Tata Steel Ltd

NSE:TATASTEEL

Earnings Call Analysis

Q1 FY25 Performance and Strategic Developments

Tata Steel reported consolidated revenue of INR 54,771 crores and an EBITDA of INR 6,822 crores, translating to a 12.5% margin. Despite global economic challenges, the company improved its consolidated EBITDA margin by over 100 bps quarter-on-quarter. Indian steel production grew by 5% year-on-year, although quarter-on-quarter output dropped 2% due to maintenance. The European operations showed mixed results; Netherlands turned profitable with a GBP 43 million EBITDA, while the UK's EBITDA loss widened. Net realizations in India for Q2 are expected to fall by INR 1,500 per tonne compared to Q1.

Global Steel Demand and Pricing Pressures

The global steel demand faced significant headwinds during the quarter due to subdued economic activity and tight monetary policies. In China, the demand reduction was more significant than production cuts, leading to steel exports of around 8 to 9 million tonnes per month. Across geographies, steel prices softened, with U.S. and EU prices down by 8% to 15%. Domestic prices in India were relatively stable but saw a decline towards the latter part of the quarter. This environment created a challenging backdrop for Tata Steel's operations globally.

Performance in India

In India, Tata Steel's crude steel production stood at 5.27 million tonnes, reflecting a 5% year-on-year increase but a 2% quarter-on-quarter decline largely due to plant maintenance. However, the company achieved its highest-ever Q1 sales deliveries, reaching 4.94 million tonnes, supported by a 4% year-on-year increase in domestic deliveries. Key segments such as automotive and special products saw a 9% year-on-year volume growth. Tata Tiscon, the brand's well-established retail arm, experienced a 15% year-on-year growth, driven by enhanced reach and consumer engagement programs.

European Operations – Netherlands and UK

In the Netherlands, Tata Steel's operations saw a turnaround with improved liquid steel production and a positive EBITDA of GBP 43 million for the quarter, in stark contrast to a GBP 27 million loss in the previous quarter. This improvement was driven by favorable inventory movements and cost reductions, such as lower power and fuel expenses. However, in the UK, the scenario was less favorable. The EBITDA loss widened from GBP 34 million to GBP 91 million, attributed to increased conversion costs and exclusion of one-off credits that boosted the previous quarter's results. Despite this, operational metrics showed underlying improvements, and the company expects to reach breakeven by the third quarter as operations stabilize and the second blast furnace is wound down.

Expansion and Investments

Tata Steel continues to invest heavily in capacity expansion to capitalize on growth opportunities. During the quarter, the company spent approximately INR 3,777 crores on capital expenditure, mainly towards the Kalinganagar expansion and the new electric arc furnace plant in Ludhiana. The Kalinganagar project is expected to produce an additional 1.7 million tonnes annually after its startup in September. Additionally, expansions in other sites like Jamshedpur are in progress, aimed at leveraging upstream opportunities to meet the growing needs of sectors such as automotive and construction.

Debt and Liquidity Management

Tata Steel's net debt stood at INR 82,162 crores, while group liquidity remained robust at around INR 36,460 crores, including about INR 10,799 crores in cash and cash equivalents. The company is navigating seasonal working capital build-up and inventory changes, particularly in the UK, ahead of the anticipated restructuring of heavy end facilities at Port Talbot, which are scheduled to complete by the end of September. The company is also in discussions with the UK government regarding a GBP 500 million grant for transitioning to electric arc furnaces, which will significantly reduce CO2 emissions.

Outlook and Strategic Initiatives

Looking forward, Tata Steel remains bullish on India's growth prospects. The company is also optimistic about achieving margin recovery in the latter half of the year across its global operations despite facing margin compression due to low steel prices influenced by Chinese exports. As part of its strategic approach to sustainability, Tata Steel is working on multiple fronts including process improvements, carbon capture, and utilization initiatives in India. The company has also set a vision for significant expansion, aiming to grow beyond its 40 million tonnes capacity through greenfield projects and leveraging advanced technology to maintain long-term profitability.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. All the attendees audio and video has been disabled from the back end and will be enabled subsequently.

I would now like to hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am.

[Samita Shah, executive]

Yes. Thank you, Kingshuk. Good morning, everybody. Good afternoon and good evening to others as well. On behalf of Tata Steel, I'm delighted to invite you all to this call today to discuss our results for the first quarter of FY '25. I am joined by our CEO and MD, Mr. T.V. Narendran; and our ED and CFO, Mr. Koushik Chatterjee.

We declared our results yesterday. There is a presentation as well on our website, which shares some more details about the financial and the operating performance. I hope you had a chance to go through both.

Before I hand it over to them, I would just like to draw your attention to the fact that the entire discussion today will be covered by the safe harbor clause on Page 2 of the presentation.

Thank you. And may I now request you Naren to make a few opening comments, please.

[Thachat Narendran, executive]

Thanks, Samita. Good afternoon, everyone. I'll make a few comments and then pass on to Koushik before we open it for questions.

During the quarter, the global steel demand across most regions was impacted by subdued economic activity, and the tight monetary policy conditions. And in China, the moderation in demand outpaced the production cuts, which led to steel exports of around 8 million to 9 million tonnes a month to the rest of the world.

And in India, the steel demand was broadly stable despite some impact of the elections and the heat waves and the seasonal weakness that we experienced, particularly once the monsoon sets in. As a result, across geographies, steel prices have been a bit soft in the U.S. and EU steel prices were down 8% to 15%. And domestic steel prices were reasonably stable, but went down during the quarter. So the increases that we had in the early part of the quarter got offset by the reductions to the later parts of the quarter.

This crude steel production in India was 5.27 million tonnes and was up 5% year-on-year, and this works out on -- quarter-on-quarter, it was a 2% decline primarily due to plant maintenance shutdowns. Our deliveries at 4.94 million tonnes were the best ever Quarter 1 sales that we've had, which was aided by a 4% year-on-year growth in domestic deliveries.

Amongst the various segments that we cater to the Automotive and special projects -- products volumes grew by 9% on a year-on-year basis with higher than market growth in select subsegments. And our well-established retail brand, Tata Tiscon witnessed a 15% year-on-year growth aided by enhanced reach and a focus on consumer connect programs.

We now have more than 10,000 dealers over 24,000 influencers and a growing share of customers via our e-commerce portal Aashiyana. We are looking to shape construction market practices through our ready-to-use solutions and now have over 30 construction centers across India to improve the customer experience and our ready-to-use solutions sales has actually gone up about 30% year-on-year.

These are basically ready-to-use solutions and construction sites. We registered a 19% year-on-year growth in engineering goods driven by the best of our quarterly supplies to railways and 8% year-on-year growth to the consumer durables industry driven by product and market development with major OEMs.

We continue to be bullish on India as to leverage this opportunity via capacity expansion as well as downstream capabilities. At Kalinganagar, heating of the stove and the coke oven batteries has already commenced as per plan, and we are looking forward to the blast furnace start-up towards the end of September. And we look at -- we're looking forward to producing about 1.7 million tonnes from this new facility after the startup in September.

But as mentioned in the last quarter's earnings call, the G blast furnace in Jamshedpur will come in 3 lining in the fourth quarter of this financial year. And as a result, the overall increase in volume will be lower, and that's why we've guided for the full year at 1.4 million tonnes for India.

The Continuous Annealing Line of the 2.2 million tonne cold rolling mill complex is planned to be commissioned in August, and the strip threading for the cold run is in progress. Separately, the rolling mill, which is being set up in Jamshedpur to leverage the upstream opportunity that we have in the steel assets, Usha Martin that we acquired, the downstream, the combi mill, as we call it, it's a 0.5 million tonne combi mill. Jamshedpur will come up in the second half year, and that will help us leverage the volumes available out of the Tata Steel, what we call Tata Steel Gamharia, which is the Usha Martin steel plant site and also cater to the growing requirements of high-quality, long products for the auto industry.

In the U.K., we have safely ceased operations at one of the blast furnaces, which is the blast furnace #5 at Port Talbot on the 4th of July. We are on track to close the remaining blast furnace, which is blast #4 by September 24, and this marks an important milestone in our endeavor to transition the operations to a sustainable business model.

As we navigate the transition, we are committed to supporting affected employees and are providing multiple training and community support schemes.

In Netherlands, we've ramped up the production at blast furnace 6 after the -- after the relining. And we had quarterly steel production of 1.69 million tonnes, which was up quarter-on-quarter and year-on-year. The stabilization of operations has positively impacted the cost profile. Koushik will talk about it further in his comments. And the deliveries for the quarter at 1.47 million tonnes were higher by 3% quarter-on-quarter and 8% year-on-year.

Sustainable operations are integral to our strategic goals, and we've adopted a multipronged approach to progress on this journey. In India, we are focused on process improvement, carbon direct avoidance and carbon capture and utilization.

We recently launched a carbon bank initiated to further carbon abatement and are undertaking relevant pilot projects in partnership with technology providers, academia and start-ups. We are the first company in India to use LNG-powered Capesize bulk carrier for transporting raw materials.

I've already mentioned the transition plans for the U.K. upon transition to scrap based electric arc furnace operation, the direct CO2 emissions will reduce by 50 million tonnes over a decade. And similarly, in Netherlands, we are working on the transition to green steel subject, of course, to the government support and necessary approvals. And currently, the discussions are going on with the government.

Thank you, and over to you, Koushik.

[Koushik Chatterjee, executive]

Thank you, Naren. Good morning, good afternoon, and good evening to all who have joined in. I will begin the quarterly performance provided on Slide 26.

Our consolidated revenue stood at about INR 54,771 crores, and the consolidated EBITDA was about INR 6,822 crores, which translates into an EBITDA margin of around 12.5%. The consolidated EBITDA margin has improved by more than 100 bps on quarter-on-quarter basis despite the global queues and the adverse trade conditions.

Before I delve into the numbers across geographies, I would also like to mention that we have received sanction for the amalgamation of the Angul Energy Limited and the Bhubaneshwar Power Limited and the stand-alone financial statements for the quarter reflect the merger in the past periods have been restated as applicable.

On to the numbers. Tata Steel stand-alone EBITDA for the quarter was INR 6,750 crores, which translates to an EBITDA margin of about 20%. On a per tonne basis, the stand-alone EBITDA was about INR 13,661 per tonne.

As provided on Slide 32, the EBITDA on an absolute basis moved lower compared to the previous quarter as the fourth quarter is typically a seasonally strong quarter. The volume effect weighed on the absolute revenues as well as on the conversion cost. However, this was by the lower material costs primarily because of the decline in coking coal consumption costs to the tune of about $11 per tonne and the change in the inventories quarter-on-quarter.

I would like to elaborate a little bit about the cost. There has been an increase in the valuation of chrome ore inventory as on 30th of June 2024. And this is on account of increased accrual of royalty charges payable on closing stock.

This has led to a noncash credit of about INR 1,100 crores in the raw material cost line and an increase in the other expense line, which includes royalty related expenses. So the above treatment is broadly P&L neutral.

Neelachal Ispat Nigam Limited or NINL, crude steel production was 0.25 million tonnes, and the EBITDA for the quarter was INR 279 crores within the 2 years of the acquisition of NINL. This has been the first time when we have got the positive PAT and are operating at the rated capacity.

In Netherlands, EBITDA has turned positive with improved liquid steel production on a quarter-on-quarter basis upon stabilization of the operation post the issue in relation to the blast minus 6 lining. The EBITDA generated was GBP 43 million on first quarter compared to a loss of GBP 27 million in the fourth quarter.

EBITDA on a per tonne basis improved by about GBP 48 per tonne on a quarter-on-quarter. The turnaround was primarily driven by the improvements in cost. Material costs moved lower, primarily driven by the favorable movement in inventories and the lower purchase despite the higher raw material costs. The conversion costs also moved lower upon decline in power and fuel and bulk gases-related expenses, which improved the availability of the byproduct gases.

In the U.K., the EBITDA loss widened from about GBP 34 million in the last quarter to GBP 91 million in this quarter, and I'll explain that. The underlying performance, though, has actually improved on quarter-on-quarter. To elaborate this, on a reported basis, the revenue and materials have remained broadly stable, while conversion cost has increased by about GBP 81 per tonne, resulting in a corresponding decline in the EBITDA level. However, as I stated in the last earnings call, the fourth quarter earnings included credit relating to emission rights and R&D spend of prior years to the tune of about GBP 70 million.

Excluding these one-offs, the underlying movement in conversion cost was favorable by about GBP 25 per tonne, translating into an improvement in underlying EBITDA of around GBP 24 per tonne on a quarter-on-quarter basis.

As Naren mentioned, we are committed to growth in India and have spent about INR 3,777 crores on capital expenditure during the quarter, primarily spent on the Kalinganagar expansion as well as we have started to spend on EAF in Ludhiana.

There was working capital buildup during the quarter, primarily driven on the basis of the buildup of stocks in the U.K. ahead of the closure of the heavy end facilities, among other factors, including seasonality in India. We are focused on the optimizing of the working capital. The net debt stands at about INR 82,162 crores, and our group liquidity remained strong at about INR 36,460 crores, which includes about INR 10,799 crores of cash and cash equivalent.

The closure of the heavy end assets and restructuring program at Port Talbot is progressing in a safe and controlled manner, as Naren mentioned. And this is as per plan as we previously announced. The blast furnace 5 at Port Talbot produced its last liquid steel on 4th of July and 1 of the 3 casters has suspended operations. The blast furnace 4 will cease operations before the end of September.

We remain in close discussions with the union in relation to the support for the affected employees. Based on the enhanced support package we had discussed with them, we launched the Voluntary Redundancy Aspiration process on 11th of July, and this will close on 7th of August.

After the elections in the U.K., we will also resumed our conversation and discussion with the new U.K. government on the execution of the grant funding agreement supporting the electric arc furnace project in Port Talbot. The Labour Party is already committed to delivering the GBP 500 million grant previously announced for Port Talbot. All parties appreciate the need to close the agreement as soon as possible.

Upon closure of both the furnaces, the downstream in the U.K. will continue to service customers by utilizing imported slabs and hot-rolled coil substrate. In Netherlands, we have started an active engagement with the Dutch government on potential support for the decarbonization project. The project is planned to be in 2 phases.

In Phase 1, we intend to replace one of the blast furnace with the DRP and EAF, which is a direct reduced iron plant. By 2030, the DRP will initially run on natural gas and later transition into hydrogen as the availability and the cost of hydrogen becomes more competitive.

We are committed to achieve about 35% to 40% reduction in CO2 by 2030.

Moving on finally to the legal development with respect to the ORISED case in India. There has been, as you know, the multiple litigations over time with respect to states authority to levy tax on mineral rights. On 25th of July, the Supreme Court has rule the states will have the power to levy tax on mineral rights and the existing mineral legislation does not contain any limitation of such power at this point of time.

After this judgment, based on the petitioners request. The Supreme Court is on to looking at the ruling operative from the date of pronouncement and to clarify the aspects of operations of their judgment. Yesterday, the Supreme Court reserves a decision on this matter. The implications of the ruling are obviously complex varied across states and will have an effect on the mineral linked industries in India. We await the orders of the Supreme Court.

With this, I would end my comments and open the floor to questions. Thank you.

[Operator]

[Operator Instructions] The first question is from Satyadeep of AMBIT Capital.

[Satyadeep Jain, analyst]

Clarification that...

[Samita Shah, executive]

You'll have to speak up, Satyadeep. We can't hear him. Let's go to the next one and we can come back to him.

[Operator]

We will now move on to the next question. Our next question is from Sumangal Nevatia of Kotak Securities.

[Sumangal Nevatia, analyst]

If we can share some details as to how are we looking at NSRs and cost movement both across India and Netherlands. And then with respect to U.K., is, are we looking at the last quarter as far as these losses are concerned? And do we still maintain that maybe from second half onwards, we will have some sort of a breakeven as far as EBITDA is concerned? Yes, that's my first question.

[Thachat Narendran, executive]

Yes. Thanks, Sumangal. So as far as India is concerned, our guidance on net realizations for Q2 is about INR 1,500 per tonne below Q1. And as far as U.K. is concerned, the projection is flat, but Netherlands is projecting a GBP 60 reduction in net realizations Q2 compared to Q1.

In terms of coal costs in India, it will be about, consumption basis, $15 per tonne lower in Q2 compared to Q1. And in Netherlands, it will be about $26 per tonne lower Q2 compared to Q1. Coal is not really relevant now for U.K. going forward. In terms of iron ore, U.K. will be about $7 per tonne lower Q2 to Q1, and Netherlands will be about $17 per tonne over Q2 compared to Q1.

Your question on Tata Steel U.K., yes, once we close the second blast furnace in the second half of the year at an operating level, we should be close to breakeven or slightly positive on an EBITDA basis apart from the one-off cost that we may have to incur as part of the separation packages and other things. But on an operating basis, the losses that you see today should go back to breakeven or should go to breakeven now to get a positive EBITDA.

[Koushik Chatterjee, executive]

So just to add on the -- you said that, will this be the last quarter of losses? And the answer is, no, September will be the last quarter of the losses. And then as Naren mentioned, from the third quarter, we should get close to breakeven. And then as the volume ramps up on the imported substrate, we should be in positive territory.

[Sumangal Nevatia, analyst]

Okay. So 2Q is the last quarter, right? I mean third quarter is where we expect. Understood. And just this clarification on Netherlands, given the softness in prices, which is only partly getting offset by iron ore and coal. So do we expect spreads to be under pressure at these levels? And does the 1Q margin what we've reported, does it have any loss -- sorry, any cost of relining or everything kind of concluded in fourth quarter reported results?

[Thachat Narendran, executive]

No. From a CapEx point of view, you would see some CapEx in Netherlands in Q1, which is more to do with the settling of the relining bills. From a margin point of view, we are basically operating at a pretty much full level. If you see the volumes on production, we are almost at 6.8 million tonnes annualized basis, which is much higher than what we've ever been in the past even before the relining.

So there is clearly operational improvement and stability. But yes, there is -- as I indicated, there will be some margin compression in Q2 because the markets across the world are struggling with Chinese exports at pretty low prices. But I think our expectation is at the current levels of prices and coal prices, if you see, the Chinese companies are losing a lot of money. And so we do expect that this could be the low point and things could pick up from Q3 onwards on terms of prices, yes.

[Sumangal Nevatia, analyst]

Okay. Naren, just one clarification. You said CapEx. So there's no -- at the operating results, it's -- there's no cost, right? There's no OpEx of relining in 1Q results?

[Thachat Narendran, executive]

Koushik, I don't think so, right?

[Koushik Chatterjee, executive]

No, no. It's actually the relining got over. It's -- as you know that after the performance guarantee, the retention payment, those come in after a period of time. So that's there in the cash flows for this quarter and as part of the CapEx, but not in the OpEx side. In fact, the other way around, the OpEx has actually been better than the previous quarter because the volumes have increased very significantly.

[Sumangal Nevatia, analyst]

Understood. That's very clear. My second question is with respect to the expansion plans. Now we are on the verge of commissioning Kalinganagar and we've been seeing this slide of 40 million tonne kind of potential since long. I mean, it looks like even if we start today, there would be a period, maybe 18-odd months where we'll not -- we will run out of capacity and maybe start losing market share in India. So I want to know what time lines are we looking at further finalizing the CapEx plan, number one. Yes, I think -- yes, that's the only question.

[Thachat Narendran, executive]

Yes. So I think the way I would respond to it is we have this 5 million tonnes coming in, in Kalinganagar, we have about close to 1 million tonnes coming in Ludhiana, and we have maybe a few hundred thousand tonnes coming in, in Jamshedpur because we are adding a rolling mill there, and we'll get some additional volumes out of the Usha Martin assets that we acquired some time back.

So that's the incremental volume we will see over the next couple of years. Later this year, we will hopefully get the approvals, internal approvals for the Neelachal expansion, which will take it to 5 million tonnes. The Kalinganagar expansion from 8% to 13% was anyway expected to start only after we finish the current expansion. So that we will plan for.

I also want to make a point when you talk of market share, actually, the market share in our chosen segments will continue to be very strong because the Kalinganagar cold-rolling mill adds 2 million tonnes of cold rolled -- very high-end cold-rolled and galvanized products to our product mix. And we have a few downstream expansions also going on parallelly.

So I think in our chosen segments, we will continue to grow our market share. The overall market share, of course, will be a function of the upstream volumes that we get on the ground.

[Operator]

Our next question is from Kirtan Mehta of BOB Caps.

[Kirtan Mehta, analyst]

Wanted to understand sort of the new round of the U.K. discussions with the Labour Party. What are the additional demands that you are seeing from the Labour Party while sort of finalizing on the grant agreement?

[Thachat Narendran, executive]

Koushik?

[Koushik Chatterjee, executive]

Yes. So I think first half of all, I must say that the new government, the ministers, et cetera, have been very supportive in not only Tata Steel but the Tata Group to continue in a big manner in the U.K. Obviously, there's no demand as such.

They want to work together to make the U.K. steel industry strong because they have plans in their capital allocation for usage of that industry in infrastructure and other industrial projects because as you have followed the election campaign and the manifest on the Labour Party side, it's more about renewal of U.K. in terms of being more industrialized and focus on manufacturing, focus on renewable energy and so on.

So I think the question is essentially, the negotiated grant funding agreement is ring-fenced in some manner. What they want is to explore more investment opportunities, if possible. That's not imposed but if possible. And to explore what else do we need to make the U.K. steel business more valuable and sustainable.

So I think that's the broader context. As far as -- the other thing is the employee bit, which is on essentially how can we help in the training of the employees who are moving out of Port Talbot to make them more employable. As you know, there is a Transition Board that has been formed under the previous government, that Transition Board has funded by about GBP 80 million by the U.K. government and GBP 20 million by us.

So the whole focus is how do we best use this capital and do that. So those are the kind of conversations that we are having at this point of time, and we hope that in coming weeks and maybe a month or 2, we should be able to get to a frame where we have a good understanding of -- an agreement on where we want to move.

And more important from our perspective is to ensure that the base EAF project, which is the already approved project gets on as per plan. And that ordering, detail engineering, et cetera, is something that we are coming very close to.

So I think in a nutshell, we see continuity of our discussions with the U.K. government. We see more interest in the steel industry from the U.K. government, and we see more capital allocated from the treasury on the steel industry as a whole.

[Kirtan Mehta, analyst]

Just a follow-up here. So if at all, the way you mentioned about is there is a possibility of increasing the scope of the expansion. So if we go through that discussion, is there a sort of a possibility that this could elongate the time before we give a go ahead for the next EAF?

[Koushik Chatterjee, executive]

For the new EAF, no, the answer is, as I said, the current EAF is something that we have already captured in the existing draft of the grant funding agreement. So that has not being disturbed. The proposition is what can you do more and for which how can we give you more. So what can we do more, and how much can we give you more is what the conversation is. Our focus is obviously on getting the 3 million tonne transition into the electric arc furnace done on time because that's the base case for the sustainability.

But there are other opportunities in the downstream. If there is a business case, if there is an investment case and if the government provides us with support in capital, we will consider it. And that's the conversation that we are having at this point of time.

[Kirtan Mehta, analyst]

Second question was about the contingent liability that we have disclosed regarding Odisha. Do we have similar demands across any other states, which could have an impact from the Supreme Court judgment finalization? Or Odisha is the only state, which has raised such demands in the past?

[Koushik Chatterjee, executive]

No. First of all, I must give you a bit, and if you have read the notes in the SEBI Note no #8. This case when the Orissa government did come out with the regulations on levying what is called as ORISED, we had gone into the Orissa High Court and the Orissa High Court had actually squashed the regulation itself as unconstitutional. So there was no demand existing at this point of time from the Orissa government on us. But because there is an act which had come in, which was squashed by the Orissa government.

We had been reporting this as contingent liability since 2005. So I think it is a question, which we did out of prudence to ensure proper disclosure. There is no other direct cases or demands of this nature for Tata Steel at this point of time from any other government.

Our bulk of our mining is in Orissa, and we have mining in Jharkhand. But at this point of time, there isn't anything that is pending as a demand which we have not paid or therefore, we are reporting. We reported this as a contingent liability.

Based on the regulation that came into being in Orissa in 2004, which we challenged in the Orissa High Court, which got squashed and that's why the state had gone to the Supreme Court, and many other such states have gone to the Supreme Court, which is the judgment that has been talked about.

[Kirtan Mehta, analyst]

Right. And what was the underlying royalty rate under this particular contingent liability? And what was the state demand actually?

[Koushik Chatterjee, executive]

Again, there's no state demand. What was basically formulated is based on the last 2 years' production. And based on the IBM price on the first day of the year, there was a calculation given of about 15% or so. So that was the basis of the calculation that was given at the time in that act, which got squashed under the Orissa High Court order.

[Kirtan Mehta, analyst]

Thanks for this clarification. If I may squeeze in one more. Could you update us on the cold rolling mill in terms of the operation levels, profitability levels at what stage ramp-up we are in, and what's remaining? We understood about the Continuous Annealing Line that you just disclosed.

[Thachat Narendran, executive]

Yes, the cold rolling mill has been operating since last year. It's been ramping up quite well. It produces what is called full hard cold rolled product till the annealing line comes in. The annealing line is coming in, in August, then we'll have the anneal product available. And the galvanizing line will come in towards the end of this financial year, and that will give us a galvanized product.

So the cold rolling mill in its entirety is best to assess after we have all the downstream facilities because it is going to be really a state-of-the-art mill, which will be able to cater to the high tensile grades, which the automotive industry requires now and also the high-end galvanized steel that the automotive industry requires now.

So that's where it is. So I'm not able to give you the profitability just yet because not only are the volumes ramping up, the quality is also just about ramping up.

[Kirtan Mehta, analyst]

Production run rate, if possible?

[Thachat Narendran, executive]

I think we are currently maybe at about 50,000, 60,000 tonnes a month. You will not see it simply because that means you will sell less HR and more full hard CR. So it's not a top line addition. It is value addition, let me put it there. You will see less 40,000, 50,000 tonnes HR and more CR.

[Operator]

[Operator Instructions] The next question is from Amit Dixit of ICICI Securities.

[Amit Dixit, analyst]

So I have a couple of questions. The first one is on a very broad macro sense, if you look at it, while domestic consumption is growing there are instances of imports also searching. On the other hand, there is a -- now after the Supreme Court judgment, technically, state governments can levy any sort of cess they want.

So I just wanted to understand from an industry perspective, which is growing, there is nothing being done to curb imports. At the same time, states are coming up and states technically have got freedom to levy any kind of duty. So what we are -- I mean, how you are looking at it, being someone who is like quite, you would say, integrated.

Aren't we at a technical disadvantage here? What are the thought process? Or how are we working with the government? Just wanted to get your thought process around that.

[Thachat Narendran, executive]

Sure. So Amit, I think it's a very valid point and that's precisely the point we are making with the government. It would be very ironical if India with all the iron ore that it has, firstly, over taxes the iron ore and negates the competitiveness that we as a country should have right at the raw material stage, okay? So I think that is one thing.

And we are as it is from an effective royalty rate and tax rate point of view, one of the highest taxed countries in the world as far as mining is concerned, compared to Brazil, Australia and the other geologically-rich countries, we are already taxed among the highest. So that is one point.

And I think if we do that, there is less and less incentive or less and less room to make investments to value add on that iron ore or coal or bauxite or whatever else, right? So I think that is one point.

The second point, which we are telling the government is most of these minerals are in the poorer states in the country. Yes, they need tax revenues, but they also need jobs, and if you need jobs then you need investments. If you need investments, there needs to be a business case where the industry makes money and can use that money to invest in new capacities or whatever.

Third point is when you look at private sector investment in India, the steel industry is one of the leading sectors. It is not just Tata Steel. All our peers have also announced significant CapEx. So you have a good story there on private sector CapEx, and if all this keeps going up, obviously, that's a matter of concern.

The fourth point you talked on imports is also a very important point because oftentimes, we say China is competitive. China is not competitive. They lose money at these prices. So it's not that they are making money at these prices, in which case, you can call them competitive. It's predatory pricing, which is, again, detrimental to the future of the industry in India. And this point has been made with the government as Indian Steel Association, and we are hoping that there will be some action because the rest of the world is moving fast on this.

So whether you look at the U.S., you look at EU, you look at many other countries, because China exporting 100 million tonnes a year is not something the world can live with. China selling steel at less than $500 when coking coal prices are $220 to $230 defies the logic. And the last time China sold in these prices was during COVID.

So we are seeing some circumstances where, like you said, import pressures are there and domestic cost pressures are also there, which is not good for the long-term health of the industry. So it's a very valid point. We are representing to the government at the states and the Centers. And let's hope that we come to a good long-term solution.

[Amit Dixit, analyst]

And on the similar line, just one clarification of what Koushik mentioned that there are no demand from state as such. Now the retrospective or prospective application of this new judgment doesn't really matter. The thing is that, is there a possibility at this point in time, what you see that states might just go ahead and levy something.

Is there something in the pipeline? Is there something that they have been making demands in the recent past that we might see our costs getting escalated? Retrospective of course doesn't matter, I'm not talking about that 17,000-odd crores liability. All I'm talking about going ahead, how will our cost increase in the present regime of business?

[Thachat Narendran, executive]

So I think, yes, the states have the prerogative, and that's what has been now said. Again, the question is, I think the question for the government, both at the Center and state is what they want to do, at the Center it's all about what are the laws which need to be amended, how do you address this issue? Can you offset some of this because I think the larger point being made is a lot of these costs will pass through, particularly when you look at coal, which is today the biggest product being mined and the power sector are the one which consumes it.

If these keep adding up, obviously, it has an impact on the power sector and the consumers of power, including us, right? So that is one. And secondly, there's bauxite and aluminum, there's iron ore and steel. So I think this is a larger issue. I think the government cess with it. And obviously, it impacts the cost of doing business, which is very clear. So let's wait and see how the next few weeks transpires in terms of what states are doing what.

Koushik, you want to add?

[Koushik Chatterjee, executive]

Yes. So I just wanted to add that, Amit, that all that the courts have said, the bench has said that, as per the current MMDR is concerned, there is -- we don't see a limitation. So if that limitation comes in terms of an equitable distribution of the cess between the state and the Center. Then obviously, there is -- that's the point Naren mentioned at the Center cess of the issue on a much more wider issue.

And that's the point that has to be addressed in due course of time because the limitation is essentially a cap, et cetera, which needs to be put in. So we'll see whether there is an amendment that comes in, in due course of time. And that's the point, which will derisk this into an issue because the same iron ore can therefore get priced differently in different states.

That's not going to help either or a coal or for that matter any minerals because every state is acting different. And that kind of defeats the federal structure. And that's how the MMDR actually said that the Center sets the policy, states collect the money or get the money.

So I think there is a broader discussion that has to happen and the Center cess of it, as to how obviate to ensure that investments occur more uniformly and to ensure that as a country, we continue to have the advantage competitively to get the benefit of the minerals that exist in the country.

So I think that is important. And I would request if you hear the dissenting judges comment, these are precisely the points that have been highlighted. So I'm sure that there will be administrative and executive stepping in after the judiciary clears the period of application of the cess.

[Amit Dixit, analyst]

Okay. The second question is a major bookkeeping question. Just wanted to understand the bridge between EBITDA and cash flow from operations for this quarter, and whether the debt increase that we have seen was majorly due to the working capital buildup at U.K. operations.

[Koushik Chatterjee, executive]

So there are 2 parts to this. The -- as far as the debt is concerned, firstly, there is the U.K. bit, which is negative and the working capital bit. So there is a loss bit in the U.K. and then there's the working capital bit in the U.K. And then there is a working capital bit even in India because of the fact that we -- this is a pre-monsoon preparation and also preparation for the Kalinganagar startup of the blast furnaces. So these are the key elements that we see. I think over a period of time, in the next 2 quarters, we will see the release of the same.

[Operator]

The next question is from Ritesh Shah of Investec.

[Ritesh Shah, analyst]

Sir, a couple of questions. First is, thank you for the explanation on contingent liability. Just wanted to understand, hypothetically, if the Supreme Court does impose a judgment on a retrospective basis, what is the probability of this contingent liability actually translating to a cash flow impact?

[Koushik Chatterjee, executive]

So that's not very hard to say, Ritesh, because I think if in the unfortunate event, it does become a retrospective, we have to see what is the period at which it will be paid.

Secondly, I think it will also be dependent on -- see, once the Supreme Court has actually explained the point of law, not individual cases. So once the point of law has been explained and the operating part of the judgment is clarified later on, whether it's a retrospective and/or prospective. In the worst-case scenario, as you just said, if it is retrospective, each of these individual cases will go to the regulator in the typical manner.

So if -- because these cases like in entry tax was kind of aggregated at Supreme Court, and they said -- the constitutional bench will consider this. So each of this should ideally get back to the high courts or the Supreme Court regular benches, et cetera. And then the determination will happen on those individual cases, quantum, period, payment, demand happening or not because in many cases, demands have not been raised. As I said, there's no demand. It's actually a contingent liability, which we have disclosed.

So that operating bit has to flow in. I think it will take some time to get to that position to understand in case, as I said, in an unfortunate case, it goes to our retrospective judgement.

[Ritesh Shah, analyst]

Sure. That's quite useful. Sir, my second question is, I'll put it very straight. Sir, what is the net debt number for Tata Steel U.K. and Tata Steel Netherlands, say, 31st March basis or end Q1. If you could please help on that.

And just wanted to understand how should one look at the debt profile for both these regions separately, taking into account the incremental cash flow ask that we have?

[Koushik Chatterjee, executive]

So I think you can consider, if I were to look at it from a broad perspective, Tata Steel, U.K. in general -- U.K. and Netherlands, each of them have about GBP 600 million to GBP 800 million of debt. Mostly working capital, and these are essentially used for securitization as well as working capital needs.

I see that the Netherlands was actually debt-free till about 12 months back or maybe 15 months back. And I see them going back into a debt-free status in the next 18 months. So I think that is something that we are working on because Netherlands never actually had any debt requirement because they were always positive cash flows. It's only in the last 12 months post the blast -- or during the blast furnace 6 lining that they have got affected. So I don't see that to be an issue there.

We have about GBP 200 million of -- maybe GBP 300 million of the old acquisition debt sitting also in addition to this. So that's broadly the frame between Netherlands, U.K. and the acquisition that we have in overseas. Apart from the Tata Steel bonds, et cetera, which are there in Singapore, et cetera. So I think that's the profile.

On your second question on cash flows, as I said, Netherlands should have their own cash flows to bring down their debt to 0 in the next 12, 18 months because that's simply important, and they will not have any material CapEx on the legacy business. The decarbonization CapEx is a separate CapEx spend that will happen.

And as far as the U.K. is concerned, as we mentioned in the earlier part to a question that we would like to see it to be a profitable, EBITDA profitable and also pay some parts of it debt. But fundamentally, the U.K. debt, in effects, it's to the India business because we will have to clean the business and make it ready for the decarbonization or post decarbonization as we get the GBP 500 million of grants from the U.K. government.

[Ritesh Shah, analyst]

That's useful. Just a related question. Sir, U.K., we have indicated 1.2 billion of CapEx. So the government grant is around GBP 500 million. Are we looking to infuse any incremental capital from India to Singapore to Europe? The reason to ask is, I think the Board took an approval in May with respect to $2.1 billion. I think we have transferred around $875 million. So I wanted to understand the end use of this $2.1 billion. Partly, I understand it was ABJA refinancing. So I wanted a breakup over there. And I wanted to understand, is there a further cash flow ask from U.K., which will have to be funded through the India operations?

[Koushik Chatterjee, executive]

So as far as the -- there are a couple of parts to this, Ritesh. One is that there is a loss funding that is happening, which is what we said that till September, this will continue as only when we wind down the second blast furnace. We expect to get into a positive territory. This is also a transition from -- on the working capital side, buying iron ore, buying coal and then winding it down and instead buying slabs and coils, so that's a transition point that will happen.

Post that, it will -- in our view, by the fourth quarter of this financial year, it gets to a stable working capital position despite centers, we'll hopefully get into a more stable situation. The loss funding also would get off. But there is restructuring that is going to happen and that restructuring, including the redundancies, et cetera, are funded by India.

Secondly, if you look at the project, 1.25 billion, of which 500 million will be from the government and the 750 million will be from Tata Steel. And we don't intend having more debt on Tata Steel U.K. We will be -- it will be spent over 4 years, but it will be spent from a Tata Steel point of view.

So this is broadly the flow in which the capital will go over the next couple of years as far as U.K. is concerned.

[Ritesh Shah, analyst]

All right. And sir, breakup of $2.1 billion. I think $875 million has already moved, the balance. So is it ABJA or is it U.K.? How should we look at it based on the...

[Koushik Chatterjee, executive]

Mostly ABJA was about -- see, ABJA is in 2 parts. There was a 125 billion, and then there is another element, which is on debt, effectively about 700 million. The total ask that we talked about is 2.1 billion, which is the breakup. If you look at it, about 600 million will be for U.K. loss funding over a period of time, and the restructuring that is going to happen.

And then there is a U.K. loan repayment of about 200 million, which is also going to reduce the debt in the U.K. and the consolidated debt. And there is the element as far as ABJA is concerned, and there are some debt in Singapore, which is also going to be repaid of about 750 million.

[Operator]

The next question is from Indrajit Agarwal of CLSA.

[Indrajit Agarwal, analyst]

I have a couple of questions. First, on Netherlands, given that it has like fully ramped up on production, can we see any further conversion cost reduction from here on? Or have you peaked on that?

[Thachat Narendran, executive]

So I think the volumes are close to peak. We were about 50,000 tonnes short. What we're chasing is 7 million tonnes of annual production. We have not been at that level for the last 4, 5 years. So we are at 6.8 million rate for Q1. So if you get to that, that will certainly lead to a conversion cost reduction, clearly compared to the last 2 years because the last 2 years, one is we had lower volumes as you saw, higher costs because of the cold rolling mill upgrade and the BF 6 upgrade.

We were using a lot of high-cost slabs, which we had produced earlier when the coal prices were high. And you had record high prices of electricity and gas, thanks to the Ukraine situation. So many of those things have corrected. Some of it you're seeing but you'll see that happening.

So I think we have now reached the lower levels of electricity and gas prices and CO2 prices also which had gone to about EUR 80, EUR 85 and now around EUR 60, EUR 65. So you will see all that. So I would think by Q3 or Q4, you will see a more stable cost. I mean, it will trend down.

There are also many initiatives that we are taking over the next 2, 3 years to further bring down costs. So I would expect that on an ongoing basis at these production levels, you will start seeing the costs reflecting some of these initiatives and the stability of operations. Of course, the bottom line will also depend on the spreads, that's where the spread compression is also there, which hence, sometimes negates some of the cost takeouts that we've been doing. But yes, to answer your question, yes, conversion costs will -- should keep trending down as we run through some of these initiatives.

[Indrajit Agarwal, analyst]

Sure. Now my second question is given that we have better visibility on KPO 2 commissioning, any kind of volume expectation that we can see in FY '26 from KPO 2 or too soon to comment?

[Thachat Narendran, executive]

FY '26 should be close to a full year. I think that's what we see in terms of once the blast furnace stabilizes, the steel mill shop also would have done its expansion. So we'll be -- we'll give you a guidance closer to the end of this financial year. But yes, the expectation is that we will see as close to maximum as possible.

There are some logistics issues, which we are sorting out. Those are some of the constraints that we want to deal with over the next 6 months. Just now, that's not the bottleneck but as we ramp up, that could be a bottleneck, and those are the problems we have to solve in the next 6 months.

[Indrajit Agarwal, analyst]

Sure. Lastly, can you give me the CapEx and working capital buildup number for the quarter?

[Koushik Chatterjee, executive]

CapEx was, as I mentioned, CapEx was about INR 3,700 crores, INR 3,770 crores, I think that is the CapEx number that I had mentioned during my comments. As far as working capital is concerned, I think it was about net working capital number. Give me a second.

[Samita Shah, executive]

About INR 5,000 crores.

[Koushik Chatterjee, executive]

INR 5,400 crores, which had a large proportion in -- basically in India and in the U.K.

[Operator]

The next question is from Satyadeep Jain of AMBIT Capital.

[Satyadeep Jain, analyst]

Couple of questions. One, on the contingent liability. I just wanted to clarify, you mentioned that when you're reporting contingent liability, it is based on an assumption 15%, tax in addition to 15% royalty, 15% additional tax on whatever iron ore value you're mining from that state, is that correct?

[Koushik Chatterjee, executive]

It's in the production. Average of last 2 years production, at the IBM prices, and then the...

[Satyadeep Jain, analyst]

Is there -- there would be something for chrome ore and other maybe dolomite, other minerals also? Is that...

[Koushik Chatterjee, executive]

Yes. Yes. Anything in Orissa is what is disclosed there. And there's a small amount in Jharkhand, which because Jharkhand at that time had not notified their act though they had passed it, but it was -- if you're not notified, it's not an act. Orissa had notified but the Orissa High Court has cost it down. So that's the basis on which we have done the calculation.

And this calculation is not -- I mean, every quarter, it changes because we have been over the last, what, 20 years now have been doing this revision to disclose. So if you look at our annual reports for the last 20 years, you will see this number going up.

[Satyadeep Jain, analyst]

So that is -- you're saying the liability of building for chrome ore and other mineral is also 15%, based on 15% royalty, same royalty rate for all the minerals?

[Koushik Chatterjee, executive]

Yes, they have not distinguished between any other -- between different minerals. It's the same rate.

[Satyadeep Jain, analyst]

You mentioned, Jharkhand, just wanted to understand because I was under the impression that even Bihar and then Jharkhand also had similar act. You're saying they didn't notify it before -- this was struck down by the High Court?

[Koushik Chatterjee, executive]

Satyadeep, I think this will become a big conversation. If you look at this issue, there are states where the act has been passed and depending on petitioners have been squashed. There have been states in which the acts has been passed and not notified. There have been states in which the acts have been passed, notified and states have been collecting. So there are a mix of this between, say, Uttar Pradesh, Chhattisgarh, Andhra Pradesh, there's very few states, which is left.

So there are a lot of -- it's not just a notice, in fact Orissa is the one place where the high court has actually squashed the act. But there are other cases, some states are collecting. Some states have not notified. Some states have not demanded. So there's a plethora of stuff, which is why it went to the Supreme Court.

So Supreme Court is actually settling a point of law. It is not settling individual cases. It is settling a point of law that under the MMDR Act and Article 49 and 50 of the constitution does the state have the power to levy a cess on minerals. That is the point of law. So the point that they have said is if there is no limitation in the Central Act, they do have. So if you do bring a limitation in the Central Act, they will be kept.

[Satyadeep Jain, analyst]

That limitations could be possibly brought up by amendment and MMDR Act. Is that fair?

[Koushik Chatterjee, executive]

That's correct. That's the point that Naren explained earlier. That, that is the point that the Center also understands. And mind you, a tonne of coal or a tonne of iron or in this current construct can be different in different states. So it will have different cost of -- based on the royalty that each states in their best understanding imposes.

If you can have a tonne of iron ore differently in Orissa, it could be different in Jharkhand, it could be different in Chhattisgarh or anywhere else. So that is the point that needs to be addressed by the Center. And that is the point that as an industry, as a mining industry, everybody has kind of requested the Center to look at it.

[Satyadeep Jain, analyst]

Fair enough. Understood. The second question is on U.K. I think in the earlier remarks, you mentioned that you're looking at maybe considering -- the government is considering a wider scope possibly looking at downstream. So just wanted to understand, is there also a discussion around DRI plus, EAF? And when you look at downstream, what exactly does it mean? And how would you evaluate all these proposals even if, let's say, the capital intensity increases. If they give you the same grant of 40%, would you go ahead? How would you evaluate these proposals is what I try do understand?

[Koushik Chatterjee, executive]

So effectively, if you look at it. So first of all, they have not said, prescribe what you need to have. So they basically want to say that the steel industry in the U.K., which has been neglected for a long period of time, we want to ensure that without investment, no steel industry can revive. And how do you become the best-in-class in terms of competitive ability, and therefore, what investments are required to service the requirements of the industry and the consumers of that steel, whether it is downstream, automotive, construction, engineering, et cetera.

So that's an open discussion that were happening, including DRI as a case in point. But in DRI for us, because our primary investment case has been drawn due to the availability or the surplus amount of scrap that U.K. produces and the U.K. is one of the largest seller or exporter of scrap at about 10 million tonnes a year.

How do we tap that for domestic value addition and that actually resonated in the investment case. So DRI, we will require virgin iron but the proportion is much less, and it may not have the ability to make the full business case, may or may not. So we are -- actually, unless we become a merchant DRI player and use some for captive and outside.

So what we said essentially is that, look, there are many options in DRI or in downstream. But those are, first of all, to be taken separate to the base investment proposal on which the government and us have agreed upon in September '23, that needs to proceed accordingly.

If you are saying, I have more money to give you as grant and if you can put in something else, we said that we will take the opportunity, do an investment case and see what kind of investments makes sense to -- or makes investment -- the business case. And I'll come back to you -- we'll come back to you and then you can decide whether you can give it or not.

And linked to that, you also have to understand, it is public tax money. And what kind of employment potential is there for each of these investments. So if all these converge together, there will be something, but we have said and the government completely understand that we need to implement the existing EAF project on time, on cost and ensure that we get the facilities in terms of planning permission, et cetera, done so that we can implement.

So that is being the base understanding, and there's no change in that. So this is an add-on to see if we can make the whole investment case better both from a steel industry perspective as well as from the employment perspective. That's where we stand.

[Satyadeep Jain, analyst]

So I just want to understand from economics of the transition tied to this. When you look at from what I understood for a 3 million tonne conversion, when you're bringing slab and converting it to HRC for that kind of configuration, I thought maybe 1,000 employees is enough but you would have 5,000 employees. Is that fair that the number that I mentioned.

And when you look at this slab that you're going to get. Does Tata Steel India, is there a benchmark? Are you already exporting slab in the markets and would U.K. buy slab at the same price? How would the net pricing for slab import for U.K. work out?

[Koushik Chatterjee, executive]

So I think the -- to your first question, the 1,000 and 5,000, as far as the -- if it was only converting slabs to hot strip million, that's not the answer. We have a significant amount of downstream. We have -- if in the U.K., we have color coated, we have automotive lines, we have packaging lines. So we have a significant amount of downstream. We have cold rolling mills.

So that is the reason why you see a higher number than 1,000. If it was only a hot strip mill in Port Talbot, which is bringing in the slabs, converting it and producing hot rolled coil, your number is more -- in fact, your number will be higher than what we would need. So that's not the point. But because we have a significant amount of downstream and well-established downstream for a long period of time with long-term customers linked to it.

On your point on the transfer price, it is based on the regular transfer pricing that will happen on a market basis, and that passes muster through the transfer pricing regulations, both from a tax point of view as well as from commercial point of view. So it is priced out of HR, and that's how it works internationally also when slabs are sold. And that's the model that we will have. So there is a -- we look at both systems as well as individually, and that's how it should make money.

[Thachat Narendran, executive]

And the timing, just to add to what Koushik said, the timing is ideal for us because the Kalinganagar upstream with the hot metal and the steel mill shop, we'll be able to produce 8 million tonnes, but the hot strip mill in Kalinganagar is 6 million, 6.5 million tonne hot strip mill. So we are slap surplus till we add something else in Kalinganagar.

And those slabs can be sent to the U.K. as we build during the interim while we build the EAF there. So that works out well for us. So out of the 3 million tonnes of requirement, close to it, about 1.5 million tonnes is going from India and 1 million tonnes, close to that is coming from Netherlands and rest we are buying from the merchant market, both slabs and hot rolled coils.

[Operator]

The next question is from Amit Murarka of Axis Capital.

[Amit Murarka, analyst]

Earlier on the call, you mentioned that you are working on setting up a 5 million plant at NINL I just wanted to understand, like you have always said that there are options at almost every site for you to grow maybe except from Jamshedpur. What would be the order of priority on the plants now, particularly given the context that by FY '30, like our older leases are like going into expiry. Will that impact the decision on the brownfield expansions? Or do you think that you'll still go ahead irrespective of that?

[Thachat Narendran, executive]

Yes. So I think, obviously, post-2030 depending on the premiums we will pay for those mines to retain them or to have some other mines, the margin will get compressed a bit compared to where we are today. That's for sure.

But I think there are a number of actions that we are taking to mitigate some of those. Even a simple thing as we grow more and more in Kalinganagar and Neelachal, we don't carry forward some of the legacy costs that we have, let's say, in Jamshedpur, so the productivity levels, the configuration of the plant, et cetera, will help us run larger volumes with fewer people.

So there are a lot of other benefits that we will accrue from this expansion. So I think -- so the long-term profitability will obviously be kept in mind as we plan these expansions, and we'll obviously do it only if it's value accretive, which we think it will be.

The second point is, from a priority point of view, Neelachal will get the first priority because we are more ready there than on the engineering work and everything else. Kalinganagar 8 to 13 will maybe be 6 months after that in terms of getting all the approvals and Bhushan, the Meramandali plant going from 5 to 6.5. So 6.5 there, 13 in Kalinganagar and 5 in Neelachal is clearly visible, and that's what we will move towards.

So that brings us close to 25. And then you have 11 million plus 1 million in Jamshedpur because you have the Usha Martin business and the Tata Steel business. So that brings us to 36. And then you have the EAF in Ludhiana. And if that's a good operating model, we can very quickly add other EAFs and other rolling mills in the West and South, where there is scrap.

So that's broadly the road map for 40. We can grow beyond that also, like I said, Neelachal can go from 5 to 10. Kalinganagar can go from 13 to 16. And the Angul plant can go from 6.5 to 10. So we have enough headroom in each of these locations to grow beyond the 40 million tonnes that we already described.

[Amit Murarka, analyst]

Sure, just also on that 40 million tonnes, like earlier, the target was 40 million tonnes by 2030, but it seems like now you're giving a range of 35 to 40. So is it fair to say that by FY '30, we'll be closer to 35 now and probably go to 40 beyond FY '30 then?

[Thachat Narendran, executive]

I mean what I've told you is already almost 37, right? And like I said, we will take a call on the EAFs beyond Ludhiana in the next 2 years. Once we have the Ludhiana plant up and running, and we have greater comfort with that model and setting up an electric arc furnace actually takes a couple of years. So it's only 100 acres of land, and you can set it up. And the whole approach to that is to do a replica of what we're already doing in Ludhiana rather than start to do the engineering and do various things.

So I think there is an opportunity for us to do that. But again, we will take a call depending on our priorities. And we have the options. I think that's the larger point, and we can execute on the options depending on the cash flows of the business and the profitability and all these various taxes that are coming in or steel imports coming in. So the advantage with brownfield is you can pace yourself. So we will pace ourselves very appropriately.

[Amit Murarka, analyst]

And also tied to that, like if, let's say, you have to go ahead with the TSN, the DRI CapEx, kind of will it be possible then to parallelly run those expansion in India or how do you think about the balance sheet constraints there?

[Thachat Narendran, executive]

Yes -- sorry, go ahead, Koushik.

[Koushik Chatterjee, executive]

So I think in the TSN decarbonization, that's why the conversation with the government becomes more critical is our basis understanding is fundamentally between the internal generations in Netherlands plus the government grant and plus the residual project financing debt in Netherlands. It should be able to do that as we go forward.

That's the base assumptions that we have looked at, which is why to -- I think there was an earlier question to which Naren mentioned, the conversion cost that we are very focused on getting -- focusing on the profitability of Tata Steel Netherlands by reducing conversion cost structurally across a range of stuff in the current business, which will give the headroom from an internal capital generation perspective.

It's not a magic switch. It will carry on for multiyear but I think it is something that we are undertaking almost like a project to be the best in the Western European cost structure. So balance sheet should not get impacted fundamentally because the -- it will be somewhat ring-fenced is our understanding.

Of course, we will have to get past the conversation with the Dutch government, and we'll see what is the level of grant that comes in. The situation in Netherlands is slightly different than in the U.K. because of the context in which the steel industry stands there.

So I think we are -- it will be -- we'll keep giving you updates as we go along. But I think fundamentally, Netherlands, should -- we should be able to ring-fence Netherlands CapEx, which will be larger than U.K. because it's got a DRI included, but that's the basis. If we get in the best case scenario, everything then of course, it's -- we'll be able to ring fence and that's our primary focus.

[Operator]

I would now like to hand over the conference to Ms. Samita Shah for the chat questions. Over to you, ma'am.

[Samita Shah, executive]

Yes. Thank you, Kingshuk. So we have a lot of questions on the Orissa case, and I think we've answered them at length, so I will not take any of them. I think literally answered every question, which has been asked. We have a question on Sukinda, which maybe we can touch upon.

Essentially, it says that post surrendering the chrome ore mine, why do you still have inventory revaluation? And what is the impact on EBITDA? So just technically, we have not yet returned the mine, but if you just want to comment on that, maybe Koushik, in terms of overall impact.

[Koushik Chatterjee, executive]

Yes. So surrender process is a fairly engaged process. So when we announced that we want to surrender that came from post the Board approval then there are stages in which it goes to different agencies, which look at the proposals and then recommend finally with the surrender.

We are in that particular process at this point, and pending that we will -- we have to continue to mine and account for based on the mine plan. which has been approved by the IBM and pay royalties and so on and so forth. So it is still an operating mine. It is still operating as a division. So we will have to go through this. We are looking at the next 6, 8 months to get through the surrender process.

[Samita Shah, executive]

Thank you. The next, there are a bunch of questions on TSN decarb, which I also think we have answered. And I think maybe just a question, which we can put out is on time lines of the decarb CapEx. What is our time line, will we start implementing it from next year? So maybe you can just comment on that?

[Koushik Chatterjee, executive]

So at this point of time, as I said, that we are discussing with the government. I think in the next -- by the next 6 months, we should have a definitive term sheet in place, 6 to 8 months before the end of this financial year. If the discussions go right. So then after that, obviously, in both the U.K. and Netherlands and also in India in some ways, what is called as a planning permission is called almost like an EC environment clearance in India.

So there is a planning permission period, which is a long lead item. We will obviously have to get into a, what we call as the detailed engineering process to understand and fix the CapEx numbers and the time line. But the end is known that it has to be done before 2030 because 2030, the emission norms reduction kick in. After that, we will have to comply with that requirement.

So I think the start point of big CapEx. So just now, it is actually the engineering CapEx that is being -- that will go in the initial years and the planning permission, site preparation, community hearing, all of that is the part that goes on in the initial period.

And in parallel, the technologies is finalized, the detailed engineering, the technology suppliers agreement, even the other infrastructure requirements, whether it is power, et cetera, those kind of stuff gets in place.

And then the spend. So on the TSN decarb, I think is about a year behind Tata Steel U.K. decarb project. So the -- we will see the U.K. decarb project more starting to spend serious money in about 12 months later because June is when -- next year is when we will get the accelerated planning permission and then the construction period starts. I think the -- as far as Netherlands is concerned, it's about a year later. So I think that is how I would put it.

[Samita Shah, executive]

Thank you. There are some questions on importing slabs or coils into the U.K. and does that attract any tariff? And how does that actually affect the entire operation?

[Koushik Chatterjee, executive]

So I think -- good question. I think the -- there are quotas that are in place for imports on hot rolled coil, not on slabs. We have a mix of slabs and hot rolled coil. So we have been working with the trade regulatory authority to take out those quotas and these quotas are going to get suspended.

And we have been requesting for a bespoke arrangement on, traded arrangements so that we can give it now without any tariff implications. So the whole idea is -- and the government has been receptive. The regulatory authorities have been receptive only because of the fact that we are the only flat product producer of steel in the U.K.

So there is no other competition, which gets affected because of the way in which the tariffs are placed. But the tariff will be structured in a manner which facilitates the import of slabs into the U.K.

[Samita Shah, executive]

Thank you. There are some questions in terms of the funding. So there is a question that your dollar bond outstanding 2028, do you have any plans to take it up earlier, et cetera? And a related question about all the equity injections, which are happening in the various subsidiaries, how is that being funded?

[Koushik Chatterjee, executive]

So I think the -- one of the principles -- as far as dollar bonds is concerned, I think we will run till course. There is buying back dollars, the bonds are more costlier and more complex. But as far as the second question is concerned, one of our whole orientation has been to ensure that from a broader capital structure efficiency purposes, the debt is better served on the India balance sheet than on anywhere overseas. So that's a broader theme.

And if you have been tracking the -- our deleveraging over the last 4 years or so, you will find that, that's happening, and that's important because we've been paying significant amount of tax in India. So I think we just need to kind of rebalance it and use the flow in an efficient manner so that we can optimize on the cash flows across Tata Steel consolidated financials.

[Samita Shah, executive]

Thank you. There's a question on our LNG-powered trucks and logistics systems. Could you elaborate any more plans and how -- what is the plan with regards to this?

[Thachat Narendran, executive]

I think we continue to take initiatives to make sure supply chain is greener. Already, in Netherlands, there are initiatives around delivering with greener trucks to customers who want that service. In India, we have been moving cargoes on ship and on road using greener options than we have today. So that's an initiative, which will continue to be taken across Tata Steel sites because we move a lot of material around.

So if you're moving about 30 million, 32 million tonnes of steel, we are moving typically about 90 million tonnes of various inputs. So there's a lot of opportunity when you look at it from a Scope 3 kind of carbon footprint point of view.

So I think those initiatives, which will continue. Of course, as you know, long-distance movement of cargo on trucks is still a challenge. And the commercial vehicle industry globally needs to come out with solutions. I think short distance, it's easy to electrify and use options, but long distance, there's still an issue.

[Samita Shah, executive]

Okay. There's a question on the Ludhiana project. What is the time line for completion and ramp up to full capacity?

[Thachat Narendran, executive]

So the Board approved time line is 2 years from March of '24, that is March of '26, but we are hopeful to have the plant up and running well before that, but we'll give you a more specific guidance for next year. And it shouldn't take long to ramp up. It's an electric arc furnace with a rolling mill. It's a state-of-the-art plant.

So once we start some of these, it's not like starting up a blast furnace or something else, so it would be much simpler to start up and ramp up to full capacity. So of course, the volume impact will largely come not in FY '26, but maybe in FY '27 because that's when the plant would be ramped up.

[Samita Shah, executive]

Thank you. And the last question, which we will take is on NINL. There is a resolution to fund INR 6,000 crores. What is this for?

[Koushik Chatterjee, executive]

So this is actually not a new funding. This is -- when we acquired NINL, we had Tata Steel Long Products in between. So therefore, we had to move through Tata Steel Long Products, some part and some part directly because in Tata Steel Long Products, we used to hold almost 74%. So we couldn't equitize the company at that point of time to do this acquisition.

So we had this NCPRS, then once the Tata Steel Long Products got merged with Tata Steel, then we are holding it directly. Now there is an opportunity to re-equitize it and ensure that the NCPRS is not in between because when you see the stand-alone numbers of NINL sometimes based on the yield to maturity basis, you have to accrue the interest on stand-alone.

So I think it just was inefficient from that perspective. So on a net-net basis, it's basically a conversion of the NCPRS into equity, if you look at it in substance.

[Samita Shah, executive]

With that, I think we've answered all the questions. Thank you very much all our viewers for joining us. We look forward to connecting with you again next quarter. Thank you and bye.

[Thachat Narendran, executive]

Thank you.

[Koushik Chatterjee, executive]

Thank you very much.