Ladies and gentlemen, good day and welcome to the JSW Steel Q1 FY2019 earning conference call hosted by Motilal Oswal Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchstone telephone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Sanjay Jain from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Yeah, thank you. Good afternoon, everybody. On behalf of Motilal Oswal Services, I welcome you to JSW Steel conference call. We are delighted to host the management for discussion on the first quarter results and the business outlook. After opening remarks from the management, there'll be a Q&A session. Now, I hand over the call to Mr. Pritesh Vinay, Vice President, Corporate Finance and Group Investor Relations. Pritesh.
Thank you, Sanjay. A very good evening to all the participants. On behalf of JSW Steel, we welcome you to the first quarter of fiscal 2019 results earnings call. I'm sure you have had a chance to go through the results, the press release, and the presentation, which has already been uploaded on the website. We have with us today the management team of JSW Steel, represented by Dr. Vinod Nowal, the Deputy Managing Director; Mr. Jayant Acharya, Director of Commercial and Marketing; and Mr. Rajeev Pai, the CFO. I'll hand over the floor to Mr. Acharya for opening remarks, and post that, we can move to the Q&A.
Yeah, good morning, everybody. The last quarter, I think we have seen a positive global outlook. IMF reaffirmed its growth at 3.9% for the year, although they have outlined that the growth may be more uneven and there could be risks because of trade tension. This has translated into better growth prospects, basically what we have seen in the U.S. The activity in Europe has also so far been positive. We have seen the balance sheet and the economy translating into a better steel demand. Global steel demand, if you recall, in the last quarter, we had presented that World Steel Association predicted that the steel demand would grow by 1.8%, in which China demand was expected to be flat. In the first half of this year, the Chinese demand has gone up substantially. It has shown a growth of 8%.
India, in this last two quarters, the quarter four of last year and quarter one of this year, has grown by about 8.7%. If you look at these two numbers, basically doing much better than the earlier expectations, we see a positive upside to the world's demand growth in this year. If you look at India, I think India's economy is doing well. We are seeing the spend of the government in various infrastructure projects picking up. We are seeing gross fixed capital formation improving. We are seeing a strong consumer demand. The automotive, the vehicle production is doing well. Appliances production and demand both have gone up. On the rural demand side as well, I think we are seeing a positive growth. A good monsoon should further improve the rural demand in H2.
Having said that, I think the general positive growth momentum in the world and stable raw material price has kept the steel prices in a range-bound kind of range in this quarter, last quarter. In India, we do expect that inflationary pressures to pick up. We are seeing oil prices going up, the depreciation of the rupee having an impact. Liquidity conditions have become tight, and due to which there could be an impact on the rate cycle as we go along. These are areas which we need to watch. The steel side, I think in India, what we have seen is that while the demand in the quarter, last quarter, has been good at 9.2%, and the production has gone up by 6.2%. In the last quarter, India has become a net importer. We have seen a 15% increase in steel imports into India and YoY.
Quarter- on- quarter, the imports have gone up by 31%. Exports in the last quarter have moderated by 16% to 1.85 million. When we look at the exports from China, Japan, and Korea to the U.S., that has dropped by about 240,000 tons. In the last quarter, during the same period, we see a pickup in imports into India from China, Japan, and Korea by almost 460,000 tons. There is a linkage to the trade barriers which are being put up in the U.S. and diversion of that steel coming into India, which is a cause of concern. While the Indian demand has been positive, we need to be watchful of the trade diversions which could take place into India, and therefore effective trade measures will have to be looked at.
Having said that, I think the steel results from JSW Steel have been very good for the quarter. We have produced 4.11 million tons of crude steel, which is up by 5% YoY. Saleable steel sales for the standalone was at 3.83 million tons, which is up by 9%. Revenues from operations at INR 18,964 crore is up by 23%. The Operating EBITDA at INR 4,822 crore is up by 119%, and the highest ever quarterly net profit at INR 2,338 crore for standalone. On a consolidated basis, the saleable steel sales went up by 11% to 3.76 million tons. The revenue from operations rose to INR 20,519 crore, which is up by 25%. The Operating EBITDA at INR 5,105 crore is up by 95%, and net profit after tax at INR 2,339 crore was up by 275%.
If you look at the growth numbers of 11% on a consolidated basis, the ratio of sale domestic to exports was 88% domestic and 12% export. Our sales in the domestic market went up by 27%. Our value-added and special product sales grew by 6% YoY and accounted for 55% of the overall sales. Sales to automotive went up by 57%, while the automotive production grew by 17%. Our numbers in terms of automotive sales have been very positive. Our sales to appliances have grown by more than 100% YoY. We are seeing a strong consumer demand playing out in the consumer durable and the automotive space. On the subsidiaries' performance, I think JSW Coated Products during the year have registered a production of 0.43 million tons and sale of 0.43 million tons. The Operating EBITDA has been at INR 122 crore for the quarter. Net profit stood at INR 42 crore.
The U.S. Plate and Pipe Mill has improved the capacity utilization, and it produced 80,777 net tons of plates and 14,021 net tons of pipes, reporting a capacity utilization of 35% and 10% for the pipe mill. The EBITDA at $10.69 million has seen a substantial improvement over the last quarters. On a consolidated basis, we have already given you the numbers. The other positive is that the net gearing, the net debt to equity at a consolidated level has improved very much to 1.32 at the end of the quarter, as against 1.38 at the end of quarter four. Net debt- to- EBITDA at a consolidated level stands at 2.26, as against 2.57 at the end of last quarter. The company's debt is also at a manageable level of INR 39,090 crore.
The net debt increased by INR 1,070 crore primarily because of depreciation of the rupee, which accounted for INR 865 crore out of this INR 1,070 crore increase in debt. On our acquisition side, the resolution for plants that are submitted for Monnet Ispat & Energy has been approved with modifications by the Mumbai bench of the NCLT, and the written order is awaited. The acquisition of Aferpi in Ita`ly, erstwhile Lucchini, has been completed, and now we have the shares, 100% of the shares transferred to us for Aferpi and Piombino Logistics and 69.27% shares for GSI Lucchini. On Acero Holding Junctions, we have already completed the acquisition of 100% shareholding in Acero Junction, Ohio, and the work of starting the electric arc furnace has commenced, and we expect to start the operations by October.
In Italy, we have a 1.3 million ton rolling facility, and we expect the rolling mills to start in phases in the next quarter. On the projects and CapEx update, I think all the key projects are on track, and in Dolvi and the expansion of capacity at Vijayanagar, including the ramp-up of CRM complex and the modernization and enhancement of capacity at our JSW Steel Coated. Our outlook continues to be constructive for the coming year. We see a stable economic growth, except for one of the events which may come. We do not see a slow growth potential this year. The concern on trade tensions emanating out of the U.S. and consequently retaliatory measures by others needs to be watched. Chinese production is strong. While Chinese exports have gone up in the month of May, we are watching the export trend as we go forward.
The good thing is that China's domestic demand has been quite stable and has been positive. With this, we will leave the questions open to you.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Sumangal Nevatia from Macquarie. Please go ahead.
Yeah, good evening, and thanks. Congratulations on the strong quarter. First question is with respect to iron ore cost. The presentation says it's up almost 14% YoY. Some part, I believe, is due to change in sourcing mix, and we also read about some disputes between us and NMDC. Is it possible to elaborate what exactly is the issue and our stand? The second part of the same question would be the pipe conveyor at Vijayanagar is about to commission in the next two, three months. How will cost and sourcing change for Karnataka requirement?
Our iron ore cost on a quarterly basis has moved up. Yes, that is correct, on a QoQ basis. We'll give the flavor of the detail to you, but it has not moved up to the extent of 14%. 14% , you may be saying with respect to YoY.
Yeah, yeah, YoY. That's right.
On the purchase sourcing of iron ore, I do not think that we have per se any issue. We are purchasing from NMDC as well. In addition to that, we are importing iron ore from outside, which have a better productive utilization in terms of value and use. The alumina levels and the slag levels, therefore, are in control. Therefore, the value and use is better. We have also taken some higher grades from Odisha to balance the lower grades in Karnataka. That is basically to reduce the cost of fuel because when the coal prices go up, the fuel cost essentially also goes up. If you're using better iron ore quality and the blend is better, then the cost of fuel also is better in control. As far as the pipe conveyor is concerned, I'll request Dr. Nowal will give you some more details on that.
This pipe conveyor work is in advanced stage, and we are very much hopeful by September or maximum October, we will commission movement of the iron ore through the pipe conveyor. As of today, our freight cost is around INR 450-INR 500 per ton. That is going to be through pipe conveyor less than INR 100.
How much volume do we plan to what mix from Karnataka domestic, I mean, within the state and from Odisha or imports?
Like Supreme Court has allowed to do the mining in Karnataka, 35 million. However, it looks like that in Karnataka, it's going to be around 29 million-30 million only this year. Our requirement is around 3 million-4 million, which we have to source from out of Karnataka. Once it's the level of the 35 million, then definitely we will take the call.
Understand. Second question is with respect to NSR. In this quarter, it's up almost 3,500 QoQ. Just wanted to understand, is there anything specific to JSW contract in these NSR, or it's a broad representation of the industry prices in the quarter? The second part is the prices are coming off, but of course, we've exited the quarter on a high base. If you could just share how is July prices versus 1Q average?
Yeah. On the NSR, the NSR has gone up in line with the prices internationally. If you were to compare April-June of last year to April-June now, international prices have moved up, and Indian prices have also moved up, probably at a lesser pace than what the international prices have. The second thing which came in in the quarter was the quarterly prices, which were readjusted in April-June. We also had a better mix of automotive and appliances, and we had a better domestic mix as well. Therefore, the positive on the price increase, the blend with respect to the automotive appliances, value-added and specials, giving you additional benefit.
The prices going forward, I think in this month of July, seasonally, we do expect some kind of moderation, especially in the long product side, which has already happened in the secondary market, where because of slack of activity in construction, there is some moderation of prices in rebars which take place. It has happened so far in rebar and structures in which we are not present. Rebar, some moderation has taken place in June and July. As far as flat steel is concerned, the prices have been by and large stable, and we think the prices will be moving in a range-bound manner. We do not see any kind of sharp deviation in the prices. It would be range-bound.
Understand. Thanks and all the best.
Thank you. We take the next question from the line of Indrajit Agarwal from Goldman Sachs. Please go ahead.
Thank you for the opportunity, sir, and congratulations on a strong set of numbers. My first question is on the sales volume. Your consolidated sales volume is lower than standalone. Can you throw some light on that if it is U.S. or domestic coated product business that we have higher inventory?
Yeah. There were two reasons if you were to compare on a YoY basis. One is that in the coated, there was an impact of inventory increase which took place in this quarter. The other one was that last quarter, we had a little bit of the conversion from open as well which was there, which in this quarter has not been there. Coated has lagged behind a little, one because of the imports which went up sharply. We had pointed this out in last quarter as well. This quarter also, the coated imports into the country continue to be a matter of concern. The other one is a lead lag impact between the price increase on hot rolled versus the price increase playing out in the coated products, which takes typically always a little time to follow.
Sure. Understood.
Some inventory built up. The major loss in Coated in terms of volume has been while some quantity in exports, but we have also moderated some quantity in domestic, but we have also moderated our exports.
Sure. Sure. That makes sense. Thank you so much. Second question is on overseas acquisitions and some news flow that has been mentioned that our target is 10 million ton. Is it just downstream or a combination of downstream and upstream?
When we're talking about the steelmaking facilities, we grew steel production. We are looking between 8 million-10 million ton. Our idea is that in the U.S., where we have recently acquired the facility in Ohio, we would be investing into that to start the first electric arc furnace and get that operation, which would be about 1.5 million ton. The caster and the hot strip mill is already 3 million ton. The second electric arc furnace, the 1.5 million ton we will take up in phase II. This will be a 3- million- ton integrated facility in Ohio. In addition to that, we have already announced, as you're aware, the Baytown expansion, backward integration of 1 million ton to make 1 million integrated facility for plate and pipe. We would have a 4 million ton kind of possibility in the U.S.
In addition to that, we have looked at the acquisition at Italy. We currently have 1.3 million ton for rolling mills in Lucchini at Piombino. In phase I , we would be operating the rolling mills, which will be rail bars and wire rods. In phase II, we are looking at the option of setting up a hot strip mill of a 3 million ton. The total capacity in Lucchini could be up to 4 million tons of the thing, which would be the 3 million tons of facility would be looked at only after due consideration to the supply demand and the environment and other factors which we will need to study. These two facilities put together will account for about 8 million. International acquisitions, in case there is any which come up, we would look at it as long as it makes economic sense.
Therefore, the range of 8 million-10 million is this from crude steel point of view.
Sure. Thanks a lot. If I can squeeze in one more, can you tell me how is the CapEx spent for this quarter?
2,000 crore in this quarter.
All right. Thank you, sir. That's all from my side.
Thank you. We take the next question from the line of Anuj Singla from Bank of America. Please go.
Yeah. Thank you very much for the opportunity, sir. Sir, first question relates to the new accounting standard Ind AS 115. As for my understanding of whatever has been given in the press release, it should be EBITDA neutral. However, for the fourth quarter of FY 2018, for the March quarter, EBITDA tends to rise by around INR 3.60 billion on the standalone. Sir, can you just help me give some color on that?
Last year, quarter four, we had certain incentives which were accrued in the quarter four, and that is the result you are seeing that increase in quarter four.
Sir, is this what these incentives are pertaining to GST, which has been mentioned in the press release, or is it some notification which has come out recently which was not there in quarter four? Is that what it relates to?
Incentives which were accruing earlier as per the prior approval. The GST has announced an incentive as per the SGST rates. On filing the relevant claims, we have decided to accrue those incentives in our balance sheet.
Okay. Sir, going forward, let's say, is there a quarterly run rate? What kind of incentive should we be expecting? Is there maybe in percentage terms or something just to get a broad idea? What kind of incentive we should be expecting in the coming year?
Okay. Incentive what was taken as one-off item in quarter four, our current quarter is more or less on regular run rate which will be continued.
Okay. Okay. Understood, sir. Secondly, sir, like Mr. Acharya mentioned, the flat prices are more or less stable while we have seen some weakness in the long product prices. However, we have also seen a significant weakness in the coking coal prices. Will it be fair to assume that given the exit run rate, what we have seen for the realizations for the last quarter and the declining on real cost, we could see this kind of profitability continuing in this quarter? Is that a fair assessment?
I think it's a bit difficult to say some kind of a guidance on the profitability. I think from the coal side, what you raised is that while the coal prices on a FOB basis have gone down to some extent over the last quarter, the result of that will probably play out in the next quarter because 60 days of stock either in transit or in port or in plant is always there. July-September, we expect our coking coal prices to be by and large flattish with respect to what it was last quarter. The benefits of the lower prices of coking coal will play out in October-December, most of it.
Okay. Sir, lastly, if you can just give an idea of what kind of blended price increase in percentage terms or in INR terms was there on a QoQ basis because of the change in methodology. I'm finding it a bit difficult to calculate. If you can just add on that, that will be great. Thank you.
On QoQ basis, 6%.
Okay. Thank you very much, sir.
Thank you. We take the next question from the line of Amit Dixit from Edelweiss. Please go ahead.
Thanks for the opportunity sir, and congratulations for a good set of numbers. First question is with respect to the ramp-up plans for Monnet Ispat and Aferpi. If you can throw some light on that, I mean, what kind of volumes you are targeting and what kind of profitability can we expect from these two assets?
Yeah. With respect to Monnet, we are awaiting the written order from NCLT, and post that, we will be able to comment how soon we can ramp up the capacity. As far as the Italian asset is concerned, as I just said, we would be looking to restart some of the mills in phases in this quarter. We would be supplying the billets into Italy from India and other markets and start the buisness.
Sir, if I'm not mistaken, it's a rail mill. And so what kind of margin, I mean, are you seeing currently over there?
It is a little early because the rail mills, as you're aware, our plant in Salem is approved. There are already some consignments which are going to Lucchini for the rail mill. These are for the Italian rail and the Swiss rails which are to be supplied. The Italian rail contract, again, the tender is coming up for basically quoting again for the next period. We will be participating in that. Therefore, the prices in that, we would not be able to give you any kind of visibility now. Therefore, we will not be able to comment on the margin because rail is a tender-based business. As far as bars and wire rods is concerned, we would be aiming to develop the market of bars and specialty steel and part of the wire rods as well in specialty steel.
We will have to get our go-to-market strategy in place because the mill has not operated for a long while, and therefore, the credibility will have to be established again. We will have to ensure stable sources of supply. We will have to develop the customers and then restart special plates in bars and wire rods both. We expect that possibility to be good because Lucchini has a decent brand name in Italy as well as in Europe. We expect to be able to, again, get back to the market soon.
Sure. The second question is a bookkeeping question on the coking coal.
Mr. Dixit, answer. Sorry to interrupt. Requesting you to please use your handset mode as you're not audible.
Sure. The second one is a bookkeeping question. What is the, I mean, coking coal cost that went into the P&L and the level of acceptances in this quarter?
We had a coking coal trade cost of $205, which was similar to what we had in the last quarter CFR basis. We expect this to be flattish for this quarter.
The level of acceptances, acceptance level?
Acceptances for raw materials is at 14.20 million as of June.
Okay. Okay. Thank you and good luck, sir.
Thank you. We take the next question from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Yeah. Sir, thank you very much. I just wanted to understand that regarding the INR cost that we have going forward, do you expect to maintain the same import mix that we have seen recently, or you think that the domestic sourcing should stabilize and hence INR cost can potentially reduce from current levels?
As I mentioned earlier, one, iron ore availability in Karnataka is improved from 29 million to say 34 milion-35 million. Second, another three more mines, our captive mines, will be in operation. It will definitely ease out. In my opinion, in future, the prices have to be better now from today.
Sure, sir. Secondly, if I look at the notes to accounts, it seems that there was an INR 283 crore grant income recognized in this quarter because the process of disbursing incentives is not notified. For March 2018, this amount was INR 821 crore. Basically, it implies that roughly INR 1,100 crore of recognized income is sitting in the books as receivables from the government. Sir, what is the timeline when you think that this notification would be issued? The longer it gets delayed, the larger the potential cash payout from the government would have to be.
To government, the same we have amount within notification confirming that earlier benefit which was approved to the industry will continue. I think in principle, government has already confirmed. What you are referring is the modality of taking refund through either an NPV route or through a refund route. We expect this notification to become shortened. Once that comes, this amount which is crystallized will start getting realized.
Okay. As of now, this entire amount of, I do not know, more than INR 1,000 crore, essentially sits as something that the company needs to realize from the government, either a refund or something else, right?
That's right.
Okay. Thank you, sir.
Thank you. We take the next question from the line of Ashish Kejriwal from IDFC Securities. Please go ahead.
Yeah. Thank you. Sir, is it possible to quantify the blended steel realization on a quarter-on-quarter basis in absolute terms?
We do not share the realization on an absolute basis. I think what we have shared is the EBITDA numbers and the quarter-on-quarter impact of price increase also, which was 6%.
Okay. If I ask that in our top line, besides steel sales, there are other items which we have changed in terms of shipping revenue and other things. What could be that amount which is included in top line?
As a result of this accounting standard, roughly around INR 400 crore, which will get realigned to the turnover for the quarter.
This is on shipping one. Besides steel sales, also we have some scrap sales, power sales, and trading sales also.
Sure. There are more or less at the same level. What I'm referring to is the delta change which has happened in the quarter, which is around INR 400 crore.
Okay. Sir, secondly, again, this is related to your iron ore sourcing. When you said that value in use is better by adopting imported iron ore, is it possible to give a sense of how much we are benefiting by importing iron ore and to what extent we'll continue to do going forward also? As of now, also we are not taking much of iron ore fines from NMDC. What's your sense on that? When can we start lifting material from NMDC the way we used to do earlier?
The lifting from NMDC is our normal lifting. Whatever value in use and the prices of imported and outside the country as well as Odisha, there is a requirement. As per requirement, we import and bring it. It depends on what parcels are coming and what prices it is coming and all. We are lifting full quantity which is available from NMDC.
Okay. In case of pricing, is it better to source from NMDC currently, or is it better to get imported iron ore?
No. First, whatever is available in Karnataka, we will take that first after taking others, actually, because there are many small, small industries out there, they purchase. Whatever balance requirement is there, that we have to source from out of country as well as from Odisha. That is our system we have adopted.
As Dr. Nowal also explained, there is a gap between the total availability because the ramp-up in Karnataka is still going on. There is some quantity which you need to get outside from Karnataka, which is whether it's Odisha, whether it's import, we decide. Since you are anyway getting it from outside the state, outside the country, a better mix in terms of higher quality grade, which gives you value in use advantage, is always beneficial. Therefore, we have been adopting that as a policy. The mix, as I said, can change a bit depending on how the prices move in the market.
Yeah. Sir, that's what I was trying to look at, that in value in use, in a sense which if you can give that we are getting advantage by using more of imported Odisha or rather than NMDC's or in Karnataka.
It will be difficult to generalize that. It will depend at a particular point of time for where the consignment is coming from, what mix you're having in a particular month. It will be difficult to put the value in use as a number across to you. I think the point is we were trying to look at higher Fe, lower alumina.
That's right, also to explain.
Yeah. Higher Fe and lower alumina, which were there in the mix, which was giving us value in use.
Okay. Thank you.
Thank you. Before we take the next question, I would like to remind participants to please limit your question to two per participant only. You may come back in the question queue if you have a follow-up. We will take the next question from the line of Dhruv Consul from Crisil . Please go ahead.
Yeah. Hi. Good evening, sir. Thanks for giving me this opportunity. My question is regarding the European Union Trade barriers and the impact of it on JSW, given the fact that JSW gets 20%-25% of its revenue from exports, and India's total exports for Europe is about 30%-35%. That too primarily in the flat segment. How do you see the impact of the restrictions on the revenues of JSW?
You would have seen in our performance as well as in the guidance that we had planned to moderate our exports in this year. You will see that already playing out in quarter one, where our exports ratio in terms of percentage has already gone down to 12%. Last year, for the full year, it was 23%. We are already moderating our exports from the end of last quarter in response to the various trade actions which have been taken. Having said that, I think the safeguard barrier which has come, you'll be aware, is basically a quota-based kind of a thing, where the last three years' average has been taken into account for providing a quota. They have given a quota for 200 days, and during which, if it crosses that quota, then there will be 25% duty levied.
The provisional duty will be applicable for 200 days, post which the investigations during this time will take place, and a permanent duty will be put in place. However, they have not given it country-wise or company-wise. Maybe we will have to see how the investigations go and it finally materializes. I think it is good in the sense that the European safeguard methodology has given a sense of certainty to the market. The uncertainty which was prevailing when the safeguard was not announced has now been removed. A quota-based system has given comfort to the customers who were importing that their normal imports would continue. From that perspective, I see this move having provided better stability to the European market.
As far as our exports are concerned, just to reiterate, we have already moderated, and we will be selectively doing our exports to various countries across the world.
Okay. Thanks a lot, sir.
Thank you. We take the next question from the line of Pallav Agarwal from Antique Stock. Please go ahead.
Yeah. Good evening, sir. I had a question on the benefits that we're getting on the GST. Normally, these sales tax referral schemes are for a period of, I guess, 10 years- 15 years. How many years do we have left at Dolvi and Vijayanagar for getting these benefits?
The pending period for our incentives is on a similar level as what you have mentioned. Different plans are different. These are around 10 years-15 years period.
Okay, sir. We have plants which would still be like which would still have a period of 10 years, or some of them would be close to the expiry period right now?
Yeah. Some of the plants where we are already getting earlier, so they would be over the next three to five years. But the new expansions which are happening, they will be over about 10 years- 15 years.
Would we be getting these benefits on export sales, or is this primarily on the sales in the domestic market from these units?
These are based on the investment and the GST what we pay. Under GST, wherever there is an input GST and the entity exports, to that extent of exports, you are entitled for a refund of SGST, which is already paid.
Okay. Sir, just one more question on the coke. How much of coke are we actually purchasing from the external market?
In Vijayanagar, it is roughly in the vicinity of about 1 million tons, 1 million-1.2 million tons per year. In case of Dolvi, we have just started the coke oven batteries, the new ones. I think there the coke purchase from outside would now decline and will be zero.
This would be from DCPL and Amba River Coke at Dolvi?
Yes.
Okay, sir. Yeah. Thank you. That's it from my side.
Thank you. We take the next question from the line of Abhishek Poddar from Kotak Securities. Please go ahead.
Thanks for taking my question, sir. Sir, just one question on Monnet Ispat. As per the reports, it says that the shareholding of the entity would be close to 75% of the company. Should we assume that the economic stake also will be 75%, or the economic stake will be close to 100%?
Hello.
Currently, we are still awaiting the uploading of the segment of NCLT. Once we see the fine print, we'll be able to confirm what are the final changes, if any, and accordingly confirm them.
Sure, sir. The second question is regarding the just to Mr. Acharya, we have seen a sharp correction in the rebar prices in the last two to three months, while the difference between the flat and rebar has increased a lot. Other than the seasonal factors, do you think it's because of the capacity ramp-up by the new players that is also leading to such pressure? Also, between the flats and longs, how are you seeing the demand, and are there any signs of longs demand improving?
Yeah. I think TMT this time around, if you've seen, usually in a season like monsoon, the TMT prices are more depressed. TMT, I think the demand would be good because the infrastructure spend of the government has really gone up. If you look at the various projects, if you look at the metro projects, if you look at the Bharatmala project, if you look at these IKEA mega stores which are coming up, there are 25 stores which are likely to come up. Each store consumes, let's say, 12 thousand-15 thousand tons per store. You will automatically generate 200 thousand-250 thousand tons of TMT demand just from the IKEA mega stores. You are also looking at the Zuari Bridge. You're looking at the coastal road, the Navi Mumbai Airport.
All these things, I think in terms of infrastructure spend, which is panning out, would play out from October. My sense is that from October onward, you will see TMT demand picking up. Therefore, the possibility of recovery of some of the prices which has been lost in this period is good. I'm seeing a reasonably decent demand. There is not much of new capacity which has come up from any of the primary mills. The secondary mills also, by and large, are operating at a better level because of the higher margins. That is why the higher operating capacity, lower demand due to monsoon resulted in the current price change. With October onward, demand picking up, I think we'll again see some improvement in prices and demand as well.
Okay. This was the last one. Regarding the captive iron ore mines that have started production, what was the production this quarter, and how do you see the ramp-up from here on?
The two mines which are already in operation, it is 0.7 million. We are going to total mine it and dispatch it. Another three mines which are going to be in operation this financial year, around 3.5 million. We are hopeful, actually, to start in the next two to three months' time. This financial year only will do the full production of that.
On the costing, how lower would these mines be compared to the mines that you have, sorry, I do not know that you are buying from external sources.
Definitely, there will be saving of at least 20%-30%.
Okay. Thanks, sir. Thank you.
Thank you. We take the next question from the line of Pranav Tendulkar from Rare Enterprises . Please go ahead.
Hi. Thanks a lot for the opportunity. I just wanted to ask, you have seemed to shift the capacity mix clearly towards foreign assets. Is the trade war that is going on one of the factors which suggests that the long-term ROCE of local plays will be higher than the past? That is why you are acquiring assets abroad?
We started looking at, we have been looking at international assets, not only from the time the trade issue started, before that itself. I think that has only got, I would say, accentuated in terms of the fact that it is supported by trade measures. It is good to have facilities in those countries where these issues have come. I think we see a good opportunity as far as the U.S. and Europe both are concerned. Having said that, I think what you need to see is that the cost of acquisition has been value accretive. We have acquired these projects at a reasonable cost, and therefore, the chances of value accretion in those economies is good, irrespective of whether the trade barriers are in place or not.
Right. Right. Just a question from my side. What is the cost per ton of coke and iron ore that you incurred this quarter, and what is the outlook for next quarter? Thanks a lot.
We have been giving the coal numbers, and our blended cost in the last quarter was $205 CFR basis for the coking coal into the coke ovens. As far as iron ore is concerned, we have different brands and different plants, which is difficult to give one number. If there is any further detail you need, I think Pritesh will be happy to help you.
Okay. Thanks a lot.
The next question is from the line of Bhavin Chheda from Enam Holding. Please go ahead.
Yeah. Good evening, sir. Sir, in case of the conveyor belt which you said would start latest by October, how much time it would take to ramp it up to 20 million capacity?
Maximum, it will take say like one month's time.
Okay.
Capacity of the conveyor belt is 20 million-22 million. Actually, we'll move all the material, whatever we are sourcing from that sector. We are hopefully, actually, we'll go for 10 million-12 million within one month's time.
You are saying in that sector, currently, you are sourcing 10 million-12 million. You will be able to move roughly that amount of iron ore on an annual basis on that conveyor?
We have planned, actually, to take total material, whatever in that sector is there. Actually, one month, hopefully, we have been one month, we'll go for 10 million-12 million.
The savings would be almost INR 300-400 a ton?
Yes, definitely.
Okay. Okay. Second question would be, what would be the overseas CapEx figure in current fiscal and next year? Hello? Hello?
Yes. We have just been completed. For the Ohio unit, what we are doing right now is we are spending a small amount on getting the electric arc furnace up and running, which would be in the vicinity of about $50 million, which will go into getting the electric arc furnace up and some small spends to the other areas. As far as routine is concerned, I think we have just concluded the transaction yesterday, and we are yet to get into the plant in full detail to understand what spend is required. As of current, we anticipate that we will be starting the mills only. Therefore, we would be spending very small amounts, if any required, to basically refurbish the mills which may have been closed for some time so that we can restart production.
We are not immediately embarking on the CapEx for the expansion till we put our feet on the ground and understand the dynamics of that market.
Okay. Thank you, sir.
Thank you. We take the next question from the line of Prateek Singh from Credit Suisse. Please go ahead.
Hey, congrats for the good set of number, sir. On the iron ore auctions, any new auctions of the mines that are coming up which we might participate in? Also, if you can give me a ballpark mix of your iron ore currently. How much we buy in Karnataka, how much in Orissa, and how much are the imports?
Regarding auction of the mines, five mines we got earlier out of seven mines which have come for auction. Again, now there are another seven to eight mines that are going to be in auction in the next three to six months' time.
Their capacity would be, sir, for these seven to eight mines?
Definitely, all the seven to eight mines, roughly around 10 million. 10 million yearly basis production.
Okay. Regarding the import, the iron ore mix, sir?
As I mentioned earlier, we are bringing around 3 million-4 million. Whatever first available in Karnataka, we source it. The balance, we source from Orissa as well as out of country.
Okay. Regarding sourcing from out of country, given the widening discount of low-grade iron ore versus the high-grade globally, is it something that you are also looking at to maybe get low-grade iron ore? Is it something which you think would be viable?
When you get metals from a distance, you'll have to look at the entire product basket, not only the Fe. You'll have to look at the alumina. You'll have to look at the silica, and then see what makes sense. I think we would, as we said, that we are sourcing value-accretive material, which would give us strength in terms of value and use.
Understood, sir. That's all from my side.
Thank you. We take the next question from the line of Jing Nie from Amundi Asset Management. Please go ahead.
Hi. May I ask about your funding plan, please? I remember that JSW was trying to come into the market last time, and the pricing was not right. I am just wondering when JSW will consider coming again.
As a policy, we continue to look at an international bond market as a means to diversify our borrowing. As you are aware, that currently, the markets, due to trade wars and the Fed hikes, are still not in a stabilized mode. We are watching the markets and the secondary rates very carefully. As and when we see an opportunity, we will continue to access these markets because ours is not one-off event, but we will continue to access the international bond market as a means to diversify our borrowing base.
Thank you.
Thank you. We take the next question from the line of Bhaskar Basu from Jefferies. Please go ahead.
Good evening. Just a couple of questions. Firstly, if you could give some color around how you see Monnet ramping up, and I mean, what kind of volumes are they doing right now, and how do you see that ramping up over the next few quarters or next two years?
Monnet, as we just mentioned, that Monnet the written order from NCLT is awaited. Once we receive that, we'll be able to study and then revert to you.
Okay. Secondly, a clarification on the conveyor issue. You mentioned 10 milion-12 million tons initially. Is that what you expect once the conveyor ramps up, or you think more volumes will be shipped after the conveyor ramps up?
The capacity of the conveyor belt is 20 million. Initially, you have to divert all these routes and all. We are thinking around 10 million-12 million, and the first one month, we will do it. Gradually, we divert all these supplies which are coming directly to the plant through the conveyor belt.
Eventually, say one year down, how much do you?
We are building some downhill conveyor also directly mined to this conveyor belt. That is also the conception now. Once all downhill conveyors will be ready, this will be loaded to 20 million-22 million.
Okay. Got it.
In the one-year time.
Yeah. Next year, I think this 20 million, maybe not, but annualized basis will play out.
Okay. One more on the Ohio unit. I think my understanding was one of the main issues there was with the electricity tariff at that plant, and that was being renegotiated. Any update on that?
There in Ohio, the electricity tariffs or the support being provided for the coals have been discussed with the past owners as well. I think there are some concessional tariffs which are being discussed on electricity. Those are under finalization. Once we have some more details, we'll be able to share that with you. Yes, some support on the concessional electricity is under discussion.
Okay. Just my final question on the Italy unit. Just a confusion there. My understanding, it's all downstream units, but somewhere you mentioned that it's primary, I mean, part of that 8 million ton which you were talking about, so.
Yeah. It is a 1.3 million ton rolling mills, which is without the hot band there. It will be sourced from India and other markets, and we would be operating the mills. As far as the primary, which I mentioned, was from a medium-term perspective, that we would look at the possibility of putting up a hot strip mill on a medium-term perspective, provided it makes economic sense. We would be studying the market. We would be studying the economics in that area, and then take a decision. That is a medium-term view.
When you say hot strip mill, you're basically starting from steel production, the whole rate?
Correct. That will be a project which will be integrated for 3 million tons. We will look at the possibility, we will evaluate it, and then take a call.
Okay. Thank you. That's all from my side.
Thank you. We take the next question from the line of Abhijit Mitra from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my question. First clarification is that post-commissioning of the conveyor, the cost of procurement from local producers will go around from INR 500 to INR 100 per ton. Is that understanding right?
This is basically freight is in our account. This is the.
Yeah. That's the freight. Yeah. The freight. Yes.
Transportation cost.
Transportation cost borne by us only as in today. This is our saving only.
Yeah. That will go down from INR 500 to INR 100 per ton, right?
Less than INR 100.
Less than INR 100 per ton. Okay. Just to understand on the import procurement mix, the last quarter import procurement that you have done, it would have been largely 57, 58 grade Fe, right? Is the understanding right?
No, no. It's not correct. There are so many different things in that. Not straightaway , this is 57, 58. It's very high LOI. So equivalent, it is 63%.
Okay. What would be the average alumina grade? 2.5 ?
Less than two.
Less than two. Okay. Okay. Okay. And is there a penalty for silica also which you are trying to get from the local producers, or that's not yet started?
All nitty-gritty. There are so many things.
It will be very difficult because it will be source to source. It will differ.
Before the ban from the Supreme Court, all these things were applicable of penalty on silica, alumina, and Fe. Now, after this Supreme Court ban in the last seven, eight years, things are different, actually.
Okay. Okay.
No worries.
Nobody's worried.
Got it. Got it. Thanks. Thanks. That's all from my side.
Thank you. Next question is from the line of Rajesh L from HSBC. Please go ahead.
Yeah. Thanks for the opportunity. I basically wanted to understand our strategy or thoughts that have gone behind the overseas acquisition, and how should we look into it in the future? You have said 8 million-10 million ton, but can this number increase further?
I think I mentioned that we have been looking at facilities internationally, wherever the asset makes economic sense, where the capital cost is value-accretive. We are looking at markets where the growth in the domestic market is reasonably good, and we are taking calls in those markets as of now. That is why what you are seeing in terms of investment in the U.S. is basically in a market which is growing reasonably well now and is also supported by the recent trade measures. In spite of that, I think it is a market which consumes 100 million tons of steel. The second advantage in the U.S. will be the melted and manufactured steel in America, which has certain advantages because you will be able to bid for projects, you will be able to participate, and sell to customers who have projects for melt and manufactured in America steel.
The idea is to continue because we are not able to sell anything from here to America because of anti-dumping. We will have one facility there in America to basically service customers who we have earlier been servicing. Similarly, in Europe, I think the idea was that it is good to have assets in the international market where you are able to bring in value. As long as the capture cost of acquisition is competitive, it will make sense to do that. That is what we have done in Lucchini as well. We plan to basically, as I said, restart the rolling mills and make specialty products to start with.
Just to make myself more clear, if there is economic sense going forward, even after these acquisitions, we'll keep on doing these acquisitions. Is that the thought?
We said 8 million tons is our visibility for possibility in these two locations, 4 million in the U.S. and 4 million in Italy on the medium term. Any kind of other acquisitions, if it comes, it could be between 8 million-10 million is what the visibility we see as of now.
Okay. Max we can go to 10 million as of now.
We are not seeing we don't have any assets on our books right now which is giving us any different visibility.
Understood. That's it from my side, sir.
Thank you. Next question is from the line of Sanjay Jain from Motilal Oswal. Please go ahead.
Yes. I mean, we've been talking with you in use and anything iron cost has gone up, coking coal cost is same. My question is, if you take all these factors into account, I mean, I'm not going in detail, but would you say that your raw material cost on a sequential quarter basis has gone up, or it's almost the same if you account that benefit you would have arrived from lower consumption of coke or better productivity of furnace?
Just hold on for one second. We're just checking. Yeah. The cost on quarter-over-quarter basis has gone up by about INR 700-INR 800 per ton.
Of steel, raw material cost per ton of steel?
Per ton of steel. Correct.
Great. Okay. Second question on our expansion projects. I mean, we are expanding in Vijayanagar and Dolvi both places, and there was a furnace rebuild in Vijayanagar. Are we going to see some volume boost from these Vijayanagar furnace in FY 2020, or these benefits we should only expect in FY 2021 and 2022?
One furnace, the BF-3, we are going to take for shutdown for around, say, 100 days. At that time, we will change the bigger shell, actually, higher capacity, more than we add another 1 million in that. That is going to happen in 2019 and 2020 financial year.
Volume boost we should only expect in FY 2020- FY 2021?
Yeah. FY 2019-FY 2020. Yeah.
Yeah. It will basically, the full annual playout will happen in the year 2021. Part of the increase may come in H2 of 2019-2020.
Yeah. Thank you very much. Sir, do you have any closing comments? We can close the call.
I think we would basically just like to reiterate that JSW Steel has had a good quarter in quarter one. The numbers with respect to both production and sales have been good. In terms of the guidance which we had given, in terms of volume, we see that we would be more or less on track. Usually, in the first quarter, seasonally, there is always a slightly lesser run rate, and it picks up as we go into the H2. I think we would stand to our guidance for this year. Thank you very much. That is the comment from our side. If there is any further query, the investor team would be happy to address that. Thank you very much.
Thank you very much, ladies and gentlemen. On behalf of Motilal Oswal Securities, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.