Ladies and gentlemen, good day and welcome to the Steel Authority of India Limited Q2 FY 2022 earnings conference call hosted by DAM Capital. As a reminder, all participant clients 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. Vishal Chandak of DAM Capital. Thank you, and over to you, sir.
Thank you, Aman. Good morning, everyone, and thank you for joining on a weekend for the second quarter FY 2022 earnings call for Steel Authority of India. I'd like to thank the management for giving us the opportunity to host them again for this conference call. We have with us, Director of Finance, Mr. Amit Sen and his team. Without much ado, I hand over the floor to Mr. Amit Sen for his opening remarks, followed by the Q&A. Over to you, sir.
Ladies and gentlemen, it seems we have lost the line for the management. We would request you all to stay connected while we reconnect them. Thank you. Please go ahead. We have the line for the management reconnected. Over to you, sir.
Thank you. Good morning. First of all, I want to thank Mr. Vishal Chandak of DAM Capital for arranging the investors' conf call, and I welcome all of you to the investors' conf call for the financial results of SAIL for the second quarter of FY 2022. The results of Q2 were published last night, and I'm sure you've seen it and analyzed it, and I hope that the investors and analysts are satisfied with the results that have been delivered. The production and sales volume in Q2 has grown by 14.6% and 28.6% respectively from the Q1 level, with good improvement in the efficiency parameters also. The price rise on the back of strong demand, combined with the growth in volumes, has given us the best ever turnover for any quarter.
Profitability has also moved from strength to strength with best ever quarterly performance for all the profit parameters, that is, EBITDA, PBT and PAT. The Indian economy has shown tremendous growth in recovery from -24.4% GDP in Q1 of FY 2021 to 20.1% in Q1 of FY 2022. In fact, the quarterly growth has been witnessed consistently during all the quarters, leading to much lower than expected negative figures for FY 2021 annual. The impact of COVID-19 during the first quarter of FY 2022 wasn't very significant because the economy continued to prosper. With the vaccination numbers swelling every day, the confidence is steadily built up for greater trust in the economy. The revised forecast of global GDP by IMF during October 2021 has not seen much change from the earlier forecast.
During this quarter, the steel industry in India has witnessed one of the best performances in terms of volume and more importantly, in terms of price realization. As the number of COVID-19 cases went down since 21st June , the revival has been quite strong in major steel consuming sectors, though full-fledged recovery is yet to be reached. Sectors like automobile are facing shortage of chips, leading to curtailment of production. Construction and infra could not see full growth during Q2 due to monsoons, but is expected to do well henceforth now that the monsoons are over and the period when the construction and infra generally peaks has come. The limelight, however, was stolen entirely by imported coal. The astronomical increase in the coking coal prices has seen the primary steel producers like us carrying out a significant increase in the cost.
I'm sorry, ladies and gentlemen. It seems we have lost the line for the management again. We would request all of you to stay connected while we reconnect them back. Ladies and gentlemen, we have the line for the management reconnected. Over to you. You may please go ahead.
Okay. I'm not sure at which point I got disconnected, but I'm just carrying on from wherever I left off. Now that the monsoons have receded and the festival season has kicked in, the demand growth from construction and infrastructure, white goods, et cetera, is likely to improve, which will lead to good prospects for SAIL. The performance in Q2. The revenue from operations on a consolidated basis was INR 26,828 crore. Our consolidated EBITDA was INR 7,290 crore. Consolidated PBT was INR 5,795 crore, and the consolidated PAT was INR 4,339 crore. All these are significant growth over the previous quarter as well as Q2 of the last year. For the six months ended 30 September, on consolidated basis, our revenue from operations is INR 47,471 crore.
Our EBITDA, INR 14,031 crores. PBT, INR 11,007 crores, and PAT, INR 8,236 crores. Turnover and profitability have been the highest during the quarter. Borrowings have reduced by INR 7,809 crores, as compared to 30th June, and now stands at INR 22,478 crores as on 13th September. The debt equity ratio has been reduced to 0.44, and the debt to EBITDA ratio has come below one, and it is now at 0.85. Inventory levels have reduced and today it is at 0.75 million tons, which is a reduction of 0.18 million tons during this quarter. Coming to wage revision. The wage revision of all employees of SAIL, that is executives and the workers, was approved by the board yesterday.
Some part of the impact. In fact, a good portion of the impact has already been provided for in 2021, 2022 as well as in the quarterly results. Some incremental impact might come in the second quarter because of the actuarial valuation, which is a one-time book adjustment, but we'll discuss that in more detail when your questions come. The annual impact of wage revision, other than the actuarial impact, would be about INR 1,500 crores. With this one, I hand it back to Mr. Chandak for opening the Q&A session.
Thank you very much. Ladies and gentlemen, we will 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. First question is from the line of Amit Dixit from Edelweiss. Please go ahead.
Yeah. Good morning, everyone, and congratulations for a good set of numbers here. I have two questions. The first one is on coking coal. If you can let us know how much coking coal costs went up in this quarter Q2, and what do you expect in Q3? Also, do you see any issues regarding availability of coking coal and in fourth year?
Your first question was regarding the cost of coking coal in Q2 versus Q1.
Versus Q1 and the outlook for Q3.
In Q1, our average price of imported coking coal was INR 11,480. In Q2, it has increased to INR 15,150. In Q3, it is going to be a bit more. Not a bit more, it's going to be sizably more because the price in September was, I think, the average was about $350 in September. In October, it opened at $400. The impact of September will hit our financials in the month of November. There's a two-month gap. In the month of October, our average price of imported coal would be about INR 23,000. In November, it could go even further.
Okay. That's helpful. The second question is on the sales volume. If I see the sales volume growth, that has been very impressive, in fact, better than some of your peers. Can you throw some more light on this? Where did you see the sales volume growth in Q2? What all sectors? What was the export mix?
Our export was about 11% of our total sales, same as it was in Q1. We are trying to increase our export percentage, but we are also constrained by some of the difficulties that we are facing in the export market. Southeast Asia was impacted by COVID. The European market had completed its quota. Hopefully going forward, starting from December probably, our exports should pick up again. I mean, at least those markets would open. As a commercial organization, we take a call on which is more beneficial to us, whether we get a better realization through export or we get a better realization through domestic sales. That is a commercial call we've taken, seeing the relative difference between the two prices.
In Q2, most of the export markets actually were closed. We did a lot of exports to Nepal and a few other countries, Turkey and a bit to Southeast Asia also. In Q3, we'll have to see as the markets open, how we export. Again, as I said, it will depend on the price differentials.
Q2, what all sectors did you see? I mean, because your volume was quite phenomenal. I mean, better than many peers in the country.
See, actually, we cater mostly to the construction and infra sector. That is our primary consumer. About 65% of our steel goes to this particular sector. Our presence across all the other sectors, that is, say, yellow goods or capital goods or automobiles, is small. Our fortunes actually are linked to the construction sector. When the construction does well, if the real estate does well, if the infrastructure does well, we also do well. As there has been some growth in that, our sales volume has increased. In fact, going forward now, demand probably will not be a constraint anymore as the infrastructure spending picks up. Government is coming out with many schemes. Monsoons are over. This is the time traditionally also in the past, the demand in this construction and the real estate sector has always gone up.
Demand should not be a constraint anymore. It's only how much we can produce.
Thank you. Mr. Dixit, you're requested to join the queue for any follow-up. Also a reminder to participants to please restrict their questions to two per participant. If time permits, you may join the queue. The next question is from the line of Rahul Jain from Systematix. Please go ahead.
Yeah, hi, sir. Thanks for taking my question. In the second half, what kind of volumes are we looking at, given the strong showing we had? On iron ore sales, any progress there? What kind of numbers are we looking at here?
Yes, sir. Iron ore sales in second quarter, we sold around 9 lakh 9,000 tonnes. We booked some additional quantity through auction, another 3 lakh tonnes through auction. That will be there. Only thing is we are going a bit slow on the iron ore sales because the iron ore prices have fallen. Because we are a captive producer, so we are not actually compelled to sell. It is, I mean, the commercial call we take, if the price suits us, we sell. If the price does not suit us, we can hold back. When the prices were low, we actually did not book any quantity through auction. We're waiting for the price to go up. Anyway, we booked about 3 lakh tonnes through auction, and we've sold about 9 lakh 45,000 tonnes.
Your first question was?
On the steel volume scenario, second half, what kind of numbers are we targeting?
Our annual sales volume is expected to be around 17 million tonnes, of which we have already done about 7.5. Around 9 million tonnes, 9.5 million tonnes would come in H2.
Sir, lastly, on the pricing scenario from the, I mean, second quarter, how have prices behaved since?
In this month, October?
Yeah. Yeah.
In October, our long product prices was about INR 52,000, which is a growth of about 3,500 rupees per tonne over Q2 average. Flat products are priced at average, and I'm talking of NSR at the ex-factory, is INR 64,700, which is a growth of about
Seventeen.
INR 1700 from the Q2 average.
Thank you. The next question is from the line of Amar Santalia from AKS Capital. Please go ahead.
Actually, my question is, what was the profit percentage we have derived from the sale of iron ore in Q2?
That I cannot disclose.
Okay, sir. Sir, the prices of steel is coming down in China. How is the threat for the steel price in India?
I don't think there is any threat as far as the prices are concerned. The prices have been moving upward. Now this particular season, the October to March season, this is when the prices and volumes and demand traditionally peak. There is very little possibility of the prices coming down. Secondly, because of the coal prices going up, all the primary producers will like to at least, not entirely, that is very huge. Some part of the increase will have to be passed on through price. There is almost no possibility of a price reduction in the remaining part of this year.
The demand is quite strong.
Demand is strong, and it is going to get stronger because this is the period when demand is always at its peak.
Okay. Sir, is there any chances of export? Because I think, on a quarterly basis, India produces around 13 million tonne of steel. As per the con call of JSW Steel, India will consume around 13 million tonnes in the Q3 and 13 million in Q4. Most of the steel which India produces will be consumed in-house and there will be minor export. Is it correct? My assumption is correct.
See, our export in Q2 has been about 4.5 lakh tonne. Like I mentioned in one of the earlier reply to the earlier questions, that the export market was actually some of the markets were closed. The Southeast market, Southeast Asian market because of COVID and the European market because of the quota and all that. Now that the markets will start opening up, the possibility of export will increase. What I was trying to explain is, it's a call that every company will be taking, including us, on the price arbitrage between the domestic price and the export price. We will export if it is more beneficial in terms of price. That is the price call we have to take. Right? It's a price call.
If the domestic prices are better, if it is more lucrative, then it is more advantageous for us to sell in the domestic market. If the export prices are lucrative, it will be more beneficial for us to sell in the export market. The entire thing will now depend on the price differential between the export market and the domestic market.
Sir, one last question. Sir, with such a high cost price here, whether it will impact the margin in Q3?
Oh, definitely it will impact the margin. In fact, it has already impacted the margin in Q2 because the coal price has gone up more than what the selling price has gone up. Going forward, that margin will get squeezed because there is only a limited amount that you can pass on to the customer. Because if you try to pass on the entire cost, then the demand comes down.
Because I think, sir, the cost component of coking coal this year will be around, sir, INR 25,000-INR 26,000 per tonne.
I just said that. No, I just said that. It will be around INR 25,000-INR 26,000. The entire increase cannot be passed on. Some part of the hit will have to be taken by the primary producer. Again, the $400 where the coking coal prices are today, the PLV, the Premium Low Vol prices, it may not stay at $400 throughout. That's because it's a very unreasonable price. Hopefully the prices will come down and then the EBITDA will start improving.
Okay then. Thank you.
Thank you. Next question is from the line of Rakesh Majumdar from DNK Securities. Please go ahead.
Yeah.
Also participants are requested to-
Congratulations on a very good set of numbers. I had a couple of questions on the Bhilai modernization. Regarding the URM and the DRM, what stage are we in terms of capacity utilization or has it just started or when will we see the impact of these coming on our results?
URM is operating at full capacity. We are only constrained by orders from rail. URM is not a constraint anymore. There is one development in the URM. That is railway has developed a new product called the head hardened rail. It's called the 1175 HT grade of rail. So, we already have a line developed for that, and the testing of that line is going on. The tests have already been successful. So maybe from maybe starting from December, we'll be supplying head hardened rails to Indian Railways. That will be a small proportion, maybe 30,000 tons or 40,000 tons in the remaining part of this financial year. Our basic 880 grade rails will remain as the staple along with some quantity of head hardened. Railway will progressively increase the percentage of head hardened rail.
Our production line of head hardened rail is already ready and under testing. URM is not an issue. DRM also is operating at very good capacity. I think it's operating probably at around 75%-80% capacity. These two plants, the capacity utilization is not an issue.
When will the new capacity come on stream in Bhilai?
That is the fourth cluster. You're talking of the fourth cluster.
That's it.
Fourth cluster actually the contract has been given, work has started, and the construction period is about 1 year. Let's say by fourth quarter of the next financial year, the production from that cluster should start up.
My basic question was that Bhilai used to be a larger contributor to our profits earlier, and now where we are seeing like, Rourkela, Bokaro, et cetera, coming up a lot after the modernization, we have not really seen those numbers from Bhilai as would have been expecting after the modernization. I'm just wondering whether we are really seeing the full impact of the Bhilai modernization or there is something more to come in this.
No, I'll just explain. It is not just about the modernization. Bhilai is working. Bhilai has a possibility of increasing their capacity. It's not operating at full capacity. That is there. There were some technical reasons. More than that, it is the price differential. The Rourkela and Bokaro, they are 100% flat products plant. The difference between the flat prices and the long prices today is about 16,000 INR per ton. That is the reason for this profit differential between, say, RSP, Bokaro versus Bhilai. Bhilai, even though it's a long flat mixed plant, but it is 75% long product. The long product prices have not grown in the same way as the flat product prices have grown. In fact, in Q2, it has actually come down a little bit.
That is the reason for price differential. All other things remaining the same, Bhilai will still be the most profitable plant. There is some capacity ramping up to be done, which they are doing.
Thank you. Before I take the next question, I'd like to remind our participants to limit their question to two per participant. If time permits, you may join the queue for any follow-ups. The next question is from the line of Sumangal Naavit from Kotak Securities. Please go ahead.
Yeah. Thank you for the opportunity. The first question is on the privatization part. The three specialty plant is going to be an upgrade on the process. That's one. The second part of this question is, so every now and then, I mean, in the media there is a buzz that SAIL could be a potential candidate for privatization by the government. If you can just share if there is any early discussions around that. Also, I mean, on the ground, what is the practical and the legal challenges for privatization of a company, a big company like SAIL?
I'll answer your second question first. There is no talk at all of privatizing any of the other units of SAIL. It is true that steel is in the non-strategic sector. That is a fact. That does not mean that SAIL is going to be privatized or any of its units are going to be privatized other than the two units for which the disinvestment process is already going on for the last two, three years. That is the Salem Steel Plant and the Bhadravati Steel Plant. No other unit of SAIL is there even any discussion that we know of that it is to be hived off or for SAIL as a whole. There are many challenges, but I don't want to go into that.
All I'm saying is right now there is no discussion on disinvestment of any other part of SAIL. The first question was regarding Salem Steel Plant and VISL. The EOI, as I told you last time, they have been received. They are under discussion. The bidders wanted to have a site visit. That has also taken place. The site visit of VISL has taken place. The site visit of Salem Steel Plant is going to take place. It is still under the process. It is active. That's all.
Any timeline, in which this could complete?
The timeline that we got from the firm is tenth November is the date of bid submission. The date of bid submission has already been extended about five times. The latest date we have now is tenth November.
Understood. Thank you. Second question is on the incremental royalty which we are now paying for iron ore. If you can just share what proportion of our captive iron ore volume comes under incremental royalty, and by when will the remaining iron ore also come under incremental royalties of 150%.
Actually, only the Jharkhand group of mines, they are impacted by this 150% royalty because their lease renewal has taken place after 2015. The other mine, that means Odisha group of mines and the Dalli group of mines, they are not yet impacted by the 150%. The Odisha group of mines, sorry, the Jharkhand group of mines, which produces about 13 million tons annually, this is the quantity which has been impacted out of a total iron ore quantity of about 32 million tons.
Thank you. Our next question is from the line of Ritesh Shah from Investec. Please go ahead.
Yeah. Thanks for the opportunity, sir. Two questions. One is, how should one understand the employee cost for the quarter, the provisioning that we have done? What should we build in for full year, this year and next year? That's the first question. I'll come to the second question, sir.
The employee cost in the half year is INR 6,100.
It's for Q2. INR 3,300.
In the second quarter, we booked a total cost of INR 3,300 crores. This is, as we have provided today. As I told you that the valuation provision of the employees was passed by the board yesterday. Since we already knew the impact, we've been building up the impact progressively through the provisioning, so that no incremental hit is expected going forward in Q3 and Q4. But there is going to be one accounting adjustment which will hit the financials of SAIL in this year only. That is revaluing the entire actuarial liability of gratuity and leave for the employee. Because the gratuity and leave employee that we are carrying today has been valued at the earlier pay. Now, as the pay increases, the entire liability gets revalued.
It is a one-time expenditure, a non-cash expenditure which is going to hit our books. That amount I cannot say because it has to be valued by the actuary. That hit will come, but it will not be there next year. Next year, it will only be incremental. This year that additional impact will come, which will affect probably our, maybe our Q4 then.
This is Ritesh Shah here. My second question is on earlier in the call you had indicated about 10-15 million tons of expansion plans. One, is any update on this? Secondly, any views on Nagarnar, RINL and Bhilai. How does it fit in with our overall strategy? Third is basically our carbon intensity is very high at nearly 2.5x+ as compared to the industry benchmarks. When we are looking at our expansion plans, be it organic, inorganic, how do we marry carbon intensity also in there? Thank you.
Okay. Firstly, regarding RINL, NINL and Nagarnar, we have no plans. We are not there. We have no intention of acquiring anything through those routes. Regarding our capacity expansion, as I had mentioned last time, we want to do it in two phases. In the first phase, say around maybe 13-15 million tons, and in the second phase, maybe 7-8 years down the line, another 15 million tons. This first 15 million tons that we'll be doing, we'll be doing it one plant at a time. There'll be a pause between one plant, then we pause for about 18-24 months, see how the market is going, then go for the second plant. Maybe we'll start with 15 million ton expansion in any one plant.
What we are doing is we are surveying all the plants. three plants have been shortlisted. Now, basically, land is the primary factor on which we'll be basing our decision. How much free land is available at one place, contiguous, so that we can't have patches all over the place. How much contiguous land is available and the proximity to the ore reserve. These are the two factors which will decide which plant we take up first. In any case, it is going to be a 1.15 million ton expansion that we'll be starting very shortly. Regarding your carbon emission, I really won't be able to reflect. I'm not much aware of that.
Thank you. The next question is from the line of Pinakin from JP Morgan. Please go ahead.
Thank you very much, sir. Just going back to the earlier question on employee cost. Now, this year has obviously been all over the place. For FY 2023, what should be the total employee cost guidance per management?
INR 10,500-INR 11,000. Yeah. See, next year, as I told you, the one time spike that will happen this year because of the actual valuation will not be there next year. Next year, it will be a more normalized cost at the new pay scale. There is a retirement of about 4,000 people next year. Normal separation. Adjusting for that and because induction against that will be hardly 20%. If you adjust for the net reduction in manpower at the new pay scale, our payroll expense should not be more than INR 10,500. It will be less than.
Understood, sir. Sir, my second question is that SAIL has delivered an impressive debt reduction over the last six quarters, with gross debt falling from INR 54,000 crore to INR 27,000 crore, as per the presentation. Now going forward, with higher coking coal prices, there will be some reversal of the working capital. There will be some increase in CapEx. Should we assume that the 2Q debt or, you know, is broadly the trough for the leverage cycle or can debt further reduce from here?
Absolutely reduced. This is not the trough of the debt reduction cycle. We are now at INR 22,478 as on thirtieth September. The figures you are reading out includes the end-day adjustments. That is just the book entry. The real debt is INR 22,478 on thirtieth September. Even though we have some high value expenses lined up, but our target to become net debt free by the first quarter of FY 2023 continues.
Just to highlight, just to confirm, when you're saying net debt free by the first quarter, that means that as a company you expect to reduce net debt by more than INR 20,000 crore over the next three quarters?
Absolutely.
Okay. Even with the higher wage, the outflows related to wage provisions and working capital.
That should not be a problem because some part of the wage increase will be book entry to that end, not so much in terms of cash. We'll also be helped by the realization and also be helped by the volume. Our volumes are expected to increase significantly going forward. Our target for debt reduction continues.
Very clear.
Thank you. The next question is from the line of Nalin Shah from MBS Brokerage. Please go ahead.
Yeah, good morning and congratulations to the management for the bumper results of SAIL in the Q2 and Q1 also. I have three questions. One is that coking coal as a percentage of your total cost of production, what is the percentage and what is the percentage to the revenue? That is first. Second is that current year you have estimated that 17 million tons target for the steel production and sales. Can we have some idea about the next year, 2022-2023? Third, my question is that you know since you don't have a current tax liability, PBT is equal to PAT. Is my understanding correct? Are we going to see for the full year you know PBT is equal to PAT?
What more, you know, for the next year also if there are carry forward losses available under the income tax?
Okay, I'll answer your first question first.
Okay.
PAT is not equal to PBT.
Okay.
We have to make a tax provision because that assessment will take place. I think what you're trying to mean is that we don't have a cash outflow on income tax.
Okay.
We have carry forward depreciation and some losses which will be set off. Earlier we used to pay MAT, but last year we opted for the new tax regime, that's Section 115BAA, so where there is no MAT. Effectively we are a non-tax paying company, but that does not mean we don't provide for tax. Tax assessment will take place.
Okay.
That was the first question. Sorry, that was the last question. Your first question was what?
Coking coal.
Coking coal as a percentage of our total cost in Q2 was 31%. As a percentage of revenue I'll have to work out. I didn't quickly work out. 31% is as a percentage of total cost.
Okay. Last one was about the next year's target for steel production and sales. There is again 17 million tons current year.
Next year it'll be slightly higher, because when we say 17 million tons this year, we also account for what we lost in the first quarter because of the COVID-19 second wave.
Correct.
Our next year, what we have projected so far is around 18 million tons.
All right. Thank you very much. Once again, congratulations for excellent set of numbers.
Thank you.
Thank you. The next question is from the line of Mohit Bansal from Bonanza Portfolio. Please go ahead.
Yeah, thank you for the opportunity. Sir, regarding expansion, you mentioned the head hardened rails will start production in December. One more, Rourkela Steel Plant, hot strip mill was also pending for very long. This is my first question, sir. I will come, I will ask next question after this.
The hot strip mill trials have started. In fact, today we are doing the first rolling of a coil, and we are hoping that by March it will stabilize. Our commercial production from the new hot strip mill will start by the month of March 2022.
Sir, regarding your coking coal, are you trying to have your own source like ICVL Mozambique developing your own source like Tasra coal, ICVL Mozambique, or you're talking to government to help some, you know? Because your cost is really on the very high side. As coke rate as well is very high side compared to private companies.
See, first thing is clear, our coke rate is high. For that we are doing a couple of things, but our coke rate in Q2 has already come down by 10%. Some of the other coal related parameters like coal to hot metal and all that, they have all improved. Regarding our source of coal, we have the Tasra coal mine, and already the mining from Tasra, the initial mining of coal from Tasra is going to start. We are also in the process of appointing an MDO for developing the Tasra and getting the full output from that. The Tasra coal will start coming from next year. That is one. Then the ICVL, which is actually not exactly our company. It's a joint venture between four companies. Our share in ICVL is only about 38%.
ICVL at Minas de Benga, it is 38%. Because 15% is BHP. So 38% is our share in the mining company. Actually, ICVL is the holding company. The real mining company is called Minas de Benga in Mozambique. Our share there is about 38%. Or 35%, sorry. 35%. So it's not actually our company. We get about one shipment each month from ICVL, and that is about the maximum they can do. Because they are constrained by the transportation from the mines to the port. It's a single line, and they have huge issues with the bottleneck there. So that is all they can ship product. So one Panamax per month is the maximum that ICVL can give, and we take that.
Satna has started. We have our other coal mine that Satna, Tisko, which is, it's a best coaster. We have some other indigenous coal that we get from BCCL and all that, which is not much. It's about 1.5 million tons. Our dependence on imported coal is still there. What we're trying to do is we are trying to increase the basket, getting more vendors into our set of vendors. We are talking to coal suppliers from Russia and from many other countries so that we reduce our dependence on one particular country. All that we are trying to reduce our dependence on imported coal, to reduce our dependence on particular country and trying to expand other sources of coal.
Thank you. Our next question is from the line of Sameer. As an individual investor, please go ahead. Sameer, your line is unmuted. Please go ahead with your question.
Thanks for giving me the opportunity. What was the capacity utilization across all plants in Q2? Thanks.
I don't have it ready right just now, but otherwise we'll share it with you. I don't have it with me just now. It's about around between 80%-90%, but I don't have the figures. I'm just talking offhand.
Okay. Where do you see price realizations going till March? Like, since China has reduced its capacity till March.
I'll ask Pankaj to... Pankaj Mathur is our marketing person. He'll reply to this. Good morning. See, as of now, in this particular month, because of coal issues both in thermal as well as in coking coal, there has been a price rise in the market, both in long products and flat products. As we go ahead, maybe exports will also improve after opening up of southeastern markets and European markets. As of now, because of the demand, the prices of the company are holding good. The coking coal prices, if they continue to remain like this, the international players could also be compelled to pass on the price, the cost to the consumers also. Looking forward, the prices are going to move ahead from this level.
Chances of coming down is very, very weak.
Thank you.
91% as per. I'll just quickly reply with the previous question on capacity utilization. It is 91% across them.
Thank you. Our next question is from the line of Noel from Ashika Group. Please go ahead.
Hello. Yes, yes, I think I have one question regarding. For one, what exactly has been the CapEx so far? I think previous quarter we had mentioned that we are targeting a CapEx of about INR 6,000 crores for the month, sorry, for the full year. If I could need to say, is that still relevant or there have been some revisions or not? For FY 2023 also, is there a possibility that you could give some guidance for
Our CapEx in the six months of this year has been about INR 2,100 crores. Our target of about INR 6,000 crores still remains because many of the projects which have been awarded recently, their CapEx will come in Q3 and Q4. We are still expecting that our annual CapEx in this year, 2021-22, should be in the region of INR 6,000 crores.
FY 2023?
FY 2023 is very hard to say. I can't guess now. Because many projects are in the pipeline. Which one will go through? Which ones will not? What will be the status of tendering? That is hard to say. I can't take a guess on next year.
Okay. Yes, and also just one more thing. I just noticed in the presentation that we are actually drawing power from the exchanges as well. Is this a normal occurrence or is it something that has just happened in this current financial year?
Yeah, this is Amit Agarwal. We have been drawing power from these power exchanges regularly. I mean, that is a question with respect to the cost. Sometimes we find that the power exchange cost of power is coming lower than maybe the grid power. We make use of that facility to keep the cost in check.
Thank you. Our next question is from the line of Parth Varma from UTD Renewables LLP. Please go ahead.
Hi. My question was, basically with regards to the anti-dumping duty as well as the incentivized production on specialized steel. Could you throw some light on that and how SAIL is benefiting from that?
You mean the PLI scheme?
Correct.
I'll ask Pankaj to reply.
As far as the imports of steel in the country, it is not only the specialized steel, but also some normal grade metals also come into the country. The government is targeting the specialty section. It is basically, as you must be aware, it is in five categories. For the next five years starting from 2023-2024, the incentives will be rolled out. The scheme is very balanced and forward-looking, and I feel all the producers they have come up for a seminar also a couple of days back, and they are out. It looks that everybody is going to participate, both the bigger players as well as the smaller players.
Going forward, specialty steel production in the country will increase. There is a challenge also in this scheme, I think, that one part is that there are certain material like auto manufacturers, they you know import material from their parent companies or there are certain proprietary items which come into the country. That is a challenge whether they would like to shift to the domestic industry. Another thing is the what you call economic order quantity. See, there are certain international players who are having the specialty steel in stock, and they can supply it immediately. Whereas in our country, if the process starts, it requires a particular lead time and it requires particular economic order quantity also. That thing will be a challenge.
Going forward, I'm hopeful that in next 4-5 years' time, India will be self-sufficient and rather not only supplying to the domestic industry, but we can also become a global value chain partner also.
Correct. Basically, you see, so the realization in terms of the balance sheet will only start coming in post financial year 2023, 2024?
See, it is like this. If we talk of steel in particular, I mean, regarding this PLI scheme, yes, we are planning two, three things. One is definitely rails. Of course, it has to be applied with the government and then government will allocate a particular product to various companies. That is the first thing that what comes into our fold. Then going forward, the window for incentive scheme is from April 2023-2024 for the next five years with a leeway of extension up to two years also. Yes, in the next 2-3 years' time, definitely the impact of the higher realization would be coming to the balance sheets of all the companies and things also.
Thank you.
Thank you. Our next question is in the line of Saket Kapoor from Kapoor & Company. Please go ahead.
Yeah. Thank you for the opportunity. Sir, if I could sum up, firstly, sir, our endeavor will be to be net debt free by the end of first quarter of FY 2023.
Yes.
Taking into this trajectory of the pricing, which is today and the volume which we are anticipating going forward.
Yes.
Sir, with the increase in the coking coal prices and they being 31% of the cost, what should be the profit margin compression that we are anticipating? What has been the hike in the finished product prices to compensate the same? Or will there be an actual reduction in profit and EBITDA? If you could give some trajectory on the same.
No, I mean, there has been a reduction in the profit and EBITDA in Q2 as compared to Q1, which is principally on account of the coal prices. Like our EBITDA per ton of deliverable steel in the half year has been INR 18,300, and in Q1 it was about INR 20,000. So there has been a reduction in the profit and EBITDA. So the only thing is that the rate at which the coal prices are increasing is not the rate at which the selling price of our finished products are increasing. So that differential actually will eat into our EBITDA. The EBITDA will come down.
Yes.
EBITDA will come down. Because I said again also that you cannot pass on everything to the customer. Something we'll have to absorb in the interest of the market. Again, we are hoping that this price of $408 which is there today is not a realistic price. I don't know what it is based on, but it's definitely not a realistic price. I don't believe that it will sustain for the next six months. In the past also we've analyzed.
Yeah. No, no. You complete, sir.
I'm saying in the past also, we've analyzed the data for the last, suppose, eight, nine years, and we have found that 2 or 3x there has been a very sharp increase in prices and followed by very sharp fall in prices. It was like a spike. This time also there has been a very sharp increase, and we are hoping that I think we can say with some confidence that it will not stay at $400 forever, and maybe the same. The only question is, how far will it fall? It will definitely not come down to $110 anymore. Whether it will stabilize at, maybe $250 or $300, that is something we have to see. If the coal prices come down, then the pressure on EBITDA will also reduce.
You mentioned INR 15,000-INR 27,000.
Yeah.
I mean, for the September quarter, our average was INR 15,000
Uh, in, uh
Yeah.
For the coking coal, that moved up to INR 27,000. Is this correct?
In October?
23,000.
In October.
That is around INR 7,000 or so INR 8,000 per ton.
Yes.
Okay. Just to get an understanding to what has been the rise, if we take the proportionate 31% and the increase in the flat and the long prices, I think it was INR 1,700. That is the hike we have taken for the month of October.
In the case of long, I think I've already given this figure. It is about INR 3,000 increase in the price of long product between October and average Q2, and INR 1,700 increase in the price of flat product between October and average Q2. The increase in price is not commensurate with the increase in cost. That is the difference which will eat into our EBITDA until the coal prices stabilize.
Thank you. Our next question is from the line of Ashish Kejriwal from Centurion Broking. Please go ahead.
Hi. Good morning, sir. Sir, just to get clarification on employee cost again, you said around INR 1,600 crore additional impact. The sixteen hundred crore is on FY 2020 base, because we have already included that in FY 2021 also. If it is on FY 2020 base or 1,600 plus, FY 2020 comes to around INR 10,400 crore. On top of it, whatever actual valuation should be there. My question is, you know, in FY 2022, do you think that our employee cost can be above INR 11,500 crore?
No. First of all, this increase was not on FY 2020 base. Just one second. See, our 2019-20 figure was something around INR 9,000 crore. Another, say, about, INR 1,600 crore over that. Because if you look at 2021, we had already made a provision. It is not INR 1,600
Yeah, yeah. That's what I'm saying, sir.
Hmm?
INR 8,800 + INR 1,600, which is around INR 10,400 crore. On top of it, whatever actual valuation should be there.
See, actual valuation is a one-time thing. That you don't have to consider.
Mm-hmm.
INR 1,800 crore plus INR 1,600 crore is INR 10,400 crore. INR 10,400 crore, give or take, after adjusting for some the normal increases, right? DA increase and
Mm-hmm.
The other increments and all that.
Sorry, ladies and gentlemen, it seems we have lost line for the management. We request you all to stay connected while we reconnect them. Thank you. Ladies and gentlemen, we have the management line reconnected. Over to you, sir.
Okay, just one thing. Just on that figure, I mean, there was an earlier question on coal cost as a percentage of revenue. Coal cost as a percentage of total cost we said was 31%, but coal as a percentage of total revenue is 24%. Somebody had asked that, so I'm just replying to that. We can continue with Ashish, please.
That employee cost for FY 2022 would be how much?
Yeah. It'll be around 10,000, say, 500, give or take.
Thank you. Our next question is from the line of Falguni Das from JetEdge Securities Private Limited. Please go ahead.
Yeah, good afternoon, sir. What is our coking coal cost per ton of steel in Q2?
Coking coal. No. Per ton of steel. Per ton of steel is how much? One to one. Average blend cost is what? Average blend cost is. How much is the average blend cost? Just one second, please.
Yes, sir.
Long was 49,170.
Sir, I have one more question. That is on the change in regulation that has happened in mining. If you could just clarify as to the 150% extra royalty charge which is there. What change has happened? I mean, if you just could mention that change in regulation.
Change in regulation is already known. I mean, the mines where the lease has been extended after 2015 will have to pay an additional 150% of royalty. So that is
Okay.
How it has impacted us is that.
Yeah.
How it has impacted us is that the four mines that we have in the Jharkhand state, all these four mines, the lease was extended after 2015. These mines have been impacted by this impact. This 150% additional cost is coming for these mines only, which accounts for
And what-
For 13 million tons out of about a total iron ore production of 32 million tons.
For our other mines, when will they be coming for lease renewal?
There is a long time left. They are not very. I mean, different mines are coming at different points of time. A couple of mines are coming maybe 2-3 years down the line. Other mines are long way off, 2029-30.
Thank you.
The next question is from the line of Srijan Sinha from Future Generali Life Insurance. Please go ahead.
Yeah. Thank you, sir. I just wanted to understand management's thought on buyback versus dividend. While we are delighted to get INR 4 per share dividend, buyback would have been better in my opinion. I just wanted to check your thoughts on that. No, actually there are guidelines because we are a government company, so there are government guidelines on when we qualify for buyback. We have not yet fulfilled that condition. Buyback really is not an option for us right now. What is the condition that is not yet fulfilled? If you could help me understand that. You need a free cash reserve of INR 1,000 crores. Okay. Second, sir, my question is on de-leveraging.
While your plans are quite ambitious to get a net debt free company by the end of Q1, I wanted to understand the underlying assumptions on that because profitability is going to be under pressure courtesy the coking coal prices, right? Are you building in some kind of receivable unwinding during the next couple of quarters? No, we've done our projection going forward. On how much we are likely to receive from our receivables from our normal volume increases, from the price increases, minus the expenses, and including the incremental expenses on account of coal and the higher pay. We have considered all that and we've done a calculation. Actually, our target was actually to reduce our debt much more significantly by 31st March. That probably will get extended a bit.
We found that by Q1, all other things remaining same, I mean, assuming there is no further fall in demand or some drastic change happening, we should be able to achieve our net debt-free goal by, say, June of 2022. June of 2022, yeah. Okay. Sir, during this quarter, was there an unwinding of receivables from Indian Railways? Because this quarter also the de-leveraging has been quite sharp. Not much. I mean, Indian Railways has paid us quite a bit, but they still have some major old outstanding which they have not been able to give us. So we are in constant touch with them along with the very senior Indian Railways officials. They have promised that. Actually, they need some budgetary support from the government, from the Finance Ministry. We've already applied for that.
Assuming that they will get that budgetary support, so a good part of our receivable should be liquidated in November. That is the thought so far. Okay. Sir, one final question is, by when do we expect to start paying cash taxes? How much of deferred tax credit do we have? If you can help me understand that as well. I think because we've opted for the new taxation where the tax liability has been reduced to 25%, so the tax asset that we are carrying in the form of carry forward depreciation and losses should pull us through for another maybe 7-8 years.
Thank you. The next question is from the line of Devansh Sachdeva from White Oak Capital Management. Please go ahead.
Let this be the last question, please.
Sure, sir.
Yeah.
Sir, am I audible?
Yes, yes.
Yeah. Sorry, I joined the call a bit late. I just wanted to ask one specific question. I don't know if this question has been addressed before. How much has been the iron ore sales in this quarter?
940. 944,000 tons.
INR 944,000. Okay. Yeah. Thank you so much.
Thank you.
Thank you. Next question is from the line of Raashi Chopra from Citigroup. Please go ahead.
Let this be the last question, please.
Sure. Thank you, sir. Just, very quickly you gave the iron ore volumes number. Can you share the revenue number as well, please?
Revenue number I don't have with me right now. We'll get it and give it to you.
Okay. The blended NSR you said was INR 55-INR 66. Did I get that right?
Yeah. Yeah. Yeah.
Okay. Fine. That's one. Second was just to clarify on the wage increase. The board has approved the increase, right? This is no longer provisional. This is, I mean, this is only final. That's what you mentioned in the beginning. Just to be sure.
The system is that it goes to the board, the board approves, and then it is sent to the ministry. The final approval comes from the ministry. We've sent it to the ministry. We don't expect any change. Most likely it will be approved as it is.
Okay. When do you and the cash outflow, how does that work for the raise in price?
That actually depends on when we get the approval. If we get the approval, say, next month-
Mm.
We'll be paying next.
Okay. It's okay. I note that. Just one last question. You've already given us a realization increase in the month of October for longs and flats. Are you expecting more? I mean, even though the increase is lower than the coking cost inflation, but are you expecting further increases in November, December in realization?
Pankaj.
Yes, Pankaj.
You see, as of now, there has been a substantial increase in the prices in the market, both in long as well as in flat products. Going forward, it all depends upon the demand and supply. See, one thing is very clear, in that this season is particularly from October onwards to March, traditionally it has been a good season as far as construction infrastructure industry is concerned. As you know, 65% of produced steel in country goes into this sector. From the demand side and automobile, of course, it was a bit weak in last couple of months, but as the chip shortage becomes easier, the automobile can also look up. That is one area demand side will pull up. Second is the export opportunity for the domestic players.
Export opportunity is also likely to come up after opening up of the southeastern market as well as the new release of the European quota. All in all, the prices from us can only go up. I mean, there are no chances of coming down as such. I mean, the only thing I can think of is if anything happens with the third wave of COVID. Otherwise, the market and demand and the prices are all looking up. Thank you.
Thank you.
Thank you. Thank you, ladies and gentlemen. That would be our last question for today. I now hand the conference over to Mr. Vishal Chandak for closing comments. Thank you, and over to you, Vishal.
Thank you very much, Aman. Thank you very much, ladies and gentlemen, for participating in such large numbers for today's conference call as usual. We still have a lot of queries pending, and I would urge them to connect with the investor relations at SAIL directly. I would again thank the management of SAIL for providing us with this opportunity and congratulations to them for a very excellent set of numbers. I would request Mr. Amit Kumar Singh for his closing remarks, if any, before we close. Over to you, sir, for the final remarks.
Thank you, Vishal. Nothing much to add except that we are looking forward to much better times, much better numbers. Traditionally, as I said, the third and fourth quarters have always been the best quarters for the steel industry and for SAIL also historically. That time has come. Monsoons are over, the COVID second wave is over. We expect our third and fourth quarter to be good. We expect to report very good numbers going forward. Just one small bit of information in case any of you have missed it. Our half yearly PAT, INR 8,145 crore, is the highest PAT SAIL has ever recorded in any year. I mean, our earliest high was I think INR 7,500 crore in 2007/08. In this half year we've already exceeded that.
We still have six more months to go. We'll be looking forward to good times now. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of DAM Capital, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.