Ladies and gentlemen, good day and welcome to the JSW Steel Q3 FY 2018 earnings conference call hosted by Kotak Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now end the conference over to Mr. Abhishek Poddar from Kotak Securities. Thank you, and over to you, sir.
Yeah, thanks, Rayo. Good evening, everyone. This is Abhishek from Kotak Institutional Equities. We have with us Senior Management of JSW Steel. It is a pleasure for us to host this call. I now hand over to Pritesh Vinay from JSW Steel. Pritesh, over to you.
Thank you very much, Abhishek. A very good evening to all the participants. Sincere apologies for the late start due to cascading of media interviews. We have with us today the Senior Management Team of JSW Steel, represented by Mr. Seshagiri Rao, the Joint Managing Director and Group CFO, Dr. Vinod Nowal, Deputy Managing Director, Mr. Jayant Acharya, Director of Commercial and Marketing, and Mr. Rajeev Pai, the CFO. I'm sure all of you have had a chance to go through the results and the press release and the presentation, which has already been uploaded on the website, and the links are in your inbox. Our formats are simple. We'll start with a few minutes of opening remarks by Mr. Rao, and then we'll open the floor for Q&A, and we'll try and wrap it up in time for everybody. With that, I'll hand the floor over to Mr.
Rao for his opening remarks.
Good evening. I welcome you all for this briefing of Q3 Financial Performance.
I'm sorry to interrupt, Mr. Rao, but we can barely hear you.
Hello? Are you able to hear now?
Yes, sir. Go ahead.
We have been seeing that global economy rebound and the complete shift in the sentiment towards commodities, particularly steel. The steel industry is expected to do better in the year 2018, particularly the demand that will come from emerging economies where the investment is expected to happen in infrastructure. Also, the U.S. tax cuts are expected to accelerate the growth in the U.S. These are all other wells for the steel sector. As far as India is concerned, we are seeing definitely an improvement from the government-aided projects. The demand picked up. If we see the nine months, the total group steel production went up by 4.6%, and also demand went up by 5.2%. Imports remain a matter of concern. They had gone up by 12% in the first nine months.
What is interesting in this analysis of imports is that the coated product imports went up by 107%. The color-coated product, the imports went up by 250%. We have been bringing to the attention of the government the increasing substandard import of color-coated products into India. The overall positive side, the demand started looking better in the Indian situation. In this context, if I look at JSW Steel performance, it is the highest-ever production, highest-ever sales volume, highest-ever EBITDA, highest-ever profit after tax. Group steel production was 4.11 million tons, which is a 7% growth year-on-year and a 4% growth sequentially. What is very interesting here is the sales volume. Sales volume was 3.97 million tons on a standalone basis, which is a 9% growth year-on-year and 1% sequentially. On the consolidated basis, the volume was 4.03 million tons, which is a 12% growth year-on-year.
I can identify two factors which have driven this volume of growth. One is exports. Our exports year-on-year went up by 56%, and sequentially it went up by 14%. The exports in the last quarter was 1.19 million tons. For the entire nine months, it was 3 million tons. In the last quarter, it was 30% of the total volume of sales. As I mentioned to you, the demand for long products really picked up in the last quarter. It was 23% growth in the long products in the last quarter. Sequentially also, there was a growth in the long product sales. Increase in long products volume due to demand growth and higher exports have made us to achieve a growth of 12% in the volume of sales.
When the overall steel prices, because of various factors, either cost push or pickup in the demand, went up by 26% year-on-year, and quarter-on-quarter it went up by 8% globally, JSW Steel has achieved a blended NSR increase of 14% year-on-year and 5% quarter-on-quarter. Cost side also, there were pressures: increase in iron ore prices, increase in coking coal prices, refractories, electrodes, ferro alloys. There are a lot of cost pressures there. Even after these cost increases, we could contain the cost increase to the extent of 13% year-on-year and 1% quarter-on-quarter. The EBITDA standalone basis is INR 8,991 per ton, which is 21.7%, higher by 1% year-on-year. Quarter-on-quarter, it is 2.2% growth in the EBITDA margins. All this together, our operating EBITDA is INR 3,573 crore on standalone basis. Our subsidiaries, if I look at coated, it posted an EBITDA of INR 89 crore for the last quarter.
It was subdued in the last quarter because we had taken a shutdown of two of our galvanizing units for the purpose of ramping up the capacity. We have restarted, due to which there was an 80,000-ton impact in the last quarter. After restarting, the overall capacity of the galvanizing units at Tarapur is going up by 75,000 tons per annum. There is an incremental volume that would come in. Number two is, in the last quarter, the HR coil prices went up, whereas the prices of coated products took some time to catch up. That is where the margins also were under pressure. These two factors together led to a lower EBITDA in the coated products, which we expect to pick up in the Q4. Amba River Coke, both the units of coke oven and pellet plant , worked above 100% capacity. It posted an EBITDA of INR 97 crore.
Salem unit did well. It posted an EBITDA of INR 40 crore. Our overseas operations, U.S. Plate and Pipe Mill, it looked far better than what it was in the Q2. Plate capacity utilization went up to 24%, pipe mill to 11%. It is a positive EBITDA of $3.86 million, compared to sequential EBITDA of $1 million in the last quarter and a -$4.36 million in the previous quarter of the last year. There is a swing of almost close to $8 million in our US operations. Because of the good performance from our subsidiaries and associates, our consolidated numbers look better. Our revenues went up by 17%. Our operating EBITDA consolidated basis is INR 3,851 crore, which is a 37% growth. There are two important items which I would like to highlight. One is exceptional item, INR 264 crore.
We have made a provision towards our investments in our Chile investments and also improvement of goodwill. As we have surrendered one of the mines in Chile, because it is very unlikely we will be able to open that mine in the near future, we have made the provision to the extent of INR 2.64 billion towards the mine which we surrendered. At the same time, we also got a benefit to the tax write-backs in the U.S., where the tax rates have been brought down from 35% to 21% in the U.S.A. The default tax liabilities earlier we have created for the past period at a rate of 35% now have been reinstated at 21%. The differential tax benefit, which we have written back to the extent of INR 5.72 billion.
The net impact on account of these two one-off items is INR 377 crore on the net profit on a consolidated basis. The profit after tax was INR 1,774 crore on a consolidated basis, which is 148%. If these two one-off items, if I make adjustment by these INR 377 crore, my normal profit after tax on a consolidated basis would be INR 1,400 crore, which is a 96% increase year-on-year. This is briefly about our performance. The debt of the company was INR 4,268 crore, which is lower than 30th September 2017. Our weighted average interest cost has come down to 7.03%, which would bring it down by 25 basis points from 31st March 2017. Our revenue acceptances is INR 1,249 million. Our CapEx acceptances are INR 194 million. Our debt equity is 1.68. Our debt to EBITDA was 3.32.
As for our capital projects are concerned, we spent close to INR 3,050 crore for a nine-month period. We also opened letters of credit for import of various equipment after making advance payments to various suppliers to the extent of INR 1,600 crore. The INR 1,600 crore plus INR 3,050 crore, we have expenditure of INR 4,652 crore for the nine-month period. Projects are as per the schedule. Some of the projects will get commissioned, like our Dolvi Coke Oven Plant , which is a 3 million ton plant. 1.5 million ton we started heating up, so it will get commissioned by April or May 2018. Part of it can get commissioned in April. Similarly, the pipeline conveyor systems that also get commissioned by June 2018. Water pipeline is in advanced stage of implementation. CRM complex, 5 million -10 million tons plus our expansion at our downstream units, all are going as per the schedule.
The tin plate unit of 2 lakh tons at our Tarapur unit will also get commissioned by June 2018. Some of these units which are getting commissioned, either pipeline conveyor or tin plate and washing or any other expansions that would get commissioned in our downstream units, this would give benefits for the next financial year. One more important thing which I would like to share is that the five category C mines which we secured in the auction in Karnataka State, one mine we have signed the mining lease, which will get operationalized in the next week. The second mine we will be signing before the end of 31 March 2018. We will sign the mining lease and also make operational.
Two mines out of five mines will be operational in this financial year, which will give me 0.71 million tons captive source of iron ore per annum. Balance three mines are in various stages of approval, either with the state government or central government. This approval we expect by 30 September 2018 and make them operational. If all the five mines are operational, then I will get 4.71 million tons of iron ore captive. With that, I stop here. If any questions are there on our financial performance, I can clarify. Thank you.
Sure. Thank you very much. We will now begin with the question and answer session. Participants who wish to ask questions may press star and one on their 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. We have the first question from the line of Sumangal Nevatia from Macquarie. Please go ahead.
Yeah, thanks. Congratulations on the good set of numbers. First question is with respect to the standalone blended realization, which we calculate almost INR 3,000 higher Q on Q against market prices of around INR 2,000. Is it led by some change in mix, change in geography of sales, etc.? I mean, we see that exports are now almost 30% of our volume. If you could just elaborate on that.
No, I think this INR 3,000 which you talked about may not be a sequence of actual NSR because you have to adjust the other sales. If you adjust other sales, the actual increase is only INR 1,500 per ton in the NSR quarter-on-quarter.
Okay. All right.
Next question, I mean, if you look from January start, there has been significant volatility in spreads. I mean, we read that there is significant increase in steel prices. I know prices are up, and coking coal continues to be very volatile. Is it possible to elaborate on the price movements of these three things versus what we have witnessed in 3Q average?
International numbers of iron ore quarter-on-quarter and year-on-year actually have come down marginally. Whereas in the domestic market, the NMDC prices have moved up by about 20%-22% if you were to look at on year-on-year basis. As far as our cost of coal is concerned, we had last time given a guidance that we would have an impact of $5-$10 in this quarter. We have had an impact of $6 in this quarter as of the earlier quarter.
Steel prices from January?
Steel prices from January?
Yeah. I mean, we read that there's a significant INR 2,000-INR 3,000 increase in steel prices across.
Okay. This January. Yes, there is a price increase in the month of January. Product-wise, it is different. I would not like to put a number to it, but roughly about 5%-6% has been the increase in this month across various product lines, in line with what prices are there internationally. As a matter of fact, if you look at today's prices, landed, for example, on hot rolled coil bases, we are still at a discount to international prices.
Understood. Understood. Second question, sir, is with respect to the Karnataka iron ore mining scenario. How fast do you think then supply can come in after the recent increase in cap?
What quantum of capacity will be coming up in auction in the coming months?
These two mines which Mr. Raj had mentioned, we are going to start in the month of February or March. It will give us 0.7 million, 7 lakhs. We are hopeful, actually, in these two months, we can achieve the total quantity. In auction, the total this year, this financial year, is going to be around 28 million total. Next financial year is going to be 30 million. Plus, we have C category mines which we are targeting of ours will be additional in Karnataka.
Understood. I have more questions. I'll join back. Thanks and all the best.
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. The next question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Thanks for taking my question and congrats for a very good set of numbers, sir. My first question is regarding the volume guidance for FY 2019. For FY 2018, I hope we are in, I mean, in tune to achieve 15.5 million tons. What should we assume for FY 2019 and FY 2020, if possible?
The guidance of production and sales for the FY2018, 16.5 million tons production, we may be short by 1.5% because the production we have lost in quarter one and quarter two due to iron ore shortages in Vijayanagar and water shortages at Salem, we could not make it up. To that extent, there could be a shortage related to our guidance. We are in the range of 98%-98.5% of the guidance of production. On the sales side, we are able to reduce our inventories. Considering whatever we have achieved in the first nine months, we will achieve 15.5 million ton guidance for sales. Next year, I think we will be able to work out the numbers and come back to you in the month of May. We'll be able to carry that.
One point I would like to highlight is that our installed capacity will remain more or less the same, 18 million tons. Based on that, we will work out the numbers and give the guidance and measure.
Okay. The second question is regarding the various acquisition targets. JSW's name, of course, keeps cropping up here and there. The more definitive one as per the press is Monnet and Bhushan up to an extent. Can you please throw some light on which of these companies we are targeting?
Out of these five cases of steel industry in the coal cases, we have shown interest in three cases. What we are not interested in is SR Steel and Essar Steel. Other three, we have been evaluating. Financial bids have already been submitted for Monnet Ispat. Other two financial bids' dates are not over. Still to be submitted.
They are all at various stages as regards to the process with the lenders and the resolution professional. This 270-day time is given under IBC. This will be decided probably by April 2018.
Okay. Thanks, sir. I have a couple of more questions, but I'll get back to the queue. Thank you.
Thank you very much. The next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Yeah. Sir, thank you very much. Just the first question on the realizations. If we were to just take the INR 16,400 crore of revenues on a standalone basis and divide that by 3.97 million ton of sales, the implied realization increase on a quarter-on-quarter basis comes to INR 3,200 per ton. While you mentioned that the underlying steel price increase is roughly INR 1,500 per ton.
Sir, what would be the other items in revenues which we should not attribute to the price increase should not be attributed to that?
As we have mentioned, quarter-on-quarter, blended NSR, if I look at the derivative, 5% increase over Q2. If we have to arrive at this number, what is the number for Q3? What is the number for Q2? We have to adjust the other sales. The other sales number, our investor relations will share with you, both for Q3 and Q2. We can arrive at this number here.
Sure. Sir, what items are in this other sales? I mean, what kind of products would generally be there?
Generally, coal mine sales, power sales, plus any intercompany sales. Intercompany intersells, JSW Steel imports iron ore and sells it to ASBL or imports coke and gives it to Amba River Coke.
They all will come in the sales, but actually, it is intercompany transfer.
Okay. Okay. Understood. Sir, second question, you did mention about the interest that JSW has, which is two of the Bhushan's and one Monnet. Now, sir, just trying to understand the structure that JSW would prefer. Given where profitability is and given where balance sheet strength is, would the company like to still partner with other companies and take less than 100% stake in these stressed assets? Or would it look at acquiring the stressed assets at a 100% ownership level? I think we will be able to share more with you if we are a successful bidder. What I can tell you clearly is that we would like to maintain our ratios which you have mentioned, debt to EBITDA and debt to equity.
Within those parameters, we work out structures if we are a successful bidder either singly or with others. I think once a decision is taken by the lenders that we are the successful bidder, then we'll be able to share more data. Otherwise, it is very premature to say anything on the side.
Understood. Understood. Thank you very much, sir.
Thank you. The next question is from the line of Anuj Singla from Bank of America. Please go ahead.
Yeah. Thank you very much, sir. Sir, one question with regards to the coking coal cost for Q4. Mr. Acharya mentioned that this quarter is $6. So what kind of cost increase on the coking coal side can we expect in the fourth quarter?
We are expecting about $10-$15 more in this January-March quarter.
Okay. $10-$15 more on a Q.
That will be the peak of the coking coal prices because the spot prices have already started to come off. Will it be fair to assume that going into the first quarter of FY2019, we should see a sequential decline?
You see, logically, what you're saying makes sense. If you remember, this year, April, the prices had fallen during January to March, and then April, it peaked again at $300 because of weather disruptions. Given those one-off events, which we cannot predict, the prices should be range-bound with the modest decline which we see between now and the next quarter.
Okay. Understood. Secondly, sir, I couldn't get the iron ore production level from the two mines which we look to start before the end of this financial year. What could be the total production? Sir, I just missed that number.
0.71 million tons.
That is 710,000 tons per annum. The billion will come in the next year. It may not come only in this year. With comments from our operations, part of it can come in this quarter.
Okay. Sir, if I recall your comments in the earlier con call, you had said that the cost savings from this will be limited. It will primarily be towards ensuring the supplies of iron ore? Should we be expecting some cost savings as well from this procurement going into FY 2019?
I do not expect a big saving in the cost. Only one important point is once availability of iron ore goes out at INR 600 plus differential pricing, which is there between Karnataka and Chhattisgarh, that should go away. We could get that benefit. There are two things which have happened in Karnataka.
One is the steel will increase from 30million to 35 million tons for category A and B, and category C, additional limit has been given. With that, next year, availability is expected to go up. Captive will go up. With that, we expect this differential of INR 600 per ton should narrow. That is one. Number two is our pipe conveyor, which will get commissioned by June to July 18, 2018. That should save our freight cost. These two are important things which can contribute to improvement.
Understood, sir. Thank you very much, sir.
Thank you. The next question is from the line of Sanjay Jain from Motilal Oswal Securities. Please go ahead.
Hi. I missed that acceptances number. I mean, for the revenue and the capital, you did mention in the opening remarks, but can you just repeat that, please?
129 million for.
Sorry?
249 for revenue.
No, your voice is breaking. I can't figure out.
INR 1,249 for revenue.
INR 249.
INR 249.
INR 1,249. Okay.
For revenue. INR 194 for CapEx.
INR 194 for CapEx. Yeah.
INR 194.
Yeah. Okay. Got it. All right. One question on our investment that we are trying in all these NCLT cases. Of course, you can't guide on what will be the exact structure, everything. Since, I mean, if I remember correctly, you've been guiding that they'll be all in joint ventures, so they'll not appear on our balance sheet. Correct me if I'm wrong. What I want to know is that what kind of cash flows are we budgeting for? Should we budget in our models for these kind of investments?
It will be very difficult for us to say how much will be because it's all very conservational bidding which are happening.
I will not be able to comment right now on that except saying that we will maintain our ratios. Whether it will be through structures or whether it is single, that also we are not able to comment right now.
Okay. Okay. I appreciate that. One last question is on how are the spreads moving? You did talk about steel price increases and coking coal price increase. Both steel price and input costs are increasing. Where do you see the spreads between the steel price and the raw material on a net basis? Are you seeing them increasing or are they now stable?
I think the prices in this quarter, we should see range-bound. Whatever cost impact may be coming in on account of raw material should get offset by the price increase. It will remain in a similar range as it was in the earlier quarter.
Right.
Right. Okay. Yeah. Thanks so much.
Thank you. The next question is from the line of Dhaval Doshi from Phillip Capital. Please.
Hello, sir. Congratulations on the good set of numbers. First question on the steel pricing. A, if you can tell us what is the current prices both for flats as well as longs compared to the average pricing that we had for the third quarter? As in how high are they?
We will not be able to give you prices per se exactly. It differs from geography. It differs from product to product. As we were saying in the month of January, the prices have moved by 5%-6%.
Yeah. If I'm not mistaken, even the December exit prices will be substantially higher than the average prices. Wouldn't that be the case?
No. No.
Because in the month of December, the price increase was marginal. October, November was flattish. The increase was limited, if I recall, to about INR 700 per ton.
Okay. Secondly,
that is our flat product disclosure.
How would that be for the longs?
Longs, the prices have been moving up since December middle. I would say that we are seeing the impact of long and holding more in this quarter. The prices have moved up in the month of December and January more than flat product because it was lagging far. Some color in terms of the absolute price movements. What has been the hikes between December and January for longs?
The color is all green.
Sir, any number to it, sir?
Difficult to quantify right now because the long product is a market which is governed by secondary markets.
It keeps on moving on a daily basis. Actually, there's a daily price in secondary. It's difficult to forecast. As I said, it is better than what it was in the earlier quarter. General infrastructure demand we see picking up. Whatever activities the government has been pushing spending on post-Monsun, there is a pickup in the demand. There is also reduced availability from the secondary sector because there were some exports which they had committed to for billets and TMTs because they got a higher realization in the export market. Therefore, a combination of both has resulted in the prices moving up. It seems to be that in this quarter, it's sustainable because people have projects to complete in this quarter.
Okay. The second thing was with regards to, once again, the comparison with the landed cost of imports.
When we're saying that we are still at a discount, I believe that is comparing it with China. With Japan and Korea, how would that be? As in, do you still feel there is scope of a price increase even if I were to compare it with Japan and Korea?
Yeah. It's not only China. Any country other than the free trade agreement countries suffers a duty of 12.5% basic customs duty for flat products. If you compare Japan and Korea, what usually the Japanese and Koreans have been doing is their pattern of pricing has been such that it keeps in mind the delta between the Chinese and the Japanese to the extent of more or less closer to the duty gap because they have a premium product as opposed to the others.
Okay.
Basically, you would mean to say that even if I were to compare it with the offers from Japan and Korea, we're still at a discount. How much would that discount be?
Currently, we see in the vicinity of about 6%-7% in October or July.
Okay. That means there's still some scope of price hikes coming into February and March.
Yeah. There could be so
me possibilities, but we are looking at the market in general, movements in the international, and then we will take a view because the prices in international also we'll have to observe for the next one or two months and take our calls accordingly.
Okay. Lastly, just your view on the overall iron ore pricing outlook as far as India is concerned.
Do we see any resumption in mining happening in the near term for Odisha, or that could still continue to impact the iron ore prices further moving up?
As far as Odisha is concerned, I think this news of 20 million ton iron ore mines are shut. That may trigger NMDC or other mining companies to increase the prices. In fact, if you really see on the ground, the impact actually is 5 million-6 million tons. That is the actual impact. That should not cause so much of an increase in the prices of iron ore. These companies, at least some of them, have already made arrangements or are in the process of making arrangements to pay the fine or penalty and restart the mining. We hope that in the very, very near future, that in this quarter itself, this will get restored.
Normally, we'll get restored.
I'm sorry, sir. Your voice was breaking. I missed you.
Normally, we'll get restored in this quarter because of these mining companies. At least some of them have made arrangements for making the penalties and start the mining.
Fine, sir. Thanks a lot.
Thank you. The next question is from the line of Ashish Kejriwal from IDFC Securities. Please go ahead.
Yeah. Hi. Thank you. Sir, when you talk about blended realization increase of 1,500, just a back-of-envelope math suggests that the other sales, which was non-steel sales, that has increased by around INR 700 crore quarter on quarter. First thing is, and which is around INR 1,000 crore. First thing is whether this is sustainable and how much this has contributed to EBITDA. This is my first question.
Second is if it's possible for you to give a last quarter EBITDA number for Amba River and JSW Steel Salem, the number which you have given for third quarter.
Blended sales and realization number, that will be given by our investors, the admission department. But EBITDA is concerned, blended basis and standalone company. This quarter is INR 8,991. Q2 2018 was INR 7,461. Q3 2017 was INR 7,585. These are the numbers. Details will be given by the investor relations. Due to breakup of other sales, then we will be able to elevate these numbers. As regards to Amba River, just one minute. I'll give you the number. Amba River's last quarter was INR 92 in the Q2. This quarter was INR 97. Similarly, in the case of Salem, INR 40.65 last quarter and INR 40.72 in this quarter.
INR 40.65 last quarter.
Sir, basically, if I'm looking at consol minus standalone EBITDA, these three US operations as well as Amba River Coke, JSW Steel, or your JSW Coated, they have not reported any incremental EBITDA in the numbers. When we look at this EBITDA consol minus standalone, this number seems to be increasing from INR 110 crore to INR 280 crore.
You mean reduced? That is also one of the reasons.
Sorry? I didn't get you.
Inventories. Inventories. When JSW Steel sells HR Coil, JSW Coated, if it is in the form of an inventory, that inventory profit should be reversed in the consolidation. If those inventories are sold in this quarter, then profit gets added. That is the other difference which will contribute in the consolidation.
Okay.
Sir, lastly, in case of Odisha iron ore mining, because we also buy it from Sirajuddin Mines, what's your sense that whether they will be able to pay the penalty and restart the mine or what is going to happen? Because as you pointed out, that on a ground level, it's just 4 million-5 million ton impact, but Sirajuddin itself produces around 10-11 million ton on an annual basis.
If instead of a specific mine, instead of X mine is stopped, then the existing mine is made up to some extent. That's why net net impact is we are saying 5 million-6 million. That is point. Point two is whether this mining company which you referred, whether they will start or not, our information is some of these mining companies have made arrangements to pay the penalty and start.
Therefore, we are saying normally we'll get restored. This 5 million-6 million ton of shortfall will come back to the market.
Okay. Fair enough, sir. Thank you.
Thank you. Next question is from the line of Joao Ferreira from Banco Finantia. Please go ahead.
Hi. Thank you for your presentation and congratulations for your good numbers. I was wondering about your CapEx plan. If you could elaborate what you intend to spend until the end of the fiscal year.
The number which we have guided at the beginning of the year is INR 8,000 crore will be the CapEx for this financial year. If you see the number which I gave for nine months, it is INR 3,050 crore actual cash outflow. Another INR 1,600 crore we opened the LCs. It's cash outflow, but a lot of credits have been opened. So total together is INR 4,652 crore.
If we see same run rate, it will be over INR 6,000 crore CapEx in the current financial year, as against INR 8,000 crore which we created.
Okay. Thank you for your answer.
Thank you. The next question is from the line of Anshuman Atri from Haitong Securities. Please go ahead.
Yeah. Thank you for the opportunity and congratulations on the performance. My question is regarding iron ore in Karnataka. At what level of production will the government approve further expansion for Karnataka operations, which I believe is, I mean, the government is stating that only once the supply improves, then the capacity can be improved. The second is the government had earlier talked about, say, regulating domestic iron ore prices and avoiding fluctuations, but we are seeing very sharp fluctuation in domestic versus international. Have you seen any progress by the government in this aspect?
The limit fixed by the Supreme Court earlier was 30 million, and that they have relaxed now to 30 million-35 million. Bellary, 30 million. Sorry, 28 million. And other than Bellary, 7 million. Plus whatever C category mines will come in production, that will be over and above.
As regards to steel increasing capacity, we have made 1 million ton operating installed capacity in Vijayanagar. We have got environmental clearance to increase by another 4 million ton through ground field expansion. If this 35 million tons which now ceiling has been fixed by the Supreme Court of India, we expect the production to go up iron ore in the next year, next financial year. Plus the category C mines, which will also become operational in the next year. There will be an improvement in overall availability of iron ore.
Based on which, whether we will increase further capacity in Karnataka or not, we will take a call taking into account the availability of iron ore and auction of fresh mines, fresh category C mines. As I mentioned, there are eight mines which are now offered for auction in Karnataka state by the government. The last date for submission of these additional mines for bids is March 12, 2018. There will be more and more iron ore in my view will come into the market either from category C or category A and B.
Hello? Hello. Hello.
Yes. Do you have any more questions, Mr. Athri?
Yeah. The other question was regarding the regulation on iron ore. There were a few talks earlier by the government that the domestic prices should be stable for the steel industries to perform well and increase capacities.
We are seeing sharp volatility in domestic prices much more than the international one. Has there been any steps by government on this aspect?
There is no progress as regards to the government policy on the iron ore pricing. There was a paper prepared by NITI Aayog. That is at the paper stage only. There is no progress on that so far. Today, there is no regulation as regards to iron ore prices in India. It is driven by mining companies and NMDC based on market conditions and dynamics. The only unfortunate thing today is they are taking advantage of shortages, regulatory shortages which are there in India, either in Karnataka or in Odisha. At the same time, there is increase in export of iron ore.
That's why we have been requesting that there should be an export duty on iron ore, not withstanding which grade it is exported.
Okay. Lastly, when do you expect this action on imports of these coated and other products by the government, any duty structure?
Action in coated, what has happened in color coated is the government has introduced the BIS. It was not a BIS controlled product. The BIS has come into operation in this month. We do expect that people will have to comply with the BIS requirements for this product also. In terms of the overall coated, we will have to submit the data to the government. We are approaching them for taking suitable measures with respect to trade measures.
Thank you, sir, and all the best.
Thank you. The next question is from the line of Bhavin Chheda from ENAM Holdings. Please go ahead.
Yeah. Yeah. Good evening, sir. Sir, regarding this VAT exemption in the state of Maharashtra, I believe earlier quarter there was no clarity on how much the VAT refund at what rate of SGST you would get. Is there any clarity on the same and at what rate you have accounted in this quarter?
We continue to account as it was. That is, earlier the VAT was 5%. Last quarter also we accounted at 5%, and even this quarter we continue. So far, no clarity has come from the government. It cannot be lower than 5%. At the same time, there could be a possibility it can go up to SGST level. We do not know finally what is going to happen. To be conservative, we booked only at 5%. That would be an incremental number whenever the clarity comes into play.
Hello? Yes.
Yes. Does state government refund the same because I believe now under new regime you have to actually collect and pay? That would be additional working capital on your books, right? Yeah.
You're absolutely right. Not only this refund, even normal refunds on exports or any other export benefits plus the GST refunds which are supposed to come, they're all not coming in the normal course which used to be earlier. I think the system is yet to be normalized. We have been following it up to get the refunds, which is quite substantial amount which are locked in.
Okay. My second question is on the iron ore. Earlier you mentioned that Karnataka is expected to produce 28 million versus Supreme Court limit of 30, which is now extended to 35. What's your outlook for FY2019 where this 28 million can go next year?
Because I believe private miners would be increasing the production run rate, right? Is there a possibility of hitting the ceiling of 33, 34, or do you think it's a difficult number to get into?
Just to clarify, earlier the limit was 30 million. Right. Divided into two parts, 25 million for Ballari region, 5 million for Tumkur and Chitradurga. Right. How this 30 will increase to 35, under 35, the 28 for Ballari and 7 for Tumkur.
Okay.
Now, in Ballari, there is 25 million heavy and limit. They were producing already to the full extent.
Right.
There is a possibility of increasing by another 3 million as far as Ballari is concerned over the existing production.
Okay.
When 5 million ton was the limit, they were producing only 3 and a half.
Okay.
5 is one of the 7.
Right.
There can be additional production, particularly the two or three mining companies which are there in Chitradurga. Additional can definitely come from there.
Right. Just to complete on the iron ore, my last question. In your five category C mines, you have an annual limit of 4.7 million ton, right, sir?
Right.
That is the annual limit. I think as you were mentioning, you will start two mines in first half, and the balance whenever you get the mining lease approval. Even if it starts in second half, you can potentially do 4.7 full limit if you are able to do that, right?
Possible.
Sorry?
It's possible. The limit for iron ore.
Right. Right. Okay. Okay. Thank you, sir. Yeah. Yeah.
Thank you. Next question is from the line of Kamlesh Jain from Prabhudas Lilladher. Please go ahead.
Yeah. Thanks for the opportunity, sir.
Sir, just on one part, like say under quoted products, like say even if we see the last quarter, our EBITDA per ton were in the range of INR 2,500 per ton. Like say going forward as we are increasing the volumes and even the mix is going to improve, what range can we look at in terms of EBITDA per ton? I know that there's a lot of, like say, pressure from the imports. On a stable basis, how much EBITDA per ton or margins should we look at?
I think the stable range would be probably somewhere in the range of INR 3,000. Sometimes it goes down a little, sometimes it goes up a little. That is what I would say.
Even with the, like say, tin plate coming in or various other, like say, many of the additions which are coming in GI, GI, GI and GP. Even after that, we would be having 3,000 only.
For tin plate, it would be different. Tin plate is a different product altogether. Tin plate will command a different EBITDA per ton, which will be higher. Okay. Okay. That will be separately once we are in the market, we will give you a flavor on that.
Okay. Sir, on the CapEx side, like say we have now reduced our CapEx guidance by around INR 2,000 crore. What CapEx levels can we see in FY 2019?
FY 2019, we will give you a correct number in May. This giving guidance INR 6,000 crore does not mean that we have slowed down any of our CapEx.
Because this is the first year where a lot of orders get placed and only 10% down payment we have to pay. Very little will happen. It will pick up pace in the fourth quarter and thereafter. This expenditure guidance which we have given, overall we have been spending for a period of three years.
Okay. Sir, lastly, on this INR 1,500 per ton quarter on quarter increase, and it is 5% in percentage term. Does it mean that we had a realization of INR 30,000 only?
Actually, this number will be clarified by our investor agency of giving you what is the other sales and what is this number. EBITDA number I am focusing on the sales realization. Those numbers which I gave to you quarter on quarter.
Yeah. Okay. Thank you, sir. Thank you very much.
Thank you. The next question is from the line of Somil Mehta from BNP Mutual Fund. Please go ahead.
Yeah. Thanks for the opportunity. Sir, most of my questions have been answered, just one on the strategy on the NCLT assets. Now, I'm sure there are various metrics, but if you can highlight top two or three metrics, whether it is geographical diversification, debt repayment. What I want to understand is how does between SR Steel and Bhushan Steel, how does Bhushan score over SR? Any broad macro thoughts?
It's definitely India is looking at the look east. We are out of look east. We are there in the south and west. We are look east. There are opportunities which I talked about east. Okay.
In terms of a broad financial calculation between the two, based on our estimation of what kind of cash flows can go into the acquisition and what kind of EBITDA generation, still Bhushan in your assessment would have been better than SR?
That I do not think we will be able to say anything at this stage. We have still a big chunk to go. A lot of data which will come is highly confidential. We will not be able to share anything right now or comment anything.
Okay. Thanks a lot.
Thank you. The next question is from the line of Rajesh Lachhani from HSBC. Please go ahead.
Yeah. Thanks for the opportunity, sir. Congratulations on the good set of numbers. Most of my questions are answered. Just one on the EBITDA per ton.
If you see this time we had one of the highest EBITDA. I just wanted to understand, does this other sales contribute to the EBITDA as well, or this is largely because of steel?
Largely steel. I do not think anything is contributed to EBITDA from other sides.
Okay, sir. Is this a sustainable level of EBITDA assuming the prices stay where they are and the cost is where they are?
Yeah. If selling prices remain at the same level, cost remains the same level, EBITDA will be the same. Our guidance for Q4, generally Q4 will be a better quarter among all the four. We will be able to do a better volume, number one. Number two is the impact of price increases which have been done in the last quarter plus one increase which we have done in January.
That will give you a better SR to us. Cost side, there is cost pressures there like $10-$15 in coking cost, INR 500 increase in iron ore on first January, INR 100 increase on first December. These costs we have to absorb in this quarter. We are reasonably confident that our efforts are being made to preserve the margin of Q3 and Q4. Beyond that, it is very difficult to say what could be the guidance.
Understood, sir.
Thank you. Next question is from the line of Pallav Agarwal from Antique Stock Broking. Please go ahead.
Yeah. Good evening, sir. I just wanted a clarification on the intercompany sales that we do. Other standalone suppose we are procuring iron ore and coking coal, and we are selling it to Amba River Coke. When you consolidate all these, profits would be eliminated on consolidation?
Yes. It will be eliminated.
Okay. Also, on the Amba River Coke EBITDA and Salav that you mentioned, do we have any external sales from those companies? Or again, these are mostly transfers to Dolvi?
This is transfers to Dolvi as regards to Amba River Coke. In the case of Salav, there are external sales.
Okay. The EBITDA from Salav would still be there in the consolidated? It will not get eliminated on consolidation?
No, it will not get eliminated.
Right, sir. Yeah. Thank you. That is it.
Thank you. The next question is from the line of Bhaskar Basu from Jefferies. Please.
Yeah. I just have two questions. Firstly, on long product pricing. I mean, I have seen price series which suggest quite steep jump in long product prices.
I just want to understand whether these are prices at the trade level or it's something at the manufacturer's level also you are seeing almost INR 5,000-INR 6,000 increase.
The prices in the market of long products, especially rebars, are led by the secondary market. In general, that has started moving up from middle of December. That has moved up both from the manufacturers as well as secondary. Manufacturers may be with a lag. Secondary goes first. In terms of sustainability, because of the fact that long product prices, especially for rebars, have been very low, it has been lagging flat product prices for quite some time. We see improving demand as we go into this quarter, January, March. We feel that probably the prices would be sustainable in a range-bound manner.
Do you think this is largely demand-led, or has there been any supply issues as well?
Certainly, there is a demand-led drive. Because whatever projects have been taken off by the government, which during July-September monsoon period, the activity is weak. After that, it has picked up. We see metros, we see roads and highways, we see commercial centers, we see bridges, we see river linking projects without the major river linking, but some river linkings which are already happening in Andhra Telangana. We see major demand emanating from these areas. Going forward, the way infrastructure push is being given by the government, we feel that this year it should be a good demand scenario for rebars.
Okay. Second question is on the coking coal side. I mean, I think you've indicated $15-$20 increase sequentially.
Just to get a reference, what would have been your purchase cost and consumption cost last quarter just so that we can benchmark it with the indices we normally track?
We have seen in the last quarter, to this quarter, it has gone up by $6. We are a little below $190, about $187, $188 on a blended basis CFR for the coking coal ones. That is the level today. From here onwards, we expect that January-March, it will go up between $10-$15 on this blend.
This $187 is your consumption or the purchase cost during the last quarter?
This will be the CFR price landed into the purchase cost. It is a purchase cost, sorry. It is a consumption cost. It is not a purchase cost, it is a consumption cost.
This would have been the purchase cost would also have been similar because I think the average during the quarter was also sometime around INR 190 odd levels.
The change in this differs because at any point of time, you'll have vessels on the sea. The cost in this would differ. That is why we are saying that there would be a push up now.
Okay. Okay. Basically, your consumption cost during this quarter is almost close to the actual average during the quarter. Basically, most of the increase would get realized in the next quarter, and then I think it should come off if coking coal prices come down.
It will increase in the month of March after it tapers down in the following quarter.
Right. Thanks. That is all from my side.
Operator, can we take the last two questions, please?
Sure. Due to time constraints, we'll take the last two questions. We'll take the next question from the line of Vikas Singh from BNK Securities. Please go ahead.
Hello. Vikas, the person. Yeah. Just wanted to understand one thing, sir. Last quarter, if I remember correctly, then we have said that our realization was lower than industry average because of some exports order executed at very low prices. This quarter, this 1,500, out of this, how much is because of that rolling back to the normal prices of exports?
International prices in the Q3 quarter have been better because international prices improved from Q2 to Q3. Part of the push which you're seeing is on account of the international export pricing. That is correct. The domestic price increase has also been there, but there the impact has come towards the later part of the quarter.
Sir, secondly, we have a crude steel capacity of 18 million tons. Taking the air loss, is it safe to assume that at max we would be doing roughly close to 17 million tons of sellable steel, and then we have to wait till Dolvi or some inorganic expansion comes in?
From April 2019, as we will be able to clarify and give you correct numbers this spring. One point which I have been highlighting is that our installed capacity even for next year is equally more than the same. How much growth will be there? We will share with you in May, May 2018.
Hello. Sir, your voice is breaking.
We are in the process of our business plan formulation for the next year. We would be able to give you some more details in the May meeting. In such a time, what Mr.
Rao is saying is that he's highlighting that the capacity remains 18 million tons. That is the only thing which you probably will need to keep in mind even for the next year. We will be able to come back to you with some more details in May.
Okay. Sir, lastly, if you can highlight on the increase in iron ore prices like coking coal prices, if current prices prevail for the rest of the couple of months for 4Q?
As I mentioned to you, $500 increase which NMDC has done from first January. On that, again, there is a tax on royalty. That additional cost needs to be absorbed in the entire quarter, on the entire quarter. Similarly, the $100 increase which has been done by NMDC on first of December. The full impact will come in the entire quarter in this quarter.
Okay, sir.
That's all from my side. Thank you for taking my question.
Thank you. We'll take the last question from the line of Abhijit Mitra from ICICI Securities. Please go ahead.
Yeah. Thanks for taking my question. Just had a query on some of the bids that we are seeing from you in the NCLT domain. Just to understand the asset where monetary days have completed, which is Monnet. What are the upstream, downstream imbalance, if any, that you see in that asset that investing behind that can lead to easy increasing capacities? Or do you feel the potential is more on the cost energy side or probably on the costing side like what you did with Ispat precisely five years back? If you can throw some light, where the opportunity lies for this particular asset, it would be of great help. Thanks.
Unfortunately, we will not be able to give or comment anything on this bid. If at all we are a successful bidder, then we would like to come and share with you at the relevant time. As of date, we are bound by confidentiality agreements which we signed to get the information from the data room. I will not be able to share anything right now. Okay. No worries. That's all from my side. Thanks.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management for closing comments.
Thank you. The Q4, as I mentioned to you, is appearing to be better than the Q3 in terms of volume and the stability in the prices and maintaining the patterns.
There is an opportunity for us to get some more additional mines in the state of Karnataka. We will continue to make efforts to see that our financial ratios, as we have been guiding, will be maintained. Our guidance with regard to volumes, we work very hard to see that 15.5 million tons sales target is achieved. The pace of CapEx will increase. Only next year, I think some benefits which would flow from the CapEx that are getting completed in this year and also next year from DCPL, Dolvi Coke Oven Plant, Tin Plate in the downstream, plus Pipe Conveyor in Vijayanagar. These are the three major areas where cost reduction or improvement in the volume or product mix that will give incremental benefits to us. Thank you.
Thank you very much. On behalf of Kotak Securities, that concludes this conference.
Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.