Jindal Steel And Power Ltd

NSE:JINDALSTEL

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Jindal Steel & Power Limited's Q3 FY '18 Earning Conference Call hosted by Motilal Oswal Securities. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Sanjay Jain from Motilal Oswal Securities. Thank you, and over to you, Mr. Jain.

[Sanjay Jain]

Yes, thanks, Janice. Ladies and gentlemen, good morning. On behalf of Motilal Oswal Securities, I welcome you to Jindal Steel & Power conference call. Today, we have with us senior management of the company to discuss the key highlights of 3Q FY '18 results and the business outlook. Without much ado, I hand over the floor to Nishant, Head of Investor Relations. Nishant, please take.

[Nishant Baranwal, Head of Investor Relations]

Thank you, Sanjay. Good morning, and a very warm welcome to everybody who has joined us for this conference call to discuss our third quarter FY '18 financial results. Today, we have with us our CEO of Steel, Mr. Naushad Ansari; our CEO of Power, Mr. Bharat Rohra; and our CFO, Mr. Deepak Sogani. To start the proceedings, I would request Mr. Ansari to make his opening remarks. So please.

[Naushad Akhter Ansari]

So thank you, Nishant. Good morning, ladies and gentlemen, and welcome to this investors conference this morning. It is my privilege and pleasure to speak with you regarding the Q3 results.I'm very happy to say that Q3 results represent a very good set of numbers for JSPL, both on production and financials. What has really been significant this quarter is the ramp-up of the BOF, [ in fact ], the blast furnace in Angul and also the completion of the BOF. The completion of BOF marks the completion of the Angul Phase 1b program.We have seen the numbers in terms of EBITDA performance, the cash flow, PBT and PAT. You would have noticed that in every parameter, we have made a significant improvement compared to the same quarter last year.In steel, we produced 1.39 million tonnes and sold 1.36 million tonnes on a consolidated basis. This production included 0.4 million tonnes in Oman and 0.97 million tonnes in India.As you all can see, our Oman unit has shipped well and continues to make a wonderful contribution. The EBITDA for the third quarter went up by about 200% year-on-year to the highest ever at USD 63 million.I've shared in steel industry for more than 40 years, and I can tell you that this is one of the best Midrex plants in the world. In fact, we said also, it's demonstrated by our becoming one of the fastest worldwide to report 10 million tonnes of production.The rebar mill in Oman is working well, and we are already #1 in Oman and #2 in UAE in terms of rebar sales. And this issue of Midrex, we being one of the world's best, is not only what we are saying. It has been repeatedly extolled by the Midrex organization per se because they have the regular conferences, and everybody compares the performance parameters. And based on that, these statements have been made.On the home picture in India, with Angul Phase 1b now done, you should gradually see the volumes going up. We completed the BOF on 26 December, and since then, the ramp-up is going on well. Right now, we are in the phase of debugging and debottlenecking and the ramp-up.With a total capacity of around 9 million tonne in India, we have a lot to achieve in terms of production by the end of [indiscernible]. As we ramp up, we are focusing more on selling more and selling more of value-added products, where realization is better and it gives us a competitive edge in the market. Long products and semis still comprised 70% to 75% of our product mix even on expanded production and the recent drive in long product prices should be a [ well ].With Angul producing more, significant cost benefits were also coming to play. Our pellet business continues to add to the bottom line with total production going up to 1.76 million tonnes in third quarter FY '18.Our exports are also on the rise and they have [indiscernible] very significantly during the year. The plates that we produced in Angul are in very high demand. And as we ramp up Angul, you should see us exporting more of these. We now have export presence in more than 20 countries, so our footprint in exports have been continuously increasing.In our...[Technical Difficulty]

[Naushad Akhter Ansari]

Hello?

[Operator]

Excuse me, sir, yes, we couldn't hear you for a minute.

[Naushad Akhter Ansari]

Okay, up to -- any idea up to what did you hear or should I start again from...

[Operator]

No, sir. Not from the start. Just give me a minute. Mr. Jain?

[Sanjay Jain]

You were actually last talking about the exports are on the rise. Angul plates have got good export demand.

[Naushad Akhter Ansari]

Okay, so I would kind of repeat from there so [indiscernible] see that. Okay, so to continue what I was saying that our exports were also on the rise, and we have -- it has risen significantly during the year. The plates that we produce in Angul are in high demand overseas. And as we ramp up Angul, you should see us exporting more of these.[Technical Difficulty]more than 20 countries. So our footprint in exports have been continuously increasing. In our overseas mines, the performance has been better than last quarter with coking coal prices stabilizing and touching new highs. Our [Technical Difficulty]and Mozambique are focused on increasing production.In Australia, as you know, our contractor had filed for insolvency in May, June, and then we decided to produce with contracted workers. We began production mid-December in Wongawilli mines, and we'll be ramping up production gradually.In Mozambique, the production continues to increase, but the ramp-up is a bit slow, and we are introducing new equipment to accelerate the rise. So you would see that all our verticals are now gaining momentum and are looking to contribute to the top line.With this, I would pass on to Mr. Bharat Rohra, who is the CEO of Power business, to give his input on the Power business.

[Bharat Rohra, Chief Executive Officer of Power Business]

A very warm good morning to all of you. This quarter for Jindal Power has seen a slight improvement in the performance in terms of the generation because we have started operating 4 units of our contact JPL [ combined ]. There are 4 units of 250 megawatts and 4 of 600 megawatts. Out of these, we have operated 2 each in this quarter, which has given us a better generation of about 2,980 million units (sic) [ 2,982 units ] generated.The EBITDA has also gone up, but marginally, because of the high price of coal, which was prevailing in this quarter. The turnover has increased and the NSR has gone down, again, because of the coal pricing.The -- looking forward, we are looking forward to better availability of coal in the next quarters from the government's subsidy policy, which they have announced to be implemented very soon for plants, which do not have PPAs. And we are very optimistic about that.So this is all what I would like to share with you regarding the Power business. Now I would like to hand over the mic to our CFO, Mr. Deepak Sogani.

[Deepak Sogani, Chief Financial Officer]

Good morning, everybody. It is my pleasure to share with you our quarter 3 financial performance.Just to baseline the performance, I will go through the financial performance once more in a bit of detail. So let me just start off by sharing the steel business performance.So on a stand-alone basis, the steel production stood at around 968,000 tonnes in the last quarter, quarter ending December of 2017, and the Q-o-Q growth was 9% in our production. And on a Y-o-Y basis, our production grew by a healthy 15.8%.The total sales also grew by 12.8% on a quarter-on-quarter basis, and they grew by 11.8% on a Y-o-Y basis. Our revenue stood at 4,000 -- this is the stand-alone revenue. I'm sharing the stand-alone numbers first, and then I will share the consolidated numbers. Our stand-alone revenues stood at INR 4,272 crore in this quarter as compared to INR 3,668 crore in the previous quarter. Our quarter-on-quarter revenue growth was 16.5%. And on a Y-o-Y basis, that is Q3 of this -- the last quarter versus comparable quarter last year was 9.6%.Our reported EBITDA in quarter 3, that is December-ending quarter is INR 921 crore as against INR 784 crore reported EBITDA on a stand-alone basis in the previous quarter. So on a quarter-on-quarter basis, our EBITDA has grown by 17.5%. And on a Y-o-Y basis also, our EBITDA has grown by 17.5% for the stand-alone business.Our EBITDA per tonne in the last quarter has grown by 4.2%. And on a Y-o-Y basis, the EBITDA per tonne has grown by 5.1%. On a consolidated basis, our performance, the steel production grew to 1.39 million tonne as against 1.31 million tonne in the previous quarter and the comparative quarter of last year of 1.14 million tonne. So we had our production grow by 5.6% on a quarter-on-quarter basis and 21.5% on a Y-o-Y basis.Our consolidated revenue stood at INR 6,993 crore as against INR 6,123 crore in the previous quarter. Our quarter-on-quarter revenue growth stands at 14.2%, and our Y-o-Y revenue growth stands at 20.8%.Our EBITDA for -- our consolidated EBITDA for the last quarter stood at INR 1,606 crore as against INR 1,373 crore in the previous quarter, showing a very healthy growth of 17% growth on a quarter-on-quarter basis and 25.8% growth on a Y-o-Y basis.Let me very quickly share the financial numbers for our Power business. As Bharat shared, our power generation has grown on a quarter-on-quarter basis by 23% and on a Y-o-Y basis by 27%. So the generation is showing a very positive trend line, and we are hopeful that in the quarters coming, we will show even better improvement.The EBITDA has grown by 3% on a quarter-on-quarter basis and 18% on a Y-o-Y basis. So the EBITDA for the Power business in the last quarter stands at INR 356 crore as opposed to the previous quarter of INR 345 crore.The total turnover has also shown a significant growth in the current quarter. The quarter-on-quarter revenue has grown from INR 878 crore to INR 1,172 crore, showing a 33% growth there. Our [indiscernible] had a bit of an impact on our profitability in the current quarter. So that's a brief reporting on our Power business.The third...[Technical Difficulty]

[Operator]

Excuse me, sir, this is the conference operator. I'm sorry to interrupt, but we are again unable to hear you.

[Deepak Sogani, Chief Financial Officer]

So are you able to hear us now?

[Operator]

Yes, sir.

[Deepak Sogani, Chief Financial Officer]

So where did we lose it?

[Operator]

Mr. Sanjay Jain?

[Deepak Sogani, Chief Financial Officer]

Okay, so let me start off. I had just finished my commentary on our Power business. Did that go through?

[Sanjay Jain]

Yes, yes, yes. You can continue after that.

[Deepak Sogani, Chief Financial Officer]

Oh, okay. So I was just about to report the Oman business highlights. So in the Oman business, in the last quarter, we did INR 407 crore of EBITDA as against INR 352 crore EBITDA in the previous quarter and INR 140 crore EBITDA in the corresponding last year's quarter showing a significant growth in our Oman business.On a Q-o-Q basis, our EBITDA has grown by 15%. And on a Y-o-Y basis, our EBITDA has grown by 190%. So that's the typical reporting of the Oman side.Now we would like to share a bit on our financials, just to add a little bit more color to the numbers that we have been describing. Clearly, as we are scaling our business, several initiatives are being undertaken by us. We are very focused on enhancing optimization of our operations at multiple levels. We're focused on bringing a strong fiscal discipline and a sharp focus on cash management to enhance our working capital management significantly. So we've seen some very positive results coming in, in this area over the last few months. And as we ramp up our business in future, we are hopeful that the enhanced focused approach on the cash management will yield significantly positive results and help us to manage the working capital on a go-forward basis on the ramp-up volumes in a more efficient manner. So that's one large initiative that we wanted to share.Secondly, as I was saying that we have initiated operational efficiency initiatives across board, there are several initiatives where we have focused on improving our variable cost per tonne. And we're also focused on looking at our fixed cost per tonne. Nevertheless, as we ramp up, we will see our variable costs come down because of the scale and benefits. And also, post the BOF commissioning, our cost of production because of the BOF process is likely to be much cheaper in our Angul plant also. So on multiple fronts, we should be able to harness operational efficiency benefits while we [ spread ] our assets in the period to come. So that's the high-level directional trying to manage the business fiscally more efficiently.From this quarter onwards, we are also starting to report on our debt numbers on a Y-o-Y basis because within the quarters, obviously, there is bound to be some inherent volatility in the debt numbers.So we are very pleased to report our -- for the first time we are reporting our quarterly numbers. Let me just share. In the quarter ended December 2017, our consolidated debt stands at INR 42,407 crore. And in the corresponding quarter in the last year, the debt number was INR 45,176 crore. So as you may notice that on quarter-on-quarter basis, we have been able to significantly reduce our debt levels by INR 2,769 crore.In addition, I would like to share one more metrics that, as a management team, we've started becoming very focused on. It is the net debt to EBITDA metric. So in the -- on the net debt to EBITDA numbers, last year, in the FY '17 closure, our net debt to EBITDA number was 9.48. So this is the net debt to EBITDA -- console [ novel ] net debt to EBITDA number was 9.48 as of 31st March FY '17. And internally, we are very focused to progressively bring it down to below 3 levels. So several initiatives, which we have undertaken in the past of deleveraging our sales by divestments or by other initiatives, some of them have already been undertaken, some more will be undertaken. But progressively, we would want to bring down our net debt to EBITDA to a significantly lower number over the next few years. Thank you very much. With that, I would like to complete the financial reporting.

[Nishant Baranwal, Head of Investor Relations]

Thanks, Mr. Sogani. With this, we would like to open the floor for questions. As always, we would request you to please not ask data questions. We at IR and myself and Shweta are always there to help you with your data questions. Let's ask more strategic questions. With this, we open the call to questions.

[Operator]

[Operator Instructions] We take the first question from the line of Sumangal Nevatia from Macquarie.

[Sumangal Nevatia, Senior Analyst]

First question is on the international business. If you look at the EBITDA from the other businesses that is console minus stand-alone JPL and Oman, which we report, loss still remains at around INR 75 crore to INR 85 crore on a quarterly basis. So could you share your views on when you believe this we could breakeven on the subsidiaries?

[Deepak Sogani, Chief Financial Officer]

Yes. No, good. This is Deepak here. Let me start off by answering this question. I would like to kind of highlight. Obviously, from an international operation point of view, we have 3 distinct components. Obviously, the Oman piece, as we shared, has shown a 190% Y-o-Y growth in EBITDA. That's one piece, which is doing extremely well. The second piece is the Australia piece where we have the Wollongong coal mines. And the third piece is the Africa piece where we have our assets in South Africa, Mozambique and Botswana, right? So on the Australia side, we are happy to report, obviously, the coking coal prices have increased significantly, and they're hovering around $250 to $260 now. And it is the right time, we felt, to reinitiate and expand the operations in our Australian business. So in the last quarter, the October, November, December ending quarter, we actually have started the operations in Australia in more aggression. We're hoping to ramp up the production there. And there, in the current -- last quarter, we have incurred some additional expenses due to the restart of the operation there. We had to hire people, and we had to replace some more machinery and everything else. But we are hoping that in the current quarter, the Australian operation should be able to produce sufficiently to take care of its local expenses and the global interest rates. So that's situation for the Australian business. With a positive outlook, the effort that has been put in the current quarter should yield good results. As far as the African business is concerned, it is producing -- it's again -- we have coking coal there, which is again a business that we would like to now ramp up from a production point of view. The operating losses there are not very large. And in fact, we are hoping to develop the Mozambique business further. It's in -- we talked ourselves of taking it forward. It's at an early stage. But maybe over the next few quarters, we will take it forward. However, the larger drag in our international profitability on account of Australia, which should get addressed in the coming quarters.

[Sumangal Nevatia, Senior Analyst]

Understood. Next is on Oman. Sir, rebar volumes have almost reached 1 million tonne per annum run rate. Is there further room to ramp up? And also, if you could share how much incremental EBITDA comes from this value addition?

[Naushad Akhter Ansari]

So if you -- this is Naushad Ansari. So if you look at Oman rebar plant, it has gotten nominal capacity of 1.4 million tonnes. And of course, the nominal capacity depends on what is the product mix, how much [ finesse ] can you make and so on and so forth and so on. So right now, our production levels are hovering close to about 100,000 tonnes per month. So technically, we are very close to that capacity. We can -- we are -- in that, we can only -- so that's the kind of situation where we're in. Depending on -- again, as I said, depending on the market situation as to what is our market demand, what is the kind of product mix that is needed? The production will keep going up and down marginally, but we're in the kind of limit which is there. Now as far as Oman business is concerned, we have 3 main products. One is the rebar, which is obviously the most significant product which is there. And in addition, we also supply the special rounds to -- for seamless pipes and so on, and plus, we supply some certain semis to certain sectors. And the rebar volume, obviously, I mean, if you look at the value addition, it is more in terms of rebar because the market there is still supportive. I would say that about 70%, 75% of the value addition is coming because of the rebar. It's the kind of number we see there.

[Operator]

We take the next question from the line of Abhijith Vara from Sundaram Mutual Fund.

[Abhijith Vara]

Would it be possible to give us some perspective in terms of the volume ramp-up that one would expect from the new facilities at Angul in terms of salable steel from where we are today to next couple of years? How do you see the kind of volumes that will come through? And overall, what should one look forward to?

[Naushad Akhter Ansari]

So this is Naushad Ansari, again. So with the BOF start-up, which -- as you're aware, we started at end of December, our nominal capacity in Oman -- in Angul has become 5 million tonnes. So technically, we are saying that we have now build a capacity to produce, produce this kind of a target. Now such plans, obviously, take a little time before the ramping up takes place. There are always some debottlenecking, which here has really happened, there are debugging, which happens, and then the ramping of operations takes place. What I can tell you so far is that in the last few days, for example, and in the ramping up process, in some of the ships we have already made, sometimes 8 or sometimes even up to 10 heats we have made, which means if we really look at it on a daily basis, if we continue in the same way, that gives us something like 30 heats on a daily basis, which is very close to what we would like to achieve in the coming few months. So therefore, what I am telling you is that the ramping-up process is fairly well. Things are moving in the right direction. And also, I can tell you some idea that in the month of December, for example, combined together between Angul and Raigarh, we had made the steel close to about 355,000 tonnes. In the month of January, already still great, we have gone beyond 374,000. So therefore, the production ramp-up is already very, very visible in terms of what's really happening. Now going forward, how quickly they can attain this capacity? That will depend on many, many factors. It will depend on how the market really takes that additional material which is there. And also -- if there's any ramp-up, there are logistical issues, which all need to play out. There are infrastructure issues in terms of the rake availability and so on. So there are many, many things which really get into the play. But all I can tell you is that we have the expertise, we have the knowledge, and we are moving at a reasonable speed and [ as for ] the expectation to achieve the rated capacity. Now beyond that, I'm not really in a position to give you any specific number for the year about the 2.

[Operator]

We take the next question from the line of Saumil Mehta from BNP Paribas.

[Saumil Mehta, Research Analyst]

So my first question is, if I look at this quarter in relation -- I mean, on a stand-alone basis, on a blended basis, it is not reflective of the recent size and long product prices and also the pellet prices. So when should we expect that kind of delta with the recent long product prices? Now second question is in terms of pellet production. On an annualized basis, we are still at about 7 million tonnes against capacity of 9 million tonnes. And given the boom in the export markets, some of our peers are operating at 100% utilization. So are we facing some sort of logistical challenges or rake availability? Or how should we look at the export market for the pellets?

[Naushad Akhter Ansari]

So this is Naushad Ansari, again. So the first question in terms of the long price. You're right that if we look at the rebar prices, recently, you certainly see an upward swing in the rebar prices. You see the way we do business generally is that we have our order book full almost generally per se about 3 to 5 weeks kind of a number. The order books are already full there. And sometimes, it's even more. So therefore, it's not that just today the market prices go up immediately you start getting it. There is always a time lag depending on what is your status of order book. So the benefit of that we expect because these prices have started going up only in the last couple of weeks, so we certainly expect that the benefit would come down -- come in the coming few days. For example, if you look at average NSR at that point of time, we -- obviously, in the quarter, why it has gone up very substantially. But recently, for example, the rebars are selling in the market at EUR 7. We're talking in terms of fixed-cost prices and so on. It is even going up to INR 40,000, INR 41,000. So therefore, those benefits at some point of time will start realizing. Right now, since we have already have sufficient order books and so on, so it's continuing based on that. Coming to the pellet situation. You are absolutely right. For pellet, what you require, obviously, we had a plant capacity, which is had and what we are producing. What you require is sufficient amount of iron ore to come inside, and what we require is the export -- I mean, the pellets to go out. We have faced certain constraints on those 2 issues. Especially in iron ore, obviously, I mean, once the difficulties came, a number of mines have also stopped, and very quickly we saw the impact of iron ore not being fully available and so on. And also we have faced certain logistical and infrastructural challenges in terms of the rigs and the road transport, et cetera. So those are the things which are certainly the -- for the rigs and road, we are taking up with the authorities. A lot of support is coming from the government. We are hoping that in the coming quarters, coming months, things will improve substantially. As far as iron ore mines are concerned, we are hoping that the iron ore mines, which have been shut down because of -- for the compensation payment issue, we hope that some solution is found quickly between the government, the iron ore mine owners and maybe it's required [ into ] judiciary to find via media and these mines start operating very quickly so that this gap between the demand and supply, and because it kind of artificially increase the prices and also created a kind of shortage situation that is addressed very -- that is addressed soon.

[Saumil Mehta, Research Analyst]

So in terms of steel prices, I'm assuming prices sustain at these levels, the INR 4,000 to INR 5,000 delta, is it possible to capture in Q4? It will be more in Q1 FY '19.

[Naushad Akhter Ansari]

There are some benefits, which are there. As I said -- as I told you that there are certain benefit in terms of -- I mean, the lag, the time lag is close to about 4 to 6 weeks kind of a thing. So those prices, where you find the prices have already gone up, that lag, the time lag would be something like 4 to 6 weeks only. Obviously, in between, one expects that the cost doesn't really shoot up substantially so that benefit of the prices maintain rather than that margin should not get compromised simply because the cost is accepted. So assuming those factors are there, assuming the bank market remains, we should be able to expect the benefit maybe in terms of 4 to 6 weeks.

[Saumil Mehta, Research Analyst]

Sure. And so my last question with respect to JPL, while Coal India has raised prices, so how should we look at the overall cost of generation with higher PLFs? So is it possible to mitigate some of the other OpEx with the coal cost?

[Deepak Sogani, Chief Financial Officer]

Yes, like you said, the strategy that we devised in this quarter was that we increase the generation level so that the reduction due to the coal cost gave us setback from -- was adjusted against the increase in generation. So that's the strategy we are formulating. And now with the monsoon having been over, we expect the coal availability to be much better. So we'll be able to do more generation.

[Operator]

[Operator Instructions] Next question is from the line of Atul Tiwari from Citigroup.

[Atul Tiwari, Vice President and Analyst]

Yes. Sir, first of all, congratulations on a good set of numbers and more importantly on very sharp decline in the debt number that you shared, which was quite surprising. So just to clarify, the numbers that you shared are gross debt numbers or net debt numbers, that is excluding the cash on the books?

[Deepak Sogani, Chief Financial Officer]

These are net debt numbers.

[Atul Tiwari, Vice President and Analyst]

Okay. And would it be fair to assume that this INR 2,800-odd crore of year-on-year decline, some part of it is also because of the currency movement? Or is it all like organic pay down of debt?

[Deepak Sogani, Chief Financial Officer]

It is primarily led by the initiatives that we have taken to deleverage ourselves and due to the principal repayments that were already scheduled during the year, right? That doesn't mean any significant impact of any foreign currency movement on the debt levels.

[Operator]

We take the next question from the line of Rajesh Lachhani from HSBC Mutual Fund.

[Rajesh V. Lachhani, Analyst]

Sir, two questions from my side. Number one, sir, since now we have the 2.5 million tonne BOF commission, I just wanted to understand what is your status of the 1.8 million tonne DRI plant in Angul?

[Naushad Akhter Ansari]

Okay. So the status of DRI plant is that we are aware that there was a problem last year in the -- there was a fire in the DRI plant and that rectification process is on. It should take by middle of February or so, we expect this entire rectification process should be completed. And after that, the plant will be ready to restart. And at what point of time we actually restart will totally depend on how to the BOF operations play out and so on because for starting the NOF again, we require, obviously, that DRI. And actually, the [ NOS ] is already operative, but for that DRI, as of now, a little bit of DRI we are buying. But if we have to do it at a substantial level, then we will restart this plant. The coal gasification plant is also ready. So whether we have start it in the month of March or in the next few months, it will still simply depend on how the ramp-up process is there. But I -- all I can tell you is that we will be ready by middle of February to start. And then depending on the situation of the market, we will restart.

[Rajesh V. Lachhani, Analyst]

Okay. And sir, my second question is basically on the coal operations in Africa. So you said that it's close to breakeven but it's still negative. So just want to understand, with such supportive coal prices, what is our cost per tonne there? And why are we still making losses in that operation?

[Deepak Sogani, Chief Financial Officer]

Yes, so this is Deepak here. Just give me a minute to look at the specific numbers of those countries. Yes, so big picture, I just had a quick look at the Africa. So as I was saying, we obviously have not been sharing geography-specific profitability in our earnings calls. And therefore, I'll resist from sharing the profitability at a geography level. But if you would, I was saying that largest component outside of India where our current focus is, is Australia, where we are very positive that with our efforts put in, in the last quarter where we have restarted the operations there, we are getting more and more comfortable. But in the coming quarter or coming quarters, near term, we should be able to gain significant traction from Australia. And with that, we should be able to see a different color emerging from our international operations. So at this point of time, that's what I would like to share. Obviously, the African operations are not as large in comparison with our Australian as well as our Oman operations. We will be able to report our African operations more in detail as and when we are ready to share those details.

[Rajesh V. Lachhani, Analyst]

Sure, sir. Sir, just if I can squeeze in one more. Sir, the Russell Vale mine...

[Naushad Akhter Ansari]

Rajesh, we have quite a lot of people. I'm really sorry to cut you off, but I thought we'd take this one off line.

[Operator]

We take the next question from the line of Amit Dixit from Edelweiss.

[Amit A. Dixit, Financial Analyst]

I have two questions. The first one is on the proposed divestment of our 1,000-megawatt power plant to JSW Energy. So what is the status of the same? And whether it will be completed as per the schedule?

[Deepak Sogani, Chief Financial Officer]

So yes, let me just take a shot at that. As you're aware, we have a agreement with JSW to sell. We've already received the advance, and there are certain conditions, precedents and other diligences that are ongoing at this point of time. I guess the process is moving as planned and it is going to be difficult to comment otherwise, right? The deadline for completion of the transaction is June 2018. I would just like to suggest that we have to -- both the teams are working on the transaction, and we shall be able to better share the news as and when there is some news to share.

[Amit A. Dixit, Financial Analyst]

Okay, sure. Appreciate it. Second question is on the EBITDA per tonne of steel. I mean, excluding pellets, if you exclude pellets, then what was the EBITDA per tonne from purely steel business in this quarter? And how does it compare with the last quarter and the year before?

[Naushad Akhter Ansari]

We have integrated plants, and we really don't do it department by department or unit by unit. We really do it in a integrated fashion. So therefore, we would really like to share the number based on integrated plant because then otherwise it doesn't make any sense. Then we are saying it is totally a nonintegrated kind of operations. These are same companies, therefore, it's -- the number needs to be looked in totality. So we would just leave it at that.

[Operator]

We take the next question from the line of Pallav Agarwal from Antique Stockbroking.

[Pallav Agarwal, Research Analyst]

So I had a question on the tender increasing input cost. So since I've -- now we're really progressing more to the BOF, our coking coal exposure would increase. So how much of the cost increase in coking coal has been captured in 3Q? And how much would come in with the lag in 4Q?

[Naushad Akhter Ansari]

So as you're aware that the blast furnace has been operative for quite some time now. And we have been, obviously, operating the blast furnace close to about 50%, 55% capacity at that point of time. Now that BOF has started, obviously -- which -- that ramp-up process has started. And as BOF ramps up, the blast furnace will also ramp up. So the good thing is that as you ramp up the blast furnace, the coking coal requirement on a per tonne basis comes down because you're able to inject more and more PCI, and therefore, the [ rudder ], so the coking coal requirement comes up. For example, let's say, when you're operating close to at about 50% capacity, I'm just saying on a theoretical basis, not necessarily related directly to our blast furnace, but based on my knowledge of the steel plant. Let's say, somewhere you might be operating with a -- the carbon equivalent of something like 570 kg per tonne or so. But once you ramp it up, you might even come down close to about 530, 540 kg. And then out of that, majority of it, maybe something like 170, 180 kg, could be the PCI. So therefore, the coking coal requirement per se on a per tonne basis will continue coming down, thus the impact of that will also keep coming down. Besides the recent -- recently you've also seen some softening of the coking coal prices. And to that [ exchange ], while on one hand, it favorably affects the blast furnace operation, on the other hand, it diversely affects our coking coal mines operations. So that's fine. But in a way, you could also say that since a substantial portion of our coking coal will come from our own mines, so there can also be a little cost incurred to that. So from that point of view, it's not something which we are really very much concerned at the moment. We -- the important thing is, you ramp up the blast furnace in such a way that the coking coal requirement [ agent ] starts coming down substantially.

[Pallav Agarwal, Research Analyst]

Sure, sir. Sir, also just one question on the pellet sales. So this quarter, I think we sold a pretty good number. So on an annualized basis, it's about 3.5 million tonnes of external sales. So now a ramp-up of our steel production, will we maintain this level of external pellet sales? Or we could see more of captive consumption going ahead?

[Naushad Akhter Ansari]

No, if the question is only that -- which gives you -- what is the business that we are in? We are obviously in the main business of making steel as well as selling pellets. Now if selling -- if using those pallets and making better steel and getting better margin is what is a better thing to do, then we will do that. If we find that it is better to sell some more of pellets and use more iron ore fines to make more sinter, and so we'll do that. Both these operation, it's a question of optimization of the business, which will on a month-to-month basis, on a quarter-to-quarter basis, we'll continue looking at what is the best solution to do that. We cannot just say that my end objective is to somehow, irrespective even if cuts down your steel production, sell more pellets, that obviously is not the objective at all. The objective is to make better money whichever way it comes. So therefore, the important thing is to build that capacity. Important thing is to make sure that all that infrastructure is available to produce the kind of pellet that we need. Our internal consumption is also going to go up. Our -- the iron ore fine requirement also for making sinter, that's also going to work. So we'll continue balancing that and finding out what is the best way of doing. And in any case, as far as sale of pellet and export of pellet is concerned, the market is still quite healthy. And as long as environmental issues are there, which kind of push more and more pellet for blast furnace operation, we expect this market to be good. So therefore, that gives us a lot of flexibility both in terms of selling pellets or, alternatively, converting it to steel.

[Operator]

[Operator Instructions] Next question is from the line of Kamlesh Bagmar from Prabhudas Lilladher.

[Kamlesh Bagmar, Senior Research Analyst]

Sir, just one question on the part of the debt. Like sir, we have seen roughly around INR 2,600 crore of debt reduction. So I believe that we have got roughly around INR 700 crore debt of -- from the sale leaseback of that [indiscernible] [ in plant ]. But -- and even if you see INR 1,500 crore of cash profit which we have generated in 9 months, and we would have done a CapEx of INR 1,200 crore to INR 1,300 crore, so what is the reason behind this hard fall in debt, adjusting for that leaseback at [ all those things ]?

[Deepak Sogani, Chief Financial Officer]

So Kamlesh, this is Deepak. Obviously, from a debt reduction point of view, one is the fact that there are already scheduled repayments baked into our restructuring plan, the 525 tonne that we have, right? So I'll tell you that there is a obligation to revisit, that's going on. In addition to that, we've been consciously trying to reduce debt by Oxygen sale and leaseback transaction, some other transactions that we've done in the recent past, right? [ All with the mind that -- due the ] reduction. So is your question about -- the quantum is for our financial reporting. That is the exact amount that's come down, right, from our debt point of view. After taking care of our profit -- or for -- of our CapEx, so the CapEx has been partly funded through internal approvals, if you would, right? And also, we've optimized our working capital to some extent, right? So those are different levers that are moving there. Internal cash is being generated. Working capital cycle is, obviously, we're trying to optimize that a little bit. At the same time, we are trying to take care of our deleveraging through multiple sources.

[Kamlesh Bagmar, Senior Research Analyst]

Sir, lastly 2 data points. Like sir, how much was the CapEx in this 9 month? And how much advance we have received from the JSW Energy for that 1,000-megawatt power plant?

[Naushad Akhter Ansari]

So I think what we can certainly report is that from JSW, the advance receivables are INR 400 crore against the sales. So that is held partly, right, from as a source of fund. That has also contributed in making us to deleverage partially, if you would. And on the CapEx side, I don't think we have been sharing CapEx balances on a quarter-on-quarter basis. If we need to do that, we'll kind of figure out the process to do that periodically. But on this call, I would like to avoid sharing CapEx numbers as it has not been our practice in the past.

[Operator]

We take the next question from the line of [indiscernible] from GMO.

[Unknown Analyst]

Sir, continuing the debt question. Your current net debt is roughly around INR 42,000 crores. So if you look at FY '20, considering the operating cash flows that you'll be generating plus your deleveraging methods are going now, then there will be working capital requirements, some additional debt will be required for CapEx as well. So what sort of net debt can we see in FY '20?

[Deepak Sogani, Chief Financial Officer]

So let me take the question. First of all, let me correct the net debt that is reported is INR 42,407 crore and not INR 42,000 crore, so it's more than INR 42,000 crore, right? Number one. Number two, if you see the levers that are functioning, one, very important to know that we are at the end of our CapEx cycle. The Angul plant has got completely commissioned. And there will be few small balancing CapEx that will be required, but bulk of the CapEx cycle is behind us at this point of time, right? And therefore, all the operational cash flow that will get generated will obviously help us deleverage on a net debt basis. So that is the second critical point that I would like to kind of highlight for your [ consumption ]. The third thing that I would like to say, that is very focused effort, the management team has worked to optimize the usage of cash in the business, whether it is in our working capital cycle or whether it is blockage in our balance sheet of cash. We have been able to kind of release a lot blockage in our balance sheet as well. So we've put in all-out efforts to bring in fiscal management of the next order, which is, again, helping us to manage our business more efficiently. And therefore, while we are grow our business, but the working capital expansion will be significantly lesser than what it would have been without these initiatives. So I think these efficiencies are also leading us to believe that we will be able to manage our cash more efficiently. And lastly, I would like to say that with the significant improvement in the business outlook which is visible, there's no forward-looking intent in that, we're all seeing that the steel prices have gone up by 20% to 25% on a yearly basis. So a lot of improvement in the business outlook from a profitability point of view. Secondly, as our volumes go up, we will obviously increase our operational EBITDA further. So at the back of improved profitability scenario, which is likely, and at the back of an outlook of increasing capacity, also utilization by us of more volume that we will produce, our directional thought is that the additional operational EBITDA that we will generate will help us to further deleverage and further reduce the net debt to EBITDA. And therefore, very consciously, we have started positioning the net debt to EBITDA as a important management metric from this quarter onwards so that you all know that we are now focused on consolidating our [ building content ]. CapExes will not will happen. We are in a very large industry, some small balancing CapExes will happen on and off. But directionally, as a team, we understand that we are in the right -- we are playing the steel cycle. We're at the right time in the steel cycle. We understand that our large capacities are available, almost 11 million tonne capacity is available. So the largest focus is to [ spread ] our assets, create more cash from our business, deleverage ourselves and reduce our net debt to EBITDA. So big picture, that's where we are, yes.

[Unknown Analyst]

What kind of net debt to EBITDA are you targeting 2 years down the line?

[Deepak Sogani, Chief Financial Officer]

We -- unfortunately, as I said, we can certainly say the following, right? What we can say that we shared. Directionally we will want our net debt to EBITDA to be somewhere between 3 to 4, right, or below. We don't want it to be higher than that directionally, right? And as I said last year-end, FY '17 end, the net debt to EBITDA was 9.48, right? So there's a quantum shift in internal thinking. And we will continuously strive to make it happen. Now I -- we don't want to, at this point of time, give any yearly forecast on when it will happen, 1 year, 2 year, 3. We don't want to, right now, say that because then our -- then it leads to our talking about our future financial performance as well. So I think we would like to avoid it. But directionally, it's a very critical part internally to focus on net debt to EBITDA, and we will continue to report progress on it as time passes by, yes.

[Operator]

We take the next question from the line of Amit from [indiscernible].

[Unknown Analyst]

Sir, about this question, I don't know whether you'll be able to answer this or not. Your domestic EBITDA, if I'm right, is about INR 9,500 approximately. And this is based on the full fixed recurring cost on Angul, which was not producing efficiently. So now with your new BOF on and your production ramping on, could you show -- throw some light on how these numbers can be expected to change? Or what kind of operational efficiencies can be gained?

[Deepak Sogani, Chief Financial Officer]

Look, I guess again, my suggestion is that number work should be best left to people who are good at numbers, which are you guys, right? We can only deduce the high-level understanding from a management point of view, right? I think for this call, we very clearly said that we will see operational efficiencies coming in into our operation as the blast furnace starts to produce at a higher capacity, as Ansari-ji also mentioned. But the crude cost and other energy costs, et cetera, the blast furnace will be lower, the [ pure ] cost will be lower so it will be more efficient. So directionally, we have been saying that the cost of production in Angul will go down by at least INR 2,000 to INR 3,000 a tonne, that's what we are expecting there, number one. Number two, we said that we have, as any other integrated steel supplier, we also have some part of our order book which is old and locked in at older price. And we see the benefit of the newer prices coming in with the lag by and large. As Ansari-ji has guided, a large part of decrease in prices come to us within 4 to 6 weeks. So I think we again say that, directionally, in the coming quarter, we should be able to kind of see better realization of the prices flowing to our bottom line than what have shown in the last quarter, right? So -- and we have a spoken about our other operational efficiency initiatives on the fixed cost on the cash management side, so broadly, scale is going up, operational efficiency will deliver results. And at the same time, more of the top line improvement will come our way. If there are additional cost pushes, we will have to deal with them. But [ eventually ] we are able to pass on the cost pushes usually in the current part of the cycle, right? That's been our experience.

[Unknown Analyst]

Okay, sir. So you're saying about INR 2,000 to INR 3,000 production cost can come down?

[Deepak Sogani, Chief Financial Officer]

You see, Amit, I'm not saying...

[Unknown Analyst]

Directionally. Directionally, sir. Directionally, I'm not holding you to it.

[Deepak Sogani, Chief Financial Officer]

Let me say -- what I said is, Angul, we will see improvement. But so if there's an offset of Angul, also Raigarh has been producing at 90%, 95% capacity utilization, and it is running fully efficiently right now, right? So the blend between Angul and Raigarh will deliver the bottom line to us, right? It's not just Angul, right? I hope that's clear.

[Operator]

We take the next question from the line of [indiscernible] from JM Financial.

[Unknown Analyst]

Sir, I just wanted to understand how do we see the India demand? Because as we are increasing our production, will we be able to kind of absorb this increased volumes? Or we will have to focus on exports? And if you could give some reading on the global steel prices and the outlook on demand/supply going ahead.

[Naushad Akhter Ansari]

Can you hear us?

[Unknown Analyst]

Yes, yes. Should I repeat my question, sir?

[Naushad Akhter Ansari]

No. No, it's okay. We have heard that. So there were 2 parts to your question. One, you were asking about how do we see the Indian steel demand? And what has been the price change in the world for the steel. These are the 2 parts to your question.

[Unknown Analyst]

Yes, the global steel prices outlook.

[Naushad Akhter Ansari]

Yes, okay. So let me deal it -- deal with it one by one. So if you look at Indian steel demand scenario, so to speak, I'm sure you must be following the Steel Ministry's -- there's a vision that by 2030, they really want to go for 300 million tonnes of steel. And that's something -- for doing it, they are trying to find ways and means by which it can be done. For example, there are several initiatives they're going to achieve, [indiscernible]. On top of it, we also see -- if you look at Indian scenario, steel scenario, the construction sector is -- more than 50% of the steel requirement is for the construction sector, and that is something which is -- which continues. So therefore, there's a lot of focus now today on the construction sector, simply because lot of movement is going to take place in infrastructure area in terms of the railways, in terms of the roads, in terms of the ports. One of the earlier question was already talking about rebar prices going up and which only shows a direction that's not a construction requirement is going up, and the rebar demand is going to work and so on and things like that. So our sense is that going forward, India will become #2 player or #2 largest producer in the world, beating Japan so to speak. As of now, we are #3. So all that is going to happen. We still have very low per capita consumption of steel. So we are very hopeful that this steel consumption is going to go up. The steel demand will be there at least in the coming year or so and coming few years, we are expecting that steel demand to be up. So therefore -- and that's the way that we are also looking at our business. We are -- we have substantial capacity to produce rebars and structures and so on, which -- a lot of it goes into the construction medium. And therefore, we hope to get the benefit out of it. As far as the world steel prices are concerned, if you look at last 6, 7 months kind of number, you would see that the prices have gone up close to about $100 per tonne depending on different products, it changes. And in India, those numbers are more like $120 kind of a thing. So it is a kind of number which are [ there ] in the last 6, 7 months which are there. And so it all shows the healthy demand growth, so to speak. And the market is buoyant, and it seems to be able to absorb this. So right now, things are looking quite positive. And there is no reason to assume that in the coming few months, things would change differently. So we are quite hopeful on that. So in both -- I don't know whether I've answered both your questions or do you still have something which is [ valid ]?

[Unknown Analyst]

Prepayment number for FY '19. You can give us?

[Naushad Akhter Ansari]

That's only has been guessed. And if all of us knew about it, all of us could be making a lot of money, including you also. So yes, I'm not quite sure whether one can really hazard a guess like that. So -- but as of now, the signs are very positive.

[Unknown Analyst]

Yes, obviously the direction seems...

[Naushad Akhter Ansari]

Yes. So far, things are looking positive. But what exactly is going to happen, we don't know.

[Operator]

[Operator Instructions] Next question is from Gopal from SBI Life.

[Gopal Nawandhar]

Sir, my question is on Power segment. So basically, we have seen improvement in this quarter in the realization, but same is not getting reflected in EBITDA. So can you just highlight what is the mix of, say, long-term PPAs and merchant during this quarter?

[Deepak Sogani, Chief Financial Officer]

Yes. There have been 2 reasons for the reduction in the EBITDA. Number one is the long-term open access we had with POWERGRID. Prior to this quarter, we had a commitment with them of only 500 megawatts. And start of this quarter, from October onwards, we had a commitment of 1,500 megawatts -- 1,400 megawatts, okay? So due to this, our commitment charge for the open access has gone up to about 43 paisa per unit as compared to about 23 paisa in the previous quarters. This, we are trying to offset by increasing the generation. And when we reach a generation level of about 1,500 megawatts, the entire amount is adjusted against the energy that we are transferring.

[Unknown Analyst]

So right now, how much we are supplying, sir, on -- against 1,500?

[Deepak Sogani, Chief Financial Officer]

No, this quarter, we have generation levels of about 1,500 to 1,700 megawatts. And the second reason was the increase in the coal cost, which has gone up to about INR 2.15 as compared to INR 1.80 in the previous quarter. So these are 2 reasons which have impacted the EBITDA, but we have tried to offset it by increasing the volumes.

[Unknown Analyst]

Okay. So if I understand right, Tamnar II, we have FSA. And FSA coal should be at lower price or we do not get any supply in FSA?

[Deepak Sogani, Chief Financial Officer]

So FSA coal has also seen a increase of about 12% to 13% in these quarters.

[Unknown Analyst]

So that will come in the next quarter, no?

[Deepak Sogani, Chief Financial Officer]

It came in the month of December. And the quantity that we get, again the FSA, is about 70% of the quantity required. So 30% has to come in from e-auctions.

[Unknown Analyst]

Okay, and how do we see this in the supply from coal India for coming quarters?

[Deepak Sogani, Chief Financial Officer]

Well, the auctions -- the FSA -- you see, there were some issues in the mines from which Coal India has been given its coals. But they are in the process of ironing them out and the supply should be stable.

[Unknown Analyst]

Okay. And lastly, can you just tell what is the proportion of merchant sales and PPA during this quarter?

[Deepak Sogani, Chief Financial Officer]

It's about 30% on the merchant and 70% on the PPAs.

[Operator]

Well, that seems to be the last question. I now hand the floor over to Mr. Sanjay Jain for his closing comments.

[Sanjay Jain]

Yes. Thank you, everyone, for being on the call, and thank you very much, sir. You have any closing comments?

[Naushad Akhter Ansari]

Nishant?

[Nishant Baranwal, Head of Investor Relations]

Yes, we'd like to thank you all for joining us today for this conference. And with that, I'll hand it over back to Sanjay. Thanks for your support. Thank you.

[Sanjay Jain]

Thank you, sir.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Motilal Oswal Securities, we conclude today's conference. Thank you for joining us. You may disconnect your lines. Thank you.