Jindal Steel And Power Ltd
NSE:JINDALSTEL
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Jindal Steel And Power Ltd
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Ladies and gentlemen, good day, and welcome to the Jindal Steel & Power Limited Q2 FY '20 Earnings Conference Call hosted by PhillipCapital (India) Private Limited. [Operator Instructions]I would now like to hand the conference over to Mr. Vikash Singh from PhillipCapital (India) Private Limited. Thank you, and over to you, sir.
Good afternoon, everyone. Today, we have with us Jindal Steel & Power management. So without taking much time, I'll hand over the call to Nishant Baranwal. Over to you, Nishant.
Thanks, Vikash. We welcome you all to our conference call to discuss JSPL's Second Quarter Fiscal '20 Financial Results. From the management side today, we have with us, Mr. V R Sharma, our MD, JSPL; Mr. Bharat Rohra, our MD, JPL; and Mr. Deepak Sogani, our CFO, JSPL.With that, I will request Mr. Sharma to begin with his opening comments.
Hello. Good afternoon, everybody. The Q2 has been very good for JSPL in terms of the productivity. We have increased production by 16% on corresponding -- based on the corresponding year and also 14% in sales. We could reach a level of about 1.58 million tonne in India and 0.42 million tonne in Oman, put together is 2 million tonne. If you take this ratio, then we are surpassing our expected production in a year. What we are planning, that 6.5 million tonne we'll be producing in India and 1.8 million tonne in Oman.So over a period of time, we have found that the company is doing well, and we are producing well. The EBITDA level today has come down from INR 11,300 to INR 9,400 a tonne. This is primarily because of the overall steel prices have gone down in last quarter. Secondly, we always maintain coking coal, which is imported from Australia and Russia, which we maintain in pipeline for about 3 to 4 months of inventory. And the coking coal prices have gone down from $210 to $140 a tonne. The impact of the lower prices, which was at a rate of about $160 a tonne and below, that will be seen in the Q3 and Q4. So we feel that we'll be pushing to enhance the EBITDA level in the Q3 and Q4.Secondly, the rail business has been very good. We have -- we are meeting out all of our rail orders for Indian Railway and their subsidiaries on time. The structural business is also excellent, we are meeting out all of our demands, so is the plate business. There has been pressure on the TMT and the rebar prices, which is known to everyone. But the good news is that in last quarter we could export a substantial quantity and our exports are 44% higher than the previous year and also more than 30% higher from the Q1. So for that matter, we have done extremely well.If we compare with our competitors or the peer group in the industry, the production level of our peer group is ranging from minus 3% to plus 6% in this quarter -- the previous quarter, the Q2, whereas our growth has been to 16%. So this is a very good news. And if we compare as a whole the business scenario, we are still very vibrant in terms of the product mix. We are having enough orders -- adequate orders for rails. We also started our much awaited heat-treated rails, which are required by government of India, and the heat-treated rails are now available, and we also exported more than 20,000 tonnes.And from Metro Rail also, we have started getting orders for the heat-treated rails, where the rails are heat-treated at a particular temperature and for a particular physical and the elongation properties, to run the heavy haul rails as well as the Metro Rails. So this is what's the overall scenario. If you see the overall picture of the Angul plant, so Angul has been doing extremely well, and we will be in a position to produce 3.8 million tonne this year in Angul and 3.6 million tonne this year in Raigarh. So total put together would be 6.4 million (sic) [ 7.4 million ] tonne.This is all from my side. Thank you very much.
Now I'd request Mr. Bharat Rohra, our MD, JPL, for his comments.
Good afternoon, gentlemen. The second quarter of Jindal's performance has seen a slightly dip in the performance. In fact, the second quarter of any financial year for the last few years, we have been seeing that the power plants -- the second quarter shows really weak results because of the effect of the monsoons where the coal availability reduces and also the demand for thermal power goes down because the hydro picks up and thermal demand goes down. So this current quarter has seen very, very heavy rains, and a number of mines were shut down due to flooding.In other mines the production went down drastically, as a result of which supplies under FSA have been highly delayed for the months of August and September. However, JPL made alternative arrangements by importing coal and purchasing coal from various traders to meet its obligations of power under the PPS. Based on these arrangements, we have managed to maintain the supplies as per the PPA to Tamil Nadu, Kerala and to Chhattisgarh. And so the PPA requirements have been met. However, exchange sales have gone down due to poor rates on the exchange during this period.When I come to the comparison of the turnover and the figures, the turnover on a year-on-year basis has seen an increase from INR 911 crores to INR 947 crores. And on a Q-on-Q basis, it has seen a decrease from INR 1,114 crores to INR 947 crores. That is down by about 15%. EBITDA on a year-on-year basis has marginally decreased by 1% from INR 302 crores to INR 299 crores. And on a quarterly basis, it has decreased from 17% -- by 17% to INR 360 crores -- from INR 360 crores to INR 299 crores, primarily due to lower generation.The comparison of turnover on half yearly basis has seen an increase from INR 1,879 crores to INR 2,061 crores, up by 10%. And the EBITDA on a half yearly basis has increased by 7% from INR 616 crores to INR 659 crores. So as a summary, the performance has been just about almost we can say flat. On the sector, we have been talking of the stress in the power sector. And we all know that whenever there is a disease, it takes a lot of time to cure and so is the power sector. It's such a regulated sector that the stress will take quite some time to be eliminated. The government has taken a lot of measures, but those measures -- the results of those are still far from showing any relief.In continuation of the government steps, the government has come out with directions to all states and DISCOMs to buy power only with the proper security mechanism in place. The orders issued in June 2019 made it mandatory for DISCOMs to open LCs for purchase of power as the terms of the PPA. The DISCOMs have started compliance of these directions. And as a result, with effect from 1st August, 2019, JPL is supplying power to the DISCOMs with a proper payment security mechanism in place as per the PPA, and we have also received timely payments for our August and September invoices from all the 3 states of Tamil Nadu, Kerala and Chhattisgarh.The central government is also considering sanction of a grant to the defaulting states as a onetime settlement, so that all previous dues of generating companies payable by the DISCOMs get liquidated. We are eagerly awaiting the same to liquidate our balance outstanding from Tamil Nadu, although the outstanding has reduced from INR 1,000 crores to INR 770 crores on account of the energy [ bids ]. And there is no payment outstanding from Kerala or from Chhattisgarh because all their payments are up to date.In the last quarter, I had informed that NHPC is spearheading a pilot scheme to aggregate 2,500 megawatts of power. And under this scheme, JPL was allocated a PPA for 315 megawatts under this scheme. Now this PPA, we were expecting that will get inked by the end of the second quarter. However, the state DISCOMs are taking substantial time to finalize this and take the regulatory approval. So maybe another 6 to 8 weeks would be required to finalize this PPA and put it into operation.Regarding the availability of coal, the government has announced auction of coal mines for the industry, except power. JSPL participated in this auction and has been the highest bidder for Gare Palma IV/1, and the notification regarding the allocation of this mine to JSPL is awaited from the Ministry of Coal. JSPL will be able to make available 25% coal mined to JPL on a regular basis. This will ensure operation of JPL's units at a much better P&L.We have been trying to reduce the debt in JPL. And at the end of the second quarter, the debt stands reduced to INR 6,800 crores, down from INR 7,000 crores, with about INR 204 crores being repaid in the quarter under review. We are also in the process of repayment of the debentures of Franklin Templeton of about INR 330 crores in 6 installments, of which 2 installments have already been repaid. All this is supposed to be done without any additional borrowings by utilizing the lump sum payments being received from TANGEDCO for the outstanding dues and also out of the interest being made by JSPL on the loan given to JSPL. It is pertinent to mention that on the directions of the Appellate Tribunal, TANGEDCO is regularly paying the installments toward change in law dues payable to JPL, and we have already received INR 150 crores on this account in 7 installments from TANGEDCO.So that is the introduction that I wanted to give. I will now hand over to our CFO, Deepak Sogani.
Good afternoon, everybody. I am pleased to report a very good set of numbers given the weakness in the quarter 2, which is seasonal. So from a financial point of view, we have reported our consolidated EBITDA at INR 1,642 crore and our stand-alone EBITDA at INR 1,255 crore. The stand-alone steel production on a Y-o-Y basis in the reported quarter has gone up by 11%, and the steel sales have gone up by 5%. Our consolidated steel production on a Y-o-Y basis has gone up by 10% and steel sales has gone up by 3%.So I think, let me just give kind of a bit of commentary on the headline numbers that I've just reported. As we have been sharing with you every quarter, the management team has been focusing on a very disciplined response to manage the fiscal environment. We have, in line with expectations, done very minimal CapEx. We have been extremely focused on cross-selling initiatives, and Angul gradually is becoming more and more cost effective. Also, our product mix is improving. Given all the initiatives that we have been focused on, I would like to believe that our response to the market environment in the last quarter has been one of the best.Now let me just add on to the commentary. The idea is to share what we have committed to all of you and what we are delivering. So let me start my first commentary piece, which is on the debt side. On the net debt basis at the end of the first half year in FY '20, we are reporting a net debt figure of INR 36,501 crore, which reflects a INR 961 crore reduction over the net debt figure reported in the last quarter of INR 37,621 crore. And I'm pleased to kind of highlight that in the first half of this year, we've been able to reduce our net debt by INR 2,583 crore, which is in excess of the guidance that we have been sharing.Our guidance was that we would be able to reduce INR 4,500 crore to INR 5,000 crore from operational cash flows. We've already reduced INR 2,600 crore from these operational cash flows in the current half year. I would also like to say that on account of foreign exchange we had to take a hit in the reported headline net numbers of INR 300 crore. Had that foreign exchange impact not impacted us, we would have seen a total reduction of almost INR 2,900 crore.The other point that I'd like to highlight on the debt number is the fact that in India, in JSPL in particular, we had a lopsided repayment schedule, where first we were required to pay almost -- we've almost paid INR 1,500 crore in the first half from a principal point of view in JSPL, whereas in the second half the repayment obligations are only around INR 550 crore. So broadly, I think we've been -- we've done well on the debt side. That's my first headline commentary.The second headline commentary would be on some of the other international businesses. As we've been saying that from a management team point of view, we have been kind of focusing -- our management focus on the international businesses is much better given the fact that the Indian flagship entity cash generation, et cetera, is better in the last couple of years.So my first commentary is on Oman. Obviously, the Middle East market is a bit slow and therefore we saw a bit of decline in the profitability there. In the first quarter, while we had about $26 million of EBITDA and in the second quarter we had about $16 million of EBITDA, the fact is the same. We had additional gas and power charges of around $10 million, which would get normalized in the current quarter. But the -- as did raw material costs, the pellet prices, which have gone down or the electrode prices that have gone down, they will start benefiting the Oman business from the current quarter onwards, so we should see almost a $60 per tonne improvement in the raw material cost in Oman starting Q3 and Q4. So Q3, Q4 are likely to be better.Similar is the case in India. I think I did not highlight, obviously, in quarter 2, one of the reasons why our EBITDA was low, obviously, the prices were low. We had a decline in our NSR by INR 2,400, which was offsetted by cost improvements of around INR 500, partly costs, very minimal, about INR 300 cost impact benefit came in, and some efficiency benefit came in of INR 200. But ballpark, we saw a net decline in our EBITDA by INR 1,900 per metric tonne.And in the quarter 2, the bulk of the reduction in the raw material cost in the coking coal from INR 210, INR 220 to INR 115 and levels of debt and other raw material costs also, we were not able to see a lot of benefit of the reduced raw material prices in the reported quarter. But in the current quarter, I'm pleased to inform you that already we are seeing a raw material cost reduction by almost INR 3,000 per tonne. Obviously, there's a bit of decline in the NSR as well in the current quarter. But obviously, now the prices have started improving, and this is the quarter when we hope that the price environment will become better, so we are allowing the quarter to play. We are hopeful that the quarter will be significantly better than the last quarter. So I think with that, I'll kind of conclude my Oman commentary.Now on Australia. Again, we would like to say that from a management point of view there's a lot of focus. We consciously shut down one of the operating mines, the Wollongong mine, because it was expensive to operate it at that point of time. We have been focused on reducing the expenditure there. We've put both the mines in care and maintenance at this point of time. The operating expenses are gradually coming down. In the reported quarter, obviously, some of the past liabilities, et cetera, were still continuing to get incurred, but the outlook on Australian expenditure is going down. So hopefully, the Australian expenditures should see lower levels in Q3 and much lower levels in Q4. At the same time, we are very focused on getting the approval for the Russell Vale mine, which should perhaps come in in this financial year sometime. And once that happens, that will put the Australian asset into the new trajectory. So that's the next large lever in the Australian business, if you would.My next headline commentary is on CapEx. As we have been saying, we have shown an increase in the balance sheet. You may see that in the first half this year, there is an additional addition of CapEx of INR 1,188 crore. As you are aware that in line with the change in accounting standards, Ind AS 116, the long-term leases are being reported in the CapEx, which amount to INR 799 crores. So about INR 800 crore of INR 1,188 crore is primarily due to change in accounting standards. And on a cash flow basis, the additional CapEx that we've incurred in the first half is INR 389 crore on a consolidated basis, which is very much in line with about INR 700-odd crore guidance that we have given to you. So we are very conscious about CapEx, and we are obviously focusing on deleveraging as best as we can. I think that's what we have been committing to you.My next headline commentary is on loan against shares. When we spoke to you last time, the figure reported to you was INR 906 crore of outstanding loan against shares. I'm again pleased to inform you that this figure has come down to INR 760 crore. So it's significantly down from the peak of INR 1,151 crore. And at the current -- obviously, the stock price is also connected. Given the change in the stock price and the reduction in the debt, the current pledge almost covers our loans to an extent of 4.6x. So it's a fairly healthy cover, and we don't see any volatility coming in from this area, if you would, right?In addition to that, I'd also like to kind of make a quick commentary on the coal block. Our MD has obviously briefed and Bharatji has also briefed that we've won this Gare Palma IV/1 coal block, which is an operational coal block. So really it should start delivering coal in a very short period of time. I think that is one important point to note. It is not one of the undeveloped coal block assets. It's already an operating asset. And it is next door to a plant in Raigarh as well as to Tamnar. So we should start seeing benefit which is very useful for us. Importantly, the coal availability for both power and for our steel business will increase, which will obviously ensure that our operations continuity is there, and we will be able to realize some additional profit on account of higher availability of coal in our businesses.In addition to that, we are looking to mine almost 6 million tonne of coal from this coal block on an annual basis. We broadly believe at this point of time -- obviously, the mining and everything else will have to -- finally the plant will develop and the final costings will develop -- but on a big picture basis, we believe that we should be able to see benefit of almost INR 1,500 per tonne flowing through us. So we should be able to kind of get cost-competitive coal, and we should increase our reliability on the coal side. And as you're aware, this is [indiscernible] coal available because [indiscernible] imports will obviously substitute some of our coking coal requirements, and imports will also to that extent get reduced a bit domestic coal we will be able to kind of feed our steel business as well, our DRI business.So I think with those headline commentaries, let me just complete my initial commentary. Over to all of you for your question and answers.
[Operator Instructions]
Yes. So just to make an initial comment like always. I would request everybody to feed us more strategic questions. For data questions, myself and Gaurav both are here, and we can take them offline. Over to you, Sam, for the questions.
[Operator Instructions] The first question is from the line of Koundinya N from JM Financial.
Just a couple of questions on JPL. Sir, in the current quarter, if we see realizations have been up. So what drove the realizations, and what's going to be the outlook going ahead? If you can throw some color on that.
You see, we have entered into long-term PPAs with Tamil Nadu and with Kerala, and over the period of 4 or 5 years the PPA has been operation, there has been change in law and there has been escalation. And due to that, the realization has improved because in change in law itself, we have been granted about INR 0.33 per kWh as a payout, and now TANGEDCO is paying that amount on a regular basis. So because of that, the realizations have gone up. Looking forward, this will continue. And in fact, the escalation component will also go on increasing. And the change in law -- of course, nothing can go reverse because it is already there in place. So these figures of the realization will continue.
Sure, sir. That will be helpful. Sir, my second question is on pilot to PPAs. I understand that we won around 515 megawatts, if I'm not wrong, of which 315 megawatts was what is under discussion. So what happened to the balance 200 megawatts, sir?
You see NHPC had given us a LOI for the initial 315 megawatts because they had takers for a limited quantity. So the situation remains the same that we are still hands-on on 315 megawatts. The balance 200, they are still trying to get it done with Jammu and Kashmir. But because Jammu and Kashmir has been going through turmoil, so they are not able to sit one side or the other. But we're on the job for the balance 200 also.
Sir, when will we start supplying for the 315 megawatts, sir?
This 315 megawatts, the PPS, as I mentioned in my initial introduction, the discussions are on with Tamil Nadu and Kerala. Kerala, we have been given 200 megawatts and TANGEDCO 115 megawatts. So with both of them, we have given the draft PPA requirements, and they have to come back to us with their consent, sign the deal and then go ahead with their regulatory clearance. And so they are taking some time because both are state governments, so they take their own approval process. So I'm sure by the end of December, we should be able to close the PPA, sign it and get going on it.
And it should be [ based on ] December, right, sir?
Yes, it's a 3 years contract.
The next question is from the line of Rajesh Lachhani from HSBC.
Congratulations on the good set of numbers. And again, congratulations for winning the Gare Palma block 1. So my question is with regards to Gare Palma. Just want to understand what is the current sourcing at Raigarh? And how much of this can we replace immediately with Gare Palma?
You see current sourcing in Raigarh, we have -- primarily, there are 2 products. One is captive power plant and the other is DRI plant. So at the moment, what we are doing, we are importing some coal, and we are also buying coal through FSA route as well as e-auction route. So the day we get the confirmation from government of India, and it will take some time to hand over the mines to us, we will be in a position to start the mine within 2 to 3 weeks' time because we have been to these mines, and we know this area very well. So we'll keep everything in place, and we'll start production within 2 weeks or maybe 3 weeks. So our aim is to produce about 5 million to 6 million tonnes a year, which will suffice our requirement for entire quantity we need for DRI in Raigarh as well as for the captive power plant. This is what we are going to do. Immediately, we will stop imports of coal. And partly, we will also stop the e-auction route, but the FSA route will continue until the time we are [ not ] fully self-reliant. This may take about another 1 month or 45 days time. Is that okay?
Sir, can you quantify what is the total annual requirement at Raigarh, including the CPP currently?
So including CPP, it is total put together and DRI, it is about 4 million tonnes.
Okay. So we'll be still left with 2 million tonne additional that we can -- out of which you can supply to Tamnar as well, 25%?
You see we are allowed to do. But initially, it will take some time to ramp up. And we have to do the washing also. And then it will take some time to ramp up. And hopefully, yes, after 2, 3 months' time, we will be in a position to supply to Tamnar. As per the government law, 25% we can sell.
The next question is from the line of Amit Dixit from Edelweiss.
I have 2 questions. The first one is on your export product mix actually in this particular quarter. So what was the proportion of exports in this quarter? And how did it change Y-o-Y and Q-o-Q?
Yes, you're right. So let us first discuss the Indian business, not the Oman one. Indian business, we have done 1.58 million tonne production. And if you see, out of that, month-to-month basis we produce about 180,000 tonnes of plates. And we produce about -- rails and structures together -- about 90,000 tonnes put together. And then we produce about 120,000 tonnes per month of rebars. And then we produce semis and rounds for the domestic market as well as for export market. So what we have done in the last 3 months' time, since there was a pressure in India and most of the central part of India and the western part of India was under heavy [ press ], so the demand of TMT, that is rebars, was little less. So when you look at demand of other commodities like general publication purposes plates and some of the structures was also less. So what we did, we exported plates. We exported billets. We exported rounds, and we exported part of pig iron. So these all were exported out of India. So if you see in a month-to-month basis, we have done about 100,000 tonne plus exports in the last quarter.
Okay. And how will it change going forward? Are you planning for more exports? Or you -- it will stay status quo? You see...
Yes, please continue with your question.
No, the question is that whether we plan to tap export market opportunistically, and what is the kind of, I would say, sustainable export volume that you are looking at?
Right. I'll tell you. First of all, as I told you, the 2 major -- 3 major products, we do not want to compromise that. One is rail business. We'll continue supplying rail, whatever the quantity government is asking us to supply. Then, number two, we have already now qualified for [ heavy haul ] rails. So all the plans are taken and everything is in place. So we'll be now supplying the heat-treated rails to Indian Railway as well as to metros. And the next product what we have, we have is structures. So that is going on very well without any compromising. Then the specialty instructions for the infrastructure projects like power transmission lines. So this is also going very well. Plates, we are doing extremely well. The only pressure what we are feeling today, like the other peer group in the steel industry, is the construction steel like rebars and partly wire rods. So this business we are watching. We are not flooding the market. We are maintaining a proper profitability. And whatever is the balance left, that we try to export. And we are successfully exporting. We are getting good price, good EBITDA in exports also, because internationally the prices have gone up in last 2 years' time. And because the scrap prices have gone up by $35 to $40 and also the HBI and DRI prices have gone up. So this has given an impetus to the export prices also. So we'll continue exporting until February next year at the rate of about 70,000 tonne to 100,000 tonnes closely, and this we'll do.
Okay. The second question is on your sales guidance. 6.5 million tonnes at this point in time, the ask rate for H2 looks quite high, I would say. So I mean, how are we going to achieve that considering the overall demand weakness in the market? Or are you seeing key segments of the market recovery?
You see the big efforts being made by Ministry of Steel as well as Ministry of Finance and Honorable Prime Minister himself. And in the last 10, 15 days of results of government, if you see, they have done everything to boost economy. The RCEP decision of Prime Minister is a very wonderful decision. Though some of the FTAs are already existing for the last 8 years, those FTAs will continue with Japan and Korea and some more countries. But there are no more other burdens on the steel industry. The government of India has considered in the interest of MSMEs and SMEs and small industrial houses, so that the end user stream is protected and continue. So what I see, that in times to come -- another 5 months are left. So in this 5 months' time, there'll be a boost in the infrastructure projects, and which we are already experiencing. So be it railways, be it transmission towers, be it bridges, be it defense sector, everywhere there's a growth. So government has given full thrust on the projects spoken by government. Now the secondary sector is, other than government, is the other companies. But when the government is putting lot of efforts, government is not doing anything by themselves, because they have the [ alternatives ] available, they have the infrastructure companies available from the private sector only. So finally, everybody is getting the gain. So are we. So what I think that the situation will improve in times to come, and it should be a good time for steel industry is what I'm expecting.
The next question is from the line of Ritesh Shah from Investec Capital.
Sir, my first question is on the debt repayment schedule. In the prior calls, we had indicated at the consol level we had around INR 1,767 crores of debt repayment. And we had indicated that there could be potential Botswana or other divestment actually which can happen. So sir, how should we look at this? Is it your vanilla refinancing? Is that something that we are looking at, or we have certain other options at hand?
The company has done well. If you see the debt reduction plan, we started at somewhere about INR 39,000 crore. And if you remember the last meeting we had 3 months back, we declared that, yes, we'll bring it down to INR 34,000 crores within this financial year -- by the end of the financial year. We are in line. So fortunately -- and I'm glad to inform you that INR 2,500 crores of debt has been reduced. So now we are at level of INR 36,500 crores, and we'll bring it down to another INR 2,500 crores by the end of 31st March 2020, and we'll be at level of INR 34,000 crores. I repeat my sentence last time, what our Honorable Chairman, Mr. Naveen Jindal, has told us: "No CapEx. Earn and invest policy." So we are on the same philosophy, no changing, nothing, no more CapEx, no more investments. Our aim is to reduce the debt, and his target is to bring it down to INR 30,000 crores next year. And finally, we want to see the company as a debt-free company in times to come.
Right. Sir, so my question is, are we looking at refinancing the Q4 payment that we have of around INR 1,800 crores?
I'll let my CFO reply you for particular question. I'm handing over to Mr. Sogani.
Yes. Ritesh, this is Deepak here. As you're aware, we are going through the process for selling a Botswana asset. There's certain conditions, precedents are yet to be fulfilled, and therefore the process is going on. The buyer is fully engaged with us. So we're just hoping that that transaction delivers the cash as soon as it can. So that's one level of cash available for us to repay the Mauritian debt or the repayment that was issued in March. But in addition to that, obviously, as you can see, given the fact that the Indian cash flows are good, Indian business is good and global bond yields or foreign currency debts are low, several lenders are obviously talking to us for refinancing options. So there are many ways in which we are trying to kind of address the problem. But the larger solution is the Botswana sale. We've also shared that we are ready -- we have a shelf project ready in Oman. We've already done, like, many months of work on raising capital in Oman. But because the Oman market has gone down, we did not launch that project. So if the markets are opportunate in the next couple of -- maybe one quarter or thereafter, we will be able to reactivate that project also. So there are many ways in which we can kind of seek the capital that is required for March.
That's helpful. Sir, just 2 questions. One is, sir, what is the strategy on iron ore and coal auctions? So we had Gare Palma IV/1. There are few other coal blocks. And specifically, Sarda hasn't played out. So how should we look at come March? That was one. And Rohra sir, if you can just touch upon West Bengal and Gujarat PPAs. We had highlighted this in the prior calls. So what's the status over there?
Regarding this PPAs for West Bengal and for Gujarat, both the tenders were withdrawn because of the low prices on the exchange. And both the DISCOMs are buying on the exchange rather than ink a deal with the generators.
Okay. And auctions...
Securing iron ore, that was your first question. So there is no dearth of iron ore as of now, and we are fully secured because we are sitting in the hub of iron ore zone where we have more than 10 million tonne of iron ore in that part of the country. So we are in the eastern side, so the locational advantages are already there. Secondly, we are expecting that honorable court, Supreme Court, will allow us to transport our iron ore which is lying in SMPL. And the moment this iron ore is allowed to be used by us, which is already duty paid, royalty paid, and for the last 6 years, more than 6 years, we have been waiting for this. And in the right time, government and the state government, central government, honorable court should allow us to use this iron ore, which is worth more than INR 1,800 crores of this, this will definitely bring a respite not only to JSPL but to the entire industry, because there will be little shortages what people are expecting due to the auctioning of iron ore mines. So this will be a great help. And I'm confident the government of India and Honorable Supreme Court and government -- state government will definitely consider this view, because this is our material, our assets lying in SMPL, which is already royalty paid, duty paid.
Right. And sir, on the incremental coal block auctions?
You see the coal block auctions, I tell you one thing, because what we need, our requirements, are very limited. We have a coal gasification plant in Angul. Actually, this coal gasification plant was installed based on the Utkal B1 mines, which were allowed -- which were given to us to produce coal and to use for the coal gasification. And after washing, so whatever the middlings and tailings and rejects that come, when we had this year BC boilers to utilize it. So unfortunately, the coal block didn't come to us at that time, but we have done the investment, more than INR 20,000 crores, which was a huge investment. And this was the first plant in the country to demonstrate using Indian coal to produce the syngas and then from syngas to DRI and DRI to steel. Though we have taken all the trials, we have run commercially the project, and commercially the project was found to be very viable. And we are going to replace a gas of about $14 to $15 per mmbtu with a gas of $6 to $7 per mmbtu if the Indian coal is available. It's a great saving, great saving of foreign exchange also, for the nation. So what we are looking now, your question was the next blocks. In next blocks, basically, we are interested in Orissa, so that we can meet out our requirement.
The next question is from the line of Kamlesh Jain from Prabhudas Lilladher.
Sir, just wanted to know about the...
Excuse me, this is the operator. I'm sorry to interrupt. Mr. Jain, may we request you to use your handset please. Your voice is not very clear.
Yes. Sir, just 1 question on the part of this NSR and how do we see the NSR in the Q3? And other than that, like, say, what is the profitability in the exports as compared to the domestic?
You see, as I told you, the NSR of -- for the plates is maintained as it is without any problem, rails as it is without any problem, no reduction, the heavy structures as it is. These general commodities NSR has gone down, like small angle channels, small beams and also the rebars. So these are the areas where the NSR has gone down. So this is the reason that from INR 11,300 per tonne of EBITDA we came down to INR 9,400. The other sector was, as I told you earlier, the coal has played -- coal prices have played a significant role. We maintained a pipeline of about 1 million tonne of coal in pipeline. And all of a sudden the prices -- they go up or go down, that impacts the balance sheet. But the effect will be seen -- positive effects will be seen of the lower prices will be seen in the quarter 3 and quarter 4. So as far as the NSR for exports are concerned, we are maintaining a good NSR, but a good positive EBITDA. And we have been successful in maintaining the flow very well. And some of the good products we have in our kitty, like the specialty products, like alloy steel billets, which normally the commodity players from Ukraine or from Iran or from Turkey, they don't play.
Sir, I was asking about the Q3. How do you see the realizations of the NSR in the Q3 over Q2 average?
Yes, Q3 and Q2, if you see that NSR will -- you see, there are 2 factors. One is NSR, the other is EBITDA. NSR will be less than Q1, of course. Q2 was also less, because there is NSR in terms of sales price. But if you see the EBITDA price, the margins will be better in Q3 and also in Q4.
Okay. Okay. And next, sir, on this INR 0.33 additional, which we got in this quarter. So because historically we have seen that this has proved to be a more of a one-off. It comes in a quarter, but following quarters it goes away. So are we going to see this INR 0.33 as sustainable in the coming quarters as well? Would we be able to sustain this INR 300 crore of EBITDA run rate per quarter in the coming quarters?
You see, as far as this INR 0.33, which we are getting due to change in law, now this has become a permanent feature in our invoicing. And we are invoicing it on a regular basis to TANGEDCO. Okay? And as far as the EBITDA levels are concerned, we will be in this self-sustaining mode for maybe another quarter until the time this 315 megawatts PPA start performing. And after that, you will see a jump in the EBITDA, which we will report to you whenever we attain.
So I think the -- let me just give a little bit addition to what Bharatji has mentioned. Obviously, we don't have a policy of giving any guidance on EBITDA. But the outlook of the power business is improving with some additional PPAs that are likely to come in and also with some more certainty on the coal availability to the business, right? So ballpark in the remaining 2 quarters, we are more positive than what we were. And in future, we see our business shaping up quite well. So our management guidance in power is a positive uptick.
Okay. And sir, lastly, if I see the power EBITDA. So EBITDA is flat year-over-year, but our cash profit has almost gone up by around 50-odd percent. What's the reason behind that, sir, on the year-over-year front and the interest cost at similar levels?
Right. So I think there are a couple of points there. I think from a business strength point of view, as you're aware, the power business has a extremely strong capital structure from a balance sheet point of view, right? There are certain obligations that have been taken by them. They have lent money to JSPL. Initially, there was a thought that we will kind of transfer the captive power plants of JSPL to JPL, so that we can create a larger power asset in this business. But eventually, due to GST and leakages, we kind of opted out of that, and we reported that we have now kind of decided against the transfer of the captive power assets to JPL. As a result of that, some of the amounts that have been paid by JPL to JSPL have become interest-bearing, and there's some interest income that has got increased in JPL, which helps the sustainability. So JPL typically needs about INR 1,300-odd crore for its bank payments, et cetera, which will generate EBITDA in excess of that, and it will also get some interest income from JSPL. So the sustainability of JPL is quite strong. In addition to that, there has been obviously some change of bill related cash flows, which has added to the cash in the current half year that we've reported.
And sir, lastly, what is the -- what are the plans on the coal security for our Angul plant, that DRI plant?
You see, this is what I told you, because DRI plant, our Angul, is based on the gasification route. So we are looking -- we are also discussing with Ministry of Steel and also Ministry of Mining, that we should be given some coal as per our requirement within the vicinity of the Angul plant. So we are working very hard, and some of the blocks will come on auction. Definitely, we'll participate in that. So Raigarh coal requirement is already over. So now we are looking only for the Angul plant.
The next question is from the line of Puneet Bansal from IDFC Bank.
The question is that in terms of percentage, which -- what is the total product mix impacted by the decline in net sales realization? We see that the rails, heavy structure and plates are unaffected by the net fuels realization decline and rebars and wire rods are impacted by this decline. So what is the percentage which they represent in the overall product portfolio?
So let me take a first level attempt at it. In the TMT segment in Q2, right, or in the rebar segment in Q2, the market prices fell by almost INR 4,500 per tonne, a significant decline in our TMT kind of segment. So we have 3 blocks. On the top of our heap is the RUBM, where we have rails and heavy structures. Then we have plates, and then we have -- at the third level we have our rebars and other related products. Obviously, we do some value-added semis, which belong in the second segment. Despite there being an adverse movement in the rebar, prices were almost INR 4,500 per tonne in Q2 versus Q1. Our blended NSR went down by INR 2,400 only, reflecting the fact that we had significant stability in the NSR in our rail, which perhaps were almost stable. Plates declined somewhat, but significantly below the market movements for rebar. But that's the resilience we have on the NSR, if you would. Yes?
Sir, can we say that in the overall portfolio, around 50% of the products were impacted by this NSR decline?
More like -- less than 50%, more like 30% to 35% almost, that's the range in which we would say, the TMT segment and the market. So some of the products are significantly responding to the market movement in the prices. That's ballpark around 30%. 70% of our products are value-added products, customized products, directly made for end customers, right? In that segment, we do not find that kind of impact.
Next question is from the line of Jigar Mistry from Buoyant Capital.
Sir, assuming that the coal block is handed to us today, how long until we ramp those up to full capacity?
Yes. From zero date, whenever it is handed over, I think we will take at least 15 to 20 days to start it, and then another 2 months time to ramp it up to the full capacity.
All right, sir. And what needs to happen between the time the government announces and we have handed the coal block?
We are continuing with the existing sources like FSA -- fuel supply agreement -- and the e-auction route.
No, no, sir, not what I asked. Regarding the coal block, let's say, on learning the government announces that JSPL is the winner of the coal block, what needs to happen after that? Is there any timing of...
Yes, yes, just a second.
I will clarify. You see, there are a lot of clearances which are available for the buying before the production starts. All those clearances were earlier with JSPL, which were subsequently handed over to HSCL because HSCL was the appointed custodian. Now those approvals we have to get transferred back to JSPL. So those approvals will take a short time, maybe 1 or 2 months. And then as soon as they're handing over -- that is the handing over/taking over process. And then after the taking over, Mr. Sharma told you what will be the methodology of the ramp-up.
So to join it, I think once the government announces within the next 6 months we will be almost at peak capacity?
We would be producing immediately after the handing over/taking over is over. Now you see it all depends how the ramp-up takes place. But we are sure that we will be mining immediately after the handing over/taking over. Quantities, we should not comment right now. So let us keep our fingers crossed. The plants are running even without Gare Palma, and that is -- Gare Palma is added bonus that we have now with us. We will use it to our best advantage as soon as possible.
The next question is from the line of Pallav Agarwal from Antique Stockbroking.
So I had a question on your Wollongong coal mines. So you have this notes to accounts where it says that the current liabilities far exceed the current assets, and right now the mine is under care and maintenance. So is there a serious risk of these assets being impaired, and would we have to take write-down on account of these lines?
So Pallav, let me just give a commentary on that. We have been -- first comment on this matter is that we've been fairly conservative in our accounting policies relating to the Australian business. We obviously -- so let me just walk you through the impairments that we've taken on the Australian assets. So in March of 2018, the fixed assets in Australia were around INR 3,900 crore. In March of 2019, we took an impairment of INR 1,286 crore. So we took a large impairment in March. Subsequent to that, we also got it valued that was based on management estimates. So in June, we took additional impairment of INR 567 crore. So today, in the books as at the end of September 2019, the assets which were reported at INR 3,878 crore in March '18 are being reported at INR 1,829 crore, which reflect the value of the mines and the value of the land, et cetera, there quite adequately. So that's the first point.Second point is that it is clear that Australia has been generating less cash, right? For last 10 years, we have been, obviously -- for some period of time, we were not able to focus on it effectively. Since we have started focusing on it effectively, still it has been an expensive asset, and we are now -- we've now taken the right managerial steps to strengthen the business team there. We have obviously kind of shut down the Wollongong mine because it was an expensive mine in the near term. And in future, we may reopen it with another team. But right now, we are waiting for Russell Vale approval. So if you ask me, the main cash flow from Australia has been generated from [ Russell Vale ] which is what is getting reflected in the current asset and current liability position. So it is nothing unusual. For last many years, that has been the balance sheet of Australia. I think now the good news is that we are awaiting some approval that should be around the corner, meaning a lot of hard work has been done to obtain the approval for Russell Vale. Once that is secured, the business automatically will move to the next level. Also, we are now closer to monetize some of the land assets there. Therefore, broadly, the outlook on the Australian business is much better than what it was maybe even in the last quarter or in the previous quarters.
Okay. So -- and just to understand, this INR 561 crores -- 567 crores. This is not being routed through the P&L as an exceptional item. So this has been restated in the balance sheet. Is that understanding correct?
So you're right. This -- at the end of the June, this was basically adjustment -- this write-off was on account of some change in accounting policy whereby the business has now started taking a conservative accounting policy of charging depreciation based on mining rather than based on just passage of time, right? So based on that policy, so therefore, this depreciation change was effected on 1st April 2017. So in the last quarter, we actually took an impairment of INR 567 crores through the balance sheet route. The INR 1,286 crore earlier on was through the P&L route. And in the last quarter, we also had a INR 98 crore impact in the profit and loss account on account of the restatement of the assets or impairment of the assets. So in totality, to date we've taken almost INR 2,000 crore worth of write-offs in the Australian asset. And now, the residual value of INR 1,800-odd crore we believe is extremely conservative and fair valuation of the business over there.
Right, sir. And just lastly on this -- we've been reducing debt very aggressively. So these are like -- is it a lot of the [ relief ] is coming from working capital as well because if I just add the PAT and depreciation, those are not adding up to the reduction in debt numbers?
So that's a good point. So as a strategy, what we are doing, obviously, the focus has been on reducing debt. We are obviously maximizing the EBITDA as much as we can given the market conditions. So there's a lot of focus on cost initiatives. And there's a lot of focus on fiscal discipline. So cash flow-wise we are very tight. But your observation is correct. We have definitely been able to kind of improve our working capital very significantly. Quarter-on-quarter, we've been able to kind of reduce our inventory. We've also been able to tighten our working capital. We believe we have the lowest inventory in the entire sector. There's really no pileup on the inventory, finished growth or work in progress, et cetera. So in the last quarter, we were able to reduce our net working capital by almost INR 900-odd crore, which was -- which contributed very significantly in the cash flow for us in the last quarter. In addition to that, as we are now exporting, some additional export prepayment-related cash flows are pouring into our business also. On top of EBITDA, we are funding, partly, getting some advances from our customers on the export fronts and optimizing our working capital. So that's been the larger managerial actions on the cash management side of our business.
The next question is from the line of Pinakin Parekh from JPMorgan.
Sir, just a couple of questions. First on the Gare Palma coal block. Sir, would the company need to undertake any CapEx to get mining to the peak levels? And what was SECL's mining production at the mines at this point of time? And my second question is, sir, has the company undertaken any price hikes in any of the product categories for the month of November?
Thank you very much. Good question, very relevant. First of all, we are expecting the mines to be handed over to us as soon as possible, as the government of India approves everything. The SECL was producing about 1.2 million tonne to 1.5 million tonne per year. So this is 1 production figure, what you wanted. And there are some CapEx required. Like for example, we have to have some conveyors to be in place, some of the vehicles to be in place, some of the metal handling footprint to be in place, then a washery needs to be set right. So these are the CapEx areas, but not too much, but these are manageable. But we have done some math, so Mr. Sogani is going to reply.
So given the fact that the Gare Palma IV/1 was an operating mine, there is minimal investment required post the acquisition of the mine. There is a small cash component to be paid for acquisition of the mine, which in upfront payment to the government of about INR 50-odd crore. And the miscellaneous CapEx that Sharmaji spoke about just now, all put together will be in the ballpark of INR 50 crores to INR 75 crores. It's not very heavy on the CapEx, if you will, right, for this mining.
Sure, sir. And sir, about steel prices for the month of November?
So I think the way we are looking at it is that clearly to be -- the steel prices in October came down versus the last quarter. Also, the raw material cost has come down to still offset from [ the number ] almost INR 3,000. There has been obviously a significant reduction in October in the NSR. But what's now happening is in the month of November there is uptick. So gradually, we are seeing prices go up now. Of late, the prices are just trying to go up. Hopefully, November will see the reversion in the NSR. That's what we are expecting. At the same time, the reduced raw material prices will obviously provide us benefit from a contribution point of view.
The next question is from the line of Yash Doshi from SBICAP Securities.
Operator, please, let's take -- sorry, operator. Can we make this the last question, please?
Sure, sir.
Sir, my question is, sir, if you assume Angul to produce 3.8 million tonne, which will be more than the capacity of blast furnace, so on the hot metal side, do we expect the DRI plant to start, or has it started in -- from October onwards as we had guided earlier?
Yes, you're right. So blast furnace will be fully sweat out at this level. There's no doubt at all. You're right, very right. Now we are working to start the DRI plant. So we -- although we don't have the coal from the coal gasification as of now, what we are trying to do, that there is a adequate quantity of coal gas, COG, we will be producing from our coke oven batteries. So we have now undertaken some of the modifications, and these modifications are under trial now, how to utilize coke oven gas to produce DRI. So this is the first time in the country. Though it will not be at full capacity of 2 million tonne, but this will be about say 900,000 tonnes or say 1 million tonne a year. So this production should come in the month of December onwards, so we are expecting to start.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
So thank you all. Thank you for listening to us and give us an opportunity to speak all of you and to answer your questions. It was very pleasure interaction with all of you. And I'm V R Sharma, Managing Director of the company. On behalf of my team, I thank you, everybody. And we need your support. We need your cooperation in building this company, a company of gains. And we are now fifth-largest steel producer in the country, and we will be crossing our 9.5 million tonne of capacity next year, what is the installed capacity. We are not going to invest anything in the CapEx, that is for sure. We are working how to make every day a healthier day. And despite of all odds, despite of all problems, despite of flood situation and market sentiments were down, we have grown up, and we'll continue growing up is what the mandate is. So thank you all.
Thank you very much.
Thanks, gentlemen.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, on behalf of PhillipCapital (India) Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.