Jindal Stainless Ltd

NSE:JSL

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Jindal Steel and Jindal Stainless -- sorry, Jindal Stainless Steel and Jindal Stainless (Hisar) Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajesh Majumdar from Batlivala & Karani Securities. Thank you, and over to you, sir.

[Rajesh Majumdar, analyst]

Good afternoon, everyone, and welcome on behalf of B&K Securities to the earnings call of JSL and JSHL. We are represented today by Mr. Abhyuday Jindal, Managing Director, JSL and JSHL; Mr. Anurag Mantri, Group CFO, Jindal Stainless Limited; Mr. Jagmohan Sood, Wholetime Director, JSHL; Mr. Ramnik Gupta, CFO, JSHL; and Mr. Goutam Chakraborty and Ms. Shreya Sharma from the IR team.

I would like to hand over the call to Mr. Goutam Chakraborty now for his opening remarks. Over to you, Goutam.

[Goutam Chakraborty, executive]

Yes. Thanks, Rajesh, and welcome, everyone. We'll begin this call with the brief opening remarks by the management and following which, we'll be having the forum open for the question and answer session.

However, I would like to state that some of the statements made in today's call may be forward-looking in nature, and the disclaimer in this regard is available in our results presentation that was shared with you earlier.

I would now like to hand over the call to Mr. Abhyuday Jindal for his opening remarks.

[Abhyuday Jindal, executive]

Thank you, Goutam. And good afternoon to everybody. Hope you all are keeping well and are in good health. On behalf of the management team, let me welcome you all to the earnings call for Q1 FY '23 of Jindal Stainless and Jindal Stainless (Hisar) Ltd. I will first share the key highlights of the quarter gone by, following which Anurag will take you through operational and financial performance.

Q1 FY '23 has been challenging with many issues coming together, having direct and indirect impact on our performance. First, it was ongoing the Russian-Ukraine war, which got extended and intensified. This has had significant impact on the global commodity prices, which saw very high volatility. Sharp rise in energy prices resulted into inflationary pressure and tightening of liquidity as well.

Finally, despite influx of stainless steel imports in India and having a very different market dynamics, the government imposed 15% export duty on stainless steel, also along with carbon steel. The domestic stainless steel industry faced a double whammy during Q1, FY '23 of continued free flow of unwarranted stainless steel from China and Indonesia resulted in a -- in the share of imports rising to nearly 50%. On the other hand, 70% to 80% of our export product portfolio got impacted due to imposition of 15% export duty by the Government of India.

During Q1 FY '23, the combined exports stood at 22%, which was lower than 26% clocked in the previous quarter. However, it remained higher as against 17% in Q1 FY '22, with SPD exports registered a 37% growth -- sales growth on year-on-year basis. Despite the external factors, our business agility, operational management, financial prudence and focused approach helped us to post reasonable performance for Q1 FY '23.

We continue to serve the domestic and international markets by widening our value-added stainless steel product portfolio. We have catered to a robust stainless steel demand from key domestic sectors automobile, metro, railways, coaches and wagons.

In fact, in case of automobile, we have increased [indiscernible] 40% on a sequential basis. Demand from metro sector continues to be steady with major national metro projects in the pipeline. Our in-house R&D wing evolved -- improved stainless steel grade and finishes for the lift and elevator and auto segments. Additionally, we have further enhanced our digitization initiatives like product and MPC authentication for existing and end customers, online order booking and online payment portal.

Continuing with the development, I am pleased to share that we have supplied our most cost-effective and superior stainless steel for various infrastructure projects, such as Jindal [indiscernible] India's second and third stainless steel foot-over-bridge at Srikakulam in Andhra Pradesh and Bhayandar in Greater Mumbai. We are also supplying stainless steel for developing technologically advanced and state-of-the-art train sets for India's first regional rapid transport system.

I'm also happy to share with you that we are proud supplier of stainless steel for construction of the Udhampur-Srinagar-Baramulla Rail Link project with its national importance. This will be the first ever application of stainless steel cable trains in the Indian Railway project, and we see many more opportunities in this sector.

Let me now update you on the value accretive and critical acquisitions. JSL is going to acquire Jindal United Steel Limited as a wholly owned subsidiary, further enhancing its stainless steel manufacturing integration with all critical facilities now under 1 umbrella. This would result in improved synergies between both the entities and preferred governance structure, thereby enhancing value for all our stakeholders. Further details in this regard will be shared by Anurag later.

Our focused approach to reduce our carbon footprint continues. On building a road map to achieve our ESG and decarbonization goals, EY has been appointed as a partner. During Q1 FY '23, we continued to engage in green initiatives as part of our operational excellence projects. In Hisar, we are also set to install a green hydrogen plant. Through these ventures, we will be able to conserve power and reduce the carbon emissions considerably.

With this, I would like to hand over to Anurag to discuss the operational and financial performance. Thank you.

[Anurag Mantri, executive]

Thank you, Abhyuday. Good afternoon, everyone, and a warm welcome on the call today. We have started the earning present -- we have shared the earnings presentation with stock exchanges and today's call discussion will be on the same lines. As Abhyuday mentioned earlier, the quarter encountered with unforeseen macroeconomic challenges that impacted the overall performance of Indian stainless industry as a whole. However, our focused approach on niche product development and agile project mix helped us partly steer through these challenges and report a reasonable performance for the quarter.

Our focus on ART and ABC segments have augured well, as we could increase our share of business in automobile sector. Coaches, wagons and metro segments of Indian Railway have been doing well and looking promising in the future as well. Going forward, we are committed to develop a strong stainless steel ecosystem in the country by focusing and awareness skill development, new product development, and identification of sustainable applications for stainless steel. Our focus remains on the development of special grid for the critical applications.

Let me now come to our operational and financial performance during the quarter. On a year-on-year basis, the pro forma combined revenue for Q1 FY '23 rose by 31% on a year-on-year basis to INR 8,115 crores. EBITDA and PAT for the same period stood at INR 832 crores and INR [ 475 ] crores, respectively. As far as our performance of the subsidiaries are concerned, the combined EBITDA grew 50% on a year-on-year basis to INR 87 crores in Q1 FY '23 despite many challenges.

Raw material prices continued to be highly volatile during the quarter due to the ongoing Russian-Ukraine conflict and also the macroeconomic issues as well. After initial surge in the prices fell on account of unwinding of the speculative position, increased control on the supply chain by governments across the world to fight inflation, deaccelerating the Chinese economy due to the renewed COVID lockdowns and softening of logistic imbalances.

At the end of Q1 FY '23, our pro forma combined entity net debt stood at INR 3,513 crores, down by 26% as against the March '20 level. As we have been saying, we have been able to maintain our leverage ratios efficiently, despite disruption. For the combined entity, while the debt equity stood at 0.4x, the debt EBITDA remains at 0.8x. Interest cost for the combined entity declined by 10% year-on-year basis on account of lower interest rates.

For both companies, the credit rating for long-term facilities at AA- and for short-term facilities at A1+ are maintained.

On the merger update, let me intimate you that the post approval of shareholders and creditors of JSL and JSHL on April 23, 2022, the honorable NCLT has fixed the next date of hearing as 18th October 2022, and we expect the process to be completed in due time over the next 4 to 5 months. As Abhyuday mentioned earlier, JSL is going to acquire JUSL, Jindal United Steel Limited, which is a hot strip mill and cold roll unit. The proposed acquisition of 74% stake in JUSL shall be made at an aggregate consideration of INR 958 crores.

The acquisition would be done on -- done in 1 or more tranches by June 30, 2023 subject to requisite approvals. JUSL has been operating the hot strip mill with its total capacity being enhanced to 3.6 metric tonnes per -- million tonne per annum. JUSL is also operating a cold roll mill with the facility of 0.2 million tonnes per annum for stainless steel applications.

We have been focusing on our core strength to mitigate various challenges. We believe that our strategic initiatives will be augmenting our performance in the long term, under the -- once the environment normalized.

With this, I would like to end my discussion and will request the moderator to open the floor for the Q&A session.

[Operator]

[Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss.

[Amit Dixit, analyst]

I have a couple of questions. The first 1 essentially is on volumes. So if I look at volumes, understandably, this quarter, it was down. So would you be revisiting your volume guidance for FY '23? And a related question on this is, are you also contemplating delaying the 1 million tonne expansion at Jajpur in view of regulatory uncertainty that persists at this point in time?

[Abhyuday Jindal, executive]

So Amit, thank you for your question. First, in terms of volume guidance, we feel that despite -- I mean, despite all the challenges as compared to last year, this year we should do about 5% to 10% less in our -- in volumes. And in terms of -- if you're saying our expansion that is happening, I think we will keep it on track, but maybe the ramp-up we can slow down depending on the market conditions and these regulatory challenges, so if they had removed, then we can increase the speed of ramp up. If we still see challenges pertaining export duty still remaining, then we can slow down the ramp-up speed.

[Anurag Mantri, executive]

So Amit, on -- because our expansion, if you see, was targeted to end in this financial year. So it's almost at the last end of the completion. So -- and most of the costs are already committed, and now we are doubling. I think overall, because there is no point in further delaying it, because eventually, we hope that situation will further improve.

[Abhyuday Jindal, executive]

Yes, we don't expect export duty to be there for very long, so we are happy to continue our expansion process.

[Amit Dixit, analyst]

Great. The second question is essentially on JUSL. Now you mentioned that -- I was under the impression that JUSL already has a rolling capacity of 3.2 million tonnes per annum. We are using 1.6, because of our own staff. So in order to expand it to 3.6, first of all, how much CapEx would be needed? And if you could let us know your CapEx estimate, I mean, in light of -- a lot of things that have happened for this year and maybe next year, that would be very helpful?

[Anurag Mantri, executive]

JUSL, the current capacity is 1.6, which is getting enhanced to 3.6 million tonnes at a CapEx of around INR 350 crores -- INR 350 crores to INR 400 crores. That's the overall CapEx. It is actually around INR 350 crores. Now that's what's the process and the JUSL capacity expansion.

Overall, your second question was on the CapEx of Jindal Stainless Limited. So if you recall that the last year -- out of the last year, INR 1,100 crores committed CapEx, we did only INR 950 crores, so around INR 150 crores CapEx was spilling over to this financial year. And this financial year CapEx was also at around INR 1,100 crores. So almost INR 1,250 crores will be there in this financial year.

[Amit Dixit, analyst]

This INR 350 crores to INR 400 crores, is it part of this INR 1,250 crores?

[Anurag Mantri, executive]

No, INR 350 crores is not part of this. This is I'm talking about Jindal Stainless and that I talked about the INR 350 crore of the JUSL CapEx.

[Amit Dixit, analyst]

And over how much -- I mean how much period will it be split the INR 350 crores to INR 400 crores?

[Anurag Mantri, executive]

JUSL CapEx will be close to around 12 to 15 months. FY '23, I think, because -- see, the CapEx spillover will be some of these staggered. But overall, I think by the beginning of FY '24, along with the JSL capacity, it will be aligned.

[Operator]

[Operator Instructions] Next question is from the line of Nishith Shah from Aequitas Investment.

[Nishith Shah, analyst]

Sir, I would like to understand how do you see the global demand supply scenario now?

[Abhyuday Jindal, executive]

See, as of now, whenever the commodity prices are falling, everybody gets into a destocking sort of situation. And that is where the whole global stainless market is at right now. And this is always the nature of our industry or the business. So we expect maybe this quarter also prices to be falling, then Q3 onwards, again, there should be some stability and demand will also come back.

[Nishith Shah, analyst]

Okay. And my second question is, what is the CapEx plan for the green hydrogen plant?

[Abhyuday Jindal, executive]

I can get back to you on that. That is, I think, maybe the -- our partner will be investing, and we will be getting into a sort of pay as we use model. But what investment we might have do that I can get back. It's not a very significant amount.

[Operator]

Next question is from the line of Kirtan Mehta from BOB Capital Markets.

Kirtan, sorry, but I'm not able to hear you. Can I request you to speak through the mobile handset?

[Kirtan Mehta, analyst]

Is it better now?

[Operator]

Slightly better.

[Kirtan Mehta, analyst]

Okay. I was interested in understanding you have listed that you have faced double whammy, both from the higher imports as well as sort of restriction on exports. Could you explain this situation across different product series, 200, 300, 400, which one is more resilient and where you are seeing higher pressure?

[Abhyuday Jindal, executive]

So the maximum pressure that we are seeing is in 200 series. That is because maximum dumping in 200 series is happening from China. And that is where we are seeing from a domestic point of view. From export, because maximum export was in 300 series and with this 15% duty coming, the max -- major impact on export is on 300 series. Does that answer your question?

[Kirtan Mehta, analyst]

Yes, I think that gives a good insight. And what are the steps that you can take to sort of the restrict the volume decline to only 5% to 10% over the year?

[Anurag Mantri, executive]

So there are multiple things, as Abhyuday mentioned in the call -- opening remarks. There are a few sectors in domestic market, which we continue to focus was automobile and railways specifically, which continue to show good demand, which in railway includes all throughout the metro, coaches, wagons, as well as the rail infra, foot-over-bridges. So there is a good traction on the railway side, where we will continue to focus. Automobile side is also showing a good traction. So these 2 segments, we will -- which are more quality-based and certain approval restriction based segments, where we'll continue to focus.

Some of the special product divisions in Hisar obviously will continue to be on the more dominated by export market and which we'll continue to pursue all these segments. So it's a combination and the 400 series also in the mix, which will continue to increase in the various segment application. So with a combination of multiple things, we will have -- overall maintaining these type of volumes in the entity.

[Abhyuday Jindal, executive]

And it is -- if you ask from a market point of view, there is capability or market available for us to meet 100% of our capacity, but we don't want to drop our margins. Because what will happen then is, we have to significantly drop our margins to get an extra market share. So as a strategy, we would not like to do that. It also spoils the whole market sentiment in the market. So looking at that, we're willing to take a 5%, 10% reduction in volume and not spoil the market. And like we mentioned many times that if this export duty is removed, then this volume gap can also be reduced.

[Kirtan Mehta, analyst]

Right. In terms of sort of also understanding on the export market, what level of exports could continue while the export duty still remains, separately in sort of the parent company as well as Hisar?

[Abhyuday Jindal, executive]

So if we were doing almost, let's say, 20,000 to 25,000 on average last year or 25,000 last year, we see that at least between 12,000 to 15,000, we should still be able to export with the duty is being there.

[Kirtan Mehta, analyst]

For the stainless or combined together?

[Abhyuday Jindal, executive]

Stainless steel. What else are...

[Kirtan Mehta, analyst]

I was asking -- the entity JSS plus JSSH or is it only for to the parent entity?

[Abhyuday Jindal, executive]

Both combined together.

[Kirtan Mehta, analyst]

Understood. And in terms of the price decline, how are you seeing the trends from June to July? Are you seeing any signs of stabilization in the market or this will continue through the quarter?

[Anurag Mantri, executive]

The price in the stainless steel is also a function of underlying raw material prices. It's not like straight forward like a steel business. So typically, underlying raw material prices when it comes down, the price actually goes down commensurate with that, because eventually, it's a pass-through mechanism with the time lag. So it all depends on the -- largely on the external -- underlying commodity prices, 1 is that.

Second is that overall, our realization will also be a combination of the product mix depending on the export, how the export we do, SPD as well as in terms of the various segments. So because 300, 200, 400 series, obviously, the realization sizes are very different due to the underlying -- different underlying raw materials.

[Operator]

The next question is from the line of Ashish from Centrum.

[Ashish Kejriwal, analyst]

Sir, my question is on JUSL acquisition. After this acquisition, what kind of savings in the sense of conversion margins we can expect from there?

[Anurag Mantri, executive]

So typically, Ashish, there would be -- obviously, there would be an improvement in our overall margins with the JUSL because of the integrated play. So we will probably update the guidance. Right now, we are maintaining our guidance of INR 18,000 per tonne on a stand-alone basis. And once we complete this transaction, depending on the market conditions, we will just update our guidance appropriately.

[Ashish Kejriwal, analyst]

Sir, what we are trying to look at is what kind of margins -- conversion margins we are paying to JUSL right now in order to convert that slab into HRC and then coming back to it, at least we will save that. So what is the current status on that, maybe in future it will do that?

[Anurag Mantri, executive]

So basically, that margin is also an underlying combination of the underlying fuel prices also for them. So it ranges between say even to an extent of INR 3,000 to INR 5,500 -- INR 5,000 per tonne on an average. That's what the trend is that. But it's also a function of the underlying energy prices for that.

[Ashish Kejriwal, analyst]

Understood. Understood. And second is, is it possible to share what kind of margins or are we making enough margins in the export market? And assuming that export duty remains, then also we are maintaining our EBITDA per tonne guidance of INR 18,000 to INR 20,000 or will there really be any change in that?

[Abhyuday Jindal, executive]

The export duty remains, we will be holding on to our EBITDA guidance of INR 18,000 to INR 20,000. In terms of margin export, Europe, which is 15% duty, definitely margins are under pressure, and it is not viable to sell. But in the U.S. market, we still see good margins there.

[Ashish Kejriwal, analyst]

So you are saying...

[Anurag Mantri, executive]

And the Special Products division is out of the duty purview of less than 600. So that actually continues as it is.

[Ashish Kejriwal, analyst]

Okay. So you're saying in U.S., even after paying 15% export duty, our margins are good?

[Abhyuday Jindal, executive]

Yes.

[Ashish Kejriwal, analyst]

Okay. And lastly, sir, in your interaction with the government bodies, obviously, any sense you are getting for removal of this export duty or we are still on the same page as we were in June.

[Abhyuday Jindal, executive]

There is no commitment or clarification that they are giving, but from whatever we are hearing, the impact that had to be created has already happened. Steel, stainless steel prices are severely -- significantly come down. World is under -- anyway looking towards recession or downward pressure. So feeling is that another couple of months, they should remove it, but there is no commitment from their side that I can convey.

[Operator]

Next question is from the line of Abhijit Mitra from ICICI Securities.

[Abhijit Mitra, analyst]

Now since you have announced the intention to acquire JUSL, can you also start sharing the volumes and the EBITDA that you did in this quarter and the net debt at the end of this quarter in JUSL? And that's question number one. Question #2 is that, this year, in JSL, you are committed to do almost INR 1,450 crores of CapEx. Additionally, I think -- I don't know when this INR 958 crores will flow out. But add to that the net debt that is going to come through on account of JSHL acquisition or any other inorganic acquisitions that you do. So what kind of net debt profile you are looking at by the end of the year? These are the 2 questions you can have. Thank you.

[Anurag Mantri, executive]

I think, Abhijit, your voice was not very clear, but let me just try to summarize, I think, your 2 questions, which I understood correctly. One is that -- was that the net debt situation -- last question was the net debt situation at the end of this financial year, considering this JUSL payout as well as you mentioned about CapEx also, which CapEx you mentioned about?

[Abhijit Mitra, analyst]

The CapEx of INR 1,450 crores that you are doing in JSL plus JUSL?

[Anurag Mantri, executive]

JSL CapEx is not INR 1,450 crores. Actually, JSL CapEx, if you recall, we always said that it will be FY '22 and FY '23, the payout of the CapEx will be INR 1,100 crores in each financial year. So that's exactly the number, which is there in JSL CapEx side. The JUSL payout will depend on the approval process, and it may be in tranches, because we may go on -- depending on the cash flow side of us, it will be probably in 1 or more tranches or maybe need 2 tranches or 3 tranches depending on how we progress on that.

And by June 2023, these are expected to be completed.

[Abhijit Mitra, analyst]

Okay. And the numbers of JUSL, if you can share for this quarter and the net debt, which is outstanding there at the end of the quarter?

[Anurag Mantri, executive]

The JUSL debt is INR 2,050 crores. The JUSL -- basically, the numbers will be on the basis of the tolling volumes, which we go. So as I told you that 1 is that stainless steel tolling which gets done for JSL in that entity and the margin side as shared in the call. And then also, there is a cold rolled businesses separately. In that also, which is again the stainless steel cold rolled, so it's in line with whatever JSL margins remains on an average side. And on top of it, whatever carbon is still on and off tolling, which they keep doing for various outside carbon steel players. So it's always varies with that.

I think the expected run rate if I remove, with our 2 million tonne capacity reaching JSL, their EBITDA would be probably in the range of -- only on tolling itself will be close to INR 800 crores, INR 1,000 crores range.

[Abhijit Mitra, analyst]

After the 3 million...

[Anurag Mantri, executive]

And cold roll is separate. 0.2 million tonne cold roll is on top of it and the carbon steel tolling, which they can continue to do with the outside entities will be separate.

[Abhijit Mitra, analyst]

Right. Right. And so essentially, the enterprise value that you have arrived at is INR 3,340 crores, right, for JUSL?

[Anurag Mantri, executive]

So there were -- multiple things were there in independent valuations, which we -- when we took their opinions on this. Also, obviously, 1 was the DCS and because they are doing the capacity expansion, similar asset, if you see typically the industry standard for putting HSM, which a lot of carbon steel players are right now, doing is around typically $180 to $200 per tonne is the CapEx cost. So put altogether, I think with 3.6 million tonne capacity is the net -- basically the debt number I already shared with you. So depending on the valuation metrics, you can see the numbers.

[Operator]

The next question is from the line of [ Rithvik Sheth ] from One-Up Financial.

Rithvik, can I request to speak a little louder.

[Unknown Analyst]

Yes. Is this better?

[Operator]

Yes.

[Abhyuday Jindal, executive]

Yes.

[Unknown Analyst]

Sir, what was the production number for Q1 for both the entities?

[Abhyuday Jindal, executive]

3,67,000.

[Unknown Analyst]

Okay. So basically, our production was lower and that almost equal to sales, right?

[Abhyuday Jindal, executive]

Production was lower as compared to Q4 last year.

[Unknown Analyst]

3,67,000 is for the merged entities, right? JSL and Hisar?

[Abhyuday Jindal, executive]

Both entities, yes.

[Anurag Mantri, executive]

That's the sales volume number thing. Production number was around 4,23,000. Sorry, I think, because typically, the sales number, which we are pointing. So production number was around 4,23,000, because there is also an expected shutdown in Q2 accordingly the production we continued to maintain.

[Unknown Analyst]

Right, right. Yes. So my next question was that, so we're looking at about 5% to 10% reduction in sales volume. So should we expect a moderate production for FY '23, so that we don't pileup on inventory? Is that a fair assessment?

[Anurag Mantri, executive]

Yes, that's the idea. There is no point in -- there's no plan of increasing inventory in anticipation. We will end -- that's what our business model is that we continue monitor our underlying inventories across the entire supply chain, raw material, WIP and FD and within the range, so that at least even the commodity doesn't hit us to that extent. And there is a pass-through model also as a conversion process. So we will continue to maintain the same strategy.

[Unknown Analyst]

Sir, my next question is on -- did we have any kind of inventory hit in the quarter, because of higher nickel prices?

[Anurag Mantri, executive]

See, inventory positive or negative inventory valuation is a normal phenomenon in this type of conversion business, because when the raw material prices goes high, you typically see the positive valuations. And when it comes down, you will see a negative valuations happening. But it's -- on a long-term basis, it averages out in the 12 to 15 months' time because -- so in this quarter, in the beginning, we saw a huge surge in nickel prices and it came down. So it's a process, it's a build up in the integrated manner in the model.

[Unknown Analyst]

Okay. And is it fair to assume that there could be some further hit in Q2 as well, because where the current spot nickel prices are and -- at the end of June?

[Anurag Mantri, executive]

See if you assume there would be a downward, I think the answer is yes. But frankly, I mean, we don't know, because we have been seeing...

[Abhyuday Jindal, executive]

Yes. Because nickel has been really volatile if you see with whatever is happening across the globe. So if it continues in a downward movement, but nickel if you see it's been hovering between $20,000 to $22,000 per tonne. So it totally depends on how nickel market moves.

[Unknown Analyst]

Sure, sure, sir. And my last 2 questions on, what was the CapEx which we incurred in Q1?

[Anurag Mantri, executive]

Q1 total CapEx was INR 550 crores.

[Unknown Analyst]

For the merged entity, right?

[Anurag Mantri, executive]

Yes.

[Abhyuday Jindal, executive]

Yes.

[Unknown Analyst]

Okay. Okay. Okay. And sir, you mentioned to the previous participant on JUSL, on the expanded capacity of 3.6 million tonnes. So once we are at a full ramp-up assuming 2 years out for the merged entity of 2.9 million tonnes, what would be the tolling required for the merged entity of stainless? And then how much would be left for carbon steel?

[Anurag Mantri, executive]

So the tolling will be largely for the Odisha capacities in JUSL, not for Hisar capacity. But some of that depending on -- again, it depends on the external market situation also. But the minimum around, say, if you take a 2 million tonne of capacity or 2.1 million tonne capacity of -- at the Odisha plant, so that will be the tolling for SS.

[Unknown Analyst]

Okay. So basically, we will have another 1.5 million tonnes for carbon steel?

[Anurag Mantri, executive]

Yes. That could be used for the [indiscernible].

[Abhyuday Jindal, executive]

Correct.

[Unknown Analyst]

Okay. And would there be any difference of margins on the tolling or -- for stainless and carbon steel or both would be more or less similar?

[Anurag Mantri, executive]

It's -- see, this is all -- because carbon steel is done outside right now. Most of these are external customers. We cannot share the specific details on it, but it depends on account to account and depend on external market conditions also on these times. So -- but more or less, it moves in the same line with that.

[Operator]

Thank you, Rithvik. I'll request you to come back in the question queue for a follow-up question.

Next question is from line of Vishal from Motilal Oswal.

[Unknown Analyst]

Sir, my question was with regards to your plans for setting up a blast furnace. So if you could just elaborate to support the series 400 production, what is the plan for setting up a blast furnace? And what kind of cost savings should we expect out of it?

[Anurag Mantri, executive]

So Jindal Stainless will not be setting up any blast furnace. As I said earlier also that there would not be any blast furnace, which Jindal Stainless which will be setting. We'll be using for our 400 series requirement depending on how the -- it will be like a raw material price comparison and then -- so we can always be buying it from -- separately from outside. So -- but as I said, there's no plan of Jindal Stainless to set up the blast furnace.

[Unknown Analyst]

Sure. And secondly, on your debt repayments, what is the schedule over the next 2 to 3 years and how do we look at whether we plan to accelerate the repayments? Or we think given our CapEx and the M&A cost pressures, the -- only the scheduled repayments would be done?

[Anurag Mantri, executive]

Vishal, looking at the current situation, there is no -- because we have our CapEx also ongoing. I don't think there would be a debt reduction beyond the scheduled repayments. We don't intend to pay beyond the scheduled repayments at this stage. And currently, the situation is in a comfortable situation. JUSL's scheduled repayments are actually, hardly of almost INR 175 crores over next 3 years, '23, '24, '25. And in fact, even '26, '27 is also prepaid in their installment. So there's no large repayment schedule in JUSL also.

[Operator]

The next question is from the line of Ankit from Kotak Mahindra.

[Unknown Analyst]

Just wanted to understand on the EBITDA guidance, which we have of INR 18,000 per tonne. So with the export duty ongoing and INR 22,000 per tonne, which we have made. So we are saying that for the next 9 months, we would be making somewhere around INR 16,500 to INR 17,000 per tonne. And is that understanding correct? And this is what we have seen in June month, where we have seen the impact of export duty?

[Anurag Mantri, executive]

See -- I think number wise, you stack up I think rightly. But as I told you that these duties came in suddenly as a shock and right now, that's why we want to maintain our guidance at INR 18,000 a tonne, because it's difficult to predict over next few months at this stage. But we are hopeful, I think the situation will improve and as that improves, as you have always seen, we will be doing the reviews of this guidance on a very regular basis, and we can again -- in the next quarter, we'll be able to have more clarity on where we are heading.

[Unknown Analyst]

Okay. And sir, why is the domestic demand -- domestic volumes dropped? Is it only because of the imports or any kind of demand disruption we have seen?

[Abhyuday Jindal, executive]

Again same thing, this is all across the globe, where your commodity prices start coming down, everybody goes into a destocking mode. Because they don't know much the commodity prices are going to fall or when they're going to stabilize. So people, the amount that needs to buy like -- if a customer used to buy, just to give you an example 100 tonnes in a month, he dropped it down to 20 to 30 to 40 tonnes in a month, only to see how the market, how the prices move. So that is the only factor, which has dropped down or slowed down the domestic market. And as I mentioned, we can definitely increase our volume, but I'll have to take a hit on our margins again. So that is a strategy we would not like to do that.

[Anurag Mantri, executive]

So as Abhyuday mentioned is that -- in earlier time is that practically, there is no -- demand has not slowed down, either it's being made up from destocking or the import. And for us also, meeting the -- hitting the volume is not a challenge, because, see, it's a basic difference between steel and stainless steel. Stainless steel -- for steel probably the export is a compulsion. For us, export was always our discretionary, because the domestic market itself is a very wide gap. And you see last quarter almost 50% domestic market were actually catered by imports. So we could have actually catered that margin, but we would have to reduce then our margins. So -- and get into the some of the segment of substandard quality in which we don't want to go.

So that's the balancing. Otherwise, there's no -- demand continues to grow on standard basis what across the various segments for stainless steel.

[Unknown Analyst]

Okay. Understood. And 1 last question on JUSL. Last time, we announced we're doing a INR 2,500 per unit floor blast furnace CapEx in JUSL. So is that plan on or are we not going ahead with that? And if not, then what is the alternate we are looking at for meeting the requirements?

[Anurag Mantri, executive]

So JUSL, we will not be doing any blast furnace CapEx. There is no plan of JUSL doing any other CapEx. And on that basis, we are taking the JUSL -- we'll be acquiring the JUSL for their existing and expanded capacity of hot strip mill and cold roll unit. So there will not be any blast furnace in JUSL.

[Abhyuday Jindal, executive]

So the idea is to have a fully integrated stainless steel company.

[Unknown Analyst]

Okay. So we will not require additional blast furnace in even in JSL or JUSL or we will outsource that part for that volume?

[Anurag Mantri, executive]

There will not be any blast furnace, as we mentioned, in JSL or either JUSL.

[Operator]

[Operator Instructions] The next question is from the line of Ritesh Shah from Investec.

[Ritesh Shah, analyst]

Sir, my first question has 3 parts. One is, how should 1 understand the rationale on timing for JSL/JUSL? That's one.

Secondly, what were the other options that were considered prior to the transaction, which has been mentioned in the press release? How did we funnel to this particular transaction?

And the third question I have on the valuations. I'll take it later, so I think these are 3 buckets in the first question.

[Anurag Mantri, executive]

Okay. So your question is on the -- option for acquiring JUSL, various options. That's what your question, Ritesh?

[Ritesh Shah, analyst]

Sir, first question is on the timing. Why do it now? Why not later? What is it that prompted you to do that transaction now?

[Anurag Mantri, executive]

Okay. So good question, I think. And the answer actually is that if you see every time -- because this is 1 critical part of the stainless steel process, which used to be outside in the promoter entity. And every time when we used to even go for related party approvals, everybody used to raise concerns on these related party transactions. So -- and we were hearing from all the shareholders the same thing, that this should be always be in the main entity, JSL. And it's -- only 26% stake is not good and it should be in complete control of JSL. So it's based on party. So it's better to get it done sooner rather than keep running these related party transactions for the longer period. So it's a preferred governance structure as Abhyuday mentioned in his opening remarks.

I think -- so from our perspective, I think -- the shareholder's perspective, I think -- because last year, itself, the related party transactions of JUSL were almost INR 1,700 crores. So rather than getting into these type of transaction, which would have increased much further, because of the higher capacities of JSL. So in our opinion, I think it is very, very transparently -- transparent structure and should -- based on the feedback from the various shareholders, which we received, that it should be corrected sooner than later.

Second question was on the options -- is that acquisition options right?

[Ritesh Shah, analyst]

Yes, sir. What were the other options that you would have considered prior to the proposed transaction of JSL bind out JUSL?

[Anurag Mantri, executive]

Proposed option in the sense, proposed option for consummating this transaction?

[Ritesh Shah, analyst]

No, sir. I'm saying, say, it could have been a potential merger. That is 1 variable. The other variable -- probably, I have a few in mind, but I'd like to hear your thoughts, sir.

[Anurag Mantri, executive]

Yes. Okay. So you are right. I think the merger could have been 1 option and which we evaluated deeply along with even our lender. So just to give you the JUSL capital structure, They have almost 20-year loans. And we are at least -- and it's highly ballooned towards the fag end. In fact, till FY '28, most of their loan installments have been prepaid. So it's highly ballooned structure with almost average -- almost at around 11 years plus with 20-year door to door. The merger would -- with the lenders, what -- when we discussed with lenders, the merger would have created, because we'll have to bring this debt at par with the JSL repayment structure, which means at least we'll have to accelerate the payment with at least INR 500 crores to INR 600 crores cash outflow starting from this year itself.

So that -- from that early somewhere, I think, linked with your timing also, because both sides would have hit the thing, we'll have to -- and next 2, 3 years there would be an additional repayments of almost INR 1,000 crores in cash repayment. So that the -- so that's 1 part of the -- because merger, we would not have been able to protect the current balance sheet structure, which is a very robust balance sheet structure of JUSL. That is 1 part.

Second is merger is always through the NCLT process, which would have gone almost -- we have seen what's happening in JSL, JSHL merger, the way NCLT is taking in these routine merger cases, not on priority as compared to the resolution cases. It would have dragged almost 2 years -- 2 to 3 years' time over. So these were the 2 large parts, which obviously in consultation with lenders and how the structure should evolve. So I think it will be very, very good for even JSL shareholders, because there's no scheduled repayment liabilities in JUSL. So there is no cash strain on next at least 3 to 4 years for JUSL.

[Operator]

We move to the next question. Next question is from the line of Rajesh Majumdar from Batlivala & Karani Securities.

[Rajesh Majumdar, analyst]

I just had 1 question, sir. What is the overall peak debt that you envisage after taking into account JUSL debt and the INR 948 crores log we are seeing? And how many quarters do you see that peak debt lasting? Because as per your guidance, you have given INR 18,000 kind of EBITDA per tonne, which translates to roughly INR 3,300 crores, INR 3,400 crores, maybe operating cash flow of INR 2,500-odd crores. So depending on that calculation, what do you see the peak debt of the company at and for how many quarters?

[Anurag Mantri, executive]

I think that the JUSL transaction will also be in tranches. It may not be in 1 tranche itself. And I think it will spread over to maybe 2 tranches or 3 tranches depending on how we progresses. The feedback is also question of the EBITDA. I think we guided the volumes will be probably down by 5% to 10% and INR 18,000 EBITDA per tonne. But how it moves out, I think, accordingly, the free cash flow will be there. There's no other CapEx right now committed except for the current CapEx, which is going on, which will be close to INR 1,450 crore in this financial year.

With this, I think if I -- I think if the EBITDA run rate and the volume picks up and it continues like that, there will not be any significant increase in the peak debt as such, maybe INR 1,000 to INR 1,200 crore not beyond that. But also, it's a question of how the EBITDA moves, how we ramp it up overall capacity. So it's difficult to predict, frankly, in uncertain times that how long it will continue, but we'll continue to maintain very prudent ratios and monitor that. So idea is not to have a significant increase in debt EBITDA or debt equities like that.

[Rajesh Majumdar, analyst]

Do you have any ratio in mind of net debt-to-EBITDA of peak something like that, which you can use, say, 1.5 or 2?

[Anurag Mantri, executive]

Yes. So net debt-to-EBITDA, I think internally, we also maintained that at least we should never across 2 -- ratio of 2 at any point of time. But I think we have sufficient head room, the idea is not to, in fact, reach towards there. But I think 2 is the net debt-to-EBITDA, which we have been always kept internally in mind -- and during the CapEx phase and depending also on the EBITDA situation also, because it's a function of that. But what is that we are saying, trying to maintain is that it should not cross the net debt-to-EBITDA of 2.

[Rajesh Majumdar, analyst]

And sir, last question, post merger after the cancellation of the intercorporate debt, what will be our debt now for the combined entity?

[Anurag Mantri, executive]

The combined entity debt after cancellation is close to INR 3,500 crores right now.

[Operator]

Next question is from the line of Ritesh Shah from Investec.

Ritesh, sorry to interrupt you, your voice is not clear. Can I request you speak through the handset?

[Ritesh Shah, analyst]

It's through the handset. Am I audible?

[Operator]

Sir, we can hear you, but it is not clear.

[Anurag Mantri, executive]

Yes.

[Ritesh Shah, analyst]

My question is, sir, the idea behind JSL, JUSL was to reduce the related party transaction. My question is to, Abhyuday sir, eventually, if we lease the steel mills say under a promoter entity. Again, it is something which is likely to pop up. And again, investors will come back to us saying that there is related party transaction. This is something which could be like 3 years, 4 years out. How would we tackle that scenario?

[Abhyuday Jindal, executive]

Your question wasn't clear.

[Anurag Mantri, executive]

I think -- because your voice is not clear, but yes, if we understand correctly is that you are saying that it is also a related party transaction, so concern will pop up. Is that what your question?

[Ritesh Shah, analyst]

Yes, yes, yes. It could pop up 3 years out, but again, it comes back to the same problem.

[Anurag Mantri, executive]

Yes, Ritesh, so I think just to give you the number, this would -- last year the related party transaction approval for this type of transaction was INR 1,700 crores plus and it would have doubled actually with the doubling of volume of this. So rather than -- the transaction value is currently INR 950 crores. So just to give the -- to put the numbers in perspective, the recurring approval of this type of transaction, every time we were hearing and every time, in fact, whenever it goes for the related party approval, all the investors they used to say that it should not be with the related party and it should be bought. And we have a written report from the various advisers, which has been published like that.

So I think from our perspective, we have addressed 1 side of the concern of what investor which we are hearing from the investor. And it's always good to have an integrated play. That's what we believe that is in the -- in a long run, it's in the larger interest rather than keep doing these type of transactions with the company, which is 74% owned outside. So that's what our perspective.

[Ritesh Shah, analyst]

Sure, sir. Sir, is it possible to look at this particular variable from a sustain...

[Operator]

Ritesh, sorry to interrupt you, but your voice is not clear at all. Can I request you to call back, please?

[Ritesh Shah, analyst]

Sure.

[Operator]

The next question is from the line of [ Aashav Patel ] from Molecule Ventures.

[Unknown Analyst]

Sir, my question is that JUSL, INR 350 crores CapEx, which we are already undergoing. So the loan for the same has already been reflected in the balance sheet or that would be incremental investment from our side?

[Anurag Mantri, executive]

So the loan current outstanding of INR 2,050 crores does not include that, but they have already tied up loan -- CapEx loan, which has been tied up. So which will be in the JUSL entity, not in JSL. And that's -- they will be drawing that line eventually of that loan. So that's already tied up that for them, because before starting the CapEx, they tied up their CapEx loan.

[Unknown Analyst]

Sure. So effectively we will be infusing additional INR 350 crores on top of the INR 958 crores, which we are infusing in JUSL. Is that right?

[Anurag Mantri, executive]

We will not be infusing anything. They will be taking that loan, which is the committers. They'll be drawing the loan as per their requirement during the CapEx basis.

[Unknown Analyst]

Okay. Okay. And sir, as far as I recollect, JUSL was demerged from JSL in 2014. So can you please explain to me with -- like can you please give me of rough enterprise value at which it was calculated while demerging JUSL from JSL?

[Anurag Mantri, executive]

I think I don't have the value right now, but we can always -- I can ask Goutam and Shreya to give you the details, I think we can work it offline.

[Unknown Analyst]

Sure. So the capacity has not changed overall for the past 8 years, right, at JUSL?

[Anurag Mantri, executive]

The capacity is not doubling up. There's a big change in the capacity. At that time, there was no cold roll mill into JUSL. So there is now 0.2 million tonne cold roll mill in the JUSL. Plus the capacity earlier was 1.6 million tonnes, which is getting to 3.6 million tonnes per annum. And just to give you the number, I think right now, many carbon steel players are putting this HSM capacity of -- that I think you guys are much better placed with their numbers. But I think as per our understanding, $180 to $200 per tonne is typically the rate of these type of facilities currently in the market.

[Unknown Analyst]

Sure. Okay. And sir, last question. We also demerged Jindal Coke Limited during our restructuring. So any plans to even acquire the same going forward?

[Anurag Mantri, executive]

No. No, because coke...

[Abhyuday Jindal, executive]

Not related to our stainless steel business. So we are keeping it outside only.

[Anurag Mantri, executive]

Let's not link with the stainless steel business.

[Operator]

Thank you. I now hand the conference over to Mr. Rajesh Majumdar for closing comments.

[Rajesh Majumdar, analyst]

Thank you. I thank the management team of JSL and JSHL for answering the questions accurately and to their best. I would like to request the management team for closing comments, if any.

[Abhyuday Jindal, executive]

Thank you. Let me thank everyone for attending this call. We have been focusing on our core strength to mitigate the adverse impacts that have been created in the external environment. I'm confident that our strategic steps will augment the future performance of the company. I hope we have been able to answer all your questions. Otherwise, we can take them offline. And should you need any further clarification, please feel free to contact our Investor Relations team. Thank you once again for taking the time to join us on this call. And have a great day. Thank you.

[Operator]

Thank you very much. On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.