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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 Q4 FY '23 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note, this conference call is being recorded.
I now hand the conference over to Mr. Amit Murarka from Axis Capital. Thank you and over to you, sir.
Thank you, Vikram. Good evening everyone and welcome to the Q4 FY '23 con call of JSPL. We have with us the senior management team from JSPL, Mr. Bimlendra Jha, the Managing Director; Mr. Ramkumar Ramaswamy, the whole-time Director and CFO; and Mr. Vishal Chandak, the Head of Investor Relations.
I will now hand over the call to Vishal for his opening comments. Over to you, Vishal.
Thank you very much, Amit. Good evening everyone and welcome to the Q4 and FY '23 earnings call for Jindal Steel & Power. So before we start the presentation and Q&A, I just want to remind you that the discussions today would be covered under the safe harbor statement, which is in the second slide of our presentation. I hope you had the time to read through the same. We will start this presentation with the opening remarks with our CFO, Mr. Ramaswamy followed by the Q&A. Over to you, sir.
Thank you, Vishal. Good day, good evening, everyone. Let me give a quick overview of the financial and operational performance. Let me start with the sales volume. Our volume for the quarter was 2.03 million tonnes, which is a 7% growth Q-o-Q, primarily driven by a strong pickup in our exports and a 1% growth in our domestic volumes too. The share of exports in the quarter improved 11% versus 5% last quarter. The production for the quarter was 2.02 million tonnes, which is 2% lower Q-o-Q, primarily driven by an unplanned shutdown in our DRI plant in Angul during Jan.
In terms of realization, our realization improved by 3% quarter-on-quarter with improvements both in the domestic and export realizations. To give you a sense of what's happening currently. Currently, we are seeing a bit of softening in our realizations between 1% to 2%, and we will have to see how this plays out during the current quarter. Our SMS costs increased by 2% Q-o-Q, primarily driven by higher iron ore and pellet prices, which was partially offset by a marginal reduction in coking coal prices. As per our practice, we do not provide any forward guidance on numbers for the subsequent quarters. So I'm not sharing any outlook in terms of our coking coal and iron ore prices.
Our adjusted EBITDA for the quarter on a consolidated basis is INR 2,240 crores, which is 2% lower Q-o-Q, primarily driven by the factors I mentioned earlier. That is improved volumes, improved NSR, offset by higher SMS costs driven by higher iron ore prices.
I would also like to highlight that we have taken inventory write-downs, write-off of around INR 250 crores during the quarter based on the -- based on our assessment of the realizability, which is captured in the above EBITDA. Our adjusted EBITDA of overseas subsidiaries, primarily Australia, Mozambique and South Africa during the quarter was INR 63 crores and our stand-alone India EBITDA is INR 2,178 crores.
On a consolidated basis, our PAT for the quarter was INR 466 crores, which is 10% lower Q-o-Q. I would also like to highlight exceptional items of INR 153 crores during the quarter, which pertains to expenses incurred on old projects, which we've decided to write-off. This is captured separately as an exceptional item in our results.
I'll give a very quick snapshot of our full year numbers for your reference. Full year volume is 7.68 million tonnes, which is a 1% growth over last year. Our production is 7.89 million tonnes, which is a 2% decline over last year. Our NSR improved by 5% on a full year basis and our costs were higher by 4%. Our full year consolidated adjusted EBITDA is INR 9,700 crores and PAT is INR 3,193 crores after exceptional identified items of INR 1,369 crores. Out of this INR 8,562 crores pertained to India and INR 1,138 crores is from our overseas subsidiaries.
I'll also give a quick overview in terms of our cash flow and debt. As I said, the cash focus is our primary aim. So we generated operational -- operating cash flow of INR 6,351 crores and this is for the stand-alone entity, based on an EBITDA of INR 8,562 crores. Out of this, we have invested close to INR 5,800 crores in CapEx, both in JSP and JSO. And we've also used it for our interest and repayment of our loans. Our stand-alone gross debt was INR 11,874 crores and net debt was INR 7,090 crores as of 31st March.
I would like to highlight that we have prepared a further this INR 1,895 crores in April and our gross debt in April is INR 8,984 crores. So our continued focus on cash and deleveraging continues, as has been highlighted before. The Board has recommended a dividend of INR 2 per share for the financial year.
With this, I would like to conclude and hand over for Q&A. Over to you, Vishal.
Operator, can you please open the session for the Q&A.
[Operator Instructions] We'll take our first question from the line of Amit Dixit from ICICI Securities.
I have 2 questions. The first one is if you could highlight the progress on an operationalization of the coal blocks that we have won during bidding as well as the slurry pipeline projects. I mean how much of it remains when it is expected to be commissioned that would be very helpful. That is the first question. The second one is on depreciation, which appears to have gone up in this quarter. So is it due to commissioning of some plants of the expansion project? Or how is it? And what run rate can we expect going ahead?
Thank you, Amit. This is Bimlendra Jha. So our coal block, in fact, before coal block, there is already a pellet plant, which is under commissioning. Commissioning trials are already very successful and we are well on our way to have a full-scale commissioning of the pellet plant. Coal block most of the clearances are there in the mining license stage, we are still awaiting certain -- one of the last clearances and as soon as that is available, we should be in a position to open the coal block. Slurry pipeline is towards the end of the current year is what we are seeing because of elections and other issues that are there. So that is what I have to say on that. Ram will answer the question on depreciation.
Amit sir, the depreciation is on account of an impairment that was done by our Australia subsidiary to the extent of INR 250 crores, yes. So the Australia subsidiary had done an independent assessment of the realizable value and based on their assessment, they have taken an impairment provision of INR 250 crores. That is the reason why you see a higher depreciation.
Okay. Sir, can you put a time line to the pellet plant? When can we expect it to be commissioned? I understand that you mentioned that trials are on, but the time line would be great. And also how much coal can we expect, if any, in this financial year FY '24?
So the mining plan that has been submitted is for around 3.5 million tonnes for the year. We are exploring possibilities if we can go up, but that is what is the current mining plan that has been submitted for the year. And nobody knows when the final clearance comes. But since it is absolutely the last couple of stages of that clearance, it can happen any time. So that is on the coal block. You said pellet plant as well. The pellet plant, as I said, that it is under commission trials and it is just a question of weeks where we should be having a full budget commercialization.
We'll take your next question from the line of Siddharth Gadekar from Equirus.
Sir, just one thing on the stand-alone operations. Now if I look at your realization terms increased by INR 3,000 almost sequentially. But when I look at the cost, what explains this kind of a cause jump because we are looking at our EBITDA per tonne has declined by almost INR 1,000 on a sequential basis. Is there anything I'm missing in this?
Yes. So as I mentioned, our realization has gone up by 3% and our SMS costs increased by 2%, primarily driven by higher iron ore and pellet prices. I also referred to in my overview that we have taken write-downs, write-offs of around INR 250 crores of inventory and that should probably increase the rest of the defense.
So the write-off inventory, write-down is taken under the cost of goods sold or under other expenses?
Under cost of goods sold.
Okay. So adjusting for that our sequential increase is very sharp because normally if I look at the prices, coking coal prices would have been up by $10 or $15 per tonne and iron ore also would be in a similar range, but that doesn't explain that kind of a caution to you?
No. I think on iron ore, OMC prices, if you look at it from November onwards, there has been a very sharp increase in the iron ore prices. In fact, if you look at that, it is around from INR 3,550 per tonne to around INR 5,700 per tonne, is the end of a rise in prices that has taken place. So if we budget for that as one, I give -- so INR 3,550 has become INR 5,700, which is even if you look at it on NMDC, iron ore fines, which is 64%, the 62% -- 0 to 10 Odisha Mining Corporation is INR 1,700 higher than even 64% iron ore fines. So this is actually, if you look at it, ideally this should have been at a discount to INR 4,000 that NMDC gives the debt. But unfortunately, this gap is a bit too much that has opened up, which was not the case until November '22. November '22, the prices of iron ore fines from NMDC were INR 2,760, and Odisha was INR 3,550. So this gap has really, really opened up.
Okay. Got it. But now are we carrying any high cost inventory again into the first quarter? Or how should we look at it in terms of coking coal. In terms of coking coal and iron ore prices going ahead now first on a consumption basis?
No. In the first quarter, we are fortunately not carrying high-cost inventory. In fact, if at all, there has been some respite from there. But overall, you will see that there are -- we are in a bit of choppy waters right now with respect to prices. I'm sure that Odisha Mining Corporation will see the light and they will try to adjust the prices downwards now but nobody knows what we will do.
Yes. And as we mentioned, we don't give forward guidance on these prices because things change -- things have been changing quite a bit. So we would not give any forward guidance on how it is looking for this quarter.
Okay. And in terms of our pellet capacities, we were expecting to commission it so almost 12 million tonne of added capacity this year. So in terms of our utilization, is it fair to assume that we could be at 100% capacity utilization by next year end? Or it will take even more time?
So our first pellet plant is under commissioning, which is 6 million tonnes. Another 6 million tonnes would be commissioned almost concurrently with our blast furnaces when they come up. So it's the second blast furnace . So that is why it is towards the end of the year that we are expecting all that. But this one would be sufficient for our requirements right now at 6 million tonnes because that is what is our current capacity.
We take our next question from the line of Rajesh Majumdar from B&K Securities.
Yes. I just had two questions. You said you are taking inventory write-off. Is that the correct word used of INR 200-odd crores in Q4? What exactly is an inventory write-off, I mean, I can understand mark-to-market inventory losses, which can be again, what is the inventory write-off exactly we are talking about?
These are both write-offs and write-downs. So we've been having old inventory of various products. It could be a et cetera. So it's a combination of FG and RM. So based on our assessment of the realizable value, we have decided to write-down some of them and write-off some of them.
The total impact of the write-down -- INR 200 crores, is that correct?
Sorry, we are not...
Write-down and write-off put together at INR 250 crores, approximately.
Yes, that is right.
And the asset impairment of INR 250 crores is pertaining to the -- which of the Australian subsidiaries, sir?
That is Australia. That is Australia.
Which one?
.
So on one-on-one as per the auditor's remarks, is there more payment likely to be taken there?
See, this is an ongoing assessment that we will have to, yes. And -- Yes. So we do an ongoing assessment of the realizable value and the carrying cost. And of course, as you are aware, the Australia business has not been delivering the value that it is supposed to deliver. So we will reflect these on an ongoing basis is what I would like to say.
We will take our next question from the line of Sumangal Nevatia from Kotak Securities.
The first question, just the clarification on what Amit was asking on the coal blocks. We said that the last clearance is pending. I mean, is it across the 4 mines, which we have? Or are we talking about a particular mine? And if you could just share, I mean, the level of approvals across the 4 mines?
No, we are talking about Utkal C, which is our first objective. And Utkal C is the main one that gives us almost entirely our requirement of thermal coal for Angul, which is for DRI coal gasification as well as for thermal coal requirements. We are talking about that.
Okay, sir. And if you could just share, I mean, where are we in terms of the commissioning or the approval process for the other mines?
The moment we get the clearance, our shovels will be in. Everything is lined up.
Okay. So I mean, broadly, I mean do we expect this approval to come in this year for all the 4 mines or only Utkal C in advanced stage?
The Utkal C, we are expecting within this quarter any time. Anytime means it can be any time from today onwards, But where it will be is only powered that deal. The other ones that we are talking about is Gare Palma, which is also in a very advanced stage. And again, we are very, very close, but it is not closed until it is not closed.
Got it. Got it. Sir, my second question is with respect to our hot strip mill and blast furnace. So I mean, what sort of volume can we expect when we are looking at commissioning towards the second half of this year?
You're talking about blast furnace?
Yes. So Angul blast furnace and also the hot strip mill.
Before blast furnace, we will be first starting with our hot strip mill and the slab caster. So our capacity is -- I had explained it maybe in the last analyst presentation, was that we are doing it in a sequence where we make maximum money. So the very first in the sequence was a pellet plant. The second in the sequence was coming to be coal mines. The third in the sequence was coming to be the slab caster in HSM, which is a combined thing. And then comes the blast furnace and steel making related to that as well as . In the meantime, almost in parallel, the downstream of the hot strip mill will come up. So this is a sequence. Now this sequence 1 or 2 months here or there, but we are on track with respect to the entire sequence.
Okay. So we continue to expect this blast furnace commissioning in third quarter of this financial year.
And that will be towards the end of the financial year as far as blast furnace commissioning is concerned. Because that one is a -- as clearances are coming in, then we have work to do. As far as hot strip mill is concerned, this should be you can expect it in the third quarter of the current financial year.
Got that. Just one last question on the volumes. We have at 9.6 million tonnes of capacity on crude steel basis. This year, we've done 7.8 million. So should we expect I mean, what sort of growth should we expect in FY '24?
So this is forward-looking statement that you are asking as we never give the forward-looking statements.
We take the next question from the line of Indrajit Agarwal from CLSA.
Two questions. First, can you help us understand how much is the remaining project CapEx on all the expansion projects? And how we should see it split between '24, '25?
On project CapEx, can you please repeat the question?
How much is the remaining project CapEx now in Angul expansion?
Remaining project CapEx.
So I think maybe I can. See, we are evaluating the entire slate of projects that we have on our drawing board. We are looking at trying to make some changes to the configuration as well as we speak, and we expect these to get finalized over the next few weeks or so. Then we will be able to give -- and we would also have to take into account some of the CapEx like mines CapEx ex that we have not shared before. So maybe over the next few weeks, we will be in a position to share a more definitive view of our total CapEx slate and what we expect to see during this year. So I would only request you to wait for the next few weeks, after which we can give you more definitive numbers.
Sure. And my second question is you talked about revisiting the capital allocation policy during fourth quarter earnings. Any update on that?
Yes. So as I mentioned, the next few weeks, the capital allocation policy, including the CapEx, the CapEx program for the next 3 years, all of that is under finalization and review, and we expect to share that with all of you over the next few weeks.
Sure. And lastly, if I can squeeze one more. When do we decide on the Australian assets because this has been a drag for several quarters now, and we have been taking write-offs on that. And now there is concern -- going concern on Wollongong asset as well. So what are we thinking on that? And what kind of decisions can we expect on that?
See, as far as Wollongong resources are concerned, there are -- we do see it as a valuable asset. It is not as if it is disappearing anywhere. It has had its own challenges, but there are actions being taken on the ground to make sure that the asset starts becoming breakeven and then has a possibility of giving better quality of coal. And as we are focusing our efforts in that direction, we are quite confident that within this -- within a couple of quarters, we should be seeing positive reports from that side. But that is where we are as of now. We are not able to say with certainty to you that this is the amount of money that we will make or anything like that. But it has probably seen its bottom.
I would only like to add that the asset is not -- has not been delivering the right returns. So the same question that you asked, we are also evaluating all of the options to see what do we need to do. But our first effort is always to see how we can make money. And I think that is where our current focus is now from the Australian assets.
What was the cash burn on that asset in FY '23?
I will ask Vishal and team to share exact details maybe after the call.
We take the next question from the line of Kirtan Mehta from BOB Capital Markets.
Just a clarification on the coal block again. In terms of you have indicated 3.5 million in mining plan. Is it for Utkal C and Gare Palma both together for this year? Or is it related to one particular mine?
There is about Utkal C only.
Okay. And would you be able to indicate similar mining plan for Gare Palma and the other assets, which could also probably come sometime during either this year or the next?
I'll enter in between. I'm just trying to get that number. I don't have it off on the top of my head. I'll get that number and during the call, I'll tell you.
Sure, sir. One more question was about you have been reviewing some of the internal practices and has like -- we have taken some of the write-off in the overseas mining subsidiaries earlier. We are again being some more additional area this time as well. We are also reviewing the CapEx plan again for the comprehensive net as well. So I just wanted to understand from the management side that which are the areas, which you have reviewed so far and feel comfortable about? And which are the areas where there is a still review ongoing apart from the CapEx -- overall CapEx plan?
Maybe I'll give a few comments and I'll ask MD sir to. See, I think the review is an ongoing. I think in any business, you will have to be constantly reviewing all of this. So some of these write-offs, write-downs, et cetera. My belief is that we have done most of it, yes. So as we speak because if we had anything further to do it, we would have reflected in this quarter's results itself. So it's not that we have a much larger slate and we are trying to repeat these on and ongoing. That is not what we are doing. Whenever we recognize that there is a potential issue in realizability, we take the impact in that quarter.
As far as the impairment of our overseas loan was concerned, we have taken a full and final position last quarter itself, where we had done the impairment provision. There is no further addition to that or no further change to that. The INR 269 crores of impairment that we saw this year -- this quarter is a provision that has been taken by our Australian subsidiary. So these are not moving pieces. In our view, we have taken a final provision as far as impairment is concerned for the loans that we have given to our Mauritius subsidiary. And these inventory value write-downs, write-offs of some of the old capital projects. I think as we speak, whatever was having issues in terms of realizability. I believe we have taken the impact in this quarter.
And I think I must complement the analyst community that you get your numbers almost entirely right. And if these adjustments were not there, you would have got -- your consensus estimate would be the adjustment probably. So we are also not very happy with continuing to require all these things. So we have taken this big provision after due diligence, which was through the external agencies recommendation. And we made a very transparent call on this in the last quarter when we announced the results. So we don't have any of the foreseeable ones, but steel market is cyclical. Nobody ever makes definitive statement around that. Mr. Mehta, I will take this opportunity to also answer about Gare Palma. There also, we have taken this mining lease permission in the range of 3.54 million tonnes per annum.
We take the next question from the line of Amit Dixit from ICICI Securities.
A couple of questions again from my side. One is that you mentioned in your opening remarks that DRI plant had an unplanned shutdown. So is it working all right now? I mean what is the capacity utilization currently at DRI plant?
Yes. The DRI plant had taken a shutdown -- plant shutdown. It had certain issues with certain heat exchanger, et cetera, which is -- there has been currently some more work that has been done over there. So I think we should be in a good position now. Now the DRI plant has again started well and this is working well now.
Sir, one question on your rail mill, last time indicated that another plan for setting up another rail mill. Now what we are facing in the country is an acute shortage of wagon wheels also and only sale produces them so far. So any chance of you entering this particular business?
See, we don't have right now the plans, but we would look forward to very keenly if there was any opportunity, not -- there is already capacity that is there sitting with our RINL and we believe that they can do a good job of it. Their Lucknow or Raebareli facility that is there. It is adequate for India. It is just that they have not been able to so far commission it. We wish them all the luck because what if that plant gets going, I don't think that there will be a shortage.
Okay. A final one, sir, on demand. I mean we have been hearing about the demand being soft in certain parts of the country, particularly for long. So how do you see the demand panning out in the next couple of quarters? Due to pre-election, do you see some kind of softing of projects? How do we read into it?
See, I would say that if you look at the PMI from -- there are 2 countries amongst the major economies in the world that have got a positive trajectory on PMI month after month from February '23 to April '23. And one is U.S. and other is India. So in India, that PMI has gone up from 55 to 57. In U.S., it has gone up from 47 to 50. Every other major economy, it is going down. So as far as the purchasing managers index is concerned, that is already a positive story that is visible. We have also seen that the wholesale price index has come down to a negative territory now.
Okay. There are anti-inflationary pressure in the economy, which means that there should be hopefully, some more -- thanks to the elections, et cetera. We do expect the expenditures to go up on the macro-economy basis. What has happened is though that the China story has not unfolded the way the world expected. And as a result, there has been some uncertainty around the world as far as steel prices are concerned, particularly the HRC benchmark.
Now as a result of that, people may be holding back. But fortunately, customers are not sitting on huge inventories. So they can't hold back for long. But it is a good practice anyway to not hold because that creates an artificial demand. We are happy with the demand that is genuine and creates a pulling into the economy. We are not seeing any reasons to worry as far as India is concerned. As far as exports is concerned, there are opportunities that continue to be there across the globe, but more particularly in Europe. So we don't see it as a matter of concern, but in steel industry, nobody has a great crystal ball and we need to always be mindful of the fact that it is a cyclical industry and small queues can result in the changes. Given that caveat, I would say that we have a more positive outlook from an India perspective.
Okay. Great. Thanks for the elaborate answer.
We take the next question from the line of Vikash Singh from Phillip Capital.
Sir, just pertaining to again your inventory write-downs, given that this quarter, we have seen the net realization going up in your comments that the iron ore cost was also higher. So if this is essentially entirely on the coal write-downs or there's something else to it?
No, I think as I mentioned, this is a combination of several finished goods and raw materials. So there were old brand shots, there were some iron ore fines. I think it's a combination of several items, which we got will not have the full realizability and we have decided to give a write-down for quite of some of these items.
Also slag.
Yes, slag also.
And sir, just adjacent to this, basically, given the coal has been continuously on a downward trajectory, do you think that the more write-downs with respect to coal or something related to that could come in 1Q? Or we have done with most of the write-downs?
Again as I mentioned, so you have to appreciate, this is going to be an ongoing process. Every quarter, we will be -- we will have to assess the realizability of all our items in the balance sheet, whether it is inventory or fixed assets. As I said, we have full reason to believe that as of today, wherever we had a view that there is going to be an impact to the realizability, we have given -- we have reflected that in our financials. That essentially means whatever is there will be fully realizable. That's our assessment at this point of time.
As a practice, one shouldn't be having a book value higher than the realizable value. And that is the ongoing good business students and fiscal discipline that the companies need to have. That is all that our CFO is saying.
Yes.
Understood, sir. I was just a little bit consfused because since if steel prices are going up or even iron ore prices are up, how can be a certain portion of fines has to be write-down. That is something which was battling us?
These were not in a usable condition, maybe that is how I would put it.
I'll explain that to you. I hope if you have seen a steel plant, particularly the raw material yards, sometimes what happens is that even though you keep on storing the quantity, at the bottom, it becomes almost unextractable, it becomes part of the ground, okay? So when we do the inventory valuation, we see the usability of these assets. And we'll take a call. It has become almost like the surface on which the material is stored. So these are small calls that have been taken. In the large scheme of things, these are small numbers. So I would say that it is just a prudent assessment all the audit of stocks that is regularly undertaken and this is taken on that basis.
Indeed. And it's a combination of several items. As I mentioned, it's not just iron ore, it is slag inventory, the iron ore fines, the panthers, several items is what I would say.
Sure, sir. Sure, sir. Point taken. Sir, my second question is regarding our debt. So given we have an aggressive CapEx plan, do you think that our debt would increase from current levels going forward? And what kind of the peak debt level is acceptable to company?
As we've been maintaining, our policy is to be lesser than a net debt EBITDA of 1.5x through the cycle. So I think that is our policy that we've been constantly maintaining. We are currently at around 0.7%. And clearly, as we mentioned earlier about JSO, we have signed up for around INR 15,700 crores of debt. We have not drawn down anything so far. All of this has been funded through our internal approvals. As the EC gets approved and once we are in a position to draw-down, we will definitely start drawing down on the sanctioned debt. And I would again like to repeat that we would definitely want to operate in the 1.5x net debt to EBITDA through the cycles.
Just to clarify it again, it is best that we understand our objective as well as a previously stated position on zero net debt. As far as GST is concerned, we are well on our way to move in that direction. As far as JSO is concerned, it is a new entity that has been created as a fully owned subsidiary. And most of the debt will potentially reside over there. Balance of things up and down, keep on happening, working capital will keep on happening. But this is the direction of travel.
Now we have also stated our growth ambition that we will be -- we'll try to be the largest steel producer at a single location in Odisha, et cetera. So we will constantly evaluate those investment opportunities, any acquisition opportunities. And therefore, we want to keep our gunpowder dry. And we want to remain disciplined about the amount of debt that we would like to tolerate and that tolerance level has been defined as 1.5x. Now obviously with the cyclical industry that x can change. But even through the down cycle, we don't want to violate this 1.5x. So now you can do your math on the subject and see where we will go.
We take the next question from the line of Ashish Kejriwal from Nuvama Institutional Equities.
Sir, 2 quick questions. One is in volume because we already are 9.6 million tonnes for long, but still unable to achieve that capacity. So is it because of and last year, we have seen lots of issues regarding transportation and other things. So is it demand-led or supply-led? And if it's supply-led, when do we expect to reach optimal capacity of this 9.6 million tonnes?
Yes. So first of all, 9.6 million tonne capacity that is there is upstream capacity. It is not full capacity as of now in terms of the finished goods. So this is at metallics level that we have this capacity. Secondly, there have been challenges in the past about the availability of coal, et cetera, for operating our CGP DRI completely, which is now -- you're aware that we will see opening up, that won't be a constraint at least. So we could be increasingly utilizing this capacity, but the ability to utilize this capacity also -- probably from the slab caster coming on stream before the blast furnaces come on stream. Okay? So there is an opportunity where the metallics will no longer be a constraint -- so metallics will eventually become a constraint all over the year. Simply because there will be so much of pull from the downstream units. One of the reasons why sometimes we choose not to produce something is because it may not make sense from a commercial end. Sometimes, of course, there are blips in the supply chain, particularly transportation, et cetera.
So usually, these combination of factors work. But as far as our capability to utilize the metallics is concerned, I think very soon, we will have a metallics constraint, which means we may end up buying metallics.
So my question remains the same. When can we expect the optimum capacity utilization of this 9.6 million tonnes?
So the optimum capacity utilization should be when we open the hot strip mill and slab caster, that will be the most optimal time for capacity utilization at metallics level.
Sure. And second question is you mentioned in the opening remarks that the CapEx, we have been around INR 5,800 crores CapEx this year, whereas in presentation or in our cash flows, it shows around INR 6,448 crores. So I was just wondering, are we referring to different CapEx numbers or something which I'm missing?
Again, I'll make a request Vishal and the IR team to give you the -- if there is a different set of numbers, they'll clarify this to you.
I think the reason why you are looking at 2 different numbers is because of consolidated versus stand-alone. So we'll give you that.
I doubt that because in stand-alone, it's INR 2,400 crores, INR 2,500 crores only. So can't be -- because in stand-alone, we are not doing much of CapEx. All CapEx is done in the new 100% subsidiary. So I will check from Vishal then going forward.
Yes, please, yes. The team will clarify to you.
And sir, lastly, Australian subsidiary, yes, we have been saying a lot about it for last 1.5 or 2 years, and giving the different guidances every time, but I don't know whether we are investing a lot in that to ramp up that capacity? Or is there any operational issues, which we are unable to solve. Because 1.5 years, we have not reached to even 50%, 60% of what we promised. So what's the actual issue, which is we are trying to address and that will help us to achieve a million tonne run rate?
So maybe first, I'll clarify a couple of points and then I'll ask MD sir to maybe respond to your other question. Firstly, we have not been giving different guidances on Australia. We've been consistently maintaining that it is not realizing the desired returns. And that is precisely the reason we have taken an impairment provision in the last quarter. So I'm not sure why you're referring to different guidances. That is number one.
Number two, as we mentioned just now, our first priority is also to see how we can turn it around and how we can make it profitable, yes. So towards this, we have also said that we might be making small CapEx to the extent of $10 million, $15 million, $20 million, but nothing substantial. So with this, we are still not seeing the desired results. Then we will review and look at what are the options available, yes. But I just wanted to clarify a couple of these points that I will request MD sir to maybe add on to what are the kind of actions that we are looking at sir.
Yes. So first of all, your question is pertinent that what is it that is happening in Australia. What is happening in Australia is a combination of factors. There was -- one was that there is an operational aspect where there has been some streamlining done, even the shift level changes have been made. Some mining phases that were not giving returns have been stopped versus some other phases we are working on that. There was an issue with the multi bolters that is being resolved. There is an FGX that is being installed. But these are not big CapEx items. These are small CapEx items and in the scheme of things. And we will be very soon hopefully within a quarter or so, we should start seeing the result of all the actions combined together to start giving better results.
Sure, sure. And sir, lastly, if I heard correctly, you said that no, we don't wish to violate 1.5x net debt-to-EBITDA even in the down cycle or any of the mid-cycle or mid year also. That's right?
Yes, 1.5x net debt to EBITDA through the cycles is what we mentioned. This is what we have been consistently maintaining.
About the down cycle.
Even in a down cycle, I wouldn't like to violate 1.5x. I did say that, okay? And I'm sticking my that yes, we'll do it.
We take next question from the line of Ritesh Shah from Investec.
Probably for a bit of my acknowledge. Sir, I just wanted to understand the time line. So in this quarter, we have taken this depreciation thing of around INR 269 crores at the Australian sub. In the prior quarter, we had an impairment provisioning of nearly INR 7,700 crores with 60% of total investments in certain loans and advances. So I just wanted to understand the sequence of timing. How is it that we did the impairment provisioning before it was done by the Australian sub? So one is why the timing mismatch? And secondly, if I had to read across, we had provided for this quantum. Does it necessarily mean that incrementally will go and write-off this particular amount? That's the first question, sir.
Yes. I think you will have to differentiate both of this. The position that we had made in the previous quarter that you're referring to was for the investments that JSP has made in its subsidiary, JSP Mauritius. The provision was for that. The impairment that we are talking about this year is impairment provision that has been done by the Australian entity based on their stand-alone assessment of the realizability of the value. So there are 2 different things. I think different entities over here and they are 2 different things. I think that is -- it is important for you to understand and I will appreciate that.
Okay. So these are 2 separate entities that you are looking at. I understand the structure, JSPML and then basically we have the Australian entity. But to my understanding, we are talking about the same underlying asset, which could be Wollongong or something else in Australia. So please correct me if I'm going wrong.
No, you're absolutely right. It is the same underlying asset. The first impairment was in the books of JSP India related to the investments that we made in Mauritius. And what we are talking about now is in the books of the Australian business for reflecting the current carrying value.
Okay. If I have more questions, I'll speak with you. And sir, my second question was I understand JSPL, the company had a tolling arrangement with Jindal stainless and they had some spare capacity on hot strip mill. I just wanted to understand how much of the tolling volumes and how much we used to pay Jindal stainless per tonne basis? The reason to ask is basically, once we have HSM probably in Q3, what you indicated, that would be something, which will also incrementally approve to us?
Currently, we are doing well. It is opportunistic market, opportunistic time when hot-rolled coil prices were going through the roof, there was a big opportunity. We would do the toll rolling at Jindal stainless. When my slab can fetch better realization than that, then I sell my slabs. Because I've got the surplus asset today. So it has got nothing to do with when I have my hot strip mill. When my hot strip mill is there, it alerts out to the extent that metallics are available.
Right. But sir, on FY '23 basis, any numbers on volumes stood and how much we paid on a per tonne basis for that?
That would become a forward looking statement and I would avoid it.
Sir, I'm sorry, on a backward-looking actual number, FY '23 actuals.
FY '23, actuals. So I'm sorry, my reading was that going forward. The question was FY '23, what is the question?
How much did we told via Jindal stainless HSM, that is just tolling volume? And how much did we pay to them on a per tonne basis? I'm just trying to understand that this would be an incremental saving, which would come to us when the commission our own HSM.
Satish, Vishal will you take this offline.
We take the next question from the line of Arijit Dutta from Kotak Mutual Fund.
Two questions, starting with the earnings capacity that is coming. So last time in Angul Phase 1, what I remember that we struggled to ramp up the capacity. It could quite a bit of time and pain to ramp up. So if you can throw some light that why -- what are the learnings from that one? And what -- how we are expecting this slow ramp-up will not happen bit?
Hopefully, we have improved as management. That is all I can say. Yes. No, the learning on any ramp-up is that whether the readiness is there for the full ramp-up or not. As far as hot strip mill is concerned, we are working on a full ramp-up. And the plan is in such a manner that when we start, we start with the full capacity to the extent that metallics are available. So to the extent of the mismatch between the metallics availability and the capacity of the mill, obviously, the mill capacity is much higher compared to the spare metallics that we have. And therefore, we would be ramping it up in proportion to the metallics that we have available.
Well, my question was more to like last time that you made work from a different supplier, say Chinese kind of thing, which we have avoided this time and that's why we think that the same things have been different.
What suppliers? I couldn't understand your question. Last time, what happened?
Last time, some supplier issues, some product quality issues, which we have not purchased procured from a better supplier kind of thing. Anything from that sir, which you would like to emphasize this time to have a better surety on the ramp-up?
You give me a -- you give me your assessment on SMS as a supplier, as far as hot strip mill is concerned. We have gone to the best. You give me an assessment of Danieli as a supplier as far as caster is concerned. You give me your assessment on Metso as a supplier as far as pellet plant is concerned. We have not gone to the people who do not know their job.
Understood. The second question is more like a feedback that you are getting from your sales team, particularly on the -- how the market is shaping up now? Not a forward-looking statement, but what is happening currently, especially as the coal prices are moving down, Indonesian coals are available at a cheaper price. The secondary DRI-based capacity is ramping up. At the same point of time, there is a liquidity issue. So what are your marketing guys are saying, is there a pressure on the prices? And the inventory level is moving up in the system. Any color on that side?
Have you met a marketing guy whoever says that prices, I can get much more? They always .
Yes on the competition, sir?
Yes. So there is definitely a bit of inventory in the system. If you look at all the major steel players inventories, there is inventory in the system and that is something that we all need to recognize. There is -- but a more elaborate answer I gave you earlier on the basis of the PMI, which is positive. So the outlook is positive. There may be a short-term issue of March inventory is still not getting washed out of the system or some players sitting on high inventories. And therefore, taking a different kind of a pricing action. So those are things that keep happening in the market and it is almost an annual phenomenon. So you can take a call based on what collectively the players are thinking and deciding, and this is a bit of a game theory. So let's leave it at that. But as far as marketing team is concerned, it is far more important to look at procurement managers indexes as a sign of confidence.
Understood. My worry was a bit more on the liquidity side and we are heading towards monsoons. At the same point of time, inventories there DRI players are ramping up. So how things are shaping up, some confirmation from you ?
No, I understand your question, and I think we have given you that answer. So it is already 7:00 p.m. We would like to take one last question, if at all. Otherwise, we would like to close the call.
We take a last question from the line up Alok Deora from Motilal Oswal.
So just had a couple of questions. So one is on the exports, we have seen a pretty decent jump from 5%, it's now nearly 11% of the volume. But of late, we have seen pretty sharp correction in prices, especially the global market. What kind of -- so I'm not really asking a very specific number, but do you think the exports could kind of probably continue ahead in FY '24 or continue in the first half?
See, for me, I have always mentioned that export is done for 2 reasons. One is that we have existing customer relationships that have to be maintained. Now unfortunately, the government of India decided otherwise at some point of time and those relationships were broken and people supply chains got shifted a bit. So there is an effort at reestablishing some of the good customers relationships as a matter of continuity.
The second reason for export when volumes really move in either direction, it is because of a demand-supply gap. Now last year -- the last financial year, the consumption in India went up by 12%, whereas the production went up by 5% or 6%. Now that tells you that even if people had opportunities for export, they would have probably supplied in domestic markets. Any serious player would have done that.
So we do not see exports as the mainstay of our business. We want to maintain continuous but flexible presence in exports. And we want to maintain the continuity with those with whom we are having a fruitful long-term relationship. That's our view on exports. Opportunistic exports can always be done and sometimes just to relieve pressure on the domestic system, we use exports as a pressure release as well.
Sure, sir. And also, so just coming back to one point on the depreciation side, which is much higher on a Q-o-Q basis. So you mentioned about that one impairment, which you have taken. So going forward, this roughly INR 600 crores quarterly run rate would kind of continue or any recolor on that, sir, on the depreciation side, how much that could be going ahead?
The INR 600 crores that you are referring to is our current run rate based on what we have in our balance sheet. You would recognize that we are also embarking upon a capital expansion program. So some of these -- as the program comes online, some of the assets start getting capitalized. The run rate will, of course, change. But otherwise, still such time, it is fair to assume that the current run rate that you mentioned would put is what you will see for the next few quarters.
Ladies and gentlemen, that was the last question. I would now like to hand the conference back over to Mr. Amit Murarka from Axis Capital for closing comments. Over to you, sir.
Just to give you the closing comments on the subject. I think it is -- the world is not in a very stable state but India is on a growth trajectory. So these are the 2 opposite forces that we need to be mindful of as we look at the steel industry. But we are quite bullish about the steel industry in India. We do believe that there is apart from small blips here or there, steel industry has a strong future. And it is good to back this industry. Also, we believe that this is the right quarter for improvement from the perspective of demand.
However, that demand may have been a little subdued due to the pressure of March that we have seen so far or the inventories that may be with some of the players. So other than that, we do not have reasons to worry. India's growth trajectory also indicates that this year, there is likelihood of -- in this calendar year, there is a likelihood of 8 million tonnes of demand addition, which is also supposed to carry on in the next calendar year. So 16 million tonnes of demand coming within a period of less than 14 months -- sorry, less than 18 months or so, is what is expected. So we can all take our call based on some of these projections. These are all World Steel Association consensus projections. So we can rely on these. And based on all these numbers, I think companies that are engaged in construction activity and also, we are seeing a better uptick in auto, in yellow goods, in white goods. I think there are a lot of positives to draw on the fundamentals and let's stay positive as far as steel industry is concerned. Thank you very much for your time.
Thank you, ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.