Steel Authority of India Ltd
NSE:SAIL
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Steel Authority of India Ltd
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Welcome to the SAIL Q2 FY'23 Earnings Conference Call hosted by Novama Wealth Management. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Kejriwal from Novama Wealth Management. Thank you, and over to you.
Thank you, Aman. Good afternoon, everyone. On behalf of Novama Wealth Management, we welcome you all for post results conference call of Steel Authority of India. We are happy to host Mr. Anil Tulsiani, Director of Finance, along with his team, who will be representing SAIL in this call. Now I request Mr. Tulsiani for opening remarks and thereafter, we will open the floor for Q&A. Over to you, sir.
Thank you, Ashish. Good afternoon, everyone. I welcome you all to the investor con call on the financial results for Q2 and H1 financial year '23 of SAIL. Am I audible?
Yes, sir, you're audible. Please go ahead.
Thank you. The last few months have been quite challenging for the economies across the globe in general and steel industry, in particular. The demand for steel in India has been relatively better. The impact of falling prices of steel, coupled with the spike in the prices of raw materials and inputs has put the margins for Indian steel producers under severe stress as visible from the results of the company's published so far.
I will briefly take you through the results of the company before we take up the questions. Let me start with the economic scenario. The global economies has been raising a severe battle with the inflationary forces in the post over era with economies like U.S. taking corrective actions by tightening the fiscal and monetary policies the GDP growth rates have been continuously reducing.
The scenario has been getting worse with China's growth slowing down on the back of the real estate sector related issues. The Russia-Ukraine conflict has accentuated the inflation problem due to supply chain disruptions. Agencies like IMF and World Bank have revised the projected GDP for various economies downwards. IMF, in its latest world economic scenario, has reduced the global GDP forecast to 3.2% in calendar year '22 and the rate is further expected to slow down to 2.7% in calendar year '23.
The major advanced economies, which include countries like U.S., Germany, Japan, U.K., France are also seeing projected growth rates curtailed significantly. The emerging economies are very only slightly better than the advanced counterparts. The silver lining for us, however, is the growth trend for the Indian economy. The economy plays much better and expect to grow in the range of 6% to 7% over the next year in various reports like IMF World Economic order, World Bank projections Monetary Policy Committee of RBS.
Though Indian economy is akin to the world economy has been seeing downwards downward trend in GDP projections, yet the projections of growth in 6 plus range means India will remain amongst the fastest-growing major economies. The domestic industry will, however, have to guard themselves from the import threats. The global steel industry has seen a decline in demand and corresponding realization for past few months. With China seemingly cutting down its production in the wake of environmental concerns, it has had an impact on the prices of iron.
The concern also remains in the area of cooking coal, which remains quite volatile. The fossil fuel, which is a major input of steel industry, earlier saw unprecedented high price in the range of $670 to $680 per ton for HCC during February to May allowing the Russia-Ukraine war. Thereafter, the prices saw substantial reduction from June, July onwards, having come down to levels of INR 200 per tonne.
However, they have now again started inching up. The forces of inflation uncertainty, et cetera, have all had a negative impact on the global steel industry. The impact has percolated to the Indian market as well. The prices of steel, which are at a peak during April have considerably reduced by around 25% to 30% with flat products filling relatively much more greater adverse impact than the Long since it is guided by the international markets.
In the Long segment also, the prices have declined of late as one of the major components that is scrapped used in FDR and wood has seen prices come down to USD 350 level, CFR [turkish]. The demonization for steel in India, however, remain upbeat with the domestic steel industry recording a growth of 5.3% in crude steel production during April to October '23 over CPLY.
The consumption of steel has grown by 11.4% in the country during this period. The company has recorded its best-ever H1 production performance for hot metal, crude steel as well as sellable steel during H1 financial year '23. The sales in the domestic market by CMO have grown by 9% during H1 financial year '23. Overall sales have, however, been affected due to lower exports during the period.
Exports are down by around 5.5 lakh tonnes during this period. The numbers in H1 and Q2 financial year industry vis-a-vis CPLY as follows. Production in H1, ''22, '23; 8.63 million tonnes; in H1, '21, '22, 8.24 million tonnes; Q2, '22, '23, 4.3 million tonnes; Q2, '21, '22 4.47 million tonnes. Saleable steel H1, '22, '23, 8.17 million tonnes; H1, '21, '22, 18.09 million tonnes; Q2, '22, '23, 4.09 million tonnes; Q2, '21, '22 4.32 million tonnes.
Sales volume, H,1 '22, '23 7.36% as compared to H1, '21, '22 where it was 7.61%. The financial performance has seen a growth in the top line, whereas the profitability has taken a hit in line with the industry trends. The revenue from operations. For H1, '22, '23 is at INR 50,275 crores as compared to INR 47,469 crores.
EBITDA is at 3,780 for H1 as compared to INR 13,921 crores in H1, '21, '22. The PBT is at INR 523 crores as compared to 10,898 crores in CPLY. And the profit after tax is at INR 391 crores as compared to INR 815 crores in H1, 2012. The average realizations during H1 remained higher than the CPLY period through other has been a substantial reduction during the period. This has helped in revenue growth in H1 compared to CPLY. Profitability has, however, been adversely affected due to higher costs, especially of coking coal.
With the coking coal prices coming down, we expect the cost of production to also correct and enable us to deliver better results in the running quarter. With these words, I hand it back to Mr. Kejriwal for opening the question-and-answer session. I'm sure you all have lots of queries on the performance. Thank you.
[Operator Instructions] The first question is from the line of Amit Dixit from ICIC Securities.
I have two questions. The first one is essentially related to the waterfall chart that you have given in slide 29. So if I see there, unlike your peers, you have gained from raw material usage and input price cost. In fact, input price cost like is almost gain of INR 90 crores, INR 94 crores. So just wanted to understand better that where did this gain come from? Because coking coal prices for your peers at least didn't correct substantially. And also raw material is where this benefit has come from? That is the first question.
Actually, when we compare the quarterly results, the prices of gold have come down in the second quarter as compared to Q1. I'll just give you the figures. Coal prices, which were moving around, which we had -- the imported coal prices, which are at over 39,000 in Q1, they were at the levels of around about 33,000 in Q2.
Okay. So this was the chief driver of this INR 90 crores, INR 94 crores thing. Okay. And what about the raw material usage, where this benefit of INR 550 crores came from? Is it due to [indiscernible] techno commercial parameters or something else?
Yes, it was basically because of the techno commercial -- techno economic parameters.
Okay. Fair enough. Sir, what kind of coking coal costs are we expecting Q3 from base level of 33,000?
We expect a reduction of around about INR 5,000 in Q3. So [indiscernible] $60.
Okay. Fair enough. Got it, sir. The second question is on the working capital build up. So if I see your debt has gone up significantly. I mean, if I compare it in the first half of the year, and working capital buildup is also quite significant. So what kind of relief do we expect in H2? And what would be the debt level that you will guide by end of FY'23?
Actually, the debt level increased by, you can say, around about nearly INR 9,000 crores in the first quarter. And in the second quarter, it has gone up by around about INR 5,000 crores. So -- but in the third quarter, we expect not much of an increase in the debt levels. And in the fourth quarter, we will try to surely reduce it to some extent. But it may not reach the levels which we had at March '22, but actually, we would try to reduce it to some levels of around about, you can say, INR 25,000 crores to INR 26,000 crores.
The next question is from the line of Pinakin from JPMorgan.
Sure, Sir, my first question is, if I look at the plant level profitability, surprisingly, Durgapur and ISP have seen positive EBIT versus a negative EBIT in the last quarter, while the other plants have negative EBIT. Sir, can you walk us through what are the drivers of this improved profitability seen in Durgapur and ISP? Because historically, they are long product segment plants.
Yes. Actually, what has happened is that the Long product prices have not been much affected because of the shortage of thermal power. The secondary steel producers also who are into making these long products, they could not reduce their prices, where as the flat product prices have been greatly impacted during this particular quarter. So that is why our other flat product plants, which are [indiscernible] some extent, delay, they have been severely affected by this fall in the prices of the steel product, whereas the long products prices have not gone down to that extent.
Sir, my second question is, we are entering the seasonally busy period for construction demand in India. There were some reports about companies raising prices in the month of October. Given this backdrop, sir, how do you see sales realization trend over the next few months versus the average realizations that the company saw in the second quarter?
As compared to the second quarter, the realizations may not be better because the realizations may not be better as compared to the second quarter. We may try to keep it at the same levels in the third quarter.
Next question is from the line of Sumangal Nevatia from Kota Securities.
First question is on the other expenses, there is a sharp decline of almost INR 1,000-odd crores. And the employee cost run rate is also lower this quarter. So is there any one-offs or if it's a sustainable gain, if you could just explain what are the drivers?
Actually, there is a one-off also. It is in case of royalty, the royalty, what is happening is that in case of our Orissa group of mines, we were paying royalty at the highest rate for lumps for fines also. But in the month of July or August, the government has come out with a notification that the highest rate of lumps will not be applicable to fines. It will be the high set of fines, which will be applicable for fines only. So this has a onetime impact. It's only applicable from April onwards, April '22 onwards.
So it had an impact of round about INR 400-odd crores in this particular quarter. Of course, out of 400, you can say INR 200 in is for this quarter and the 200 is for the earlier quarter. And the other thing which is there is that in -- because of the rising dollar rate, we had a foreign currency loss of round about INR 570-odd crores in Q1, which we could reduce it to around about INR 280 crores in the second quarter. So these are the major things where the miles expenditures have come down. And regarding salaries and wages, this is -- this should be the gradual trend of gradual reduction in salaries and wages over the years.
Okay. So just to understand this, the ForEx, you said from 570, it has gone to 280. So the GAAP, which is 290 is a one-off gain, which is recorded in the one-off gain.
Actually, the exit was a major expense in last quarter. That expense has come down.
[Foreign Language] Okay, sorry. Got it. Got it. And the royalty you said is 400 is the one-off gain, which is recorded in 2Q?
Yes, basically, it's basically -- the normal royalty will now come down by INR 200 crores per quarter, you can say. But for the first quarter also, we got the benefit in this quarter, the second quarter.
Got it. And the second question on the working capital buildup of almost INR 15,000 crores I mean what sort of normalized level of working capital do we expect? Because this sort of increase we've not seen in any of the peers. And we connect the fourth quarter last year or the entire last year, we had reduced our working capital very substantially. So I mean what is the sustainable level, if you could explain, sir?
Actually, what has happened is this increase is basically because of the increase in the price -- in the price of imported coking coal. We have shifted to LC-based payments. So we got -- we had a payment cycle extended. So because of that, this working capital increase. But if you really see from -- I think from Q1, the position has improved marginally.
Got it. And sir, lastly, for the full year CapEx, what is the guidance for this year and next year?
We have spent around INR 2,000 crores so far on the CapEx. And we have targeted to the extent of around INR 6,000 crores for the entire year.
Okay. And just one last small clarification. We have a cash tax of around INR 300-odd crores. Our understanding was that we have accumulated losses. So what is our guidance for the cash tax payout?
That has been fully adjusted.
Okay. So net-net, we will not be paying any tax on a cash basis this year, right?
No, we'll be paying on that on cash basis from this year.
From this year onwards. And what 25% is what we should build in?
Yes, 25%.
The next question is from the line of Abhishek from HDFC AMC.
Just one question, sir. If you look at the steel price movement in the last 3 to 6 months, there has been a very sharp reduction in prices in the market, including China, Japan and Korea. But if we look at the domestic prices, the correction has been limited. And because there is a high premium that the domestic prices are kind of commanding especially in the flat price. I just wanted to understand your view how the situation should pan out? And how do you see these prices moving from here?
The prices in Q3 should be more or less at the same levels as Q2. There was a sharp decrease as compared to in Q1. But we feel that in the Q3, it should be more or less at the same level as Q2.
Right. Sir, that is based upon the prices in October and November. And what is your sense of how the prices should move in December and January? Will there be an alignment to the import prices or you would expect the prices to remain in a strong premium to import parity prices?
It's very early to say all these things because the thing is that basically the long products, we should see prices forming up a bit, but all these things also depend on other factors, which is the coal prices. So if the coal prices also start shooting up because they have gone up in the past 1.5 months substantially by nearly $60 to $70. So if the similar trend continues, so maybe it will surely have an impact on the prices of the steel also.
Understood. And sir, just 1 more question. On the coking coal, we saw a decline which happened 2, 3 months back, and you are guiding for a lower coking coal in 3Q but the spot prices have again moved up. So how should we think about coking coal going up here that impact will come in fourth quarter?
Yes, it will come in the fourth quarter. It may not come in the third quarter because there is -- the cycle is of round about, you can say, 3 months. when we import from U.S., it's around or 3 months and it was sort around to 1.5 months for the Australian coal. So we'll be getting the benefit of the imports which we have made in the month of say, August and August and September, we'll get the benefits of that. And maybe whatever coal we are procuring now, it will be shifted over to the fourth quarter.
Sir, on the spot price that we are buying, you mentioned it's going to 28,000 in third quarter. Spot prices are higher by how much amount, sir?
Around 31,000.
Next question is from the line of [indiscernible] from Kotak Mutual Fund.
One question from my side. So our understanding is for the government contract, which we directly sell to government, the prices a bit sticky and the changes come after the lag. I mean if you can guide us the on-site contract that we can expect in the upcoming years, especially to the whether we have already taken the hike that has already been when the steel prices are kind of in or we took that high and take that is going to come in [indiscernible].
Are you talking about the rail pricing?
Which we supply to the government agency, for example, the railways.
See majority of our supplies are in the form of rails. We supply nearly 1 million tonnes of rails to the government. And besides that, there are small purchases made by them, which are not very significant. So this rail pricing is actually finalized on an annual basis. So at the moment, we are getting it on some add-on basis. We get a price at the beginning of the year. So the add-on price has been fixed at around about INR 67,500. And the final price, we have -- we will be submitting for 22%, 23% in the year '23, '24. Now you'll be submitting the price for '21, '22 shortly. So whatever is the price which is finalized between us and the railways, that benefit or if there is any reduction will be in the year in which we actually get the final pricing from the railways.
So in that case, so when we will be doing the finalization at the end of the year it will -- I mean, 1Q FY'24 we'll be getting some prior year adjustment there, right?
We will be submitting it now. Actually, we have already submitted for 2021. So we will be getting the final pricing of that probably in this financial year.
And that will be on our gain side in case if I assume that your price would be [indiscernible].
But we have committed with a higher price to the railways. And let us see, we finalize that then mutually. So we expect a higher price, no doubt about that.
Next question is from the line of Vishal Chandak from Motilal Oswal.
Sir, my question was with regards to the CapEx line. You've mentioned that so far you've spent about INR 2,000 crores, and your target for the year is about INR 8,000 crores. That means INr 6,000 crores will be spent.
It's 6,000. Around 6,000.
INR 6,000 for the full year?
Yes, for the full year.
So additional INR 4,000 crores that you will be spending between October and March. So if you could just guide us on what kind of projects you are planning to spend that would be quite useful because as I understand, there are no more volume expansion in the projects that are in the pipeline. So what kind of productivity improvement are we looking at, sir?
Yes. We are -- actually, we are putting up our clusters in [Bilaai] and even in -- in Rourkela and in Rourkela. And besides that, we are having some projects of blast furnace refurbishing, major refurbishings of blast furnaces and cook ovens also, which are coming up this year. So -- and besides this normally what happens is there are very many small scales, which have been taken up in all the steel plant. And some other major projects are there like some water pipeline projects to the government and providing power for additional power for our plants on deposit term basis, which has also been taken up this year.
One followup on this point, we have incurred about INR 50,000 crores plus on modernization and expansion. I would presume that this would have covered blast furnace caster cook oven batteries? That we are still a lot more modernization plan spending?
No. Actually, basically, what is happening is that the -- in the modernization plan, basically, 3 blast furnaces came up. One at POSCO, Burnpur, the other one Rourkela and the third one at Delhi. The other blast furnaces, which are there [Bukhaaro], then there is one at Durgapur and in other units also -- even in July and wherever there are blast furnaces, the older blast furnaces. We are refurbishing them because they have to be refurbished also within certain time lines. say, 20 years down the line, you have to completely refurbish it. And then also we are taking a certain capacity enhancement in increasing the volumes of the blast furnaces also. So those are ongoing projections that are in place.
Sir, instead of refurbishing the old last furnaces, does it not make more sense to rebuild a new large blast furnace with matching casting capacity. -- looking to that aspect as well.
What do I do with the existing casting capacity is there. I have to use that also.
We can add more casters, right? Ultimately, it goes from the SMS into casting. Adding more casters will add to solve the existing problem also. We have got our own expansion or we use the new cost can also be deployed.
We have got our own expansion plan in all the plants in all the plants. So in that only the new casters will be coming up with matching casters and with matching mills and all.
My limited point was that instead of refurbishing smaller-sized blast furnaces, which are more expensive, we can't we -- can't we look at putting up bigger size to blast furnace, which will be more economical going forward.
Yes, those are in the pipeline. That is our expansion plan. These are basically removing some bottlenecks or refurbishing the existing blast furnaces.
The next question is from the line of Ritesh Shah from Investec.
Two questions, actually, three. Sir, first question is how are we looking at government's PLI scheme. Have you put any proposals? How should we read into this?
Yes. In this, we have submitted our applications mainly for our rails.
Okay. Sir, can you indicate the quantum of capacity CapEx that we are looking at? And what sort of benefits could be expected out of it?
Actually, it is an existing thing where we are developing new products. The head hardened rails are there, which are being produced, which we are developing. And new profiles are also there. So it is basically from that only we -- for that, we have applied in the PLS scheme.
And sir, what sort of benefits can we expect if the proposals goes through?
We will get an improved [NFF] of that also. The price of the rails -- of these particular rails will be substantially higher.
That is helpful. Sir, the second question is on export taxes. Any thoughts over here, it has been lingering since quite some time.
Export taxes so this is purely on the government to decide upon it. what is to be done. We have always been requesting the government to waive off these taxes, but it's basically the government who actually decide it, not us.
Okay. And sir, last question was on iron ore integration. And we had earlier indicated that we will be looking at another 13, 15 million tonnes of capacity. Specifically on iron ore, if you can indicate mine-wise what the progress has been. I haven't heard on this variable from the management since quite some time. Specifically, if you can touch upon the Metatou Gillani and Goua, I think those are the three larger ones and the incremental expansion plans of around 15 million tonnes.
Yes. Actually, coming to Bolani first. Bolani is now at a capacity of almost 7.5 million tonnes. We are still going ahead with a plan -- a plan of having a 10 million tonne plant or a 10 million tonne capacity out there. It's going on in probably, say, 2 years' time, we'll be able to produce at that capacity. Coming to [indiscernible], the resources or the results have depleted. So we are now going in for -- there are two new areas out there: The south and the central blocks. Once these blocks open, the capacities are ready in these mines, like [indiscernible] has got a capacity of 5.5 million tonnes, and Jagannathapur has a capacity of 6.5 million tonnes.
So both these capacities can be operated once these new blocks are open. So out there also, we have got a lot of clearances and we expect the production to start from there in maybe a year or so. And coming to Goa, we have already, as the board has declared a mega project out there of operating the mine through a mine developer and operator, where we will have production of 10 million tonnes, out of which 4 million tonnes will be pellets, 4 million tonnes will be fines and 2 million tonnes will be lumps. So this project also, like we have -- the Board has accorded in principle approval, and we are working on tendering out for the same.
And sir, [indiscernible]
[indiscernible] has now become a non-mining zone. So we are after the government to -- we are trying to convince them to allow us to do some mining out there. And Rowghat is moving at a good pace now. We have also had some -- we appointed a contractor out there. We've deployed a contractor for doing interim mining out there. And already, a lot of -- I think a couple of rigs of -- I don't know, has also been dispatched from there. And we are in the process of more or less most of our clearances are available. And we are also -- we have appointed an MDO also out there. So the things will move fast out there. The only thing is the rail line, which has to be brought to Rowghat so out there also substantial job has been completed up to 60-kilometer mark it's total 93-kilometer line up to 60-kilometer mark and then from 83 to 93 kilometers the line has been completed. The remaining line will be completed maybe in a year or so.
Okay. And sir, last question on the incremental expansion, 15 million, 17 million, that's what you had indicated earlier. Any update over there?
We have already appointed a consultant for this. We have appointed a product consultant. So the product consultant will be giving what is the -- like a future requirement for the products, let's say, 20, 30 onwards. So he'll be doing his thing. And besides that, we have already also appointed a consultant for our [indiscernible] plant where we are -- he'll be also submitting a report about the means how we go ahead for expansion in [indiscernible].
The next question is from the line of Prashant Kota from Emkay Global Financial Services.
Sir, in this quarter, what would have been the inventory losses that would have been there? Around INR 500 crores to INR 600 crores, is it a right number or more or less if you guide on [indiscernible]
Could you explain what you mean by inventory losses?
Because of the higher cost inventory sitting at the beginning of the quarter, which should have been sold out this quarter?
I think we'll get back to you on this. Offline we'll get back to you on this.
Okay, sir, no worry. And sir, second question is sorry, remember three quarters ago, we had a line of active concern for some kind of a facility for in because of which our working capital debt was somewhat was advantages to our working capital debt in terms of pulling that lower. Have you done away with that line, sir, that active canceling, which does not necessarily have to be reported as -- is there some change in your strategy there? Or am I in the right track?
No. Actually, we had this -- we still have our payment terms similar in case of coal, which was there earlier. That is having a 2 to 3 months of line of credit from the coal suppliers. And so that still continues on now.
Okay. There's no change around that. And sir, lastly, if you could wherever possible since we are -- the sector is still in a challenging space. And whenever there is possibility if you could align your CapEx to be actual profitability on the P&L side. If you -- It will help everyone, sale as a company and also the investor. Is that the right point to make?
We for noted the point.
Next question is from the line of [indiscernible] from Spark Capital.
First question is on the 4 million tonne sales that we have done in this quarter. So how much of this would have been part of contracts? I'm just trying to understand the quarterly fluctuations in prices, to what extent because of the contract insulation has not actually impacted the quantum. You did mention about rails 1 million tonne, I presume that is for the annual, that probably would not have got impacted. So similar to that, what -- to what extent do you have contracts? And what are the time period of those contracts?
See, basically, we don't have many such contracts. We basically do it on a monthly pricing system.
So apart from rail, mostly we can think about to be on a monthly basis. Is that right?
Only on monthly pricing to -- there may be some contracts, but that's a very small quantity actually it's very small quantity, which may be there. But otherwise, it's mainly monthly prices system.
Understood, sir. Second thing on the rail, which you mentioned. So the accounting, let's say, in case the prices get revised on the higher side. So the accounting happens in one single quarter when we get the price confirmed. That's the way it gets done?
Yes. It's like that.
Got it. So for FY'22, '23, we have submitted or we read to submit? You said for '21.
Submitted for 2021, we have submitted already and it's nearing finalization. And for '21, '22 also, we will be submitting shortly. Actually, they normally like to -- the railways normally advise on advise the CA cost to take the information from us, then only we are supposed to submit it. So this information by the railways has been given to the CA cost in the end of October. So we'll be submitting it shortly.
Got it. One final question on the realization part, where our NSR is down close to 14,000 a tonne Q-o-Q from 76 to say 62. Between flat semis and long, if you can provide some color during the quarter, where the maximum impact was? And how is it trending currently?
Actually, now in Q2, the flats and longs are more or less the same.
I was looking for in the quarter, the 14,000 -- I mean the difference that came in the quarter I mean, it was mostly led by flat and to a small extent by long because you did mention that long prices are not corrected. So I was looking for which had kind of really weighed heavily on the 14,000?
It was basically what has happened is that the flats, which were in the hovering in the range of 70,000 and above, they have fallen drastically, whereas the longs have been more or less at similar levels.
Next question is from the line of Pratim Roy from B&K Securities.
I have only two questions. First of all that inventory has gone up by its currently stood at around INR 20,000 crores, okay? And the working capital has also gone up significantly. So in the reach that you mentioned in the presentation, that is showing that we are getting a price water price benefit. So my question is how things is a pan out. My question is that whether we are holding from highway water, we are going to release in the next quarter or maybe next quarter how we are focusing current prices, and we are blending that so that we can maintain the margin, if you can give some light on that?
Actually, we are -- our inventories are -- our raw material inventory is at weighted average cost basis, on weighted average cost basis. So over the year, it's smoothens out.
Okay. It's over the year, it will move easing out gradually, right?
Correct.
And what is the current NSR you end [62,000] is a correct understanding?
The current NSR for the H1, the current NSR is.
For the quarter.
For the quarter, it was in the range of 57,000 58,000. [indiscernible] I can correct it. the long products prices had fallen by onboard almost INR 6,000. And the flat products prices have fallen by around about, you can say, INR 13000.
Okay. INR 56,000 to INR 57,000 of current NSR. And one more question just what is the contribution [indiscernible] how much is the raw material inventory and how much is the finish on doing that company is holding currently.
Finished is around INR 15,000 crores, and raw material is INR 12,000 crores.
The next question is from the line of Kirtan Mehta from BOB Capital Markets. It seems there's no response from the line of Kirtan. Hence, we will move to our next question, that is from the line of [indiscernible] from First Quarter Capital.
So just a couple of questions. Firstly, on the employee expense. So this is at a run rate of INR 18 crores per quarter if I annualize this and take FY'22 as the base, then it's roughly INR 1,600-odd crores per annum savings. So can we work with this number going forward?
No, you should not. Because when you compare last year, last year, we had a onetime payment for the [indiscernible] also. So that had a major impact. But when you go with acquired with this particular year, it's working to round about INR 2,800 crores per quarter. So we can take this forward.
Sure. Thanks. Sir, second question is on the raw material usage savings of INR 550 crores per quarter. So in the quarter, we have reported that there is a saving of INR 550 crores in the raw material usage. So can you just throw some more light on this? What that is this? And is it like a structurally savings that will continue on the quarters going forward as well?
Actually, there has been a reduction in the usage of coal and also the [ coke rates ]. Yes, in the usage of coal, there has been a substantial reduction. And moreover, there is one more thing that we have started using a bit more of an indigenous coal. So and 3D [act]. So this has got a substantial impact on the usage of code and we said that in the other elements also, like iron ore and all, there have been some improvement in the consumption pattern.
Understood. Okay. And sir, just one last question. It's more of a clarification at least. So you gave some numbers on coking coal. I just want to clarify that. Did you mention the spot coking coal prices is around INR 31,000 per tonne?
Yes. It is basically the price which we had told you about INR 32,000 is for the imported coal, excluding CDI, right? So that is the spot price. And it's not a spot price. It's basically the average consumption cost of imported consumption costs for the [imprted coal].
And this you're expecting it to reduce by INR 5,000 per tonne in the current quarter?
Yes, it should.
Okay. And sir, what is the spot coking -- spot imported coking coal price?
Around 300-odd -- $310 today. That's the flat index for hard coking coal.
The next question is from the line of [indiscernible] from [indiscernible] Securities.
Yes. Sir, just two questions. One is, what is the current HRC price that we see?
It is around about INR 56,000.
Okay. And sir, what would be our production and sales guidance for the year and for FY'24?
Production will be round about 17 million to 17.5 million tonnes and sales will be also on similar lines. Around 16 million tonne -- 16 million to 16.5 million.
And sir the number for FY'24, if you have any?
We have not yet finalized anything. Actually, we'll just see what additional capacities are there or whether we're having major shutdowns or anything, and then we'll finalize that during the month [indiscernible].
[indiscernible] our current full capacity, sir, how much can we go? If assuming we run and all the plants at full capacity, how much should we be producing?
Crude capacity is around 19.5. So we can think about saleable steel production of around about 18.5.
Next question is from the line of Raashi Chopra from Citigroup.
Sir, just on the debt levels, what kind of net debt to EBITDA would you be comfortable with? Where is it at currently?
Generally it's always -- we are very comfortable when there's no debt. But then we cannot accept that on today's debt. But we are planning that we should bring it down to around about INR 25,000 crores levels by the year.
Okay. And currently, it's at about INR 26,700?
INR 27,400. That's of -- as of 30th September.
And the other question is what is the level of inventory that you currently hold?
The inventory of finished goods is around about 1.1 million tonnes.
So you unwound around [200 kt].
Pardon?
If you liquidate it around 200 kt during the quarter.
Yes.
Next question is from the line of Rajesh Majumdar from B&K Securities.
I just wanted one clarification on the NSR and the long-term rates. So barring the rail rates and long term, the entire sales is on spot, if I understand. So the 57, 58 you talk about NSR, excluding the 1.2 million tonnes on all the other sales, is that correct? Is that the correct assumption?
It's included in that. The rail prices also included in that. But it's a very small component. It's round about 1 million tonnes in the total 16 million tonne of sales. And then the sense that we don't enter into very many long-term contracts. We're the only contracts which we enter into is with some PSUs who want us on a long-term basis. Otherwise, our's is mainly on a monthly basis.
So the 57, 58 includes the rail, but I want to say that when you say when you guide on similar prices in Q3, you are basically talking about the spot market, right? Mostly the spot market?
Yes. We are talking about spot.
Yes. So -- and the other question is, I'm sorry to harp on this again. On the rail mill, again, when are we starting to produce head hardened rails? And what's the difference in generation can effect when we can see a sizable quantity of head hardened rails being sold from that.
Actually, the trials for the head hardened rails are going on. And regarding the pricing perfect, we are we are still in talks to the railways because this is going to be a mutually agreed price based on what is our cost for that, what is the additional cost, what is the -- because it will surely have an impact on our productivity also. So considering all those things, we are in negotiations with railways. So it will take time to finalize.
Yes, that's fine. I just wanted to know the expected volumes from the rails in 1 or 2 years, whenever the things tells finalized. What are the kind of volumes you're expecting from the head hardened rails given the fact that NSR are nearly 100 than what the current rail prices are, if I am not mistaken?
And it will basically depend on the requirement of the railways, how much they want from us?
Because we can do the entire 1.4 million tonnes, 1.2 million tonnes in head hardened rails or full capacity rails.
Not possible.
Okay. So what is our capacity there yes.
See, it will be made from the same mill. It's not that it is going to make from a different mll. The only thing is that our operations will change. So that will have an impact on the productivity. So that also, we are in talks with the railways, but the quantity will not be that high. Like the entire 1.4 million tonnes will not be there. It will be a small quantity, maybe a couple of lakh tonnes or something like that.
Okay. 200 to 300 kt. Is that the correct assumption? .
You can say 200 to 300.
Next question is from the line of Mohit Bhansali from Bonanza Portfolio Limited.
First question is, sir, on employees cost. You're gradually, I think, reducing your high-cost employees, so is it safe to assume that downward trend will continue for another 2 to 3 years?
Yes, it should continue. It should surely continue. Because we are -- normally the normal retirement in every year, we run over 2,500 to 3,000. So that impact will surely be there. But of course, one thing is there that we have to consider that the pay keeps increasing every -- the BA is increasing every quarter and the normal incremental promotion, so they'll be more or less offsetting whatever retirements are taking place.
Sir, right now, what is the employee trend current in the quarter ending?
Around 60,700.
Okay. And second question is, sir, regarding coking coal. So if there is any improvement in your own mining like production in your own mining like [Pasra] and Mozambique or you are looking for some other opportunities for the coking coal since being -- it's a very high-cost raw material in your production.
Yes. [Pasra], we are going in for a mine developer and operator. So it's at the tendering stage that is at a tending state. And Mozambique is doing well. It's gradually picking up. And then I think we're getting about 1 to 1.2 million tonnes from them. That is being utilized by us as well as [indiscernible].
And sir, any tie-up with BCCL in Indian company BCCL for production of coking coal?
Yes, yes. We have got to tie up with that. We have got a long-term contracts with them. for supply of coal to us. So they are being washed in our washeries as well as the washeries of BCCL, there's a washery of Tatas, which is facilitating and on the coal, which has been supplied by BCCL and CL.
So sir, you were getting 1 million tonnes from Mozambique and [indiscernible] also you'll be getting. So it will be beneficial or it will be around the same cost what you are projecting at the spot market?
Actually, the case of Mozambique, it is guided by the Plata and Argus index. But then there is a certain discount to the class in service index, which is there. And in case of our mines like [indiscernible] and all, it will be on cost. So that is going to be a real game changer in the future.
Ladies and gentlemen, that would be our last question for today. I now hand the conference back to Mr. Ashish Kejriwal for closing comments. Thank you. Over to you.
Thank you, Aman. On behalf of Novama Wealth Management, we, again, thank you think by the management of Steel Authority of India for giving an opportunity to host the call. Sir, any closing remarks you want to give?
No, it's okay. Yes, we are keeping our fingers crossed that the NSR is maintained or it goes up during this particular quarter. And coal prices stabilize or come down to some extent. So that will also help in improving the bottom line of not only us, but of other companies also. And we plan to bring down our borrowings to some extent in this by the year-end. And production, of course, now in the second quarter, second half normally all the steel manufacturers just going for higher production. So we'll also be endeavoring to get the best in this second half. Thank you.
Thank you, and wish you all the best for the future, sir. Thank you, everyone.
Thank you very much. Ladies and gentlemen, on behalf of Novama Wealth Management, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.