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Jindal Stainless Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of Jindal Steel's and Jindal Stainless (Hisar). [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Chandak. Thank you, and over to you, sir.
Thank you very much. Thank you. Good afternoon, ladies and gentlemen, and welcome to the fourth quarter earnings call for Jindal Stainless and Jindal Stainless (Hisar). I would like to thank the management team of Jindal Stainless for providing this opportunity to host them for the call. We have from the management side, we have Mr. Abhyuday Jindal, Managing Director, JSL and JSHL; Mr. Anurag Mantri, Group CFO, Jindal Stainless; Mr. Jagmohan Sood, the Whole-Time Director at Jindal Stainless (Hisar); Mr. Ramnik Gupta, CFO of JSHL; Mr. Goutam Chakraborty and Miss Shreya Sharma from the IR team at JSL and JSHL.
So without much ado, I would like to hand over the pattern to Mr. Goutam Chakraborty for his opening remarks. Over to you, Goutam.
Thanks, Vishal, and welcome, everyone. We'll begin this call with the brief opening remarks and following which we'll be having the forum open for an interactive question-and-answer session. But before we start, 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 to the floor to Mr. Abhyuday Jindal for his opening remarks.
Thank you, Goutam, and good evening to everybody. I hope all of you are doing well with your family and friends. On behalf of the management team, I welcome you to the earnings call for Q4 and financial year fiscal year 2022 of Jindal Stainless Limited and Jindal Stainless (Hisar) Limited.
First, I would like to share the key highlights of Q4 FY '22 and the full year following which Anurag will take you through our operational and financial performance. Stainless steel prices globally and in India remained firm in Q4 FY '22, with improvement seen throughout the financial year 2022, backed by strong demand.
Stainless steel production in calendar year '21 grew by an impressive 11% year-on-year to 56.2 million tonnes. The underlying raw material prices remained extremely volatile during the quarter. Nickel prices went up by 33% and ferrochrome increased by 17% in Q4 FY '22 on a year-on-year basis.
In this backdrop, I am happy to share that our robust performance continues in Q4 as well on the back of adaptive strategies in supply chain and product basket management. Despite volatility and global disruption in raw material supply and logistics, JSL's exports doubled to 32% in Q4 FY '22 on a year-on-year basis, while export proportion from JSHL more than doubled to 18% in Q4 FY '22 from 8% in Q4 FY '21.
Key domestic sectors like elevators, escalators, railways, which includes wagons, coaches, metros continue to register a steady demand. Under our local to global initiative, we are in the process of providing customized product solutions for international operations for select domestic customers having a global brand.
We have also supplied various critical grades like super-duplex and [indiscernible] restricted industry for various nuclear applications and key fertilizer projects. Sales volume in the Specialty Products division rose by 32% this year. And continuing with this trend, we have achieved highest ever total sales in the Blade Steel and Precision Strip segment during Q4 FY '22. In this context, I'm happy to share with you that the first stainless steel foot over bridge in the country were commissioned in Naupada, Andhra Pradesh. Other than being key raw material player, JSL also played a major role in developing the ecosystem.
Another major development, JSHL became the first integrated industry manufacturing company in India to get certified with AS9100D Certification, a quality management system for aviation state defense organizations. The certification validates JSHL's competence to constantly meet high stringent standards of the aerospace industry.
We are happy that our shareholders and creditors have approved the scheme of arrangement for the merger of JSHL with JSL by an overwhelming majority. This is a testimony to the confidence that the merger is value accretive for all stakeholders of both the companies.
With this positive movement, we now expect other elevate processes to be complete in due time in the next 6 to 7 months. On the import front, subsidized imports from China and Indonesia continued. As a result, imports from these 2 countries were estimated to have risen by 147% and 280%, respectively, in FY '22 over FY '21.
This also resulted in the share of import sizing to 36% of demand in Q4 FY '22 as compared to 24% in Q4 FY '21. I am also -- I'm happy to inform you that despite the Russia Ukraine conflict, we have managed to fulfill our commitments without canceling any orders. Also sensing the factor of Ukraine war and supply disruption in EU, we continuously focus on the U.S. market and had highest ever shipments. Our exports to U.S. increased 3x during FY '22. As I told you last time, we are strategically focused on reducing our carbon footprint. Our plan for exploring renewable energy and low carbon energy transition are on track.
We are proactively switching from thermal to renewable energy infrastructure at our plant and are working toward our goal of net 0 carbon emissions by 2050. In our continuous efforts to create shareholder value, the Board has approved modification in the existing dividend policy of the company that inter-alia efforts will be made to target dividend payout up to 20% of tax of the company on a progressive basis in future.
With this, I would like to hand over to Anurag to discuss operational and financial performances. Thank you.
Thank you, Abhyuday. Good evening, everyone, and a warm welcome to -- a welcome on this call today. We have shared our investor presentation in the stock exchanges, and today's call and discussions will be around on the same line. Operating performance has been robust despite many challenges, including high volatility in raw material prices, geopolitical tensions and supply chain issues.
Key segments such as railway coaches, wagons, metro and infrastructure have been doing well for us. As Abhyuday mentioned, Specialty Products Division continued to achieve new highs. Our strategic decision to focus on export sales and strengthen its niche value-added product portfolio enabled us to steer through the certain challenging segment in the domestic market and double our export proportions.
On a combined entity basis, exports stood at 21% of total sales in FY '22 as against 15% in FY '21.
Let us look at the key operational and financial highlights of the quarter. On a year-on-year basis, the pro forma combined revenue and EBITDA of Q4 FY '22 rose by 56% and 47%, respectively, to INR 9,724 crores and INR 1,296 crores. The PAT of the same period was more than doubled to INR 1,022 crores. On a full year basis, the performance stand-alone combined revenue increased by 70% over FY '21 to INR 32,620 crores. EBITDA almost doubled up to INR 4,740 crores while PAT grew more than 3x to INR 2,949 crores.
Along with the parent company, performance of the operating subsidiaries also continue to be strong. The combined EBITDA grew 88% on a year-on-year basis to INR 143 crores in Q4 of FY '22. For the full year FY '22, the combined EBITDA of the operating subsidiaries rose 2.5x over previous year to INR 418 crores.
Raw material prices remain volatile throughout the quarter as we have seen some extreme fluctuations in the month of March. The average prices of LME in Q4 FY '22 rose by 33% over Q3 FY '22. While domestic ferrochrome average prices in Q4 FY '22 fell by 6% over Q3 FY '22. Our focused risk management practices helped us to mitigate the underlying commodity risk to a large extent and continue to have a steady margins.
At the end of FY '22, our pro forma combined entity net debt stood at INR 3,162 crores, which is down by 30% as against March '21 level. Leverage ratio has been consistently improving. The pro forma debt equity and debt to EBITDA ratio stood at 0.3 and 0.7, respectively.
With this all in our borrowing rates, the combined interest cost declined by 33% and 47% in Q4 and FY '22 to INR 74 crores and INR 377 crores, respectively. Quarter full year FY '22, the entrance costs stood at just 1% of the combined revenue. Prudent financial management with focus on balance sheet improvement will continue going forward. For both companies are credit rating certain for long-term facilities remain at AA- while the short term at A1+. The highest rating has been maintained by both the companies.
With a strong growth business outlook, we expect further improvements in our long-term credit facilities rating. Maybe as you are aware, but I'm glad to let you know, that JSHL has now become a part of the Nifty Metal Index in the month of March. As a company, we will continue to explore on new business opportunities while strengthening our existing base, we are confident that our robust product portfolio, along with strategic geographical presence, focus on capital allocation for balance sheet improvement and improving shareholder value will continue.
Well this brings to the end of my discussion, I would like to now request moderator to open the floor for the Q&A session.
[Operator Instructions] The first question comes from Amit Dixit with Edelweiss.
Congratulations for a good set of numbers. I have 2 questions. The first 1 is essentially on our sales mix or might be -- the domestic sales volume is down Y-o-Y. However, export sales have gone up 2x. Now what looks like that both are taking away the incremental growth in the domestic market. Now we have also seen that progressively protection measures for stainless steel industry are being diluted. So how are you working with the government to ensure that our interests are protected? And in particular, we are coming up with new capacity. So will the new capacity be directed towards only export because the domestic market looks quite capped at least as of now, in considering the influx of imports?
Thanks, Amit, for your question. So yes, it's a continuous process with the government to keep showcasing how much imports are coming in and how the factory is seeing -- hurt by it. So just recently, Steel Minister and his full top senior team has visited our Jajpur plant, and there, we really in detail, discussed with them, and he has committed to take it up very strongly, internally within their own systems. And we are constantly anyway approaching DRU and Finance Department that what has done is really hurting the industry back. There is definitely some positive response. They are also aware of the fact that it is China that is the main importer into the country and we are supporting more Chinese companies.
So they are cognizant of that fact, but with some immediate that we taken that I cannot commit. But the way the company is now is that if there are some protection measures or not, we will still like to maintain our position, and we would still like to maintain our sort of average margin that we have been talking about and giving a commitment for. And to your second question -- the second question was on exports sorry, if you can repeat the second question.
No, the second part of the question was on set capacity expansion we are coming up with. So what would be -- will it be directed towards export majorly because domestic market looks quite capped in view of...
Maximum volume would still be consumed in the domestic market itself because we don't want to lose our market share that we have. But yes, the proportion of exports would be increasing -- coming when the capacity actually comes on.
And Amit, going forward, domestic market also, as you have seen last few years, we have seen that import competition is more on to the amortized product rate. But certain simultaneously, there is a little slow pace of the approval base segment but that is also growing faster. So as the car capacity expansion also come as a our aim is that irrespective to the geographies and irrespective the segment, how we actually penetrate these high-end segments. So that will continue. So the domestic market, also the approval based and high-quality segments are also increasing their demand gradually.
Okay. So the second question is essentially on JUSL, blast furnace expansion. That is 2 MTPA -- it is -- I mean, we they are putting up 2 MTPA blast furnace. So just wanted to understand the relative economics of producing stainless steel with hot metal and mild steel scrap? And can you give us the comfort that JSL or JSHL will not support the CapEx in any way through ITD or any -- buying any equity stake directly, as a company, in JUSL?
Okay. So I will take this question. This is. So the first question is how this fits into this -- the hot metals whether it is lending into the hot -- or not. So just -- let me tell you that in stainless steel, by and large, they consist of almost 70% to 85% of the iron component that you know. And this iron component is being used from different sources, different variants. Sometimes it is a scrap, sometimes it is combined what we can. So in different series, it is a different kind of variant we are using. So largely speaking, about 200 and 400 Series of steel of where it has been planned to be used. The raw materials, which we are consuming is currently, carbon, is still scrap, okay? If this carbon is scrap always tends to have a parity hot metals. When this material, the raw material, in the form of hot metal and when it is used in stainless steel furnace is a huge advantage in terms of number one, productivity; number two, the cost. Cost-wise, it is cheaper by almost INR 4,000 per tonne. It gives that advantage in the cost.
So using hot metals turn into liquid steel into the stainless steel, definitely brings them advantage in terms of the cost. And second biggest advantage is being in is of quality. This hot metal down to liquid, you always have a very low [indiscernible] tram elements, which actually give impressions in terms of better quality, better properties in the end product, and this gives a huge advantage in terms of various applications where the stainless steel is being used. This is how actually this happens...
Okay. And the second part of the question...
Yes, Amit, I'll take the second part of the question. So basically, as Mr. Abhyuday mentioned, this is only basically for focusing on the 400 Series and 200 Series where the nickel content is low, where it's always better to use. There are cost not always. I would say there are cost efficiencies, which come from this.
So from JSL perspective, there is no corporate guarantee, which has been given to JUSL, just let me clarify that further. There's no obligations, which have been given. We also have a 26% stake in JUSL. So corresponding to our requirement, we will have only that much of corresponding to RS which matters with more or less what we are doing for 400 Series and 200 Series close to 500,000 to 600,000 tonnes.
That is what our requirement for the -- from blast furnace needs. So we will be only obliged to what that much of part, and that is only limited to our 26% stake of -- in JUSL.
Otherwise, JUSL and JSL separately are getting. Both of JSL as excess strip mill capacity right now, which we have been also generating the carbon and steel tolling revenue. JSL itself has been generated a good cash in the last 2 years because of good [indiscernible]. So they have their own success is also available, and they will be funding through their own resources, which will be a combination of debt and equity.
Okay. So our contribution would be to a set of 26% only, any financial contribution?
Yes, that will be limited to only that part.
And equity part only. We won't be extending any intercorporate debt or something to support that?
It will not be impact to our corporate debt, debt like this. Means it will be like depending on their -- how they fund the overall pattern. According to that -- I'm saying overall their funding with our requirement, which is just 600,000 we'll be contributing 26%.
Now see, they -- on intercompany deposit, let me tell you this way. I think there are security deposits, which are there for the pooling arrangements -- so -- which are actually already with us, but that is only for the commitment of these lines to us because they have been doing corporate tolling also. So prioritization has been given for JSL for that part. So it's only to that extent otherwise we will not be putting any other large ICDs towards that.
The next question is from the line of Ritesh Shah with Investec.
First, operational performance. I specifically had a few questions pertaining to blast furnace. First is what is the rationale of having the incremental CapEx that JUSL and why not at JSL? That is one. Secondly, what I picked up is you indicated that the usage will be only to the excess of 600 kp.
What sort of economic benefit are we looking at it over here versus a potential CapEx, if you can give for some numbers? That are the first question.
So I think, Ritesh, let me just answer. I think first question is why in this CapEx in JUSL and not in JSL, right?
Yes, sir.
Right. So see, let me answer that question because see, the -- our that we -- when we looked at the smaller blast furnace footing in JSL was not in getting optimized -- getting any of the right optimization level because then it would have been a much -- not a right optimize CapEx and have got a much higher cost on to us as well as operational cost.
That's the reason we thought that the optimized blast furnace can only be put up on the JUSL because that is the reason JUSL decided because they part of since we are increasing the capacity, they are anywhere aligning with there -- increasing the hot strip mill capacity also simultaneously.
So besides our requirement, then they get into their own carbon and steel arrangement separately. So that's the reason we will be putting up are evaluating to put up an appropriate size blast furnace in JUSL. So JSL has -- that's the region with smaller blast furnace doesn't make economic sense for JSL because our requirement for this type of blast furnace is largely for 400 Series and partly for 200 Series, as Mr. Sood mentioned. 300 Series is always better to be done through a. So that's question one.
Your second question was -- can you repeat the second question?
Sir, just to continue with the first question, why not at JSL, given eventually, the plan was for also JUSL to be merged into the parent entity. This might happen probably 3 years, 5 years out, then this is something which is core to the operations, then why not do it at the parent listed entity itself?
See, because the reason is that the -- our system is currently over at JUSL label. And eventually, you are right that at some point in time, you have to integrate the -- this hot strip mill in JSL. But when they have their own right level of balance sheet ratios. Now if we do that large -- another blast furnace CapEx here and which -- out of which we see have an idle capacity of blast furnace. It will be the optimum size blast furnace for us.
So we'll have to -- I can identify specificity of the blast furnace, still have to find another utilization of debt. Integratedly without, we cannot have a carbon steel then in that case. There will be more -- it will not be any economic sense for us doing the large blast furnace in JSL at all.
That's the reason JUSL is doing that case because they have integrated -- they have their own cocoon because JSL is getting much. They have a hotter strip mill. That's the reason we can have a completely integrated play for the carbon is steel out of the 400 Series sort of metals.
And we only use it on a tolling arrangement basis, only without any large CapEx commitment towards it, because right now, there's no -- we don't want to commit a large CapEx in JSL.
Right. Sir, if I had to ask you what is the current capital employed for JUSL and what will be the approximate CapEx that we are looking at over here? I'm just trying to understand basically, I'm just trying to understand if we had to merge both the entities, if we are looking at like 3 years, 4 years out, are we just not prolonging the time frame for the merger for the 2 entities? And again, from a conversion cost or from a related party transaction point of view, don't you think that the market won't probably look at it in a more comfortable way?
So I think let me tell you from the related party perspective, these -- all these tolling arrangements were actually defined by the lenders, when we did the split. And it's completely on those lines and it's fully in the public domain. There is no -- and every time we took approval and consistent. So we are not changing that. I think that's been consistent. We have, in fact, to an extent even when we are we now leaning more tolling. So they are incurring the CapEx to increase their mill capacity.
So it will be a related part to commissions are completely on arm's length and purely on that, in fact, they are doing outside carbon field tolling, so that benchmarks against that. So and now we can always take a cognizant of that. So from that perspective, we are showing at some advantage from JUSL because those -- they are benchmarks but they are doing not only for us, they are doing for other carbon key players separately -- separate tolling. So that's the reason is -- I hope this answers your question.
Sir, just last to conclude on the numbers. I think what I take them is around INR 5,000 and 600 Kt of volumes which essentially means the cost savings that we are looking at is around INR 300 crores. Corresponding to this, what is the sort of CapEx that we are looking at? Is it upwards of INR 2,500 crores, INR 3,000 crores? So how should 1 look at the payback over here? And what would it mean on the ESG? Specifically, we are going for -- I think won't it increase of Scope 1 and 2 emissions because we tend to look at the entity together.
See, Ritesh, if I understand correctly, you are asking for some JUSL economic perspective?
Yes, sir. So if the incremental CapEx is say, INR 2,500 crores, INR 3,000 crores, what you could pick up from the data points, what you gave is INR 5,000 per tonne and 600 Kt of volumes, that broadly sums up to nearly INR 300 crores. So what is the sort of CapEx that we are looking to chase this cost saving of INR 300 crores? That's the first question, sir.
Okay. Ritesh, let me answer this advantage what we are getting in external not what you are trying to do. It is INR 4,000 on an average per tonne or port metal unit liquidity steel we are using into this stainless steel, okay?
So what Anurag has told, we are consuming up to 75% of this liquid carbon sales into stainless steel. So by this arrangement, we are able to consume on the current product mix, we are able to consume almost 0.6 million tonnes of hot metal on into liquids. So that brings in almost -- currently largely speaking, about INR 250 crores per annum.
That is the advantage we get industry over the current set of raw materials, what we are using in the form of scrap or low-cost scrap, this is the advantage we get in JSL.
Sure, sir. I just had 1 last question for Abhyuday, if it's possible. Sir, if you are deploying this sort of CapEx, I don't know the number, crores, INR 100 crores, INR 3,000 crores, won't it be fair for us to go and chase a nickel mine or a chrome mine somewhere else, wherein the cost advantage would probably be far more superior?
So Ritesh, that's a very good question, and this was actually deliberated a lot and if you see that there is no more asset available within the country itself. That would have been definitely our priority.
And we were in a big hike with Tata, also when these mines in Sukinda were being auctioned off, and we went up to a very high percentage level. But after the price at Tata took it, it became unviable for us also.
So that was definitely a priority. Nickel mines we have done in the past, we have gone for fingers. So to really protect our EBITDA margins to really give more value addition to our shareholders, we felt that this was the best possible investment that we could do. And second thing that what is a big operating leverage that we have created is that to set up a stand-alone carbon steel project of this size on average, cost around INR 6,000 crores to INR 7,500 crores.
But our investment would not be more than INR 3,000 crores less than INR 2,500 crores to create full carbon steel setup at a 2 million tonne level. So that is why we said that it was -- it's definitely a big investment, but looking at the company's financials, looking at our...
JUSL actually have got and as I told you that JSL and JUSL have a good cash approval run because of dairy, not only us because JSL also actually only 25% material is sold to us.
over 75% goes to outside market. And because of the runs they have in the past, so there is a good cash accrual in those 2 companies.
So per se, there was no -- even from an M&A perspective, there was no stainless steel assets that was really available or even a aerial assets also we looked at, but they were much bigger and much more expensive than what the company could take up. So investing into our own setup, which is of benefit coming in tender side, which is why this decision was taken. It was after a long-term deliberation one.
And see, as I mentioned that we are not committing any large CapEx in JSL software there. That was the idea now to have -- because those are stand-alone companies, and they will have their own funding arrangements.
Sure, sir, just to conclude, so we are looking at JUSL probably as a carbon steel entity. The listed entity will continue to be stainless steel. And should one presume that ESG will actually take a back seat, even if we look at Scope 1 and 2 together?
No, I wouldn't really say that it would take a backseat because we are making, a, stainless steel and has a let up over carbon steel, and we are investing heavily into ESG right now. It's not only from environment side, in ESG, but also social and the governance as well. So you will see us investing heavily into all 3 aspects of the business.
Next question is from Rajesh Majumdar with B&K SEC.
So sir, I actually had a couple of questions on the product mix and the margin side. One was we have been talking a lot about the infrastructure series going up to a certain percentage level because of the greater set of that. But if you look at the numbers in Q4, only 22% sales in the product we see and exports have gone up substantially.
Sir, is this something which is a little bit alarming in terms of our product mix change at the 400 level? That was my first question.
Question is that series -- 400 series is not more mature. Is this your question?
Yes. Broadly, that's a question. Yes.
See, overall, our focus continues to remain the 400 Series to the 400 Series mix and which is gradually increased and with Auto, railways and all these are actually consuming that. In an intermittent journey, as we explained earlier, that idea is to get the best margin orders first and get it book. So some of the exports market where we do some of the high end to U.S. and group, that was also a large 300 Series order. Some of the orders were there.
So strategic direction is very clear that it's to continue to grow 400 Series, which is also matching with the way countries demand in, particularly, our addressable market segments are growing.
And -- but in the intermittently, obviously, we don't want to lose the site on because we have a flexibility to well I think, kind of product range for any segment. That's just really giving us the advantage to capture the best margin order at that particular point of time.
So idea not to just focus on a strategic direction not to dilute on the margins and leave away some of the best margins orders at that particular point of time.
And because of this nickel volatility that we are seeing, it's a natural extension that demand from consumer side in 400 Series is also going to pick up. So that way from Q4 last year to Q4 this year, definitely 400 Series and has increased by 5% to 6%, I think, 5% to 6%. And naturally, as sales you will see by natural color demand and the effort company is making that every quarter-on-quarter, 400 Series would pick up.
So you're not seeing any kind of slowdown in terms of government spending because we've been hearing talk that non-fertilizers subsidies are going up and of inflation trend, crude oil seeing up so high government expenditure can be coming up off rightly. Are you seeing any kind of trend in spite prompt us to believe that over the next couple of quarters as exports will remain higher?
No, we are not seeing that. And one of the strengths of our organization is that we are very flexible and we're not dependent on any particular segment to a very large extent. So like we mentioned, the domestic market being open to imports, we've increased our exports. Similarly if government projects, some of them which at least in RCF have not real been canceled or delayed, we can easily switch over to any other segment. So that is the -- one of the liberties of our organization.
So I didn't hear anything from you in terms of guidance for EBITDA per tonne? Or is there any change or what are we likely to see in the next coming quarters?
See, EBITDA per tonne, Rajesh, long term, we have always been consistent in our guidance that at this stage until the time new expansion is completely unfold, 18,000 to 20,000 is our average guidance. Right now, for the near term in quarter 1, I think it will be close to more a 24,000 run, 22,000 to 24,000, what we expect, though there are much of volatility in terms of power cost and all this thing. But with all these volatility, we are expecting to have that type of run rate in quarter 1 in near term.
And the benefits from chrome ore milestones be coming in this year. Can we expect that to come in because we've been talking about it.
Okay. Okay. I think the chrome ore operations will start within a year time. That is chrome ore mining, with Tata in the year.
Right. So from next year onwards?
Yes, almost new few years. By end of the.
So that will be interesting in [indiscernible] expansion this year more or less.
Yes.
Our next question is from Abhijit Mitra with ICICI Securities.
And congrats on a great set of numbers. So I have a few questions on the JUSL CapEx. So just to sort of clarify the investment of INR 2,500 crores, it would be over how many years?
Over a 2-year period.
2 years. So FY '23 and FY '24, okay? And equity of 40 to 50, to 50 to 50. So JSL will sort of fund 25% or 26% of that? Is that the understanding? So anywhere between INR 250 crores to INR 260 crores.
See, there's no specific case because this project is also still under the finalization at JUSL level. That's how they will be unfolding this because in there, they have their own earning streams also. So it's not that -- what I'm saying is that broadly that we will not get to any of those -- beyond any other funding support -- beyond these levels.
That's what broad outer target is, but otherwise, it's not that we'll have to even to fund from that perspective, it's not that. It's only that we'll have to ensure that our -- what we need a tolling arrangement for, from their operation, that means that will remain protected when we increase our capacity because we are doubling our capacity. So we need those month of guarantees from the JUSL at least those are actually remain protection. Because they have their own outside tolling business also.
Okay. So just 2 more questions on the tolling arrangement on the future tolling arrangement once the blast furnace comes up. What -- how will the tolling arrangement look like? So 1 is, of course, through the HSM that we are taking, we would also be buying the hot metal from them, right? And for that, will we supply iron ore and chrome ore and then buy the hot metal or it will be just buying hot metal like purchasing pig iron from the market? How will that be?
See, this is not -- this is still -- blast furnace is better the even then they start, it will at least be 2.5 years away, 3 years away at least. So those we have not even thought of those. Right now, I think is that our tolling arrangement with JUSL will only be limited to our capacity. So this is still at least 2 financial year early.
Okay. But you mentioned that INR 600 kt, INR 1,000 but I thought you were referring to that, right? When you're sort.
No, that only for the purpose of giving the economics that what is out by -- we didn't put up the blast furnace in this because our requirement of blast furnace is not large. That was the answer to that question, that our requirement is only limited to 400 Series and some part of 200 Series because otherwise, we will continue to focus on the scrap root. Only from those perspective, where we get a cost advantage that we wanted to leverage. So that 1 in answer to that question, it's not because -- there's no capacity available in JUSL right now for this purpose. So it's at least 2 years away when they -- when they even start working on this.
Okay. Okay. Okay. And...
Also, the CapEx outflow will also not be limited. So they will also have their spread over to 24 months, at least. There by the time they'll have next 2 years' earnings of their own thing also.
Right, right. So what is the current year EBITDA for JUSL and JSL, if you can tell me on what is the combined net debt that is looking at, at the end of FY '22?
Since the call in on JSL, I think while we can -- Goutam and Shreya, I think can give you a bit those numbers for JSL it's not right for us to comment on those numbers, but we can I think they can help you out with those numbers.
Next question is from Chetan Shah with Abacus AMC.
Just 1 small clarification. For the current year, what is the volume growth for the combined entity we are expecting?
I believe on TV, we said about 18% to 20% group?
No. 2023, we will not have much volume growth because we are running almost at full capacity and most of the new capacities will be coming at the back end of this fiscal year in Feb March. So this year, we will thoroughly end up at almost a flat growth because we don't have a capacity. But FY '24 over '23, because new capacity will be coming at the end of this fiscal. So FY '24 over '23 will be a good 20% plus growth.
Next question is from Vishal Chandak.
Just continuing with the JUSL and proposed JSL transaction. So when we are speaking about INR 4,000 per tonne savings, could you please help us understand in which part of the process are we expecting this saving?
At a very short level.
Yes. So the idea is that getting the hot metal, molten metal will lead to savings, is this the energy cost that you are talking about, remelting pig iron? Is that you're talking about?
Yes, Vishal, the hot metals will not be used directly. It will be post down into liquid steel. And then the liquid steel will be actually used in the scale manufacturing in the melting furnace. What we are saying INR 4,000, it will be total direct and indirect savings.
Means we would be receiving the liquid steel from JUSL or will you be receiving liquid steel, right?
We would be receiving liquid steel from JUSL.
Okay. after they turn it into the meltshop, we'll be getting the liquid steel.
Correct.
So kind of buying -- let me put it this way. Sir, instead of buying a slab, we are purchasing liquid steel so that we can process it through the AUD and make stainless steel.
Okay. So let me explain slightly detail. This liquid is still what we are going to get is basically plain carbon liquid steel. It will not have any chromium, any manganese, any other alloy elements. So it was the plain carbon steel. This plain carbon steel will be fed into the AUD process, AUD furnnce. And there, it will be turned into converted into a stainless steel with refining.
We will make additional chromium, manganese and whatever having elements are required and then it will be basically turned into stainless steel. It is not that directly, we can actually make it in stainless steel. It is -- carbon steel into the stainless steel, heavy converter and that is actually made into stainless steel.
Sir, in this context, I'm sure you would have evaluated that in sort of putting in a CapEx and JUSL, -- would that be more advantageous and cleaner structure to have a smaller electric out furnace of about 6 million tonnes per annum capacity. That would have served a dual purpose, it would have generated the kind of liquid steel that you would wanted and it would have also served as a steel meltshop in terms whenever you want to have a flexibility in the system. Then obviously, you will have no issues with respect to JUSL transaction-related party issues, et cetera.
Okay. Let me handle the first question that you asked. The savings which are getting approved, they are largely from the raw materials and energy saving is a more part of it. Okay. So when you say that you can have it by putting up more electrical furnace, that was well thought of. But because the raw material setting was not happening from that. So it was stopped. Second, was to put up a small blast furnace because we were trying to get a benefit of raw materials because...
Small blast furnace we understand it is out of question, sir.
Okay, it is out of question. See, what you need to understand is why it cannot be from electric blast furnace because electric blast furnace is not giving you advantage in terms of raw material cost advantage what we are getting from these hot metal. So the large advantage, we are having in this scheme of things is hot metal is giving us a huge advantage in terms of cost. That is the case.
This would have been an arm's length transaction. But in an arm's length transaction, we would get the metal at the market prices for the benefit of raw material will stay with JUSL, right?
No. See, at -- so as you first tell you, I think it's at least 2 years away, and we have not obviously, there would be a benefit which will be occurring to JUSL, as I think even in the current tolling arrangement, and this has all been subject to various audits and levels because like even in the tolling, they have been in carbon steel tolling and stainless steel tooling, and we have seen the kind of rates which we are getting at some. Even when the market was at -- the carbon steel market was also up because they were -- their facilities are also getting completely engaged on those parts.
So we will shortly get some of the benefit. I think it's too early to do those at least 2 fiscal years away. We have been talking about at least FY '25 or '26 this type of thing. So we have time to get into them, once they conceptualize their full project and how they evolve that.
Next question is from Vikash Singh with PhillipCapital.
Hello. Am I audible?
Right?
Yes. Sir, I just wanted to understand, once our new 1.1 million tonne SMS would come in, how do our product mix is changing? Because I see that a good part of our EBITDA improvement is because of the improved product mix, especially in JSL. So the combined injury product mix would change in terms of the percentage of value addition and its impact on our going forward?
See, it's our JSHL will always remain on value-added products and further investments that we have made in it and path will always, always remain on the margin business. And also going forward, in terms of percentage, it would remain the same.
Yes. Okay. So I'll give you our asking specifically just 1 to 2 when we are going, how much is going to be the change in the product mix. To tell you the part of some of the product mix about the product mix, it is going to remain almost same. Currently, we are having almost 25% 400 Series. 25% 200 Series, 50% 300 Series. It is largely going to remain the same. What will change is the absolute number, 300 Series is going to grow, okay, like in the absolute term. And as of the ability of selling, yes, being continuously focused on stainless steel and resin steel. So there, we are focused on value addition. Here, it is going to be the same product mix. What we have been used manufacturing right now, we would be putting up that one.
So even after increase, our understanding is that the mix would not change. Is that a correct understanding?
Yes, mix would not have changed. But here, what other things would change as we had done at earlier also since we are putting up a new PR facility combo facility. Our mix of value-added will slightly increase from currently, it is about 50%, it will go up to the around 65%.
Understood. And sir, I lost -- I actually joined a little bit late because I got dropped on your opening remarks, I'm not sure whether you have clarified. Just wanted to understand what the nickel prices are behaving so volatile, how is our inventory situation right now? And have you seen any problems to the new order booking on those series basically?
Okay. Since the past 2 months, I think nickel is behaving in a very volatile manner, and there are reasons for that. And you know the geopolitical situation and how some Chinese nickel over the LME. We have all these stories available on the Internet and everywhere. So going by that, yes, there was some kind of disruption in the market space, from the demand side also, there was some amount of -- some kind of confusion from the customer point of view, okay?
But now since nickel has actually gone into the territory of about $30,000 to $36,000 per tonne, it is moving in that fashion. So -- it is -- this nickel is completely because nickel which is being used in the stainless steel manufacturing base, it is getting dealing from the LME.
Now this stainless steel business, we are using nickel in the form of scrap, nickel figure or ferro nickel. So probably some of the -- if nickel remains in this highly volatile -- still behaves in the highly volatile manner. Probably it will be totally de engaged in the future.
But what we see in the near term, since there is some confusion and probably -- there is basically from the demand side, how to put it because I'm slightly confused. There is a small confusion in the demand side and probably somewhere from the customer angle to that demand is not getting picked up. So the point you are trying to make is that how we are actually not trying to up.
Coping with this situation. So what I want to exactly know that how we are coping up with this situation, what kind of the impact we are witnessing right now? And exactly what are the steps we are taking to cope up.
Because it is getting bailing and our manufacturing is based on scrap and nickel finger and ferro nickel -- so we are not into that kind of a thing, and our manufacturing is largely based on that. So -- from the cost point of view, we are well under control and by using this type of raw materials and nickel balance.
Sorry, sir, I did not understand -- basically, what I wanted to understand is how much of the volume has been impacted? How on those series and exactly -- have we seen any improvement because now it seems to be stabilizing. So the lost volume, some part of it is coming back to us or is still the market is confused state and it would take time to normalize?
Okay. Just to give you the background, a little bit of learn in the market cycle, okay. So there have been a slight -- there has been some slowness in the market size when we talk of 300 Series. But this market has a demand of 200 and 400 Series and market is demanding material in these series.
So when nickel is behaving in this session, though we are losing a...
So what happens is that whenever you are -- whenever there is a volatility, the buying patterns typically take a bit of pause and open pause in sort of situation because market also customers get confused, especially in because nickel is mostly largely as a bearing on 300 Series.
So in terms of their buying decisions on this. So we either some destocking effort for some time and then, but when this volatility happens largely, I think we have not canceled any single order. Let me tell you, I think we were doing the back-to-back coverage of our raw material. And we were catering to all the orders as committed, in fact, some of the European players, what we -- that we priced our orders later on. But in our case, because some of the volumes could be -- like for a timing, there was obviously got 300 Series was there.
Overall demand sensitive, but overall, I think on a full year basis, we are confident that in we meet the full volume. That's not becoming a change. So it's not a demand which is they are giving us a challenge. It's more the buying pattern at the particular volatile period, it always happens.
It's a unique situation in the world right now, which has never been faced by the stainless steel industry. So the concept that the whole world is working on is on lean inventory. No one on in the system is talking. Everyone is definitely aware that there is huge volatility of nickel, chrome, mild steel, scrap et cetera also. So everyone is working on green inventory, low inventory model, but we really feel it only for the next -- maybe in this quarter only. Then again, it will stabilize because the world cannot operate in this fashion at all. So it's a very unique period that this has happened. It's a unique situation in the whole world, compounding with the Russia-Ukraine factor also. So -- but by Q1, we think this whole way should stabilize and it should be normal course of business after that.
Understood, Sir, just 1 more -- just 1 last question. In terms of scrap availability and the logistics of it, so hearing a lot of things regarding the high availability, et cetera. So -- if you could just explain a little bit on that, how are we placed in terms of that are you facing any difficulty in terms of procurement of scraps et cetera?
No, -- not at all. In terms of availability, because of the kind of partners and the supply chain that we have created, we are very, again, very flexible. We have traders, our partners all across the globe. Focus is always domestic and Southeast Asia and nearby countries, which is exactly where even till now we are able to get all our scrap requirements. So from a raw material perspective, we are in a very comfortable position.
Our next question is from Rithvik with One Up Financial Consultants Private Limited.
And congrats on a great FY '22. Sir, I have a few questions. Firstly, you mentioned that U.S., we have tripled the volumes in FY '22. So is it possible to quantify on an absolute basis? And where do you think this will move over the next 3 years?
Yes. I think -- see, the U.S. being one of our target markets. If I can tell you, it's very difficult to say a 3-year time, what is our exact targeted figures, but this year...
Because the geographically, as we said that we keep being an agile flexibly in our product range in geographies, we keep changing these or wherever is getting the better margin orders. So just to give you the perspective, overall, in JSL, a large part of the U.S. order, which we cater, typically, the quarter 4, our export mix was 32% of our total sales volume. And on a full year basis, it was 25%. And last year, it was 19%. Now out of 25% this year, other 15% came from U.S. So that was the statistic of the JSL volume. Yes. So almost 15% of the JSL volumes were actually from U.S. market.
Okay, okay. Sure. So it would be close to 40,000, 45,000 of volume in JSL?
Yes.
Sure, sure. Okay. No, the reason I'm asking is that in the last couple of quarters, you have mentioned that we want to scale up in U.S. market. So that would be a good diversification and added geography given the imports are coming in the country. So just wanted to get a sense from where this 40,000 tonnes will move over the next 3 years, especially when we are doubling our capacity at JSL?
So would it be fair.
See, just to correct, I think it was not on combined volume. It was on JSL volume, what I said, I was mentioning the JSL volume, which is close to 1.01 million and the 15% of core actually U.S. at current from U.S. markets.
Right, right. Okay. So 15% of the total JSL volume is from the U.S. market?
Of the 1% of the with not an export market. Export.
Okay. Sure. Okay. Sure. Okay. And sir, with this expansion on track by FY '23, and we would have commissioned the capacity at JSL. So when in your sense, we can ramp up this to full utilization? And given the fact that 1 million tonne, we would have to look for incremental -- for probably new geographies as well since it's a decent enough volume for us to sell?
So it will take about almost a year's time to commission to full capacity. And we see enough demand, there is good growth. The industry is the fastest-growing matter is almost growing at about 9% domestically itself, and we see the usage is only increasing, like in infrastructure which was totally dominated by concrete and steel. Now you're going to see stainless steel having a very, very major role to play. Like I mentioned already, we built our first SS foot over bridge in June while that 20 bridges in this year a plan plus another 30 more in the pipeline.
So in terms of our 1 million tonne capacity, domestic, we see good growth coming in high-end segments in your process industry. And similarly, like we mentioned, U.S. is going to be a target market for us. So there, we further want to increase year-on-year basis.
And just 1 last clarification. There were a lot of questions on JUSL expansion. So this 2 million tonne expansion is an incremental expansion or right now, I believe it's 1 million tonne, which will go to 2 million tonnes over the next 2 to 3 years?
It's separate 2 million tonnes. Additional.
Okay. And so they would have some kind of cash flows as well, right, since they have a 1 million tonne capacity right now. So they would have their cash flows and this INR 2,500 CapEx over next 2 to 3 years. That -- so would it be fair to assume that the cash flows of 40%, 50% of the CapEx requirement would be funded from internal accruals?
Large part of years because they have a 1.6 million tonne capacity of -- for the steel mill right now, which they are increasing to 3.2 separately. So they will have their own tolling revenue plus JSL [indiscernible], which is also sell in the that also is actually more. So they've combined, they will have a healthy cash flow. And they don't have much of the debt liabilities at this stage for next 3, 4 years.
Our next question is from Ashish Kejriwal with Centrum Broking.
3 questions for me. One is we have seen in FY '22 that part of our earnings got captured in working capital. And because of that effect, we are unable to reduce our debt. So first is where we are in the working capital cycle? Do we think that, that is going to ease from the current level or it will increase or how it is? Second is, is it possible to give a cash flow CapEx guidance for FY '23? Because in FY '22, I think we have spent only INR 750 crores. So how the CapEx will happen in FY '23 when we are going to finish all the projects? And third, you mentioned about the dividend policy, but is it possible that we can have some elaborative capital allocation policy? Because maybe in a year or 2 years' time, framework will be debt-free. So it's very important for us to understand what our thought process is going forward in terms of capital allocation?
Okay. As let me answer it. So working capital is purely because of the function of the raw material prices. And if the prices come down, it will immediately is out. So because our increase is purely linked with higher raw material prices because the volumes are also actually at a peak level. So it's not possible to give that commitment number because if the raw material prices remain high, it will remain at the same level. But if it comes down to half, our working capital requirement, we have seen that in the past also immediately, it will come down drastically because it's only the deployment, which we'll have to do primarily for the inventory purposes. So that's on working capital side because it's -- I mean it's not right for us to predict the raw material prices because we -- our focus is always to have a just complete risk management strategy. So we keep balancing between our sales and the sourcing.
So not to take a while of the commodity exposure with us.
Because just on this working capital only, what we are seeing is in FY '22, number of days of inventory has reduced drastically. Despite this fact, this is happening. So I don't know how, first of all, this number of days has declined so drastically in FY '22? And despite that, we are having such working capital pressure.
Because if you see the underlying raw material prices have increased considerably. That's because when you look at just on a point, 2 point number because the average deployment comes from the previous -- when you close that -- it's because of the previous almost 10 months average basis. Raw material prices have increased broadly reflection of prices. That's what I said, the moment it comes down. So our base, we are keeping a very close check. So we are not increasing -- neither we are increasing our exposure in terms of any of the underlying commodity.
That's what our prime focus is. And debtors days are also completely remain under control. So it's not -- the increase is not pertaining to that increase in changes in the days purely because of the prices, which we'll have to maintain depending on that also depends on the particular series.
So if you have a larger 300 Series campaigns that are going on at that particular point of time at the end of the quarter, you will see a much higher inventories at that point of time because that we have seen when most of the export orders are being catered from 300 Series. So therefore, you will see a large inventory. But it's -- similar to 400 Series, then again, it will be a different inventory level on all.
So on CapEx side, so out of the total committed CapEx of INR 26 crores, we spent close to 950,000 or close to INR 1,000 crores in FY '22. And FY '23, this year, we expect close to INR 1,200 crore because some of the still our CapEx of the last year will come because earlier guided you for close to INR 1,100 crore CapEx. And this year, we expect close to INR 1,200 crores to INR 1,300 crores of the CapEx as we are finishing the project. Maintenance CapEx will be separate, which we say which will range between INR 300 crores to INR 400 crores range.
You're talking about the combined entity here?
Combined entity. On dividend or if you say the shareholders' return policy, this is mostly more in the form of whether -- in what form we will get to this, this has to be decided at the time by the board at the time when they get to this. But the idea was that to because earlier we were having a very generic dividend policy. The Board deliberated this since we depending on our earnings and all the things, we then have decided that our Board took a decision that we progressively we should target to reach towards 20% of the shareholders' return.
So I was looking at more of capital allocation policy, which dividend policy could be a part of it, but what could be our strategic capital allocation policy, let's say, by free cash flows, how you want to distribute it in terms of growth, in terms of deleveraging, in terms of dividend distribution. Is there any policy which is in our mind?
Sure, that's a good position. I think early. I think once we -- because this year, we complete the deployment of this CapEx. I think then there was some time, I think by the end of the fiscal year, we'll see that how we should evolve it because once our CapEx -- current CapEx cycle gets over by end of the next -- this fiscal year.
Due to time constraints, this will be the last question. I would now like to hand the conference over to Mr. Vishal Chandak for closing comments. Please go ahead, sir.
Thank you very much, everyone, for joining in for today's call. I think this was a very healthy and lively discussion. I would request Abhyuday Jindal for his closing remarks. Over to you, sir.
Thank you. I would like to thank everyone for attending this call. Despite many challenges from raw material price volatility to supply chain disruption to geopolitical tensions, our robust performance is a testimony to our agile and focused business strategy, prudent financial management has been complementing strong operational performance. I hope we have been able to answer all your questions. Should you have any further clarification or would like to know more about the company, please feel free to contact our Investor Relations team. And we have taken note of all the questions and all the concerns. So definitely, in the next call, we will try to answer in a more detailed fashion. Thank you once again for taking out the time to join us on this call, and stay safe.
Thank you. On behalf of Motilal Oswal, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.