Ladies and gentlemen, good day and welcome to Jindal Stainless and Jindal Stainless Hisar Q1 FY23 earnings conference call. 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. Rajesh Majumdar from Batlivala & Karani Securities. Thank you and over to you, sir.
Good afternoon, everyone, and welcome on behalf of B&K Securities to the earnings call of JSL and JSHL. We are represented today by Mr. Abhyuday Jindal, Managing Director, JSL and JSHL. Mr. Anurag Mantri, Group CFO, Jindal Stainless Limited. Mr. Jagmohan Sood, Full-time Director, JSHL. Mr. Ramnik Gupta, CFO, JSHL, and Mr. Goutam Chakraborty and Mr. Shreya Sharma from the IR team. I would like to hand over the call to Mr. Goutam Chakraborty now for his opening remarks. Over to you, Goutam.
Thanks, Rajesh, and welcome everyone. We'll begin this call with the brief opening remarks by the management and, following which we'll be having the floor open for the question and answer session. However, I would like to state that some of these statements made in today's call may be forward-looking in nature and the disclaimer in this regard is available in our results presentation that was shared with you earlier. I would now like to hand over the call to Mr. Abhyuday Jindal for his opening remarks.
Thank you, Gautam, and good afternoon to everybody. Hope you all are keeping well and are in good health. On behalf of the management team, let me welcome you all to the earnings call for Q1 FY 2023 of Jindal Stainless and Jindal Stainless (Hisar) Limited. I will first share the key highlights of the quarter gone by, following which Anurag will take you through our operational and financial performance. Q1 FY 2023 has been challenging with many issues coming together, having direct and indirect impacts on our performance. First, it was ongoing, the Russia-Ukraine war, which got extended and intensified. This has had significant impact on the global commodity prices, which saw very high volatility. Sharp rise in energy prices resulted into inflationary pressure and tightening of liquidity as well.
Finally, despite influx of stainless steel imports in India and having very different market dynamics, the government imposed 15% export duty on stainless steel, also along with carbon steel. The domestic stainless steel industry faced a double whammy during Q1 FY 2023. A continuous free flow of unwarranted stainless steel from China and Indonesia resulted in the share of imports rising to nearly 50%. On the other hand, 70%-80% of our export product portfolio got impacted due to imposition of 15% export duty by the Government of India. During Q1 FY 2023, the combined exports stood at 22%, which was lower than 26% clocked in the previous quarter.
However, it remained higher at, as against 70% in Q1 FY 2022, with SPD exports registered a 37% growth, sales growth on a year-on-year basis. Despite the external factors, our business agility, operational management, financial prudence and focused approach helped us to post reasonable performance for Q1 FY 2023. We continue to serve the domestic and international markets by widening our value-added stainless steel product portfolio. We have catered to a robust stainless steel demand from key domestic sectors like automobiles, metro, railways, coaches and wagons. In fact, in case of automobiles, we have increased our by 40%, 40% on a sequential basis. Demand from metro sector continues to be steady with major national metro projects in the pipeline. Our in-house R&D wing evolved improved stainless steel grades and finishes for the lift and elevator and auto segments.
Additionally, we have further enhanced our digitization initiatives, like product and MTC authentication for existing and end customers, online order booking and online payment portals. Continuing with the developments, I am pleased to share that we have supplied our most cost-effective and superior stainless steel for various infrastructure projects, such as Jindal Durasafe for India's second and third stainless steel foot overbridge at Srikakulam in Andhra Pradesh and Bandra in Greater Mumbai. We are also supplying stainless steel for developing technologically advanced and state-of-the-art train sets for India's first regional rapid transit system. I'm also happy to share with you that we are proud suppliers of stainless steel for construction of the Udhampur-Srinagar-Baramulla rail link tunnel project of national importance. This will be the first ever application of stainless steel cable trays in the Indian railway project, and we see many more opportunities in this sector.
Let me now update you on the value accretive and critical acquisitions. JSL is going to acquire Jindal United Steel Limited as a wholly owned subsidiary, further enhancing its stainless steel manufacturing integration with all critical facilities now under one umbrella. This would result in improved synergies between both the entities with preferred governance structure, thereby enhancing value for all our stakeholders. Further details in this regard will be shared by Anurag later.
Our focused approach to reduce our carbon footprint continues. On building a roadmap to achieve our ESG and decarbonization goals, EY has been appointed as a partner. During Q1 FY 2023, we continued to engage in green initiatives as part of our operational excellence projects. In Hisar, we are also set to install a green hydrogen plant. Through these ventures, we will be able to conserve power and reduce its carbon emissions considerably. With this, I would like to hand over to Anurag to discuss the operational and financial performance. Thank you.
Thank you, Abhyuday. Good afternoon, everyone, and a warm welcome on the call today. We have shared the earnings presentation with stock exchanges, and today's call discussion will be on the same lines. As Abhyuday mentioned earlier, the quarter encountered with unforeseen macroeconomic challenges that impacted the overall performance of Indian stainless steel industry as a whole. However, our focused approach on niche product development and agile project mix helped us partly steer through these challenges and report a reasonable performance for the quarter. Our focus on ART and ABC segments have augured well as we could increase our share of business in automobile sector. Coaches, wagons, and metro segments of Indian Railways have been doing well and looking promising in the future as well.
Going forward, we are committed to develop a strong stainless steel ecosystem in the country by focusing on awareness, skill development, new product development, and identification of sustainable applications for stainless steel. Our focus remains on the development of a special grade for the critical applications. Let me now come to our operational and financial performance during the quarter. On a year-on-year basis, the pro forma combined revenue for Q1 FY 2023 rose by 31% on year-on-year basis to INR 8,115 crore. EBITDA and PAT for the same period stood at INR 832 crore and INR 475 crore respectively. As far as our performance of the subsidiaries are concerned, the combined EBITDA grew 50% on year-on-year basis to INR 87 crore in Q1 FY 2023, despite many challenges.
Raw material prices continued to be highly volatile during the quarter due to the ongoing Russia-Ukraine conflict and also the macroeconomic issues as well. After initial surge in the prices fell on account of unwinding of a speculative position, increased control on the supply chain by governments across the world to fight inflation, decelerating the Chinese economy due to the renewed COVID lockdowns, and softening of logistic imbalances. At the end of Q1 FY 2023, our pro forma combined entity net debt stood at INR 3,513 crores, down by 26% as against the March 2020 level. We have been able to maintain our leverage ratios efficiently despite disruptions.
For the combined entity, while the debt equity stood at 0.4x, the debt EBITDA remains at 0.8x. Interest costs for the combined entity declined by 10% year-on-year basis on account of the lower interest rates. For both companies, the credit rating for long-term facilities at AA- and for short-term facilities at A1+ are maintained. On the merger update, let me intimate you that the post-approval of shareholders and creditors of JSL and JSHL on April 23, 2022, the honorable NCLT has fixed the next date of hearing is 18 October 2022, and we expect the process to be completed in due time over next four to five months.
As Abhay mentioned earlier, JSL is going to acquire JUSL, Jindal United Steel Limited, which is a hot strip mill and cold roll unit. The proposed acquisition of 74% stake in JUSL shall be made at an aggregate consideration of INR 958 crore. The acquisition would be done in one or more tranches by June 30, 2023, subject to requisite approvals. JUSL has been operating the hot strip mill with its total capacity being enhanced to 3.6 million metric tons per annum. JUSL is also operating a cold roll mill with a facility of 4.2 million tons per annum for stainless steel applications. We have been focusing on our core strength to mitigate various challenges.
We believe that our strategic initiatives will be augmenting our performance in the long term, and then once the environment normalized. With it, with this, I would like to end my discussion and would request the moderator to open the floor for the Q&A session. Thank you.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. A request to all the participants, please restrict to two questions per participant. If time permit, please come back in the question queue for a follow-up question. The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Yeah, good afternoon, everyone. Thanks for the opportunity. I have couple of questions. The first one essentially is on volumes. If I look at volumes, understandably, I mean, this quarter it was down. Would you be revisiting your volume guidance for FY 2023? A related question on this is, are you also contemplating delaying the 1 million ton expansion at Jharsuguda in view of regulatory uncertainties that persist at this point in time?
Amit, thank you for your question. First, in terms of volume guidance, we feel that, despite, I mean, all the challenges as compared to last year, this year we should do about 5%-10% less in our volumes. In terms of if you're saying our expansion that is happening, I think we will keep it on track, but maybe the ramp up we can slow down depending on the market conditions and these regulatory challenges. If they get removed, then we can increase the speed of ramp up. If we still see challenges pertaining export duty still remaining, then we can slow down the ramp up speed.
Amit, because our expansion, as you see, was targeted to end in this financial year, it's almost at the tail end of the completion. Most of the costs are already committed, and now we are doubling. I think overall, because there is no point in further delaying it, because eventually we hope that situation will further improve.
Yeah, we don't expect export duty to be there for very long. We are happy to, you know, I mean, continue our expansion process.
Great. The second question is essentially on JUSL. Now, you mentioned that I was under the impression that JUSL already has a rolling capacity of 3.2 million tons per annum. I mean, we are using 1.6 because of our own stuff. In order to expand it to 3.6, first of all, how much CapEx would be needed? If you could let us know your CapEx estimate, I mean, in light of a lot of things that have happened for you know, this year and maybe next year, that would be very helpful.
JUSL, the current capacity is 1.6, which is getting enhanced to 3.6 million tons at a CapEx of some around INR 350 crores. INR 350-INR 400 crores, that's the overall CapEx. It's actually around INR 350 crores. That's the process on JUSL capacity expansion. Overall, your second question was on the CapEx of Jindal Stainless Limited. If you recall that, last year out of the INR 1,100 crores committed CapEx, we did only INR 950 crores. Around INR 150 crores CapEx was spilling over to this financial year. This financial year CapEx was also at around INR 1,100 crores. At almost INR 1,250 crores will be there in this financial year.
This INR 350-400 crore, is it a part of this in INR 1,250?
No, INR 350 crore is not part of this. This I am talking about Jindal Stainless, and that I talked about the INR 350 crore of JUSL CapEx.
Over how much, I mean, how much period will it be spread, this INR 350 crore-INR 400 crore?
JUSL CapEx, the JUSL CapEx will be close to around 12-15 months. FY 2023, I think because the CapEx spillover will be some of these staggered. Overall, I think by the beginning of FY 2024 along with the JSL capacity, it will be aligned.
Great. Thank you so much. I will come back in the queue.
Thank you our p articipants. Next question is from the line of Nishit Shah from Aquanta Investments. Please go ahead.
Good afternoon, sir, and thank you for this opportunity. Sir, I would like to understand, how do you see the global demand supply scenario now?
See, as of now, whenever the commodity prices are falling, everybody gets into a destocking sort of situation. That is where the whole global stainless steel market is at right now. This is always the nature of our industry or the business. We expect maybe this quarter also prices to be falling. Q3 onwards, again, there should be some stability and demand should also come back.
Okay. My second question is, what is the CapEx plan for the green hydrogen plant?
I can get back to you on that. That is, I think maybe our partner would be investing and we would be getting into a sort of pay-as-you-use model. What investment we might have to do that, I can get back. It's not a very significant amount.
Okay. That's all. Thank you.
Thank you.
Thank you. Next question is from the line of Kirtan Mehta from BOB Capital Markets. Please go ahead.
Thank you, sir, for giving this opportunity.
Kirtan, sorry, but not able to hear you. Can I request you to speak through the mobile handset?
Is it better now?
Slightly better.
Okay. I was interested in understanding, you have listed that you face double whammy, both from the higher imports as well as sort of restriction on exports. Could you explain this situation across different product series, 200, 300, 400? Which one is more resilient and where you are seeing higher pressure?
The maximum pressure that we are seeing is in 200 series. That is because maximum dumping in 200 series is happening from China, and that is where, you know, we are seeing from a domestic point of view from export because maximum export was in 300 series and with this 15% duty coming, the major impact on export has been on 300 series.
Great.
Does that answer your question?
Yeah, I think that gives a good insight. What are the steps that you can take to sort of restrict the volume decline to only 5%-10% of the year?
There are multiple things as Abhyuday Jindal mentioned in the call, in opening remarks. There are few sectors in domestic market which we continue to focus was automobile and railways, specifically, which continue to show good demand, which in railway includes all throughout the metro coaches, wagons, as well as the rail infra, foot over bridges. There is a good traction on the railway side where we'll continue to focus. Automobile side is also showing a good traction. These two segment, which are more quality-based and certain approval restriction-based segments, so there we'll continue to focus.
Some of the special product divisions in Hisar, which obviously will continue to be more dominated by export market and which will continue to pursue all these segments. It's a combination and the 400 series also in the mix, which will continue to increase in the various segment applications. With the combination of multiple things, we will overall maintain these type of volumes in the entity.
You know, it is, if you ask from a market standpoint of view, there is capability or market available for us to meet 100% of our capacity, but we don't want to drop our margins, because what will happen then is we have to significantly drop our margins to get that extra market share. That is, as a strategy, we would not like to do that. It also spoils the whole market sentiments in the market. Looking at that, we're willing to take a 5%-10% reduction in volume and not spoil the market. Like we mentioned many times, if this export duty is removed, then this volume gap can also be reduced.
Right. In terms of sort of also understanding on the export market, what level of exports could continue while the export duty still remains separately in sort of the parent company as well as Hisar?
If we were doing almost, let's say, 20,000-25,000 on average last year or 25,000 last year, we feel that at least, between 12,000-15,000 we should still be able to export with these duties being there.
This for the stainless or combined together?
Stainless steel. What other products?
No, no, I was just saying this is for both the entity JSL plus JSHL or is it only for the parent entity?
Yes. Both combined together.
Understood. In terms of the price decline, how are you seeing the trends from June to July? Are you seeing any signs of stabilization in market or this will continue through the quarter?
The price in the stainless steel is also a function of underlying raw material prices. It's not like straightforward like a steel business. Typically underlying raw material prices when it comes down, the price actually goes down commensurate with that because eventually it's a pass-through mechanism with the time lag. It all depends largely on the external commodity and underlying commodity prices. One is that. Second is that on overall our realization will also be a combination of the product mix depending on the export, how the export we do SPD as well as in terms of the various segments. Because 300, 200, 400 series, obviously the realization price are very different due to the different underlying raw materials.
Right, sir. Thank you. I'll get back in the queue.
Thank you. Next question is from the line of Ashish from Centrum. Please go ahead.
Yeah. Hi. Good afternoon. Sir, my question is on JUSL acquisition. After this acquisition, what kind of savings in the sense of conversion margins we can expect from there?
Typically, Ashish, there would be obviously a improvement in our overall margins with the JUSL because of the integrated play. We will thoroughly update the guidance. Right now we are maintaining our guidance of INR 18,000 per ton on a standalone basis. Once we complete this transaction, depending on the market condition, we will just update our guidance appropriately.
Sir, what we are trying to look at is what kind of margins, conversion margins we are paying to JUSL right now in order to you know, convert that slab into HRC and then coming back to it. At least we will save that. What is the current status on that? Maybe in future we'll do that.
Basically, that margin is also an underlying combination of the underlying fuel prices also for them. It ranges between, say, even to an extent, INR 3,000 to, I don't know, INR 5,500 per ton range, on an average. That's what the trend is that. It's also a function of the underlying energy prices for them.
Understood. Second is it possible to share, you know, what kind of margins, or are we making enough margins in the export market? Assuming that export duty remains, then also we are maintaining our EBITDA per ton guidance of INR 18,000-20,000 or will there be any change in that? Thank you.
If export duty remains, we're still holding on to our EBITDA guidance of 18%-20%. In terms of margin export Europe with this 15% duty, definitely margins are under pressure, and it is not viable to sell. In the US market, we still see good margins there.
You're saying in-
The Specialty Products Division is out of
Out of the duty purview.
Out of the duty purview of less than INR 600. That actually continues as it is.
Okay. You're saying, in the U.S., even after paying 15% export duty, margins are good?
Yes.
Okay. Last is, in your interaction with the government bodies, obviously, any sense you are getting, for removal of this export duty or we are still on the same page, as we were in June?
There is no commitment. There is no commitment or clarification that they're giving. From whatever we are hearing, the impact that had to be created has already happened. Steel, stainless steel prices have severely, significantly come down. World is under, you know, anyway looking towards recession or downward pressure. Feeling is that another couple of months they should remove it. There is no commitment from their side that I can convey.
Understood. Thank you, and all the best, sir.
Thank you.
Thank you. Next question is from the line of Abhijit Mittal from ICICI Securities. Please go ahead.
Yes, thanks for taking my question. Now, since you have announced the intention to acquire JUSL, can you also start sharing the volumes and the EBITDA that you did in this quarter and the net debt at the end of this quarter in JUSL? That's question number one. Question number two is that this year, in JSL, you have committed to do almost INR 1,450 crores of CapEx. Additionally, I think, I don't know when this INR 958 crores will flow out, but, you know, add to that the net debt that is going to come through on account of JSL acquisition or any other inorganic acquisitions that you're going to do. What kind of, you know, net debt profile you are looking at by the end of the year? These are the two questions which I have.
Thank you.
I think, Abhijit, your voice was not very clear, but let me just try to summarize, I think, your two question which I understood correctly. One is what is the net debt situation. The last question was the net debt situation at the end of this financial year, considering this JUSL payout, as well as you mentioned about CapEx also, which in CapEx you mentioned about.
The CapEx of INR 1,450 crores that you are doing in JSL plus JUSL.
JSL CapEx is not INR 1,450 crore. Actually, JSL CapEx, if you recall, we always said that it will be FY 2022 and FY 2023, the payout of the CapEx will be INR 1,100 crore in each financial year. That's exactly the number which is there in JSL CapEx side. The JUSL payout will depend on the approval process, and it may be in tranches, because we may go on depending on the cash flow side of us. It will be probably in one or more tranches. Maybe only two tranches or three tranches, depending on how we progresses on that. By June 2023 is the which are expected to be completed.
Okay, the numbers of JUSL, if you can share for this quarter and the net debt which is outstanding there at the end of the quarter.
The JUSL debt is INR 2,050 crore. The JUSL, basically the numbers will be on the basis of the tolling volumes which we go. As I told you that, one is that, stainless steel tolling, which is get done for JSL, in that entity. The margin side I just shared, in the call. Then also there is a cold roll businesses, separately, in that also, which is again the stainless steel cold roll. It's in line with the whatever JSL margins remains on an average side. On top of it, whatever carbon steel, on and off, tolling which they keep doing for various, outside carbon steel players. It's always varies with that.
I think the expected run rate if I remove, with our 2 million ton capacity reaching JSL, their EBITDA would be probably in the range of it, only on tolling itself will be close to INR 800 crore-INR 1,000 crore range.
After the 3 million
Cold roll is separate. 0.2 million-ton cold roll is on top of it, and the carbon steel tolling which they can continue to do with the outside entities will be separate.
Right. Essentially the enterprise value that you have arrived at is INR 3,340 crore, right?
There were multiple things in the independent valuations which we took our opinions on this. Obviously, one was the DCF and because they are doing the capacity expansions. Similar assets if you see typically the industry standard for putting HSM which a lot of carbon steel players are right now doing is around $180-$200 per ton is the CapEx cost. Put all together, I think, with 3.6 million ton capacity is the net debt number I already shared with you.
Yeah.
Depending on the valuation method, you can see the numbers.
Yeah, sure. Thank you. That's all from my side.
Thank you. Next question is from the line of Ritvik Seth from One Up Financial. Please go ahead.
Yeah. Hi. Good afternoon, sir.
Ritvik, can I request you to speak little louder?
Yeah. Hi. Is this better?
Yes.
Yes.
Yeah. What was the production number for Q1 for both the entities?
Uh, six, uh... Six, uh, three lakh sixty-seven thousand.
Okay. Basically, our production was lower and that almost equal to sales, right?
Production was lower as compared to Q4 last year.
Okay. INR 3.67 lakh is for the merged entities, right? JSL and Hisar.
Merged entity, yes.
Merged entity. That's the sales volume number, I think. Production number was around 423,000.
Okay.
Sorry, I think, because typically the sales number which we monitor, I think. Production number was around 423,000. Because there is also an expected shutdown in Q2. Accordingly the production we continue to maintain. Right. Right. Yeah. My next question was that, you know, we are looking at about 5%-10% reduction in sales volume. Should we expect a moderate production for FY 2023 so that we don't pile up on inventory? Is that a fair assessment?
Yes. That's the idea. There is no point in, there's no plan of increasing inventory in the anticipation. That's what our business model is that we continue to monitor our underlying inventories across the entire supply chain, raw material, WIP and FG, and within the range, so that at least even the commodity volatility doesn't hit us beyond to that extent. There's a pass-through model also as a conversion process. We will continue to maintain the same strategy.
Sure. My next question is on, did we have any kind of inventory hit in the quarter because of higher nickel prices?
Inventory, positive or negative inventory valuation is a normal phenomenon in this type of conversion business because when the raw material prices go high, you typically see the positive valuation. When it comes down, you see a negative valuation happening. It's on a long-term basis, it averages out in a 12-15 months time, because. In this quarter, in the beginning we saw a huge surge in nickel prices and it came down. It's a process, it's a part built up in the integrated manner in the JSL model.
Okay. Fair to assume that there could be some further hit in Q2 as well because, you know, where the current spot nickel prices are and, you know, at the end of June.
See, if you assume there would be a downward, I think answer is yes. Frankly, we don't know because we have been seeing nickel both-
Yeah. Nickel has been really volatile if you see with whatever is happening across the globe. If it continues in a downward movement, but nickel if you see has been hovering between $20,000-$22,000 per ton.
Mm-hmm.
You know, it totally depends on how nickel market moves.
Sure. Sure. My last two questions on what was the CapEx which we incurred in Q1?
Q1 total CapEx was INR 550 crore.
For the merged entity, right?
Yes. Yes.
Sir, you mentioned just to the previous participant, you know, JUSL on the expanded capacity of 3.6 million tons. Once we are at full ramp up assuming two years out for the merged entity of 2.9 million tons, what would be the tolling required for the merged entity of stainless? You know, then how much would be left for carbon steel?
The tolling will be largely for the Odisha capacities in JUSL, not for Hisar capacity.
Sure. Right.
Some of that depending on, again, it depends on the external market situation also. Minimum around, say if you take a 2 million ton of capacity, 2.1 or 2 or 2.1 million ton capacity of at the Odisha plant, so that will be the tolling for SS.
Basically we will have another 1.5 million tons for carbon steel.
Yeah. That could be used for the capacity.
Correct.
Okay. You know, would there be any difference of margins on the tolling or for stainless and carbon steel or both would be more or less similar?
It's all because carbon steel is done outside right now, most of these are external customers. We cannot share the specific details on, but it depends on account to account, frankly, and depend on external market conditions also on these trends. More or less it moves in the same lines with that.
Thank you, Ritvik. I'll request you to come back in the question queue for a follow-up question. The next question is from the line of Vishal from Motilal Oswal. Please go ahead.
Sir, thank you very much for the opportunity. My question was with regards to your plans for setting up a blast furnace. If you could just elaborate, you know, to support the series 400 production, what is the plan for setting up a blast furnace and what kind of cost savings should we expect out of it? Thank you.
Jindal Stainless will not be setting up any blast furnace as you know I said earlier also that there would not be any blast furnace which Jindal Stainless will be setting. We'll be using for our 400 series requirement depending on how it will be like a raw material price comparison and so we can always be buying it separately from outside. As I said, there's no plan of Jindal Stainless to set up the blast furnace.
Sure. Secondly, on your debt repayments, what is the schedule over the next two to three years, and how do we look at whether we plan to accelerate the repayments or, given our CapEx and the M&A cost pressures, only the scheduled repayments would be done?
Vishal, looking at the current situation, there's no, because we have a CapEx also ongoing. I don't think there would be a debt reduction beyond the scheduled repayments. So we don't intend to pay beyond the scheduled repayments at this stage. Currently the situation is in a comfortable situation. JUSL scheduled repayments are actually hardly almost INR 175 crore over next three years, 2023, 2024, 2025. And in fact even 2026, 2027 is also prepaid in their installment. So there's no large repayment schedule in JUSL also.
Sure. Thank you very much, sir.
Thank you. The next question is from the line of Ankit from Kotak Mahindra. Please go ahead.
Good afternoon, sir. Just wanted to understand on the EBITDA guidance which we have of INR 18,000 per ton. With the export duty ongoing and INR 22,000 per ton which we have made, we are saying that for the next 9 months we would be making somewhere around INR 16.5-17,000 per ton. Is that understanding correct? This is what we have seen in June month where we have seen the impact of export duty.
See, I think number wise, you stack up, I think, rightly, but as I told you that, these duties came in suddenly as a shock and right now that's why we want to maintain our guidance at INR 18,000 a ton because it's difficult to predict over next few months at this stage. We are hopeful I think the situation will improve. As that improves, as you have always seen, we will be doing the reviews of these guidance on a very regular basis. We can again in the next quarter, we'll be able to have more clarity on where we are heading.
Okay. Sir, why is the domestic demand, domestic volumes drop? Is it only because of the imports or any kind of demand disruption we have seen?
See, again, same thing with all across the globe. When your commodity prices start coming down, everybody goes into a destocking mode because they don't know how much the commodity prices are going to fall or when they're going to stabilize. People, the amount that they used to buy, like if a customer used to buy, just to give you an example, 100 ton in a month, he's brought it down to 20 to 30 to 40 ton in a month only to see how the market, how the prices move. You know, that is the only factor which has brought down or slowed down the domestic market. Like I mentioned, we can definitely increase our volume, but I'll have to take a hit on our margins again. That is, as a strategy, we would not like to do that.
As Abhijit mentioned, that in earlier times, practically, the demand has not slowed down. Either it's being made up from destocking mode or the imports. For us also, hitting the volume is not a challenge because, see, it's a basic difference between steel and stainless steel. Stainless steel, say for steel, probably the export is a compulsion. For us, export was always our discretionary because the domestic market itself is a very wide gap. If you see last quarter, almost 50% domestic market were actually catered by imports. We could have actually garnered that margin, but we'll have to reduce our margins. Get into some of the segments of sub-standard quality in which we don't want to go. That's the balancing.
Otherwise, demand continues to grow on a standard basis across the various segments for stainless steel.
Okay, understood. One last question on JUSL. Last time we announced we are doing INR 2,500 crore blast furnace CapEx in JUSL. Is that plan on or are we not going ahead with that? If not, then what is the alternate we are looking at for meeting the requirement?
JUSL will not be doing any blast furnace CapEx. There's no plan of JUSL doing any other CapEx. On that basis, we are taking the JUSL. We'll be acquiring JUSL for their existing and expanded capacity of hot strip mill as well as the cold roll mill. There will not be any blast furnace in JUSL.
The idea is to have a fully integrated stainless steel company.
We will not acquire additional blast furnace even in JSL or JUSL, or we will outsource that part for that volume.
There will not be any blast furnace as you mentioned in JSL or either JUSL.
Cool. Thank you.
Thank you. A request to all the participants. Please restrict to two questions per participant. If time permit, please come back in the question queue for a follow-up question. The next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, my first question has three parts. One is, how should one understand the rationale on timing for JSL, JUSL? That's one. Secondly, what were the other options that were considered prior to the transaction which has been mentioned in the press release? How did we funnel to this particular transaction? And third question I have on the valuations, I'll take it later. I think these are three buckets in the first question. Thanks.
Your question is on the transaction option for acquiring JUSL, various options. That's what your question, Ritesh?
Sir, first question is on the timing. Why do it now? Why not later? What is it that prompted us to do the transaction now?
Okay. Good question, I think. Answer actually is that if you see, every time, because this is like one critical part of the stainless steel process which used to be outside in the promoter entity. Every time, when we used to even go for related party approvals, everybody used to raise concerns on that, on these related party transactions. We were hearing from all my shareholders the same thing that this should always be in the main entity, JSL, and it's only 26% stake is not good, and it should be in complete control of JSL. It's based on accordingly.
It's better to get it done sooner rather than keep running these related party transactions for a longer period. It's a preferred governance structure as Abhijit mentioned in his opening remarks. I think from our perspective, I think the shareholders' perspective, I think, because last year itself, the related party transactions of JUSL were almost INR 1,700 crore. Rather than getting into these type of transactions, which would have increased much further because of the higher capacities of JSL. In our opinion, I think probably it's a very transparent structure, and should, based on the feedback from the various shareholder which we received, that it should be corrected sooner than later. Second question was on the options. Is that the acquisition options? Right?
Yes, sir. What were the other options that you would have considered prior to the proposed transaction of JSL buying out JUSL?
Proposed option for consummating this transaction?
No, sir. I'm saying, say it could have been a potential merger. That is one variable. The other variable, probably I have a few in mind, but I'd like to hear your thoughts as well.
You're right. I think the merger could have been one option and which we evaluated deeply along with even our lenders. Just to give you the JUSL capital structure, they have almost 20-year loan. It's highly ballooned towards the second last. In fact, till FY 2028, most of their loan installments have been prepaid. It's a highly ballooned structure with almost average tenor probably we are almost at around 11 years plus with 20-year door-to-door. The merger would have created, with the lenders what with when we were to discuss with lenders, because we'll have to bring this debt at par with the JSL repayment structure.
Which means at least we'll have to accelerate the payment with at least INR 500-600 crore cash outflow starting from this year itself. That from that probably somewhere I think it linked with your timing also because both side it would have hit I think we'll have to. Then next two, three years there would be an additional repayments of almost INR 500-1,000 crore in cash repayments. So that they are tendered. So that's one part of the. Because merger we would not have been able to protect the current balance sheet structure, which is a very robust balance sheet structure of JUSL. That's the one part. Second is merger is always through NCLT process and which would have gone almost.
We have seen what's happening in JSL, JSHL merger. The way NCLT is taking in these routine merger cases, not on priority as compared to the resolution cases. It would have dragged almost two to three years' time over. These were the two large parts which obviously are in consultation with lenders and how the structure should evolve. I think it would be very good for even JSL shareholder because there's no scheduled repayment liabilities in JUSL, so there's no cash strain on next at least three to four years for JUSL.
Thank you. The line for the participant dropped. We move to the next question. Next question is from the line of Rajesh Majumdar from Batlivala & Karani Securities. Please go ahead.
Yeah. Hi. Thanks for taking my question. I just have one question, sir. What is the overall peak debt that you envisage after taking into account the JUSL debt and the INR 948 crore loan we are paying? How many quarters do you see that peak debt lasting for? Because as per your guidance, you have given say 18,000 kind of EBITDA per ton, which translate to roughly INR 3,300 crore-INR 3,400 crore. Maybe a operating cash flow of INR 2,500 odd crore. Depending on that calculation, what do you see the peak debt of the company at and for how many quarters?
See, the guy—I'd say it's the—I think this JUSL transaction will also be in tranches. It may not be in one tranche itself. I think it will spread over to maybe two tranches or three tranches, depending on how we progresses. The peak debt is also a question of the EBITDA. I think we guided the volumes will be probably down by 5%-10% and INR 18,000 EBITDA per ton. How it moves out, I think accordingly the free cash flow will be there. There's no other CapEx right now committed except for the current CapEx which is going on, which will be close to INR 1,450 crore in this financial year.
With this, I think if the EBITDA run rate and the volumes picks up and it continues like that, there will not be any significant increase in the peak debt as such, maybe INR 1,000 or INR 1,200 crore, not beyond that. Also it's a question of how the EBITDA moves, how we ramp it up overall capacities. It's difficult to predict frankly in uncertain times that how long it will continue. We'll continue to maintain very prudent ratios and monitor that. Idea is not to have a significant increase in debt EBITDA or debt equities like that.
Do you have any ratio in mind of net debt to EBITDA peak is something like that, which we can use, say 1.5 or 2?
Yeah. Net debt to EBITDA, I think, internally we always maintain that at least we should never cross a ratio of two at any point of time. I think we have a sufficient headroom. Idea is not to in fact reach towards there. I think the two is the net debt to EBITDA, which we have always kept internally in mind during this total CapEx phase, when and depending also on the EBITDA situation also because it's a function of that. What is that we are saying when trying to maintain is that net it should not cross the net debt to EBITDA of two.
Sir, last question. Post-merger, after the cancellation of that intercorporate debt, what will be our debt now with the combined entity?
The combined entity debt, after cancellation, is close to INR 3,500 crore right now.
Okay. Thank you. Thanks.
Thank you. Next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity again.
Ritesh, sorry to interrupt, your voice is not clear. Can I request you to speak through the handset?
It's through the handset. Am I audible?
Sir, we can hear you, but it's not clear.
Yep. My question is, sir, the idea behind JSL, JUSL was to reduce the related party transactions. My question is to Abhyuday Jindal, sir. Eventually, if we place the steel mills, say under a promoter entity, again, it is something which is likely to pop up. Again, investors will come back to us saying that there is a related party transaction. This is something which could be like three years, four years out. How would we tackle that scenario?
Your question wasn't clear. I think, yeah, because your voice is also not clear. Yeah, we understand correctly is that you are saying that it's also a related party transaction.
Yes.
This concern will pop up. Is that what your question?
Yes, yes. It could pop up three years out, but, again, it comes back to the same problem.
Yeah. Ritesh, I think just to give you the number. Last year, the related party transaction approval for this type of transaction was INR 1,700 crore plus, and it would have doubled, actually with the doubling of volume of this. Rather than, the transaction value is currently INR 958. Just to put the number in perspective, the recurring approval of these type of transaction, every time we were hearing, in fact, whenever it goes for the related party approval, all the investors' report used to say that it should not be with the related party and it should be brought. We have a written report from the various advisors which has been published like that.
I think from our perspective we have addressed one side of the concern for each investor, which you are hearing from the investor. It's always good to have an integrated play. That's what we believe that it's in a long run, it's in a larger interest rather than keep doing these type of transactions with the companies which is 74% owned outside. That's what our perspective.
Sure, sir. Is it possible to look at this particular variable from a sustainability standpoint?
Mr., your voice is not clear at all. Can I request you to call back, please?
Hello. Sure.
Thank you. The next question is from the line of Aashav Patel from Molecule Ventures. Please go ahead.
Thank you for the opportunity, sir. Sir, my question is the JUSL INR 350 crore CapEx, which we are already undergoing. The loan for the same has already been reflected in the balance sheet or that would be incremental investment from our side?
The loan current outstanding of INR 2,050 crore does not include that, but they have already tied up loan CapEx loan which has been tied up. Which will be in the JUSL entity, not in JSL. That's they will be drawing that line eventually of that loan. That's already tied up debt for them because before starting the CapEx they tied up their CapEx loan.
Sure. Effectively we will be infusing additional INR 350 crores on top of the INR 958 crores which we are infusing in JUSL. Is that right?
We won't be infusing. No. We will not be infusing anything. They will be taking that loan, which is committed. They'll be drawing the loan as per their requirement during the CAPEX phase.
Sir, as far as I recollect, JUSL was demerged from JSL in 2014. Can you please give me rough enterprise value at which it was calculated while demerging JUSL from JSL?
I think, I don't have the value right now, but I can ask Goutam and Shreya to give you the details, I think. We can work it offline.
Sure. The capacity has not changed over the past eight years, right? At JUSL.
Capacity is now doubling up. There's a big change in the capacity.
No, no.
That time there was no cold roll mill in JUSL.
Mm-hmm.
There is a big, 0.2 million ton cold roll mill in the JUSL.
Mm-hmm.
The capacity earlier was 1.6, which is getting to 3.6 million metric tons per annum. Just to give you the number, I think right now many carbon steel players are putting this HSM capacity of similar size that I think you guys are much better placed with their number. I think as per our understanding, $180-$200 per ton is typically the rate of these type of facilities currently in the market.
Sure. Okay. Sir, last question. We also demerged Jindal Coke Limited during our restructuring. Any plans to even acquire the same going forward?
No, because coke.
Related to our stainless steel business, so we are keeping it outside only.
Okay.
That's not linked with cold stainless steel business.
Sure, sure. Okay, sir. That's all from my side. All the best.
Thank you.
Thank you. I now hand the conference over to Mr. Rajesh Majumdar for closing comments.
Thank you. I thank the management team of JSL and JSHL for answering the questions accurately and to their best. I would like to request the management team for closing comments, if any.
Yes, thank you. Let me thank everyone for attending this call. We have been focusing on our core strength to mitigate the adverse impact that has been created in the external environment. I'm confident that our strategic steps will augment the future performance of the company. I hope we have been able to answer all your questions, otherwise we can take them offline. Should you need any further clarification, please feel free to contact our investor relations team. Thank you once again for taking the time to join us on this call, and have a great day. Thank you.
Thank you very much. On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.