Ma'am. Good day and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. All the attendees' audio and video have been disabled from the backend and will be enabled subsequently. I would now like to hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am.
Thank you, Kinshuk. Good afternoon, everyone joining us in India and from the Far East. Good morning to all of you who are joining us from the West. On behalf of Tata Steel, welcome to this call to discuss our results for the second quarter of FY26. We published our results yesterday, and there is also a detailed presentation on our website, which you can refer to if you have not done already. As always, we will be guided, this entire call will be governed by the disclosure clause on page two of the presentation. To help you understand the results better, we have with us Mr. T. V. Narendran, CEO and Managing Director, Tata Steel, and Mr. Koushik Chatterjee , Executive Director and CFO, Tata Steel. They will make a few opening comments, and we will then open the floor for questions.
Thank you again, and I will request Naren to make his comments, please. You're on mute, Naren.
For that, thanks, Samita, and hello, everyone. As Samita mentioned, I'll make a few comments and then hand over to Koushik, and then we'll do the Q&A. The global dynamics continue to be shaped by tariffs, geopolitical tensions, and elevated steel exports. Chinese steel exports are expected to cross 100 million tons again this year, and this obviously has an impact on pricing across the world. In amidst this, Tata Steel has delivered strong improvement quarter on quarter and year-on-year basis. I would now like to make a few comments on the performance in each geography. In India, crude steel production was up 8% quarter on quarter and 7% year-on-year at 5.65 million tons, largely driven by the ongoing ramp-up in Kalinganagar and the completion of the relining of the ‘G’ blast furnace , which was down for almost six months.
We continue to stay focused on driving sales even in a challenging environment, and we were able to ramp up the sales in line with our production ramp-up without having to build inventory. In fact, we increased our domestic deliveries by 20% quarter on quarter, a testimony to the strength of our customer relationships and our marketing and sales network. While average hot-rolled coil spot prices were down about INR 2,300 per ton quarter on quarter, we were able to limit the drop in our net realizations to about INR 1,700 per ton. We were also able to offset this impact through higher volumes and the ongoing cost transformation, which has resulted in an improvement in the EBITDA margin by about 80 basis points to about 25%.
Some segmental highlights: the seasonal rains in the second quarter impacted construction activity across India, but we successfully grew Tata Tiscon volumes by about 27% quarter on quarter, as our expanding channel network and digital platforms enabled us to leverage insights into customer behavior and cater to the evolving needs. Industrial products and projects deliveries grew by about 22% quarter on quarter, aided by value-accretive segments such as engineering and ready-to-use solutions. In the U.K., our deliveries stood at 0.6 million tons, marginally lower on a quarter-on-quarter basis, and we continue to work on transforming the business and building the 3-million-ton electric arc furnace in Port Talbot. In the Netherlands, the liquid steel production and deliveries were broadly stable quarter on quarter at 1.7 million tons and 1.5 million tons, respectively, and our performance was aided by the continued improvement in controllable costs.
In September, we signed the non-binding letter of intent, joint letter of intent, with the Dutch government on an integrated health measures and decarbonization project, and we are committed to working with all the stakeholders on resolving the outstanding points before proceeding towards an investment decision. I will now hand over to Koushik for his comments. Over to you, Koushik.
Thank you, Naren. Good morning, good afternoon, or good evening to all those who have joined in. Before I talk about the results of the company, I would like to stress on what Naren mentioned, that we should consider the backdrop of continuing global macroeconomic uncertainty, especially in the context of the trade tariff currency and the heightened exports from China, which, as you mentioned, has crossed 100 or is likely to cross 100, more towards 120, in the context of the financial results that have been delivered by the company in the first half. Let me now begin with some headline financial performance data for the first half ended 30 September 2025 of the current financial year. Our consolidated revenues for the half year was INR 1,11,867 crore, and the EBITDA was INR 16,585 crore at a consolidated EBITDA of INR 11,037 per ton, reflecting an EBITDA margin of about 15%.
The EBITDA margin expanded by 280 basis points in the first half of this financial year, reflecting our continued focus on the India growth volumes, cost competitiveness, and our focus on cash flows. Our global cost transformation program continues to deliver tangible results with around INR 5,450 crore achieved in the first half, as highlighted on slide 13 of the presentation. This translates to about 94% compliance to our own H-1 plan, and I will explain a bit of this further. Turning to the second quarter performance provided on slide 23 of the presentation, our consolidated revenues stood at about INR 58,689 crore up 10% quarter on quarter, primarily driven by strong volume growth in India and continued improvement in the cost transformation program to the tune of about INR 1,300 per ton.
As a result, the EBITDA improved by about INR 1,000 per ton quarter on quarter, and this marks an improvement for the second quarter in a row in a very difficult market. Expanding on the cost transformation program, as a company, we have delivered an improvement in costs of more than INR 2,561 crore during the quarter and are on track as planned across geographies. More specifically, in India, the cost transformation program achieved full compliance to our second quarter plan with leaner coal mix, optimization on the stores, repairs, and maintenance expenses, and operating KPIs, which delivered the transformation of about INR 1,036 crore for the quarter. In the U.K., too, the cost transformation program was focused on reducing fixed costs in hiring and leasing, lower fuel charges, and operating charges. In the Netherlands, the program delivered about INR 1,059 crore for the quarter.
We are on plan in all the operating areas, like optimization of supply chain, procurement, and product mix, along with the other controllable costs. However, we are delayed on the people restructuring timeline and the consequential benefits of the same in this year, as the discussions with the Central Works Council are still ongoing. Across geographies, we remain focused on execution of the cost transformation targets for the full year. Let me now provide an understanding of the India, Netherlands, and the U.K. quarterly performance individually. Tata Steel's standalone revenues for the quarter stood at INR 34,680 crore and the EBITDA was about INR 8,394 crore reflecting a quarter-on-quarter improvement in EBITDA margin of about 80 basis points, to 24%. As Naren mentioned, our volumes are significantly higher in quarter two, and this, along with improvement in costs, led to an uplift in the EBITDA margin.
Our wholly-owned subsidiary, the Neelachal Ispat Nigam Limited , also recorded about INR 260 crore of EBITDA for the quarter, up 17% quarter on quarter, and reflecting an EBITDA margin of 20%. Let me now turn to the U.K. market and our performance. Firstly, I must say that amidst the growing trade protection across the world, the U.K. remains a very vulnerable market, as the import quotas of steel across several product grades are higher than the total consumption of the country, making it very open to cheap imports. In addition, the market demand has shrunk due to the weak economy, resulting in a decline in domestic prices by more than GBP 150 per ton since January 2024. The U.K. demand for flat products has declined by about 33% since 2018, but the quotas have increased by about 20%.
In 2025, on a year-to-date basis, U.K. imports are up by about 7% year-on-year, and this has continued to impact prices as well as the spot spreads. As a result of severe market pressure and despite a significant cost takeout program, the Tata Steel U.K. EBITDA losses widened from GBP 41 million in the first quarter to GBP 66 million in the second quarter. As an industry in the U.K., we have brought the current policy disparity to the attention of the U.K. government and are engaged on the subject. Given the current market conditions, we are focusing on optimizing the fixed cost. They are down by about GBP 90 million compared to the second quarter of last year, but sequentially, we are marginally higher by about GBP 7 million due to the annual maintenance activities during the quarter.
Moving to the Netherlands' performance, revenues for the quarter were about EUR 1.5 billion on improved volumes, but were partly offset by lower realizations. On the cost side, material costs increased by about EUR 75 million on a quarter-on-quarter basis, largely due to inventory drawdown in contrast to the build-up in the first quarter. This was largely offset by about EUR 72 million reduction in conversion cost, aided by lower employee benefit expenses and emission-related costs. We are also watching the policy development in the EU, especially on the EU Steel Plan 2.0 announced by the European Commission, as it will have long-term ramifications on the domestic steel industry in the U.K. in the future. During the half year, we generated about INR 10,000 crore of operating cash flows after interest, tax, and working capital. Of this, we spent about INR 7,000 crore on capital expenditure and paid dividend for the financial year 2025, about INR 4,490 crore.
As a result, the gross debt was almost flat, with a marginal increase of INR 842 crore versus end March, while the net debt stands at about INR 87,040 crore The net debt witnessed increase versus last quarter, as it also included cash utilized for the dividend paid of INR 4,490 crore. Our net debt to EBITDA stands at about 3x on a consolidated basis. As part of our strategic realignment following the planned surrender of the Sukinda mining lease, we are optimizing our ferrochrome processing footprint. In line with this, we have announced the proposed divestment of our ferroalloy plant in Jajpur in Odisha. The transaction is signed and is expected to be completed within the next three months, subject to regulatory and stakeholder approvals.
We have often stressed about our focus on value-added portfolio, and hence, as part of the growing portfolio in India, we also executed yesterday the share purchase agreement with BlueScope Steel Australia to acquire the balance 50% in Tata BlueScope Private Limited. The sale is subject to regulatory approvals, and we believe it will be value-accretive that leverages the synergies with Tata Steel in multiple areas. As Naren mentioned, we have recently signed the non-binding joint letter of intent with the government of the Netherlands and the province of North Holland concerning Tata Steel Netherlands' decarbonization journey. This joint letter of intent is an expression of mutual intent to explore a framework of transitioning to low CO2 production. I want to emphasize that this project will be designed and phased in a manner that is financially prudent.
Both the government and Tata Steel have conditions to fulfill, and we are working on each of them. There is no material spend in the immediate period, and we will talk more in detail on the project cost, the financing structure, and the project phasing closer to the mining agreement next year. We are also looking at prioritization, optimization, and sequencing on the CapEx such that it is affordable for all stakeholders. The final investment decision on the project will be taken next year after engineering preparedness, completion of the conditions, assessment of the regulatory clearances, and the negotiations with the new government in the Netherlands on the tailor-made binding agreement. With this, I end my presentation and open the floor to questions. Thank you.
Now begin with the question-and-answer session. We will be taking questions on audio and chat. To join the audio questions queue, please mention your full name and email ID in the chat box. Kindly stick to a maximum of two questions per participant and rejoin the queue should you have a follow-up question. We will mute your mic so that you can ask your questions. To ask questions on chat, please type in your question along with your full name and email ID in the chat box. The first question for today is from Debojyoti of JPMorgan. P lease go ahead.
Yes, thanks for the opportunity and congratulations on the strong results. The first question is basically on the European steel industry in the context of the October 7 protectionist measures and CBAM implementation. Some of the European steel players have talked about higher inquiries from EU customers and a bit of a restocking cycle happening next year. I just wanted to get your thoughts on how you see utilization and prices moving into the next year, and also that the U.K. is probably not going to be directly benefited from the protectionist policy. Yeah, just some thoughts on that. Thank you.
Sure. Thanks. Yes, the announcements in Europe have helped the sentiment as far as we are concerned in Europe because what Europe is doing is to make sure that the quotas for steel imports are brought down by 50% and have an import duty of 50% on any volumes exceeding the quotas. This is a positive move for the European steel industry. In a sense, Europe is actually working hard to have a stronger, resilient steel industry in Europe to take care of Europe's strategic needs, particularly defense and in other areas. This is part of the plan. It is good from Tata Steel Netherlands' point of view. We have already started seeing it having a positive impact on the price discussions with customers for the annual contracts for next year. Certainly, as you said, imports have stopped coming in in anticipation of this.
The restocking, etc., will lead to some positive impact for us in the Netherlands, particularly from Q4. Maybe Q3 is already a bit too late, and we are still dealing with the hangover of the last two quarters. Q4 onwards, we certainly see an improvement in the Netherlands. This also has a long-term impact because these actions are also going to come with melt-and-pour conditions. If you want to participate in the European market, you have to make in Europe rather than make somewhere else and ship slabs to Europe to participate in the potential CBAM-protected market in Europe. There are multiple reasons why this is a positive move for Tata Steel Netherlands. As far as the U.K. is concerned, like you said, the U.K. is left out of this.
In fact, our discussions with the U.K. government are that the U.K. government also needs to take some actions. Otherwise, the U.K. will bear the brunt of material, which can't find markets in the U.S. and Europe. We've not made headway yet. The government is saying they are looking at it. That is one of the reasons, as Koushik said, we have struggled with our performance in the U.K. I think all that we were supposed to do ourselves, we've done. The cost takeout plan, the fixed cost takeout plan, everything is as per plan. The market has not moved as per plan, and we would need some support from the government to make that happen. The U.K. is negatively impacted by these actions.
If the U.K. government takes some action to not only help Tata Steel, but the U.K. government is also invested in steel production in the U.K. just now. They also have another reason to make sure that the U.K. steel industry is supported a bit. Yeah.
Okay. Got it. That's helpful. Just on the U.K. then, would you reiterate the fourth quarter fiscal year 2026 guidance of EBITDA break-even?
Yeah. If there are no actions from the government, just by our own actions, it will be difficult to get EBITDA break-even by Q4. If there is some action similar to what is being done in Europe, then, of course, we can move closer to that. Like I said, all the actions that we had planned, we've taken. The cost takeout is as per plan. The market needs to improve a bit for us to come to EBITDA break-even. Yeah. Koushik, you want to add to that?
The answer, I think the spreads at this point of time make it very difficult for any amount of positive EBITDA, given the fact that the prices at which steel is currently trading in the U.K. with the imports are very, very unsustainable at this point of time. We certainly need policy intervention from a protection point of view.
I think just to supplement what both of us said, if you generally see the U.S. prices, traditionally, have been about $100 higher than Europe. And Europe has been about $100 higher than, let's say, India. That has been the ladder. Over the last year or so, U.S. prices are almost $200 higher than prices in Europe because of the actions taken in Europe, in the U.S. We expect the European prices to start moving towards the U.S. prices. It may not match the U.S. prices, but the gap could come down as it is today because of the actions being taken by the EU. In the U.K., the prices are moving the other way. It's coming closer and closer to prices in India, which is not sustainable for the steel industry in the U.K.
That's why our appeal to the government, and they are also evaluating it from that point of view.
Got it. Thank you so much. Just a second question on India. On the Neelachal capacity expansion, any timelines with respect to the board approval? Because earlier, we were planning to get it by October. Any reason for the delay and the updated timelines? Thank you.
The reason is largely related to environment clearances and all the clearances that we need to have because as per our current, the way we work is we go to the board after we've got all the approvals in place. Behind the scenes, the work is going on, and all the engineering and the planning and the detailing, all that is going on. That happens. The FID will be taken once we have the environment approvals, which we expect in the next few months. There are some forest clearance issues, environment clearance issues, which we are going through. Koushik, you want to add to that?
Yeah. No, I just want to mention that we are pretty advanced in the environment clearance process. As Naren mentioned, we are progressing on it, and we will take it to the board once we are in a position. The engineering work is also pretty advanced in many areas. Therefore, we are getting the investment case ready for the board's review sometime soon.
Thank you, sir. The next question is from Sumangal Nevatia of Kotak Securities. Sumangal, please go ahead.
Thanks for the chance. Sir, my first question is if you could share our guidance on the cost and the prices, both for India and then Netherlands, U.K. separately for the coming quarter. I just want to understand what's happening with regards to the safeguard duty. The provisional duty has expired, and we are yet to see the government notification. I just want to understand what is the latest here and what is our expectation.
Yeah. I'll give you some guidance on the cost as in co-cost. If Koushik wants to add on conversion, etc., he can do that. If you really look at from a realization point of view, our guidance is Q3 for India will be about INR 1,500 lower than Q2. Q2 was about INR 1,500 lower than Q1. We had guided INR 2,000, but we ended up at around INR 1,500, INR 1,600. In terms of coking coal prices, we are seeing India consumption costs will be about $6 higher in Q3 than it was at Q2 because it's starting to turn the other way because coking coal has firmed up a little bit in the last few weeks. As far as Europe is concerned, Q3 guidance just now is about EUR 30 lower in Q3 compared to Q2, but we expect Q4 to be much better because of what I said earlier.
Coking coal consumption costs in the Netherlands will be down about EUR 5-EUR 10, largely because they have more stocks in the system, and so they will be consuming what they bought earlier. As far as the U.K. is concerned, prices are generally seen as a bit flattish, no real drop, but our concerns are the levels at which the price is today rather than the trend of the prices, and that is what we are working with the government on. In terms of, yes, what you are saying is right. The notification, I think, has expired in November, and we are waiting for advice from the government on that, on safeguard. We are working with them, and let us see where it takes us because the larger point is the steel industry in India is impacted by steel prices internationally and some of the imports which are coming in.
I think if the industry has to continue to invest the way it is planning to, obviously, we need to see what is the support we can get from the government in India as is being done by other governments elsewhere.
Understood. Given the spot spreads in the U.K., we are expecting the losses to widen. Is that the right understanding? Also, Netherlands, given the pressure on prices, at least for the third quarter, we are looking at some softer margins.
In the U.K., maybe things should not get worse. Let me put it that way. We are trying to see how to improve. Q2 was worse than Q1, but it is not necessary Q3 should be worse than Q2. We are still working on some of that, and we are looking to see what help we can get. Netherlands, yeah, maybe some margin compression, but we are again looking to see what we can do there to manage that because, like I said, the coking coal prices are lower. They are also getting some benefit on electricity, and some of the other costs are lower in Q3 compared to Q2. They will get some benefit there. In India, there is some margin compression, but India will have 500,000 tons more volume in Q3 than in Q2. We will have a volume upside in Q3 because of the Kalinganagar ramp-up.
Got it. Got it. My next question is on expansion. Now, at India, is it safe to assume three, three and a half years once we take the board approval? That timeline in terms of Neelachal. What is the peak level of volumes we can achieve in the existing capacity? I mean, the question is coming from the background that maybe from FY 2027 onwards, I think we will lack further room in terms of growth. If you can explain that. Also, with Netherlands, you said next year is the timeline where we are looking to freeze all the discussions with the government. FY 2028 is the year when CapEx actually starts. Any CapEx intensity you can share there?
Yeah. I'll start, and then Koushik can kind of continue. As far as the volumes are concerned, yes, Kalinganagar is currently running, I mean, if I look last month, it's running at INR 7 million rate, and it can go up to INR 8 million. That's a Kalinganagar thing. Neelachal is pretty much you can get another 200,000-300,000 tons more once we have all the environment clearances because the existing volumes can go up a bit more. Today, we are limited by the EC levels. We have the Ludhiana plant coming up next year. That's another 0.8 million tons. We are looking at de-bottlenecking some volumes in the Kamaria plant, which is the Usha Martin plant to support our Combi mill. We are also looking at some de-bottlenecking further in Meramandali.
We will get some additional volumes from all these places in addition to the INR 0.8 million, which we will get out of Ludhiana. The timeline that you said, yes, post-board approval, three to four years, certainly, we want to complete the Neelachal project before that and try and see if we can do it faster. What also you should keep in mind is the product mix is also getting richer. The cold rolling mill has just started ramping up in Kalinganagar. The galvanizing line, one of the two lines, is coming. The other one will come in by December. We have a Combi mill, which is a state-of-the-art long products plant, 500,000 ton, which has just got commissioned last quarter. You will see multiple initiatives. Of course, this BlueScope acquisition that Koushik talked about. All this will lead to a much richer product mix.
There will be, I would, there's a volume growth opportunity, as I mentioned. There is also an upside potential on getting a better, richer mix and better realizations. In terms of Netherlands, even if we sign by next year, it's not as of immediately you'll have to spend CapEx because you will take a couple of years to get all the planning permissions that are required to start the project. It's a slightly more long drawn-out journey, but Koushik can add more color to that and the other comments I made. Yeah.
Yeah. Sumangal, I think the two points. One is that as far as Netherlands is concerned, we will finalize the tailor-made agreement sometime next year, and the FID will be next year. There is a permitting process. Post the permitting process, the major spends will start on the site, etc. I do not see major cash outgoes on Netherlands in the next couple of years, even after the FID. I think the focus is clearly on NINL expansion. Once we get through, we should be site-ready when we get into the FID or almost in that kind of a position. Therefore, from there, about three-three and a half years to get it done.
We're also looking at, to your question on existing assets, we are also looking at Tata Steel Meramandali, where we want to look at when there is a relining of a blast furnace there to look at expanding the volume, which includes putting up a finishing facility that will take the Kalinganagar INR 1.5 million tons slabs to build up a thin slab caster. There are at least, if I were to say, INR 7.5 million tons of growth in consideration or in planning at different stages. When it is ready, we should be taking the board approval to spend. Some of these brownfield sites, especially in Meramandali, should have a shorter execution time than a greenfield site. This is currently the pipeline, other than the fact that what Naren mentioned, the Ludhiana will get commissioned.
We will also look at another EAF, either in the west or in the south, which is also under consideration.
Thank you, sir. The next question is from Satyadeep Jain of Ambit Capital. Satyadeep, please go ahead.
Hi. Am I audible?
Yep.
Just wanted to start with the U.K. We can understand that the CBAM in the U.K. actually kicks in 2027, so one year after the CBAM. Then in the context of current imports, what options, what is the process? Because from my understanding with Europe is that EU Parliament has to approve the report and findings of the EU Commission, EU Council, and EU Parliament. The current safeguards expire in June 2026 also. When you look at the U.K., what exactly is the process timeline? Do they have to take the entire study, and then the decision will be taken by Parliament? The entire process, are we looking at some kind of support in 2026 or not? The cost savings that were there in the Rishi Sunak government on network tariffs and power costs being declined, has it already kicked in?
Just wanted to understand Europe, U.K. in general first.
Yeah. So Satyadeep, two things. One is when you talked about the European part, the European Steel Action Plan proposition that Naren talked about in terms of reduction of quota, tariffs beyond quota, etc., and melt and pour is going to kick in from June 2026 because they are currently in the consultation process. Once the consultation is done, various stakeholders give their point of view if they have to change or modify, etc., and then it starts from June. That will kick in from June. As far as the U.K. is concerned, at this point of time, the consultation process on CBAM has not started. It is in the formulated position, but it has not yet started. They are scheduled to go live one year after the EU CBAM, which is 2027, as you mentioned. We have not seen that happening.
That is one of the conversations that we are having with the U.K. government. We are having a conversation with the TRA, the Trade Regulatory Authority, on the quotas. The U.K. is behind the curve as far as the EU is concerned or comparative to the EU is concerned as far as these initiatives are taken. If it is 2027, our plant and when in 2027 is not yet determined. We are actually trying to get an understanding as to when the consultation process will start, how much time it takes. It normally takes six-eight months, maybe a year. We want to kick that off faster and to ensure that it is in time when our EAF comes. Compared to the policy announcement that happened last year, they are behind is the short answer.
We'll see as to where this will progress in terms of timeline. To us, the more important priority here and now is actually the quotas, and then the CBAM. The CBAM discussion can happen in parallel.
The quota also, given it needs to go through a formal study and then final decision will be taken by the U.K. Parliament, or is it an executive decision? Is there a realistic chance of this quota reduction in the U.K. if it goes through in 2026? Are we looking at maybe quota reduction also, whatever it is, in 2027, 2028?
No, no. 2027, 2028 is simply very late. By which time, the U.K. government would have also lost a significant amount of money because of what they are managing in the steel industry in Scunthorpe. I think they are working on it. The assurance that we have got, the TRA has got all the data. That validation process is done. I think they will have to recommend it from the cabinet and get ratified in the Parliament. That process in the U.K. is pretty fast. I think the more important point is to get to that process. That is what we are talking to the U.K. government about.
Okay. Secondly, on Netherlands, in the joint letter of intent, it is mentioned, I'm just checking on the wording of the joint letter of intent. It is mentioned that there will be support of up to EUR 2 billion for phase one. Explicitly, it is also mentioned that there will be no tailor-made support for phase two as things stand. Does it mean that government is making it very clear they will not support any expansion beyond phase one? Also, this import quota that we are looking at needs to be ratified by the Parliament. There is a lot of opposition from downstream users in Europe. Hypothetically, if we see this go through and European steel prices converge with U.S., do you see some challenges? I just want to understand because Europe historically has been a very different market versus the U.S. With the opposition, two-part question.
One on the joint letter of intent, and overall, some of it potentially getting diluted, or is that not a risk, this current import quota reduction that we're looking at?
I would first talk about the part on the Netherlands bit that you mentioned. The answer is yes. This tailor-made agreement is specifically towards phase one and our commitment to do the phase one. The phase two is left to the company to decide as to when, as far as timing, the technology to be used, the project cost to be done, etc., which is one reason why they also want Tata Steel Netherlands to be significantly profitable to ensure that they can afford to do the phase two whenever it is due. That is how the understanding is. There is no commitment on funding and neither a commitment on when we have to do the phase two. This is all discussion is on phase one. The circumstances and the policies may change in phase two also.
As far as the EU consultation is concerned, it is ongoing. From the sense that we get, there are people who have been quieter or neutral. There are people who are supportive, and there are people who will obviously have some views. That is for the EU to proceed and then get a sense. Maybe Naren, you can add some comments on that.
I think what you're saying is right. There is a disadvantage if you're making stuff using steel and exporting out of Europe. If you have a higher cost of steel, then you may have a disadvantage. The auto industry is one such sector. I think everyone is also looking at building strategic autonomy in Europe. That is where there is a consensus that the steel industry is important for Europe. Even in Netherlands, we get a lot of support from that fact. They are not asking us, "Why do you need a steel plant in Netherlands?" It is more about what is it that can be done to have a strong steel company or a steel business. I think the conversation has changed in the last two years thanks to the Russia-Ukraine issue, the U.S. trade issues, etc. Right?
The second thing is, as the European governments are putting money in the industry, they also have, in some sense, a skin in the game. There is an interest from that point of view to not put money in the industry and then end up destroying the industry for whatever reasons. Right? I think these are the things which we think are supportive for the steel industry. I also think the supply side in Europe will get restructured because as more and more blast furnaces come up for relining, unless you have tied up with the government for a transition, it will be very difficult to justify blast furnace relining for most of the steel companies in Europe. There will be some supply chain side restructuring as well in the next 10 years.
Thank you so much.
Thank you, sir. Before we take the next question, I would like to remind the participants to please limit your audio questions to two per participant. Should you have a follow-up question, you are requested to rejoin the queue or post it in the chat box. The next question is from Vikas Singh of ICICI Securities. Vikas, please go ahead.
Thank you for the opportunity, sir. Just wanted to understand if you look at this slide 10 of your presentation, though we have given a guidance to 40 million tons, we have not given the timelines for the same. Also, the flat products are increasing and long is coming after that. I believe that the long is Neelachal, too, which is the last portion of that flat product, which expansion we are expecting. If you could give us the timeline for that.
Yeah. Let me put it this way. The sequence is not to do with the time. As Koushik said, what we are most ready for is the Neelachal expansion. The Neelachal expansion is a long products expansion. The opportunities beyond Neelachal, so Neelachal also, this is from one to it will go to about 6 million tons. From 6, it can go to about 10 million tons. That is the second phase of Neelachal expansion. Kalinganagar, as we complete 8, we can go to 13. That is the next phase. From 13, we can go to 16. In Meramandali, we are first looking at taking it from the current level of 5 to about 6.5. After that, go to 10. In all these areas, the work is going on. In Meramandali, we need to acquire some land.
In Neelachal, we are waiting for the ECs, etc. Kalinganagar also, a lot of work is going on in the background. All these are at different stages of readiness. As we mentioned earlier, we will now go to the board only after we've got all the requisite approvals. That is why we've kept the timelines a bit open. The second thing I want to say is we are also pacing our growth depending on the demand growth in India, the profitability, and how to pace it, etc. We are also looking at adding more and more downstream businesses. That is why the BlueScope expansion and the Combi Mill expansion in Jamshedpur. There are a few other proposals that we're looking at. It is not just the volume growth. We are also looking at the value growth through investing more and more in downstream.
It'll be a mix of both. The advantage we have is we can pace ourselves depending on the situation in India because between these three sites alone, as I give you the numbers, you can, and Jamshedpur, you can go to 45 million tons. Right? It's more a question of the appetite, the balance sheet, the demand requirements, the profitability of the industry, and the priorities that we want to give.
Noted. My second question pertains to Netherlands. We remember that we had these carbon-free carbon credits which are gradually going down. I just wanted to understand as we are starting the turning green at a later part, and that would obviously take some time, how should we look at our cost structure there in terms of the carbon credit reducing?
Koushik, you want to?
I think the.
Free allowances?
Yeah. Yeah. The free allowances will come down. It started to come down slowly. We have mitigants. For example, we are using more scrap charge. Currently, we are at about 18%-19%. Our target is to max out on scrap to ensure that we get to it. I would also like to mention that in Netherlands, our CO2 emission as last quarter, which I just got the number a couple of days back, is at around 1.6. That is kind of one of the lowest. We had gone down to 1.59 this quarter. Last quarter, we were 1.6. We are taking a lot of effort in reducing the CO2 also, including usage of scrap as a percentage. Last quarter, we were not able to max out more because of some volume issues. We will go beyond 20.
Once we get to more and more scrap, we will be able to reduce CO2. As the natural reduction happens on free allowances, we want to also undertake internal decarb efforts to be there because there is a clear cost advantage to this. Along with our cost transformation program on other cost areas, I think we will continue to work towards reducing the conversion cost in Netherlands, including CO2, energy, natural gas, and other costs. That is the trend. That is the basis on which we think that the expansion on the margins will happen to be one of the top three in Europe. It is not based on how the prices will come. When the prices come due to the steel plan or the CBAM, etc., that will be on top of that.
Thank you, sir. The next question is from Ritesh Shah of Investec. Ritesh, please go ahead.
Hello. Am I audible?
Yep.
Yes.
Yes, Ritesh.
Yeah. Hi. So thanks for the opportunity. A couple of questions. First, on Tata Steel U.K. So what is the exposure from a revenue mix that we have from U.K. to Europe? How are we looking to de-risk it hypothetically if there are delays on the U.K. government taking a stance?
That's about 25% volume on the current basis. I was waiting who will ask that question, but that's the third lever of the negotiations with the government because in 2021, the EU and the U.K. have signed an agreement of no quotas and no tariffs between most of the grades, except for some galvanized grades where there are specific quotas. This new regulation that comes in as a steel plan will require the U.K. government to revise that understanding with the EU. That's the third leg of engagement that we have requested the government to do it quickly, which they are cognizant of because that's important. As politically, U.K. talks about the coalition of the willing, I think this is also something that they will be looking to work towards. That's what our request is.
That helps. My second question is on Tata Steel Netherlands. I think we have laid out certain details with respect to citing EAF initially on natural gas, subsequently on CCS, finally biomethane and/or hydrogen. There are multiple permutations over here. We also indicate support up to EUR 2 billion. Possible to give some high-level thoughts on what could be the CapEx number because we know it is up to EUR 2 billion, but we do not know what the CapEx number is. How are you looking at the cash flow math? You did indicate no major cash flows next two years. From an ROC standpoint, from a cash flow standpoint, and from a capacity standpoint, how should we look at TSN? If not for support in phase two, would we still continue with our stance that we will maintain our volumes for Tata Steel Europe?
I think that's something what we had guided earlier. So would we stand to it?
Ritesh, if I may, since you wanted high level, I'll keep it high level. I think the point when you talked about the different feeds of natural gas, hydrogen, and biomethane, it is the switchability which will be built in from natural gas to hydrogen to biomethane, depending on the economics and the availability at scale of each of these. Natural gas is not a problem because Netherlands is kind of the hub for natural gas. That is why we build in on it. Earlier, when the EC was looking at these decarbonization projects, they were very insistent on hydrogen. If you see some of our peers had gone ahead of us, and the agreements or the conditions that EC had given was purely on hydrogen, which is the reason why many of them have gone slow.
We actually did not want to go that hydrogen route because it is very uncertain on the availability as well as on the economics. We were more focused on natural gas. We have an optionality to auction for biomethane because after hydrogen, that is the one which is being proposed as the next best fuel. On biomethane, we have the optionality for auctioning of this or tendering. If it comes in at the right economics and availability, then the switchability will be looked at. It could also be more like a fungible on paper to buy it on a fungible basis as a hedge rather than on physical if the physical does not flow. We have those optionalities to be tested out, but that is to be tested much later. It is not immediately on commissioning. It will be post 2035, etc.
I think that is the construct that we have as far as our understanding on the JLOI with the Dutch government as well as blessed by the EC. What we are currently doing is what will be the CapEx and the engineering process is currently on. We have allocated a little bit more money to complete that process. That engineering will be known on CapEx somewhere around, say, May, June. That is my best estimate at this point of time. Because it is a complex process, it has three elements. It has the element on the health issues, which is the coverages. Then it has the EAF, and then it has the DRP. There are three subparts to that process within the integrated process.
That, I think, will be more fairer to talk about somewhere around in six months' time, by which case the investment case will also be very clear. Our understanding on the policy changes that we have asked for as a condition to the tailor-made agreement will also be clear, which is on network cost, electricity, the coal ban or usage, etc. Those policies will also be, once the new government comes in, we will be able to engage more deeply because those are conditions for final FID. There are some asks from them towards us, which we are working on with the local environmental agencies.
Thank you, sir. The next question is from Rajesh Majumdar of B&K Securities. Rajesh, please go ahead.
Thanks for the opportunity. I had a question on the cost takeout. You have already talked about INR 5,450 crore in the first half. How much of that has come from the Kalinganagar plant efficiencies, and how much more can be expected as we ramp up gradually to the full capacities with the value-added segments?
Actually, this is unrelated to capacity utilization because this is on the baseline. There is some element of capacity utilization, but largely, it is run in an integrated manner. For example, we run it as one program on, say, stores, spares, and maintenance. It is not just one side, but it is across the combination. This combination is actually the power of this program because when our colleagues run it on, say, stores management across four sites, it is much more efficient than managing it across four individual sites than a consolidated basis, right from procurement to usage to usage pattern to storage and inventory, etc. It is very difficult to give us site-wise, but it is more specific by theme-wise. For example, stores using leaner coal mix across, using energy efficiently. Those are the kind of themes we run across sites.
That's why we organizationally also are consolidated to do that.
More specifically, sir, you earlier guided about, I think, 2, 2 and a half thousand kind of lower costs in Kalinganagar. So how much of that is achieved, and how much of that is likely to be achieved over the next few quarters?
I think we said 2,500 because at that, I do not think we said site-wise, but we said Kalinganagar.
I think we said at one time, as we fully ramp up Kalinganagar, there will be a benefit because obviously, it's a much more productive site.
It's a volume effect.
Correct. That's a volume effect.
Yeah. So that's a per ton volume effect, which will happen by the time we exit this year. We should be able to get there. That's our target on the volumes anyways. We had some slowness in the first quarter, but second quarter onwards, we have been able to increase our capacity utilization, and we'll continue to do so in Q3 and Q4.
Right, sir. My second question was actually on your ferrochrome unit, Saraf. I mean, we bought this unit just three years ago, and we earlier proposed a 50% expansion along with CBP, and we also have the chrome ore mines. Suddenly, you decided to sell this business. What is the problem here? I mean, if it is a small thing, then it was a small thing even three years ago when you acquired it.
I think it was linked to our Sukinda resources. If you really look at it strategically, if you have to continue, if you were to continue Sukinda, one was this whole confusion that happened on the MDPA, etc., because Sukinda needed underground mining to sustain itself because the resources on the way we were doing it was coming to an end. If you look at the investments required for underground mining, the ferrochrome market in general, globally, and the way in which the duty tariff structures, etc., works, our call was to exit the mining in Sukinda because of the high underground CapEx. Once we took that decision, it was necessary to rebalance the sources of mining. We have two other mines, more specifically, one more mine which is more useful.
That required us that we do not want to be just a converter without a mine. That is the basis on which we then took a decision to get out of it. The buyer is consolidating in that space, so it helps him also.
Basically, we wanted to limit our production to what we largely need for in-house consumption rather than be in the market because we were surrendering the Sukinda mine and the changes in the MDPA, etc., was not making this business as attractive as it was before. It was more rethink on this portfolio given the current context.
Thank you, sir. The next question is from Prateek Singh of DAM Capital. Prateek, please go ahead.
Yes, please.
Yes. Hi. Thanks for the opportunity. The first question is on U.K. So given all the uncertainty and volatility that we are seeing in U.K. and Europe as well, how confident are we of the level of profitability once the EAF comes in? Or to put it differently, what kind of EBITDA do we see is doable given the current environment, current pricing, and current raw material costs? That's the first question.
If I were to start, and then maybe Koushik can add, when we did the EAF, the larger point was we said the cost position of the U.K. will improve by about GBP 150 per ton, okay, because we were taking out a lot of fixed costs. We were using locally available scrap instead of imported iron ore, coal, etc., right? Which meant that in the longer-term steel pricing that we have seen in the past, the U.K. business should be EBITDA positive and should be able to stand on its own because an EAF-run operation has much less requirement of support on maintenance and many other things because you do not have the sinter plant, the coke ovens, and blast furnaces, and many other such facilities. Okay, so that hypothesis stands.
What we are seeing now is a very abnormal situation, which is coming out of what's happened in the U.S., what's happened in Europe now, what's happening in China. We don't expect these things to stay on forever. We are, internal cost side, we are on track to what we said we would achieve. The external aspects, we expect actions to be taken, like Europe has already taken to protect the European industry. As Koushik mentioned, the U.K. government is also bleeding because of their investments in the other steel plants in the U.K. We are expecting some resolution to this in the next few months. It's a hypothetical situation. If today's situation continues forever, of course, there's a challenge, but we don't expect today's situation in the market to continue forever. Yeah.
Sure. Just as a follow-up to this, what kind of capacity does the U.K. in particular need? I mean, was there ever a discussion that maybe not put as big a capacity as we are planning and maybe scaled down a bit given we do not need that much given how the environment is right now, or we are okay with the current capacity given out for the U.K.?
Yeah. We are comfortable with the current capacity level. I think the issue which has happened in the U.K. is the quotas have not been changed, even though the demand has shrunk over the last few years, unlike the EU where the quotas have been changed and have been tightened further. Our submission to the U.K. government is they need to keep realigning quotas, import quotas to what is the domestic consumption. I think that's what we expect them to be doing. Otherwise, 3 million tons with maybe 10%-15% exports is fine. Optimally, also, that was the right capacity for us given the balance of plant and everything else. Yeah, Koushik?
Yeah, no, that's the same point. I think there's nothing wrong with the capacity in the context of the demand. It's the issue of the imports that have come in. Also, the U.K. government subsequently, in the last year, the new government came in, they were all focusing on infrastructure. That infrastructure, when it actually starts rolling, will require a lot of steel. That has not also happened. I think there is a policy issue that the government needs to address, which is what is being worked on in terms of growth for the economy itself. As far as the steel capacity is concerned, I don't think we could have done anything lower because we have a very tied-in downstream network of our own, which uses the base-grade HRC or the quality of HRC for further value addition. There is nothing wrong there.
As Naren mentioned, we have taken out significant cost, and we continue to do so. This year also, there is continuing momentum on cost. There has to be an uplift in the metal over margin, so to speak, which is what is the price at which you are buying the metal and what is the price at which you are selling the metal. That metal over margin is an important thing that has shrunk significantly. That is purely because of the fact that cheaper imports are flooding the market.
Thank you, sir. The next question is from Pallav Agarwal of Antique. Pallav, please go ahead.
Yes, please.
Yeah. Firstly, congratulations on the good set of numbers and also on the cost transformation initiatives. Brought you on track. On the Ludhiana EF, what kind of profitability can we look at compared to the standalone Indian operations? Obviously, it should be lower, but to what extent would it be lower?
Yeah. There are a couple of things happening with Ludhiana. Of course, like you said, the profitability will be lower. Typically, an EF kind of operation in the Indian context, I would say it is more of INR 5,000-INR 7,000 EBITDA per ton kind of thing. You should look at it in the context also of you are getting almost 1 million tons for INR 3,000 crore or less, right? When you look at it from a different angle, that is the equation that we look at.
What we are doing in Ludhiana to supplement the margins that would normally be available is to see how can we reduce costs because of the fact that you're getting scrap from a 200 km-300 km radius and you're selling steel in a 200 km-300 km radius, right? A lot of the logistics costs that we incur when we make steel in Eastern India and ship it to Ludhiana or elsewhere is what we're trying to save. There are a number of initiatives on the route to market, the logistics costs, the supply chain costs, etc., so that we maximize the revenue potential in that geography. Of course, pretty much all that is produced there is going to the retail market where our realizations are higher than it is in the project market.
There are a number of initiatives, but what I've described is the starting point, and let's see how we can bridge the gap between a project like this versus the backend, which is more iron ore and coal-based. From a speed of execution, capital intensity, etc., there are a lot of advantages in this model. We do believe that while Tata Steel can continue to grow based on iron ore and coal in Eastern India, and like I described earlier, between the three sites, we can go to or four sites, including Neelachal, go to 45 million tons. Northwest and south, we have an opportunity to grow in a capital a bit more capital light. You need just 100 acres of land to build the steel plant. You do not need 3,000 acres. You can do it much faster. We will refine this model.
Ludhiana is a first step. As Koushik mentioned earlier, we are looking at opportunities to set up similar facilities, maybe even for a richer mix. This is for retail, but tomorrow's plants could be for alloy steels, for automotive, etc., long products, basically, in the west and south. Yeah.
Sure, sir. Secondly, we used to highlight that probably on the pipe expansion part. I think we were looking to expand from 1 million ton- 4 million tons. I have not come across that in the recent presentation. Where are we on that initiative?
Sure. So basically, most of that growth would have come through assets that we would lease. Even today, whether it's in long products or in pipes, etc., a lot of our capacity goes through assets that we lease, which means 100% of that capacity is committed to us. Today, I think the pipes business is heading towards 1.5 million tons, which includes the pipe business that we acquired through Bhushan, and plus all the leased-out capacities. I think I'm not remembering the exact numbers, but maybe 40%-50% would be our own, and the rest would be leased out. Most of the growth will come through that. We recently invested in a precision tube mill, which has added 100,000 tons of high-quality pipes in Jamshedpur. Wherever it's high-quality, specialized, like we have the large diameter pipes, API pipes, all available from the Khopoli plant.
Wherever it's high-end, we will make the investments. Wherever it's regular stuff, where the value is more in our branding and distribution, we will lease out capacity. That work is going on. As our hot-rolled coil capacity grows, we will continue to expand the pipe capacity, and the ambition is to get to 4 million. Maybe you can share more details, Samita, in the next pack or something.
Sure. I just wanted to also add that for the EAF, blast furnace sort of comparison, because I think there are a lot of questions on that. The other sort of cost differential benefit will obviously be there when there are carbon taxes because EAFs emit significantly lower than blast furnaces. When India introduces carbon pricing, and we have seen over a period of time that will come through, then you will also have that benefit on an EAF operation.
I think typically the difference is $100 between an EAF route of production and a blast furnace route without factoring the capital cost. I'm just saying the OpEx kind of thing. And as Samita says, as and when, I mean, already there's a carbon cost which is coming in. And as that increases, that's why in Europe, etc., once the carbon prices go up, the economic case for EAF becomes stronger. So yeah.
The next question is from Ashish Jain of Macquarie. Ashish, please go ahead. Ashish, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move to our next question. The next question is from Amit Murarka of Axis Capital. Amit, please go ahead.
Hi. Thank you. On iron ore, wanted to get some thoughts on how are you kind of thinking about securing iron ore for Indian assets. I think in the last call, you did speak about it a bit. Could you also help us understand, are you looking to get into some tie-ups with OMCs as well, or it will be purely merchant purchases? How are you thinking about it?
Yeah. I think we, as we said last time, obviously, we already have some iron ore. We have maybe about 500-600 million tons of iron ore with us today, which is available beyond 2030 based on our existing mines, which we have bought through our acquisitions or through auctions. The second point I want to make is when we bid for the mines, it needs to make sense. There is no point bidding a price at which the cost of iron ore is so high that you would rather buy it from the market. Third is what you are saying is right. It cannot be all spot purchases. We are already engaging with OMC and MDC, etc., to look at what could be the arrangements that we could have. OMC is of particular importance to us because a lot of our sites and production and growth is happening in Odisha.
Fourthly, we are also looking at various other options depending on what is the cost of iron ore in India. We already have a mine in Canada, for instance, which is very high-quality iron ore, very low alumina iron ore. It is 63+ Fe alumina of less than 0.5. Today, we sell from there into Europe, etc. There are some challenges which we have dealt with over the years. We are getting a shipment into India to test out that material. Traditionally, India is not an attractive market, but if iron ore costs and prices continue to stay high, then all options are available. Imports is also an option that we look at. It is not necessary that we need to have 100% captive. I think we will do that if it makes economic sense. Otherwise, we will look at buying in the market.
Even coking coal, at one time, Tata Steel had 100% captive. Today, we have 20% captive. 80% is what we buy from the market. We will exercise that option. The other part is our ambition and our actions on going more and more downstream is to also help push us on the revenue side so that the revenue per ton keeps going up as we progress towards 2030 so that the cost per ton is less impacted by any increase in iron ore price. Or rather, the margin is less impacted. Let me not put it as cost per ton. Yeah.
Also, is there any ballpark cost number that we can think of for your current captive iron ore mining? Or if you have done any calculations around it, what would be your cost of captive iron ore mining?
I'm not sure we are sharing that. Are we doing that, Samita? No. Yeah. Because we have a full range from expensive to cheap one. So we also decide on what to produce more where. I don't think we are sharing that publicly. Yeah. Samita? Yeah.
Don't actually comment on any specifics or any product or material details, but obviously, significantly lower than market price.
Yeah. That's all from me. Thank you.
Thanks.
Next question is from Ashish Kejriwal of Nuvama. Ashish, please go ahead.
Yeah. Hi. Good afternoon, everyone. Am I audible?
Yeah, Ashish.
My question is on account of domestic demand environment because after so many months or years, we are seeing that our prices are much cheaper than the landed cost of imports despite the fact that safeguard duty is implemented. Actually, and when we see overall demand environment or demand, you can say volumes from JPC, it seems to be on a higher side, but actually, price is not getting that reflection. My question is, are we seeing excess supply scenario or lower demand, which is affecting our prices? In light of that, when we have guided INR 1,500 price decline in Q3, are we factoring in that in December also, there is no price increase? That's my first question.
Yeah. Obviously, it's not that demand is not there. Demand is quite strong. India is the only country which is showing double-digit growth and major country showing double-digit growth in steel consumption. I think given the focus on infrastructure building in India, I do expect the demand growth to be more than the GDP growth rate, which is what happens in most developing countries, including in China when they were growing. If the economy is going to grow at 6.5%-7%, steel consumption growing at 10% is, to me, par for the course, right? Demand is not the issue. Obviously, supply side, as you know, when we add capacity, we add in big chunks, right? We've added 5 million tons. JSW has added something. JSPL has added something.
You will go through years when a lot of new capacity is coming on stream at the same time. I do believe in the medium to long term, it is not going to be easy to build lots of capacity very quickly in India, given the regulatory environment, the approvals that we need to take, the time which takes in India to build a steel plant, etc. I expect there to be a better balance going forward, which should get reflected in the prices. The more specific question you had, yeah, this is factoring in November, December. We have not factored in major price increase in December. We are saying that we operate close to November levels. If there is an increase, there is a potential upside to what I just guided. Just now, we have been a bit conservative on this.
Sure. So effectively, you are saying October, November also, we have not seen any price increase. In our assumption, we are not taking any price increase in December also.
As a seller of steel, we will always try to increase prices, but it's a market which decides whether they're willing to accept those prices. We will always try to push, and let's see where we end up.
Okay. Understood. Secondly, see, we have acquired 50% stake in BlueScope and at value of INR 22 billion for the company, which is having net profit of INR 62 crore, INR 30 crore in the last two years. Rational-wise, I understand that we are going into downstream, but the amount which we are paying seems to be much, much higher if I look at it on the profitability basis. How can we explain that?
Koushik, you want to?
Yeah. First of all, I think this JV has been making about 19% ROE since inception. Second is it is a combination of two parts. One part is that this JV company had its own color coating, metal coating facilities. Then post-Bhushan, as per the JV agreement, we had to ensure that the same that was there in Bhushan, facilities in Kopali, etc., was also used by the JV, the substrate of which was passed on by Tata Steel. That is the arrangement that we had with the JV and the JV partners, which is ourselves as well as BlueScope. In some ways, there is a split in the profitability because of the transfer pricing, etc. You do not see the system profitability of this business.
You just see for that part of the business, only the downstream profitability, excluding the transfer price and the markups on the transfer price and so on. I think it is important that, and that's why we were hindered in this segment because we were the first to come in in 2005 to grow this business significantly, which is, I think, in our domain and leveraging the synergies and network of Tata Steel and enriching the product mix, also fungibility of the product mix between market segments and so on. That is the basis on which we actually wanted to consolidate. BlueScope also, in their strategic understanding, wanted to therefore exit the business, which is what we have agreed upon.
If you look at it from an underlying EBITDA perspective, it is 7x, which from a value-added downstream perspective is what the numbers will effectively look at, excluding the Khopoli and the ones which are leased because that brings down the performance of the company. That is the basis, which when post the acquisition, you will see it more on a system basis, and we will certainly explain the same to you. You can see the numbers at that point of time.
We would now like to hand the conference over to Ms. Samita Shah for the chat questions. Over to you, ma'am.
Thank you, Kinshuk. We have answered, I think, a lot of the chat questions in the discussion so far, but I think there are a few which maybe we can touch upon. Firstly, I think there is some question on Thailand, that Thailand EAF profitability, despite being an EAF operation, is highly profitable, and can we expect that kind of profitability either in India or U.K.? Maybe you just want to give people a sense of Thailand duty structure, etc.
Yeah. There are two, three things. When you look at EAF profitability, 70% of the cost is scrap, right? The price at which scrap is available, etc., is a big impact. About 15% of the cost is energy. These are the two factors which drive EAF profitability apart from operating performance, etc. Thailand, what you are seeing in upsurge is because, if you recall, there was an earthquake in Thailand, I think it was in April or something like that. There was this viral video which went around of a tall building which collapsed. The conclusion at that time was that a lot of this is happening because of the poor quality of steel which is used, and the quality standards need to be looked at once again.
If you use poor quality construction steel, you run the risk of this kind of a thing happening, particularly if there is an earthquake. As a consequence, a lot of local production which seemingly were not meeting quality standards had to be closed. Tata Steel Thailand is seen as one of the best quality producers of steel in Thailand and has a good name. We have the Tata Tiscon brand operating in Thailand as well. They got the benefit of that. That is why you see much better performance than we have seen in the last few years. Having said that, they are still settling. Traditionally, it has been a profitable business. It has never required any support from India. It has always been cash positive, EBITDA positive. It continues to be that way.
As the quality considerations become more and more important, we think that that's positive for Tata Steel Thailand. Now, whether that kind of profitability, again, like I said, we are in a much better place on the cost curve in Europe post-EAF than we were in the past because of the fact that you're not using imported ore and coal. You reduced your fixed cost by about GBP 400 million, and you're using locally available scrap, right? Certainly, we'll be in a much better cost position than we were before in the U.K. Similarly, in Ludhiana, compared to the iron ore-based production in Jamshedpur, you'll be at a higher cost position. We look at how do we make this model work, taking out costs beyond the production cost, like logistics costs, route-to-market costs, and so on and so forth.
As Samita said, as and when carbon prices come up, because the CO2 footprint of the Ludhiana plant is going to be 0.2 or 0.3 tons CO2 per ton of steel compared to Jamshedpur, which is the best in India at 2.1 or 2.2, and Netherlands, which is one of the best in the world at 1.6, as Koushik said, 1.6, 1. Ludhiana is going to be at 0.2, right? It will use green energy. When you start looking at paying a premium for low carbon, low CO2 steels, that is when some of these businesses will make even more sense than it does today.
Thank you. The next question, I think we have a few questions on cost transformation. I will just combine them for you, Koushik. One is, are we on track? What is the kind of number we are expecting for 3Q? There is a question about, because of the delay in employee-related discussions in Netherlands, are you reducing your target for the year?
That looks like an exam question, but I think it is important to mention that our target is the same. I mentioned when we started off this that it is an 18-month program. Obviously, the work that can be done is being pursued across the geographies, across teams, across functions. I think we will continue to maintain the secular basis on which we've gone through the first two quarters. The compliance in Netherlands is lower, as you can, as I mentioned, because of the employee restructuring going slower than what we had planned. That is a timing effect. I am very hopeful, and all of us are working with the CWC to ensure that we get to it. The point is less about quarter on quarter. It is more about getting structurally fit.
It is about getting the competitiveness in place so that we become all-weather. I also want to say that the target will also keep changing as far as once you achieve it, there will be more where we want to build a pipeline of it. We continue this as a journey. Tata Steel India has always done that for about 20-25 years. This time around, we have taken a more structural view because we have become multi-site, and our capacity has increased significantly. That is why this is an important journey in the competitiveness of Tata Steel. We have expanded to all our global sites also, most critically, U.K. and Netherlands. We are going to continue this journey. I think it is not to be just taken as a quarterly target.
It is more about ensuring that structurally, we are in a better place.
Yeah. Thank you. There are a few questions on TSN decarbonization, which, again, I'm just going to combine. Essentially, I think the question is, given the political changes in Netherlands, do we expect the government to go through this commitment which they've done given it's 2030, a sacrosanct deadline? Some questions, I think, around the timing and maybe the probability of the government actually going through their push for decarbonization.
I think if I look at the way we have built up our conversation with the government and across the political spectrum, it has been largely bipartisan in terms of across parties because it was a Parliament-mandated process to get through to the JLOI. Subsequently, when we were signing the JLOI, it had to go back to the Parliament for placement and noting. I think with the political parties being the same, it is certainly the assumption that we are working in that the government will continue to work on it because it's of national importance, and it is something of a commitment. We do have a journey in terms of final negotiations on the binding tailor-made agreement. I don't think any of us have a doubt that the government will not stand behind what they have signed in the new government.
We have to give the time for the new government to form. The election's just over. Unlike in India, it takes a little bit of time. We must give that. Then we will sit down with them on the tailor-made agreement. In the meanwhile, both sides are anyway working at the back end on the conditions that need to be fulfilled in terms of preparing for the new government when it comes, that we will have a very clear understanding of what needs to be done before we sign the tailor-made agreement. That's where it is.
That is also where the timing of the project and the feasibility and practicality of doing it within certain years will also be considered and a due action taken because we have to take the practicality of changes in policy, in the permitting process, the construction, the site work required, and so on and so forth. We will have a conversation around that subject also. I think the political world in Netherlands is fully aware of that.
Thank you. I think there are multiple questions on capacities of each of our downstream products or capacities. I would just like to remind people that we do not really give guidance on individual product capacities. I think Naren mentioned a broad guidance and our overall growth path. We will not take that. There is, I think, one broad question, Koushik, which you might like to address on our sort of leverage targets and how we are sort of balancing that or what is our approach towards leverage.
I was wondering when would that question also can come in. I think we are managing our balance sheet pretty well under the circumstances in the context of our operating cash flows, all geographies being focused on working capital and profitability. I think this quarter, we had a significant amount of cash outgo on our dividend, which is an obligation that we are clearly focused to fulfill as part of servicing our investors. I think it is important to mention that our net debt to EBITDA is at about 3, even with the kind of spend that we have. We will be in that. I've already said that in the past that between 2.75 and 3 is where we would like to maintain ourselves on a more sustained basis.
At times when there are significant market challenges or volatility in prices, which impacts the working capital because steel, coal, iron ore prices do change significantly, especially on the seaborne market, that's the time when we do get beyond that matrix. Largely, 2.75-3 is what we would like to maintain. If they are in a mid-cycle period like this or a low mid-cycle period like this, in an upcycle, we are on a different platform. We would keep the matrix like that. Any opportunity to deleverage, we will continue to deleverage. We also look at where best to apply that capital. Apart from leverage, it is in short payback period projects or acquisitions like the BlueScope that we've done because that actually effectively will help in consolidating the margin and the footprint and helping a product mix to grow.
Those are decisions that we do take and then look at what the leverage allows us to do. When we look at the NINL, we will certainly look at the phasing spend and how quickly we can get the cash-to-cash cycle up. That is why, as Narin mentioned, we want to go at a time when we are site ready to start work so that we can compress the period as much as we can. Leverage is an important part in the entire, not only financial strategy, but also in the business strategy and how we actually run the business. Thanks.
Thank you. With that, I think we've answered all the questions. Thank you to everyone who's dialed in, and look forward to connect with you again next quarter.
Thank you.
Thank you. Thanks, everyone. Thanks.