happen at Vijayanagar when they have their own captive coke plant which will get commissioned in the next year.
Sure. Broadly, if you have any broad quantifiable number based on your internal assessment?
No, that number is very difficult because there are so many factors which go on changing here. There is a potential, but it is very difficult to put one number there and say, "This is the number we will achieve."
Sure. My second question is on, sir, our iron ore mines that we acquired in Odisha have a mine life of about 40 years based on the numbers out in press, etc. Sir, in 40 years, I think we do not know where the steel market will be. What is the scrap availability? Will it be a totally scrap-driven world, etc.? To that extent, is there any idea to front-load a lot of that benefit now, as in terms of either trying to export wherever there is an opportunity in pockets of time or either setting up some sort of a value addition, large value addition project there because we have a large capacity, 28 million ton, that can produce and maybe you can even expand?
Is there any idea? What is the thought process on trying to front-load some of that benefits of iron ore into the earlier years? Is there any, if you could throw some light?
The first immediate priority for JSW Steel is to ramp up the capacity of the iron ore mining in Odisha and see that we become self-sufficient in terms of Dolvi at 10 million ton capacity and the Salem at 1 million tonnes. Any shortfall at Vijayanagar, we will be able to give from Odisha. That is how we would like to achieve in stage one. In stage two, the way you put it rightly is that to optimize to get the benefit of front-loading, if anything can be done. That is the second phase we will evaluate. We would like to work in the short term to medium term to first meet our requirements through captive mining.
Thank you very much. Sorry to interrupt you, Mr. Kumar. I'll request you to come back in the question queue for a follow-up question. Next participant is Amit Murarka from Motilal Oswal . Please go ahead.
Yeah. Hi. Good evening. Thanks for the opportunity. Just two questions from my end. Firstly, on the pricing side, generally what you're seeing is that the regional prices have actually softened since early September. I mean, both the regional, the Chinese export prices, and the domestic prices. In that context, actually, at the Indian prices, HRC prices seem to get a premium as of now. Can this premium sustain? I understand the demand is strong, but can this sustain in this environment?
Yeah. If you look at the Chinese prices in the last few weeks after the Chinese holidays, the prices have improved in the spot market as well as in the futures. Directionally, they have moved up. The other thing which we need to consider is that international iron ore prices, which were in February, March below $90 CFR China, are now in the range of $120 CFR China. China being a very large importer, the ability for them to the cost will basically prevent any drop in prices.
Therefore, I think that is providing a bottom to the price. Today, if I look at it, I do not see a situation where international prices will correct. Yes, it will be range-bound because supply disruptions in the world, which has been in the range of about blast furnaces, about 132 million tonnes of blast furnaces were shut down during the pandemic. Out of that, one-third has come back, but still there is a gap. If I were to give you just a material balance, it is expected that the rest of the world outside China, the production in this year will come down by about 100 million tonnes. China has imported incrementally 30 million tonnes more, expected to import, if I take up to December, 30 million tonnes more than last year. The exports are likely to be less by 10-12 million.
There is a supply gap of 140 odd million tonnes. If you look at the WSA forecast of the rest of the world demand, that drop is about 114 million. Therefore, there is a supply-demand gap which is positively poised to maintain the prices on a positive trajectory.
Okay. Sure. Also, on the auto contracts, where are we in the process of finalization of those contracts?
Some have already been finalized. Some are in the process of getting closed.
These will be again fixed monthly, basically, for the second half?
Yeah. Most of the auto contracts are fixed monthly.
Yes. Thanks, sir. Thank you very much.
Next question is from the line of Indrajit Agarwal from CLSA . Please go ahead.
A couple of questions from my side. One, can you give a sense of the steel inventory in India currently, both at the steel mill level and at the trader level? How is it compared to, say, June end?
The inventory, if I look at the JPC's latest numbers, the inventory in India has come down. I think as of September end, the drop is about 1.84 million tonnes as is reflected. It's also visible if you look at the import versus export and the supply deficit because of a lower production during the first half. April to September, this is the kind of drop which JPC is reporting. Inventory has gone down. If I look at it from a producer perspective and the market information which I see, production deficit in the country by about 21% in the first half, a high level of export to the extent of about 11 million tonnes in the first half from India overall, and imports by almost 50% has resulted in a supply chain inventory deficit.
The demand in general has gone up. I think the inventory at the mill and the supply, the channels basically are at a very low level, below the comfort level.
Thanks. That's helpful. Second, in the opening remarks, you mentioned that India consumption was down by about 9% year over year, whereas our domestic yields are up by more than 20%. Is it more like the product mix, the mix that we have been selling, or is it more about we have been gaining a lot of market share?
In this particular domestic, we actually, if you look at the longs and flats, even in India, I think the flat drop was lower than the longs drop. Out of 9.9% year-over-year drop, flats dropped by 6.5%, and longs dropped by almost 13%. What we have done during this period, and longs dropped primarily because of construction and infrastructure activities which were constrained because of social distancing and migrant laborers moving out, got impacted more than flats. We had reoriented our product mix more to flats, and that has been able to drive the differential growth between our domestic sales in India.
Sure. One last housekeeping question. The INR 2,000 crore upfront payment for the mines in Odisha, has that been entirely paid in the sense that is it reflecting entirely in our net debt number already?
Yeah. It has been fully paid. Out of that, INR 1,290 crores is towards premium. Balance INR 800 crores is towards stamp duties and other charges. So that INR 800 crores has been capitalized. This INR 1,290 crores is shown as an advance against the premium payable to the government. So that INR 1,290 crores, as and when iron ore is produced and dispatched, that will get adjusted.
Sure. Thank you very much. All the best.
Thank you very much. Next question is from the line of Gaurav Rateria from Morgan Stanley, please go ahead.
Yes, sir. Two questions. Firstly, what is the amount of iron ore you need to produce from Odisha mines to comply with this 80% regulation?
If I recall correctly, it is, I think, around 16 to 17 million ton what we need to produce in a year, in a 12-month period.
This will be prorata for eight months?
It is not prorata. As I mentioned to you, it is in 12 months. It is not month on month.
Okay. Sir, secondly, if the other miners who are supposed to start the mining operations in Odisha, if they do not start for the next three, four months, do you think the situation will become where there will be shortage of high-grade iron ore in India and there could be some imports happening? JSW will still be better placed, but from an overall country perspective?
Overall country perspective, two things. One is whether we can moderate export of iron ore from India because 93% of the exports are going to China, and these exports are more than doubled. Therefore, whether government is realizing the need to moderate export of raw materials from India, that we need to watch. Second is that the balance 19 mines minus 5, which are already started, whether they will start production, thereby more can come in from there. That is the second. The third is what are mines that have started. Once the evacuation gets eased, then production can improve. They can as well sell part of the quantities even in the market.
Fourth point is Chhattisgarh NMDC mines. Today, there are certain restrictions that those iron ore should be first made available to the companies, steel companies within Chhattisgarh, or sponge iron units. Only surplus can be given outside Chhattisgarh. Whether some relaxation can come once production improves in the NMDC. NMDC production was affected because of the monsoon and rains. These are four, five factors which are influencing demand and supply in Odisha and Chhattisgarh. Hopefully, things will normalize going forward.
Okay. Sir, last question. With the restart of Donimalai mines at some point in time in Karnataka, do you think there could be increase in the cost structure which could be passed on by the merchant miner to the company or the demand supply situation is such that it will be very difficult because Karnataka is an excess supply market? Thank you.
Donimalai mine, what we understood is that there can be a possibility of restarting the mine. There is some understanding between the NMDC management and the Karnataka government, but it is yet to happen on the ground. I think there will be some progress we expect to happen in Donimalai if things will normalize.
Thank you.
Thank you. Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing remarks.
Thank you very much. In this quarter, things are looking better with regard to the pickup in the overall economy and the steel demand. We are working on to neutralize the impact of increase in iron ore prices with cost savings and also improve our production volumes and achieve our guidance, whatever we have stated. Completing the projects is the next important target we have kept. Before 31 March 2021, a majority of the capital expenditure program will get completed. The third area we are focusing in this quarter is BPSL and Asian Color Coated.
If the proper judgments come in, we will be able to close this inorganic growth. With that, by end of this financial year, our 18 million ton capacity with the downstream expansion will become 23 million ton in terms of organic, and another 3 million ton gets added because of BPSL. With that, we will become a 26 million ton company in the next six months with very large downstream capacities, both color-coated, Galvalume, galvanizing, with all those CRM complex getting commissioned. Over and above, what is also important is the cost-saving projects in terms of power plant, in terms of pellet plant, and part of the coke oven plant getting commissioned. This all will give a huge advantage to the company, particularly in the next financial year. Thank you.
Thank you very much. On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.