Ladies and gentlemen, good day and welcome to the JSW Steel Q1 FY2020 Earnings Conference Call hosted by Motilal Oswal Financial Services. 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. Dhruv Muchhal from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.
Thanks, Raymond. Hello everyone. On behalf of Motilal Oswal, I welcome you to the one QFY20 earnings call of JSW Steel. I'll hand over the call to Pritesh Vinay, VP Corporate Finance and Group Investor Relations at JSW. Over to you, Pritesh.
Thank you very much, Dhruv. A very good evening to all the participants on behalf of JSW Steel. We have with us today the management team 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, Marketing, and Corporate Strategy, and Mr. Rajeev Pai, the CFO. I'm sure you've had the chance to go through our earnings, the press release, and the results presentation, which are already uploaded on the website. We'll start with a few minutes of opening remarks by Mr. Rao and then open the floor for Q&A. With that, over to Mr. Rao.
Good evening to everybody. You must have seen what is happening globally. There is a widespread global downturn starting from automotive to energy to manufacturing to construction. In line with what is happening on the ground, IMF has downgraded the global growth to 3.2%. Only two positives in response to this global downturn which we are seeing is Chinese stimulus, which is keeping the commodity demand from China intact, and also the responses from various central governments and also central banks by way of a fiscal adjustment or by way of a monetary policy adjustment. These two appears to be, to some extent, will cushion the global slowdown which we are seeing.
The impact of the global slowdown on the overall steel industry is concerned with declining steel demand because the steel-consuming sectors, whether you take energy or automotive, construction sectors, infrastructure sectors are not doing well. We are seeing a clear impact on the steel demand globally. In the past five months, where numbers have been given by WSA, World Steel Association, the steel supply substantially has gone up, which is 5%, and estimated demand for the entire year is 1.3%.
One comforting factor in that is the incremental steel production in the five months of the calendar year increased by 37 million tons. The entire increase in production is contributed by China alone, which is 38 million tons by an increase of 10% in production. In spite of increasing production in China, we have not seen any big increase in the exports from China. That is comforting. One divergent thing which we observed is that the steel prices are declining.
If I see the first six months of the calendar year, in the U.S.A., the prices fell by 30%, and in Europe, it is close to 7%-8%. Similarly, in China, it fell by 5%. There is a decline in steel prices across the region. At the same time, the iron ore prices, we have seen a 70% increase in the past six months, 38% in the current quarter, that is April to June. The raw material prices, other than iron ore, for instance, coking coal, in fact, even though there is a fall, the fall is very marginal. There is a diverging trend clearly. We are seeing iron ore prices going up. Other raw material prices are not correcting. At the same time, demand is not robust, and the steel prices are declining. That is the scenario we are seeing globally.
Domestic demand also got reflected, a similar trend to what we have seen in global markets. It added further two more factors to have an impact on the overall economy and also the demand. Is it lack of credit availability to the industry? That is one major factor. Either you call it as banking NPAs or IBC cases getting delayed or NBFC crisis, whatever may be the reason, but the industry is suffering. They are not getting enough availability of credit. Plus, the second reason which we are seeing is that all the government projects which are going on in the infrastructure sector that drive the steel demand, the release of money to various contractors and projects is not at the same pace as we have seen in the last year. That also slowed down to a large extent the government projects.
These two together, we have seen a significant slowdown in the domestic demand for steel. Even though the numbers released by JPC year- on- year are showing a growth of 6.8%, quarter on quarter, we are seeing a significant fall in the demand. It appears to be over 5%. Over and above the fall in demand quarter on quarter, the imports have not fallen that much, even though there is a slight decrease in imports. What is again disturbing in that import analysis, 66% of the imports are coming from FTA countries at 0% duty. The exports have fallen by 22%. Falling exports impose a very moderate fall, a significant portion at 0% duty, and the steel demand is not growing at the pace at which we all desired because of slowdown in the government expenditure and lack of credit availability.
This is the scenario in which JSW Steel delivered this quarter one results. We have given the guidance of 16 million tons of production, whereas we have achieved 4.24 million tons, which is exactly in line with our guidance. Whereas sales volume is 3.75 million tons on a standalone basis, we should have done 4 million tons as per the guidance of 16 million tons given for the year. We are short by 250,000 tons. In the case of consolidated volume of sales, it was 3.66 million tons. Production was quite good as per the guidance because volume of sales is lower, so there is accumulation of inventory to the extent of around 300,000 tons in the overall quarter.
Considering the demand slowdown in India, we pushed more exports in the quarter, but that has been done in the later part of the quarter. Our export sales were 617,000, which is a 34% growth year- on- year. The decline majorly contributed to auto sales. Our sales to auto sector was down by 20%. Again, there are certain green shoots which we have seen, probably color coated, where the increase in our sales volume was 14.8%. Our value-added sales stood at 49% in the quarter. Our Galvalume sales have gone up. There are certain products which are doing reasonably well in the last quarter. Notwithstanding, the volume of sales is lower by 250,000 tons relative to our guidance.
What is interesting in the result is that our EBITDA per ton for the quarter on standalone basis is still at INR 9,932 per ton, as it is INR 10,115 per ton in Q4 2019. The net sales realization year- on- year went down by 7.4%, and the quarter on quarter is more or less same. The cost quarter on quarter has come down by 2%. Year- on- year, it went up by 1%. Taking into account the fall in NSR year -on- year and also reduction in cost, the overall EBITDA for the quarter on standalone basis is INR 3,726 crore. It is INR 9,932 per ton.
On the cost side, the company has done a lot of things in this quarter. That is why the EBITDA margins are still helding, notwithstanding the fall in prices. The subsidiaries are concerned. The coated steel has done well. It posted an EBITDA of INR 172 crore. Other subsidiaries, Indian subsidiaries, have done well. Overall, it contributed from Indian subsidiaries is INR 408 crore. Overseas, there is a negative operating EBITDA of INR 265 crore.
U.S. plate and pipe mill has posted a positive EBITDA of $2 million, and the coal mines have contributed a positive EBITDA of $2.2 million, whereas the Ohio, the Mingo Junction, has contributed negative $36.1 million. In the case of European operations, it gave a negative EUR 4.2 million operating loss, operating EBITDA loss. Total together, INR 265 crore negatively have come in by way of operating EBITDA loss from overseas. After netting out the negative EBITDA from overseas against the positive EBITDA from Indian subsidiaries, and also taking out the profit on the inventories that have been supplied by JSW Steel to its subsidiaries, the net- net, the consolidated EBITDA has come down by INR 10 crore. As it is, INR 3,726 crore standalone EBITDA, consolidated EBITDA is INR 3,716 crore.
The profit after tax on a consolidated basis is INR 1,008 crore. The kind of steps the company has taken in this quarter is that the captive iron ore supplied is 793,000 tons, 793,000 tons. That has made us source our captive iron ore from our own mines that also kept the cost at a reasonable level. The coke which we bought in the previous year from the market, this year entirely it is captive coke. We have replaced 220,000 tons of the imported coke with captive coke consumption that also reduced the cost. Similarly, pipe conveyors started working. We have transported 260,000 tons overall. It reduced cost per ton of transportation, INR 155 per ton in this quarter. Similarly, our fuel efficiency improved this quarter. These are some of the benefits which have come in on the cost side.
There are also different pressures like non-availability of APM gas, which we used to get for our solar unit. In this quarter, APM gas has become zero. We have to buy the entire gas from the market. That increased our natural gas prices. What is also very important here is total inventory write-down. I mentioned to you that the steel prices in the U.S. have come down by almost 30% in the half year, and in the quarter by 25%. The scrap prices have also come down. Inventory write-downs which have come in from the U.S. operations was $25 million, which is equivalent to INR 160 crore. In India also, we have achieved cost savings. Therefore, we have to take some inventory write-down, which is approximately INR 90 crore.
The total inventory impact on account of lower cost is INR 250,000 crore in this quarter. The total net debt of the company is INR 47,767 crore. It is slightly up compared to 31 March 2019. Our weighted average cost of debt has come down to 6.9% from 7.02%. Our debt- to- EBITDA is 2.72, slightly higher compared to 2.43 as of 31 March 2019. Debt- to- equity was 1.35. Acceptances on revenue account is $1,215 million, and the capital account is $345 million. We have spent INR 2,800 crore in the current quarter on the CapEx.
The Dolvi project is on track, we will be able to complete by 31 March 2020. Out of six mines which we have got in the Category C auctions, now the fourth mine became operational. We have now got four mines. Another two mines will get operationalized in this year. The way we guided that we will get around 4.55 million tons from those two mines, it will happen. I'm also happy to say that the mines which are expiring on 31 March 2020, Karnataka government took initiative of auctioning those mines well in advance.
There were four mines put for auction. We are the successful bidder in three, our preferred bidder in three cases. Those three cases, three mines in aggregate have resources of 93 million tons. Based on those resources, the current permits as per environmental clearances is 2.5 million tons. It is possible to go up to 4 million tons. In the next year, this is an additional captive iron ore that will be available to us. So 4.5 million tons-5 million tons from the existing Category C mines out of six, plus these three mines will give us 2.5 million tons-4 million tons.
Total together will be 7.5-10 million tons. That is the captive source of iron ore. We can factor for 2021 and for this year, 5 million tons from the captive sources. Going forward, the way we are looking at it is that the reason for slower growth in domestic demand is government expenditure, lack of government expenditure or release of funds by the government, or lack of credit availability. At least we expect government expenditure to revive, if not in this quarter, in the next quarter. That should bring back at least 60% of the demand which is there for steel for the government sector.
The second area is credit availability. Now, there is a recognition both at the Reserve Bank of India level and also at the Government of India level that something is required to be done in order to ensure restoration of credit availability to the industry. We expect something will happen that would revive the steel demand, if not in this quarter, in the second half of this year. With that, we are hopeful that we will be able to achieve our 16- million- ton guidance. With that, I will leave it for any questions. Thank you.
Sure. Thank you very much. We will now begin with a question and answer session. Anyone who wishes to ask questions may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Thanks for the opportunity, sir, and congratulations for a good set of numbers in challenging quarter. I have a couple of questions. The first one relates to iron ore sourcing and coking coal sourcing. If you can split your iron ore and coking coal sourcing by imported source from Karnataka, Odisha, and finally your captive, of course, you have mentioned. That would be very helpful.
In this year, iron ore imports are zero. We are not importing any iron ore. Karnataka is concerned, we are not getting anything outside Karnataka. We are able to source whatever is required within Karnataka. Then f or Dolvi and Salem, Salem is partly from Karnataka, partly from Odisha, no imports. Similarly, Dolvi is Odisha and Chhattisgarh. Nothing from imports. As regards to coking coal.
Coking coal, as you're aware, for the metallurgical coking coal, we are importing. Last quarter, our average price levels which we reached was blended basis for coking coal mines was about $195 on a CFR basis. We expect this to go down between $2-$5 in this current quarter.
Okay. The second question is with respect to some of the maintenance shutdown. We are seeing a slowdown in the industry. Are there any plans to advance any maintenance shutdown or kind of extend the maintenance shutdown in your plants in this particular quarter, Q2, which is seasonally weak?
No, not in the JSW Steel. There are no shutdowns which we wanted to prepone other than whatever is planned.
What will be the planned shutdown in this particular quarter?
There is nothing exceptional.
Okay. What about Monnet?
Monnet, we have planned shutdown as we indicated to the stock exchanges by Monnet Management. Basically, there the DRI and the pellet plants are giving good margins even in the current market conditions. By operating on integrated basis, we are losing more money in Monnet because the TMT prices have fallen quite substantially in the marketplace. What we thought, instead of running integrated operation and whatever EBITDA that is coming in from pellet and DRI, we will spend in integrated operation. It does not make sense. Therefore, we decided to take the shutdown and then combine with enhancement of capacity of pellet plant which we are doing from 2 million tons- 2.5 million tons.
Second is converting the TMT into alloy or bar mill. Some capital expenditure is required there. We started spending. Oxygen plant which was not working. We are spending some money to make it to a fully operational oxygen plant. With that, I think in the next one or two months, we will be able to achieve the strengthening of TMT mill and oxygen plant getting fully ready. Whatever drawbacks that we have noticed in the blast furnace and the melt shop, we will complete that. Until that time, we operate only the pellets and DRI. We restart everything in the month of October, end of October. That is the plan in Monnet.
Okay. Wonderful. Thank you, sir, and all the best.
Thank you. The next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead .
Thank you. My first question is just trying to understand your views on demand given what we are seeing right now on the ground. In your view, sir, how do you expect demand to trend from here? Is this what is happening, a restocking trend? Is this a technical slowdown, or have we reset India's steel demand lower for the next few quarters? How would you look at it?
There is no structural change. What we see here is a difficulty in certain sectors. You have seen an automotive slowdown, which, as you people are well aware, is led by the NBFC crisis, lack of credit availability in the system. That, unfortunately, has taken longer time than what was envisaged by us or by the auto companies.
We are hopeful that going into the festive season, because some production cuts have taken place on the automaker's end. G oing into the festive season, we would see some uptick in certain consumer-based automotive vehicles. In the second half of this year, we will see some pre-buying before the BS-VI kicks in on 1st of April. Those should give you some traction in the second half. As far as infrastructure is concerned, I think we are quite hopeful. The projects which the governments have announced, whether it is the Mumbai Ahmedabad High-Speed Rail, the bullet train, the Mumbai Nagpur Expressway, Mumbai-Delhi Expressway, which is being envisaged, there is the gas grid which is being envisaged, water supply to many areas, rural roads. I think there is a lot of traction which we see on the projects which have been announced.
We are hopeful that the funding to these projects will start from now because in the last year, first half also, we have seen that the infrastructure space was primarily funded by the public funding. We hope to see that in the second half of this year. That should pull your demand up. There are certain other sectors like appliances where the penetration is low. It continues to do reasonably well. We are seeing some traction on the solar power side as well. These are areas of demand where we see positive. Automotive is a little sluggish, as I explained, and we expect that to pick up better from where we are today in H2.
Understood. Sir, the second question relates to, I mean, the industry profitability has deteriorated in context to what it was last year. While yes, demand outlook may improve, we do not know where the industry profitability will settle at. JSW is currently implementing a very large organic expansion plan and is also pursuing acquisition in the NCLT. If the industry profitability outlook does not improve, would JSW look or will take a relook at any of the capital allocation plans? If not, will it be looking to change how it funds these expansion plans and acquisition plans?
As Jayant mentioned, structurally, I don't think India's story is undergoing a big change because of slowdown in the last few months. Even in the last year, as I mentioned, the entire growth is driven by government expenditure. That got slowed down in this year. Whereas in the last year, it was front-ended. That's the major difference which we are seeing that caused the slowdown.
The India becoming a $5 trillion economy by 2024 or 2025, we completely buy that story. Taking that into account, we have taken this view of expanding the capacity. We are at the far end of expansion. We have committed large capital expenditure. We will complete this project by 31 March 2020. We are just away from there eight months. We are in July 2019. Therefore, I do not think there is any change in that CapEx. Similarly, if I look at downstream where we are expanding from 5 million tons to 9 million tons. Tin plate phase I is complete. PLTCM at both Vasind and Tarapur is in a very advanced stage. That gets completed in the Q3.
All the color coating line which we are expanding from 0.7 million tons to 1.7 million tons, 1 million tons more color coating line. That is where a huge amount of growth coming in. Even in the last quarter, as I mentioned, there is a 14.8% growth in the color- coating products. Therefore, this 1 million tons extra is coming in. The downstream, this 4 million tons will really increase our ability to sell the products either in the domestic market or in the global markets. Only 1 million tons, that is expansion pending at Vijayanagar plus CRM complex. As far as CRM complex is concerned, there is a slowdown in the auto sector, but if we see in the next one year time, all this will get revived. We are very optimistic as far as India is concerned. There is no capital expenditure moderation as far as organic growth in India is concerned.
Understood. Understood. Thank you very much, sir.
Thank you. Before we take the next question, we'd like to inform participants that in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we request you to rejoin the queue. The next question is from the line of Anuj Singla from Bank of America. Please go ahead.
Yeah. Thank you very much, sir. Sir, first question is for Mr. Acharya. We've heard media reports. We have seen in the media reports that there have been some cuts in the domestic market on the steel side. So what kind of where are we in terms of spot prices versus the last quarter, and what should we be expecting in the 2Q versus 1Q if you can provide some color on that? Right.
Correction has happened. Jayant will join. In the meantime, I will try to answer that question. There is a fall in the prices in India. We also corrected in the retail market. We do not expect a further fall in prices in Indian markets because the landed cost of imports, even at current prices, if we take, is almost at the same level as that of landed cost. We do not expect a very big change in the prices from here on.
Sir, on a Q2 basis, I think prices, we should be expecting some moderation in the second quarter?
Yes. That is true because whatever price reductions that have happened in the month of May and June, the full impact of that you would see in this Q2.
Okay. Sir, in this context, I think there were also news flow that the government is contemplating putting some regulatory measures, including a potential safeguard duty. Sir, any thoughts you can share on where are we in this process and any thoughts you can share on what is the likelihood of that coming to?
The industry has made a very, very strong appeal to the government that the safeguard duty has to be considered considering the current market conditions and the imports which are happening into India from the FTA countries. There was a lot of data which we have provided to them. Recently, they wanted the cost data from all the companies. That also was fully submitted to them. They are examining the data that is given by the industry. We are hopeful that the government will do something on the safeguard duty.
Only with regards to RCEP, there are certain talks that the government of India is keen to sign RCEP agreements. There is a very strong representation from the industry that there should not be any RCEP. Industry, what I mean, entire industry, Indian industry, not restricting it to steel. Specifically, steel has given examples of what happened in FTA agreement after it was signed in 2010. Therefore, no RCEP should be signed. If at all it is signed for any other compulsions, steel should be excluded from there. This we have made a very, very strong representation. Hopefully, RCEP will not happen the way it happened in the case of FTA.
Okay. Sir, lastly, on iron ore, the iron ore mining auctions are due in Odisha as well in March 2020. It seems the auction process is yet to start. There is one concern among investors that there can be some supply disruption from the iron ore mining side. In such a scenario, what is the fallback option for us if the scenario was to pan out and there is going to be extended disruption in Odisha? What offset is available to us in terms of our iron ore sourcing?
We have been very proactive in taking up this issue for the last two years, sir, with the government, both at Odisha, Karnataka, and also in the central government. The kind of issues which are there that were stopping state governments to go ahead with the auction, that has been clearly clarified by the central government by way of a clarification that they can go ahead, and there is nothing that prevents from the legal point of view in auctioning the mines before its expiry. Karnataka led the way. Now, Odisha announced another 44 mines will be auctioned. Even that auction, in my view, will start in August.
I don't see a scenario of disruption of the supplies. Last time also, I said even in the worst-case scenario, there will be some disruption in the supplies because of stoppage of these mines which are expiring. There is so much of iron ore dumps which are available both in Odisha and also partly in Karnataka. The mining industry itself has said it is 127 million tons of the iron ore dumps which are there. Over and above that, even SAIL, Steel Authority of India is having a huge amount of these dumps, which we requested the government to auction in the worst-case scenario if these mines which are expiring do not start by 2020. In either case, I don't expect a scenario of disruption due to this event.
Understood, sir. Thank you very much.
Thank you. The next question is from the line of Indrajit Agarwal from Goldman Sachs. Please go ahead.
Hello, sir. Thank you for the opportunity. Two questions. One is more housekeeping. Is there an impact on our reported EBITDA because of Ind AS 112, the lease accounting? 116, sorry.
Yeah, there is a marginal impact. It is not very significant. Due to this distinction being taken away between operating lease and financial lease, now the impact in this quarter was INR 200 crore increase in debt and INR 118 crore increase in EBITDA.
Thanks. That's helpful. Secondly, right now, is there any change in the timelines of when we see the overseas acquisitions to break even, that is, both Europe and US?
We use plate and pipe mill which has contributed $2 million operating EBITDA in this quarter. There is a $4 million inventory loss we took in this quarter. Otherwise, it could have been $6 million. Now, one important event which is happening for plate and pipe mill is phase I modernization of plate mill is getting completed in August. That will increase the capability of the plate mill, particularly yield improvement, which will happen. With that, there is a good possibility of further reduction in costs and improvement in capacity utilization in the plate mill. The second important factor which is happening is now with Mingo Junction is producing slabs and also rolling in hot rolled coil.
What we decided is instead of waiting until the backward integration with the Baytown is complete, we wanted to integrate the Mingo Junction with the Baytown. We started supplying the slabs from Mingo Junction to Baytown. Our plan in this year, partly it will start in this quarter itself, the full integration of the slab requirement with Mingo Junction. Balance will be rolled into hot rolled coil. With that, we are achieving two things. One is full utilization rate in Mingo. The second which we are accomplishing in this is that we are complying with the condition of built and manufactured within U.S.A. Slabs are produced within the U.S.A. That will make the plate and pipe mill of Baytown to qualify for government orders within U.S.A. That will also give more revenues to them.
With that, we see a better improvement in the plate and pipe mill and good utilization in the Mingo Junction. The Mingo Junction turning into positive operating EBITDA, we expect only in Q4 of this financial year. As far as Italy operations are concerned, capacity utilization is reasonably good. It is improving. There also, we expect by Q4, we'll be able to turn it into positive operating EBITDA.
One follow-up on that. Any decision taken on phase two expansion in the plate and pipe mill?
Phase II expansion in the case of plate mill, that is modernization, that is also on. That gets completed by 2020 December. Backward integration by hot-end facilities, that is, there is $350 million which we have committed for that expansion. So that is also ongoing. We have not taken any call today. Pending backward integration, we wanted to integrate with Mingo. Thereby, this melted and manufactured benefit will come.
Sure. Thanks. That's helpful, sir.
Thank you. The next question is from the line of Bhavin Chheda from ENAM Holdings. Please go ahead.
Yeah, good. Good evening, sir. So what was the profit at the Amba Coke River and Salav in the quarter? EBITDA?
Amba River is 87, Salav is 37.
Any other Indian subsidiaries also over and above the standalone entity contributing to the EBITDA? Or these are the only two major ones?
DCPL is there. That is INR 89 crore from DCPL.
INR 89 crore. Okay.
That's all Indian subsidiaries together is INR 408 crore.
INR 408. Okay. Sir, you just said that both Mingo Junction and Italian company would be EBITDA break- even by Q4 only?
Yes.
Okay. What was the landed cost of the coking coal in the quarter? And iron ore, if you can share?
Iron ore generally was not giving because from different sources that is coming in. As far as coking coal is concerned, last quarter was $197. Whereas in this quarter, that is Q2, we expect another $5 reduction.
$193 odd in Q2?
Correct.
Okay. Sir, what would be the total consolidated CapEx in FY 2020? How much of that would be overseas and how much domestic?
No, in India, we have INR 15,700 crore in the CapEx which we have announced. Outside, we have incurred in the first quarter around INR 2,819 crore. We also opened LCs of INR 880 crore. As regards to overseas, the $350 million, of that $190 million will be spent in the U.S. and not any other major CapEx in the overseas companies.
Okay. Sir, last one, what was the revenue and capital acceptances in the quarter?
Number I gave already. It is INR 345 crore is the CapEx acceptances. INR 1,215 crore is the revenue.
Okay. Thank you.
Thank you. The next question is from the line of Vishal Chandak from Emkay Global. Please go ahead.
Yeah. Thank you very much for taking my question, sir. Congratulations on a good set of results in this quarter. Sir, my first question was with respect to your average steel price, which has moved up in this quarter, though we were expecting a downtrend given what has happened through the quarter. Has the product mix really changed? Or what has changed given that exports have actually increased, I guess?
Yeah. In fact, part of the reason for realizations being maintained on quarter on quarter is majorly some of the export orders which were booked earlier. They got executed. Number one. Number two is hedging which we have done on exports. That gave us good realization in terms of exports. Plus, similarly, the long-term contracts which we have, they have not come down in this quarter. The prices have not come down. That means the impact of lowered prices in this quarter is not fully reflected. That will come in in the Q2.
Got it, sir. Sir, my second question was with respect to the Bhushan Power acquisition. You have been mentioning that as a strategy, you would try to take Bhushan Power in an SPV where JSW will have a minority stake. We would avoid consolidation till the time we turn around this asset. That is a model that we have followed in our past acquisitions also. Hypothetically, in case the acquired SPV is not able to pay off or service its debt, would JSW, as a strategic investor, support the SPV?
No. The point is whatever debt we will be raising in that particular SPV is without recourse to JSW Steel. There is no obligation, no legal obligation to support that company in case there is a problem. That is why even on the consolidation side, there is no need for consolidation as per accounting standing.
Okay, sir. Thank you, sir.
The next question is from the line of Ritesh from Investec.
Hi, sir. Thanks for the opportunity. Sir, my first question is for Mr. Rao. Sir, specific to Bhushan Power, what is the quantum of liability that has been under discussions? That is one. Secondly, is there an optionality to walk out of the asset? Will there be any breakout fee, if at all?
No. As per the provisions of IBC, once the resolution plan is approved, there are very limited chances of getting out or withdrawing. That provision is not there at all. If somebody defaults in implementing the resolution plan after the plan is approved, then I think there are not only penalties by way of losing the guarantees which we provided, but also there is a prosecution involved. Therefore, I don't think any resolution applicant, including JSW Steel, looks for withdrawal once the resolution plan is submitted and approved. Therefore, all the news items which are coming in that JSW Steel is contemplating to reduce the value, bid value, or to withdraw, those news items are not correct. Basically, what we thought in the NCLT is immunity from the future liabilities or litigations that could come in because of the past actions. If that is not sanctioned, then there is no obligation on us to implement the resolution plan.
Okay. That helps. Sir, my second question is for Mr. Nowal. Sir, there is an ongoing case between JSW Steel and Tata Steel on the extent of mining area, which is where I think it is 50 sq km. What we have contested is for Tata's having more than this. Typically, they should not be allowed in the options. Sir, what is the status over here?
I just wanted to clarify because I'm aware of the background. There are two things here. As far as JSW Steel is concerned, what we contested is that when there was an option which was announced in the case of one iron ore mine in Odisha, we are also one of the bidders, and Tata Steel was also one of the bidders. We just stated, we went to the court saying that there should not be permitted who is exceeding the specified limit within the act. That is what we contested. Based on the litigation which is there, Odisha government withdrew this particular option. That is what we are aware of. After that, we are not aware of any other litigation pending today.
Sir, will this be a precedent for the upcoming auctions come March 2020?
Today's law is that either it is JSW or XYZ company, i f somebody is having more than the specified area in the act, and even their act and rules, they are not permitted to have more mines. That is the rule today. Unless that rule is changed, I do not think anybody who is having more than 1,000 hectares of land or area as a lease will be able to participate as per our understanding.
That's helpful. Sir, last question for Mr. Acharya. Based on the existing trade measures that we have, how much is the further downside in local steel prices that one can see, assuming, say, $490 of Chinese export prices? I am more coming from an angle of, say, MIP. Can it bridge with the INR 37,500 or INR 38,000 i s it the base that we are looking at?
No. Today, it is not $490. If I really look at it, today's price, CNF, if we take, it is almost close to $525-$530 to India. That is to apply processing duty and the local transportation plus port charges. If we add all that, the domestic prices threat from China is very limited. Only threat which we still feel is FTA countries. FTA countries' duty is zero. If they reduce the prices below their domestic prices and start dumping into India, it is a threat from FTA. That is where we are looking for the safeguard duty. All these facts have been brought to the government. We are hopeful that government will do something on the safeguard duty.
Okay, sir. Thank you so much for answering the questions. That helps.
Thank you. The next question is from the line of Raashi Chopra from Citig roup. Please go ahead.
Thank you. Sir, I just wanted to confirm. You mentioned that there were some old export orders that got executed at higher prices and some long-term contract prices that have not got negotiated down. What is the percentage of volumes in the quarter that come under this category, one? Second is that what has been the decline in the months of May, June, and July? Third is that basis where we are on spot prices and our expectation that prices do not go down from here, from a debt-to-EBITDA perspective, where can we expect to exit?
Yeah. As far as the export orders, we book two months in advance. Therefore, April and May is whatever exports we have done. Let's say it's like 17,000 tons for the export. Two-thirds of that are at the old prices. As regards to the long-term contracts, whatever we have with auto companies and also some of the white good industry, some are three months, some are six months. I mean, auto companies generally will do six months. They will get again renegotiated in October. That will continue. Those contracts are concerned. I do not know exactly the percentage. We will make available that percentage. The next question to you is relating to the price. Debt-to-EBITDA, debt-to-equity is concerned, w e have 3.75 what we are guiding. Considering the current market conditions and the current trend of EBITDA, we do not expect that there is anything near to that we will reach. We will be well within that.
Okay. Sorry. Just the other question that I asked was, what has been the quantum of the fall over the three months on prices apart from what you already mentioned? May, June, July?
Around INR 1,500 per ton.
Sorry. Did you say INR 1,500?
Yes.
Thank you.
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 on the pipe conveyor. How is it ramping up? And I actually missed the savings per ton of iron ore. So can you please specify that?
The pipe conveyor just we commissioned it, and it is running very smoothly. You know, we are carrying around 10,000 tons-15,000 tons per day. We have planned in next three to four months, in coming time, it will go up to 30,000 tons. Once we get more mines, and then it will increase our quantity on that. Second is the saving is around, you can say, roughly INR 200 per ton. In this quarter, it is INR 155. We'll be in that range.
INR 155 per ton of iron ore.
That is what we achieved in quarter one.
Sir, the other question is, since we will be renegotiating in October with the auto industry, given the lack of demand, are there any, and the prices are also down, there would be increased possibility that the negotiations would be at much lower prices than what we have now?
Generally, the prices which we negotiate are based on the prevailing prices in these six months that would be applicable for the next six months. Whatever price drops that are happening in this half year, that will be applicable for the next half. We continue to have a bit of higher realization in this half year from the auto sector. Again, to make you know what is happening in the auto sector, our auto sector sales in quarter one have fallen by 20% year-on-year, whereas quarter- on -quarter, it went up by 5%. Therefore, whatever fall we have seen compared to Q4, there is an improvement in Q1.
Understood. That's it from my side, sir.
Thank you. We'll be able to take one last question. We take the last question from the line of Lalit Sharma from Lombard. Please go ahead.
Hello. Hi. Thank you for the opportunity. Just a couple of questions for me. I think during the start of the call, you mentioned that there has been some credit crunch which the industry is facing. Are you referring to the steel industry or basically your customers? If you can elaborate more what is the issue that you have been facing there. The second is also there has been some headline about you planning another U.S. bond issuance this year. Any thoughts on that would be useful as well. Thank you.
As for the credit availability is concerned, it is applicable for the entire industry. It is not restricted only to the steel industry. If you ask anybody today, availability of credit, both large and medium and small industry, banks are not lending. NBFCs are not lending. There is unwillingness to take decisions. That is also one of the reasons which we are seeing in the banking sector. This is also getting more and more pronounced from our suppliers and also the customers. They are asking us for more credit, and the suppliers are asking for advance payments.
This is clearly reflected in the kind of credit squeeze that is there in the marketplace. Even if you see the deployment of sectoral credit that is being released by the Government of India, if you see where the increase is happening, the increase is not from the industry. It is majorly retail, personal loans, credit cards. That is where the increase in credit is happening, or in the withdrawal loans. I do not think industry is getting credit from the banking sector. This is all pervasive. This, I think, has been brought to the attention of both Reserve Bank of India and government about the ongoing non-availability of credit to the industry.
Second question regarding the raising of funds. This is enabling resolution which we have taken. We will see the market conditions. We have to raise money as a part of our liability management or for funding of CapEx. Based on market conditions and interest rates, we will take the call. As on date, there are enabling resolutions.
Okay. Thank you. That's helpful. Thank you so much. 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.
As far as the Q2 is concerned, generally, this quarter is sluggish because of the monsoon. There are some positives if we really see the macro side. One is monsoon has arrived. Now it is all pervasive across India.
Whatever deficits we have talked about so far, hopefully, that should be made up in the following one or two months' time. That will give us more confidence that rural India will do well. In the second half, the rural demand also will pick up. That is one positive we are seeing. The second one is government expenditure. Government expenditure, why we are more feeling convinced that it will restart. The budget approval has come from the Parliament. Now we are hearing that they are releasing the funds. Certainly, the bullet train project is concerned where the potential for 4 million tons of steel is there. Contractors are approaching us for tying up with them for giving the firm bid for that, for steel. That funding is already in place from Japan. That project, in our view, will take place.
Like that, there are a lot of projects, particularly metro side, we are seeing a large traction. Pipeline side, we are seeing traction. With that, we feel that the government expenditure will start flowing in, which will revive the steel demand. Both together, we are hopeful, if not in this quarter, second half will do definitely better as far as India is concerned. In our case, the benefit of captive iron ore availability plus coke batteries plus the pipe conveyor, the fuel consumption, fuel improvement benefit, it should continue to give the benefit of lower cost plus improving our product mix, particularly Tin plate side, Galvalume. These are two products which will give us better product mix going forward. Whatever accumulation of inventory that is there, our plan is to unwind that in this inventory.
We are focusing majorly on reduction in cost and producing to the brim and sell and unwind the inventory. This is the focus. As for the prices are concerned, we will leave it to the market to determine. We will try to work on to ensure that we will be able to preserve the margin. Thank you.
Thank you very much. On behalf of Motilal Oswal Financial Services Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.