Ladies and gentlemen, good day and welcome to the Q1 FY21 earnings conference call of JSW Steel Limited, hosted by Motilal Oswal Financial Services Ltd. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Murarka from Motilal Oswal Financial Services Ltd. Thank you, and over to you, sir.
Thanks, Jaswant. Good evening, everyone. On behalf of Motilal Oswal Financial Services, I welcome you all to this call. I will now hand over the call to Pritesh Vinay, who's the Vice President, Corporate Finance and Group Investor Relations at JSW Steel. Over to you, Pritesh.
Thank you very much, Amit. Good evening, ladies and gentlemen. It is my pleasure to welcome all of you on the Q1 of fiscal 2021 results earnings call of JSW Steel. We have today the team of JSW represented by Mr. Seshagiri Rao, Joint Managing Director and Group CFO; Jayant Acharya, Director of Commercial and Marketing; and Mr. Rajeev Pai, CFO. We will start with a few minutes of opening remarks by Rao, and we can then open the floor to. With that, over to Mr. Rao.
Good evening to everybody. I invite you all for the briefing of our Q1 FY21 financial performance of the company. The COVID-19 pandemic outbreak had a very profound impact on the companies and also on people and on the entire world. The impact is not uniform across the regions, across the companies. It is different. For instance, even in India, you can see that the impact is much deeper in the case of urban areas and also in the south and west of India, relative to rural India or north and east of India. This is one observation which we have when we see the demand recovery in the region.
After the lockdown in March 2020, when it was opened up, the kind of challenges which continued for some time, either by way of supply disruptions, lack of availability of labor, lack of credit flow, or destruction in demand, these are some of the challenges which we have seen in the quarter. After we tried to find solutions to these issues, then the continuity of the production and operations, because the spread of COVID-19 impacting the people around our factories and also some of the employees, this also has impacted the overall performance in the month of June 2020 at our Vijayanagar Plant. During this period, if I look at the global steel production side, there is a huge adjustment in the supply side we are seeing other than China. The numbers which have been released by World Steel Association, the production adjustment is over 14% other than China.
That is quite a substantial adjustment on the supply. At the same time, the increase in iron ore prices, plus supply side adjustments, and very, very robust demand in China, particularly their exports are coming down, their imports are growing, their production is increasing, this all shows a very robust recovery in China and also improvement in prices in China. With that, China is able to absorb some of the steel production that is available in other parts of the world, particularly India. As far as India is concerned, between April to June, the demand has fallen around 55%, and the production also has fallen by 40% to 43%. In spite of fall in demand and also adjustment in the supply side, there is surplus production in India, due to which there is a huge amount of export increase that has happened in the quarter.
5.5 million tons of steel were exported from India during the last quarter. In these exports, what is very relevant to see is that 41% of the exports from India are semi-finished, slabs, billets. That is the kind of products which were exported. It is also interesting to see that a majority of the semi-finished products reach China. That means their infrastructure demand, not only absorbing their increase in group steel production and the resultant finished steel, they are importing semis and converting into finished goods and using for their infrastructure build-up. Therefore, it is a great opportunity for India to fill up these gaps which are there in terms of increasing our exports in the last quarter.
What is also interesting in the last quarter, in spite of fall in demand in the overall quarter, if I compare the opening stock in the system as on 1st of April 2020 versus 30th June 2020, the inventories have come down. This is the context in which JSW Steel has performed in the last quarter. Actually, the time available for showing our performance actually was two months. These results I should say are for two months, even though it is for the quarter. Steel production was 2.96 million tons, and the consolidated sales were 2.79 million tons. 57% of our total consolidated sales were exported, 1.58 million tons were our sales. When the country as a whole exported, 41% of their exports finished, whereas JSW Steel has exported different segments of products. Our semis are only in the range of around 20%.
The net sales realizations sequentially have fallen by 12%, which is around INR 4,800 per ton on a blended basis. Iron ore prices were lowered in India, so that benefit has come in the last quarter. Over and above that, whatever cost initiatives we have taken in terms of natural gas price reduction or ferro alloys or spares, this neutralized to some extent the increase in cost of coal. Coal prices were higher in the last quarter by $3 to 4 per ton. After neutralizing that impact, net net, the cost of production was lower sequentially by 4%. The EBITDA per ton was INR 5,102 on a standalone basis, showing an EBITDA margin of 13.8% in the last quarter. Our Indian subsidiaries together contributed INR 168 crore, Coated INR 28 crore, Amba River COKE INR 118 crore, JSW Industrial Gases INR 6 crore, VTPL INR 9 crore.
Altogether, it is around INR 168 crore, even though it is lower, either sequentially or compared to last year. The EBITDA on a consolidated basis is INR 1,341 crore, and a standalone basis is INR 1,429 crore. The consolidated EBITDA was lower when compared to the standalone EBITDA because of losses from overseas, either US Plate and Pipe Mill or Ohio or Italy altogether, INR 247 crore are the cumulative loss in the quarter from overseas office. After netting out these overseas losses and the positive that is coming from Indian subsidiaries, the consolidated EBITDA was INR 1,341 crore, which is INR 4,806 per ton. After netting out interest and depreciation, the profit and profit tax was reported as INR 582 crore. In the last quarter, we have covered our interest, even though the operation is effectively for two months. We recovered full interest and part of the depreciation.
If the impact of COVID at our Vijayanagar operations were not there in the month of June 2020, the result could have been much better. During this quarter, we have started production in our Odisha mines from 1st July. During this quarter, we have used this period to finalize MDOs, mine development operators. We also finalized the transport, signed all the agreements. We have made the payments. With all that, we could operationalize all the four mines on 1st of July 2020, and we have a plan to produce 1.2 million tons in the month of July itself. The dispatches also have commenced from these mines in Odisha. We feel it is a game changer by having captive source of iron ore from Odisha to meet our requirements for producing steel. Actually, the company as of 30th June has gone up by INR 1,054 when compared to 31st March.
It is INR 54,527 crore, majorly due to outflow for operationalizing Odisha mines. Here, in addition to incurring capital expenditure of INR 817 crore towards NPV payment, towards stamp duty, towards other charges, the company has also paid total INR 1,290 crore as upfront fees for these four mines together. This INR 1,290 crore will be adjusted against the future premium payable. That means if we are getting iron ore from these mines during this period, there is no additional amount which we need to pay to the government. Iron ore will be available to us only by incurring the cost of mining and also transportation. What we need to pay as a premium is already paid almost for the entire year. This is adjustable premium. The debt equity of the company was 1.54. Debt to EBITDA was 5.74.
We have given the guidance of 16 million tons for the year production and 15 million tons of sales. Whatever we have done in the Q1, 2.96 million tons of production and 2.79 million tons of sales. I want to assure you that we'll be able to meet this guidance in the balanced nine-month period. Now, Vijayanagar has become normal, so the operations are again inking up close to 90% capacity utilization. This quarter, I think we will do well relative to last quarter in terms of production and sales volumes. Over and above the improving demand in the domestic market, particularly from solar packaging, appliances, infrastructure, and construction activities, we are also finding global supply chain realignment, which we feel is a great opportunity.
We are working very closely with the engineering industry because there is a huge amount of engineering exports from India and also capital goods industry and automotive industry, automotive component industry to supply steel to them to enable them to export or import substitution. We are working very, very closely with these industries. As regards to our projects under implementation, I'm very happy to say that there is an improvement in terms of availability of labor. At the last time when we announced our results for March 2020, in the month of May, we said the number of workers at our project site in Dolvi has come down around 3,000 from 15,000. During this period, we have seen significant improvement. Now, it is almost close to 4,900 people are working. There are 1,900 people additionally came in.
We are seeing every day some people coming back and joining. We feel again we can restart and ramp up the project work both at Dolvi and Vijayanagar. We are very, very closely watching the developments and looking at completing these projects as guided in this year, in this financial year. The acquisition of BPSL and Asian Colour, there are certain developments. In the case of Bhushan Power and Steel, the case is expected to come up for hearing in the Supreme Court. The Supreme Court hearing, once it is decided, we will go ahead and complete the acquisition of BPSL. As far as Asian Colour is concerned, it is yet to be approved, the resolution plan by the National Company Law Tribunal. I understand there is some intervention application by one of the private equity funds from the United States saying that they would like to improve the offer.
This case is coming up for hearing on Monday. We will watch the developments in this regard. With this, I seek any clarifications which you need on the results. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one at this time. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant.
Should you have a follow-up question, we would request you to rejoin the question queue. The first question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi, sir. Thank you for the opportunity to ask a couple of questions from my side. First, on the guidance, our ask rate for the last nine months is about 8% growth year-over-year in terms of volume. How do you see the proportion of exports spanning out in the last nine months versus what we have done in this quarter and what it has been in the last year as a whole?
Yes. Exports, we will be able to, we will be taking a decision with respect to the demand, how it gradually improves in the domestic market. As we see today, the domestic market demand has been improving month on month, May to June, June to July. We do expect a gradual improvement in the demand in India, and with that, the export would moderate directionally.
Sure. That is helpful. The second question is on the current quarter input cost, mainly on iron ore and coking coal. Have we stuck to side on the benefit of iron ore cost reduction that we had seen earlier, or is there still some more benefit to come in this quarter? Also, similarly for coking coal, what do you expect in this quarter in the Coking coal?
Coking coal, last time we had guided that quarter four and January, March, and April, June would be flattish. I think we had three to four dollars extra in quarter one, April, June 2020, as against quarter four, January, March 2020. We expect July, September to be down by $20 to 25 dollars.
And iron ore?
Iron ore, whatever price increases that have happened in this quarter, INR 200 price has been hiked by NMDC. So that impact will definitely come for part of the quarter.
Sure. Thank you. I have more questions if I'll come back in the future.
Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Yeah. Good evening. First question is with respect to the steel price trend, if you could share some color as to what was the average price, exit price, and how are the prices shaping up in July.
In the last two months, that is May and June, the prices in the domestic market declined in line with what happened internationally, though with a lag. If you were to see international prices in April, they had come down. Let's say from January, it was $490 FOB China, and that came down to about $400 in April. In India also, the prices came down post-April. April was virtually a washout, as you're aware, because of the lockdown. Price impacts started falling out in May and June. In the month of July, we have seen a modest increase in the Indian market in prices in line with what has improved in the international market. I think part of that has played out. Prices as we speak today, FOB Shanghai is at $470, which was, let's say, $400 FOB in April.
We are looking at a price correction as the demand in the world is picking up and situations are normalizing. We do expect that there would be a price correction upwards in the Indian market in the month of August as we see. We are monitoring that, and we will be able to decide in the next few days as to how much that would be.
Okay. With respect to the auto contracts, we read that it is still under negotiation. Is it still status quo, or is there some progress there?
No. Auto, I think, as all of you are aware, the auto industry has gone through a rough phase. Therefore, the volume requirement by the auto industry in the last quarter was very minimal. The production dropped by 79%. A discussion on prices at that point of time was not appropriate.
I think the discussions are now on. I would consider that April-June, by and large, you can say that the auto prices would have rolled over. As far as July-September and beyond is concerned, we are discussing with the auto majors, and we will take a view.
Okay. The second question is with respect to iron ore. Now, if you look at total annual requirement, it would be somewhere close, I mean, between 25 to 30 million tons. If you could break up what I mean, the sourcing, what we expect in FY 2021 with respect to Karnataka captive, Karnataka merchant, Odisha captive, and what is remaining, which we would be buying from outside.
Yeah. At Vijayanagar, the total requirement is around 21 to 22 million tons. Out of that, we expect our captive on commissioning of other three more mines which we got that also expected to be commissioned. We are planning to sign the mine development agreement with the Karnataka government, if not in this month, early next month.
These three mines also, we are planning to get operationalized in this quarter. With that, from these nine mines which we have, six already operational, three we wanted to get it operationalized. Together, we are expecting between 7 to 8 million tons of captive iron ore out of 22 million tons. Balance, we will source based on availability within Karnataka. Otherwise, part of it may come from our mines and from Odisha. That is how we are planning. A small quantity, maybe around 2 million tons, may come from Odisha in case there is a problem in availability within Karnataka.
That is how we are seeing as far as Karnataka sourcing is concerned. If I see the other plants, either Dolvi or Salem, their entire requirement can be met from our Odisha mines. As I mentioned to you last time, the environmental clearance that is available for all the four mines together is 29 million tons. Out of these 29 million tons, if you see the average production which they have made in the last two years, 17.32 million tons was the average production. Our obligation is 80% of the, sorry, the average production in the last two years was 21.65 million tons. 80% of that is 17.32 million tons in a year, in a financial year. That is our obligation under the agreements which we signed. Therefore, the production could be in that range from these mines.
This is enough to meet all our requirements both at Dolvi and also at Salem. That's how we are planning to source the iron ore requirements for these three units.
Got it. Understood. I have more questions. I'll join the queue. Thanks and all the best.
Thank you. The next question is from the line of Pinakin Parikh from JP Morgan. Please go ahead.
Thank you very much, sir. My first question is just how should we look at the blended ASPs per ton from Q1 to Q2 to Q3? Because domestic prices will increase. They've seen an increase in July. They should increase in August. As you mentioned, the regional HRC export prices have increased, and JSW has a meaningful export component.
Also, one would assume that as domestic sales increase and the export share on the margin comes off, domestic sale volume increase, which has higher blended ASPs. Given where Q1 was, how should we see Q2 and Q3 realizations trending? Can it be INR 3,000 to INR 4,000 per ton higher versus where Q1 was based on a combination of these factors?
I think one thing which I would like to highlight is that the exports in the last quarter were maximum in the month of May. April, anyway, the sales were very low overall. May was maximum of our exports, and it was moderated in the month of June. We went down from May to June as the domestic demand in June picked up. We see the export from June to July also moderating somewhat.
Therefore, I would say that as the domestic demand is picking up, we are also taking actions to see that we are balanced between our domestic and export volumes. There is a mixed change which is going to happen. One is that last quarter we did more of, we had to do more of exports, and we did more of semis than our normal level of semis. Both will undergo some change as we go into the quarter July-September. International prices we discussed, I think international prices have gone up, and domestic we have seen modest increases. We expect that in the month of August also, there will be a price increase. The other thing which you need to consider is that the inventories have come down.
As your India production versus India sales would have given you an indication that the exports have actually evacuated stocks. Imports have gone down. To that extent, the inventory on ground in India has also gone down. We are quite hopeful that directionally, July-September, both from a mix point of view and a price point of view, it will be better. We would not like to put a number on the table as we are still evaluating as to what the options are with respect to the price increase in August.
Thank you for this detailed answer. My second question is on Bhushan. Now, Mr. Rao, you mentioned that there's a Supreme Court ruling, and once that is done, the company will complete the acquisition.
Just regarding clarity on that, given that there has been a meaningful timeline between when the proposal was accepted to the final completion, just trying to understand, what will happen to the cash which is residing on Bhushan Power? Would JSW Steel have access to all the cash that has been earned since the proposal was accepted? At this point of time, should we continue to assume that Bhushan Power will not be consolidated into JSW's books?
As far as the sharing of EBITDA accruals during the CIRP period, as per the judgment of Supreme Court in the case of Essar, it is governed by the RFRP. Whatever they have mentioned in the initial RFRP, I think that guides who has to get this amount.
When this EBITDA was litigated to whom it belongs to, and the National Company Law Tribunal judgment in the case of Bhushan Power and Steel, it announced that it belongs to lenders. We went for an appeal. The National Company Law Tribunal has clearly mentioned in their judgment, based on Supreme Court judgment in the case of Essar , the EBITDA sharing is governed by the RFRP. Whatever is mentioned in that, that's how it has to be shared. Our understanding is, as per RFRP and as per our resolution plan, it should belong to us. To us means to the resolution applicant.
Just to clarify, the entire EBITDA, right? This is not contested by the lenders, or this will still require another round of Supreme Court hearing?
Instead of lenders contesting, I think it is the erstwhile promoters are contesting on this issue.
Understood, sir. On the consolidation post the ruling, I mean, we should still expect it to remain off JSW's books, right?
Yeah. Yeah. It is equity method of consolidation. This was clarified earlier. It will continue to be as and when the acquisition is complete.
Understood. Understood. Thank you very much, sir.
Thank you. The next question is from the line of Amit Murarka from Motilal Oswal Financial Services. Please go ahead.
Yeah. My question is around Dolvi. When, let's say, by Q4, we are done with the Dolvi expansion. Given the domestic demand environment, how do you think the ramp-up could be in that asset, or will we have to resort to higher exports once again?
Dolvi, actually, our expansions are planned in line with our expansions which are happening in our downstream facilities. JSW Coated is also expanding its operation by almost 2 million tons. Out of the production of Dolvi, 5 million tons, our internal consumption itself would account for 2 million tons. Capacities of the downstreams are coming in place in this financial year itself in line with the Dolvi coming up in the last quarter.
The balance quantities would get, one is the domestic demand improvement which would happen. Second is that our downstream operation in Vijayanagar, if you recall, we had said that our CRM is undergoing capacity modernization and expansion. About a million tons extra of hot rolled coil will go into our downstream operations at Vijayanagar, which will vacate about 1 million tons of material from there, which would be shifted to Dolvi for execution to the markets, whether it is domestic or exports.
There will be some additional domestic market and export market combination which will work for the rest of 2 million. That way, we are not, I think the balance is quite stable.
Okay. On the overseas assets, you had earlier laid out a plan of turning to break even in a few quarters. What is the revised estimate now?
The losses are steadily coming down. In the case of US plate and pipe mill, the phase one modifications are completed. Today, unfortunately, the steel prices in the US have come down. In fact, it is the first time we are seeing for the last several years where US steel prices are lower than China. In that context, right now, there is a depressed market condition as far as the US economy recovery is concerned.
We have to still watch how the economy will shape up, particularly in the context of COVID-19 impact. At least US plate and pipe mill, because of this modernization completion of phase one, we expect that the losses will substantially reduce. By third quarter, that is the next quarter, it should positively contribute to the EBITDA. That is how we are seeing plate and pipe mill. As for Ohio is concerned, we have evaluated in the context of falling prices and the fall in demand in the US. If we continue the operations as it exists today, we will be losing more money, particularly when we are planning to revamp the electric arc furnace . This electric arc furnace revamping gets completed in the last quarter of this financial year. If we can take this shutdown during this period, we will be able to reduce our losses in Ohio.
Once the EAF revamping is complete, we would like to restart operations, keeping that in view. We have taken shutdown of our Ohio plant. With that, you will find from these two units, the losses will come down. From Q4 onwards, things will become much better in terms of overall operating EBITDA contribution as far as these two operations are concerned. Similarly, in our Italy operations, we are focusing on the rail mill and the grinding balls, not on the wire rod and bar mill, because there the contributions are not looking better. That is why we are not operating those two mills, and we are focusing to optimize and maximize the production from these two units, which are contributing positively. There, also, losses will come down in this quarter. In the next two quarters, it will contribute positively from Italy.
Thank you. That's all from my side.
Thank you. The next question is from the line of Anuj Singla from Bank of America. Please go ahead.
Yeah. Thank you very much for the opportunity, sir. Mr. Acharya, first question for you, sir. In terms of the landing cost of imports, could you guide us where the domestic prices are? And do you see a probability of the discount to the domestic prices converging towards the end of the year, given the domestic demand outlook that you have?
Yeah. You are aware that, hi, Anuj. Good to hear you. $489 is the anti-dumping price, as you are aware, which is prevalent into India. Now, based on that, at the exchange rate, broadly near the ports or a little distance into the hinterland, the prices landing from imports would be anywhere between INR 38,250 to 39,500, depending on the freight and cost from the port. That is the imported landing prices today. The domestic prices are at a discount to the international prices today. Therefore, the domestic prices would certainly be going up. Directionally, yes. By when and how much, as I said in my earlier clarification, that is something which we are working on. We will decide how much increases we should be able to take for the month of August. Okay.
Second question, we had mentioned in the last conference call that the smaller players were struggling because of the issues related to labor, liquidity, and they were not able so we were able to take market share away from them. Even the domestic demand environment was weak. Still, that supported our volumes. Does that still continue, or has that thing changed due to the higher prices in the domestic market?
Sorry, I did not understand that question exactly, Anuj. If you can just—
These were the smaller players, the unorganized industry. They were struggling. Because of that, there were supply-side issues. The major players could actually sell more in the domestic market because of the supply reduction from the smaller players. I am worried about the supply-side ramping up on the unorganized sector side as well. Is that a risk to the pricing when we look forward to pricing recovery in the second half of the year?
Understood. Understood. You have to differentiate between flats and longs. As far as flats are concerned, that anyway, I think primary producers are the main players in the flat product space. There, I do not see much of a ramp-up from the smaller unorganized players. There are few. Also, having said that, in the long steel, where the impact was more in terms of one is the supply disruption because of the labor and other issues. Second is, again, because of the labor and because of the lockdowns, the construction activity, especially the metros and urban areas, were impacted. Now the supply side, while they have picked up, in the last few days, in the long products also, we have seen pallet prices moving up.
We have seen sponge iron prices moving up. We have seen rebar prices moving up in the last two days. While the supply side has also corrected a bit with respect to on the positive side, some of the unorganized players on TMT have started producing somewhat more. The demand side has also picked up with the opening up of lockdowns. The prices, therefore, have corrected upwards. I think from that perspective, flat. To conclude, I do not see much of an issue from the unorganized. The longs, yes, they have picked up somewhat, but also the demand has opened up with what it was earlier. Prices have picked up. We will watch this space going forward. July, September, keep in mind also that for longs, construction activity, a little bit of disruptions are there in areas because of the rains.
This time, because of the pent-up demand of completion of infrastructure construction activities, which could not be done in April, June, some of the demand of that is now getting pushed into this quarter, where people would need to complete before a major part of the monsoon hits them.
Okay. Understood. Lastly, one question from Mr. Rao. Mr. Rao, regarding the furnace upgrade at US operations, what is the CapEx there? Is it a part of the INR 9,000 crore guidance, the CapEx guidance for the full year, which you gave earlier?
Actually, in the US plate and pipe mill, there is no CapEx involved. Even phase two, we have put it on hold, as I mentioned last time. Only in the case of Ohio, there is a $25 million CapEx for completing the EAF ramp-up. That is not part of the INR 9,000 crore. It is over and above INR 9,000 crore.
Okay. Only 25 million is the number. Right.
Yes.
Okay. Understood. Thank you. Thank you very much.
Thank you. The next question is from the line of Abhijit Mitra from ICICI Securities. Please go ahead.
Yes. Thanks for taking my question. My first question is on iron ore. At the beginning of the call, you did mention that INR 1,290 crore is upfront payment that you have paid, which should suffice for the majority of the premium payments for this year. What is the kind of volume that you are looking at? What kind of accounting will we follow for this INR 1,290 crore? Has this passed through capital line item, and thereby, it will not appear in the operational cost item for the next three quarters? How is this sort of going to be accounted?
There is a cash flow increase. INR 1,290 crore is in advance for raw material. Whatever amount of premium which we have to pay to the government on extraction of iron ore, I need not pay that at that time. I have paid in advance. Whatever quantities which I said in a financial year, 17 million ton is the obligation which we need to do. There are only nine months which we have to do. Nine months proportionate to 17 million is what we have to mine compulsorily there. To that amount, premium we need not pay. This INR 1,290 crore is more than enough to cover the premium payable on this quantity.
Okay. Okay. Okay. That's helpful. Secondly, I had a small question on overseas subsidy. If you can help me just clarify or understand, what is the nature of operations that we have at Periama Holding?
Periama Holding is a holding company that holds the asset of plate and pipe mill and also the coal mine.
Okay. The advances that you have given is mainly related to the mining operations or?
It is relating to US assets, either it's for plate and pipe mill or for US coal operations.
Okay. Okay. Okay. Got it. The last question is on deduction of imports. Which are the areas where you see you can sort of cut out the imports from China? What are the cost implications? If you can—I have one item in mind, which is essentially graphite electrode. What sort of implications do you see there?
As far as steel industry in India, importing raw material side from China is majorly refractory. Also a certain portion of rolls are the items which we do from China. There are several alternatives available to source these items outside China. That we are exploring.
Okay. Okay. That's all from my side. Thanks.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Thank you. I just have one question. Given that there was a build-up of a lot of scale and efficiency in India, does it make sense to divest your overseas assets? What strategic value does it have for the company in the long term?
Let me say as far as Italy is concerned, we have been supplying billets from our Salem unit. Also, partly, it can be done from Monnet in the future. There is a big integration of supplying billets and blooms for the rail mill in Italy. That way, there is a good integration of our Indian operations with Italian operations. As far as the US is concerned, the coal mines, which is a financial hedge for us. Whatever coal we are getting there, we are selling it there and buying in India. It is a financial hedge. As far as the US Ohio and the plate and pipe mill is concerned, those two we are integrating in the future. Thereby, we will be able to get the benefit of melted and poured in the USA. by supplying slabs from Ohio to US plate and pipe mill.
We also invested for modernization of plate mill. Phase one is complete. Now, unfortunately, this COVID-19 impacted the oil and gas industry and also the overall economy. We expect a recovery to happen, if not immediately, in the next few quarters. One is our presence in the US will give us what the markets—what is happening in the steel markets in those continent. That will also help us in the future to get good return on our capital employed over a period of time. Therefore, it is strategically important for us to have these assets. We are working very hard to turn around these units. That's why further commitments have been made in the capital side, both at Ohio and also at plate and pipe mill.
Thank you. That's a lot.
Thank you. The next question is from the line of Ritesh Shah from Investec Capital . Please go ahead. Mr. Ritesh Shah, your line is in talk mode. Please go ahead with your question. Mr. Shah, please unmute your line from your side. As there is no response from the current participant, I have muted the line. The next question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Thanks for taking my question, sir. I have a couple of questions. One is on the overall strategy with respect to Odisha mining operations. While I understand one of the mines, Jajang, has got low-grade ore, is there a strategy to export from that mine? Also, what would be the relative cost of iron ore supplied from Odisha versus what you are getting now?
As we have indicated last time, if I take it, if I calculate the weighted average of premium for all the four mines together, it is 105%. That means if INR 100 is the market price, I have to pay 105% as a premium to the government. Plus, we have to incur the mining cost. Therefore, on the face of the equation, you find that there is an additional cost involved here.
The way we are trying to optimize, as I mentioned to you, we have finalized the contract for mining, MDO. We also finalized the contract for transportation. If I look at these two aspects as on date, these costs are at least 10% lower than what it used to be generally in Odisha. There is some savings which we are doing in the transportation cost. Even without going into long-term what we are going to do in reducing the transportation cost, even today, there is some saving relative to what we used to spend.
The second is once we have the mines, we will be able to do a very scientific mining in a manner that we will be able to optimize our steel production, either in terms of producing only that type of grade of iron ore which is required by us. That will also give intangible benefits to the company. Therefore, in medium-term and long-term, it is definitely a great advantage to us. The second point is when a significant portion of steel players who used to buy the iron ore within Odisha from the merchant miners, today, they got the mine. JSW got the mines. Jindal Steel & Power Ltd also not buying in the market right now because they are sourcing from the other mine. Similarly, the other steel players also got mines in the auction.
Therefore, the large steel players who are buying iron ore from merchant miners, they're not buying today. They have their captive sources of iron ore. In this context, what is going to happen to iron ore prices in India is we have to see how it will shape up in the future. Overall, strategically, having our captive mines to feed our steel mill is very, very important for us. Even though we have paid higher premium in Karnataka, it is working as a great leverage for us in sourcing the iron ore for our Vijayanagar plant. We feel that similar benefit will come to us from Odisha mines. Over and above that, now JSW Infrastructure has set up an 18 million ton iron ore terminal at Paradip Port. It has now become operational.
It is a great synergy for JSW Steel Odisha mines to bring through this terminal iron ore to our Dolvi plant and also Salem and Vijayanagar plants. That is another advantage which we'll be able to get. In the future, a lot of things which we can do to optimize iron ore cost.
Okay. Great. The second one is on overseas subsidiaries. Some of your peers, overseas peers, have got state aid in Europe. Are you also expecting or have got some state aid in Italian and US operations?
Yeah. In the case of the US, we have got a total of $2.5 million grant subject to certain conditions to be fulfilled and tested over a period of time. In addition to this $2.5 million grant in the US, we also got a loan of $10 million as an assistance in the US.
Ten million as a loan and 2.5 million as a grant, which were there at US, which we already got. In the case of Italy, you want to clarify that?
In the case of Italy, the government has given some assistance for the workers for about 18 weeks, during which the COVID impact was more. That may be in the range of EUR 0.9 to 1 million that is getting crystallized. In addition to that, the government is considering soft loans, but that has not yet been finalized or announced.
This 2.5 million in US and EUR 0.9 to 1 million has flowed through P&L, right? That is the correct understanding.
No, it has not flown through P&L because there are certain conditions to be fulfilled. In the case of grant accounting, we need to comply with those conditions. It is not flown as on date through P&L.
Okay. Okay. Thanks, sir. Thanks and all the best.
Thank you. The next question is from the line of Ritesh Shah from Investech Capital. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, my question was on iron ore. How should one look at the economics? I think the annual report does make a mention of royalty rates actually going down. There have been some press reports on that. Secondly, on IBM notified prices. These two are related to economics. You did indicate on the ore sourcing strategy. I just wanted to understand how does JSW Techno and BRPL assets also fit into the overall strategy and sourcing?
As far as IBM pricing is concerned, it is the average of the unrelated parties' sale price, which will go into IBM's average price, which they will declare grade-wise. That is a price based on which the premiums are to be paid. IBM has been declaring. What we understood is that there is some amendment which is going to come to the mining law, which includes the National Mineral Index, which is going to come, that would replace the current IBM price methodology. We have to see when it will come, when this amendment would come, what would be the methodology for calculating this National Mineral Index price. The way today the coal price index has been indicated in the case of coal auctions, a similar thing is likely to come in the case of iron ore. We have to see how it would shape up.
Right. Sir, royalty and JSW Techno on the overall scheme of things?
JSW Techno? I did not understand this one.
Sir, the BRPL assets which are there under JSW Techno. When we look at ore sourcing strategy, should we consider this also into it, or is it something entirely different?
That is an independent company. It is no way related to JSW Steel. These mines, after meeting our captive requirements, if any surplus is there, which are not captive, that can be sold in the market. If it is captive, 25% can be sold in the market if there is a surplus. We will just see whether there will be a surplus after meeting our requirements. BRPL is an independent company. At that time, we will take a call on that.
That helps. Sir, secondly, you did indicate about Bhushan Power . Sir, can you exactly illustrate basically what is the problem? I think it was regarding the attachment of assets. Is that the only thing? The erstwhile promoters had also mitigated something. If you could just help us refresh that, that would be quite useful.
No, NCLAT judgment, when it has come, there are certain appeals which have been filed in the Supreme Court. One is by erstwhile promoters . The second is certain operational creditors. The third is ED has not filed, but mentioned in the Supreme Court hearings that they are going to file an appeal to the NCLAT order. COC filed an application for that. ED responded by way of an affidavit, which they confirmed in that affidavit that they will be filing an appeal. Therefore, in summary, there are three litigations which are pending.
One is ED. Second is operational creditors. Third is erstwhile promoters . These three have to be disposed of for us to implement the plan.
That's right. Sir, just last question. In the last call, you had indicated cost savings up to 15% of fixed cost. Does this number come to around INR 900,000 crore? If this is an annual number, have we realized any benefits in this quarter? Are there something which are sustainable that one can look at on a year-on-year basis as well?
The total NSR reduction in the last quarter, on a sequential basis, I gave a number of INR 4,800, where cost reduction, I have mentioned about 4%. This 4% reduction—
This is the operator, sir. We are not able to hear you. Hello? This is the operator. We are not able to hear you, sir. Ladies and gentlemen, there is an audio loss from the management line. Request you all to stay connected. Thank you. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.
Yeah. Saidan, can you please take the last question?
Sure, sir. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question. Sir, just what is the impact of product and market mix shift on realization per ton basis and EBITDA per ton basis? Can you repeat the question? What do you want to really get from us? Sir, I want to understand there would have been some like-for-like correction in the steel prices. Of that, the product and market mix shift happened during the quarter, due to which there is an impact on realization and impact on EBITDA per ton . I just want to quantify how much is the impact on realization and on EBITDA.
It is very difficult to quantify what would be the impact on NSR. If I see last quarter average exports were 57%, we've already guided in this quarter that domestic demand is improving. April, May, and June steadily domestic share is going up and export share is coming down. Similar trend will continue in Q2. The impact of the change in the geographical mix will definitely improve the overall NSR and EBITDA. We will not be able to quantify that. The second is product. Product, Jayant already explained to you. There were semis almost close to 13% of our sales last quarter.
That will substantially reduce in this quarter. Therefore, the impact of the mix in the product mix change , that also will improve the overall realization and also the EBITDA.
Okay. Sir, just to clarify on this INR 1,290 crore cash flow payment you made for the iron ore, this will be debited to the P&L as an expense over the coming quarter when you keep mining the iron ore, right?
Yeah. You're absolutely right. It's an advance today, advance for raw materials. As and when extraction happens, when we lift the material from the mine, this amount will be adjusted towards the raw material cost.
Okay. Sir, last bookkeeping question. What is the cash flow from operations during the quarter and what is the acceptance number? Thank you.
Acceptance number on the revenue account is INR 1,307 million, 1,307. On the capital account, it is INR 364 million.
Sir, cash flow from operations. Thank you.
Cash flow from operations, we have positive cash flow from operations. You see, we have an EBITDA of INR 1,341 crore. We have covered our full interest. There is a positive cash flow from operations.
Thank you.
Thank you. Ladies and gentlemen, due to time constraint, we'll take this as a last question. I would now like to hand the conference over to the management for closing comments.
Thank you very much for attending this conference. What I can tell you is in this quarter, there will be improvement in the volumes. Vijayanagar has stabilized and inching towards increasing the capacity utilization. We will do in terms of volumes and product mix-wise better than last quarter. Number two is domestic demand steadily and gradually improving.
Our dependency on exports, which we have done in the last quarter, also gradually will come down in this quarter and going forward. That will give an advantage to us in terms of overall improvement in EBITDA. The second is cost side. The targeted cost reduction other than the two key inputs, that is iron ore and coal, that benefit partially again will come in this quarter. The last one is coal. Coal prices have come down internationally by almost $40 per ton. Part of that benefit will come in this quarter. Cost side, there could be a reduction over last quarter. Volumes will improve. Geographical mix will change. Product mix will change. Semis will come down. These are the certain benefits which will flow in this quarter. Over and above that, Odisha iron ore production will ramp up.
We will commission our three mines in Karnataka. These are what we are seeing in this quarter. On migrant workers coming back, we also focus to complete the projects which are there. In this year, as far as JSW Steel is concerned, we have a big change which is happening. Integration of raw material, that is particularly iron ore. The second is the increase in capacity. That is 5 million ton in terms of crude steel, plus doubling of downstream capacity. That is the most important thing. All these projects will get commissioned in this year. That is the kind of transformation that is happening in JSW Steel in terms of capacity increase, in terms of lowering of cost, in terms of integration with the raw materials, and also reducing the losses and making overseas operations profitable.
These are the areas which we will be focusing in the balanced nine months and work very hard to achieve our guidance which we have given of production of 16 million ton and sales of 15 million ton. Thank you.
Thank you. On behalf of Motilal Oswal Financial Services Ltd, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.