Ladies and gentlemen, good day and welcome to the JSW Steel Limited Q3 FY20 Earnings Conference Call hosted by SBI CAP Securities Limited. 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, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Dayanand Mittal from SBI CAP Securities. Thank you, and over to you, sir.
Thank you, Moderator. Thank you, everyone, for joining in today for JSW Steel's Q3 FY20 Post-results Conference Call. We have with us the entire senior management team of JSW Steel. Without further delay, I would like to hand over the call to Mr. Pritesh Vinay, who's the VP Corporate Finance and Group Investor Relations. Over to you, sir.
Thank you, Dayanand. A very good evening to all the participants, and we welcome you to JSW Steel's Third-quarter Fiscal 2020 Results Earnings Call. We have the senior management team of JSW Steel represented by Mr. Seshagiri Rao, Joint Managing Director and Group CFO, Mr. Vinod Nowal, Deputy Managing Director, Mr. Jayant Acharya, Director of Commercial, Marketing and Strategy, and Mr. Rajeev Pai, CFO. We will start with a few minutes of opening remarks by Mr. Rao, and we'll then open the floor for Q&A. With that, over to Mr. Rao.
Good evening, and welcome you all for the briefing of our quarterly performance for the third quarter for the financial year 2019-2020. As you have seen, the slump of September 2019 quarter continued in the month of October. The prices further declined. At the same time, globally, we have seen price improvements due to supply adjustments. That led to a restocking, which started happening from November 2019 in India. Everybody expected that the resistance prices would look up. With that, the destocking that had happened in the previous quarters turned into restocking in India.
Over and above that, Government of India's revival in the expenditure and release of disbursements to various contractors also brought back the demand in the construction and infrastructure segments. With that, we have seen November and December are far better months compared to September and October. India, the imports also have fallen in the third quarter by 26%, and exports went up by 86%. This also helped for destocking, not only by the channels. Even at the producer level, there is a significant reduction in the inventories which has happened in this quarter.
In this context, if we see the JSW Steel performance, I'm very happy to share with you, we once again crossed the 4 million mark, both in terms of volume of production and volume of sales. Crude steel production for the quarter was 4.02 million tons, which was higher by 5% quarter on quarter. The consolidated sales, 4.032 million tons, which is a growth of 13% quarter on quarter. This type of achievement of volumes in the consolidated sales is driven majorly by significant improvement in the domestic sales, which have gone up by 25% quarter on quarter and 11% year on year.
Exports, even though slightly moderated to 949,000 tons from 1,092,000, 1.09 million tons in the previous quarter. There is approximately 50,000-60,000 tons moderation in the exports. What is important to note in these quarterly results was that the domestic sales have gone up over 3 million tons in the quarter, which is a 25% growth. This improvement in the domestic sales is driven by retail sales, where the growth was 33%, and the sales in the OEM segment by 21%. Even in the Auto Sales segment, we improved our volume of sales by 10%. Our value-added products share has improved to 50% from 46% in the last quarter.
We also used this opportunity of buoyancy in the demand by reducing our inventories by 245,000 tons to 10.78 million tons from 13.23 million tons. There is inventory reduction, there is improvement in the domestic sales, there is improvement in the retail sales. That's why volume-wise, we have done quite well in the last quarter. The prices are concerned blended NSR year-on-year basis, 23% fall, and in the quarter, 7% fall. The reduction in the NSR, which was continuously happening in the first half, the July, September, and August impact that has come in the full quarter, there was further fall in the month of October in the NSR.
Even though there was an improvement in the month of November and December, the overall net fall in the NSR on a blended basis was 7% in this quarter on quarter on quarter basis. The cost of production has come down by 5% in this quarter, majorly driven by the coking coal prices, and an average has come down by $30 on quarter on quarter. The captive iron ore supply at 1.22 million tons and other efficiencies brought down this reduction of cost by 5%. The EBITDA per ton is INR 6,622 on a standalone basis, which is 16.9%. The operating EBITDA was INR 2,667, and the profit after tax was INR 691 for the standalone company. The domestic subsidiaries have done well.
JSW Coated, JSW Industrial Gases, and Amba River Coke, they all contributed together INR 265. Overseas remained a drag. It almost had the same level of negative EBITDA of INR 335, even in the Q3. Considering both domestic subsidiaries and overseas subsidiaries, the operating EBITDA on a consolidated basis was INR 2,451, and the profit after tax on a consolidated basis was INR 187. I would like to invite your attention to one-off item that is INR 250 of income which the company has received during the quarter on account of assignment of a long-term contract signed by the company for industrial gases.
Originally, when the contract was signed, assignment was not permitted. Subsequently, because of certain regulatory issues, they approached us to transfer this contract or to accept the assignment of the contract, for which they paid a consideration of INR 250 to us. That is one-off item. When I say INR 6,622 was the EBITDA per ton on a standalone basis, that includes this INR 250 which we have got during the quarter. That amounts to INR 621 per ton. If I adjust this amount, actual EBITDA for the quarter is INR 6,001. At the same time, what is also important to understand the results properly, we had 13.23 lakh tons of inventory as of 30th of September 2019.
It is a high-cost inventory that is sold during the quarter. These inventory losses on a standalone basis, if I look at it, it is INR 221. On a consolidated basis, including coated and also overseas, it is INR 300. This INR 221 on a standalone basis will translate to INR 550 per ton. The INR 550 gets added, and INR 620 gets deducted. The net impact is only INR 70 to the INR 6,622 to be adjusted. The net debt of the company was lower by INR 88, which was INR 49,552, as it is INR 49,642 as of 30th September. We could also reduce our weighted cost of interest by 30 basis points during the quarter. It was at 6.52%.
Acceptances on revenue account was INR 1,274 million, and acceptances on capital account is INR 543 million. Debt to EBITDA 3.71, debt to equity 1.35. The tin plate which we have commissioned last year at our Tarapur unit, that is stabilized. There is a growth of 14% in the volume of tin plate production. That now will ramp up further. We also commissioned the PLTCM at Vasind in the downstream unit. Certain projects are getting commissioned as regards to downstream. Because of the monsoon which we explained in the last call, that got extended for October and also part of November, that impacted the overall construction activity at Dolvi and also partly at Vijayanagar.
We tried our best to cover part of these delays. Taking into account the progress of work on the ground, there could be some delays. These delays will range from three to six months. Instead of this Dolvi project getting commissioned in 31 March in full, that will get commissioned fully by June, or maybe one or two months this side or that side. We are giving a guidance of three to six months maximum, before which the entire Dolvi project will get commissioned. We also completed the acquisition of Vardhan Industries Limited. We paid the total consideration of INR 63.5 crore. There are two things which we achieved in this acquisition.
One is our holding in the JSW Vallabh Tinplate went up from 50% of erstwhile holding to 73.5%. That is one thing we could achieve. The second is they have a color coating line, whose capacity is around 40,000-50,000 tons per annum. We could now supply our CR or hot rolled coils to this unit and convert into color coating and sell in those markets and get the additional EBITDA on color coating. We also started the fifth mine in Karnataka, that is Rama Mine. Plus the last Category C mine which we have got, that also will get commissioned in the next few days. With that, all the six Category C mines which we got in Karnataka will get commissioned.
The guidance of 4.5 million tons from captive sources, we will be able to accomplish in this year. The guidance for the year, which we have given as 16.5 million tons of production and 15.5 million tons of sales, we will be able to achieve this guidance, considering the progress and the outlook for the Q4. The supply side adjustments and also the restocking that we are seeing in the marketplace changed the sentiment of the National Infrastructure Pipeline, where they said they will be spending INR 19.5 on the infrastructure in the year 2021, as against the INR 13.5 in the year 2019-2020.
There is a significant increase in the outlays in the infrastructure segment. That is quite sizable. INR 600,000,000,000 incremental expenditure the government would be spending on the infrastructure pipeline, which is a 43% growth. That is also good for the industry, steel industry in particular. The total steel demand in India went up around 3.5% in the first nine months. Considering the outlook for the Q4, we expect the total demand will be 4% for the entire financial year. The next year, this 4% will pick up further for the factors which I just enumerated, and it will be around 5%, that is what we expect for the next year.
For overseas operations, we expect in Q4, our European operations will become EBITDA positive. In the case of U.S. operations, we will be able to reduce our EBITDA losses substantially in Q4. Monnet Ispat, we are restarting the blast furnace. Heating already started. That company will start the blast furnace by end of this month or early February. With that, the stage one turnaround, which we planned for Monnet, will get completed in this quarter. With this, I'll stop here, and if any questions or clarifications, we are open to clarify. Thank you.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask questions may press star and one on the touchtone 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. 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 the drop in NSR. What we saw actually is that the exports were also down. That should have helped us. However, NSR still dropped quite substantially. Is it possible to explain in terms of segment-wise that how much drop did we see in autos and how much drop did we see in retail in particular for us to better understand this decline?
Look, the drop in NSR in the month of July, August, and September, that fully got reflected in this quarter. October, there was a further drop in the prices, the steel prices in India. Adding to that, Auto Sales contracts got repriced on October 1st. Generally, as you know, it is six-monthly pricing. April to September, as the prices of steel are falling, the auto steel pricing got reduced for six months. That impact is almost close to INR 6,000 per ton. These two together have made the NSR coming down on a blended basis by 7%.
The important point here is, after having seen the price increases globally from $430 to close to $500 right now, November and December, there were price increases that have been taken by the company, which has been absorbed by the market. One more increase we have done in the month of January. Therefore, these increases which have happened in the month of November and December only partially came in in the last quarter. That will come fully in this quarter.
Okay. Great. The second question is on the iron ore cost. We have seen a sharp iron ore price uptick in the month of January, both in Odisha and by NMDC. Now, given the fact that iron ore bidding is real, I mean, and the. Do you expect iron ore cost to go up further in the country? If so, I mean, what cost increment can we see purely from iron ore and coking coal in Q4 compared to Q3?
As far as coking coal is concerned, we expect the current prices, the benefit that will come in in the Q4 on a blended basis would be around $10 per ton. As regards to iron ore, you're right that the prices in the month of January went up. If somebody had observed, the private mining company's prices in Odisha have been revised twice. After this amendment for seamless transfer of statutory clearances, they rolled back part of these increases.
Now, the auctions have been announced. It is starting on 31st of January, and it will end on 28th February. When the successful bidders are declared on 28th February, and then seamless transfer of mines plus large amount of iron ore stocks that would be lying in various mines, including sale, we don't expect prices to go up. Already, that type of trend we have seen, at least from private mining companies. That is what we expect to happen.
You expect basically iron ore price to go up by whatever it has gone up by, I mean, so far around INR 500 a ton or something. That would be a max rate that you can get?
It will not go up further. It may get corrected downwards.
Okay. Wonderful, sir. Thanks and all the best.
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. Mr. Rao, first question on the international operations. Now, these operations have been bleeding significantly for the last five quarters or so. If I just look at the Acero Junction, the cumulative EBITDA loss at this operation alone has been INR 130 million over the last five quarters. This is a major drag on the cash flows of the company as well while we are embarking on our growth plans in India. On this count, what kind of comfort can we draw for FY 2021 or 2022? Where do we see this number going? What is the game plan there in terms of turnaround of the operations there?
Yeah. No, you see, you cut the three operations which we have: Ohio, Plate and Pipe Mill, and also in Europe. Europe, I already gave a guidance that in this quarter, we become EBITDA positive. European operations will turn around in the next year. If I look at the Plate and Pipe Mill, their phase one is complete. Their losses of around about $13 million, which is declared in this quarter, will come down drastically as far as Plate and Pipe Mill is concerned. It may not be positive in this quarter, but it will come down drastically in the Plate and Pipe Mill of US.
Next year, it will be positive. As far as Ohio is concerned, we have plans to ramp up the production because prices have dropped quite significantly in the US. That had an impact on the Ohio operation and our turnaround plan. What we intend to do is to quickly ramp up and then make this unit EBITDA positive. That will be achieved in the next year, next financial year. In this quarter, also, it remains EBITDA negative, but at a lower level than what we have reported of $25 million EBITDA loss in the Q3.
Okay. Okay. So it's primarily you're not factoring in any kind of pricing recovery. In the U.S., turnaround is primarily premised on ramp-up of operations in the next year. Is that a fair statement, sir?
Prices are recovering, but it also will help for becoming EBITDA positive. That is one. Number two, as far as the plate mill is concerned, the phase one is complete. The benefit of that will come now. Phase two also will get completed by end of next financial year. These two together will really turn around the Plate and Pipe Mill in the U.S. In the case of Ohio, what we are planning to do is we are also spending some money on the Electric Arc Furnace modernization.
That EAF modernization will take 10-11 months' time. Building that with the existing equipment, we are trying to stabilize, ramp up capacity, and take the benefit of improving U.S. market and pricing, where we will reduce the losses and will make it EBITDA positive next year. I think following year, we'll be able to make money in the Ohio.
Okay. Okay. Understood. Sir, can you just give the numbers on the CAPEX, which we have done for the nine months, and what is the remaining CAPEX for the fourth quarter? Any update on the CAPEX number for the next year?
Capital expenditure for the quarter, which we spent on cash flow basis, is INR 2,812 crore. For the nine months' period, cumulatively, it is INR 7,767 crore. We have given a guidance of INR 11,000 crore revised guidance. We will be spending the balance amount and complete this INR 11,000 crore CAPEX program for the year. For next year's overall CAPEX, we will come back to you in the month of May.
Okay. Sir, lastly, you talked about steel prices going up on a QoQ basis. Any kind of numbers you can give on that? What kind of recovery should we expect on an average basis?
On the bottom side, if you've seen October, the prices had gone down to levels of $430. That is now at a level of $500. From the bottom, $70 international quote. We have moved part of this between December and January. We are watching the market, and we are hopeful that some increases would take place in the coming months. We should be able to do better going forward with this last quarter.
Understood. Thank you very much, sir. Thank you.
Thank you. Before we take the next question, we'd like to inform participants that in order that the management will be able to take questions from all participants in the conference, please limit your questions to two per participant. Should you have follow-up questions, we request you to rejoin the queue. The next question is from the line of Ritesh Shah from Investec Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, my first question is, any specific details that you would like to share on Bhushan Power and how do we look at the asset going forward?
Bhushan Power and Steel, as we explained last time, we are looking for immunity before we proceed. There is an amendment which has been done. The applicability of that amendment to the resolution applicant, that is JSW Steel, the NCLAT sought information or a confirmation from investigating agencies. They have submitted affidavits, which are, again, not very clear. Based on that, yesterday, there were certain arguments in the court. It is finally decided that the next hearing will happen on 30th January. Hopefully, I think it will get resolved very quickly, if not on 30th in the month of February.
Okay. Sir, just to question this. Basically, there was an amendment which was already done. What is the aspect that the court is looking at? Is it like can it be made applicable on a retrospective basis or not? Sir, if that is the case, sir, what is our stand over here?
If you read the ordinance that has been passed, that is introduction of Section 32 in the IBC, that section is talking about immunity will be available to the resolution to the corporate debtor subject to that the resolution applicant is not a promoter or promoter-related or not a related party. The change of control should happen other than the promoter. Basically, this is the summary of that. Therefore, last time, JSW Steel sought a confirmation from the investigating agencies that this Section 32 is applicable to JSW.
There is no issue on this one. They filed an affidavit saying that there was some joint venture by JSW Steel and Bhushan Power and Steel that is Rohne Coal Company Private Limited. In that company, Bhushan Power is an associate of JSW Steel. Therefore, Section 32 says, "Change of control should not be to an associate." JSW Steel is an associate company of Bhushan Power and Steel. Therefore, Section 32 is not applicable. That is one argument. Second argument they tried to do about retrospective and prospective effect of this ordinance. This ordinance is applicable for the resolution plans approved or passed by the NCLT.
The resolution plan of JSW Steel or submitted by JSW Steel was passed on 6th of September. The ordinance is subsequent. This ordinance is not applicable to the resolution plan, which is already approved by NCLT. There are two arguments basically that were given. As per our understanding, this is effective for all resolution plans because there is no qualification as it is not applicable for the earlier resolution plans approved. That is one. Number two is we have disclosed about our association in the form of a joint venture with Bhushan Power and Steel in our declarations at the time of submitting resolution plan to get qualified under Section 29A.
Under Section 29A, if we are a related party to the promoter, then we will get disqualified. It has been examined by the resolution professional through their independent consultants and then qualified JSW Steel as an eligible bidder under Section 29A. If you read 29A and 32, which is now introduced in the ordinance, both are similar in nature. JSW Steel, in our point of view, as per the definition, is not an associate of Bhushan Power and Steel.
Nor Bhushan Power and Steel is an associate of JSW Steel, either as per accounting standards or as per Companies Act or in any other manner that can be interpreted. Therefore, the courts anyhow have to take a view on this. Based on that, I think there will be some arguments in the court. The courts will finally take a call.
That's interesting. Thank you so much, sir. Sir, my second question is, on the balance sheet, how should one look at the impact of the Duferco trade finance deal that we had at the start of the year? In conjunction with net debt number and also in conjunction with the acceptances number that we give?
Net debt includes the advance from Duferco. That's already part of the debt which we are showing. In the balance sheet, when we are showing, it may not come under borrowing. It will come as advance from customers. For the purpose of clarity, it is a long-term advance we have included as a part of the net debt while giving the numbers to all of you. Also, the ratios have been calculated considering advance from Duferco as a debt.
What would this quantum be?
Quantum was $700 million when we took. Every month, it is getting adjusted because we have been doing exports starting from April 2019. It is getting adjusted since then. Over a period of five years, it will get fully paid.
Okay. Thank you. I have more questions. I'll join back to you. Thank you so much.
Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Hi, yeah. Good evening, sir. Sir, in terms of steel spreads, if you could guide, factoring the price increases and coking coal cost reduction and iron ore cost increase, I mean, how will spreads expected to move in 4Q versus 3Q?
We will guide on spreads. As I mentioned to you, there will be a $10 reduction considering the current index of coking coal. $10 reduction in the overall prices in this quarter. As for the iron ore concerned, there was some reduction in the month of December. After that, there is an increase in the month of January. We do not expect further increases in the iron ore prices. Also, at the same time, we have started the new captive iron ore mine. More production will come from the captive sources. We do not expect any further increase in the iron ore prices, accepting whatever has already happened.
The impact of even increase in the month of January will not be for the full quarter. We will continue to buy in the auctions. We cover almost one and a half months iron ore. Therefore, the impact, even if it comes as part of the quarter, it is not for the full quarter. As regards to the prices, which I just mentioned to you, November and December, there is an increase in price.
That impact will come for the full quarter. January, again, we increase the price. Now, if I look at landed cost of imports, with all these domestic prices, domestic prices are at a discount. It is close to, in my view, 5-6%. So there is a scope for revision in price in the domestic market in February and March, considering the buoyancy in the overall demand.
Average Q3 prices versus spot prices will be at least INR 3,000-INR 3,500 higher. Is that the right assessment?
Prices definitely will be higher, but we don't want to say how much quantum it is. The prices are higher than the average.
Understood. Sir, second question with respect to iron ore mines. From 4.5 next year, what could be captive iron ore production? What is the peak? Is it around 8-9 million tons?
It is 4.5 million. Another three mines which we have got here in Bellary, that also will get operationalized in the next financial year. If all the nine mines operate at full capacity, the available iron ore will be close to 7 million tons. We are also looking at expanding capacity of the six mines which were operationalized in this year. We will be able to give a correct number, but at least it will be more than 4.5, 4.5-7 million tons. This is the range it will be there in the next year.
Okay. Just one last clarification with respect to Bhushan Power. We are still maintaining that we will acquire it as a 50% ownership and get a JV partner. That stays, right?
We never said 50% or 40%. What we said is consolidation won't happen in the books of JSW Steel. If at all, we have to complete this transaction based on favorable judgment, approving our resolution plan, we will complete the transaction. We will reiterate again that there won't be consolidation of BPSL until turnaround happens into JSW Steel books.
Understood. All right. Thank you, sir, and all the best.
Thank you.
Thank you. The next question is from the line of Indrajit Agarwal from Goldman Sachs. Please go ahead.
Hello, sir. Good evening. Thank you for the opportunity. Two questions from my side. First, on the industry demand supply balance for next year in India, you talked about 5% kind of demand growth on 100 million ton annual demand. That indicates about 5 million ton additional demand. With that in mind, you have 5 million ton capacity coming up. We have additional sales from Steel Authority. Essar has now changed hands, so likely a capacity utilization increase over there. With that, JSPL as well. How do you see the overall industry utilization moving next year? Will that impact the attractiveness of the domestic market?
Next year, if you look at the total overall demand scenario, we do expect it to be better than this year. This year, we should end at 4%. Next year, it should be between 5-6%. Even if you take somewhere in between, you will see an incremental demand between 5 and 6 million tons in India. Now, if you were to look at capacity increases in flat steel, there may be some capacities which will kick in in this year, including our Dolvi project. Just to explain about our Dolvi project, out of our 4.5-5 million tons in this project, which will be in terms of hot rolled coil, about 50% of that is linked backwards to our downstream operations. That will get consumed within-house.
The balance quantity will be incrementally available for the market. We are also in discussions, as you are aware, for acquisitions of some of the downstream assets, like Asian Colour, which would also additionally help consume some part of this in the downstream operations. From an incremental impact, given that the demand increase is coming in, this capacity over the year will not be difficult because anyway, it is going to be starting, let's say, somewhere, as we said, with a delay of three to six months for part of the year.
That is as far as Dolvi is concerned. The other competing mill which may come into the market may be Steel Authority of India Limited or NMDC, but that will be available maybe partly again for the next year. Between both, the capacity should be enough, I think, to meet the domestic demand, considering the fact that the import levels of about 200,000 every month have now come down substantially. I do not per se see a problem in terms of the consumption of this unit next year.
Sure. Thank you. Just on an earlier question on auto sheet price decline, have we seen the full impact of that in this quarter? Or there could be some slipover for the March quarter and June quarter as well?
No. The auto pricing is done on basically the drop of the previous half gets factored into the next half pricing. The H2 pricing of this year has already factored the drops in the first half. In the second half of this year, October onwards, as we said, things have bottomed out. Prices are improving. Therefore, the impact of the increase in prices in H2 will come in auto contracts in the next year, starting April.
Sure. Thanks. That's helpful. One last, if I may slip on, did you mention some kind of timeline for Bhushan Power? I just missed that. I mean, do you expect that to be resolved whatever way by February? Is that what you mentioned?
No. It depends when it will get cleared. The way NCLAT has responded yesterday, they wanted to complete the hearings as early as possible. Expecting that the judgment will come the way we submitted the resolution plan, approving our resolution plan, we will complete within 30 days from the date. It could be in this quarter. Probably it may slip to next quarter. We have to see when it gets approved.
Sure. Thank you. That's all from my side. Thank you, Anuj Singhal.
Thank you. The next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Thank you very much, sir. My first question is, if I look at the company's export volumes for the last two quarters, they have averaged around 1 million tons per quarter. If you go back to the third quarter of FY2019, it was 0.3 million tons. At this point at the end of January, when you are making your business plans for the March and June quarters, do you see this export volume sustaining at 1 million tons per quarter from the company? Or do you think that they should drop off over this quarter and next quarter?
Export, as you are aware, is a number which is balancing in nature. We maintain our exports at a certain level so that we are present in the market. In quarter four, given the current market situation, we do expect that the exports will get moderated a bit. However, with the international prices having gone up, we will take a view vis-à-vis the price available in this quarter in the domestic market and international market, and then calibrate our tonnages accordingly for exports in this quarter. As far as next year is concerned, I think we are in the process of making our business plans. Closer to time, I think we will be able to give you more clearer on that.
Sure. Thank you, sir. My second question is on Dolvi. I mean, we are talking about a three- to six-month delay and assuming it is commissioned between June and September. From there, I assume there would be a period of ramping up the blast furnace and stabilizing the plants. To that extent, would there be a material amount of commercial steel sales volumes available in FY21 from Dolvi?
Yeah, definitely. It will be sizable over existing capacity. It is a total 5 million tons, even assuming it is available for six months. Including the first six months, we will use it for commissioning and for ramping up. There is a six months that definitely will be available in our view.
In your view, for that time period, the availability should be at a high degree of utilization on the nameplate capacity?
Yes.
Understood. Thank you very much, sir.
Thank you. The next question is from the line of Bhavin Chheda from Enam Holdings. Please go ahead.
Yeah. Good evening, sir. What was the EBITDA number at Amba River Coke and BPSL for the quarter and nine months, the rough numbers?
Based on the quarter, for the quarter was INR 134 crore. Based on the industrial gases, INR 13.7 crore. INR 115 crore.
[Airfield], 115. And Salav?
Salav was not operating in the last quarter. It also got merged retrospectively.
Sorry, it got merged respectively into what?
It got merged into JSW Steel retrospectively.
Okay. Salav numbers will not come as a separate subsidiary and all that. We have to just look at this industrial gases and the Amba River over and above the other overseas subsidiary and the coated and plate mill, what is it?
Correct.
Right. What was JSW Steel inventory as on December 31 in tonnage terms?
It is 10.78.
Lakhs?
Yeah, 10.78 lakhs.
Roughly a million tons?
Yes.
Okay. Overseas number, you said that Europe would be no losses, but losses at US. Even plate and pipe mill, because U.S. is again divided into plate and pipe mill operations separately and Ohio operations are separate. Both will still continue into losses or plate and pipe mill will still break even in Q4?
Plate and pipe mill losses will come down quite significantly from the number of $12.6 million which was declared in Q3. It will come down quite significantly. It will not be a bit of positive in plate mill in this quarter, Q4. Similarly, in Ohio, it will come down over Q3.
Okay. My last question was, our other operating income has been coming down on year-on-year basis in the quarter and first nine months, which is largely VAT credit and Dolvi and all that. Has some rate adjustments happened? I thought under new GST regime, rate was coming higher than the earlier regime. Why then, when the volumes are similar or higher, is our other operating number coming down?
This incentive which was available up to 3.3 million ton at Dolvi expired in the month of August 2019. That is not available.
On the entire 3.3 million?
Correct. That expired, that period has gone. Whatever incentive now we'll get only on the incremental production over 3.3 million.
Okay. At Dolvi. We are saying that on Dolvi, which is having a run rate of 4.5-5 million, on 3.3, we are not getting incentives now?
Right.
This number of INR 318 crore, this is on Karnataka, 2 million ton, and 1-1.5 million ton of Dolvi?
Correct.
Okay. Okay. Thanks a lot, sir.
Thank you. The next question is from the line of Kumar Prashant from CGS-CIMB. Please go ahead.
Sir, congratulations for a good result in one of the most challenging quarters since 2016. Sir, I have one question on the trade side. India and U.S. recently agreed to amicably settle a trade dispute which WTO ruled against the U.S. I wanted to know your view on this. Can this be seen as a precursor to any mini trade deal that we can expect in February when Mr. Trump comes to India to meet the Honorable Prime Minister?
Can you kindly elaborate which you are talking about, trade deal? Are we talking China-US trade deal or something else?
No, sir. India and U.S., there was a trade dispute on the hot rolled coil products. The WTO ruled against U.S. on this dispute, which India has been representing since 2016 to be enforced. I think recently we are coming to hear that there's an amicable settlement between India and U.S. Did you get to hear on this? What is your view, sir?
India had represented about this anti-dumping to the WTO sometime back, not recently. That was, yeah, that was a few years back. That was in our favor, in favor of India. It had not been given effect in the U.S. with respect to any correction on the anti-dumping duties. We have not heard of any latest change accepting or giving a relaxation on that duty. We do not expect a big thing to happen when Mr. Trump visits India, particularly on this issue.
Sure, sir. Okay. Just coming to one more on the demand side, India-level demands. Sir, assuming this INR 6.5 lakh crore incremental infrastructure actually takes place next year, and assuming a steel intensity of, let's say, 8% or 10%, we can think there's probably INR 50,000 crore more worth of steel to be consumed. That itself comes to some 8 million ton. Assuming other sectors also grow, other segments. Are we in for a huge surprise in demand next year, sir? What is your view?
If you were to really look at various projects the way they are coming up or they are announced, the amount of steel which is going to be consumed in the country is going to be quite large. Assuming that funding of all these projects happen in time and they start picking up on the ground in the next few months. From that perspective, we do see an upside. A substantial portion of this will be rebars. Last year, rather, the year going by, we expect somewhere in the vicinity of 27-28 million tons of rebar being consumed.
I think that will see an upside with the new projects coming in, the micro, the bullet train now starting off, I mean, the Tender is due on 31st , smart cities, hospitals, various new projects are on the ground. We do see an upside to this number. Huge surprise or not, I think the funding and the timing will tell us. On the flat side also, we see some investments in oil and gas. They are trying to build the gas grid and the water grid. We see an effective demand of probably close to 3-3.5 million ton over the next two years. That will also kick in. Yes, significantly increased demand from the infrastructure side, provided the timely implementation happens on ground.
Sure, sir. Sorry, if I may, one last question. Sir, on the Acero junction asset, Mr. Rao has already said next year we might not be having some great numbers here. Sir, but on a long-time normalized EBITDA per ton, is $100 per ton a good number to build into on a long-term basis, assuming the steel market is in the normalized profitability and conditions in the U.S.?
You know, we do not like to guide on EBITDA because it depends on two or three factors. Particularly in the steel sector, it is very difficult to visualize what would be the steel price one year ahead or one and a half year ahead, similarly cost side. Because we can only look at volumes. Our effort in Ohio is to turn around and achieve volumes, then automatically it becomes profitable.
Great, sir. Thank you so much.
Thank you. The next question is from the line of Rajesh Lachhani from HSBC. Please go ahead.
Yeah. Thanks for the opportunity. Sir, my question is with regards to the net debt. We have slightly reduced our net debt. However, if I do the math, we had INR 2,400 crore of EBITDA, but we had a CapEx of INR 2,800 crore and interest of close to INR 1,000 crore. I just wanted to understand, what was the release of working capital in this quarter?
Yes. In fact, that number is known to you. I understood is that 13.23 lakh tons of inventory which we had, it has come down to 10.78. Therefore, there is inventory working capital locked up in inventory coming back into the system.
Understood. The entire reduction in net debt is due to working capital change mostly?
Not reduction in debt. It is the overall requirement versus no increase in the debt or very marginal reduction in the increase is on account of unwinding of inventory.
Okay. Okay. I just also wanted to understand this. India's crude steel production is down in the fiscal year 2020, nine months fiscal year 2020. We also became a net exporter of steel during this year. I just want to understand how is the consumption still coming as 3.5% higher versus previous year? If you can throw some light on that?
Crude steel consumption for the production for the nine months is 0.1%. It is same as that of last year. As far as the import circumstance for a nine-month period is not that much drop, even though we are the net exporter. We are the net exporter. If you add the reduction in the inventory, because there is a huge amount of inventory which was there as of 1st of April 2019. There is a reduction in the inventory. There is a reduction in the imports. There is more exports. Production remaining more or less at the same level. Consumption number is a derivative.
Understood. Thanks a lot, sir. That's it from my side.
Thank you very much. We'll be able to take one last question. We'll take the last question from the line of Sagar Gandhi from Future Generali Life Insurance. Please go ahead.
Sir, you highlighted that your recently acquired company, Monnet Ispat, is going to start a plant in probably end of January or beginning of February. Sir, what will be the capacity there and how do you see that panning out over the next one year?
The capacity is around 1 million tons. In that, we have a pellet plant of 2.4 million ton capacity, which is operating almost close to capacity. Similarly, we have a DRI plant which is also operating at full capacity of 50,000 tons a month. What we are starting now is a blast furnace and one melt shop, two melt shops. One of them is getting commissioned. There is a TMT mill of 500,000 tons that is getting commissioned.
On commissioning of this phase one, which we call phase one, the capacity will be in the range of 700,000-800,000 tons. When phase two gets commissioned, that is a plate mill and the second part of SMS, second SMS. If we commission, then 1 million-1.2 million tons will be reached. What we are getting it done now is the first phase.
Okay. Sir, how soon do you expect the second phase also to start? Will that require incremental commitments in terms of finance or CapEx?
CapEx is not very big. It is INR 110 crore or INR 120 crore which is required to be spent on the phase two for getting it commissioned. What we wish to do is phase one, we would like to start and then ramp up the capacity, then take up the phase two.
All this should happen within next one, one and a half year? Is that a reasonable assumption?
Yes.
Thank you so much, sir.
Thank you. We'll be able to take one more question. We'll take the last question from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Sir, thank you for the last question. An excellent quarter, strong cash flow from operations, it looks. Sir, I just wanted to know what are the major debt repayments in the balance two months of the year and in FY2021, sir?
3,000 crores in the Q4 together, including January. The next year will be INR 7,000 crores will be next year.
Okay, sir. Thanks a lot.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you very much. We expect Q4 will be much better than Q3 in terms of volumes, in terms of NSR, and the lesser cost pressures in Q4. We are also working to reduce the delays that have happened in commissioning of projects. We would like to commission starting from March for a period of six months' time, commissioning and also ramp up. This will do it. With that, I think next year we will have incremental capacity of 5 million ton for almost six months available to us fully.
We are also commissioning our downstream. This also will get completed in the next few months. With that, I think FY21, we will be able to give a clear picture about the total production and sales volumes when we meet in the month of May. Thank you. Thank you very much.
Thank you very much. On behalf of SBI Cap Securities Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.