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JSW Steel Ltd
Earnings Call Analysis
Q1-2025 Analysis
JSW Steel Ltd
In the first quarter of FY 2025, the company's consolidated revenue from operations stood at INR 42,943 crores, reflecting a 7% decline quarter-on-quarter. EBITDA also fell by 10% to INR 5,510 crores, while maintaining an EBITDA margin of 13%. Despite these setbacks, the profit after tax amounted to INR 867 crores.
The quarter saw lower volumes due to plant maintenance shutdowns at the Dolvi and BPSL facilities, along with inventory losses from inventory revaluation and other one-off issues. Specifically, the U.S. operations experienced an EBITDA loss of $2.6 million largely because of a drop in prices, while the Italian operations remained stable and showed slight improvement.
Domestic flat steel prices experienced fluctuations, seeing a rise in April and May but a subsequent decline in June due to international market pressures, particularly low-priced imports from China. Despite these price headwinds, sales were bolstered by a better product mix and lower raw material costs, which led to an improved realization of about INR 550 per tonne.
Capital expenditures for the quarter totaled INR 4,500 crores, with significant investments aimed at completing ongoing projects. The company is focused on ramping up new facilities at Vijayanagar and BPSL, expecting them to contribute significantly to volume growth by Q3 FY '25.
The company’s net debt rose to INR 80,199 crores, primarily driven by an acceptance payout of about $300 million and increased CapEx. However, JSW Steel aims to maintain a net debt to EBITDA ratio below 3, eventually moving closer to 2.5.
JSW Steel continues to invest in strategic initiatives aimed at reducing logistics costs and optimizing the supply chain. This includes the transfer of a 30 million tonne slurry pipeline project to JSW Infrastructure Limited for INR 1,700 crores. The relocation aligns with the company’s strategy to allocate capital efficiently towards steel capacity growth and raw material security.
The company remains optimistic about the future, projecting improved volumes from existing operations and new facilities in Q2. The consolidated production and sales guidance for FY '25 remains on track at 28.4 million and 27 million tonnes, respectively. The company also expects cost savings from reduced booking prices of $23 to $28 per tonne and lower iron ore prices to materialize fully in Q2.
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Ladies and gentlemen, good day, and welcome to JSW Steel Q1 FY '25 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashwin Bajaj, Group Head of Investor Relations. Thank you, and over to you, sir.
Yes. Thank you, operator, and a very good evening, ladies and gentlemen. It's a pleasure to welcome you to JSW Steel's Earnings Call for the First Quarter of FY 2025. We have with us today the management team represented by Mr. Jayant Acharya, Joint Financing Director and CEO; Mr. G. S. Rathore, Chief Operating Officer; and Mr. Swayam Saurabh, Chief Financial Officer. We will start with opening remarks by Mr. Acharya and then open the floor to Q&A. So with that, over to you, Mr. Acharya.
Yes. So good evening, everyone. Just on the macro position, the global economic growth is expected to remain stable. We saw the IMF forecast yesterday. And the good thing is that they have also given a slight upside for 2025. Inflation is gradually cooling, and the first few rate cuts in Eurozone and in Canada has already taken place. It gives us a likely possibility towards monetary easing starting earlier in U.S. as well.
Global manufacturing PMI shows ongoing improvement, which is basically leading to a more softer landing. However, the geopolitical risks remain a concern. In China, while the property sector continues to remain a challenge, manufacturing exports and fixed-asset investment other than real estate have done well. The government has announced some support for the real estate sector. We need to watch how that [ feeds ] out. The private consumption remains healthy.
India's strong economic momentum continues, driven by various sectoral push like the infrastructure CapEx by the government, private CapEx now kicking in, manufacturing, energy transition and a positive consumer sentiment building up. We anticipate a rebound in the government expenditure post their coming back, and we expect a favorable monsoon to support rural demand and consumption in general.
Strong foreign capital inflows aided by global bond index inclusion are set to further bolster the robust macroeconomic outlook. On the steel side, the global steel production during January to May was flat at about 793 million tonnes. Within this, China de-grew by about 1.4% and the rest of the world saw a growth of 1.6%, primarily about 6 million tonnes each, and that was the balance for the period.
During the quarter 1 in India, the crude steel production Y-o-Y grew by about 4.6% to 36.6 million tonnes, and the consumption grew very well at 14.9% to 35.4 million tonnes. We expect a strong steel demand growth to continue. The budget is likely to be proactive in terms of the spend, which the government had done in the past, with respect to infrastructure CapEx, manufacturing, energy transition, et cetera.
We expect the steel demand to continue to be in the range of 10% once for FY '25. Our expectation and estimates are that steel demand maybe in the range of 148 million to 150 million tonnes for this year. This will be driven, again, by a strong outlook, what we see in the key consuming sectors across the industry in India.
The Indian steel imports in quarter 1 were up by 27% Y-o-Y, while it was lower Q-o-Q. But elevated exports from China continue to be a concern. The Chinese production continues to remain higher. Domestic demand is still softer, and that's what the excess is flowing out to the world.
Many countries have put barriers to set surplus steel coming into their countries. India is a soft target, and we do not have any kind of trade measures in place, and that is a concern for the Indian steel industry. The imports from other FTA countries have also gone up by 43%, raising our concerns for trade diversions into India.
At JSW Steel, we are mainstreaming sustainability across the businesses, and generating sustainable value has been one of our core priorities. We are committed to achieving net zero emissions by 2050. We have recently published our first Climate Action Report in May 2024, where we have detailed our decarbonization road map, its levers and alignment to TCFD.
We continue to focus on reducing our fossil fuels and increasing the renewable energy. Last quarter, we mentioned to you that we have added 600 megawatts of renewable energy in Vijayanagar in addition to 1,000 megawatts, which was in process across the plants.
We have now decided to add another 600 megawatts in Dolvi between wind and solar, which will take our total capacity of renewable, once it is fully commissioned, to the 2,200 megawatts. This will not only be positive from a carbon emission point of view, but from a cost point of view as well.
JSW has delivered industry-leading and value-accretive growth over the past 2 decades. Looking ahead, giving India's economic growth outlook and continued increase in steel consumption, we continue to focus on our capacity of 50 million tonnes by the end of this decade, FY '31. We have already commenced to work towards 42 million tonnes capacity in India, in Dolvi, which we expect to complete by September '27. These are all brownfield capacities in India, will have [ low ] specific investment cost.
We are complementing this growth in steel capacity by a number of strategic initiatives to improve our margins and profitability. This includes the slurry pipeline in Orissa of about 30 million tonnes, which will sharply reduce our logistics cost for iron ore. It will optimize the iron ore supply chain, commission new captive iron ore and coking coal mines, which we have got through auctions in the last year or so. And we are driving end-to-end digitization, driving efficiencies across operations and improving customer services across all our facilities.
We also continue to grow our downstream capability and product lines in line with market opportunities. Our focus on [ VSC ] product will remain as we go forward to add capacity.
During quarter 1 '25, we reported a crude steel production of 6.35 million tonnes, which was down 1% Y-o-Y, mainly due to plant shutdowns at Dolvi and BPSL. We reported sales of 6.1 million tonnes, which was a 7% growth Y-o-Y, driven by strong domestic demand in India. The India operations delivered the highest quarter 1 sales ever. In the Indian operation level, we saw a 5.9 million tonne overall sales, driven by a 5.3 million tonnes in domestic sales, which grew at 14% Y-o-Y.
The share of export spend due to a weaker environment in the international markets, has stood at 10% versus 15% in the previous year. We also reported the highest ever share of value-added and special products during the quarter at 64%, growing 14% Y-o-Y.
A number of segments we're basically focused on, and we achieved the highest ever sales in the Renewable segment, the Packaging segment to Tinplate and the Coated segment, which delivered a very good domestic growth.
In addition to this, the electrical steel business is ramping up very well. This also is a sustainable product for energy savings, and that also has seen the [indiscernible] in this last quarter. Sales to the Bearings segments was also the highest ever during the quarter. So therefore, our focus on value-added and special products across sectors and segments continue to bear fruit.
Our consolidated revenues from operations were INR 42,943 crores, down 7% quarter-on-quarter; while EBITDA stood at INR 5,510 crores, lower quarter-on-quarter by 10%, And EBITDA margin was similar at [ 13% ]as last quarter. Our EBITDA on a per tonne basis was INR [ 9,007 ] when consolidated, and the profit after tax was INR 867 crores.
The performance was impacted by lower volumes due to plant maintenance shutdowns at the Dolvi and BPSL, as I mentioned, inventory losses due to inventory revaluation and other one-offs, which we have seen in the last quarter.
The overseas operations were impacted by a weaker market in the United States, especially on the prices, while the volumes remained more or less stable. Italy, operations remained, by and large, stable in the quarter gone by versus the previous quarter. We could offset this by a better product mix and lower raw material costs, both from iron ore and coking coal perspective.
Domestic flat steel prices on the market side, we saw a rise in April and May, but declined in June because of the international environment, especially lower-priced imports coming in from China and [indiscernible] countries.
In case of [ loans ], there was a sharp increase in prices during the quarter due to supply-side challenges. However, it tapered off in June. Exports, the price remained soft. However, our realizations, we were able to improve quarter-on-quarter due to a better product mix, which we were able to optimize. Our NSR [ relocation ] saw an increase of about INR 550 per tonne.
In spite of price headwinds, I think we have been able to deliver overall good sales in the quarter. On the cost side, our coking coal cost was lower by about $23, similar to our guidance, in line with what we guided.
We also benefited from lower iron ore and other operational costs. However, given the fall in steel prices during June, there was an inventory revaluation loss, which, together with our one-offs in Indian operations, offset the fall in our production costs during the quarter.
The U.S. operations, especially from Ohio and Texas combined, had an EBITDA loss of about $2.6 million, primarily because of drop in prices, both in HRC and plates. The Italy operations, as I mentioned, continues to be stable, was actually marginally higher quarter-on-quarter basis. We expect improved performance in the Italian operations in quarter 2, while performance at the U.S. operations will largely be linked to movement of steel prices in the U.S.
Our net debt stands at INR 80,199 crores, which has primarily gone up, driven by an acceptance payout of about $300 million, which has reduced our acceptances to [ $1.75 billion ]. Increase in CapEx to complete projects. Our CapEx spends were close to INR 4,500 crores in the quarter. We have spent, in addition, INR 228 crores as an upfront fee towards our coking coal mine startup, which we would like to fast-track, and some other working capital which we had to put in place because of the new facilities coming up.
Our revenue acceptances as on 30th June, just to summarize, was [ $1.75 billion ], down $300 million in the quarter, while capital acceptances were $124 million. JSW One Platform, a trusted one-step digital marketplace for manufacturing and construction ecosystem, continues to scale up and have more than 58,000 registered customers now. The gross GMV during quarter 1 increased almost more than 4x to INR 2,500 crores plus and continues to grow rapidly. JSW Steel holds [ 69% ] in JSW One Platform.
The Board has approved the transfer of assets pertaining to an under-construction 30 million tonne slurry pipeline project in Orissa to JSW Infrastructure Limited as a slump sale and to enter into a long-term take-or-pay agreement for transportation of iron ore slurry for a period of 20 years with a JSW Infrastructure limited.
The slurry pipeline project would be transferred on an arm's-length basis for a consideration of about INR 1,700 crores, which would be the aggregate of the fair value of cost incurred till 31st May '24, as determined by an independent valuer, and cost incurred post 31st May '24 till the actual date of transfer. The transaction is subject to receipt of shareholder's approval and other regulatory approvals.
The transaction is a reflection of our capital allocation strategy as JSW Steel, where we would continue to prioritize the capital allocation for steel capacity growth and raw material security as our core CapEx focus.
We have commissioned the [indiscernible] of the 5 million in brownfield expansion at Vijayanagar, and commercial production and sales have commenced in March '24. We expect commissioning of the blast furnace by end of July and the SMS by end of August 2024. We expect ramp-up of the expansion project during quarter 3 FY '25.
At BPSL, the Phase 2 expansions have seen most equipment and facilities getting commissioned. The oxygen plant is scheduled for commissioning in July, with a gradual ramp-up of the overall operations expected by quarter 3 '25. The balanced capacity of 0.5 million tonnes will be achieved through debottlenecking by FY '27, where we are looking at new technologies, and we will take a shutdown in line with the shutdowns of the blast furnaces so that there is no outage.
The company's CapEx during the quarter 1, as I mentioned, was INR 4,466 crores, to be exact and the INR 228 crores of upfront payment for mining. We expect a consolidated CapEx for FY '25 to be about INR [ 20,000 ] crores.
As a guidance, I would like to sum up that the new facilities at Vijayanagar and BPSL will be ramped up during FY '25. The shutdown of our blast furnace #3 Vijayanagar for capacity enhancement we would like to schedule towards the end of FY '25 once the JVML operation stabilizes. The shutdown at BF-3 is expected to be between 140 to 150 days.
We expect improved volumes going forward in quarter 2 from our existing operations and new facilities coming on stream. Our consolidated production guidance and sales guidance at 28.4 million and 27 million tonnes, respectively, remains on track.
Going into Q2, we expect benefits from savings and raw material costs, including lower [ booking ] on price to the extent of $23 to $28 per tonne. Iron ore prices have also come down, particularly towards last month, and the full benefit of the same will accrue to us during Q2 FY '25.
While steel prices have remained soft, we expect a drop in raw material cost to help us improve steel spreads from current levels, given the benefits of raw material cost over Q1.
To conclude, India continues to remain a bright spot among major global economies and has a multi-decadal growth opportunity. We believe that robust steel demand growth will continue due to ongoing public infrastructure investments, increased private capital expenditure and sustained momentum across various sectors. There has been a noticeable recovery in the rural demand with an anticipated normal monsoon, and this would further aid to the consumption growth momentum in India.
Thank you, and we look forward to questions from your side.
[Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities.
Congratulations for the good performance in very testing times. I have a couple of questions. The first one is the more macro question. As we have been seeing that Chinese imports or imports by other countries as well have been increasing in the country. Q2 imports also seems to be pretty high. And as you rightly mentioned in your opening remarks that there are no barriers.
Now how do we factor in the growth in domestic consumption that advantage would accrue to the domestic steel companies? What kind of talks you are in with the government to ensure that there is some kind of [ prediction ] at them? Because circumvention has happened on a large scale. So how do we tackle that?
Yes, Amit, you are absolutely right. A good question. Imports, especially from China and the FTA countries is a concern for us because it's gone up Y-o-Y, while it has been slightly lower on a quarter-on-quarter basis, but it is still a pretty high number.
We are taking up the matter with government for various kind of trade-limiting measures, which needs to be put in a quick response time. There are cases visible where trade measures as per world trade regulations can be taken, and those can be expedited. In addition to that, we are looking for and discussing other trade measures, which could be possible.
As you are aware, I think many other countries have already put in barriers, and that makes us more vulnerable to this flow. And we are in discussions, and we would expect the government to take some steps towards this.
Having said that, we continue to work on our cost side. We continue to look at various avenues of reducing our costs through various strategic initiatives, apart from the raw material coal and iron ore flow, which is coming into these quarters, quarter 1 and quarter 2, both.
We expect, again, the sales price to be now range-bound, since it has softened. And I understand from China sources that the Chinese exports are below variable cost. It may not sustain for too long. So we do not expect a dip or much of a dip in the prices and anything out from there. So prices should remain range-bound.
The demand will continue to be strong in India. And our focus, as we have seen in quarter 1, has been the domestic market. Our share of exports was 10%, and we will continue to be in the range of 10% to 15% of exports. And balance, we will focus on the domestic.
Okay, sir. The second question is essentially on raw material. So if you could let us know your iron ore sourcing mix in this quarter, if you could break it into your own mines, maybe from OMC and NMDC and imports? And also the development that is happening on the coking coal mine in Mozambique. You indicated that we would be able to do the box cut maybe in FY '25. So what is happening over there? That's all from my side, sir.
Yes. So if you look at these two parts, on the iron ore sourcing strategy, as I had mentioned last time, our Karnataka ECs for the existing mines have more or less been received. Some are in the process. So we are seeing increased volumes from our Karnataka mines flowing into Vijayanagar.
The new 3 mines, which were auctioned, are now -- we have received recommendations already for 2. The other one is in the process. So we expect to operationalize these during the course of this year. So our iron ore mix for Vijayanagar will improve, and that will call for lesser iron ore from outside the state.
As far as NMDC is concerned, I think our NMDC flow was impacted by some strikes, which NMDC had in the recent past. That now seems to be behind us. But we have been able to source [ metal ] from alternate sources to be able to make up for that.
Our captive iron ore, overall, is in the range of just a little shade below 40%, about 38% to 40%. However, we keep in mind that we are structurally avoiding taking material from Orissa to Vijayanagar, as I mentioned that our Karnataka ramp-up is happening from our own mine. Similarly, Dolvi, we are doing a mix of sourcing from some part of Karnataka, some part from Maharashtra and a [ balance ] from Orissa.
So that mix is keeping our captive at about this level. However, we continue to evaluate the mix based on the most optimal cost structure, which we are able to secure for the location.
As far as the coal is Mozambique is concerned, we were -- the documentation was in -- was signed and approvals from the government are in process.
However, there are some land clearances which are still required, based on which the government had some concerns, which we are taking up with them because the previous party has not completed some of the land requirements. They were completed in the month of June, though with some delay. That discussion with the government is on. We are expecting that, that condition will be relaxed and we [ could ] be able to get the approvals during the course of this year.
The next question is from the line of Sumangal Nevatia from Kotak Securities.
Just continuing on Amit's question on coking coal. Is it possible to share eventually what could be the capacity at Mozambique cost of production? We read in the annual report that it is very high-grade mines with huge reserves. So some sort of quantification of volumes capacity and the year in which we could start producing?
And then on the domestic coal as well, we are saying that the mine would total around 3 million tonnes. So some sort of guidance in terms of what would be the cost versus market cost?
So Mozambique is in the early stages of approval. So we will have to go into mining operations to be able to determine what kind of evacuation and what kind of cost we'll be able to achieve. Once the approvals are received, then we will be able to get into the mining operation and be able to give you some light.
But as I had mentioned last time, this is, as you rightly said, a prime low-volatile, hard-coking coal asset, and that is why we were interested. It has got over 800 million tonnes of reserves, 800 million tonne plus. It should be able to give us clean coal to the extent of about 280 million odd, and -- if we are able to retrieve on the assets.
Evacuation is possible through Beira Port as of now. We will look at the evacuation strategy as our volumes increase going forward. There is a possibility to expand port operations there as well. So as we get more light, as we get a approvals in place, we'll be able to give you back some more color on this.
Understood. Understood. And in terms of timeline, is it, I mean, a few years away, 3, 4 years away, at least?
Yes.
Okay. My second question is with respect to iron ore cost. Is it possible to share what is the difference between are captive iron ore, [ coal ] delivered price versus the market price? I mean, are we paying a significant premium versus the market price today? And -- yes.
I may not be able to give you that [ even ] breakup. But the way you see it, the mine premiums, which we have in various locations, and somewhere, the premiums are lower; somewhere, the premiums are higher. But going forward, I think we have a good mix. We have almost 23 -- [ 24 ] mines, which we have won on auctions. 13 of them are operating. The balance are to be operationalized. They have resources of about 1.6 billion tonnes, which is a very big positive as we grow our capacity.
The premium which we have, our -- the way the iron ore premium has gone up in the last few auctions, our guess is that the premiums which we have are now looking more moderate and -- as we see the new premiums coming in. We will be able to balance this in a better way, I think, from a logistics perspective.
That's why we are looking at the 30 million tonnes slurry pipeline because from a dedicated mine, it will be able to take the [ resources from ] the slurry pipeline to the port, which not only is environmentally much better, but reduces the cost sharply. It will also enable us to develop the pellet plant capacity at our Paradip new facility at the Jagatsinghpur and [ enumerated ] for -- basically, [ enumerated ] pellet also reduces the [ coal ] cost.
So those will be positives for us. We continue to look at improving our operationalizing the mines in Goa and Maharashtra for Dolvi operations, and that will give us further downside of the iron ore cost as we go along into our expansion modes.
Understood. If I may just ask one last question. On Ohio, we've again -- the losses have started increasing. So some guidance on that? And I mean just from a strategy point of view, does it -- is there a strong case of being in the geographies? I mean we've seen very volatile profitability. And in the past, us and our peers, no one has created any value in these geographies. So I mean, what's our long-term thought process with respect to the developed country exposure?
So the way we should see is that the operations in Ohio have stabilized from a volume perspective. We are doing close to 80,000, 90,000 tonnes, going to 100,000 tonnes in some months, every month. So therefore, volume levels are good. In [ paydown ] also, volume and capacity utilizations are reasonably good and stable.
Where we have got hit is the domestic prices in the United States. If you were to look at the price points, then a $900 per tonne of hot-rolled coil per metric ton, on 1st of April, fell down to about $720-odd as we speak, few days back. So that has impacted the overall viability of [ POI ] operations.
I would say that from the new products, which we have seen as a new interest from the expansion of wire operations, which is also on track, we should be able to improve our product mix and reduce our commodity exposure and supply to Baytown for [indiscernible] and supply to [indiscernible], supply for oil and gas, which we are building both the assets for.
That is the way we are working. And I think we should not look at it on a quarter-on-quarter basis. But the good thing is that the volumes are more or less same.
We'll move on to the next question that is from the line of Satyadeep Jain from AMBIT Capital.
Jayant, just wated to understand the rationale and timing for transfer of slurry pipeline to JSW Infra. You have already done the work. Were there any execution challenges you were facing within JSW Steel? What's the rationale?
Because if you look at focusing on core steel business, JSW is also invested in JSW Paints, JSW Neo. Would any acquisition of rigs also comes up in future? Would that also be in JSW Infra? So just wanted to understand the rationale of why the transfer of asset to JSW Infra now. That's the first question.
So we are expanding our capacities in steel at a very rapid pace. As you've seen, our aim is to be 50 million tonnes in India by the end of this decade. We would like to see that the capital allocation is prudently done for expansions in our steel assets because these are brownfield capacity expansion. And as I explained last time, the Dolvi project, which we have just started, is at below $500 specific investment cost, which is very value accretive. So we would like to focus on prudent capital allocation.
Second is this infrastructure pipeline is something which is a physical asset. The infrastructure is already operating a port in that location in Paradip, they are in the logistics solution and the infrastructure business. They will be able to manage this in a better manner, and it will not basically call for too much of bandwidth from JSW Steel side, we can focus our bandwidth also on our expansions.
We will continue to keep an oversight on the execution of this project. Our idea of handing this to the infrastructure subject through approval of shareholders and other customary approvals is basically for a better capital allocation, which we will do in steel and leave it to a solution provider who has better experience on the infrastructure side.
I just wanted to understand, I mean, that logic should have been there while incurring -- before you incurred CapEx on the pipeline. So why now rather than why not at the outset? And then, when you look at the take-or-pay contract, what is -- is there -- is it possible to quantify at what price -- what would they charge for this on an annual basis?
So let me answer your first question. One is that why we didn't do it earlier. I think the projects have started some time back, and we have gone through various challenges in terms of diverting lines, national highways and water bodies, et cetera.
JSW Infrastructure, as you know, has recently got listed. Their capacities overall in the business, overall in the last 2 to 3 years have gone up quite well. They are now in a position to take on additional investments towards such infrastructure and logistics solution, which they now have the capability to do. So that is one reason why now, why not earlier.
The second question, which you asked, was on account of pricing on account of take-or-pay. Our take-or-pay -- while this is a [ 50 ] million tonne pipeline, our take-or-pay is limited to 60% of that at 18 million-odd tonnes. Our calculations are basically that we will be able to do better because we require -- if you look at our [ 50 ]million tonne Dolvi expansion which gets some part of the iron ore from Orissa, our total requirement of Dolvi alone will be about 25 million tonnes of iron ore.
We would take a blend and a mix. But -- that is why we have taken a safe target at 60% level. And we would focus on -- this is basically what is [indiscernible] handed over to them in the [indiscernible] and to the [ slurry ] tank. The focus on our side from the -- once the [ metal ] is received, will be at our JSW Steel again, and they will put up the [ filtration ] units and the grinding on the other side and the pellet plant.
So we will be focusing on those assets, so that we are able to faster complete the overall asset, both slurry pipeline, the pellet plant and the development of the Paradip site.
Any price also in addition to the minimum quantity price also? Has that also been locked in or...
Yes. This is Swayam here. So on price as well as what kind of IRR, while we'll not be able to share that specific information, but what I can tell you is the capital which we release out of this project would go into building [ Phase 3 ], which we announced last quarter.
And the IRR in rolling [ Phase 3 ] is significantly higher than the IRR which is -- which has been negotiated with Infra in this project. It basically goes back to the point which Jayant made around rolling capital allocation.
I assure you that the cost post the take-or-pay in terms of the cost of operations will give significant benefits to JSW Steel.
The next question is from the line of Ashish Kejriwal from Nuvama Institutional Equities.
Sir, taking forward the same question, actually, we have developed this project, and we have -- you also mentioned that we have done lots of work in [ pivoting line natural bodies ], et cetera. And when we are half of it, we have already invested INR 1,700 crores, and a payback period could be 2 or 3 years.
So we are difficult to understand that if JSW Infra gets listed and they are [ not ] in a position to undertake additional CapEx, why we are doing so? Because this project could be much beneficial for us 3 to 4 years, maybe payback period. Or if you can justify that how much additional savings we can -- we could have done because of this and now what could be the probable saving after doing that?
So Swayam here again. Let me answer this differently. While this might come across as a sudden decision, but we'll assure you that going forward as well, you will see that the capital we have get allocated primarily, #1, on building steel capacity because we have already spoken about getting to 50 million tonnes. And we want to get there as soon as we can. You have seen the demand growth in quarter 1 in domestic. We think this momentum will continue. That means we will need capital to build the [ steel plant ].
Two, it will go on building raw material security, both on coking coal side as well as iron ore side. Now if we are sort of going to commit this kind of capital on what we think is our core priority, then anything which is a lower priority has to go. And while this decision might come as a one-off, you will see this directionally in terms of our capital allocation also in future.
Swayam, but again, this does not answer my question, actually, what I'm trying to look at. Or put it differently, when we are putting up this project, we thought that we could have saved so much of freight cost on a per tonne basis. And obviously, that could be 2 or 3 years of your payback period.
Now, if you do the same thing and after the total [ debt ] of INR 60,000 crores, INR 65,000 crores, I don't think INR 1,700 crores extra will be a burden for the company or that will change the course of the business.
So again, the question remains the same. If this project -- or if this project was so beneficial in the beginning when we could have payback period of 3 to 4 years, why we are sharing this to another? And definitely, part of the profit will be gone to the other entity, which we could have earned.
It's a question of the CapEx for the slurry pipeline, which we had earmarked, was about INR 3,400 crores. Out of INR 3,400 crores, some money we have spent, which will get evaluated at fair value and get transferred.
As far as the operational cost is concerned, as we've said, the operational costs are being worked out in such a manner that it will be operational cost at arm's length with respect to the actual variable costs which they are getting and returns on the equity they are investing. We will be able to get more value when we are taking this INR 3,400 crores out and putting it into our expansion in Dolvi because the returns on those projects are higher.
So from a capital allocation point of view because we are trying to spend INR 20,000 crores almost every year, it is more prudent for us to do this change at this point of time. That is the thought process. From a saving point of view, I think we will be very similar to what we targeted our savings to [ be at it ] when we started the project.
Okay. So sir, likely, do we have any plans to shift some of our already assets which we are operational in Karnataka, also to shift to JSW Infra or it will be only for the new projects, going forward?
No, there is no other such plan. This particular asset, as I said, we are doing to -- because it's a part of the asset where we have spent some money and still need to continue to spend 2/3 more. So this is one area where we saw an opportunity to redirect the capital, and that is why we have done that. In Karnataka, there are no plans to transfer anything to JSW Infrastructure.
Sure. Sir, second question is in your opening remarks, you mentioned that in quarter 2, we could expect spread to improve quarter-on-quarter because of lower iron ore and coking coal cost, which will offset the steel prices. So in that, have we assumed the stable prices in next 2 months? Or any further fall you are expecting from here on?
Price is something which is very difficult to comment on, given the international steel environment. But I expect the prices to be range-bound. As I mentioned, the Chinese cost of export is already on a negative variable, the way we see it now. So we don't think that there is much chance for a drop in price. So therefore, the margins will get protected through raw material, even if the prices don't materially go up.
But we are trying to do a better mix in terms of value-added. Our volumes will come in, and these two will increase our absolute EBITDA. So from an existing operations point of view, we did [ 6.35 million ] primarily because of our Dolvi shutdown and BPSL shutdown. We expect to considerably add to the volume in the -- from existing operations in quarter 2.
And in addition to that, the new capacities will start in quarter 2 end. So these volumes will give you an absolute increase in EBITDA in absolute numbers on a [ per share ] basis, as I said, the raw material prices and some other initiatives which we have taken to support the margins.
The next question is from the line of Indrajit Agarwal from CLSA.
First question on costs again. So on coking coal, after the $23 to $28 reduction in 2Q, would it fully reflect the spot prices? Or could we expect, just on a basis of spot prices, some more reduction in 3Q?
See, basically, we have a visibility based on the [ PLV ] numbers which are there for the last month. So as the coking coal, as we speak today, you would have seen the prices are [ further ] below $240, say, $240 for [ PLV ] Australia. So therefore, we expect that these prices could go down a little bit more, given the pressure, which we are seeing in terms of steel environment in the steel industry at large, globally.
There is a case for the price to go down a little bit more. But it is difficult to give any kind of [ gist ] at this point in time. So what I can say is that $23 to $28 is what we are expecting in the quarter 2, on top of the $23 kind of an impact which we have seen in quarter 1.
So overall combined between 2 quarters, you will see close to probably $48-odd going down. [ PLV ] 232 today, PLV is about 232 today, which is [ trolling ] towards 232. that would be Australia position.
My second question is actually going back to the slurry pipeline. So did I hear correctly that INR 1,700 crores is a consideration that you will receive, right, versus a CapEx turnoff of round INR 850 crores, INR 900 crores? Is that correct?
Yes, at fair value, based on cost after 31st of May. Yes. No, the cost which we have incurred, you are asking. The cost which we have incurred up to 31st May was about INR 1,200 crores.
And the consideration is INR 1,700 crores?
Yes. It will be basically determined finally on the date of transfer. So we are continuing to [ spend on ] the asset. And on the date of transfer, based on a fair value assessment, we will be taking the [ curb ].
Sure. And actually following up on that, given that both are listed entities, have we evaluated other potential buyers? Or just [ first ] a group company, we have decided on JSW Infra?
No, we did look for alternate possibilities in this sector. And if you also see, one of the public-sector entities also tried to put a slurry pipeline from there iron ore facilities to the port. They have floated a tender. But it's been 4 years, they've not been able to get any one. We tried to check with 1 or 2 larger contractors, but this was not their area of focus.
The other 2 existing pipelines in the country are primarily made by the entities themselves or by the group companies. So that is why we approach to the infrastructure where they would be interested. And that is why we looked at a model which is basically this model with JSW Infrastructure.
Sure. And any such plans for JSW One? Or you will keep it in our entity, at least in the foreseeable future?
JSW One is a digital platform. And basically, the idea is to be able to offer a transparent kind of a product across our companies, including [ steam ], including [ indiscernible], including speed to MSME and to homebuilders and then enlarge that basket as we go along. We've already started building homes through JSW One, some have already been executed. We have decent order books now. That, to the homebuilder, is a good kind of an achievement we have done.
On the [ everything ] side, we are penetrating more and more. So the volumes are increasing. We are able to address the smaller MSMEs, which we are not able to directly accept because some of them require 5 tonnes, some of them require 2 tonnes, 3 tonnes. So that, the JSW One platform along with their franchisees and service centers are able to accept. And that is the idea going along.
Divestment is difficult to say because the valuation of this kind of entities will keep changing. Last time, we had Mitsui as a -- kind of an investor who was interested in this asset. We will see how the business progresses and then take a view.
[Operator Instructions] The next question is from the line of Ritesh Shah from Investec.
A couple of questions. Sir, first is on quality control order. There have been 2 orders. The second order, the net was widened beautifully. But we haven't seen any impact as yet. Is the industry proposing something or is the government looking to do something to make this work? That's the first question.
Yes. So we are looking at the quality standards and the quality control orders, which have been issued, and that has been constantly evaluated, and we are taking up with them whichever is not covered.
But having said that, I think still substandard products or product integration to the BIS which are still coming in under the guise of some different BIS, that's something which we are bringing out and then looking at ways to address that. So that is what we are taking up with the BIS, and the consumer has [ vested ].
So no immediate hope on this?
So they will basically be -- there are -- for example, there are certain [indiscernible] product where a substrate of zinc which should be at a particular level, it's maybe at a lower level. That is not visible on the substrate once the color is [ put ]. You have cases of [indiscernible] which happens from one country to the other. And then if that has BIS, then gets circumvented and comes to India.
Those are challenges which we are facing today, which has been taken up, and I think we are in discussion. I can't say definitely, what are the steps going ahead, but we are in discussion with the government to tighten the quality control notes.
Sure, sir. Sir, second question, any thoughts on to assets, RINL, [ NMDC ] Steel? We had indicated we will be open to everything. Is this something which is work in progress? How should we look at it?
We are not open to everything. I think we said last time also that assets which makes strategic sense for us, we'll look at. And [ NMDC ], we have expressed an expression of interest. But as you know, it got stalled, the report of conduct and other establishment in terms of getting the factory running, et cetera. So once the [ NMDC ] comes up again, we will look at it.
RINL is in a different state. We will have to see and watch how that goes and if the asset comes on divestment route or not. If it does come at that time, we will see based on the document and see if it make strategic sense for us.
Sir, last two quick ones. Sir, I see JSW One has gone an NBFC. Does it mean anything to the distribution, sales network for JSW Steel? Does it help in any manner? How should we read into that? And lastly, Bhushan profitability has improved sharply on a sequential basis. How should we -- how should one read into that?
Yes. Last time, we had said the profitability in BPSL was lower, so we tried to improve it. But having said that, I think a lot of initiatives have been taken at BPSL to improve on various operational parameters. And that is something which is now showing up.
I think from a specific consumption point of view, from a coal cost point of view, from rationalization of logistics cost of raw material movement, I think work can been done. And that's how you see the profitability improvement.
The other thing we have been able to do in BPSL is that we've been able to use our downstream assets quite well. Downstream assets are getting now almost fully [ run ], capacities are getting loaded. We have also started doing the pipe manufacturing through our pipe asset in BPSL, which is the erstwhile Kalinga brand, which was there, which has a good name.
So the downstream facilities in cold rolling, galvanizing, color coated, Galvalume have been ramped up. That also is adding to your value, as you see.
The other question, which you asked before the BPSL was JSW One in NBFC. JSW One is trying to offer a full solution to the customer. So they are not only looking at a financing solution whoever needs it, also as a logistics solution for delivering the material, looking at service center solutions so they are able to deliver in platform. So they are trying to create an ecosystem of supply like what you would have from Amazon of the world.
So the idea is to create a commercial marketplace of -- e-commerce place where they will be able to offer the product to the customer on the door. If it needs financing, that will be available.
The next question is from the line of Amit Murarka from Axis Capital.
My question frankly is again on the Slurry Pipeline. So when...
Mr. Murarka, sir, your audio is not clear. Can you use the handset mode while speaking?
Is it better now?
Sir, slightly better. Please proceed.
Sir, my first question was again on the Slurry Pipeline. So I believe if I'm not wrong, when the auctions were done with a high premium and all that. So the idea was, at that point in time that it will lead to logistics cost savings through the Slurry Pipeline all that. So while on the one hand we have bid aggressively for iron ore and taken in the cost in our P&L, but it seems like the benefit of this Slurry Pipeline will not come through now. Given that you'll be paying whatever the transport charges and all out through the end of the [indiscernible].
Could you just help us understand again, while you said in stake or pay, but could you also put some numbers around it as to like still does it offset the negative impact of the iron ore premiums in your P&L?
No. I think the way we look at it is the operational benefit will still approve JSW Steel. It is like basically giving the assets on the build and operate kind of a mode, similar to your leasing, where the financing basically is done. An entity and our capital allocation gets freed up for use for our steel expansions. The benefit of the savings in terms of iron ore, transportation will continue to accrue to us. We will pay to them some charges on account of the operational costs, which will be determined mutually, which, as I said in the last question also, I think we are at a better -- Swayam clarified, at a much better IRR, which we have been able to get from JSW Infrastructure versus what IRR we see in our brownfield project at Dolvi. So therefore, from an capital allocation, from a return perspective, it is actually positive.
And finally, I mean, if some -- if you could share some numbers that I would have like say, versus your current transportation cost that you are using by paying on the Slurry Pipeline, what will be the saving or something like that?
So we expect to save -- we expect to save in the range of INR 900 to INR 1,000 a tonne on iron ore, you can multiply that by almost 2x when you were to look at steel.
Okay. So this is net of the payment for the usage of the pipeline you mean?
Everything.
Okay, sure. And also, secondly, you mentioned that generally the imports are rising and, let's see how this year goes for consumption, but let's assume that it's a more subdued year for steel consumption in India and with so much of capacity additions. So could you kind of declare the ramp-up of your capacity in that situation, some like is that exports seem to be unviable at this point in time?
No, Amit, actually, the way the capacities are coming because of this migrant labor, like our capacity also got delayed by a month, 1.5 months, because some of the labor, which went back. Migrant labor didn't come back during elections and because of the heat wave, both. We are seeing delays of capacities in general in India. So as a matter of fact, the way I see it is, if you see the last quarter, we were surprised on the positive with a 14.9% growth, in terms of Y-o-Y on the demand in India. Going forward, as I say, I'm expecting about 12 million to 14 million tonnes kind of a demand increase in this year.
If you were to look at the capacities coming in, including ours, which are back-ended. Most of the other capacities are back ended for the year. The capacities will play out over maybe 2 years or a little more. In 2 years' time, the way you should look at it is that the country's demand will increase by 25 million tonnes.
Sorry to interrupt, but that's not how HRC increase on the capacity ourselves.
I'm fully with you on that. We have calculated based on HRC as well from a capacity perspective to the growth in demand from flats. We are not worried about the consumption within 2 years. Improving the capacities which are coming up and the ramp-up expected, we are of the opinion that this will get absorbed in the domestic market, mostly and as we said, the exports will continue to be maybe 10% to 15% range for us.
The next question is from the line of Bhavin Chheda from Enam Holdings.
Guys, what's the...
Mr. Chheda. Sir, can you use the handset mode while speaking your audio is not clear.
Can you hear me?
Yes, sir much better. Thank you.
Can you guide us what the peak net debt would be in the current fiscal? And if you can guide on some ratios at what net debt to EBITDA or net debt to gearing whatever you look at that -- what peak scenarios you would be comfortable with?
So Swayam here. We have guided again and again that we would like to be below 3, net debt to EBITDA. However, within quarter or 1 or 2 quarters, it can go up slightly, but our goal eventually is to get closer to 2.5. So as a general guidance, we don't expect to go much higher than the 3 which we have reported. We expect to actually come back closer to 2.5 by the time this year ends.
And if you can guide us on absolute net debt numbers or that would be difficult?
That would be simply difficult to give you in terms of an absolute number. But as we explained, we have paid back acceptances of INR 300 million. We have tried to put in some working capital into the business. We have spent a little upfront on CapEx because we are finishing the ramp-up of JVML, BPSL and also starting the Phase III of Dolvi. So as this capital -- working capital gets unlocked you will see some of that flowing back to reduce the debt. But it would be difficult to give a number.
I mean the second question.
We are still in the CapEx cycle. It's easier to pay in absolute value and ride once you are end of that cycle. But it is the ratios which are more important.
Sure. The second one on the captive iron ore mines, which we have won in auction. As you said, 124 iron ore mines and 13 are currently operational. So what's the mining run rate of 13 mines? And if you can break it up into Karnataka and Orissa. And what's the status of balance and when they will start and what kind of volumes you expect from there?
Yes. So in Karnataka, our existing mines, the 9 mines are about 11 million tonnes of capacity. The new 3 mines in Karnataka will add another 4.5 million tonnes, which I said will get into operations during the course of the year. So Karnataka captive will come to about 15.5 million tonnes. As far as Orissa is concerned, we currently have 4 operating mines. And there, we are close to 20 million tonnes of output. And that is because Karnataka, anyway, we are maximizing except for the 4 million, which is yet to come in our 11 million capacity we are trying to maximize well. And Orissa, we are operating currently at 20 million. We can do higher, but we will do that as per requirement of our ramps up, which is coming up in...
Karnataka will reach 15.5 this year, Orissa would remain at 20. So this will cover all your 24 mines or there will be a few more pending to get commissioned later?
Yes, there will be a few more mines. So we are -- we have 2 mines in Goa, which we had won too, right? We had got 2 in Maharashtra, which we have won, which needs to be operationalized. Maharashtra mines are more [indiscernible] developmental mine. So that will take a little bit more time. But Goa, we should be able to get into operation sooner. In addition to that, we have got 1 more mine near BPSL, which is about less than 100 kilometers from the BPSL side, [indiscernible]. That mine, which should give us about 2 million tonnes per annum, should get operationalized in the next year as we see it today.
So these mines...
Goa would add how much, sir?
Sorry?
Goa mines would add how much? The 2 mines in Goa?
2 mines in Goa currently about 1.5 million to 2 million tonnes is what we are expecting from those 2 mines.
Sure. And sir, my last question...
Just on the Mozambique capex.
Difficult to give you CapEx till we have the approvals and go to the site and start doing the mining operations. We'll be able to give you some more feedback once we get the approvals and go into mode of mine.
The next question is from the line of Raashi Chopra from Citigroup.
Just one question on realization. You indicated that prices had collected in June. So how much lower are spot prices versus the average of the last quarter? Both for flat and long.
So I think I would like to say that flat prices in April and May went up somewhat. And internationally, the prices went up by about $15 to $20. We saw a reflection of that in India. Part of that in India. I think about $15 to $17. We saw an increase in this range. But however, in June because of the pressures of import from China and Vietnam and the other escape entries at lower prices that price started getting down. I'm not able to give you an exact number of how much it will be on a spot basis quarter-on-quarter. But what I can give you is that in quarter 1, in spite of a softer price environment, we were able to increase our realization by about INR 540, INR 550 per tonne to a better product mix allocation and more focus on the domestic sales.
So price, difficult to say how it will move in the market. But my feeling is that during June, and whatever has happened for the price announcement in July, we feel the prices are now more or less bottomed out. And that should therefore remain around these levels, unless there is some more pressure from imports.
So can I -- is it safe to say that the $15, $20 increase that you saw in April, May, that largely reversed? Or was the correction...
So we saw some increase between April and May, between June and July. I think most of that has gone in the flat sector. Primarily because of the lower import. You rightly said that, that's right. So about that impact of April, May positive has been more or less reversed. In longs, we had a much larger price increase during the quarter because of the supply disruption in many areas, especially the secondary, RINL, et cetera. But now I think supplies have also resumed that the monsoon seasons have kicked in. So therefore, there is a slightly softer scenario on the long side. So there also prices have corrected, especially in the secondary market. So there, I think while it continues to be range bound, monsoons, usually, you do see seasonal impact. So that's not something which is uncommon.
The next question is from the line of Prateek Singh from DAM Capital.
So my first question was largely on the Slurry Pipeline transaction value. So as I can read, I think the annual transaction value which we are talking about is around INR 1,300 crores. So that would be on 18 million tonnes or 30 million tonnes?
That's on 30 million tonnes.
On 30 million tonnes. Okay. So -- got it. So that would kind of imply INR 400 per tonne transaction cost for around 300 kilometers. That's the way to look at it, right? There will be nothing on top of [indiscernible] cost that they are happy to pay. Got it.
Calculations are on the right side.
Sure. And we are saying that we'll be saving around INR 900,000 on top of it. So that kind of implies that even if you're doing it ourselves, we would have -- we would be -- I mean, the [indiscernible] happen was not there, the cost for us would be around INR 1,500 crores, INR 1,600 per tonne for this kind of a distance. So that kind of tells me that -- sorry?
No, that depends on the mix of rail and road because the biggest challenge in Orissa sector is that the availability of railway wagons [ freight ] is very limited. So we do our own rigs, we do Indian Railways, but very little of Indian Railways is available. So if you have to switch to more road then the cost goes up. So this varies depending on the percentage of road, which we are forced to take apart from being more than efficient. So that's costly and difficult.
Yes, yes, that's what I was coming to that. It kind of implies that it's largely a bit more focused towards road. And sir, my second question here would be, so how does this number change? So as you said minimum, we will [indiscernible] from the turnaround 18 million tonnes. So would it take -- would it change in a prorata basis if we are taking 18 million tonnes? Or there are different kind of mechanics here which will come in play.
So we have a table based on which from 18 million to 20 million tonnes that will be priced any goes down. If we do 18 million tonnes, then naturally, there is a -- that's a higher number. But then otherwise, it comes down. Our effort will be to use the pipeline to the full. So therefore, our intention is to, ultimately, as you know, we have given our intention that we would be putting up a steel manufacturing site in Jagatsinghpur in Orissa. We are already in this budget already the Slurry Pipeline and the pellet plant is already included. The pellet plant development, we will start, after that, we will look at the next phase of CapEx, maybe we will look at another pellet plant, which is not included right now in this CapEx. And with that, we will be able to use the full Slurry pipeline that is the direction of our plan. So what 60% is basically [indiscernible] kind of a calculation. But the facility, once it is used at 30 million or 27 million or 25 million whenever chart of reducing cost.
Understood. And sir, my second question would be on autos. So we have been hearing news that you are sitting on a decent inventory right now. Could you please remind us as to when did the last half-yearly settlement happen and what kind of price increase on a similar basis, We saw back then and what could it be now?
So I think I don't recall often the price, numbers and movement. But the prices move with respect to the market, and there are basically guidelines laid down based on which the pricing of automotive is done, that is negotiated with them based on a certain guideline criteria, how the price moves in the previous quarters. What I can tell you is that from a demand perspective, I really don't see much of a slowdown. We are running at a current rate of about -- we did close to -- we did about 692,000 tonnes or 693,000 tonnes of automotive sales in the quarter 1. So our run rate is now currently almost close to 2.8 million tonnes in the year. This would probably improve as we go along.
We see the demand from the automotive side, I think, reasonably stable. The inventory, which you are saying, yes, at the dealer level, but if you see the FADA data, which is the registration data, that data has shown much healthier growth. That means there is an inventory dilution, which is happening and which is likely to happen. I think we should be good. The base is higher, naturally that is understood because last 2 years, they grew very well. So therefore, the base is higher, the percentage growth may be slightly lower, but they will still have a very positive growth the way we see it.
Ladies and gentlemen, we take that as the last question. I now hand the conference over to the management for their closing comments.
Yes. So thank you very much. I would just like to sum up to say that, as we mentioned, the Indian economic momentum continues to be strong, which is reflected in the steel demand in the country. The government has enough fiscal flexibility to be able to spend more whether it is for initiatives on infrastructure, manufacturing or any other consumption-related expenditures. We see in JSW Steel, the volumes in quarter 1 was slightly lower because of shutdowns that now is behind us. So we will see improvement in volumes from our existing operations coming into Q2.
Our new facilities in Vijayanagar and BPSL both are under various stages of commissioning, and that should start giving us volume towards the end of Q2 and will ramp up in Q3. As we have seen, we have been able to do a much better product mix, which has given us a value-accretive growth on the realization. The cost in quarter 2 are likely to be softer as we said for booking coal as well as iron ore, which have softened. So therefore, that will flow into Q2. These will support the margins going forward.
India remains a bright spot and is a multi-decade opportunity and we expect that the overall growth momentum will keep the consumer demand as well as the overall demand in the country going. And therefore, we see that as a great opportunity for us in the steel industry to be investing and to be fortunate to be in this cycle of investment in the country. Thank you, and all the best. Thank you all.
Thank you, members of the management team. Ladies and gentlemen, on behalf of JSW Steel, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.