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Steel Authority of India Ltd
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Ladies and gentlemen, good day and welcome to the 4Q FY '22 Earnings Conference Call of SAIL, Steel Authority of India Limited, hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Vishal Chandak from Motilal Oswal Financial Services Limited. Thank you and over to you, sir.
Thank you, Ruthija. Good afternoon, everyone, and welcome to the fourth quarter earnings call for Steel Authority of India. On behalf of SAIL, I would like to apologize for the delay because of some unavoidable circumstances. I would also like to thank the management of SAIL for giving us this opportunity to host them again for this call. So from the management side, we have Mr. Tulsiani, who is the ED Finance.
I welcome you, sir, and over to you for your opening remarks.
Thank you, Vishal. Good afternoon, everyone, and welcome to the investor con call on the financial results for Q4 and financial year '22 update. First of all, I would like to thank Vishal Chandak from Motilal Oswal for arranging this con call. The company has published the results yesterday, which I'm sure everyone must have seen and I'm happy to see the reaction from the different comments. I would briefly apprise the audience on the highlights. Starting with the economic scenario that we have been operating in. The economies around the world have since been fighting the impact of COVID-19. While the recovery stories around the globe have been heartening, the economies have now been thrust into inflation concerns as well as the uncertainties and supply chain disruption emerging from Russia-Ukraine war. The Indian economy has also started a reshape recovery path.
Though the yearly GDP ended in red at 6.6% for financial year '21, but the estimate for financial year '22 has been pegged at 8.9% growth in the second revised estimate published recently. The scenario, however, is now being faced by inflationary measures and Russia-Ukraine war. The projection for the coming year has been getting moderated accordingly. The steel industry has enjoyed one of the best periods during the first half of financial year '22, which was later [ eaten ] into by the rising prices of imported coal, CDI, ferro alloys, et cetera. The steel demand and prices have also been volatile during the end of financial year '22 given the consistent decline in production and demand in China and global trends. Now we come to the performance of SAIL. Company has clocked its best ever production and sales during the year. The crude steel production for financial year '22 is at 17.36 million tonnes as compared to 15.21 million tonnes in financial year '21. That is a growth of 15%.
The sales for the year have been the highest ever at 16.15 million tonnes as compared to 14.95 million tonnes in the previous year. As mentioned earlier, the increase in prices of imported coking coal and other raw materials had a major impact on our cost of production. The impact of coking coal alone had an adverse impact of more than INR 12,000 crores on the cost of SAIL. The company has been taking measures of improvement in operational efficiencies which partially offset the impact of the same with reduction in coke rate by 1%, replacing scope with CDI by around 12%, reducing specific energy consumption by around 2%. The changes in [indiscernible] tax has impacted the company substantially during the year with royalty payment increasing. In line with the physical performance, SAIL has posted its best-ever annual financial results. For the first time in the history of SAIL, we have crossed -- the revenues from operation has crossed INR 1 lakh growth.
For the year, it was INR 1,03,473 crores as compared to INR 69,110 crores. Quarter 4 also was very good for us and we clocked a revenue from operations of INR 30,758 crores. The EBITDA for the financial year '22 is at INR 22,364 crores, PBT is INR 16,039 crores and PAT is INR 12,015 crores. SAIL is focused on proactive stakeholder engagement. This includes the company has recommended INR 2.25 as final dividend for financial year '22. SAIL has declared highest ever dividend in financial year '22 that is INR 8.75, which includes 2 interim dividends declared per year. SAIL also emerged as the top most buyer on GeM amongst all CPSEs in financial year '22. SAIL has supplied steel for various projects of national importance like the Central Vista Delhi, Mumbai Ahmedabad High-Speed Rail, Delhi-Meerut RRTS, Polavaram Irrigation project, et cetera.
We have also supplied liquid medical oxygen in excess of 1.3 lakh tonnes majorly during the second wave of COVID-19. We also set up separate Jumbo COVID Care facilities, which increased the COVID-19 dedicated beds. For our employees also, we have implemented the wage revision, which has helped in improving the motivation to a very large extent. We are regularly now holding customer meets to understand the requirement of our customers. The borrowings also have reduced significantly during the year. We have reduced our borrowing from nearly INR 22,000 crores to the level of INR 13,400 crores.
With these words, I hand it back to Mr. Chandak for opening the question-and-answer session. Thank you.
Thank you, sir. Ruthija, please open this for the Q&A.
[Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss.
Congratulations for a good performance. I have couple of questions. The first one is on coking coal. While you have indicated that the coking coal cost increased by around INR 12,000 per tonne in the quarter, can you quantify the coking coal cost in Q4 FY '22 in dollar terms and how it is expected to change in Q1 FY '23? That is the first question. So that's the first question on coking coal.
In the financial year '21-'22, the total imported coal cost was around INR 20,000.
No, sir. I'm asking in Q4 FY '22, what was the coking coal cost and how it is expected to change in Q1 FY '23?
It is supposed to -- it is likely to go up substantially. In Q4 only it was around about INR 28,000 to INR 29,000 in that range and it is expected to be slightly more in the first quarter of '22-'23.
When you say slightly more, how much is that like?
You can say around about 10% to 12% increase.
10% to 12% increase. The second question is essentially that the Government of India has imposed export duty and we expect that realization in domestic market would be lower as a result. Now we have a substantial brownfield CapEx plan. So does this move by the government change in any way your CapEx ambitions or you are planning to delay the CapEx or what kind of CapEx we can look for in the coming 2, 3 years?
See, we have some long-term plans for expansion. In the immediate future, we are basically going in for some rehabilitation and reworking schemes. So for the time being, it's too early to decide on doing something -- thinking about it in another angle. We will continue with our investments in our current plants and assets and regarding the future -- for future expansion plans, we'll just take a call after some time. We cannot take a call immediately that we'll defer something or we'll continue. We are neutral on that for the time being.
Okay. So what would be the CapEx for this year and the next year?
We have planned a CapEx of INR 8,000 crores for '22-'23.
[Operator Instructions] The next question is from the line of Rajeev Bajaj from Systematix.
I'm Rajeev Bajaj from Systematix. Sir, what's your total borrowing as on 31st March 2022?
The total borrowings are INR 13,386 crores.
But sir, in your presentation, you are showing INR 17,284 crores.
That is the Ind AS impact.
For the debt equity also, you have shown [ 14% ].
Yes, 14%..
So what that INR 17,284 consist of?
It consists of financial leases.
These current liabilities are also taken in that borrowing?
The financial leases are INR 3,898 crores. If you add this to that, then probably it will add up. So basically the borrowings are INR 13,364 crores.
Sir, what's the borrowing I have seen there because it doesn't include the yield liability, which is occurring balance sheet. But that INR 17,000 crore figure I'm not able to reconcile. That is in your presentation not in your accounts.
Mr. Rajeev, the borrowings are basically in the presentation shown inclusive of the financial lease liabilities, which we have to account for in terms of the Ind AS requirements. So that is a part -- considered as a part of the borrowing. So the presentation reflects that figure of INR 17,000. But if we talk about the pure debt what we are holding as on 31st of March, like sir has said, the borrowings stood at INR 13,386 crores.
The next question is from the line of Saket Kapoor from Kapoor & Company.
Firstly, as you -- as the earlier participant has spoken about this export tax. Sir, how is the steel sector and SAIL in particular impacted by if I may use the word ad hoc introduction of export tax? How is this going to impact the industry and SAIL in particular, sir? Your understanding on this.
Actually from the sources what we have got, there are round about contracts worth nearly 2 million tonnes of steel exports which will have to be catered to in this coming future. But SAIL doesn't have that much quantity of exports and SAIL also has got one advantage that it is basically into exporting of semis also -- it has exports of semis also. So semis are basically not impacted by the 6%. But yes, we have got certain orders and we are evaluating them [Technical difficulty].
But in the -- for the general steel industry then, how is the demand-supply scenario for the country going to very likely change because of the introduction of this tax?
Too early to comment on this at this point of time for the industry. But of course we have certain things that our export orders are comparatively less. So not much of an impact is expected because of this. But yes, extra quantum which comes into the country and even -- so that will surely have an impact on and put some pressure on the prices also.
And sir, can you give some more color how the Q1 has been shaping? Generally we find the quarter preceding the monsoon being the strongest quarter in the sense of buildup and also the demand push is there on the construction front. So how have you seen this 45 days shaping up on Q1, sir? And also sir, the finance costs have been significantly higher for this quarter. Any one-off items that you have been expected for this quarter?
Come again -- can you just repeat the question?
Yes, sir. Finance costs have been significantly higher Q-on-Q when we take December versus March from INR 316 crores level to INR 440 crores level. So what explains this increase? And secondly, with the business environment for us for the current 45 days with the first quarter being a strong quarter just preceding the monsoon. So how is the demand currently shaping up, your thought process -- your thoughts on the same?
Actually I don't know -- finance cost what you're telling about?
Yes, sir. Finance costs for 31st March 2022 is INR 440 crores whereas for 31st December it was INR 316 crores. So I was just looking for the reason for the increase Q-on-Q.
So mainly the ForEx clause which is offered in a context for our year, the interest cost is quite low. Actually the interest cost for the particular quarter is in the range of around INR 250 crores. The balance is the ForEx clause.
Okay. Balance is the ForEx clause. Now on the demand part, sir, how is the demand shaping up? And currently as per our -- what we exited March quarter the realization, how are the realizations currently for the flat and the long product, sir?
Realizations were better. I think the entire industry had better realizations. That was basically the pressure of the coal cost, which has -- but of course May again like there are some pressures on the prices so we are trying to cope up with that.
And there have been a decline in the realization, sir, can you quantify for us what kind of cuts are we expecting?
See, what happens is this quantification cannot be done at this moment of time because there are certain long-term contracts which we are continuing and there will be certain contracts which we'll be entering now. So overall what is going to be the impact, we cannot address it during the month. It is possible only after the month end.
And on the iron ore sales, can you quantify what has been the number revenue we have booked for this quarter and for the entire year on the sale of iron ore?
We normally do not share this figure.
And on the inventory part, sir, there was some litigation issues with the Jharkhand government. So any update on the change?
There's not much changes.
Okay. And lastly, on this divestment of the loss making unit at Visvesvaraya and the Salem steel plant, any update you would like to share? And also in the segment results, we have the other segment showing a profitability of INR 240 crores on a revenue of INR 434 crores, if you could explain that?
Actually here we say the incentive PRC to the employment of the SAIL so last time it was kept in the actual book and this time it is appearing in the plant book. So that is why that INR 208 crores is appearing in the previous year and this time since it's coming in the plant book so the other -- it is showing the plus figure.
Right. And on the disinvestment part, sir, where are we on the divestment of Salem and the Visvesvaraya steel plant. The divestment of the small units?
Actually there is not much headway made in that for the disinvestment of the smaller units. It is more or less at status quo what it was I would say a year back. And basically, what is happening is that Deepam is driving this particular disinvestment. So we are not much in the know of these things that what we are finally going to do about it.
The next question is from the line of Naresh Majumdar from B&K Securities.
The name is Rajesh Majumdar. Congratulations on a good set of numbers. Sir, I have one question on the wage bill. So we've been seeing a lot of wage settlements and payouts this year and we've also seen an reduction in the number of employees as on 31st March '22. So what should we take as the wage bill going forward now that all the earlier resets have been paid? What would be the steady kind of wage bill now going forward?
It should be more or less -- it should more or less stagnate at this level or maybe a bit less because what is happening is this particular year, we have taken some major hit because of the actuarial valuations of our leave encashment and gratuity, which will not be a similar impact in the coming years. Plus there's a reduction in manpower, which is expected at almost 3,500 odd. So a reduction of 5% over the year surely will help in reducing our -- so overall, we feel that with the normal increment in there and this reduction in retirement and we will not require this provision for actual valuation of leave and all. So I think it should more or less be in this line or maybe slightly less.
No. Sir, the total for the year is INR 12,800 crores and that's a sharp jump. So on a steady state basis, in the earlier call you have guided at INR 11,000 crores, INR 11,500 crores. Is that a correct figure to take for steady state wage bill?
See, what has happened is there are 2 major impacts. One is what I was telling you about this actual valuation, which has impacted us around about INR 700 crores to INR 800 crores. And in addition to this as compared to the previous year, there has been an additional impact of around about INR 300 crores to INR 400 crores approximately that is for the PIP payment for the employee. So these 2 factors have basically added up to that additional amount what we have.
Okay. So is that correct? The level of INR 11,500 crores, is it a good figure to take anything?
Means in the coming years, maybe you can -- you should keep it at around about INR 12,000 crores. INR 12,000 crores should be the comfortable figure for you.
The next question is from the line of [ Aditya Wadekar ] from Axis Securities.
So in FY '22 our saleable steel production stood 15% higher at 16.9 million tonnes. How do you see the production profile going forward in FY '23 and do we see any reduction in sales as a proportion of total production going forward? If you can show some -- throw some color on that.
See, basically it's always our endeavor to reduce our finished. So first, we take -- so what has happened is now most of our plants are stabilizing. Like we have medium structure mill at Durgapur and we have some universal structure mill at Cisco. So they are not stabilized. So they will take more of the volumes of semis for their own consumption and whatever is available, we will be probably sticking it to the market. But we are very optimistic that this year it will be more than what it was in the previous year in '21-'22.
The next question is from the line of Manish Oswal from Nirmal Bang. The next question is from the line of Ritesh Shah from Investec Capital.
Sir, can you quantify the average flats and long prices for the quarter that we usually give? And the second is, sir, how should one read the trend line on flat and long into this quarter specifically after this export duty? Sir, even if you don't quantify, that's perfectly fine. Just wanted to have a sense on the trend line given less account for a bulk of exports out of the country. So should one assume that the impact of the year will be far more as compared to longs or are there any other industry variables that one needs to take into account to understand this, sir?
There is still a substantial difference between the prices of flats and longs. In our case of course the longs has a component of semis also in that, which is also bringing down the utilization impacting the NSR of the long. We can say that there is a difference of around about INR 8,000 to INR 9,000 between the 2 figures.
Sir, my question was currently HR coil prices are at say around INR 70,000, INR 72,000. The export pricing what we understand it would be around INR 60,000, INR 61,000. So there is a huge gap of INR 60,000 and 72,000. Sir, how should one understand after this export duty, where this can actually end up? Will it be at the midpoint? How should one understand the scenario, sir?
Mr. Ritesh, this is Amit. See, the question is quite relevant. Of course the export duty is definitely like we said earlier also is going to impact the prices and demand as well maybe. But see overall it would be difficult to say anything right now how and where the prices would move, how much quantity would get diverted into the home sales market from the exports. What kind of qualities would shift into the country. So that would be difficult to say. Of course what happens is the prices whatever impact would be there would be in line with the market and we'll have to move in line with those.
What we also understand from our competitors like say GSW and GSPL and Tata Steel and all, they were into exporting this HR coil quite a bit so they will definitely have a direct negative impact. But how much of the demand impact or the price impact overall would be there would be difficult to quantify right now. Additionally, we would also be looking at the prices of imported coking coal to correct somewhere because that is also not sustainable at the current levels. So hopefully, we will be able to make margins given if those prices do correct themselves.
Sure. And sir, a related question. Sir, how do we -- how should one understand the iron ore pricing locally given there are these export duties even on pallets over here. So are we looking at a significant surplus locally and hence it can pull down prices? How should one understand this?
We expect the iron ore prices also to soften. Because of the export duty, there will be a softening of the prices, which will in fact help us to some extent because the softening of the prices will be affected in the IBM rate and our royalties are basically paid on the IBM rates. So we will stand to benefit from that.
The next question is from the line of Mohit Bhansali from Bonanza Portfolio Limited.
Congratulations for the good set of numbers. A question regarding your Bhilai steel plant. You were earlier mentioning that you're going to start the head hardened rail production. So have you started that and what will be the order book this year?
We have started on a trial basis. But however, the quantities to be supplied we have to be still very -- like we have to see into it because once we produce the head hardened, there's an impact on the normal rail production. So we are still trying it on trial basis. We had some trials in the month of April, but I'm not too sure that how much we'll be able to produce during this year. The railways are insisting for quite a lot -- large quantities, but it depends upon like how much we are able to produce.
Sir, you are facing some problem regarding production I just want to understand because from quite a long time, you are trying to produce this head hardened rail?
Yes. Actually it takes some time because it's a new item and it takes some time to stabilize. So it has taken some time. We have our foreign experts also who are also on this thing. So it will take some time to stabilize.
Okay. And second question, sir, since you mentioned that you are facing this coking coal pricing problem shooting up like anything. What are your plans for your in-house production like you have Tata coal book, you have ICL coal book? And second, you are sourcing from BPCL. Please go ahead, sir.
Actually we have planned from our internal -- from Indian sources, we have planned round about 2.5 million tonnes of coking coal and this thing includes Tata as well as BPCL and other mines elsewhere. But yes -- and we are also following up with our ICL mines at Mozambique and we expect a slightly higher quantity in the coming year from there also. So overall we have planned that imported coal component, which will also include this vendor mines, will be around about 86% in the coming year as compared to round about 87.5% to 88% in this year [indiscernible].
Okay. And sir, this rail order is being increased this year or it's on the similar line last year because it is a very significant part of your sales. I just want to ask that thing also.
They always want rates from us. Actually in various forums, they are projecting more than 1.5 million tonnes also. But let us see what best that we can supply because we are very much keen on supplying as much quantity as possible to them.
Okay. And sir, regarding your deleveraging plan for the future? As you have already reduced your loan to INR 13,500 crores, any quantify -- you can quantify any figure?
It depends entirely on the market scenario, the coal prices and the steel prices. So it's very difficult to give any projections for the time being now.
But do you plan to make it 0 as soon as possible? Because last con call, you were saying that in the 2 quarters -- in next 2 quarters of this financial year you will try to make it 0.
That was the scenario when coal was very low and NSR was also very good. But now with the coal prices going up substantially, there are some pressures.
Okay. Last question, sir. What is your inventory level? As on 31st March 2022, what is you inventory level?
I think it's around 6 lakh tonnes.
The next question is from the line of Kirtan Mehta from BOB Capital Markets.
I wanted to understand more about the -- basically the Bhilai and Durgapur problems where the segment results have sort of dropped over last 2 quarters. What are the specific problems that we are facing at Bhilai and Durgapur plant and when do you expect them to resolve?
See, basically what happens in place of -- you can say Bhilai is more or less 50% a long product plant and Durgapur is completely a long product plant. The long products the NSRs were lower as I had explained earlier as compared to the NSR for the flat product. So this has impacted the profitability of Durgapur. And secondly, there is one more issue that the railways have -- we have requested the railways to give us the pricing for '20-'21. '21-'22 we are not yet. So once the pricing of the rails come -- the revised pricing of the rails come, we expect that the benefit of that we'll get it in the subsequent period. We expect a substantial increase in the rail prices in '20-'21 and '21-'22, which are still at -- which we have considered at the levels of '19-'20.
Right, sir. And in terms of the Rourkela and Bokaro, both plants have sort of shown particular improvement in Q4. Rourkela profit increased from INR 637 crores to INR 1,800 crores and Bokaro profit increased from INR 986 crores to INR 1,432 crores. So what are the key changes that has happened during this quarter which supported this better performance?
Actually the NSR in the fourth quarter for the flat products was again better than the third quarter firstly. And secondly, they would have done better volumes also. That is another factor that has helped.
Sorry to interrupt you, Mr. Mehta. May request you to please rejoin the queue. We have participants waiting for their turn.
Sure, ma'am. Can I just go for one last question?
[Operator Instructions] The next question is from the line of Rakesh Dubey from Dow Jones Capital Company.
Actually I just wanted to congratulate the management for coming out with [Technical difficulty]
Your voice is not clear.
Am I audible now, sir?
Yes.
See, actually I just wanted to congratulate you for coming out with good financial results in fourth quarter as well as in previous financial year. And as you have mentioned that coking coal was a major factor, which might have impacted your profitability to certain extent in the quarter as well as in the financial year. So coming from that level, we have been hearing that offers for resin coking coal are likely to come at substantially discounted prices. So what would be your strategy? Should you be planning to increase risk in coming days? And if yes, what would be the payment mechanism like because that is the main constraint at this point in time?
Actually we have got a -- we normally have long-term agreements with our coal suppliers. But with Russian coal suppliers, we do not have any such long-term agreement. However, we have -- we are trying to get some consignments on trial basis from them. Once those trial consignments are found to be in order, then we will try to get more coal from the Russian suppliers. So this will surely...
And when is this likely to happen, sir?
Actually we are just -- we are trying to get it now only. But the only problem is there are some payment issues with them and there are some issues relating to insurance of the [indiscernible] and even you can say, some other issues which are there linked with that. So we are trying to resolve those issues. The moment the issues are resolved, we will surely try to start taking from Russia.
My second question is related to the indication which has been given by RBI governor that interest rates are likely to firm out further to tame inflation. So what impact this will have on SAIL's overall financials?
Actually of course if the interest rates are expected to firm up, it will surely have an impact on the entire industry and actually on the entire economy I can say. So SAIL will be impacted by that also. But there is just one thing that we are getting our borrowings, whatever are there, they are at very competitive rates. And bankers are willing to give it at, you can say, the lowest rates also to us. So of course whatever the difference is, we'll also be bearing the impact of that. But I don't think it will have much of an impact with the borrowings coming down to the levels of INR 13,400 crores. So I don't think it will have a major impact on us.
The next question is from the line of Prashanth Kumar from Dolat Capital.
Sir, you have mentioned that the CapEx for this year planned is INR 8,000 crores. So do you intend to incur this CapEx irrespective of whether cash flow supporting or only if the free cash flow supports, you will do this level of CapEx?
Of course to some extent, the cash flow will have to support it. But then what happens basically in all these plants, some are committed already so that we'll have to continue on.
Okay. And the next question, sir. Today if you see, our EV, enterprise value is lower than the pandemic low that is the flash crash that we had in March 2020. And in such a scenario although the external environment is quite challenging like coking coal prices, international markets being very tough to crack into and things like that. In this kind of a situation, government has imposed this duty. Sir, did you -- by when do you expect to go into some sort of a cash earnout situation and would you sound the government that this situation out there is not easy. So exporting steel itself is an achievement, 18 million tonnes India is doing that. That itself is an achievement. So patting the back and they are doing this kind of duties, et cetera. But today barring industries where there's labor arbitrage, being able to establish ourself as a country in the international market at a global scale, competing with the best of the world and actually being able to sell volume, that itself is an achievement. Why are we not getting credit for that?
See, to answer your question, this is basically something beyond our control. It's a government decision and whatever they decide, there are factors. They don't necessarily look at only steel industry. Keeping in mind the entire economy, they have to take the decisions. Of course, steel industry, given whatever the impact they would be facing or are facing, we would definitely be talking to the government on that.
If it starts to hurt the margins and all, there would be many representations from the steel industry also. As of now, we are not planning anything on that. We'll have to wait and watch how the impacts turn out, where it is so likely that if -- see it can also give us a benefit in the sense that if steel prices come down, it can, on the other side also help us in getting a higher demand from the consumers of steel. So, if that happens, maybe it can turn out to be a silver lining in that cloud for us. We'll have to wait and watch. And as far as government decisions are concerned, we are going to be with them for the time being. We'll take whatever call is to be taken in future, keeping in view the entire economy and the industry as such.
The next question is from the line of Sumangal Nevatia from Kotak Securities.
My first question is on working capital. If you see last 2 years, we've reduced debt by INR 36,000 cores, INR 37,000 crores, but INR 20,000 of that has just been contributed by working capital, almost INR 10,000 in each of the last 2 years. And if you look at our receivable debtors inventory, we've all gone favorable to a very unprecedented low level. So, just want to understand, I mean, these low levels of working capital, how is it sustainable? And how do you see this working capital movement in FY '23?
Actually, what has happened is these debtors which were substantially higher in the earlier years, we had a special drive and we took up with the railway, the main debtors were railways in this. Out of the INR 8,000 odd crores, which was there in the earlier year, almost INR 5000 crores -- INR 4,000 crores to INR 5,000 crores was from the debtor -- from the railways. So this -- we have taken it up with the railways and we were quite successful in mitigating most of them. There were some investors, which are 2 to 3 years ago, which they were not clearing. So, we had a special drive with them and we could clear it.
So that has basically helped us in reducing the debtors. If you see basically the other debtors which are there, we have got PSC debtors, which always hold in the range of like sub-INR 1,000 crores, so INR 800 crores, INR 700 crores. So it's in the range of that only, almost INR 600 crores. And the other debtors also, that is normally in the range of around about INR 3,000 odd crores. So it is at the same level. It's basically the railway debtors, which are in the way -- which are very high, which we have got it down to around about INR 1,100 crores in the current year.
But yes, it is a thing that maybe the debtors will go up. The impact is -- the basic reason for debtors going up is also -- it depends on the price of the material which we are selling. And -- so that also has an impact on the debtors. If the price is high, so we -- it tends to -- the debtors also trend to increase.
Okay. So any further benefit are we expecting in FY '23?
I don't think this is actually -- absolutely wrong bottom I think. I don't think we'll be able to -- because again, railways, it depends on the budgets whatever they get. So last year, they were quite liberal in releasing all the budgets to us, but we do not say what is going to be the impact in this year.
And sir, what about the [indiscernible] even the payables, et cetera, have gone up substantially. These levels have never been seen before. So if you can just explain on that front as well?
Yes, it is basically what is happening is that we have got arrangements with our coal suppliers. So, basically, what happens is that since the coal price has gone up, so it has had a subsequent impact on these payables. because we have got credit clients with them of you can say 2 to 3 months. So, we take advantage of that and since the pricing have nearly traveled from what levels it was since March '21. So this has also had an impact on the payables position also.
Okay. So, since creditors are increasing from 7,000 to 17,000. So once the coal situation normalizes this benefit, which is sitting in working capital is also it will work, right?
Yes. It will work, right.
Okay. Understood. And sir, second question is on the coating coal front. I mean what sort of inventory levels do we have -- and you said a 10%, 15% increase in 1Q. So, what is the dollar per tonne cost are we factoring in that estimate?
Come again?
So, one is in terms of inventory days, what sort of coking coal inventory do we have?
Inventory days, we normally have 35 days of inventory with us. That is at the port as well as at our steel plants.
Okay. And when you say the 10%, 15% increase in coking coal cost in 1Q in the coming quarter, what is the dollar per tonne cost have we calculated?
It should be in the range of around about $450 or maybe -- because see, what is happening is it depends entirely on the blend what is being coming. So, if there is a higher level of PCI, so the rate of PCI is lower, so we stand to get an advantage for the soft coal. So, now our emphasis is mainly on higher quantity of PCI and higher uses of soft coal. So hard coal is one of the most expensive. So we are trying to restrict it to the optimum level, so that the cost -- overall cost of coal comes on, even we are planning to have more of indigenous coal in future. So, the overall price of -- overall cost of coal should come down to some extent, but it will be high. It will be at least 15% high.
Okay. And what would be the spot rate...
May I request you to please rejoin the cause.
This is a follow-up. Yes. This is a follow-up, just one second. Just want to understand, sir, on the coking coal front, I mean, what is the spot rate versus what we will average out in terms of cost in 1Q? So just want to get some directional sense as to in 2Q, what sort of inflation one can expect if coking coal prices stay flat from here on?
See, basically, we are also guided by the spot rate. We take the average for the month for the Argos and [ Plax ] indices. And based on that, whatever we have -- we have got some long-term agreements, as I've explained earlier, with our suppliers. So we get a discount on that. So, we avail that particular discount and we arrive at the price for a particular month. Again, what happens is that is at the load put whatever the rate is there. That is there. Still it comes and gets consumed, it takes normally one and a half to 2 months. So that arbitrage is there, means whatever we are going to get today, it may not affect say, the month of June, it will probably affect the month of July or maybe even August.
So sir, is the understanding correct that there is no change in coking coal prices in the market in the next few months? Your second quarter coking coal costs will further increase from first quarter as well?
Yes, we should keep our fingers crossed.
The next question is from the line of Pallav Agarwal from Antique Stock Broking.
Sir, I have a question on our capacity. So, when will we start to actually realize this 20.2 million tonnes of saleable steel capacity? Because now all units have stabilized. In July, there is some issues with the financing facility. So when can we expect utilization of close to 90% at all the plants?
Actually, see, we were having some issues about stabilization of our facilities. Due to this, we were not able to like reach our capacities. But '22, '23 we expect that we will surely be doing well as compared to even '21, '22. So, we expect that we'll be very near to our capacity in this '22 to '23.
Yes, sir. So -- and you think that the Indian market can absorb this incremental volume now question where the export duty is coming in? Or do you think there'll be some sort of production costs that can happen across the industry?
See, it's too early in the year to talk about it. So, what happens is like we did not expect a COVID year and suddenly things turning around last year. So, it's too preliminary to talk about this. And maybe whatever policies the government has implemented now, introduced now, whether they will last for the entire year, they may come out with some shocks for us, we really do not know. So, it's really a preliminary thing, so we cannot just think whether -- but yes, our intent is to produce and sell the most.
Sure, sir. Just lastly, so what was our export proportion in FY '22?
Around 8.6%.
The next question is from the line of Falguni Dutta from Jet Age Securities.
I have 2 questions. What is our coke rate?
Coke rate for the current financial year is INR 445.
INR 445. Okay. And sir, what was our average realization for Q4 -- average steel realization for Q4?
Around INR 60,000.
Sorry, sir.
Sorry to interrupt Falguni, but there is a lot of disturbance which is coming from you.
What is -- what was our average realization for Q4? I just missed that number.
INR 60,000.
INR 60,000. And sir, if you could just give me the flat price -- flat realization separately for Q4?
It was around between INR 64,000 to INR 65,000.
And sir, lastly, what would be the current flat realization currently?
We really do not know. In April, it has improved to some extent, but...
If we just say as on dates, like we know that it's not possible to -- in this volatility judge anything, but as on date?
Again, I explained -- again, I had explained it earlier that it is the average rate or whatever rate you arrive at, it is basically the earlier contracts as well as whatever we have entered in this month, plus what we planned, plus what the project we have got around. So, the project rates are something different. So, similarly to it's to tell you the figure.
The next question is from the line of Sagar Gandhi from Future Generali India Life Insurance.
Yes, sir, my question is on dividends. So sir, is my understanding correct, this year we've paid 30% of profit after tax. So next year, as we cannot predict our PAT, is it fair to assume that of the INR 54,000 crores net worth, 5% is what we will have to pay, the number which will be close to INR 2,600 crores in absolute terms?
Yes. See, what is happening is that we will decide that basically based on our profitability and our capability to pay out also because it depends on the cash flow also. Then if there is -- means if we are finding some difficulties since we are having substantial investments in CapEx and all, so we will have to take up with the government at that point of time.
But sir, in case you choose to do INR 8,000 crores CapEx as you guided, then can you convince the government? Or is it a negotiable item -- because in my understanding, whichever is higher, I mean 30% of PAT or 5% of net worth, if you are a profitable enterprise, then that is what you will have to pay?
Yes. But then in previous years also just this guideline was there, but we have somehow got our exemptions from the government.
Okay. Yes. And sir, second thing is because we've made solid OCF over the last 2 years, and that is also at very reasonable levels, even assuming that net levels will go from here. Is there a scope that company will consider a buyback? I mean, is there something about your agenda?
We are not -- we don't plan to have any buybacks in the near future.
The next question is from the line of Kamlesh Bagmer from Prabhudas Lilladher.
Sir, one question on the part of coking coal. Sir, it seems very unlikely that your cost can hardly go up 15%. So even if we take, like say, whatever lag which we want to take on the spot prices or the benchmark prices, sir it should not be lesser than like the 25%-odd --25%, 30%. So -- and when you say that the consumer PCI, but even today, PCI is at the lower every discount to the client coking coal. Sir, it's really difficult to understand your guidance on hardly around 12% to 15% increase in coking coal cost when our inventory is hardly at around 35 days?
See, basically, what is happening is that we expect to improve our blends to some extent and then higher level of uses of pellets, which have already started. So, this will bring down the coke rate also to some extent, like whatever we have planned at nearly a reduction of almost 5% in the coke rate for the -- in this current financial year. So, we surely expect that all these cost control and cost cutting measures will surely help us in bringing it down to some extent, the impact of the coking coal cost.
It's not about, let's say, at the state for input-output mix. It's just purely on the coking coal cost? So coking coal cost price have nothing to do what your convention cost?
No, we are talking about the convention costs.
So, usually, you used to give the precise number for the coking coal cost. And this time around sufficing you are giving the ranges. But sir, how much of the cost or convention costs in the previous quarter and what happened in the consumption cost in like the F '22?
Do you want the consumption cost of fourth quarter. Okay, we'll just send it. Offline we'll send it.
And secondly, on the CapEx price, sir. We have roughly around INR 3,500 crores CapEx in last year. And this time, like you said, you are guiding INR 8,000 crores CapEx. So what incremental CapEx we are going to take because we have not ordered any single machine in the last one to one and a half years because we were focused on commissioning [indiscernible] -- have been due for commissioning for Europe and Egypt. So, what all new CapEx or holding we have done in last 6 months?
So, we have actually had lot of automations in Bokaro and we have also gone for our stamp charging batteries, which is also -- we have also got clearance for our stamp charging batteries, which are very capital intensive. And moreover, there will be some other -- the major other expenditures are in the small schemes, which the plant will be taking up. So, you can say each plant will be taking up almost INR 300 crores to INR 400 crores worth of schemes at the local level, which will be -- which are known [indiscernible], which will be taken up. So we feel that -- actually, I'm not too sure that how we are going to achieve it. But then, yes, our target for the year are INR 8,000 crores. And some major schemes have -- are in the pipeline for which the major expenditures will also take place.
Okay. It would be appreciated, sir, if you can give at least some breakup like where we are going to spend? Because in the earlier presentations, you used to give like how much would be on the, let's say, process management and all those things?
We will send it to you offline. Please let this be the last question. We'll take the rest of the queries in offline.
Sure, sir. I would like to hand over the conference to Mr. Vishal Chandak for closing comments.
Thank you, everyone, for participating in today's call. I can see users on the queue on the question answer is still there. But unfortunately, due to paucity of time, the management has to leave. I would like to thank Mr. Tulsiani for the time and his team as well. So, Mr. Tulsiani, Handing over to you for the clearing comments please.
Thank you, Vishal. Just that this year is a real challenge for us. Last year was really a dream year for, I think, the entire steel industry. And we just hope for reduction in the prices of coal and other inputs, which will help us in reducing the rising cost of production. And going forward, our focus will be on increasing volumes, improving the product mix and improving operational efficiencies or controlling costs, and hopefully, we are able to deliver sustainable results in the coming quarters also. Thank you.
Thank you. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us and you may now disconnect your lines.