JSW Steel Ltd

NSE:JSWSTEEL

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the JSW Steel Q3 FY '23 Earnings 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.

[Ashwin Bajaj, executive]

Thank you, operator, and very good evening, ladies and gentlemen. It's a pleasure to welcome you to JSW Steel's Earnings Call for Q2 FY '23. We have with us today the management team represented by Mr. Seshagiri Rao, Joint MD and Group CFO; Mr. Jayant Acharya, Deputy Managing Director; Mr. Rajeev Pai, CFO; and Mr. G.S. Rathore, Chief Operating Officer.

So we'll start with opening remarks by Mr. Rao and then open the floor to Q&A.

So with that, over to you, Mr. Rao.

[M. Rao, executive]

Good evening. Good evening to everybody. So we welcome you all for the briefing up for Q3 performance for the financial year FY '23. The global economy, as you know, has been battling with several headwinds, high inflation, high interest rates and very high government debt to GDP. It's limited fiscal space to various governments and worsening financial conditions. So the outcome of this is everybody is talking about very slow growth to mild recession across the globe other than certain countries like India.

Over and above that was in one trigger, which we have seen recently. So China announcing from zero-COVID to COVID-to-all policy and the easing restrictions in the property sector is the trigger where we are seeing commodity prices going up and the outlook slightly changing.

Over and above that, we also have seen 2 more restrictive trade-related issues globally. One is by U.S. government, the Inflation Reduction Act, which has been passed. The restricting, we now view is trade -- free trade because they're giving more and more importance for energy transition using the materials within U.S.A. are friendly countries with whom they have FDAs. So across many countries, we are talking about this restrictive trade-related act is being objected upon.

In addition to that, we are also seeing a disrupting news from Europe about carbon border adjustment tax. Even this particular initiative is being used to restrict the trade, particularly developing country like India where we have our own nationally determined contributions that we have given in a country that we will reduce our carbon emissions by 2070 to become local where now we'll get penalized if we have to export to Europe. But at the same time, the European countries [indiscernible] are getting continued up to 2032 or even beyond. That is why this appears to be a little bit of trade restrictive policies that is being followed by West. So this will lead to, in my view, is concentrated trade, another form of globalization, which is regionalization of trade. This is also not a very encouraging news.

At this backdrop, if we look at what India is concerned, I think very good demand for steel. All the macroeconomic parameters are increasing in India. The revival in the infra spending ELA-related manufacturing, as [indiscernible] construction activity picking up pipeline, metro lines, pipelines, freight corridors, renewables, there is a very good revival as per as the overall economic activity is concerned.

Over and above that export tax declined, and the number in 2022 is also very encouraging. So Indian steel demand in the first 9 months of the year has gone up by 11.5% for the 9 months, which is almost 1 million tonnes more every month. So that is maybe encouraging. But here also, the imports have gone up quarter-on-quarter by 40% and quarter-on-quarter by 47% and the year as a whole 9 months, it went up by 40%. So imports are increasing into India, and at the same time, exports have fallen. Exports have fallen by 27% quarter-on-quarter and 59% year-on-year. So this is an important issue as regards to imports going up and exports falling and the consumption demand reasonably okay as far as India is concerned.

In this background, if you see the JSW Steel's performance, it's the highest ever crude steel production. On a stand-alone basis, it is 5.32 million tonnes, showing a growth of 7%. We operated the steel plants at 92.5% capacity utilization. In Bhushan Power & Steel, it improved its capacity utilization to 85% as against 72% in the previous quarter. So the -- on a consolidated basis, we have posted accrued steel production, again, highest ever of 6.06 million tonnes, showing a growth of 9% quarter-on-quarter with a capacity utilization of 91%.

On the sales side, on a stand-alone company basis, we had 4.95 million tonne sales. On a consolidated basis, including Bhushan Power & Steel, it is 5.55 million tonnes. It appears to be slightly 1% or 2% lower on a consolidated basis volumes. But if I look at the domestic volumes are concerned, it is a very good growth. We sold over again 5 million tonnes, highest ever domestic sales, 5.163 million tonnes, showing a growth of 2% in volume terms. But the overall volumes are lower because exports have fallen. Exports have fallen by 32% on a year-on-year basis. Our exports as a percentage of sales in this quarter was only 7%, 3,83,000. It has fallen by almost 1,70,000 tonnes -- or 1,70,000 tonnes of fall in the exports.

Our net sales realizations quarter-on-quarter have fallen by 5%, but costs also have come down by 14% as we have been guiding that the coking coal prices will come down by around $80 in consumption terms in the last quarter. In fact, we achieved $100 per tonne. But iron ore prices, there is a slight increase quarter-on-quarter basis, but the power cost, [indiscernible] cost, fluxes cost, fixed cost, they all came down. Let's say, overall, we got a benefit of 14% on quarter-on-quarter basis, this has translated to close to INR 7,900 of reduction in the cost. Even after offsetting INR 3,200 of all in the NSR, we could improve our EBITDA margin by INR 4,680 per tonne. EBITDA margin was 13%, EBITDA per tonne was INR 8,149.

Here, the important point is the way last quarters we had suffered due to rupee depreciation and also the inventory losses. This quarter also, it has happened in Q3. On a consolidated basis, INR 984 crores is the impact of FX loss and the inventory losses. This will translate to INR 1,750 per tonne. So if we take INR 8,150 as a margin, if these losses are not there, then the EBITDA margin is close to INR 9,900 per tonne in this quarter on a stand-alone basis. The EBITDA for stand-alone company is INR 4,030 crores. It is 131%. The net profit was INR 1,234 crores.

As regards to subsidiaries, domestic subsidiaries on a consolidated basis, the coated -- JSW coated, including VTPL, ACCIL and the [ VIL ], there is a positive INR 11 crore EBITDA, which was INR 59 crores negative in the previous quarter. Similarly, in the case of other subsidiaries also, they have become positive in this quarter. BPSL posted INR 341 crores EBITDA as against negative INR 183 crores in the previous quarter. So all domestic subsidiaries together, INR 451 crores positively contributed in this quarter.

Similarly, overseas, it has a positive contribution of INR 112 crores. Italy has done well. It is EUR 7.8 million as against EUR 1 million in the previous quarter. Baytown has done reasonably well. It has $17.2 million EBITDA, even though slightly lower than in the previous quarter.

In Mingo Junction, we were able to reduce our losses from $40 million to $22.8 million. So net-net, U.S. has contributed $5.6 million negatively. But Italy has made a positive contribution, that's why overall -- overseas subsidiaries all together contributed INR 112 crores positively as against INR 191 crores negative in the previous quarter.

So on a consolidated basis, both overseas subsidiaries and the subsidiaries together, after adjusting consolidated adjustments, the net contribution is INR 517 crores. So the overall EBITDA on a consolidated basis is INR 4,547 crores, which works out to INR 8,082 per tonne. The profit after tax is INR 474 crores.

The net debt is INR 69,498 crores. Average cost of debt has gone up 6.89%. There is a slight increase in the debt, partly contributed by FX fluctuations, partly due to the CapEx, which we incurred during the quarter. The EBITDA to debt is 3.51x. Net worth is 1.09x. The revenue acceptances are INR 2,338. Capital account acceptances were INR 95. We have spent capital expenditure of INR 4,100 crores during the quarter, so aggregating to INR 10,700 crores for the entire year.

During the quarter, we also commissioned our coke oven plant, one factory at Vijayanagar. So in future, there is no need for us to procure coke for Vijayanagar operations. So that will positively contribute partially in the Q3 and fully in Q4. We also commissioned our 60-megawatt power plant at Dolvi, part of the benefit had come in Q3, full benefit will come in Q4.

On the value-added side, we have commissioned the CAL unit 0.5 million tonne at Vasind and 13.2 at Tarapur and [indiscernible] unit at Vijayanagar. So these are some of the positives as far as improvement in the product mix and the cost reduction side.

JSW steel got the clearance for 9 of the projects under PLA scheme. So out of these 9 projects, 6 projects already under implementation. They are part of the capital expenditure announcements have been made by the company. Three more projects we have to take up during the course of time we will take. So PLS scheme totally INR 16,751 crores is investment. Out of that, INR 5,350 crores is already committed. Capital expenditure is going on.

So with that, I'll stop here. If any questions are there, we are here to clarify. Thank you.

[Ashwin Bajaj, executive]

Operator, over to you.

[Operator]

[Operator Instructions] We have the first question from the line of Amit Dixit from ICICI Securities.

[Amit Dixit, analyst]

Congratulations for a good turnaround in a very testing quarter. I have a couple of questions. The first one relates to the load 2 of the account financial statements, wherein we have received a show cause notice from the Director of [ Mine ] amounting to INR 702 crores, while we have not made any provision so far. But in the past, we have seen that any such demand of loyalty. Ultimately, we have to pay. So while it appears for you now that it is currently not legally terrible, but do you foresee any such reputation that in the past -- unlike in the past, we will have to ultimate pay INR 702 crores?

[M. Rao, executive]

No, if you have read the note, it is clear that it is not legally to issue such notices. That is why the [indiscernible] authority has given a stay here. So it is not unique to JSW Steel to operate the way the mines are getting operated. So basically, the show cause notice or the demand notice was issued based on the difference between actual grade of iron ore that is being mined compare it to GR report. And other is mining plan, whatever we have stated versus what is actually happening. So it is a notional demand. It's not actual mistake that is being done.

No mine in India will adhere to the GR report the actual mining. And number two is no mine can get operated as per the mining plan. This is only indicative plans which get approved. It goes on changing. And also the mine is for 50 years. If we are mining on a single month ex quantity of iron ore of a different grade, that need not exactly match with reference to the mining plan or with reference to the GR report. So just seeing the fact itself, it shows that it is not a valid demand that has been made. So we have a very strong case, which we have been advised legally. So we have -- we are contesting this particular point. That is why there was no need for any provision in our view, supported by legal experts.

[Amit Dixit, analyst]

Okay. The second question is essentially on cost. You indicated in your opening remarks that the benefit...

[Ashwin Bajaj, executive]

Sorry to interrupt, Mr. Dixit. Would you just kindly repeat the second question as it was not very clear on the call.

[Amit Dixit, analyst]

No, sorry. Is it -- am I clear now? .

[Ashwin Bajaj, executive]

Yes.

[Amit Dixit, analyst]

Yes. So the second question is essentially on cost. You indicated in your opening remarks that the coking coal cost was on a conversion basis was down $100 per tonne. What kind of movement do we expect in Q4? And iron ore prices have been moving up. So what kind of increase in iron ore costs do you see in the next quarter, that is Q4?

[Jayant Acharya, executive]

So as far as coking coal is concerned, we have been able to get an advantage of $100 in the last quarter. It will be flattish this quarter. We don't expect too much of movement. It will be range bound. As far as iron ore is concerned, I think we have already seen the prices going up, and we expect this also to remain in the range bound manner in this quarter. It's already moved up in the last few weeks.

[Amit Dixit, analyst]

Okay. And do we -- are we carrying any inventory of iron ore, the low cost inventory?

[Jayant Acharya, executive]

Not -- we are basically not carrying too much of inventory by now, no.

[Operator]

We have the next question from the line of Satyadeep Jain from AMBIT Capital.

[Satyadeep Jain, analyst]

A couple of questions. So first one is on the follow-up to Amit's question. Can you talk about the magnitude of difference, possibly an indication of how much is the difference between the actual mining plan grade and what's actually happened in the quarter? And related to that would be, any update on the IBM revision case also? I think they've gone to higher court. But after that, do we have any update on that? That's the first question.

[M. Rao, executive]

So the magnitude of difference is not relevant here, how much difference is there. Fundamentally, we have to understand is there any ground either legally or otherwise for questioning about actual grade of iron ore that mined is now what is stated in the mining plan or in the GR report. So it can never happen in the practical sense. It will happen over 50 years life of the mine.

So based on that, the magnitude of difference is not very relevant here. Similarly, as far as the IBM is concerned, the prices are getting revised considering some of the points we have already been contesting. So there is also a proposal to make amendments to the law to change the method of competition of average selling price. So we hope those amendments are done. In the meantime, the case is going on.

[Satyadeep Jain, analyst]

Okay. Next question is on Bhushan Steel. Just wanted to go back to the earnings trajectory for the -- for that particular business 2 quarters ago. It was used to report higher EBITDA per tonne than stand-alone. I think it was mentioned that possibly it is because of the higher [indiscernible] mix that BPSL has and that entire trajectory has kind of reversed in the past 2 quarters. Just wanted to see what's going on. And is that likely to sustain? Or do we -- once maybe things normalize, you would expect BPSL to again generate higher margins in the stand-alone business?

[M. Rao, executive]

No, BPSL, as I mentioned, the capacity utilization improved. In the Q2, we had suffered due to lack of iron ore, whereas in the case of Q3, there was high cost inventory of coal that needs to be consumed. And also, there are some energy losses, which has to be taken. Energy losses are large, INR 158 crores in the company. Similarly, the pellet plant, there were certain shutdowns which have been taken. They had to buy the pellets from outside at a higher price. These were some of the reasons why BPSL performance was not as expected. Even then the EBITDA per tonne, which we have made in the last quarter, was INR 5,010, INR 5,010 per tonne.

But this energy and inventory losses, which amounted to INR 158 crores, if I take that, if they are not there in future, if we make that assumption, INR 2,317 is on account of these onetime losses. So if I take these 2 into account, the actual EBITDA in BPSL is INR 7,307. Now going forward in future, the capacity utilization is better. The capacity expansion from 2.7 to 3.5 is complete, so more volumes will come. And now the costs are under control. So BPSL performance will be much, much better in Q4 over Q3.

[Operator]

We have the next question from the line of Sumangal Nevatia from Kotak Securities.

[Sumangal Nevatia, analyst]

First, on the cost, if you could just share the dollar per tonne number for coking coal, what was it in 3Q? And on the other side, in the opening remarks, you said that there is some cost deflation on other items as well in terms of power fluxes and consumables. So if one can quantify how much was that. And is the decision on normalization expected in 4Q also on a quarter-on-quarter basis?

[M. Rao, executive]

So as far as the power cost to concerned dependent upon the thermal coal prices. Thermal coal prices have come down, due to which there is around INR 600 reduction per tonne of steel on power alone. This is expected to continue. It may not be additional incremental reduction, but these prices are not going to be higher.

Similarly, on the coal side, already Jayant has covered that point. There would be any increase on account of coal, so we are more or less covered for this quarter. But then the [indiscernible] and fluxes, they have started coming down. So the full benefit of lower prices of consumables, fluxes and other items have not fully come in, in the Q3. So those benefits will flow more in Q4 and fully in Q4.

[Sumangal Nevatia, analyst]

Okay. So is it possible to quantify, I mean, just to understand the quantum, I mean, how big is these?

[M. Rao, executive]

So we already said INR 7,880 per tonne is the lower cost, which is 14% lower than the Q2. So that constitute various items, a significant portion is coking coal. Coking coal, we've already given the number of $100 per tonne of coal. That benefit has come. So all this together is INR 7,880. It's not possible to give a breakup of various items.

[Sumangal Nevatia, analyst]

Okay. That's fine. Sir, second question is on the price direction. If you could just share -- I mean, we do hear a lot of reports of price increases in early Jan and even in mid-Jan. So if you could quantify how are we seeing the prices in this quarter. And also, how is the export market looking? Have we started -- how is the order book after the export duty being removed from mid-November onwards?

[Jayant Acharya, executive]

So on the pricing side, things are looking up. In the last few weeks, we have seen the international prices move up. On a dollar basis, I think China moved up by about $100. European CFR also, we have seen move up in the range of $140-plus. And we are seeing a reflection of that in India. Primarily, the cost increase, some of that had become unsustainable. And therefore, the steel prices are coming back to a level where margins will become a little bit more livable.

So you are seeing the prices increase from 1st January. And as you've said, some of the products maybe mid-January as well. So you will see this probably play out in this quarter, which is seasonally a better quarter. And in India, fundamentally, the demand drivers are strong. Infrastructure, construction, manufacturing, automotive, CapEx coming back. So you will see this also giving them exclusive tailwind for a better demand.

[Operator]

We have the next question on the line of Amit Murarka from Axis Capital.

[Amit Murarka, analyst]

So just on the cost discussion. So I just wanted to understand, you mentioned power and fuel fell by INR 600 per tonne. So are you referring that in the context of Q4 or in Q3?

[M. Rao, executive]

Q3.

[Amit Murarka, analyst]

Okay. But then can we expect a similar or a fall in Q4 as well, given that LNG has declined and generally, there has been a deflation in energy costs?

[M. Rao, executive]

No, we don't expect a similar benefit incrementally to come in, but at the same time, we'll remain more or less in the same range as far as the power is concerned. One addition here is on a combined basis, we have started in Dolvi, particularly the 60 megawatts of power plant. So that benefit will come in power cost to some extent, but it is not quite substantial.

[Amit Murarka, analyst]

Got it. And also on your guidance, which you have done in the past, are you maintaining your volume guidance on the CapEx side, just to confirm?

[M. Rao, executive]

Yes, I will take a minute. The total guidance we have given for the production is 25 million tonnes and sales 24 million tonnes for this financial year. This 25 million tonnes, there are 3 parts. One is 23.6 million tonnes is for operations on a consolidated basis other than overseas, other than JSW Ispat specialty products. So we have given, for overseas, Ohio, 0.7 million production crude steel; and the JSW Ispat, we have given 0.7 lakh tonnes.

So this 1.4 million tonnes, there are some slippages. In the JSW Ispat side, we had taken shutdown almost close to 3 to 4 months for maintenance and general market conditions. Actually, there were slippages in the JSW Ispat. In Ohio also because of the market conditions, they could not achieve the targeted crude steel. So if I take out these two, then the production guidance is 23.6 as it is 25 on a consolidated basis. This 22.6 includes Bhushan Power & Steel. We have achieved 17.25 million tonnes so far for 9 months. So we will be able to achieve the balance in the Q4, and we will achieve our production guidance other than JSW Ispat and Ohio.

Similarly, sales side, out of 24, if I take out JSW Ispat and Ohio, our guidance is 22.6. So we have achieved 15.51. So we are working very hard to achieve even sales guidance by reducing our inventories. Our inventories are concerned during the current quarter, it went up by around 1,80,000 tonnes. We have 2.039 million tonnes of inventory as against 1.35 million tonnes as of 31st March '22. So there is an accumulation of inventory. There is large scope of reducing inventories. So in addition to clearing whatever we are producing, our plan is to reduce the inventories because export tax also has gone. So there is opportunity to export certain volumes from India by clearing our inventories. With that, we are keeping our guidance even for sales to achieve 22.6 million tonnes.

[Amit Murarka, analyst]

Okay. Okay. Understood. Just on the last question. So could you also quantify the external iron ore sales and revenue booking you did in the quarter?

[M. Rao, executive]

We'll give you the number separately.

[Operator]

We have the next question from the line of Ritesh Shah from Investec. Mr. Shah, can you hear us?

[Ritesh Shah, analyst]

Yes. Sir, couple of questions. First is on CapEx. Sir, can you highlight how does the PLI scheme fit in on the CapEx that we have indicated? And any color on what CapEx we should bake in for FY '25?

[M. Rao, executive]

No, in the PLI scheme out of the 9 projects, which I talked about, 3 projects of CapEx is not committed. Those 3 projects are electrical steel majorly. And tinplate facility in Bhushan Power and Steel. These are the 3 projects which are not there. These 3 projects together constitute almost close to INR 9,000 crores. As we have been guiding, we have to take a call on this electrical steel. We are doing the feasibility study. And in the next few months, we will take the call on these projects.

If I take out this INR 9,000 crores, the balance of CapEx for the 6 projects total together is INR 5,350 crores. As I mentioned, all these -- all these 6 projects are already part of our CapEx program, which includes 5 million tonne of JV [indiscernible] project, which will at Vijayanagar. That includes certain special grades of HR coil covered under specialty steel. That is one. Similarly, some template lines, some of the units where we are doing expansion in the wire rod side in Bhushan Power and Steel. They are the projects which are covered under these 6 heads. For this, we are spending INR 5,350 crores as a part of overall CapEx program.

[Ritesh Shah, analyst]

That's helpful. Sir, my second question is more on spreads. Jayant sir indicated that the coking coal prices will remain flattish this quarter. I just wanted to get a sense because if we look at the spot trend line, it has been marching upwards one way to $325. So is it on back of low-cost inventory that we have? Or is it we are optimizing the blend, which will actually give us the benefit of flattish coking coal cost curve on a sequential basis?

[Jayant Acharya, executive]

So it's a combination of a better blend. And usually, the coking coal, you have an inventory of 60 to 70 days in the system. So therefore, whatever increases are now happening, which you see, if it continues, will reflect in the quarter 1 of next year.

[Ritesh Shah, analyst]

Sure. That help, sir. And sir, a related question. You indicated on local pricing to move up 1st Jan and 15 January for new products. If we have to look at the benchmark HRC, are the local prices at a premium to import parity [ mats ]?

[Jayant Acharya, executive]

From an import parity perspective, if we were to see, I think we are, by and large, similar to the international offers now. International offers have also increased. So therefore, therefore -- since international prices have gone up, we do see an opportunity for some increases in the domestic market as we go along. But we'll watch how the international prices move and then take a view.

[Ritesh Shah, analyst]

Perfect. And sir, last question I'll just squeeze in. Sir, how should we look at the profitability of domestic sales versus exports, given the duties have been taken off?

[Jayant Acharya, executive]

Yes. So the international -- the export numbers, especially the volume part will improve. The realizations, as you were aware because the international markets were weak, have been lower. The -- going forward, we see a much improved FOB realization as far as exports is concerned. So whatever the impact was there, the double whammy, one was export duty and the lower export realization, both in this quarter, we will see a positive uptrend.

As far as domestic is concerned, I think we have seen an improvement in the month of January onwards. We see an opportunity for this quarter to be better than what we have seen in the last quarter. And international and domestic at this point of time seem to be similarly poised.

[Operator]

We have the next question from the line of Indrajit from CLSA.

[Indrajit Agarwal, analyst]

Two questions. First, on the net debt movement. If you can quantify what was the working capital buildup during the quarter and year-to-date? And what kind of liquidation can we expect in fourth quarter?

[M. Rao, executive]

As far as the finished goods inventory, as I mentioned to you, is around 6.5 lakh, 7 lakh tonnes. So its estimated to be INR 4,200 crores. So that is a kind of unwinding which can happen, but may not happen fully. It is 0.5 million, 75% of that is just quote to happen in the Q4.

[Indrajit Agarwal, analyst]

Sure. And also on the NRV loss that we have been recording for the past 3 quarters. As things stand today in terms of prices, if it were to continue for the full quarter, are we likely to see no NRV loss in fourth quarter? Or would there be still some bit of NRV loss on accounting business that we'll have?

[M. Rao, executive]

So there is a 2 million tonne of inventory is there today. That is a higher cost because costs are coming down. In this quarter, there may not be any increase in the cost. Therefore, when the opening inventory is sold, there could be some inventory loss, but it is not significant as we have seen in the past.

[Operator]

We have the next question from the line of Pinakin Parekh from JPMorgan.

[Pinakin Parekh, analyst]

Sir, my first question is on mandate, the INR 69,000 crores.

[Operator]

Mr. Parekh, would you kindly go off the speaker phone, your voice is breaking up on the call.

[Pinakin Parekh, analyst]

So just looking at the net debt number, sir, INR 69,000 crores, it is the net debt to EBITDA is at 3.5x. And while it is below the company's stated cap of 3.75x. Given that globally cost of capital is rising, liquidity is reducing, is the company comfortable with this kind of leverage on its balance sheet? We understand that there would be some working capital release, but on an absolute basis.

[M. Rao, executive]

So even though we have been guiding 3.75x, our effort is to bring it down significantly lower than 3.75x. We have been working in that direction. This year is an aberration. That's why you have seen this kind of slippages just in the overall EBITDA to debt. So we are not comfortable at these levels. We'll bring it down as we have been mentioning. So out of the INR 69,500 crores, as I mentioned, FX fluctuation is INR 3,400 crores in this. So otherwise, if I take it out, INR 66,000 crores is actually debt without FX fluctuation because that can be reversed. If I look at January, rupee started appreciating. So INR 66,000 crore versus INR 57,000 crores, this INR 9,000 crores is the increased -- actual increase in the debt. Out of that INR 4,000 crores is inventory alone. So therefore, we should be able to manage the debt as on 31st March '23 at lower levels than what is there as on 31st December. So our aim is to bring it down even below 3.5x.

[Pinakin Parekh, analyst]

Sure, sir. My second question is on steel prices. If we look at the latest Chinese offer, they have gone to $640, $650 a tonne. This implies mandate steel prices HRC at INR 61,000 a tonne plus/minus INR 1,000. Does the company see domestic prices rising to those levels eventually in the next 2 to 3 months? Or should domestic prices remain at a discount to the imported prices? I mean we understand that domestic HRC is around INR 56,000, INR 57,000 a tonne?

[Jayant Acharya, executive]

No. I think domestic HR prices will reflect the change in international numbers. If you were to look at quarter 2 to quarter 3, our realizations fell by INR 3,200, primarily in response to what has happened internationally. Prices went down by $40, $45 and that has been reflected in the Indian market as well. Since it has gone up now, we see the increase also now taking place in the domestic market. And we are expecting that this will follow a similar pattern.

[Operator]

We have the next question from the line of Debra from Deutsche Bank.

[Unknown Analyst]

First of all, congrats on reversing the results from Q2. So my question primarily concerned with a bit more clarification on the working capital reversal into the next quarter. Given that we're going to see an inventory release, would you expect the revenue acceptances to come down from the current levels of $2.3 billion? And could you please quantify how much that might be?

[M. Rao, executive]

No, that depends upon the coking coal price. Coking coal price if it is $300. If we say 6 months, [indiscernible] we avail, then it should be $1.8 billion, $1.9 billion. Then it will come down $2.3 billion has to come down. But the issue remains is what would be the coking coal price in future. Based on that, this number goes on fluctuating. So therefore, $2.3 billion today, the current prices more or less will remain at these levels.

[Unknown Analyst]

Got it. So you mentioned 50% to 75% maybe of the INR 4,000 crores. That's primarily down to a reduction in the current inventory levels.

[M. Rao, executive]

Current inventory levels and corresponding amount in the debt.

[Ashwin Bajaj, executive]

Operator, can you move to the next question?

[Operator]

Sure. We have the next from the line of Rahul Jain from Systematix.

[Rahul Jain, analyst]

Sir, firstly, on -- we've seen a consistent weak performance at JSW Coated despite adding a lot of capacity there. When do we expect some kind of margin uptick and -- in the near time?

[M. Rao, executive]

JSW Coated performance below the expectation is attributable majorly to HR coil inventories. Those inventory losses were taken by quoted. So now in this quarter, if I consolidate the Coated, including in the VIL and VTL, in fact, there is a positive EBITDA of INR 11 crores. We also have taken in the current quarter INR 105 crores NRV -- the inventory loss. If we take that INR 105 crore, if it will not be there in the future, then it is INR 161 crores EBITDA will come in for Coated.

The performance in Q4 will be much, much better in the case of Coated. They not only commissioned their CAL line at Vasind , which I mentioned and also tinplate in Tarapur, second tinplate. So all this will give more volumes for Coated. Coated business, as you know, almost 35% to 40% of Coated production we needed it for exports. So export duties really was a big damper for Coated business in the first 5 months of the year, that is May to November. Now export duty is removed. Export markets are looking better. So we'll be able to really push more volumes. And at the same time, inventory losses are not there, both together, you will find definitely very good improvement in Q4 for Coated.

[Rahul Jain, analyst]

Yes, okay. And sir, how should we look at our volume buildup over the next 2 years because I think for the near term, you just have volumes from Dolvi, more of higher capacity utilization and BPSL and Vijayanagar within FY' 25. That is the right way to look at it?

[M. Rao, executive]

So if you look, including BPSL, including JSW Ispat, the total installed capacity fully operational by end of this financial year will be close to 27.5 million or 28 million tonnes. So you will find definitely a good, good volume growth, which no other company would be able to give at least in India. So that we can expect. Over and above that, the downstream capacity also has become operational, fully at Vasind, Tarapur, Kalameshwar, Khopoli and also at Vijayanagar. So both we have reached product mix and at the same time, volume growth.

I think this is a story. Plus the cost saving projects like [coke] plant, power plants, pallet plants, wherever we have taken up, they all have been commissioned. Over and above that in the year 2024, FY '24, if you look at it, the capacity will go up by another 9 million tonnes by end of this financial year. So all this together, I think, very, very positive if we look at next 2 years.

[Rahul Jain, analyst]

Right, right. And so we've -- I want to maintain the product in the sales mix like exports 20% and remaining domestic, they are going to keep it similar?

[M. Rao, executive]

As we have been saying, the export percentage will be 10% to 25%. That is a range. During the first 9 months, it was 12% in this current financial year in a challenging time where export duty was there. So it will be in this range even going forward at higher volumes also.

[Operator]

[Operator Instructions] We have the next question from the line of Bhavin Chheda from Enam Holdings.

[Bhavin Chheda, analyst]

Yes. Good recovery in overall performance despite challenging environment. Sir, 2 questions, first on India. Iron ore, I think was 41% captive of stand-alone operations. So how that number will go going forward in FY '24? Any incremental mining volumes coming up?

[M. Rao, executive]

Yes, we are now expanding our capacity in Odhisa. So we have applied for incremental increase in the environmental clearances. Some of them have come, some of them on the way. So there will be more iron ore coming in from Odhisa mines. Therefore, this percentage will definitely go up.

[Bhavin Chheda, analyst]

Any number, sir, in terms of million tonnes or whatever number you can share?

[M. Rao, executive]

It will be in the range of around 50%.

[Bhavin Chheda, analyst]

You will eventually reach around 50% by next year?

[M. Rao, executive]

Yes.

[Bhavin Chheda, analyst]

Okay. And on, sir, international operations, we have seen across Italy, U.S. and as well as plate mill profitability improving. So will this momentum continue as steel prices are also going up, but U.S. is still into EBITDA losses, though the losses were lower on a quarter-on-quarter basis at the Ohio operations. So what's the outlook there?

[M. Rao, executive]

As far as the plate mill is concerned, it is doing well. As you have seen, even in this quarter, $17.2 million have made in EBITDA. For the 9 months, Baytown has made an EBITDA of $75 million in this year, whereas in Ohio majorly attributable to inventory losses. Even the $22.8 million EBITDA loss, which they have posted in the current -- in the Q3, out of that $15.5 million is attributable to inventory loss. So actual loss attributable to operating profits is only around $7 million. So the Q4, we expect the things will be better than what they were in Q3.

[Bhavin Chheda, analyst]

And sir, Italy would sustain this kind of run rate?

[Jayant Acharya, executive]

The Italian -- we have got the Italian rail orders and the first tranche has come to us, which will basically be running till almost April, May. We also have very good export orders. So with that, we see the Italian operations run very smoothly between now to almost June. The second tranche of the Italian rail order should also be received, subject to certain contractual requirements which we need to fulfill. So that also should be there with us in the coming financial year. So Italian operations look to be good, supported by the rail business, both from Italy and from the international market.

[Operator]

We have the next question from the line of Shubham Shukla from Voyager Capital.

[Shubham Shukla, analyst]

So my question is around capacity and utilization. Currently, we're having production capacity of 28 million tonnes per annum, and we're growing to 38 million tonnes. We had a utilization of 89% in financial year 2022. So like what's our utilization for this quarter and for the whole like financial year '22 and '23 both on a consolidated basis and stand-alone? And for like next financial year with enhanced capacity we see and given the current inventory stress we have now?

[M. Rao, executive]

Inventory stress is really temporary, as I mentioned to you because of the export volumes from the downstream falling. That was the reason why inventories got accumulated. I think we should be able to clear it very quickly.

As far as the future, particularly Q4, the capacity utilization in BPSL was 85%, which improved from 72% in the Q2. So there is a scope for improving the capacity utilization on a higher installed capacity. So their volumes will increase. Second, the Dolvi unit is concerned, further ramp-up is possible. So we were at 92.5% on an average basis. All the 3 units together, Salem, Dolvi and Vijayanagar. So there could be a possibility of increase in the capacity utilization in all the 3 locations.

[Shubham Shukla, analyst]

Okay. And my next question will be around the remarks -- on the remarks that you gave earlier on the coking coal purchase like we don't need them for Vijayanagar facility for Q4, like for the coming few quarters?

[M. Rao, executive]

For the next few quarters, we don't need coke at Vijayanagar. Even if small quantities are required, there is surplus at Dolvi. So we'll be able to meet with our buying from third parties.

[Operator]

We have the next question from the line of Prashant Kota from Emkay Global.

[Prashanth Kumar Kota, analyst]

Sir, I have actually only 1 question, 2 parts. No second question, but it is bit as more strategic in nature. Sir, if we look at the last 15, 20 years if you're observing JSW Steel and also other the companies in other sectors from India [indiscernible]. 7 main attributes -- 6 main attribute to JSW that you had promoter pursues and some passion for steel, capital allocation efficiencies, nimble foot sales strategy, both manufacturing and operational excellence and doing things at a large scale and India at heart and business invite. With these attributes, if anybody else was doing any other companies look at in India, the market caps are INR 3 lakh crores to INR 10 lakh crores.

So if you look at what is happening to us as an outside of when you observe 2 things, sir. One is they have not been given level playing field on the iron ore side, last 15, 20 years. That is we'll have to buy while others get it for very low cost. [indiscernible] So have we registered this as a grievance to the existing authority for the China, the honorable government?

[Ashwin Bajaj, executive]

As, if I can interrupt, your line is not very clear. Could you ask your question, please?

[Prashanth Kumar Kota, analyst]

Sorry, sir, if you look at -- am I clear now?

[Jayant Acharya, executive]

Yes, but just ask your question, please?

[Prashanth Kumar Kota, analyst]

Yes. Sure. Thanks, Ashwin. Sir, if you look at the JSW's performance and track record over the last 15, 20 years, and the key attributes of JSW, for example, promoter passion for steel and perseverance, capital allocation efficiency, manufacturing excellence and a nimble footed sales strategy and doing things at scale and having India in heart and business in the mind. With these attributes, any other sector if you see large companies are INR 3 lakh crore to INR 10 lakh crore market cap. But for -- in our case, we have been one big setback that we have had is the lack of iron ore access despite putting up so much capacity. How does they're inviting companies to come and put CapEx and giving the money PLI, whatever, whatever, land, resources for free. But we've never got that opportunity. Sir, have we registered this as a grievance to the existing authorities who are more concentrate -- existing government functionaries and dignities?

[M. Rao, executive]

So whatever has happened has happened earlier, but this government that changes the law and remember they are at today, the resources can be given only through auction. In my view, it is a very good thing which has happened. We've got at least some mines in the auction that made us to survive in the year 2020 to '21 by mining in Odhisa. So therefore today for us and for any new player, they have to participate in the auctions to get captive iron ore so that we will continue to do, and we increase our captive iron ore in future.

[Prashanth Kumar Kota, analyst]

Okay. Sir, related to -- Sir, in the RoDTEP and whenever that is put in place, student royalties on iron ore be given credit and also the premiums actually, to be honest, to be fair, to have a level playing field for all the companies?

[M. Rao, executive]

As you know, the concept of RoDTEP is to be WTO comply as giving the refund of the duties and taxes where the manufacturer is not getting the set off, that is the concept. So based on which they have to fix the quantum of refunds that could be given. So as on date, particularly the carbon steel sector, there is no RoDTEP. We have been requesting to provide adequate amounts in the budget, that by steel sector can be accommodated to get the RoDTEP, which is very, very important.

So whether an X item needs to be included here for refund purposes or not it depends upon whether you are waiting this set off as a non-motive attributable tax, if it is there, it will form part of the consideration by the government.

[Operator]

We have the next question from the line of Alok Deora from Motilal Oswal.

[Alok Deora, analyst]

So sir, most of the questions have been answered. Just wanted to -- actually, I missed one question in between because I got disconnected. This saleable steel our guidance for this year, if you could just reiterate because earlier we had sales of around 24 million tonnes. So for this year, what the number we are looking at now considering the 9 months sales levels?

[M. Rao, executive]

We'll answer that question. So if we exclude the JSW Ispat and Ohio, what our guidance we have given, both for production and sales, we'll stick to that.

[Jayant Acharya, executive]

I look you can call us after the call. The question will answer extensively, so we'll be happy to it. Operator, can take the next question?

[Operator]

We have the next question from the line of Ashish Jain from Macquarie.

[Ashish Jain, analyst]

Sir, I had just one question on the global steel supply side, I mean what is the observation? Are we seeing production ramping up across some of the key exporting nations like Japan, Korea and all? And what is your assessment of how supplies could ramp up globally?

[Jayant Acharya, executive]

In the last year, if you see the global steel production has corrected downwards. And the demand correction in the last year was more than that. So in this particular -- in this year as well, we see the production to be impacted in many parts of the world. Certain countries like India will show a positive growth but you will see other countries showing a muted growth by virtue of the various headwinds, which economically we are facing in the world.

As far as exports from China is concerned and the local domestic demand. I think China may see an upside in terms of local consumption and local demand in the second half of this year with the economy opening up, that should be positive for the world as well. The exports from China have been range-bound and they have been controlling it in the range of 4 million to 5 million tonnes. We don't see that increasing from China internationally. So the next year on the supply/demand side, I think the situation is positively poised from -- supply side, slightly weaker and demand should be range-bound to slightly lower.

[Unknown Analyst]

Yes. So basically, do you think that it could tighten further in '23? And sir, just on Chinese export -- sorry, no.

[Jayant Acharya, executive]

I couldn't hear the what will tighten you said -- supply?

[Unknown Analyst]

So the demand/supply balance, I mean to say, the demand/supply balance overall could tighten in '23 further is what...

[Jayant Acharya, executive]

Yes, because of economic headwinds in many parts of the world, there would be a supply/demand tightening which could happen except for some countries like India and China having a better kind of a performance in H2 domestically.

[Operator]

We have the next question from the line of Noel from Union.

[Unknown Analyst]

My question has been answered. Thank you.

[Operator]

That was the last question. I would now like to hand it over to the management for closing comments.

[M. Rao, executive]

Thank you. The way I think Jayant has answered with regard to the calendar year '23 is concerned. If we look at '22, there is an 80 million tonne lower steel production in the world. So when 80 million tonne lower production is there, automatically lowers demand for iron ore, lower demand for coking coal. So there should not be any reason why these prices are going up. That's why Chinese have made a statement saying that iron ore prices are completely speculative in nature if you look at demand/supply scenario. Same is applicable for coking coal.

If you look at 2023 calendar year, the production is not going to be higher than what we have seen in the year 2022. Even in China, assuming that it gets opened up, Chinese policy is more consumption-led growth than investment-led growth. Therefore, steel demand may not be substantially increasing in China. Further, the property market-related issues are structural in nature. So it will take time for them to recover. So therefore, overall supply side for steel is still constrained.

Europe is not doing well. So that -- in that context, if you look at supply side is constrained and on the demand side, particularly India story, if you look at it, it looks very, very attractive for next year. So capacities are only 154 million tonne. Other than NMDC's 3 million tonne, we are not seeing any big supply in India. And at the same time, -- the incremental demand is expected to be around 10 million tonne. Short term, if you look at it as far Q4 is concerned from JSW Steel point of view is that there will be better volumes, and there will be a reduction in inventory. Costs will be under control because coking coal increases are not impacting in this quarter. Therefore, margins will be better for the Q4. Thank you.

[Jayant Acharya, executive]

Thank you, ladies and gentlemen, and please contact us separately if you have more questions. Back to you, operator.

[Operator]

Thank you. On behalf of JSW Steel Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.