Ladies and gentlemen, good day and welcome to Jindal Stainless Limited Q2 and H1 FY23 Earnings Conference Call hosted by Nuvama Wealth Management. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Kejriwal from Nuvama Wealth Management. Thank you, and over to you, sir.
Yes. Thank you, Vivian. Good afternoon, everyone. On behalf of Nuvama Wealth Management, we welcome you all for this Q2 and H1 FY 2023 quarter conference call of Jindal Stainless and Jindal Stainless Hisar. We are pleased to have here Mr. Abhyuday Jindal, Managing Director, JSL and JSHL, Mr. Anurag Mantri, Group CFO, Jindal Stainless, Mr. Ramnik Gupta, CFO, Jindal Stainless Hisar, Mr. Gautam Chakraborty, and Ms. Shreya Sharma from the IR team. We are pleased to note that, you know, this quarter, despite, it's a difficult situation, company has reported EBITDA of INR 15+, which makes first half FY 2023 total EBITDA of around INR 18,000+, which is in line with their guidance. I hope management will continue to maintain that guidance and, after that, you know, I can just hand over the call to Gautam for the presentation.
Over to you, Gautam.
Yeah. Thanks, Ashish. Good afternoon, everyone, and thank you for joining us. We'll begin this call with a brief opening remarks from the management, following which we will open the floor for an interactive question and answer session. Before we start, I would like to state that some of the statements made in this today's conference call may be forward-looking in nature, and a disclaimer in this regard is available in our result presentation, which was shared earlier with you. I would now hand over the floor to Mr. Abhyuday Jindal for his opening remarks.
Thank you, Gautam, and good afternoon, everyone. On behalf of the management team, let me welcome you to the earnings call for Q2 FY23 of Jindal Stainless Limited and Jindal Stainless Hisar Limited . I would first like to discuss the key business highlights of the quarter, following which Anurag will take you through our operational and financial performance. Globally, demand for stainless steel decelerated throughout Q2 FY23, primarily on account of high energy costs, inflationary pressure, aggressive rate hikes by the U.S. Fed, and recession risk in key economies. On the domestic front, demand from end user segment continued to be strong.
Development and supply of niche value-added stainless steel grades and critical materials across various sectors and our agile business model allowed us to effectively increase our sales volume and achieve highest ever quarterly domestic sales of around 95% of the total sales volume. Demand continued to remain steady in the automobile sector, registering a growth of nearly 28% quarter-on-quarter basis. The company supplied new stainless steel grades, including 432, along with existing grades like 436L and 439 to various auto majors. In the P&T segment, average sales in Q2 FY 2023 increased by 41% over Q1 FY 2023. Demand was also strong in the lift and elevator segment. Indian Railways continued its thrust on increasing its share of business in freight.
This led to a 25% jump in our sales to the railway wagon segment. We also see strong opportunities in rail segment too. Vande Bharat train set will remain a major focus area for the railways. It is also heartening to know that India is expected to invest INR 80,000 crore in metro projects over the next five years, which will further increase the opportunity for our premium stainless steel offerings. On the export front, stainless steel industry has been facing continuous challenges with no relief on the export duty front. During Q2 FY23 and H1 FY23, combined exports stood at around 5% and 13% of the total sales, respectively. Domestic sales volume, on the other hand, has remarkably increased, compensating for the volume loss in the export markets.
I am pleased to inform you all that we have successfully developed and stabilized various stainless steel grades in the 400 series. We have also concluded multiple strategic orders for the specialty grades in the lean duplex family. Additionally, we have dispatched our first ever order of 304 grade for ISRO's critical application requirements. On the ESG front, let me update you that we have initiated Project Samanvay with EY in order to for two-pronged strategy. A, to achieve its environmental social governance goals. Two, is project greenhouse gases emissions and set carbon neutrality targets in accordance with the Science Based Targets initiative. We are dedicatedly taking up real-time environmental surveillance monitoring for air quality, water quality, work zone monitoring, effluent analysis, and noise at various locations.
We also carried out the plantation drive of over 2,500 trees inside the premises. JSHL has successfully commissioned a 3.5-megawatt rooftop solar power generation project. We are actively evaluating renewable energy projects for our future power requirements. In addition to this, the company has set an organizational goal to reduce its carbon emissions by over one lakh tons in FY23 for the merged entity. We are cognizant of our environmental responsibility and are committed to helping the nation prepare for a sustainable future. With this, I would like to hand over to Anurag to discuss the operational and financial performances.
Thank you, Abhyuday. Good afternoon, everyone, and a warm welcome on the call today. Hope you had a chance to go through our earnings presentation, which was shared with the stock exchanges, and today's call discussion will be on the same lines. As Abhyuday mentioned, and as you all know, that this quarter witnessed a major impact of the export duty, coupled with the ongoing challenges in the global macro situation. Raw material prices too continued to remain volatile during the quarter, with nickel prices falling by 24% quarter-on-quarter, and those of ferrochrome by 18% quarter-on-quarter. This impacted the realization and profitability of domestic manufacturing.
Despite these challenges, we could adapt to the changed market dynamics quickly and emphasize our focus on the domestic sales through development and supply of niche value-added sustainable steel grades and efficiently increasing our volume across segments, especially in, into auto, railways, pipe and tubes, and lift and elevators. Let me now discuss the operational and financial performance during Q2 and H1 FY23. Backed by strong sales volume, the pro forma combined revenue of Q2 FY23 rose by 10% and 6% respectively on YOY and QOQ basis to INR 8,628 crore. EBITDA and PAT were recorded at INR 694 crore and INR 360 crore respectively. On a half yearly basis, the pro forma combined revenue grew by 19% YOY to INR 15,744 crore.
EBITDA and PAT for the same period stood at INR 1,526 crores and INR 836 crores respectively. Performance of the global subsidiary was adversely impacted, as mentioned by Abhyuday Jindal, due to the tough global headwinds, inflationary pressures and recession risk in the key economies and export duty. On a half yearly basis, however, our combined EBITDA of all the operating subsidiaries stood at 78 crores. At the end of Q2 H1 FY 2023, our pro forma combined entity net debt stood at INR 2,757 crores, down by 42% and 12% respectively as against FY 2020 and FY 2022 levels.
Despite being in the CapEx cycle, we continue to focus on the robust balance sheet and prudent capital allocation, which has helped us to improve our leverage ratios of the combined entity with the debt equity of 0.3x and debt EBITDA of 0.7x, which is one of the best in the metal sector. On the merger update, let me intimate you that NCLT has given the next date of hearing on November 11, 2022. The merger is expected to complete in FY23. Also, I'm pleased to inform you that the shareholders of JSL approved the acquisition of 74% of JUSL from OPJSTPL through postal ballot with an overwhelming majority on September 3, 2022. Our agile business strategy has been helpful in supporting our overall performance during the challenging times.
We'll continue to focus on our core strength to optimize our operational and financial performance going ahead. With this, I would like to end my discussions and would request the moderator to open the floor for the Q&A session. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Participants who wish to ask a question may kindly press star one on your touchtone telephone. If you wish to withdraw 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 ICICI Securities. Kindly proceed.
Yeah. Good afternoon, everyone. Thanks for the opportunity and congratulations for a good set of numbers in a very challenging quarter. I have three questions. The first one is on essentially volume growth. We saw very impressive volume growth QOQ in both JSL and JSHL. While you have highlighted certain segments, railways, autos that contribute to growth, just wanted to understand, you know, better where this growth is coming from, particularly in 200 series, whether if it's 300 or 400. Was there any pent-up demand in certain segments that you expect to taper off? What about the volume guidance for the year? That is the first question.
Okay. Thanks, Amit. So, as we mentioned, the volume growth was in the domestic market for us came across the segment. Because most of the volumes we actually then diverted to a domestic market due to the export duty. Good thing was that some of these growth which came into the premium segment, which is like auto. Auto average sales grew almost 28% on quarter-on-quarter basis due to the steady demand in this. Similarly, railway, the growth primarily came from excess usage in the wagons. Wagons because the, on the freight side, the railway continued to increase focus, which then wagons took up the good demand from of our overall sales mix.
Pipe and tube was another segment which grew almost 41% on quarter-on-quarter basis due to the good demand from construction and infra. It was across then their lift and elevator was also like we captured almost 95% of the share of the market and with supplies to all the major elevator which is KONE, Otis, Mitsubishi, Schindler. This is the across. It was all across the spectrum of the various segments. On your question was on the mix then I think second question. Because of this the overall if you see 400 series volumes in JSL share was almost 31% and 300 series which was last year was 56 has come down to 46%.
200 series also increased 18%-23%. That's how basically it's because the demand was coming across the segment, and we were able to capture balancing between the volumes and the price. We continue to choose the segment carefully.
Okay. What about the guidance? Because we heard that last time, you know, it was a slightly muted guidance. Would you revise your guidance as well?
Last time we gave a guidance of 5%-10% volume dip expected by FY22. Now, I think with this trend, we are expecting we will close at least a flat volume growth in line with FY22. At this stage we are upgrading the guidance in terms of the volumes, which was earlier expected to be down by 5%-10% from FY22 level. Now we at least expect that FY23 should be flat to FY22 levels.
Great. The second question is on the CapEx spend. The number in cash flow statement indicates that the ongoing expansion projects have gathered momentum, so the CapEx spend has also gone up. Would you please let us know the status of completion of the Brownfield expansion at JSL, and, I mean, whether it would be like we can expect some volume growth from it towards the end of FY2024?
CapEx, all the CapExes are on track and everything is what guidance we gave. All the facilities will come within that timeline. That's on the CapEx side. On the growth side, we were expecting a faster pace, but I would say we'll have to watch the next two quarters carefully. With that, we will see. We are still expecting that at least 20% growth we should be able to deliver in FY 2023, 2024 over 2023. I think we will rather watch the development. Out of the new capacity we are expecting at least 30% capacity utilization can be achievable despite all the other challenges.
It continue to remain like that way in FY2024.
Wonderful. The last question is on the share of imports. If you can quantify the share of imports in domestic consumption in Q2 FY23, and what was the increase in imports from China and Indonesia? You used to provide this information previously earlier, but this time I don't know why it got missed out.
The imports in this quarter was close to 32%-35% of the overall sales overall consumption in the country. Chinese imports continue to hover. It used to be 60,000 in June, came down actually to less than 40,000, but again, it has crossed, reaching almost 40,000 - 50,000 in September. It's been up and down now on the Chinese import side.
Indonesia?
Indonesia, we are seeing a declining trend in the import side. It used to be 20,000+. It's right now running at less than 10,000.
Okay. With the decreased import pressure and, you know, our own volume growth, that should give you a lot of confidence actually to deliver, you know, good volume in H2 also if imports remain, I mean, or go down further, I think.
Yes. That's the reason we are revising our guidance. Instead of volume decline, we are saying at least the flat volume looks achievable at this stage now, with our confidence level what we delivered in Q2.
Okay, wonderful. Thanks a lot and all the best.
Thank you.
The next question is from the line of Rajesh Majumdar from B&K Securities. Kindly proceed.
Good afternoon, sir, and congratulations once again for a decent set of numbers. My question was, sir, we have seen the effect of high-cost inventories also in this quarter, right? Getting liquidated because of the high increase in volumes. What will be the extent of that inventory liquidation impact? And since the prices are again forming now, especially Ferrochrome, et cetera, what kind of inventory-related loss can come back in 3Q and 4Q? That was the first question.
Rajesh, in our business actually because it's a balancing between the volume and the realization and the margin. It's difficult to segregate the in-inventory valuations number in a concrete manner. Typically the trend which we have been saying, it gets almost a time lag of 40-45 days to pass on to the customer. In a downward raw material trend, we always get a negative valuation impact, which was there in the quarter also.
Right.
Because of the downward movement in the prices. Quantifying that number looks difficult. That's why the guidance we give is actually 18,000. We are taking care of everything which could come into play during these volatile times. We are not segregating that guidance that in case of continuous trend, we will not be able to deliver such volumes.
Right, sir. Fine. My second question was, sir, recently we've been seeing a hardening of the spread here in SS 300 series, particularly, where the product prices have been firm and increasing somewhat. Whereas from September onwards, there is a sharp decline in the scrap prices. How – I mean, I know you have longer term contracts and all that. So what is the impact? Because overall impact on the spread is nearly INR 15,000+ per ton. So obviously the entire thing cannot be captured in terms of the spot spreads. But what kind of impact on that can we see in 3Q and more in Q4?
See, Rajesh, actually, the raw material is also again, the source of raw material and that we select on our supply chain is also a combination. That it's difficult to because see what happens when the raw material and the scrap prices start falling, the spot prices of the finished goods also start adjusting immediately. Also because we have to list a larger quantity of raw material. We have seen the moment we pause for some time in the scrap market, we see suddenly the prices falling down. When we start gathering the quantity, the prices start going up immediately. Those scraps are available for the limited quantity. That's the reason it's a very fine balancing of the various raw material sources for us.
No, but the widening of the spot spreads or the flattening should matter to you in terms of, right, the overall profitability of the product to some extent. I mean, even if you are saying that the quantity is impacted, you know, impact the prices. Like for example, SS scrap has fallen from nearly 304 scrap has fallen from INR 1.38 lakh to INR 1.18 lakh, and the finished prices have actually gone up, is what the one and a half month data suggests. That's been a sharp increase in the spot spread. My question is, sir, how much of the spot spread impact actually comes in for us? If you can get some kind of, you know, judgment on that.
Let me give you two parts to this. One is that why it cannot be exactly reflected, because one is that it also depends on the sales mix which we are selling. As we mentioned, like, auto, railway, if you are more on the 400 series, SS scrap will not matter that much.
Right.
That's one part, because it's always for us then, we don't go with that this much of 400 series mix has to be sold or this much of 300. What we go with that, how we capture the best margins, orders across the various segments irrespective of the grade. That's what how our business strategy moves, which is helping us in terms of maintaining the more consistent volumes and the growth in the earnings side. Second part is that, the scrap also so the moment we have seen in the market, we pause for some of the scrap buying. We see the prices going down. The moment we start buying as a large buyer, we see that initially those price sources are actually limited in terms of the quantity.
It's much more complicated than it's like a similar way of stock buying, let me tell you, because when you start getting the large order, we see suddenly the prices, the next order goes into the larger size. It's a very fine balancing.
Also to add that domestic as a scrap is not our only source of nickel or scrap that we buy. You know, so it is only domestic. What you're saying is correct. There's been a sharp decrease, but in the world market and other forms of nickel, there hasn't been any major.
Right.
We need to look at all our sources.
Okay. Let me just ask you a final question, Mr. Anurag Mantri. Would you hazard a higher EBITDA per ton for 2H as compared to your earlier guidance because of all the factors of inventory and spread, et cetera? Because it's like since the actual numbers are more complicated, would you hazard a slightly higher profitability figure for the rest of the year?
Not right now. We will say that, we will not change the guidance right now. FY23 at 18,000, I think we will maintain at this stage, and we'll rather watch for one more quarter the trend.
Okay. Thank you so much.
Thank you. The next question is from the line of Ritesh Shah from Investec. Kindly proceed.
Yeah. Hi, sir. Thanks for the opportunity, sir. I have four questions. First question is one is on JSL, JUSL. What are the incremental milestones that we have to look at? Secondly, if you can just help the debt and EBITDA numbers for JUSL for first half. So that's the first question. Second question is any update on MCL? Third question is, if at all reduction in pledges, by when can we see that? Fourth question is what will make us again competitive on exports? We know that we have Section 232. Europe, there are additional duties which are there, given by European Union plus the government's 15% export taxes. So if the export volumes has to move up, again, what is it that you are doing about it?
Those are the four broader questions. Thank you so much.
Okay. Thanks, Ritesh. Sorry, let me just try to see. If I missed some question, I think you can again ask me that question, I think because you have asked too many questions. Let me try to see what I captured. One is that you asked about the JUSL debt and EBITDA. The JUSL current debt is around INR 1,955 crore and the EBITDA for the H1 was INR 275 crore. That's one question. Second question was on the pledge side, the reduction of the pledge. Reduction of pledge, as we mentioned, the banks are completely aligned. I think it's taking more process time to how to actually navigate that into the whatever has been released.
Let me tell you the good story is that all the term debt which was having a pledge has been repaid. There's no term debt right now, which has a pledge right now in the JSL. The pledge which is getting reflected now only on the working capital. See, for term debt it was easier because we prepaid the thing and we got it refinanced with the new debt. In none of the new debt we have given the pledge. There's no term loan now existing in JSL which has a pledge. Working capital thing, unfortunately, because of especially the LC thing which is ongoing, there cannot be a one-day cutoff for the repayment and taking the new facility.
It's a process which we need to obviously get the pledge released from the old CDR lender, which is led by SBI. Which we are actually in the process and they are assuring us because even in their new loan of term debt which they have extended to us for the project there's no pledge in that particular loan. They have removed all the pledge and subsidiary pledge requirements of the new loan and disbursed that new loan on that basis. Just I think I know we have been saying that and we are also a bit disappointed by the progress at the PSU lenders on working capital side.
As a proactive step, what we have done, we have repaid entire term debt in JSL, which was on a pledge and refinanced it with the new debt, which was not under pledge. JSHL is still existing, but we are just waiting because of the certain assurance. Otherwise we will do the same exercise in JSHL, and we will not have any term debt which will have a pledge.
That's useful. Update on NCLT and then the export question.
The NCLT, the matter is in court. Obviously, there was a bidding process, and it's in public news that the three key parties were there in the bids was actually us, and two other players. We were actually the frontrunner. However, in between, obviously it was challenged in the court and, in between the lenders also offered a loan to the ARC to offload their loans which was led by NARCL offer because resolution sometimes can go long. That process was also run separately, but the matter is in court. Right now there's nothing to update on the progress of NCLT. I think it will take its own course.
The other thing was on export side. That, your question on export side is that, how can we gain the volume in export market? Is that the question?
The question is, government imposed 15% export taxes, that's one thing. Prior to that, European Union imposed taxes on India, China, and Indonesia. We were still able to export into Europe despite that move. But at that point of time, we did indicate that we will still be competitive in the U.S. market. I think export market is probably important and probably more lucrative. If we have to regain our competitiveness back, what are the regions that we are looking at? When it was Europe, we did indicate about U.S., but U.S. also has Section 232. What are the other regions that we are looking at? Say hypothetically, if the domestic market is sluggish, is exports even an option for us? How should we look at it?
Yeah, maybe, because see right now, there was obviously recessionary risk and inflationary trend and all sort of thing in both the market. Let Abhyuday answer this question that how the recovery can come in export market.
Ritesh, thanks for your question. Basically, definitely with the export duty overhang, it is going to be a big challenge for us. Like Abhyuday said, this Section 232 plus. As of now it is a challenge, but because of our long-standing quality, you know, approval that we have, our customers are still sticking with us. They still want to still take some quantity. Despite, you know, selling at a very low margin export, we're still continuing that and we will still continue to the tune of, if it does get-
No further sluggish domestic. We are seeing good demand and we are seeing good pull in all segments, you know, of your infrastructure and auto and railway. Railway, especially Q4 always picks up. They always drag behind for the full year, and Q4 is always a bumper time for railways. We don't see any real, sluggish or slowdown in demand in the domestic market. That we're still quite bullish on. With the export duty overhang, increasing export sales with the way the world market is in sort of a recession right now, it is looking like a challenge. We're quite bullish that domestic will, volumes will be maintained and they will further grow. Whenever required, at very low margin, we can always push the export volume. As of now, we don't want to do that.
Sure. If I have to just rephrase the question, given the volatility that we have seen in the commodity prices, I'm pretty sure that our mix on 200, 300 and 400 series would have changed on a quarter-on-quarter or year-on-year basis. Even if for that change, would you assure investors that our profitability when we look at it on a EBITDA per ton basis, it is something which is pretty much similar across the three grades, and it would not have much bearing on the profitability going forward?
Our overall guidance we will still maintain. Between the three grades, there is definitely variation and there are certain segments and certain low-paying segments, but our overall guidance, combined all three between 18%-20%, I think we will still maintain that.
Sure. Thank you so much for the answers. Thank you.
Thank you.
Thank you. Participants, if you wish to ask a question, kindly press star one on your touch-tone telephone. The next question is from the line of Vikash Singh from Phillip Capital. Kindly proceed.
Good afternoon, sir.
Good afternoon.
Sir, I just wanted to understand this 20% growth in FY 2024 which you are emphasizing. Is it taking into assumption that the exports would resume or you see the scope that only from the domestic demand you would be able to take up that, let's say, 15% or 20% growth in FY 2024? And if so, we are obviously talking about much higher growth than the industry level. Where this growth are coming from, basically?
See, one, let me just clarify that it's not that we are guiding right now for the growth on FY2024 over FY2023. That's what I said. Directionally we should target that, but it's not the guidance right now and we have to watch for another two quarter. That's what I mentioned. That's for clarification. Second was the question was asked about the capacity, new capacity utilization. Earlier we would have obviously ramped it up much faster. At this stage also we are working to ramp up at least for the 30% of the enhanced capacity utilization during this period, 25%-30%. That's what our endeavor. I think for guidance of 2024 number, I think let's watch.
Overall, yeah, we can assure you that we are, what we are working is that at least, the new capacity which comes at the 25%-30% of that utilization, we should be, targeting to ramp up. I think, the end of the next earnings call will be the best time to give us the FY 2024 firm guidance.
Understood, sir. Thank you for clarity. Sir, my next question pertains to our once this capacity comes in terms of 30% utilization or 50 or 100%, how the operating leverage moves, sir? Have you done any internal calculation which you could give us also a kind of idea that what kind of the operating leverage would come into play?
What do you mean by operating leverage? Are you talking about the EBITDA per ton guidance?
Maybe the fixed costs, the EBITDA per ton, the fixed cost element would get spread further, so some more savings would be coming in, because of the higher utilizations level.
See, Vikash, right now, effectively, if I understand, you are asking for FY 2024 EBITDA per ton guidance. Let me tell you, which is bit early for us to say right now, because see, ultimately it will be a fine combination, as you would have seen in our last two quarter. We'll have to have a very fine balancing between our volume and the price segment which we want to go. We have opportunity. India is still dominated by imports in austenitics. Technically we can sell the entire volume, but at what price point and what price, product quality we will compromise, that will have to be a very, very fine balancing and we want to keep our thing into the premium and niche segment and more on a quality segment, not getting into a substandard quality segment and compete on the price.
It's a bit complicated than what it looks like. That's what I'm saying. It's difficult to have an EBITDA per ton guidance that has incremental savings which will be able to achieve to increase the EBITDA per ton guidance at this stage. I think let's wait for some time how we move development and the external market moves and how the other segments in the domestic market moves and we will give you the guidance. When we give the guidance, we take care of all the things in terms of the inventory valuation, in terms of the various savings which will be coming from the which will through operating efficiencies and sourcing efficiencies which we keep working on.
Sure, sir. Fair enough. Sir, just one more question. In terms of in the general standards, our subsidiaries had made losses. Just wanted to understand, is it there some one-offs which we translated to the loss at the EBITDA level? Or how are they doing right now? Has the situation improved? Yes. I think globally, global subsidiaries were actually, as we mentioned, the global markets are actually under downward pressure in stainless steel. One was because of across the economies which are facing the recessionary risk and inflation pressure. We see some challenges on the European market. Abhyuday Jindal, you want to explain to this?
Sorry, can you repeat the question?
Yes. I was talking about the basically European subsidiaries making losses and some other subsidiaries also. Total loss in the JSL level is roughly about 50-
Our service center has still done well. Our service center has still done well despite the challenging situation in the domestic market. Our service center is still fully performing and done well. Lifestyle business, because it's a consumer-driven business and lot of the prices that we were fixed, there we face certain challenges. Now what we have done in lifestyle business is also we have gone and discussed with various government agencies, and we've got a price variation clause done. That way we're taking care of any kind of future aberrations that happen because of this. Both our domestic subsidiaries, definitely, JSSL has done well. Q4 guidance for lifestyle is looking very good. We are seeing all our orders coming back in black. That will also perform well.
The global subsidiaries are under a bit of a pressure right now, and that will take, I would say, another two quarters till the global demand is back up and running or the export duty moves out. Till then, there will be still pressure on those two subsidiaries.
Understood, sir. Sir, just one last clarification. We did not see any one-off, like some of your peers, one-off inventory losses or any kind of one-off losses during this quarter.
Uh, it's, uh-
Just-
It's as I mentioned that inventory losses are difficult to be separated for us. It's inventory losses is like the negative inventory valuation, which is in the falling raw material prices. That they are as we mentioned, it was there in Q2, even in Indian company as well as the across, because when in the falling recession prices, you will always have a negative inventory valuation. Those numbers cannot be quantified because it's blended with the part of EBITDA by the time it gets passed on.
Understood, sir. That's all from my side, and thank you for taking my questions.
Thank you.
Thank you. The next question is from the line of Ritwik Sheth from One Up Financial. Kindly proceed.
Yeah. Hi. Good evening, sir, and thanks for the opportunity. Sir, I have a couple of questions. Firstly, what is the CapEx for the rest of the year in H2 and for FY 2024?
The CapEx in H2 should be in the range of around maybe INR 600-INR 700 crore and
Okay. Both the entities combined?
Yeah, both the entities combined. Around, say, INR 700 crore CapEx we think is.
Okay. FY24, what will be the maintenance CapEx?
Maintenance CapEx between these two companies, combined together runs close to INR 350 crore of the number.
Okay. Sure. Sir, my next question is on JUSL. What is the expansion status there to 3.6 million tons, and when will it be completed?
JUSL expansion is on time. I think by end of this fiscal year, that also should be completed.
Okay. It will be at INR 3.6 million, right?
Yes.
Right. It seems the debt has decreased from March 2022 numbers. Is that understanding right?
In JSL?
No, in JUSL.
Slightly, yes. That debt has decreased slightly. Yes.
Okay. Sure. Sir, what would be the pro forma net worth of the company? Ideally there will be some cancellation, so if you can share that number, if it's handy.
Around 10,400.
The investments in JSHL will get canceled out, right?
Yeah, canceled out and then there will be some kind of additional addition also. The total impact will be around INR 10,400.
Okay.
Which is pro forma number. The actual number when we'll calculate it, you know, it might be little bit different, but so far pro forma number is this one.
Sir, just one last question on JUSL. We've mentioned that sometime in FY 2024 we'll be completing the acquisition. Does that timeline stay?
Yes.
We'll be paying out that INR 950 crore and we'll be getting in the debt of about INR 2,000 crore?
Yes.
Right. Okay. Sir, all the best, and thank you.
Thank you.
Thank you.
The next question is from the line of Ankit Deora from Kotak Investment. Kindly proceed.
Good evening, sir. Just couple of questions. One, on the JUSL acquisition, any specific milestone or by when we expect the payout? Anything in H2 or everything in FY 2024?
We have got the shareholder approval now, and we expect to close this in FY23 itself. We gave the timeline till June 2023 last time. I think, in all probability now approvals have been received, we will close this transaction during this financial year.
Okay. In terms of CapEx in JUSL, are we undertaking any blast furnace CapEx or something? There were some press releases around orders given to SRX projects or something. This seems to be current CapEx or.
No, there is no blast furnace. This JUSL will be coming with the hot strip mill and cold roll unit as it is to the Adani Stem Cell.
Okay. Okay.
To JSL.
Okay. Okay. That's it. Thank you.
Thank you. The next question is from the line of Hitesh Arora from Unifi Capital. Kindly proceed.
I think, just two questions. If you were to update on the NCLT status, what happened in the last hearing, you know? What's the expected timeline? Are we still confident of closing this by this financial year, the merger?
See, this hearing is to take into account all the NOCs received from the various regulators, which is the tax authorities, GST authorities and all those things, which has been filed already. We filed more different certificates we have got from all the has been filed to the court. Hearing is on 11th. I mean, I'm not too sure whether this will be closed in this hearing or may have another short hearing, which is we have seen typical pattern in the Indian courts. Even with that short hearing, we are. We know that all the authorities have submitted the NOCs to the court, so it's more a matter of process. We hope to complete the transaction in FY 23 as per the guidance.
Okay. Just then, you know, on JSL and JSL Hisar. We've given a guidance of 18,000 or maybe 18,000-20,000 tons because what's the downside risk to the guidance? What can go wrong from here, you know, for us not to achieve this 18,000-20,000?
For FY23, I think 18,000 is right now an achievable guidance, looks like. Obviously the downside risk as always could be external market. This time I would say 18,000 because we have crossed the two quarters and looking forward for the next two, three months, we are confident of delivering 18,000.
Okay. For the next year, we'll see as it comes closer to the time. Is that? Would that be right?
Sorry, sorry. I didn't get it.
The next year, so next financial year, we'd see closer to ten times.
Yeah, I think let's watch because there are too many volatility happening across on even policy front as well as the global front.
Sure. We should be all things equal, we should be getting another, say, 3,000 or 3,500 additional on account of the merger benefit, acquisition benefit of JUSL, which will be the pulling charge. That should also come to us all things being equal.
Yes. Yes. Yes.
Sure. Okay. Cool. Thank you.
Thank you. The next question is from the line of Dhaval Shah from Anvil Wealth Management. Kindly proceed.
Yeah. Hi. Congratulations on good set of numbers. Am I audible?
Mr. Shah, your audio is a bit low.
Is it fine now?
Yes, this is better.
Yeah. I had a few questions. Firstly on why there is an employee cost reduction in this quarter. Any one-off or can you throw some color on that? Also, if you can share some details on the coal cost this quarter versus the last quarter and the current prices and how the sourcing is done.
Employee cost was just some provision thing which we do on the certain thing, which was actually certain adjustment on the provision. Your second question was on, as I said, one was employee cost, second was?
Coal cost for power.
Actually, we did a very flexible thing on the power side.
Coal cost, though overall, if we look at the linkages cost and the other cost on the spot prices, were pretty much on a higher side. Strategically, how we planned it is that we also procured power from the grid. In the overall, we just balanced our mix in terms of the cost on the terms of the per unit cost for us. Which has come down as compared to the last quarter, if you look at.
Okay. Can you share the per unit cost?
I think that would be difficult to share, but the per unit cost of the coal.
Okay. Also
Yeah.
Yeah. Yeah, continue, sir.
See, we keep doing the cost efficiency in a flexible way depending on the fuel prices. Where Shreya mentioned that, sometimes we actually put a pause and then bought it from the grid and then the coal was higher and then do the blending thing. That's how we manage that entire cost.
Sir, if you shed some light on this Hygenco India tie-up or JV, how that deal is structured, and is there any CapEx or money we need to invest into that?
I can maybe quickly answer this. There is no CapEx involved at all from our side in this. It is a total investment done by Hygenco, and it's a power purchase agreement, so it's a very pilot scale project. You know, we wanted to test this project out, and if it does well and creates good amount of green hydrogen, then we will go for a larger scale setup.
Got it. There's no,
Yeah.
There's no CapEx or any, investment from-
No CapEx from our side.
Sir, one more question if you could answer. Can you just throw some light on the capital allocation policy over a longer period of time? Because we will be done with the CapEx by end of this year, and we will be generating roughly good cash flows. How it will be? Are you looking for further CapEx or some payout or you know? Some color on that would be helpful.
Definitely, I think, Anurag, you can take this up, but we would like to give some dividend next year. That is still on our cards. Anurag, maybe you can answer this question.
Yeah. See, as we mentioned last time, that the board approved the new dividend policy where we at first mentioned that, obviously, up to target dividend up to 20% of the PAT on a progressive basis in the future. Only after the merger we will consider that.
Okay.
CapEx side and this thing, it's always normal as you saw. Even in the CapEx cycle, we continue to maintain the ratio very prudently. I think that's what you should take it more as a debt, because as a growth, we will always continue to look for the right opportunity, but obviously at the right ROE and in terms of the overall balancing our ratio.
Sure. Sir, one more question if I could ask. Sir, on JUSL, you said that the CapEx will be completed by end of this year. Is there any CapEx, whatever the CapEx for H2, is there any debt required, or it would be fulfilled from an internal accruals only for JUSL?
No, there would be an additional debt drawn in JUSL.
Okay. Can you quantify it, approx?
It could be probably INR 200-300 crore.
Okay. CapEx for H2 in JUSL?
It's ongoing. It's all as I told you that it's what the numbers will be drawing the loan accordingly now.
Okay. Thank you, sir. That was helpful. Thank you.
Thank you. Participants are requested to kindly restrict your questions to two per participant. The next question is from the line of Chetan Shah from Jeet Capital. Kindly proceed. Mr. Chetan Shah? Mr. Chetan Shah, can you hear us?
Yeah.
Yes, sir. Can you proceed?
Hello.
Yes, sir, we can hear you.
Yeah. I just wanted to know the JUSL debt number. Is it 1955?
It's 1965.
1965. Okay. Thanks a lot.
Thank you. The next question is from the line of Suraj Kokate from Axis Bank. Kindly proceed.
Hello. Hi, sir. I just have a couple of questions. The first one is on finance cost of JSL. I see that it has increased pretty like around 19%, this quarter on sequential basis. If you could provide some detail on this. Second one is that some of the recent media articles suggested that government is planning to impose an anti-dumping duty on stainless steel and pipes from China. Like, are you aware of these events? And how likely is the possibility of implementation of this? And if this is implemented, what could be the impact on the volumes?
Let me answer first on the interest cost. This quarter, there was one-off items of around INR 8 crores in the JSL cost, which was on the interest on the income tax advance tax, which was because last year, obviously, as we progressed on the EBITDA, the advance tax at the end of the year, the EBITDA increased, initial advance tax was in a shortfall. That was on this thing. As well as there was one interest payment on the settlement with the NESCO, which is the power utility company. That was the one which was there, which is coming into interest cost.
Some of the other costs, which we do actually as part of the working capital management. Actually the income from the debtors and discounting is going into the other interest. It's not getting net off in JSL. That's how it's been reflecting. The second question was on this anti-dumping. I don't know what are you referring. Are you referring to some of the court case which happened in Gujarat?
No. I think it was ADD, CVD on pipe and tube coming from China. That is what your question was?
Right. Yes.
That does happen, see, because we are not very big into pipe and tube ourselves. We are a supplier to them. This is a welcome move, and it's a good positive sign for us because that would help us further push our volumes. This is exactly what we have been telling the government, that most people have become traders. They have started shutting their pipe and tube making facilities here and started trading material from China. That would definitely be a very positive and welcome move by us.
Okay. Okay, that's it from my side, sir.
Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Kindly proceed.
Namaskar, sir, and thank you for the opportunity. If you could provide us historically what was our domestic and export mix, as we have seen that we are currently more 95% towards the domestic market. The two-year average, if you could provide.
See, Saket, as we mentioned with our agile model, we keep fluctuating in our export and domestic mix depending on the margins and the volumes which we can get. Typically if you see, the quarter four of last year, we reached almost as high as the export volume of 30%. On a full year basis, FY22 export volume was 21%. Currently this quarter it has come down to 5%, so it's quite fluctuating. Last quarter for Q1 was 17%. H1 overall we still maintain 12% now. I can keep giving you so many numbers, but I think, overall, the blended volumes and the margins which we target.
Sir, just wanted to understand the customer profile there in the export market. I mean, this kind of shift towards the domestic market, how are the customers in the export market then fed? What actually happens to those customers who were buyers of our products earlier, if we take the long-term averages also?
These are our customers. Our customers are still with us. You know, despite all these challenges and disruption, there has been a recession and a slowdown in their market itself. Like I said, we have long-standing approvals, long-standing suppliers, quality supplies that we have given. It's only a short-term aberration that is there. As soon as export demand or the European market picks up again, then our volumes and our supplies to these customers will again start.
Okay, sir. Two small pointers. Firstly, sir, what are the benefit in terms of this acquisition of JUSL, and how is it going to be funded? It is going to be consummated in FY2024, the one which we have taken up.
The JUSL transaction, as we mentioned, that it will. We are targeting to close in FY23 itself. It will make us a completely integrated stainless steel player and also eliminate all the related party transaction. With JUSL, just to give you the ballpark number, FY22 almost INR 1,700 crore transactions were there for the related party because it was doing a job work. All these will help us to improve the governance and eliminate all these related party transaction and which would have increased further with our increased capacity. It will make us a completely integrated stainless steel player with all facilities into the listed entity. That's all I think for now.
It's going to be a cash transaction completely, so this INR 958 crore aggregate value that we have put?
Yes. Yes, it will be a cash transaction.
Who is the ultimate beneficiary in the transaction for JUSL? Who is owning the same?
It's OPJSTPL is the company which is owning this company.
Sir, we also find that there are cross-holding. Just a small point to make, sir, and I'll stand corrected. If you find that.
Sir, this is the last question that you could ask.
Okay. May I continue, sir? Yeah.
No, sir. That was the last question. Thank you. We would now like to hand the conference over to the management for closing comments.
Okay. Let me thank everyone for attending this call. Sorry, Abhyuday is actually just in the car, so I'm taking this on his behalf. We have been focusing on our agile business strategy to mitigate the external challenges. I am confident that our strategic steps will augment the future performance of the company. I hope we have been able to answer all your questions satisfactorily. Should you need any clarity, further clarification, or like to know more about the developments, please feel free to contact our investor relations team. Thank you once again for taking the time to join us on this call. Have a great time ahead.
Thank you. On behalf of Nuvama Wealth Management, that concludes this conference. Thank you for joining us. You may now disconnect your lines.