Ladies and gentlemen, good day and welcome to the Q2 FY 2022 earnings conference call of JSW Steel, hosted by Prabhudas Lilladher Private Limited. As a reminder all participants' lines should be on listen only mode and there will be an option to ask questions after the presentation concludes. Should you need assistance during the conference please signal the operator by pressing star the zero on your touch-tone phone. Please note that this call is being recorded. I will now hand the conference over to Mr. Kamlesh Bagmar from Prabhudas Lilladher Private Limited. Thank you, and over to you, sir.
Yeah. Thank you, Ritujah. Good evening, everyone, and thanks for logging in for JSW Steel 2Q FY 2022 earnings call. Firstly, I want to thank the management for giving Prabhudas Lilladher Limited an opportunity to host the call. Now, I would hand over the call to Ashwin Bajaj, Group Head, Investor Relations, to introduce the management and take the call forward. Over to you, Ashwin.
Thank you, Kamlesh, and thanks for hosting the call today for us. Good evening, ladies and gentlemen. This is Ashwin Bajaj, and it's my pleasure to welcome you to JSW Steel's earnings call for Q2 FY 2022. We have with us today the management team represented by Mr. Seshagiri Rao M.V.S., Joint Managing Director and Group CFO, Dr. Vinod Nowal, Deputy Managing Director, Mr. Jayant Acharya, Director, Commercial and Marketing, and Mr. Rajeev Pai, Chief Financial Officer. We will start with opening remarks by Mr. Rao and then open the floor to Q&A. With that, over to you, Mr. Rao.
Good evening to everybody. I welcome you to the briefing of our second quarter performance for the financial year 2021,2022. The second quarter generally is little subdued due to monsoon in India. At the beginning of the quarter, we thought we had to tackle about subdued demand in India, and we need to do more exports. There were the kind of surprises and challenges that have come in, there's energy crisis. That shortage of energy across the world has brought a lot of volatility. coking coal prices have shot up to unsustainable levels of $400 a ton. That is in a very short span of time. Over and above that, the Chinese policies, which are weaving around the two themes of widespread or common prosperity, and also the decarbonization. Those policies which have been finalized by China, that led to a visible slowdown in the overall economy.
That also led to lower investments in the residential property sector. We have seen a contracting steel demand in China month after month. In the month of July, we observed that the steel demand has fallen by 13%, which went down in the month of August by 18%. In the month of September, it went down by 24%. The steel demand in China in the first nine months of the calendar year has fallen to 731 million ton as against 736 million ton in the previous nine months. 0.7% lower demand in China, majorly due to the reasons which I just explained. The rest of the world is not exactly the way Chinese steel demand has fallen.
Notwithstanding the resurgence of infections in some regions and the resulting lockdowns, and energy crisis in some of the regions, we have seen a good steel demand as far as rest of the world is concerned, majorly due to strong manufacturing activity, lower interest rates, and government focus on the infrastructure, energy transition. These are the reasons which we could see why the steel demand in the rest of the world was stronger. Taking these factors into account, WSA, when they gave a short range outlook in the month of October, were exactly on the dot. They said the steel demand in the current calendar year will grow by 4.5%.
If you look at region-wise breakup of the demand, China's demand will come down by 1%, which we already mentioned that it has come down by 0.7% in the first nine months, is more or less similar to what WSA have been saying. In the rest of the world, the steel demand will grow by 11.5%. What I would like to share with you is that at one side where Chinese steel demand is falling, rest of the world's steel demand is reasonably okay. In this context, if you look at as far as India is concerned, we have consumed 49 million tons of steel in the first six months of this financial year, which is almost 13 million-14 million tons more than the corresponding period of last year. Generally, the second half will be much better.
Already we are seeing signs of improvement in the construction infrastructure project following the monsoon. We expect as we guided in the beginning that the demand in the second half will be strong, and we'll be close to 110 million ton as we have mentioned. In addition to this, there are some more developments which I would like to share with you. I'm very happy to say that our respected Chairman and Managing Director, Mr. Sajjan Jindal, has been elected as the Chairman of World Steel Association for the year 2021,2022. It's the first time an Indian representing to occupy this position and to serve this position. You also must have noticed in our communications to stock exchanges and press releases, we have issued world's first dollar-denominated sustainability-linked bonds from the steel sector globally for the first time.
I am also happy to share that JSW Steel secured the Steelie Award from WSA for excellence in the life cycle assessment for development and promotion of new product, JSW Neosteel TMT Bar. In addition to that, one historic and notable event that has happened is the commissioning of the first time 5 million tons brownfield expansion commissioning at once in India. We have commissioned the largest blast furnace along with the melt shop 350 tons converters. This is a very important event in the history of JSW Steel. As we have guided that there will be a production of 1.5 million tons incrementally from our expansion project, and we will be able to sell 1.4 million tons from this expansion. Now it will be a reality.
I am also happy to share that it is a very smooth startup, and we are reasonably confident that we will be able to ramp up the capacity quickly. In this context, if you see our results, it is highest ever consolidated quarterly revenue, highest operating EBITDA, and highest net profit. The volume numbers, as we have already shared, is 4.1 million tons of crude steel production, 91% capacity utilization. If there were no shutdowns at Vijayanagar plant for converters and also Salem plant and blast furnace, the capacity utilization could have been higher. That is why you would see sequentially a flat capacity utilization and production. The sales on a standalone basis is 3.787 million tons. On a consolidated basis, it is 3.83 million tons. What is interesting in the sales profile is that our exports have gone up.
As I mentioned, that the domestic demand in this quarter is bit subdued. We have supplemented with higher exports in this quarter. It is 38% of the total sales, a growth of 22% quarter-on-quarter in the overall export mix. Our value-added steel product mix has been at 60%, having been 51% in the previous year. We have maintained like in the quarter one. Quarter one is around 61%. We are more or less at the same level as regards to sales of our value-added steel products. Our retail sales have gone up quarter-on-quarter by 25%. Our branded sales have gone up. Our sales in the solar and appliances segment have gone up quite substantially either on quarter-on-quarter or year-on-year. These are some of the highlights of our sales mix.
In spite of that, if you look at the sales consolidated number is 3.83 million tons. On a year-over-year basis, it was slightly lower due to mainly accumulation of inventories, which has happened in the first half of this financial year. It is almost half a million tons accumulation of inventory when I compare with as on March 30, 2021. If I compare 30th June , it is a 1 lakh tons more inventory. As we have been explaining the kind of constraints in the port logistics, availability of containers, and the very high shipping price, they are some of the reasons where the port stock remained at elevated levels even during this quarter. Our effort is going forward that to reduce these inventories that are accumulated almost half a million tons in the first half of this year.
If I look at the blended NSR cost and EBITDA per ton on a standalone basis, the blended NSR quarter-on-quarter went up by 5%. The cost pressures are severe. These are two points. One is coking coal prices have gone up globally. We have been guiding that in this quarter, there will be a $30 per ton incrementally cost we need to absorb on the coking coal that got reflected in the consumption. What has happened in the iron ore prices because of the lower demand by China, the prices crashed from $213+ globally to $120 per ton, which is almost 50% reduction globally.
As Indian iron ore prices have not moved the way global prices have moved, that is why we have to bear the brunt of very high unsustainable coking coal prices that have gone up because of various reasons globally. Over and above that, the benefit of lower iron ore prices internationally has not come to the Indian steel industry because the prices are still at elevated levels in India. Because of this reason, the cost sequentially went up by 19% when the blended NSR went up by only 5%. The net impact of this, the EBITDA per ton on a standalone basis was INR 22,900 per ton, sequentially lower by INR 3,374. The EBITDA standalone is INR 8,673 crores. Only other income, just I would like to highlight one point, is that Bhushan Power and Steel at the time when we made the investments through an SPV.
We have mentioned that we hold 49% in the company and we also hold Optionally Fully Convertible Debentures, balance instrument, where we have a right to convert into equity. As and when it gets converted, our holding will go up to 83.28%. We exercised that option as on 1st of October 2021. From October 1st, 2021, now we have control through SPV in BPSL. We hold 83.28%. From third quarter onwards, there will be a consolidation of BPSL results and the debt while we announce Q3 results onwards. At the time when OFCDs were to be converted, there is a remeasurement of the fair value of OFCDs. When we did that, there is an additional income which has come as other income, which is approximately INR 702 crores net of tax.
The net profit has gone up due to this is INR 559 crore. After considering that, the profit after tax on a standalone basis is INR 5,383 crore. Our iron ore captive has gone up from 42% to 50% in this quarter. Coming back to the overseas operations, as we have been guiding, there is a continuous improvement in the overall operations. The EBITDA from U.S. operations, both Baytown and Mingo together, it went up to $61.4 million as against $43 million in the last quarter, sequential quarter. There is a good improvement as per the contribution from U.S. is concerned. At the same time, the Italian operations also recorded a positive EBITDA in the last quarter, which is EUR 6.1 million, as against a loss of EUR 5 million sequentially in the quarter one. From overseas, I think it is a good turnaround.
The EBITDA contribution was INR 485 crore compared to sequential number of INR 282 crores in the Q1. Indian subsidiaries also have done quite well. Either Coated, ARCL, VTPL, other subsidiaries, all together contributed INR 1,194 crores. Sequentially, it is higher when compared to INR 1,145 in the Q1. The net addition after adjusting consolidated adjustments, this has given on the consolidating INR 1,745 crore EBITDA incrementally, both Indian and overseas operations together. With that, the operating EBITDA on a consolidated basis is INR 10,417 crores. Here, what is important here, as we have been guiding, in the Q1, the EBITDA was INR 10,274 crores. In the Q2, notwithstanding the EBITDA margin per ton has come down, still we could show a higher EBITDA in the Q2 over Q1 is INR 10,417 crores, which is 32%. EBITDA per ton was INR 26,172 per ton in the quarter two.
Over and above contribution from overseas operations and also Indian subsidiaries, the joint venture companies under control, particularly BPSL, have done extremely well. In the last quarter, they have posted a net profit of INR 1,448 crore. Taking into account the proportionate profit pertaining to JSW Steel and also proportionate from Monnet, additionally, the share of joint venture contribution was INR 603 crore in the last quarter as against INR 323 crore in the quarter one. With all this, I think the highest ever profit after tax of INR 7,179 crore for the quarter. Here, what is important is that in the entire financial year, FY 2021, when JSW Steel posted an EBITDA of INR 20,141 crore. In the first half itself, the EBITDA posted by the company is INR 20,691 crore. It is higher than the entire year of last year, the first half EBITDA.
Similarly, the profit after tax number, it is INR 13,079 crore is the net profit for first 6 months as against INR 7,873 crore of last year for full year. One more thing here is generally when we announce the results, we don't add the production and sales numbers of the companies under joint control and also overseas operations. If you look at the standalone production number was 4.1. If you add the Mingo Junction production and also the Monnet Ispat, the JSW Steel, JSW Ispat Special Products, and also BPSL, both together, 5.07 million tons of crude steel production in one quarter we have done. If I look at the first half, this number is 10.14 million tons. In the Q2, there is a growth of 29% in the crude steel production.
Similarly, in the sales side, the similar number on a comparable basis is 4.83 million tons, which is a 14% growth. These are all very sizable numbers in terms of both production and sales if I consolidate the companies under joint control also. The overall debt of the company has gone up slightly in this quarter compared to Q1, is INR 55,394 crore rather than INR 54,900 crore. There is a INR 500 crore approximately the increase in the net debt. There is an increase in inventory and overall working capital investment happened in the first six months. Total INR 8,200 crore is the total investment which we have made in the working capital, either in terms of increase in inventories or increase in iron ore inventories or the stocks built or raw material built for commencement of production that are building in it. Altogether is incrementally INR 8,200 crore.
We expect part of this INR 8,200 crore will get released in the second half. The debt-to-equity, debt-to-EBITDA, everything has improved substantially either compared to 30th June or 31st March. I'm also happy to say that the projects which we have taken up at Vijayanagar, brownfield expansion of 5 million tons, is progressing quite well. What is not commissioned at Vijayanagar is only CGL2 that we will be commissioning in Q3 2022, and one color-coated line that is in Q3, we'll commission that also. The coke oven plant we will do in phases, partly in this financial year, partly in the next financial year. These are what is going on at Vijayanagar other than brownfield expansion. At Vasind and Tarapur, more or less everything has been completed except in one galvanizing line which we are commissioning in this quarter.
CAL line and tin plate line that we will do in March and June 2022. With that, these projects which we have taken up in the last three years more or less get completed. The outlook, yes, I would like to spend one or two minutes here. As regards to the overall demand, as I mentioned, we expect Indian steel demand will pick up in the second half. As far as global steel demand, particularly very encouraging when we hear WSA short range outlook. We expect this demand will remain strong going forward and it will accelerate as far as India is concerned. The iron ore side, the kind of demand which is falling from China. We expect iron ore prices to fall further from the current levels. Coking coal prices are at a very elevated level.
We anticipate that there will be some correction downwards in the coking coal prices. As long as these costs remain at this level, we expect steel prices also to pick up. They won't fall down because of very high and elevated cost pressures which are there right now. In view of this volatility which we have seen in the coking coal price, which is very difficult for any company to manage, we are also observing what is happening globally. The companies, when such exceptional situations arise, they contemplate looking at additional surcharges to pass on those unsustainable increases. As and when the prices come down, the benefit will pass it down to the customer. If it goes up, it will be increased.
We are also looking at very seriously the kind of volatility we are seeing in the coking coal prices and our Indian steel companies dependency on input of coking coal. We're also looking at whether we should introduce the energy surcharge compensating for the increase in the coking coal prices. The Dolvi operations are concerned, as I mentioned, the expansion project, the cost will be lower. When comparing to the existing operations, which is gas-based and the DRI is used in the mix, whereas in the expansion project it is completely hot metal. The costs are expected to be significantly lower in our expansion of Dolvi unit and almost 1.5 million ton production and 1.4 million ton sales from Dolvi expansion. We expect the benefit of lower cost will come to us. With that, I open the floor for any clarifications or questions. Thank you.
Thank you.
Operator, over to you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Good evening, sir. Thanks for taking my question. I have a couple of questions. The first one is on the pro forma debt, including BPSL. What would be the EBITDA of BPSL in this quarter, and what is the same that you are contemplating for the year?
The EBITDA for BPSL in the quarter two, the net profit was INR 1,448 crores, and the EBITDA was INR 2,022 crores.
And sir, pro forma debt number, including the BPSL.
In the BPSL, the debt outstanding as on 30th June was INR 9,000 crores. We have prepaid part of the debt in October. We have prepaid INR1400 crores. INR 1,800 crores in this quarter. The debt will come down INR 9,000 minus INR 1,800 crores. The pro forma will have as on date is INR 7,200.
It will be like if I add it to the INR 55,000 plus INR 7,200, whatever it is. That is the pro forma debt of the company as a whole. As of now.
Right.
The second question, sir. We have seen that in this quarter, it has come down significantly compared to last quarter. Any specific reason for the same?
Can you repeat the question, please?
Sir, iron ore royalty cost that we report on P&L in the standalone numbers, it has come down significantly. Just wanted to know the reason for the same.
In the last quarter, our one year MBPA commitment we had to meet in June. That's why the dispatches were significantly higher in the last quarter. In this quarter it is lower by 3 million tons. Whatever we have commitment corresponding to this year, to that extent we have done. If you have seen in the previous year, in the quarter one and quarter two, the dispatches were lower. That was made up in the Q3 and Q4, and also partly in the Q1. That is why the premium paid in the Q1 quarter was higher relative to the Q2. The dispatches were lower by 3 million tons.
Okay, got it. This is more the reflective of a sustaining royalty going ahead.
Sorry.
This is more a reflection of the sustainable royalty level that we can consider, the premium level actually, if your dispatches and all remain the same.
Okay. Approximately at that level. The premium will depend upon market price. We have to look at what would be the market price. It can go up or down, but the volumes will be in the similar range.
Great, sir. Thanks and all the best.
Thank you. The next question is from the line of Pinakin Parekh from JP Morgan. Please go ahead.
Thank you very much, sir. My first question, I'm sorry, but I did not get the number. You mentioned BPSL EBITDA in this second quarter was how much, sir?
2022, EBITDA per ton was INR 23,000.
Sir, just trying to understand that EBITDA per ton at BPSL was INR 23,000, and for JSW Steel standalone operation was also similar number. Do you expect this convergence to stay because expectation was that the asset was a relatively higher cost asset, and it will take some time for the margins to recover.
Sorry to interrupt you, Pinakin, but your voice is breaking, sir. Can you please check?
Sure. Sir, the expectation was that the BPSL asset was higher cost, so the margins are similar, sir. Should we expect this convergence of margins to sustain?
Number one, when you compare with JSW Steel on a blended basis, you have to look at, we have multiple locations and the cost structure in each location was different. Look at Dolvi, it is completely natural gas based plant, so the cost structure was different. The iron ore cost for getting from Odisha is different. Similarly, Vizag cost structure is different. EBITDA margins per ton on location basis is different. As far as BPSL is concerned, there are a lot of things which are happening, as I mentioned to you, cost reduction where PCI is getting commissioned. We have recently commissioned the coke oven plant. There are a lot of things which we have done to reduce the cost further. Assuming that steel prices will remain at the same level, then BPSL should do well going forward.
Understood, sir. This is very helpful. My second question is just trying to understand the steel price versus coking coal cost movement going forward. Correct me if I'm wrong, but what we understand is that flat product prices have seen a significant price hike in the month of October. Is it logical to assume that JSW will sell more in the second half to basically take care of higher premium? There is also the tailwind of off price contracts in reset. There will be a material NSR increase. Against that, sir, there will be a coking coal and gas price increase also, both of which in mid-term. How should we look at this point of time? Will it contract materially or will it hold out at more toward the second quarter levels there?
On the coking coal side, the numbers which we had guided last time for Q2 was $30-$35 more than the previous quarter. That has played out. We were in the range of $158 for Q2. We expect that the coking coal price impact for Q3 will be higher by about $95-$100 per ton. As you said rightly, the impact of the cost increase is getting reflected gradually in the market. The prices of steel products in India, which was lagging the international price cycle, is now going up. October, we have seen some price increases. Going forward, in November and December, we see price adjustments going upwards to balance the cost increase.
This we can play out on the iron ore side, the cost reductions which we are expecting on the iron ore side could neutralize some of the cost impact.
Sir, what about the gas cost increase at Dolvi? What is the way JSW sources gas for the Dolvi operation?
Natural gas, whatever we are buying both at Dolvi and Salem is at the market price because there's nothing available under APM. We are buying whatever market price is there. That's why the cost of one-off as far as Dolvi is concerned. Here, what is important, as I mentioned, is the expansion project is not gas-based. The cost there is, as I mentioned, close to 15%-20% lower than the existing operations in Dolvi.
Understood. Thank you very much, sir.
One more important information is the total debt of BPSL when we took over was INR 10,800 crores. At the same time, we also had in the SPV additional debt of INR 2,500 crores. Total debt which we raised is INR 13,300 crores, including the debt in the SPV. Out of that total paid, including payments made in October is INR 3,300 crores was repaid. The balance debt that is there today is INR 10,000 crores. That is one correction to the numbers which I mentioned.
Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities. Please go ahead.
Good evening, and thank you for the opportunity. Just continuing on the previous question, just want to understand this coking coal cost a little bit better. One is, $95-$100 is on a per ton of coking coal are we talking or on the steel front? Second, what will be our inventory in terms of number of months? For the fourth quarter, are we already buying at the current $350, $400 per ton prices?
This cost, which we indicated $95-$100, is per ton of coking coal. As far as the inventory is concerned, we usually have inventories of about two months in the system.
Understood. With respect to, is there any hedging or any long-term or medium-term contracts available in the market which we might benefit from this quarter? Or is this entirely on market-based?
The liquidity in the coking coal market, as you may be aware, is limited from a futures perspective. I think we have contractual pricing and index linked mechanisms for coking coal, which would be the way of calculating the cost for coking coal arrivals into India. However, our stocks in the system which are there will be about 45 to 60 days.
Understood. Thank you.
As to the cost is concerned, as Vinod Nowal mentioned, around $95-$100 per ton of coking coal is an increase which we may have to absorb in the quarter three. At the same time, iron ore prices, where correction has happened from INR 6,560, peak we have seen in June, to INR 4,760 current price, INR 1,800 per ton, where NMDC has reduced the prices. This reduction in the iron ore price, that also will get reflected by way of the lower iron ore prices. It's not more reductions that may happen in iron ore. That will compensate to some extent the increase in the coking coal cost. The third point is the Dolvi expansion, which I already highlighted, that it is significantly lower, 15%-20% lower than the existing operations. That benefit will also come in the Q3.
Over and above that, the turnaround of overseas operations, which also I touched upon, where the capacity utilization at Mingo Junction and Baytown is in the range of around 50%, 55%. That is expected to go up. Some more upside in terms of overall improvement in EBITDA from overseas. Similarly downstream, where the contribution by JSW Coated was in the last quarter, significantly higher than either Q1 or corresponding quarter of last year. We expect more volumes from Coated and better margins there. All this together, these are the additional benefits which would flow over and above the volume growth in India, which can happen. In addition to all these factors, we are also contemplating, as I mentioned about, can it be success? Is it possible to pass it on if the current unsustainable coking coal prices continue? Hello? Hello?
Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please go ahead.
Hi. Thanks for the opportunity. My first question is on the royalty that was payable on iron ore transferred to BPSL from JSW. What is the rate of royalty we are paying on that iron ore? Once BPSL comes in as a subsidiary, will it have a lower rate of royalty or because it's a subsidiary, we will continue with the higher rate after the company comes in our way?
As per my understanding, as per royalty payment is concerned, any mines which are secured in the auction, those companies can supply to subsidiaries for captive customers for up to 25% of the total production without any implication of additional royalty. Anything that is to be supplied in excess of 25% from the captive mine, then their extra royalty is applicable. Similarly, other than captive mines, for instance, today we have four mines. Out of four mines, in Odisha, only Narayanposhi is the captive mine. Balance mines, I think we'll be able to supply without any problem, because we can supply to anybody. There's no restriction in the auction mines other than captive. Captive, 25% we can supply.
Sure. Thanks a lot. My second question is on the surcharge that you referred to on the higher coal cost. What would be the difference between taking it as a surcharge and outright increasing the prices? I mean, we can also change prices as and when the costs go down. Is there any other implication or is it more like having a separate line item for that?
The coking coal prices, the way it moved up every day, $15, $20 per ton, this is very difficult for any company to manage this type of volatility. At the same time, the way it went up, it may come down also. Actually, we don't want to have any extra from this increase in coking coal or reduction in coking coal. Whatever the base, the prices have gone up, we wanted to put separate line item. If it comes down, the benefit will be passed on. This is what we are contemplating. We have not taken the call yet.
Sure. Lastly, again on BPSL, any kind of runway that we should be looking at for the second half and next year in terms of production and sales volume? What's the kind of ramp-up we can expect?
They're operating right now at a level of, annualized basis, 2.7 million-2.8 million tonnes. They're already spending money to complete the expansion to 3.5 million tonnes and 3.5 million-5 million tonnes. The reduction in the cost of production by setting up the coke oven plant, the BCA system, the lime plant, plus other improvements which they are doing, they are spending almost INR 1,000. This will get completed partly by end of this financial year and also partly in the next year. These benefits also will come, higher volumes, lower costs, that can come in from BPSL.
Sure. That's all from my side. Thank you much.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to two per participant. For any further questions, you may come back for a follow-up. The next question is from the line of Abhishek Potdar from HDFC Mutual Fund. Please go ahead.
Yeah, thanks for taking my question. Sir, in terms of steel realization, compared to Q2 average, how has the spot rebar and HRC prices moved? Any color on that?
You're asking, your question is regarding movement of current prices with average?
Yes, sir. Just trying to see how much increase we have taken.
Okay.
In the increases in the month of October, we have been able to begin. The month of July to September in India from a demand perspective was weak on a seasonally weak quarter, and we mentioned that in the earlier deliberations. The price improvements have started taking place from October. We have increased between INR 1,250-INR 1,500 in the flats as on 1st October for the month of October. We have increased long products in the range of INR 3,500 per ton beginning of October. There have been some intermittent increases during the course of the month for some retail markets. I think that is for a smaller portion of the volumes. We are looking at how the overall demand and the price absorption plays out, and we are hoping to increase prices and collect it upwards from 1st November.
How to do the surcharge mechanism as a factor of the price is something as we said we are contemplating and will look into and accordingly comment.
Understood. Compared to export realization, how does the HRC price in domestic market faring for us?
As we had mentioned earlier also, the international markets over the last six months have been very robust. International prices have been higher. As we know, in U.S. and Europe, the prices are much higher than what is prevalent in Asia. India has been among the lower price markets globally in the past few months. We are now seeing Indian prices picking up. If you were to look at the value added space, I think the international markets and Indian markets will probably be very similar in nature with respect to realizations going forward. As far as hot rolled is concerned, I think there are certain markets which are restricted right now because of certain quotas and certain safeguard measures. Hot rolled prices vary from region to region.
By and large, I would say that the domestic price pickup post November may make the domestic prices slightly higher than the export prices.
Understood. Just one last question regarding the tax losses at BPSL, how much is there and how we'll be utilizing it?
It remains as a separate independent entity until Supreme Court judgment comes in, final outcome comes in. Here only our holding has increased to 83%. It has become subsidiary today to SPV.
Okay, understood, sir. Thanks.
Thank you. The next question is from the line of Vishal Chandak from DAM Capital. Please go ahead.
Yeah. Thank you for the opportunity. Congratulations on a very good set of numbers. My first question was with respect to the thermal coal prices and how is it going to impact our cost of production in the third quarter, given the strong rise in the international coal prices.
Thermal coal prices are going up because we have a 600 MW captive unit at Vijayanagar and also PPA with JSW Energy for another 600 MW. On these 1,200 MW, whatever cost increase that will happen in the variable cost due to increase in the thermal coal prices, so that would come in. The point here is, we are setting up or we have already commissioned part of it, a 235 MW power plant using the gases that would come out of blast furnace and coke oven at Jamshedpur. There, the cost increases won't be there due to power. In fact, power becomes cheaper. That's why I have been repeatedly highlighting that the cost of operation of the expansion project is much cheaper compared to the existing operation of 5 million tons at Jamshedpur.
This power cost will be much lower in the expansion project.
Sir, would it be safer to assume that the overall thermal cost impact would be close to about INR 3,000-INR 2,500 on a blended basis at the company-wide level in Q3? Still a high rate for coal is imported.
Generally, we average 600 units per ton of steel is the consumption. I leave it to you how much it will take based on thermal coal price. Every day it goes on changing. It's very difficult to say this is the price. Whatever price you take per unit and add to that 70%, 80% towards fixed cost. That is the cost of power.
Sure. My second question was again with respect to BPSL. Now we are increasing the capacity of BPSL from 3.6 million tons- 3.5 million tons through balance of plant. By when can we expect BPSL to reach 3.5 million tons capacity?
It is operating at 3.5 million tons.
Sure.
As on date, it is operating at 100% of existing capacity. We are spending INR 1,500 crore for cost reduction, plus expansion to 3.5 million tons. This is expected to be completed in the first half of next financial year. The expansion from 3.5 million tons- 5 million tons, we are spending another INR 2,000 crore. That is expected to be completed by end of FY 2023 or in the early FY 2024 financial year.
If everything falls in place by end of FY 2023, BPSL itself would be 5 million tons.
Correct.
On top of it, we have Vijayanagar coming in by second half of FY 2023 with another 5 million tons.
No, Vijayanagar 5 million tons will come by FY 2024 end.
In three years time frame, sir, about 15 million tons or now 12.5 million tons of incremental capacity. Are we looking at exports market again, or we believe that Indian market would be wide enough to absorb this kind of a volume?
Vishal, which I mentioned in my opening remarks that the demand will be 110 million tons in this year, as against 94 million tons last year. 16 million tons incremental demand, which we are expecting. The exports last year was 17 million tons. In the first six months, we've already done 11 million tons as a country. Exports are quite strong from India. Taking these two factors into account, in my view, there is enough demand that would be available in India to absorb the capacity. If capacities don't come, there could be shortages.
Mr. Vishal Chandak, may we request you to please rejoin the queue. We have participants waiting for their turn. Thank you. Participants are requested to please limit your questions to two per participant. The next question is from the line of Bhavin Chheda from Enam Holdings. Please go ahead.
Yes, sir. Congratulations on turning around overseas subsidiaries and good performance at Bhushan Power also. It's a positive surprise. First question on Bhushan Power, there was no exceptional in this INR 23,000 EBITDA per ton. If the things remain constant assuming steel price hike and coking coal increases, the EBITDA then will be in line with whatever JSW Steel is doing right now?
Bhavin, the way you have to look at the EBITDA per ton numbers is JSW Steel, you are comparing the standalone numbers with BPSL integrated operation, including downstream.
Yeah.
If you really want to compare apple to apple, you have to add JSW Coated EBITDA also to JSW Steel standalone and then compare. It is definitely on a blended basis it is higher. BPSL out of the 2.8 million tons, a significant portion of that is downstream. That is why the margins are quite healthy.
Sure. Sir, what was the figure of revenue and capital acceptances in the quarter?
Raw material acceptances slightly have gone up because coking coal prices have gone up globally. It is INR 1,014 million is the raw material acceptances. The capital acceptances will continue to pay. It is outstanding at INR 369 million. It is INR 1,383, both raw material and capital acceptances together, which has come down from INR 1,520 in the 30 of June. There is a reduction in the overall acceptances, majorly in the capital side.
Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, Two questions. One is, how should one understand or make up the residual 17% stake in BPSL? Any timelines or targets that you're looking at over here?
After conversion now it is 83.28% and balance is held by the group company. That is the amount they have contributed. That is why their holding is around 17% as on date. In addition to that, there is a INR 2,500 crore of debt outstanding along with accrued interest in that company. In the SPV, what I'm going to say. That INR 2,500 crore, there are warrants that are available both to the shareholders. At that relevant time, who will contribute, how much they'll contribute to the INR 2,500 crore payment. Based on that, the holding can undergo a change, but as on date, INR 2,500 crore sitting is a debt. It is 83% and 17%.
Right. Sir, I was trying to understand, basically you indicated by the Supreme Court verdict, which is also there and there is a fact finding also which is there. I was just trying to understand, when will we see the entity entirely merged so that there could be a tax benefit at a consolidated level as well.
If you see the ratios today, they are comparable what the JSW Steel ratios are there. Because of the Supreme Court litigation is pending, it will be very difficult to hazard a guess when it will be decided, when we can take a call on this issue, when we can decide on this issue. Therefore, we have to wait eventually for the Supreme Court litigation outcome. Pending that now, consolidation will happen as a subsidiary.
Thank you. The next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Thank you. Just trying to understand, you're saying that coking coal prices will go up at about $100 in this quarter. That's obviously not capturing peak prices. While you're anticipating steel price increases to come through in the next couple of months, would they be enough to offset that inflation? Secondly, what is your bandwidth that you're likely to see in the iron ore prices in this quarter?
Iron ore prices, as I mentioned to you, there is an INR 1,800 reduction in India, which is not reflected to a major extent, the benefit in the account in Q2. That benefit will come with any further reductions. If I look at the drop in international prices versus local iron ore prices, there's a big gap. We expect some more corrections will happen in iron ore prices, that benefit will come. That will neutralize to some extent the increase in the coking coal price.
Okay. The other thing is that the energy surcharges that you were referring to now, it's obviously steel price increases in India have been slower, given that they've been more or less constant in the last few months, and now also it's a gradual up move. Will it be easy to, even if you bring in energy surcharge, you're going to pass on the benefits eventually when they are sold, but will you find it easy to pass it on if implemented?
It is a new concept to India. As far as overseas is concerned, not only in steel sector, in other sectors it is prevalent. Concept is known. That's why we are not saying we've already taken a call to do this. We are contemplating because the markets are so uncertain, so volatile. Every day it goes up by $50 and comes down by $50. It's very difficult to manage that type of volatility. This concept, which is internationally accepted principle, we are also looking at. We'll discuss it to our customers and then take a call.
Thank you. Just one last question on Bhushan Power. Next year's CapEx will be around INR 2,000 crores, right? How much are we building for this year?
Total CapEx is INR 3,500 crore, including INR 1,500 crore for capacity expansion to 3.5 million tons and cost reduction. Both together is INR 3,000 crore. This amount will be spent over a period of two and a half years.
Okay. Thank you.
Thank you. The next question is from the line of Siddhay Saikar from UTI Asset Management. Please go ahead.
Hello, sir.
Yes.
Hello.
Yes.
Sir, just for understanding. First of all, congratulations for good set of numbers. Bhushan Power, you told total debt is around INR 13,300 crore, which is INR 10,000 in JSW and INR 3,300 in this one, SPV. First, this INR 3,300, is it included in the impact that we are seeing in INR 55,000 crore? Second, when you said that out of this INR 3,300 crore has been repaid. Is it the SPV only, means entire INR 10,000 now only in JSW?
No, I think I have to correct you. The numbers which I gave to you, at the time when we took over Bhushan Power & Steel, the debt was INR 10,800 crores. There was another INR 2,500 crores in the SPV. The total debt at the time of takeover was INR 13,300 crores. Out of that, we have prepaid INR 3,300 crores. That means BPSL plus SPV together, the debt outstanding is INR 10,000 crores.
Okay.
This INR 10,000 crores is not included in JSW Steel INR 55,400 crores number, which we have given it to you. When we consolidate in this quarter, then it gets consolidated along with the EBITDA.
Okay. Currently it is out of this 55,000.
Correct.
Okay. Thanks.
Thank you. Ladies and gentlemen, this will be the last question for today, which is from the line of Rahul Jain from Systematix. Please go ahead.
Yeah. Hi, sir. I just want to check on your volume. Are we maintaining guidance for this year of 18.5 and 17.5 of production?
If you see, Rahul, the first six months, we have posted a production of 8.2 million tons from existing operations. We have given the guidance of 17 million tons from existing operations. If you can make adjustments of shutdowns, which has happened in the Q2, and oxygen shortage in the Q1, which will not be there in the Q3 and Q4. 17 million tons we'll be able to achieve from existing operations. Similarly, the way we have now a smooth commissioning of our expansion project, that 1.5 million tons from the expansion, we are confident that we'll be able to get from there. 18.5 million tons is within achievable reach.
Right. sir, what about the downstream? Are we fully equipped now on the expanded operations in the other unit in JSW Coated?
Yeah, we are fully equipped. All the lines have started except for one line for galvanize and GL in Vasind, which should start up in the next few months. Other than that, all the units are operating now fully in a stabilized manner.
Right. Thank you so much.
Thank you. Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to the management for closing comments.
Thank you, ladies and gentlemen, for joining us today. If you have further questions, please feel free to contact our investor relations team. Thank you.
Thank you.
Thank you. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.