Ladies and gentlemen, good day and welcome to the Q4 FY 2020 Earnings Conference Call of JSW Steel. This call is hosted by IIFL Securities . As a reminder, all participant lines will be in English and only in English, 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 tapping the star signal on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Urvil Bhatt from IIFL Securities . Thank you, and over to you, sir.
Good evening, everyone. On behalf of IIFL Securities , I welcome you all to this call. Without taking much time, I would like to hand over the call to Pritesh Vinay, Vice President, Corporate Finance and Group Investor Relations at JSW Steel. Over to you, Pritesh.
Thank you, Urvil. A very good evening to all the participants, and on behalf of JSW Steel, I welcome all of you to the fourth quarter and full year fiscal 2020 results conference call. We have with us today the senior management team of JSW Steel, represented by Mr. Seshagiri Rao, the Joint Managing Director and Group CFO, Dr. Vinod Nowal, the Deputy Managing Director, 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 after that, we will open the floor for Q&A. I'm sure you all have had a chance to go through the results, the press release, and the presentation, which are already uploaded on the website. With that, over to Mr. Rao for his opening comments.
Good evening, and for the briefing of investors for the Q4 FY 2020 of JSW Steel. In the best quarter in the financial year for the Indian companies, the production will be the highest, and everybody will push for improving profitability in this quarter. Unfortunately, the unprecedented global health crisis of COVID-19, which led to lockdown across the globe, including India, that impacted the performance of companies and also economic activity continued to drop and came to a standstill starting from March 25th in India. Priorities for companies have shifted from business performance to health, safety, and liquidity management. The major steel consumer sectors are very severely impacted during this period.
Even though the headline numbers of JSW Steel appear to be lower, either sequentially or compared to previous years, I think it has to be stated in the context of the overall performance of the steel sector, either globally or in India. If you see the quarter four, then the quarter one globally, January to March 2020, the world steel production has come down by 1.4%. If you just look at excluding China, the rest of the world, the steel production impact fell by 4% during this quarter. India followed a similar trend, but the fall in production, crude steel production, was much steeper in India, which was 7% year-on-year in the Q4 2020. If you compare with the fall of 7% crude steel production in India, JSW Steel reported crude steel production of 2.97 million tons in the Q4, which is lower by 5% year-on-year.
Sequentially, it is lower by 1%. Similarly, the standalone sales number, headline number, is showing 3.7 million tons standalone, consolidated number 3.67 million tons, which is 15% lower year-on-year and 9% lower on a sequential basis. What is interesting here to see as regards to overall sales per capita, India's consumption during the same period has also come down year-on-year by 5%, and sequentially it went up by 2.5%. The headline number of JSW Steel was showing a fall of 15% year-on-year and 9% sequentially, but the domestic sales during the same period, if you just look at year-on-year, it has come down 5% in line with whatever is happening in India. India's steel consumption fell by 5%, but domestic sales of JSW Steel also fell during that period by 5%.
What is interesting here, sequentially the domestic sales went up by 3% in the quarter. Whatever fall, which is disproportionate to the fall in consumption in India, is majorly moderation on account of exports. Exports either sequentially or year-on-year fell by 50%. That is why you would see a number of 15% fall year-on-year and 9% sequential basis in the consolidated sales volume. For the year as a whole, the volume of production was 16.06 million tons, which is 97.3% of the revised guidance. Stand-alone sales were 15.08 million tons, which is also 97.3% of the revised guidance. The consolidated sales number was 14.90 million tons. The exports year as a whole went up by 30%, making 2.12 million tons of exports.
If the coronavirus impact was not there because of the lockdown from March 25th, I think it could have achieved the guidance that was given, that was revised during the interim period of the year. The volumes went like that in this quarter. The blended sales realizations went down year-on-year by 9%, but sequentially went up by 8%. This is what we were guiding when we announced our Q3 results, that the MSR improvement would reflect in the Q4. That is what exactly happened. The MSR went up by 8% on sequential basis. We also quoted the reduced cost on year-on-year basis by 7%, but sequentially it went up by 2%. The EBITDA per ton for the quarter was INR 8,713, as it was INR 10,236 in Q4 2019, but it improved substantially compared to INR 6,620 in the Q3.
There is improvement in the EBITDA per ton in Q4 over Q3. EBITDA margins improved to 21.1% and 16.9%. Reduction in costs, particularly on the coal side, helped to improve the margins, plus MSR improvement. The EBITDA on a standalone basis was INR 3,220, sequentially improvement of 21%, and there is an exceptional item of INR 9, which is provided in this quarter in the stand-alone books and INR 800 and INR 500 crore consolidated books due to diminution in the value of investments, loan interest because of increased uncertainty as of the COVID-19 and also future business outlook. With that, the profit after tax for standalone company was INR 242 crore. All the Indian subsidiaries, JSW Colour Limited, Jindal Rajasthan Steel & Power, JSW Industrial Gases, the recently acquired JSW Vallabh Industries Limited, JSW Vallabh Tinplate Limited, which has become subsidiary, all these Indian subsidiaries have contributed positively.
The total EBITDA contribution from Indian subsidiaries was INR 227 crore. The overseas subsidiaries remain dragging the overall performance. U.S. Steel and Pipeline, SRO Junction, Italy operations, plus coal operations in the U.S. all together negatively contributed INR 298 crore. Taking these two numbers and also the consolidated adjustments, the overall EBITDA for the quarter was INR 2,974 crore, and the profit after tax because of INR 805 crore exceptional item was INR 188 crore. This is a performance which is relatively compared to what is happening in the market in terms of volume of production and volume of sales are in line. If you see what is happening in other steel companies when they announce results, everybody talked about reducing CapEx, improving liquidity, reducing inventories, and improving working capital, reducing costs. That is the focus. In line with that, we have reviewed our projects.
The major issue which we have seen after the starting of operations in April 2020, in the later part of April 2020, operations we could somehow manage to run, and right now we are operating at 85% capacity utilization. There is a project at Dolvi, Vijayanagar, and also downstream; they have some headwinds. Headwinds majorly related to two items: one is migrant labor, second is getting help from the foreign technology suppliers or equipment suppliers. As far as migrant workers are concerned, we used to have 15,000 people working in Dolvi, just prior to COVID-19. So that strength goes on building, notwithstanding the incentives that are being offered or whatever efforts we are doing to retain them. Now the strength is only around 30%. This is a situation in almost all the states, all the locations.
The projects which we would like to complete, where the work left is maybe six to eight months' time, we are not able to complete because of these two issues that have come because of COVID-19. Considering this, our expectation that some of the migrant workers who left before Holi were willing to come when we contacted through contractors, assuming that they would come back and we would be able to restart work in the next few weeks. We expect the commissioning that was originally scheduled will get postponed. We will be able to complete the expansion project at Dolvi from 5 to 10 million tons by the second half of March 2021, so maybe in the later part of the second half of this year. As far as Vijayanagar is concerned, the wire rod mill and the pellet plant will be able to commission.
CRM has increased in capacity to 1.8 tons. That gets commissioned progressively in the Q2 and the Q3, excepting Cocoon Plant at Vijayanagar, where the projects will be completed before December 2020. Downstream in the second half of the year, we will complete all the projects in the downstream. This is how we have seen and also put some mitigation plans to ensure that the projects will start quickly and we will be able to complete. Because of this change, the total capital expenditure that has been planned we have reviewed. In the financial year 2020, we have given the guidance, revised guidance that INR 11,000 crore will be spending. Against that, we have spent INR 10,219 crore. Whatever expenditure we have spent against INR 48,715 crore, the balance expenditure to be spent on all these projects as of 31st of March 2020 is around INR 24,587 crore.
In addition to that, there are very good developments which have happened in the case of iron ore mines. We participated in the auctions. We could secure four iron ore mines in Morison, where the reserves are more than a billion tons. It has environmental clearances to operate at 29 million tons. We are supposed to produce at least 80% of the average iron ore produced in the last two years. Considering that, we are obligated to do 16 million ton of production, approximately 16 million tons of production, once vesting orders given by the government and we commence operations of the mines. We expect a good iron ore production from capital sources for JSW Steel in this year. Over and above that, all the six mines which we got in the first stage auction in Vijayanagar became operational.
We have got over 4 million ton in the last financial year. This year, we expect 6 million ton to come from these mines. Another three mines which we have got, they also will become operational in Vijayanagar. With that, we go up to 7 million ton plus in this year. With that, almost a significant portion of captive iron ore records will be from our own sources than what we are seeing. In order to develop these mines, in order to ensure that they become operational quickly, we need INR 2,000 crore, including upfront payment which we have to pay. Upfront payment is nothing but an advance which is to be given to the government, which will be adjusted against the extraction of iron ore at that time where we have to pay the premium amount.
That amount will get adjusted out of the premium amount we pay right now. Even if the total number is working out to INR 2,000 crore, INR 1,200 crore is towards upfront. INR 1,200 crore is actually the expenditure which we need to incur either for stamp duty or for other expenditure which is involved in this case. Actual CapEx involved in these mines is around INR 800 crore. If we add that to this amount of INR 24,500 crore, the total amount is approximately INR 25,400 crore. Whatever schedules now we have for operationalizing mines and also for completing these projects which I talked about, the amount of CapEx we have scaled down in this year will be INR 8,200 crore towards CapEx, another INR 800 crore towards mines. Both together, we will be spending INR 9,000 crore in this financial year towards CapEx.
With that, we will be completing Dolvi expansion and also accepting Coke Oven Plant in Vijayanagar. Balance will get completed, and the majority of the CapEx in Dolvi also in downstream also get completed. Today's board meeting, I'm happy to share with you the board of directors recommended dividend at INR 2 per share, subject to the approval of the shareholders. The guidance for this financial year, what will be the production, what will be the sales number. We are watching what other companies are doing in the steel sector. Many of them are not willing to give the guidance, but after having seen what is happening in the month of April and May, we could estimate the production and sales numbers, considering that there will not be any production from Dolvi expansion. If it comes, it is a bonus.
Without that, we expect the production, crude steel production for this financial year will be 16 million tons. CapEx and the sales number will be 15 million tons. What we are seeing as far as the market outlook is concerned, even though there are a lot of headwinds which I just mentioned, that the migrant workers coming on soon, there will be no vaccine for COVID-19, whether it will recur, there will be again frequent lockdowns that will be imposed. There are a lot of uncertainties with regard to the outlook, so everybody is doing a lot of scenario analysis. At the same time, there are certain victims also which are happening.
One is relating to the crude prices, which is good for India, and the second, the fiscal stimulus which has been announced, and also a lot of credit flow, probably because of the monetary policy that has been getting calibrated, so that should increase the credit flow to the industry. All this together, India, we expect slowly, gradually to recur. Normally, we will provide by September to October. Second half should look better for this year and how we are seeing in future. I will just stop here. If any questions are there, we're happy to take. Thank you.
Thank you very much. We will now begin the question- and-a nswer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove your phone from the question queue, you may press star and two.
Participants are requested to use handsets while asking their questions. Anyone who would like to ask a question, please press star and one at this time. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Thanks for taking my question, sir. I have two questions. The first one is on our leverage ratio. Given that there are significant uncertainties, we have still decided to go ahead with INR 9,000 crore of CapEx. What is the peak net debt- to- EBITDA or peak debt- to- equity number you are looking at based on which you will recalibrate your CapEx plan?
The total debt of the company as of 31st March 2020, the net debt was INR 53,473 crore, and we have cash balances of INR 12,004 crore. That way, we have strong liquidity in the company. We are assuming that we need to spend INR 9,000 crore at a lower level of CapEx. Taking into account the margins and the kind of EBITDA we expect in this year, we do not expect the leverage to go up than what we are seeing right now.
Okay. The second question is on guidance. I mean, I would actually commend you for guidance because a lot of international companies and domestic companies have refrained from giving guidance, but you have given the guidance for the full year based on production and sales. Very helpful. Just wanted to understand that of this 15 million tons, how much would be exports in percentage terms?
In the financial year 2020, which we just ended, our exports were 3.12 million tons, which was 21%. The exports will continue to be higher in the initial period until demand recovers in India, which we expect in the second half. It is very difficult how much will be the exports out of this 15 million tons which we talked about. We are generally in the range of 25%-30% in case Indian demand does not pick up, otherwise it will fall down. That is the range we expect the year as a whole.
As far as Q1, thus far, what is the level of exports approximately in percentage terms?
The Q1 will be in the range of 15%. Thanks.
Okay. Thanks, sir. I have some more questions, but I will come back to you. Thank you so much and all the best. Thank you.
Thank you, ladies and gentlemen. In order to ensure that the management will be able to get questions from all participants, we would request you to limit your questions to two at a time. Thank you. The next question is from the line of Amit Singh from Bank of America. Please go ahead.
Yeah. Thank you very much, sir. The first question is from Mr. Rao. Mr. Rao, this INR 9,000 crore CapEx, could you also tell us, does it include the international CapEx as well for U.S., the plate and pipe mill and also zero junction? Also, does it include a part of your maintenance CapEx as well, or that is over and above that?
Maintenance I have already included, which I said to be INR 2,000 crore, INR 1,000 crore is only an advance. It is out of this working capital. That amount will get recovered in the iron ore which we get from the mines during this year only. There is no actual outflow in fiscal year as a whole. What is left is 800. 800 is included. 8,200 + 800. That is 9,000. As far as the global CapEx is concerned, even we have put now the phase two of U.S. plate and pipe in the hold. We are not going ahead with that. Phase one is already completed in the daytime. There is a balance CapEx maybe around $25 million. There is another $25 million in SLO junction. Total around $50 million will be the CapEx over and above this INR 9,000 crore in the overseas.
Okay. This will be in FY 2021?
FY 2021.
Okay. Okay. Wonderful. Sir, the second question is from Mr. Acharya. Mr. Acharya, the domestic market has been closed with limited transactions since March end. Could you provide some color on how do you see the realizations panning out, whatever limited information is available, and is there a downside risk to the prices once things open up, given that we might be trading at a premium to lending cost of imports?
Yeah. Hi. No, on the price side, I think the economic activity in the month of April, as all of us know, has been very weak. Without an economic activity, pricing anyway did not have any sense. We have basically been operating a rollover for March and April. For May, as the economic activity picks up, we will see.
Our sense is that the pricing today is getting, let's say, to some extent also in line with the anti-dumping numbers which are available for certain products in the country. There is a floor which is available. I think from that perspective, if I look at it, we are not very far. We are in that range of an anti-dumping number which is there. Difficult to give any kind of color on pricing now beyond this because the activities in the domestic have just started opening. It is just gradually up. I expect that since the economic activity is right now just starting up, pricing will remain in a reasonable range.
Let me ask it in a different way. Versus the March exit rate for, let's say, a benchmark product like HRC, where would be the anti-dumping level versus that? Versus March exit rate and the anti-dumping level, what will be the gap there?
Yeah, the anti-dumping level we can calculate to have a $489 as the number. $489 for hot rolled coil. Based on that, we can take the anti-dumping number calculations.
I just wanted to understand, what was the March exit rate? What is the premium to that anti-dumping level for the March exit rate if you can share the number?
I think, yeah, I will not be able to give you the March exit rate right now, but I think the color basically is that $489 is the anti-dumping number today for hot rolled coil. That should give you some guidance with respect to where the numbers could be.
Understood. Thank you. Thank you very much, sir.
Thank you.
Thank you. The next question is from the line of Niti Shah from Invest T ech. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. First question is for Rao, sir. Sir, on the slide, we see net debt to.
Can you make it louder? I'm not able to hear.
Y eah. Hi, sir. On the slide, what we see is net debt- to- EBITDA at 4.5x. Sir, we have always maintained that magical number of 3.75x, and we haven't even reduced the CapEx. It's still high, INR 9,000 crore. So sir, how should one look at this 3.75x number? And if you could give some color around if at all there are any problems on our bonds?
I think the way we have to look at the ratio of 4.5x debt- to- EBITDA is INR 53,473 crore of net debt. It is one outcome compared to 31st December 2019. On account of two things. One is exchange rate. Exchange rate variation has increased the debt by INR 1,517 crore. Also, the capital acceptances, which are more than one year as per revised accounting guidance, have been classified as debt, which is INR 1,906 crore. This is INR 3,423 crore both together. If I just take out this amount and then see the actual debt increase, 31st December and 31st March was only INR 500 crore. Similarly, INR 53,473 crore debt includes approximately INR 16,000 crore of debt which we raised for the expansion and the CapEx, which is not really any incremental EBITDA which we expected in this year. Maybe partly may come in this year, partly may go to next year. Due to this, INR 16,000 crore debt-to-EBITDA has gone up above our comfort level of 3.75x. That is what we worked in this year to bring it down to the level where we are comfortable.
The way we are guiding this INR 9,000 crore of CapEx which we are going to incur in this financial year, even then we would try to maintain within these ratios. As for covenants with concern, there is no issue at all. Covenants are for the standalone company. There when we calculate, we are well within the covenants stipulations.
Sir, you indicated that we will try to be in the current range. Looking at the macro scenario, what you painted with INR 9,000 crore of CapEx, sir, where should we look at our clients by end of March 2021? It looks pretty difficult, honestly. 4.5x, this number is likely to go significantly higher. There is also an optionality of Russian power. Sir, if one had to put these two variations in context, how should one look at the balance sheet and the capital structure? Are we looking at probably an open to equity rate, or how should one think of this?
When we guided the sales number of 15 million tons, and we are saying that there will be a catch to iron ore and the coal prices globally are coming down, the second half domestic sales will pick up. Until that time, we are relying on exports. Export realizations are also not so bad because of equity depreciation of close to 9% in the last year and also almost close to 5.5% in the quarter. This has made the exports reasonably attractive in terms of MSR. Margin side, we are reasonably okay that we should be able to maintain these ratios.
Even if we have to consider an INR 9,000 crore CapEx and other commitments which we have, then as regards to amendments, we have only two amendments we talked about. One is Bhushan Power and Steel, another is Asian Colour. That both the things are under the purview of now Supreme Court, one under NCLT. That is yet to be approved. That will take some time by the time it's consectified.
Okay. Sir, would you like to give some number on 3.75x? We have advertised a lot, and we have stuck to this number in the past. I think one big concern we'll have is specifically on the balance sheet side. If we quantify something over here that we won't reach a particular number that we are looking at, taking into account the revised CapEx, that will throw a lot of complex.
Our effort is not to increase the debt and also not to breach this debt-to-EBITDA. Debt- to- EBITDA is a relative number. Debt, as long as we are able to manage to keep the debt within that and incremental in close CapEx or the cash flows of the company, we are reasonably confident we should be able to do that. I do not think there is a worry as regards to balance sheet. Now, one issue that is left over is amendments. Amendments, I call only, we feel that it will take more time than what we are all anticipating here to get any outcome from the courts in the current environment.
Correct. Thank you, sir. Sir, my second question is for Rajeev, sir. In the prior question, I know you indicated about $489. Sir, I wanted to have some if you could provide perspective on the inventory levels which are there in the ships, how will you bifurcate it between flats and longs? I think $489 will throw a INR 36,500. That is broadly. How should one look at inventory levels and consequence of price risk that we see given demand is not there and our export volume also dropped substantially?
Yeah. Our inventory levels as of 1st April, as of over 1st April of 2019, we actually added about 100,000 tons of inventory in quarter four, primarily because of COVID-related issues. Otherwise, actually, we would have achieved the inventory reduction over 1st April 2019. We added about 225,000 tons over 1st April 2019.
Our inventory levels would be, including everything, would be about 1.16 hectares approximately in the entire system, which is including finished, work in progress, as well as semis in the system across all locations.
Sir, how much would this be at country level?
Sorry?
How much would the inventory be at a country level, a broad number? I'm just trying to understand the price risk.
Yes, yes. Country level. This is country level only.
1.16.
Yeah, yeah. Country level means I'm talking about the inventory which is lying at plants, which is lying at ports, which is lying in the yards, or even transit.
Okay. Sir, the bifurcation of flat versus longs over here?
I don't have that offhand. I can give it to you later. I don't have it offhand right now. But flat inventory will be more than the long inventory.
Correct. Sir, just a related question. I think if I heard it right, we said that we are operating at 85% utilization levels. Now, we painted a very faint picture on demand. How do we justify 85% utilization levels given the inventory is also, I do not know whether it is near normal, but the utilization levels look quite high. How should one look at this?
Okay. Can I answer this question? See, generally, what we are seeing is all the market analysts and experts are talking about demand. They are not looking at the supply side at all. There is a huge problem even from the supply point of view. If you see the April number released by the Joint Plant Committee, even the production has come down quite drastically. Whatever production that has been done in India has been done only by six players.
91% of the production was contributed by only six players. Therefore, there is a huge issue with reference to getting lucky capital from the banks and restarting operations for many of the secondary skilled players and other smaller players. In that context, once you look at demand that's come down by 91% in the month of April, the production also has come down by 67%. This is what is to be seen in the market. You have to see separately both flats and longs. Longs, who are the producers? Flats, who are the producers? What is the demand outlook for flats? What is the demand outlook for longs? In that context, if you see, I think there is a possibility for larger players like us will be able to manage the situation even though demand may not be robust enough.
I think one more thing I can add here is that even if you look at the inventory levels today, the inventory levels today are lower than what it was in the month of, let's say, September, October when things had really become much more difficult. I think from an inventory perspective also, if you look at the industry, not only at JSW Steel, things are not as difficult as they were sometime in September, October of 2019.
Hello?
Thank you. I would request Niti Shah to rejoin the queue to follow- up questions. The next question is from the line of Nikhil Parekh from JPMorgan. Please go ahead.
Thank you very much, sir. Sir, two quick questions. The first is that if I look at the INR 9,000 crore of CapEx guidance, and at some point of time in the next few months, the Bhushan Power and Steel deal will also be done.
I mean, there is a lot of uncertainty regarding how the COVID-19 pans out. Historically, the company has taken approvals, board approvals for equity issuances, but has not gone ahead with it. This time, is the company going to rethink its strategy and raise equity because there are a lot of projects which are half completed and which need to be pushed? While JSW is among the lowest-cost converters, the macro environment could become challenging again in the second half if the virus does not fade out. How would you view potential plans to issue equity?
We have taken the approvals from the board for raising resources, both in terms of equity and also by the debt. We also get the approvals of shareholders in July. Once the approvals are in place, we continue to evaluate the raising of resources to address the issues which you raised.
If things, we expect that the things will improve. Even then, during this period, we continue to look at raising of resources to complete this progress and also to reduce the leverage.
Thank you, sir. Sir, my second question is on MIP. Now, the $489 MIP, if I remember correctly, was enforced for a period of five years and is expected to get over in March 2021. Now, as a steel industry, the companies have put in aggressive CapEx, is acquiring a lot of assets under the NCLT. What are the thoughts that the company is hearing or the industry is hearing from the government on plans to extend the MIP? Or is this that the government believes that the MIP's purpose is done and from in six months' time, we should revert back to a normalized steel import and pricing environment?
Yeah, sorry. Yeah, Jayant.
Thank you.
Yeah, go ahead .
Thanks. Yep. Okay. No, I'm saying first of all, the MIP, the particular trade measure which is enforced is anti-dumping. MIP was long-existed, long time back. And anti-dumping was introduced on certain products, and hot roll is one of them. There are other items like hot roll plates, like cold roll, like color coated, etc., which are covered by anti-dumping measures. Anti-dumping measures are initially introduced for a period of five years, and it has a sunset review clause. You can review the anti-dumping measures, and then depending on the situation and the case, it can always be reviewed. I think given the current situation of the global steel industry, given the fact that trade actions between U.S., China, and consequent actions by other countries are being taken, I think India will also be prudent and take measures accordingly to safeguard its own shores.
We have also seen the Prime Minister announce very clearly this time a slogan of going local. The focus, I think the way things will work in a difficult, challenging situation, the way we are facing in COVID-19, will be to make in India, buy in India, and export from India.
Understood. Thank you. Thank you very much, sir.
Thank you. The next question is from the line of Ashwani Kumar from Nippon India. Please go ahead.
Yeah, good afternoon, sir. I have two questions. One is that are there any segments where you are beginning to witness improvement in demand, and therefore consequently, you are supplying more, particularly the projects, etc.? That's one.
Second, in light of the situation where initially the automotive demand might remain low for some time because of severe impact on, let's say, the various businesses, what exactly is, as an institution or as a part of CII, you expect to make the revival in the industry and consequently for the steel demand?
Sorry? Do you want me to? Yeah. In certain areas where we see activity which has improved in projects specifically where we had to mention, I think road projects have picked up. Metro projects have picked up across various locations. Transmission towers, we see pickup in activity. Railway, we started again the dedicated freight corridor work. Pre-monsoon activities have been started in many areas. It's been permitted officially.
What happens during this time is that the foundation which was left, let's say, uncompleted, incompleted, that will be completed so that the activities thereafter can pick up faster. Irrigation projects in certain areas, specifically in Telangana, Pradesh area, that area has started. In Madhya Pradesh, we have seen another irrigation project start up. Gujarat, the Sauni pipeline project work has restarted. Some structural tubings which are going into construction, specifically for, let's say, individual builders or smaller HKLS, have restarted. PB, pre-engineered building warehousing activities have, again, we have seen some solar projects, there is some pickup which has started. Packaging industry, I think there is food packaging, and whether you call it food pulp and lubricants packaging, these areas have picked up. We see a gradual opening up as the units have got permission.
These are some of the areas which we mentioned where situations are a little better. In the automotive side, as you rightly said, things are under pressure. However, I think the activities in two-wheelers is better. The two-wheelers have already picked up activity to about 50% levels now. We see that complemented between domestic and exports both. I think the bigger car manufacturers like Maruti and Hyundai have restarted operation. They are trying to put in place a supply chain. I think from June onwards, we will see maybe a slightly more better pick-up, I would say. I will not say back to normal days. Slight better pick-up in the smaller car segments where people would try to maybe acquire smaller cars rather than use public transport to the extent possible for the segment.
Sir, this would amount for what proportion of your total output, let's say, let's say 100 is the total output. Where the activity is normalizing, that would account for what proportion of total output for you?
See, as of I think we have to understand where we have come from. We have come from, as Mr. Raj was also saying, that in the month of April, we had a demand disruption and a supply side huge correction in terms of production, primarily because the economic activity came to an abrupt halt. The lockdown continued to be extended, and we are aware how the lockdown extensions have happened. Permissions have been given gradually depending on state to state, depending on the zones which the states have defined within those zones.
I think the activities, whether it is with 33% manpower or with 50% manpower, have started, I think I would say across most of the segments. It is everybody's, I think economically, every company is wanting to get back to business as soon as possible. Therefore, the effort is being made by each individual organization to come back. Therefore, I would, rather than putting a percentage as to what component it accounts, I would say that today, let's say in South, I see if I were to look at South, I would say that 50% of the levels of operations have already by and large got into place. It is fully up to the question of getting additional manpower in place and putting more people on the ground, ramping up the operations is in the process.
Similarly, in West, I think the region, most of the, let's say, rest of except Mumbai, Pune and Ahmedabad, which probably is operating at one-third level of manpower, the balance areas have already started operating at 50% manpower level. They are ramping up and trying to operate in terms of lines to the extent possible and using this gradually to basically ramp up their productions as well. Similarly, North, we are seeing, again, ramp up in different levels in different states at different points. Anywhere between 33% where the areas are more impacted and 50% + in certain areas which are more open. South specifically is better placed.
Sure.
Thank you. We would request participants to please limit your question to two at a time as there are many participants waiting for their turn as well. Thank you.
The next question is from the line of Vinit Malu from Villa Sunlight. Please go ahead.
Hi, good afternoon. Just want to understand, I think I missed this if you commented on it, on the new mines in Odisha that were done. What is the progress out there in terms of taking over the operations, etc., completing whatever formalities are required, etc., all those things? When do you expect output to start from there for your own use? If you can also detail some of the plans in terms of what kind of logistics, etc., you will manage?
As far as the mines are concerned in Odisha, as you know, at the time of auction, they said the approvals, like environmental clearances and all that, which are there today, they will get transferred to the new lessees, which are valid for three years.
Therefore, there are no fresh approvals that are required to be taken. Just wait and make the payments and then finalize the MDOs and then start the mining because they are all operating mines. We are waiting for the vesting order to come in from the government. Once the vesting order comes, we can make the payment. To get the vesting order, why they did not delay for these one and a half months is majorly the central government had contemplated certain changes in the mining law, which you have seen already in the press. One of them is relating to stamp duty rationalization. There is something which is happening. For that, now that we are more or less clear, hopefully now the vesting order will be given by the Odisha government. Based on that, we will make payments and make them operational very quickly. Our plan is to make them operational, at least out of four mines, at least two of them, by 4th July. That is how we are planning to do. The other second question you asked?
Logistical output you expect and then the logistics, yeah.
Output I have covered, if you look at the total environmental clearance, all the four mines together is 29 million tons. Out of that, minimum which we need to do once vesting order comes in is 16 million tons. That is the kind of production which we expect from Odisha in this year, in that range. Similarly, in Karnataka, there are three mines which we expect one and a half million tons from these three mines once they become operational.
If I take 16 million ton as a guidance which you have given for cold-store production, if you say 31-32 million ton is our iron ore requirement for the year, then 16 million tons from here and 7 million tons from Karnataka, that means 22 million tons, will be capped out of 32. That is the kind of situation that's coming in this year. Our reliance on the merchant mining companies will come down quite substantially.
Okay. On the logistics, start from Odisha?
Logistics are concerned, of course, now. Sorry, the time?
Hello?
Same in the other area. Out of these four mines, there is one mine, there is a railway siding in that mine. That will be very helpful for moving the material to the port.
Sam, sorry, your voice was breaking. I couldn't hear you.
Out of the four mines, there is one mine which is having railway siding. That will be very helpful to move the material. The balance we will do until this railway pipeline project comes up for a period of time. We will continue to operate the way we are bringing in iron ore from Barisha to our Boji and Salem plants.
Okay. Sir, one last question I have is, will you be looking at some asset sales from the OCSS, etc., which we've been holding for some time now, for example, Chile mines, etc.? In the overall scheme of things, maybe it's not as important right now. Are you taking a relook at some of the OCSS that you have? Any other OCSS?
As far as Chile mines are concerned, now we have provided entirely the investment in Chile. There is zero today. Now we will look at whether anybody is willing to take that mine. Yes.
Okay. And sir, is there any consideration that you would be looking to, let's say, not do the different deal? Is there a contemplation regarding that, or you still continue to pursue it?
The question, that question does not arise because we have made a resolution plan which has been approved that is pending in the Supreme Court. Supreme Court, there are a lot of litigations which require to be resolved. We wait for the litigations to be disposed of.
All right. Thank you so much.
Thank you. The next question is from the line of Abhishek Bhattar from HDFC Mutual Fund. Please go ahead.
Hi, sir. Thanks for inviting me. Sir, this is regarding the Odisha mine actions. I remind you of one mine. If you look at the premiums that we have paid and we added the production mining cost to that, I'm just trying to make sense of this thing that if you look at next three, four years, we are connecting how this is going to make sense and what is the expectation of the merchant mining team training in India that these premiums will kind of make sense to our financials.
We also paid the premium for getting iron ore mines in Karnataka. We have been operating those mines for the last now more than a year. We have no regrets for having bought the mines at a higher price. Because having our own mines from factory sources is a big lever for us to have kind of stock without coming under pressure to participate and buy the iron ore at any cost.
Therefore, there are a lot of other advantages. We can do mining in a scientific manner and get iron ore of high quality sometimes which is required for the clients. There are other incidental advantages which will come in. We cannot just look at it as a premium. It is very strategic to have the captive mines. This will be very, very helpful. For instance, in Odisha, out of the four mines, there is one mine where the quality is very, very good, more than 65% ore and low alumina. Therefore, with some blending purposes, it will be very, very helpful to achieve the productivity and other benefits. Over and above that, gradually over a period of time, once we set up some pipeline, there will be a lot of claims which could come in on account of freight and other areas.
Wonderful, sir. This national index that the FMS announced over the IBM cycle, will that change things? Should we start looking at one index for the entire country then, or how are you viewing this?
That is what the government intention is, like Coal India, the way they have now, the way the index instead of having one single price, they would like to have instead of having different prices for each state, they would like to have one price for iron ore. Similarly, for coal, they would like to develop a coal index. Instead of paying per ton, they would like to convert into a rainwater sharing model. These are all good concepts, actually, if implemented quickly.
Right. One confusion I had was that for IBM, we have a separate pricing for different states. That system will go away with this, is it?
Yeah. Once this national iron ore index comes in one price, then it will not be there the way it is happening right now for each state. The average of the whole iron ore that we create in India.
Okay. Thank you, sir.
Thank you. The next question is from the line of Rahul Mehrotra , from Fidelity Investments. Please go ahead.
Hi. Thanks for taking my question. I have two questions. First is just on this guidance for next year, so your broadly more or less guidance for SAG projects next year. Now, if I look at you right now, you are operating at 85% utilization, and SRE numbers have already reported which were down sort of 60%. Let us say if I do a rough math, first quarter volumes itself would be down probably 40%-50%.
I'm just trying to understand how do we achieve this guidance because you've also mentioned that Dolvi commencement will get delayed. It will probably get commenced towards the end of, let's say, somewhere in the middle of the second half of the year. Incremental contribution from Dolvi was also limited. I'm just trying to understand how will you achieve this guidance?
Look, if you see the last year number, we have achieved 16.06 million ton production. The 16.06 million ton production was impacted by COVID-19 in the last quarter and also extended monsoon and also very, very weak demand in quarter one and also some shutdowns at the plant. If we just normalize these items which are there in the last quarter, last year, that won't be there in this year.
After adjusting April, May production shortfalls that is there relative to what otherwise would happen, I think this is an achievable number for whatever we have already got.
Okay. Understood. Understood. Fine. The second question I had is on the revenue acceptances, if you can just give what is the number right now. I understand that this is like a rolling facility we have, but in current environment, there's a lot of conservatism from banks on lending on anything. How are we placed there? Are we seeing banks still willing to fund that? If you could just talk about how that works and what are the kind of funding go away from us in the short term.
What we are getting by way of revenue acceptances is a combination of suppliers' credit and buyers' credit. Suppliers' credit is extended to a supplier. These are all big suppliers. I don't think there is any problem of risk of not able to access that credit. That is not an issue at all. Today, INR 1,102 crore, INR 1,102 million, INR 1,102 million are the revenue acceptances as of 31 March 2020.
Okay. It is basically funded by suppliers and buyers of the banks, you're saying?
Not Indian Bank. Indian Bank's open only LCs.
Oh, understood. Got it. Even from buyers' side, there's no issue as such because there are suppliers who are always LC owners.
There's no issue.
Fair enough. Thank you.
Thank you. The next question is from the line of Inderjeet Aggarwal from PLSA. Please go ahead.
Hi, sir. Thank you for the opportunity. A couple of questions from my side. Generally, we see the auto sheet price revision happening in this time of the year, the half-yearly price revision.
Given COVID and all, having seen the resumption of stocks with the auto suppliers, auto OEMs in terms of pricing, what it will be for the next six months or so?
Yeah.
Yes. So yeah, there is a price revision due for April. Given the situation of April, the discussions have just started. I think we will see how the discussions go with the auto bikers. Yeah, they've just begun now for the six months.
Sure. That's helpful. Second on cooking coal cost. Can you tell us how much was it down quarter over quarter in terms of booking on the P&L, and how is the cost price versus what we have booked for the last quarter?
Cooking coal prices, what we had for last quarter, I think we had guided that we would be about $10 less. I think we were in ballpark on that number, I think. One or two dollars more than that. We will be flattish. We were at about, I think, $141, $142 CFR in last quarter. I think it will be around flattish in this quarter as well.
Sure.
Will remain flattish. The prices were higher in May and March.
Yeah. On a similar note, when does the lower iron ore price in India hit us on our P&L? The recent price corrections by NMDC or other miners, when does that impact us on our P&L?
That will come quickly within a matter of maybe 10 days. We do not maintain full inventory of iron ore at any other plant. Whatever reduction that will happen, that will flow within 15 days' length.
Sure. That is helpful. One last housekeeping question if I may. How much debt is coming up for renewal in FY 2021 for us?
What is the renewal? Sorry.
How much debt is up for refinancing or renewal is maturing in FY 2021?
Total amount of debt that is due for this year is INR 7,500 crore. That's all from my side.
Thank you. The next question is from the line of Abhijit Mithra from ICICI Securities . Please go ahead.
Yes. Thanks for taking my question. I have a couple of questions. The first, on the iron ore side, out of that 29 million tons that you plan to mine, 7.5 million tons is lump. So what's the plan of action with those lumps? Those are quite costly and do not fit exactly in your production schedule in current form. Any thoughts on that?
Whichever is not possible to use, we can sell in the market. That is not an issue at all.
With those premiums, it's commercial to sell lumps?
Yeah. It is possible to sell.
Okay. Okay. Okay. Secondly, on the overseas operations, this quarter, as you're looking into Q4, I think the loss, including U.S., Ohio, Piombino, all combined, is almost $40 million. What's the cash loss that you have incurred in overseas operations this quarter, and how do you see this spanning into FY 2021?
If you look at Q4, the total loss of INR 2.98 billion is more than Q2. Steadily, gradually, it is coming down. We expect things to look better maybe in the second half of this financial year.
Right. What sort of loss have you sort of, and what sort of financing needs have you sort of kept in mind for these operations overall?
Breakdown can stand on its own. We don't think there is a support required from India other than the CapEx, which I told about, $25 million. Similarly, SRO gentian, right now, the market is very subdued. We are looking at how the market develops once it opens up from June month. Once the order book improves, I think SRO also can stand on its own. That is how we are seeing. There may not be a big support they are looking from India for this year.
Okay. In general, what our experience has been in the past cycle is also, even when this for the domestic debt, at least, when this government due debt breach, there doesn't seem to be much of an issue, barring probably some sort of increase in debts. In general, just trying to understand, the 16 million ton, it seems a bit optimistic given the current situation.
The INR 7,500 crores of maturity, it will have to be refinanced. I mean, that's the assumption that you're working with, or how do you look at this sort of from a cash flow requirement side or the rest of the financial year?
When we say we are not looking at increasing the debt, and INR 9,000 crores we incur CapEx, that means INR 7,500 crores we will refinance. We are looking for refinancing, and there are lenders lined up for that. That's why we are confident that we'll be able to do it.
The foreign debt proportion will increase, is it?
It could be any source. It could be local. Why you say only foreign? It's possible even to raise locally, which we are doing.
Okay. Okay. Okay. Got it. That's all from my side. Wish you all the best.
Thank you. The next question is from the line of Gopal Agrawal from DSP Mutual Fund. Please go ahead.
Yeah. Good afternoon, sir. I just wanted to understand the cooking coal contract and how it is shaping up and how the lower price will start going in our P&L. Can you give us a timeline and how much delta you can expect in the next six months?
Cooking coal prices have now moved down, as you have seen. I think in the last one month, cooking coal prices have moderated. This will start coming into our balance sheet or into our operations in the next quarter. April-June, as I said, the cooking coal cost for us will be flattish. January-March and April-June will be similar. The benefits will start accruing from July-September onwards.
How much is the quarter approximately?
I think we can ask for this to get back to your place.
Sure. Thank you.
Thank you.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.
Last year, out of total sales which we have made, of 14.9 million ton, we did exports of 3.12 million ton. We have sold 11.78 million ton in the domestic market. When we do the guidance of 15 million ton again this year, export proportion will go up. Because first quarter, we had to rely upon more on exports. Even assuming it will take a little longer time, the Indian market to come back to the demand, normal demand, we can continue to do more exports. What is very important here is supply side also has a lot of constraints.
We are looking at the demand side. Supply side, if you look at it, there are very few players who are able to operate the plants the way we are doing. Then meet whatever demand that is there in the marketplace. That gives us space for us to sell in the domestic market, whatever limited demand that is there. Balance, we will be able to do exports and how we are looking at. In this year, the second major advantage which will come, the falling coal prices, as we mentioned, the consumption level C&F, which has gone in the last quarter, was 141. The benefit of coking coal fall may not come in this quarter, but it will be the next quarter. There is a significant fall in the prices that will come in the second and third quarter going forward. Similarly, iron ore prices fall.
Two times prices have been reduced. Total INR 900 crore is another INR 50 crore. INR 950 crore is a reduction, which has happened. Reduction in iron ore prices will happen. Cost side, there are lots of efforts which we are taking. If you take our entire commercial buying which we are doing, at least 10%-15%, we are focusing to reduce the cost in that. The third area is fixed cost. Whatever fixed cost we have, administration plus salaries, outsourcing costs, all this together, we are also aiming to reduce by 10%-15%. There is a huge amount of effort on the cost side. One is push the volumes. Second is reduce the cost. Third is increase the capital sources of iron ore. The third is improve the product mix. That is the last one which we are working on.
With that, we are confident that we will be able to achieve the guidance which we have given in terms of production volume and sales volume. With regards to overall balance sheet leverage concerned, our effort is not to increase the overall leverage, and we will try to maintain within this. When we say INR 9,000 crore CapEx, then there is a repayment of INR 7,500 crore. To that extent, if we can do the refinancing, which we are already confident that we will be able to do, actual cash flow required for the CapEx is only INR 1,500 crore. INR 9,000 crore -INR 7,500 crore of new debt, which will come in, old debt gets paid. That is how we are planning to do for this year. Leverage, I do not think it is a big concern to manage this.
If at all, any amendments have to be done, either motion power and steam or Asian Colour Coated Ispat, there are only two things left. I think it will take some more time. By the time we will work out the structure, how it can be done. Thank you.
Thank you. On behalf of IIFL Securities , that concludes this conference. Thank you for joining us, and we will now disconnect your lines.