Tata Steel Ltd

NSE:TATASTEEL

Earnings Call Analysis

Tata Steel Reports Mixed Quarterly Results

Tata Steel's quarterly earnings revealed sustained production and delivery in India, with a moderate drop in steel prices by about 3% quarter-on-quarter. Despite global economic slowdown and inflation rates affecting demand, the company's net realization in India declined slightly less than guided. However, operational issues and maintenance led to elevated costs and lower EBITDA in the Netherlands and the UK, with moves towards decarbonization triggering significant impairments. Positive cash flow was driven by favorable working capital movement, though increased CapEx and dividends reduced cash reserves, increasing net debt by INR 5,600 crores. Tata Steel anticipates an EBITDA improvement in the Netherlands from the next quarter.

Challenging Quarter Softened by Financial Prudence and Future Preparations

In this quarter, Tata Steel faced significant challenges driven by operational issues, including the shutdown of a sinter plant and higher energy costs, partially offset by reduction in coking coal consumption costs. Despite lower steel production resulting in increased per ton costs, financial prudence was exhibited with a steady operating cash flow of roughly INR 4,658 crores, attributed to working capital release. The company's move towards prioritizing growth in India indicated sound strategic foresight, given higher capital expenditure of about INR 4,553 crores focused on building its downstream portfolio. Nevertheless, these efforts and dividends payment have led to a decrease in cash equivalents by INR 6,352 crores, demonstrating the company's balance between growth and shareholder return.

Solid Liquidity and Credit Rating Amidst Transition

Holding true to its disciplined financial approach, Tata Steel maintained strong liquidity, with total liquidity at INR 27,637 crores and a stable gross debt. A notable achievement underlining the company's sound financial health was the upgrade to an investment grade credit rating by Moody's in September 2023. This improvement underscores the market's renewed confidence in the company's risk profile and strategic direction.

Navigating Restructuring and Union Negotiations with Care

The management's tactful handling of sensitive restructuring in the UK business showcases strategic patience, especially during ongoing discussions with union representatives amid a challenging transition period. This reorganization involves discussions around securing investment for decarbonization and a potential route to steer the steelmaking process towards sustainability, all the while being mindful of the existing operational risks. This transition will be crucial for the company's future positioning in the global market.

Anticipating Improved Future Performance Despite Present EBITDA Pressures

With the blast furnace relining extended into this quarter, Core operations in the Netherlands are anticipated to only return to EBITDA positivity in the upcoming quarter. Tata Steel's prudent energy cost hedging is expected to mitigate some of the ongoing pressures, including carrying fixed costs with reduced volumes, which has been an interim challenge.

Long-term Decarbonization Investments and Sensible Capital Allocation

The company outlined a substantial decarbonization project, projected to have a cash outflow of GBP 1.25 billion, shared between Tata Steel and the UK government. This investment aligns with the global shift towards sustainable and green practices, offering a glimpse into Tata Steel's forward-thinking strategy. Additionally, the management displayed a prudent approach by revealing plans for a significant cut in capital outlay at Port Talbot, acknowledging the need for caution with current asset investments amidst restructuring efforts.

Robust Expansion and Ramp-Up of Operations in India

Tata Steel is not only consolidating its position but also laying the groundwork for future growth with the operational commencement of pellet plants and cold rolling mills in India. The company's forthcoming blast furnace launch within the next six months is another testament to its strategic expansion. These initiatives are in line with the management's vision of ramping up operations, particularly at Kalinganagar, where the next financial year is eyed for significant progress.

Approaching Price and Cost Variations with Diligence

In a sophisticated maneuver to adapt to market dynamics, Tata Steel is adjusting to variations in realizations and costs effectively. The last quarter saw a decrease in realization for Netherlands operations by GBP 61 per ton and a drop in coking coal costs by $70 a ton. This indicates management's agility in responding to external cost pressures while maintaining operational efficiency.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. [Operator Instructions]Would now like to hand the conference over to Ms. Samita Shah. Thank you. And over to you, ma'am.

[Thachat Narendran, executive]

You're on mute, Samita.

[Samita Shah, executive]

I hope I can be heard. Yes. So good afternoon. Good afternoon, everybody. And welcome to this call to discuss our results for the second quarter of FY '24. We published our results yesterday, and there was a detailed presentation explaining the same as well, uploaded on our website. I hope you had a chance to go through it. We had quite a few announcements also with the results, and we would be happy to share the details and provide you any clarifications you may require.I would -- we will be joined on this call by our CEO and Managing Director, Mr. T. V. Narendran; and our ED and CFO, Mr. Koushik Chatterjee. Before I hand it over to them, I would like to remind you that this entire conversation today will be covered by the safe harbor clause on Page 2 of our presentation.Thank you, and over to you, Naren.

[Thachat Narendran, executive]

[Technical Difficulty] a few comments before I -- sorry, I think I forgot to unmute myself. Good afternoon, good morning or good evening, depending on where you are. Thank you for joining the call. I'm going to make a few comments and then hand over to Koushik.So Tata Steel, as you know, is focused on creating sustainable value and our strategic priorities embodies our commitment to responsible growth while creating an equitable share and prosperous future for all. We continue to make steady progress on this value creation journey, leveraging digitization and an agile business model.During the quarter, the steel prices across regions moderated on slowdown in economic activity. And in the U.S. and EU, elevated interest rates to manage inflation has adversely affected the demand, while in China, the persistent weakness in the property market continued to have an overhang on the prices. In India, the steel prices were impacted by the global sentiment, but given the resilient demand, it witnessed a lower drop in prices 3% quarter-on-quarter than the rest of the key markets. And as a result, our net realization in India declined by about INR 2,400 per ton quarter-on-quarter. We had guided about INR 3,000 per ton, so it's slightly better than that.Moving to our performance. India crude steel production was around 5 million tons. Production was broadly stable on a quarter-on-quarter basis, but up 5% on a year-on-year basis. India deliveries grew by about 6% year-on-year, having have been close to 5 million tons in the last 3 quarters. Amongst the segments, the Automotive segment had the best second quarter sales and was up 7% quarter-on-quarter, and we started producing full hard cold rolled coils at the Kalinganagar cold rolling mill and have started receiving approvals from the automotive OEMs for cold rolled steel from Kalinganagar.Our retail sales primarily to homebuilders have continued to grow and have crossed 3 million tons in the last 12 months. Our well-established brands, such as Tata Tiscon, Tata Steelium and Tata Astrum, had the best ever second quarter sales and revenues from Tata Steel Aashiyana, the e-commerce platform for individual homebuilders, witnessed an increase of more than 70% on a quarter-on-quarter basis. And in the last 12 months, the revenues have exceeded INR 1,700 crores. In Europe, steel deliveries were around 1.8 million tons in the second quarter on subdued demand. And the revenue per ton was down about GBP 50 to GBP 60 per ton in U.K. and Netherlands on a quarter-on-quarter basis. This has weighed on the performance in both the geographies.The ongoing reline of one of the blast furnaces at Ijmuiden in Netherlands, which accounts for 40% of our production there, has also impacted the Tata Steel Netherlands realization because of the adverse product mix and other expenses. The relining is expected to be completed in the third quarter of FY '24, which is this quarter. And in terms of growth, multiple projects are underway across India, ranging from the 5 million ton per annum expansion at Kalinganagar as well as growth in the downstream portfolio.The downstream portfolio, which consists of our tubes business, our wires business, our packaging or tinplate business. And the DI pipes business is expected to grow from about 2 million tons to 7 million tons, which enables better product mix enrichment. And we recently had a groundbreaking ceremony for the 0.75 million ton per annum EAF project at Ludhiana and are targeting to start the plant in 2026. We are committed to achieve net zero by 2045 and are pursuing decarbonization of operations in a phased manner, calibrated to the regulatory framework, resources, government support and customers in each of the geographies that we are in.Accordingly, in September, we announced a proposed plan to invest in a state-of-the-art scrap-based EAF at Port Talbot, U.K. at a cost of GBP 1.25 billion with a government grant of GBP 500 million. This is subject to relevant regulatory approvals, information and consultation process and finalization of detailed terms and conditions. The transition to EAF-based steelmaking will result in the reduction of about 50 million tons of direct carbon emissions over a decade. This will also be -- there will also be impairment and restructuring costs, which Koushik will explain in more detail.Tata Steel Netherlands has been working intensely with the Government of Netherlands on the contours of decarbonization project covering emissions and health standards. Tata Steel Netherlands will shortly be submitting the detailed decarbonization proposal to the Government of Netherlands seeking regulatory and financial support, which is critical to build a long-term and strong business case. The Board of Tata Steel will duly consider the project for approval at an appropriate time.In India, we are entering into an agreement to source about 379 megawatts of renewable energy -- renewable power for our operations, which will enable a reduction of 50 million tons of carbon over the next 25 years -- carbon emissions over the next 25 years. This will significantly reduce our dependence on coal-based power plants. Looking ahead, in India, net realizations are expected to improve by about INR 2,200 per ton quarter-on-quarter, aided by domestic demand, which has showed great resilience and despite the renewed volatility in the global sentiment. The coking coal consumption cost is likely to increase by about $10 per ton quarter-on-quarter.In United Kingdom and Netherlands, the improvement in costs are likely to offset the drop in NRs and drive an improvement in the performance on a quarter-on-quarter basis. I'm happy to share that Tata Steel has received the Safety and Health Excellence recognition for 2023 by worldsteel. We were recognized for our individual approach to real-time visualization of risk movement that aims to provide real-time insights and alerts. These initiatives display our commitment to achieve zero harm.Thank you. And with that, I'll hand over to Koushik.

[Koushik Chatterjee, executive]

Thank you, Naren. Good morning, good afternoon and good evening to all those who have joined in. I will begin the quarterly performance provided on Slide 25. Our consolidated revenue stood at INR 55,682 crores, and the consolidated EBITDA was INR 4,315 crores, which translates to a consolidated EBITDA margin of about 8%. Standalone performance was broadly stable, but the U.K. and the Netherlands performance has been adversely impacted during this quarter.Before we get into the numbers, I just want to also mention we have received sanctions for the amalgamation of Tata Steel Long Products, that's TSLP, and Tata Steel Mining with Tata Steel Limited. Accordingly, the stand-alone financial statements that have been restated from 1st of April 2022 to reflect the merger. With this, the merger process for the 2 entities have been largely completed, and the other 5 are in progress as highlighted in Slide 20. This portfolio simplification process will drive efficiencies and present value leakages.For the quarter, Tata Steel Standalone EBITDA stood at about INR 6,917 crores, which translates to an EBITDA per ton of about INR 14,365. Excluding the ForEx gains of about INR 464 crores, the EBITDA margin was broadly stable at about 19% on quarter-on-quarter basis. As provided on Slide 31, the drop in steel realization was offset by lower cost. The stand-alone NRs declined by about INR 2,400 per ton on a quarter-on-quarter basis due to market dynamics and seasonal factors. The coking coal consumption cost was down by about $59 per ton on a quarter-on-quarter basis, and the conversion costs went down by about INR 2,600 per ton on a quarter-on-quarter basis. Our conversion costs have been fairly stable over the last 3 years despite the inflationary pressures in the economy.At Tata Steel U.K., the EBITDA loss was about GBP 132 million compared to a loss of GBP 41 million tons in quarter 1. On a ton basis -- per ton basis, the EBITDA moved lower by about GBP 127 per ton quarter-on-quarter. As shown in Slide 34, the steel production was lowered due to the operational issues and the shutdown of the sinter plant. This has weighed on the cost profile of the operations and led to elevated costs, which offset the decline in the coking coal consumption cost and natural gas spend, coupled with drop in realization, this has resulted in lower spreads on a quarter-on-quarter basis.In Tata Steel Netherlands, the EBITDA loss stood at about $110 million compared to $114 million in the first quarter. As shown in the Slide 33. The drop in realization was offset by improvement in costs. Revenue decreased by about GBP 60 per ton on subdued demand, but was fully offset on lower raw material cost and decline of coking coal consumption cost and lower conversion costs primarily on decline in the natural gas spend, along with the repairs and maintenance reduction costs. Looking ahead with the completion of blast furnace 6 in the third quarter, which is this quarter, it should drive the liquid steel production and further improvements in the product mix and cost. As previously explained, we have hedges in place for energy at both U.K. and Netherlands and the drop in spot natural gas prices has been reflected in the second quarter P&L with a lag.I would also now like to brief you about the Tata Steel U.K. developments to supplement what Naren has said. Subsequent to the announcement of the agreement with the U.K. government for the decarbonation project in September. We are currently in discussion and consultation with the union and the employee representatives in the U.K. in relation to the restructuring of the business, its configuration within the transition time and the eventual investment towards decarbonization. The restructuring and the transition would commence after this consultation.Given our proposed plan to change the business model and the route for steelmaking, the existing heavy end assets at Tata Steel U.K., will -- can only be used for a defined period. Accordingly, we have taken an impairment charge against the investments in the stand-alone financial statements in relation to the U.K. business. We have also recorded an impairment of assets and provisions for potential restructuring closure and redundancy costs in the consolidated financial statements in relation to the U.K. business. The impairment charge in Tata Steel Standalone is INR 12,961 crores and the charge in the consolidated books is about INR 3,255 crores.Let me explain the difference. In stand-alone, the discounted cash flow value of every business is compared to the net carrying value of the investment made in that business. A deficit in that leads to impairment, such impairment in stand-alone gets reversed in the consolidated statement. In the consolidated financial statement, the discounted cash flow of the individual businesses is compared to the carrying value of the PP&E, or the plant and equipment and the fixed assets. In the above case, the carrying value in stand-alone was higher than the consolidated business, and that's why this difference.Moving to taxes. There was a sharp drop this quarter. The current tax was about INR 1,105 crores and broadly in line with the tax on the profitability of the India operations. The deferred tax credit of INR 1,333 crores has been driven by the merger and the completion of the British Steel Pension Scheme. Taxes should get normalized post all these mergers. The tax includes credits on account of TSLP and the merger on mining. And there are other tax adjustments, which we can explain to you offline.Moving to the cash flows. The operating cash flow for the quarter stood at about INR4,658 crores and in part was driven by the favorable working capital movement. In the second quarter, there was a working capital release driven by the fall in the coking coal inventory in volumes, around 200,000 tons and in prices -- a drop in steel prices and reduction in debtors. We spent about INR 4,553 crores in capital expenditure during the quarter and about INR 8,642 crores on the first half basis. As we keep prioritizing growth in India, including expansion of the downstream portfolio across wires, tubes, ductile iron pipe and tinplate businesses.Overall, the operating performance at Tata Steel Netherlands and Tata Steel U.K., higher CapEx and dividend payout have led to a decline in the cash and cash equivalent by about INR 6,352 crores. As a result, the gross debt has remained stable on a quarter-on-quarter basis, but net debt has increased by about INR 5,600 crores. Our finance costs are broadly stable on a quarter-on-quarter basis. The group liquidity remains strong at about INR 27,637 crores, including about INR 12,691 crores of cash and cash equivalent. As you are aware, Moody's have also upgraded our credit trading to investment grade in the month of September '23.With that, I finish my comments, and thank you and over to the floor for question and answers.

[Operator]

[Operator Instructions] And the first question is from Sumangal Nevatia of Kotak.

[Sumangal Nevatia, analyst]

Yes. The first question is with respect to the developments in U.K. So one is we've taken the restructuring provisions, but what's the status of the discussion with employees? And when is it likely to conclude? And also just want to understand, over 3 years when the construction of the new plant will happen, in the previous discussions, we shared that we look to use the downstream assets of U.K. So what sort of volume and EBITDA of just rolling do we expect over the interim period?

[Thachat Narendran, executive]

Koushik?

[Koushik Chatterjee, executive]

Yes. So Sumangal, the first is, as we mentioned, pretty detailed in our release yesterday, the conversation and the consultation process has started ever since our announcement on 15th of September. There is a proper process that we have to follow, which is stipulated even legally. And we are doing that, and we will do that. And it is a meaningful consultation. So we will obviously, as a responsible corporate, continue to hear their point of view or any other suggestions or advice or any point that they may have on our proposal. And once we have looked at it over the next couple of weeks, we will certainly progress this conversation. So I think as I can say that this is progressing as per plan, it is dealing with a very sensitive subject, and we are mindful about that. And -- but it is also about getting the investment process in place. So we continue to engage with the unions, and we continue to do so until it gets formally completed.The formal process takes about 45 days at the minimum as per legal requirements, but that formal process starts after a certain period. The -- firstly, the informal process continues and give opportunities to both sides to explain positions. We have also had detailed engagement with the advisers of the unions, and we have shown them the counterfactual positions and our issues in relating to sustaining the business in its current vulnerable form and also the operational risk and the market risk that we face. So it is a very intense and an exhaustive process, which we are currently in. And then we hope to complete as per the time line that we have set for ourselves.As far as the transition period, yes, you are right. As per the proposal that we have agreed with the government and the proposal that we've put forth to the unions. It is important for us to continue to ensure market protection and for which we will continue to focus on ensuring a stable supply chain to run the downstream unit. The volume should be in the ballpark region of 2.5 million tons to 2.6 million tons. But more details on this, I would be in a better position to give once the consultation gets over and ensure that we have tied up all the engines as far as sourcing, production, all of that is concerned. So I think this will a -- it will be a good time to talk about it in the next earnings call rather than now.

[Sumangal Nevatia, analyst]

Understood. That's very helpful. Second question, continuing on the Europe division. I mean you've seen Netherlands and U.K., both the losses are kind of increasing. So one is, if you could just share some outlook on margins near maybe next quarter and also over the next 2 to 3 quarters? How should it shape up after relining? And is this relining also getting a bit extended into 3Q? So these are the top -- these are the 2 questions on Europe.

[Thachat Narendran, executive]

Yes. So Sumangal, I think on Netherlands, yes, the blast furnace relining has extended to this quarter. As Koushik mentioned, we are expecting that, by the end of November, latest by the first week of December, we'll have the blast furnace up and running. We expect the numbers of this quarter of Netherlands to be better than last quarter, but we expect it to be EBITDA positive only from next quarter, which is Q4. So there are a few things. Obviously, the blast furnace, which is down, accounts for 40% of our volume. So you're carrying fixed costs with 60% of the volume. So that has an impact, which is seen.Secondly, as we mentioned last time, we work on a forward hedge on gas prices, et cetera. So our energy cost, gas prices in the second half should be lower than what it was in the first half in Netherlands. So that should help. So these are -- so volumes should be better. I mean the costs should also be better. And the spreads -- of course, the spot spreads are a concern in Europe just now, but we expect that given the current levels, as you know, in Europe, some of the producers have already put down blast furnaces, so there will be a better balance between demand and supply. So either coking coal prices have to come down or steel prices have to go up. So that's what we expect to happen in Q4.

[Sumangal Nevatia, analyst]

Understood. And the U.K. existing furnace, which quarter do we mothball it? Do we run it entirely in the second half?

[Koushik Chatterjee, executive]

So Sumangal, I think a safe thing to say is that we will run it fully in this quarter, which is the third quarter. And post consultation, I think we will be in a better position to tell you that when and how we are going to deal with the heavy end, and that would be a better way to kind of stay on this. But I think that in the transition period, as I said, we will continue to operate downstream facilities.

[Sumangal Nevatia, analyst]

Got it. I'll join the queue back. And all the best.

[Operator]

The next question is from Tarang Agrawal of Old Bridge Capital.

[Tarang Agrawal, analyst]

A couple of questions from me. One on Netherlands. What is the sustainability CapEx outlay that you're looking at? And would you expect a similar support that we've seen for some of the other European governments that have extended to your peers. So that's on Netherlands, the value of CapEx. The second is on U.K. If you could give us the net cash outflow and the timing of these cash flows as the transition plan starts, how is it going to be staggered over the next 3 year period? And what is the quantum of it?

[Thachat Narendran, executive]

Yes.

[Tarang Agrawal, analyst]

My sense is, there'll be settlements, there'll be CapEx, but you'll have a reduced maintenance CapEx also. So submission of that would be helpful.

[Thachat Narendran, executive]

Thanks, Tarang. I'll let Koushik answer the second one. On the first one, we don't want to give you specific numbers now, but I'll give you a few principles. I think in Europe, when any steel producer is making submissions to government, I think the ask is 40% to 60% of the CapEx that is required for the transition. That is one. Secondly, on OpEx, it depends on the country and the advantages or disadvantages that the country has. So it's more a question of creating a level playing field because different countries are giving different supports to the company. So you don't want to end up at the other end of the transition at an operational disadvantage compared to where your peers are. So these are the 2 principles on which the ask is curated. The specific amounts, we will not want to discuss just now simply because there's a conversation going on with the government. And once we are somewhere close to -- being able to share that, it's more definite, we also need to go to our Board and discuss the proposal in its entirety, we will come back. But the principle is this.

[Koushik Chatterjee, executive]

Yes. So Tarang, we -- on the second part of the question, which is on the cash outflows. So the project cash outflow, which is about GBP 1.25 billion, of which GBP 750 million will be borne by Tata Steel, and about GBP 500 will be grant from the U.K. government. That spend will start more around the second half of FY '25 because we are currently in the detailed engineering phase. And this engineering work takes a couple of months, about 5 months or so. And once that has not completed, then the grant agreement becomes effective and then we start spending the money. So the initial spend is obviously done by Tata Steel, but that money comes in arrears of a quarter, et cetera, and it will go almost hand in hand.So that GBP 750 million follows typically how a normal organic growth project is, which is over a 4-year period, even -- I mean, last 20% is after commissioning. That is how the thumb rule is. So I think that is how we should take it. In the meanwhile, what would happen is the restructuring cost will -- is obviously more front-loaded than the CapEx spend and the restructuring cost will be spent in the first half of the financial year '24, '25. And that is the amount of that restructuring is something that is -- will be negotiated or agreed upon, especially in relation to what relates to employee impact during the consultation phase. So we wouldn't want to talk about it because it's commercially sensitive at this point of time. And we will obviously have to discuss the specifics of it. We know the numbers in our head, but I think commercially, it would be important to talk about it once the consultation is over.

[Tarang Agrawal, analyst]

I understand, sir. Just -- sir, would this also entail reduction in your current capital outlay for the Port Talbot capacity because essentially, a part of the capacity will be mothballed, right? So to that extent, you should see some savings on that CapEx -- maintenance CapEx, per se.

[Koushik Chatterjee, executive]

So the total CapEx in Port Talbot used to be typically around GBP 80 million to GBP 90 million a year. So with the heavy end in question, in future years or during transition, the investment in our mind is only on the downstream, which is pretty small compared to the heavy end. So [indiscernible] the category 1 and category 2 CapEx, the heavy end currently, which is essentially for license to operate and safety and ensuring the quality or the condition of the assets can continue to operate as we are in consultation. Beyond that, big investments on the current assets are not in place.

[Thachat Narendran, executive]

Also, I think there will be a saving on the maintenance OpEx because there's significant maintenance OpEx also currently, which goes in UK for the heavy end.

[Koushik Chatterjee, executive]

That's correct.

[Tarang Agrawal, analyst]

Okay.

[Operator]

The next question is from Amit Dikshit of ICICI Securities. Amit, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move on to our next question. The next question is Satyadeep Jain of Ambit.

[Satyadeep Jain, analyst]

Just switching gears to India for a bit. Just wanted to see what's the progress on KPO-2. Is it on time and budget?

[Thachat Narendran, executive]

Yes. So I think what we mentioned, the pellet plant is already operating. One line is pulled out. The second line will start this month. So pellet plant is operational, cold rolling mill is operational. These are the 2 that we prioritized. The full hard CR that we make out of the cold rolling mill is already getting approved by automotive customers after we've annealed it in Jamshedpur and send it. The blast furnace should start in the next 6 months or so. In fact, earlier the better, but we are basically targeting that by -- in the next 6 months, we will start the blast furnace. We are also starting the second caster in the steel melt shop this quarter. So that will give us another few -- I mean at least some additional volume because the blast furnace capacity -- with the existing blast furnace, we can produce a little bit more. So I think one by one, all the facilities are coming on stream. The coke ovens blast furnace will start, then you'll have the third caster in the steel melt shop coming on, et cetera, and the galvanizing lines and the annealing lines in Kalinganagar also coming on next year. So next financial year, you will see all the -- most of the critical facilities being commissioned in different stages of ramp-up.

[Satyadeep Jain, analyst]

Okay. Secondly, coming back to Europe, just -- you mentioned that you'll finalize of the numbers and operating drivers during the transition period in the next quarter. But -- and the volume guidance also, broadly, you do expect to be cash breakeven at least during the entire transition period and also you've taken write-downs based on comparing DCF with the carrying value. Given the life of Netherlands is also another 6, 7 years and maybe your discounted value is higher right now, would you look at -- if you have to take a look at impairment, have you taken full impairment of heavy end assets in U.K., which means they've been driven down to 0? And what would kind of potential could be there in the next couple of years or so in any other asset?

[Koushik Chatterjee, executive]

So Satyadeep, I think as far as the U.K. is concerned, given the fact that this is our -- it is a definitive play, as you know, that once you sign up with a term sheet with the government, providers of capital and then it's the procedures to move on. I think the upstream gets very much defined in terms of is operational longevity, certainly financial longevity. And that's the basis on which we have taken the entire write-down of the upstream as part of this impairment that you see, which is both the asset side and obviously, from the investment side in the stand-alone.In Netherlands, we are not in that state at this point of time. In fact, as Naren mentioned in the early part, we are relining the blast furnace. So therefore, that it's a renewal of life as far as blast furnace 6 is concerned. In Netherlands, the decarbonization project is in pace is high, but in terms of time line is behind U.K. at this point of time. And therefore, once the transition plan is finalized and once the transition configuration is finalized, that is the time when we will keep doing the assessment, and hopefully, we will be able because Netherlands is fundamentally more profitable. So its ability to have a more stable -- economically stable transition is much higher than in the U.K. because these assets in the U.K. have actually from a condition of the asset perspective and the ability to create or generate cash flows have been lagging for some time as you would be aware.So I think Netherlands and U.K. are in different stages at this point of time. We will be looking at the feedback from the government. And as we continue to engage with them very intensely, understand the pace and the flow of the transition, come back to the Tata Steel U.K. -- India Board and then we will know that how the pacing of it will work. So I think that is -- it's slightly different in Netherlands compared to the U.K. And Netherlands also has a very rich downstream asset portfolio, which is linked. And with the new blast furnace coming in, it is a slightly different story.

[Satyadeep Jain, analyst]

Just a clarification on that cash flow during transition period, just broadly, do you expect it to be cash flow positive?

[Koushik Chatterjee, executive]

Yes. Sorry, you asked that question. So I think, yes, broadly, based on our assumptions, whether it is -- the way we've been planning is that this business has to sustain during the transition. So it would -- our assumption is that we would be sourcing, converting, taking out costs in a manner such that it's very lean during the transition and hence be neutral on its cash flows other than the one-offs, which is the restructuring cost and the project cost.

[Operator]

The next question is from Kirtan Mehta of BOB Caps.

[Kirtan Mehta, analyst]

One question as a follow-up on the U.K. transition cost. Currently, we are running our -- with the shutdown of the blast furnace in the Netherlands, we are currently running in a slab to rolling mode. What would be the gross spread that we are currently earning there. As of now, it's not sufficient to cover the high associated sort of the fixed cost there. That's the reason we are running into the losses. But how that gross spread compared with the U.K. when we operate only in the slab mode?

[Thachat Narendran, executive]

Go ahead, Koushik.

[Koushik Chatterjee, executive]

No, no. Go ahead. Go ahead.

[Thachat Narendran, executive]

No, the current spreads, the -- there's a spot spread and there's a fell spread. The sell spread is around EUR 240. The spot spreads are what are very much lower than that. That's because the coking coal prices are high and the steel prices are low. But the spread at which we operate is around EUR 240, EUR 250. And we are making a loss in Netherlands because obviously, when you run at 60% capacity, the fixed costs get distributed over smaller volumes and EUR 240, you can't be making money, and that's where we are making losses.As far as Europe -- I mean, U.K. is concerned, I think the larger point which Koushik making is, obviously, this is all subject to consultations and where we end with the unions. But broadly, the plan is whatever we do, how can we do the transition in a cash neutral or cash positive way. I think that's primarily the objective, whether it is slabs or coils or whatever is it that we bring in because there are 2, 3 objectives of the transition. How can we be cash neutral or cash positive? Two is how can we keep the downstream units running because that also has an impact, 50% of the workforce in the U.K. was in the downstream units. And the third and most important is how do we make sure that our customers are serviced.

[Kirtan Mehta, analyst]

Just one clarification. EUR 240 spread, when we are talking about, it's an operation on the integrated spread. But if we are not sort of having a blast furnace and operating only on slab, then what would be the conversion spread that we earn from slab while we in the Netherlands currently? Would we have any idea around that number?

[Thachat Narendran, executive]

So I don't know if Koushik wants to answer that. But broadly, the slabs that we used, honestly, are high-cost slabs, which we produced last year and kept in stock in anticipation of the reline. So that's part of the reason why we have a negative EBITDA or we've had NRV losses in the last 2, 3 quarters because you had to produce slabs when you could, and that was last year, and gas prices and everything else were at its highest level. We built slab stocks of about 700,000 tons before the blast furnace reline. Now we've [indiscernible] all the stocks that translates into working capital release, but they were all high-cost slabs and also contributed to the financial performance of Netherlands over the last few years. But typically, slab hot rolled coil gaps are not so great and nobody would -- in Europe on an ongoing basis, we're looking at bringing slabs and making hot rolled coils and sell. And a lot of our hot rolled coils are also sell to customers who seek approvals, et cetera. So that's more a temporary situation than something that we look for as a long-term solution. Koushik, I don't know if you want to add more color to it.

[Koushik Chatterjee, executive]

No, I just wanted to -- I think I was just guessing a question -- answer that you are trying to get is, if in a European situation, it purchased raw materials in an integrated basis, the average EBITDA percentage is about 8% -- 6% to 8%. In case of a conversion model, that falls down to somewhere around 3%. So I think that is broadly the way in which it works.

[Kirtan Mehta, analyst]

Understood, sir. And just one more clarification. I think you mentioned in the opening remarks about the coking coal reduction that the coking coal cost increase that we can see in quarter 3, I missed that number. Would you be able to sort of indicate that number again?

[Thachat Narendran, executive]

So it's different in different operating units. In India, Q3 is going to be about $11 per ton -- $10 to $11 per ton higher than Q2. In Netherlands, it's going to be about $60, $65 per ton lower. I'm talking of consumption, because in Netherlands, last quarter, a lot of higher cost coal was used. And in U.K., I think it's going to be about $20 per ton lower in Q3 compared to Q2.

[Kirtan Mehta, analyst]

Great. So against the $50, $60 increase -- that $100 increase that we are seeing in the coking coal reduction in India, we are only anticipating $10 to $11. So we are benefiting from a sort of availability of the higher inventory in the coking coal in India operations?

[Thachat Narendran, executive]

No. The -- I mean, basically, you're using the coking coal that you bought last quarter. Right? So last quarter, the prices were dropping until September, if I remember right, then it started going up from September. So what we bought in July and August, which comes typically you will get the coking coal 2 to 3 months after you buy it or you contract it. So that's the -- that's what comes into the consumption. So you had a higher reduction. I think we had a $60 reduction in Q2 compared to Q1, and we have $11 increase in Q3 compared to Q2. And the reverse is true in Netherlands where we consumed some of the higher cost coal, so we had only a $7 reduction in Q2 compared to Q1, but we have a $60 reduction in Q3 compared to Q2. So it's basically the inventory flowing through.

[Koushik Chatterjee, executive]

It's a lag effect.

[Kirtan Mehta, analyst]

Understood, sir.

[Operator]

The next question is from Amit Murarka of Axis Capital. Amit, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move on to the next question. The next question is from Ashish Jain of Macquarie.

[Ashish Jain, analyst]

So sir, my first question is, in U.K., one, this provision that we have taken off for roughly INR 2,425 crores, that includes some provision towards the onetime cost that you might incur in U.K. related to employees? Is that the right way to understand?

[Koushik Chatterjee, executive]

So there are 2 elements in the provisions that we have taken in the U.K. The first one is in relation to the PP&E, which is in relation to the way in which impairment is taken. The second provision is in relation to potential constructive obligations triggering out of the redundancies and closures and restructuring costs. So both have been taken.

[Ashish Jain, analyst]

Right. Right. So sir, my focus is that INR 2,435 crores number, that is our current assessment or best case judgment of what the onetime employee-related cost could be? Is that the right way to think?

[Koushik Chatterjee, executive]

It has got multiple elements in that. It has got -- it's a broad bracket of restructuring. So it has got closure -- potentially, if there is a closure or a restructuring, if there is a contract termination, if there is a people number. So all -- it's like a basket of provision.

[Ashish Jain, analyst]

Basket. Got it. Got it. Sir, secondly, in terms of -- so we spoke about where our costs might go down in the U.K. in terms of lower maintenance and all, which is well understood. But let's assume this employee negotiation gets over in 1Q next calendar year. Shall we also assume that whatever is the redundancy, the cost related to that also goes out from 2Q itself and hence, our fixed costs will decline sharply in U.K. Is that the way to think?

[Koushik Chatterjee, executive]

So the -- it's a bit of a sensitive subject to talk about just now before we kind of complete the consultation because it also involves the nature of people being impacted in the context of the fact that there is a phasing that may happen based on our proposal at this point of time with pre-consultation and post-consultation, it might stay. But normally, what happens is, it's not a switch off. It is a phasing and it -- the cost. These costs will be incurred over maybe 2 or 3 quarters in a proportionately sliding scale basis based on the numbers that we agree, et cetera. But I think -- and the provision that has been taken is to take it on a gross basis. And as and when the restructuring is agreed upon or negotiated with the unions, it will be -- the numbers will -- the cash outgo will happen. So I sense that it will -- the bulk of the cash outgo will be in the first half of the financial year '24, '25.

[Ashish Jain, analyst]

So Koushik, sorry, to harp on this, but just to clarify this, so I understand that the -- maybe bulk of the onetime outgo happens in first half next year? Or whatever be the time frame. But whenever that happens from that -- sorry, since then, shall we assume the fixed cost will decline? The reason I'm asking is because if I let's say, take a 24-month, 36-month kind of a time frame, where we will be importing steel and servicing the U.K. market, should we assume that -- because if the fixed cost doesn't come down, let's say, from day 1 or day 2, would it be a continuous drag to the cash flows in the U.K. is where I'm coming from? Just to get better clarity on that.

[Koushik Chatterjee, executive]

Yes. So your -- Ashish, your understanding is absolutely correct that once that agreed time frame of reduction is concerned, see, the whole focus of this whole restructuring -- reinvestment or the transition period, as both Naren and I have mentioned, is to run the business in transition, which does not drag on cash flows. So therefore, fixed cost is a very important part because once the -- once you don't have the heavy end, which is the bleed end of Port Talbot, then you would certainly reduce the fixed cost in one go, but the effect of that takes 2 quarters. But whenever -- as you said, since it happens, it will certainly come down very sharply across the organization. And therefore, that is how it will sustain itself. As I said -- mentioned a while back, because your fundamental EBITDA spreads also come down. And in that, you have to make profits or cash flows, you have to ensure that your entire fixed cost overheads, everything runs very, very tightly.

[Ashish Jain, analyst]

Right. Right. And just my second question, it's a very small question. Just if I extend the current spreads in Netherlands to Q4, then we will be fully operational and our maintenance and all will be behind us, relining done, everything. On current spread basis, we would be making losses in Q4 also, I guess, right?

[Koushik Chatterjee, executive]

Not at the EBITDA level. We will be EBITDA positive.

[Ashish Jain, analyst]

In Netherlands, is that? Okay. Okay. Okay. Great. Sir, I'll come back in the queue for more questions.

[Operator]

The next question is from Amit Dixit of ICICI Securities.

[Amit Dixit, analyst]

Yes. So it's after a long time that I have got an opportunity to ask the question actually, 3 or 4 calls I've been missing on it. Anyway, I have a couple of questions. The first one is, essentially, if you could bridge the gap between EBITDA, TSE EBITDA actually for last quarter and this quarter in 3 buckets, realization, coking coal and relining costs, that would be great. That is the first question I have.

[Koushik Chatterjee, executive]

So when you say EBITDA bridge in what -- you want the EBITDA bridge to, what, cash flows or EBITDA bridge to...

[Amit Dixit, analyst]

No. No. No. So EBITDA, what was there in last quarter and EBITDA loss in this quarter. So for $96, for example -- from $96 to $170. So what is the bridge? How do we break it into 3 buckets, realization decline, coking coal decline and coking coal increase or -- and basically the relining cost?

[Thachat Narendran, executive]

So I'll give you 2 of the 3. We'll think of the third one. On the realization, Q2 over Q1 for Netherlands was minus GBP 61 per ton, okay? Q2 over Q1. That's the last quarter over the previous quarter. As far as coking coal is concerned, it was minus [ $7 ], I think -- yes, minus $70 a ton, okay? Relining basically, the impact is volumes. So Q1, we didn't have any -- I think we had slightly more volume in Q2 because maybe we sold more or whatever. But production wise, not so much difference between Q1 and Q2. But both Q1 and Q2 were bad because you were only operating one blast furnace. So the cost get distributed over lower volumes. But I don't now if Samita or Koushik has a specific number to give.

[Amit Dixit, analyst]

Okay, that -- sure. Go ahead, please.

[Koushik Chatterjee, executive]

No, no, I was just substantiating that, that the volume impact between Q1 and Q2, we have sold about 100,000 tons lower in Q2 compared to Q1. The realization, as Naren mentioned, was about EUR 60 per ton lower. And then there were the other costs for coal, for example, was in the -- largely on the reduction level. And there were gas prices and energy prices were also lower. Repair maintenance prices were slightly lower. So that's broadly the bridge that we have. There were no one-offs included in this.

[Amit Dixit, analyst]

Okay. The second question is essentially on net debt. So while we have seen net debt going up this quarter despite a very -- I mean, the operating cash flow being almost at par with CapEx. Now going ahead, the performance is going to improve in India as well as in Europe. So is this the peak net debt level that we are seeing for the current year and for next 3, 4 quarters, maybe?

[Koushik Chatterjee, executive]

For the next 2 quarters, I would say that in the assumption that the Netherlands comes back in the way that we are planning, the net debt number should be around this. There could be plus minuses. We will certainly want to reduce net debt from where we are. But given the market conditions, especially internationally. And also depending on where the restructuring expenses are when it is going out, I think it is broadly in this range. It will be for the next 2 quarters. But our long-term goal of reducing net debt remains. We've been pushed back by certain events and circumstances in the market, but I think we will continue to focus on reducing the net debt from where we are.

[Amit Dixit, analyst]

But ex of restructuring and ex of CapEx, whatever we will incur at TSUK, I think it is safe to assume that given the market conditions, net debt level should come down from here, ex of restructuring?

[Koushik Chatterjee, executive]

That is correct. That's what we are saying.

[Amit Dixit, analyst]

Sure. And last one, if I may. If you can explain the BSPS related provision in the notes and is there a cash outflow also associated with it? Because we thought that BSPS step is over now, but suddenly, we saw this provision again.

[Koushik Chatterjee, executive]

No. So this is not a provision as such. So you see BSPS was sitting in our books and we closed the buy-in in the first quarter. Post the buy-in getting completed, there was a certain amount of surplus, which actually belongs to the members. So that surplus has to be -- as part of taking out of the balance sheet effectively, that surplus is the one which has gone in. So it's not a provision. It's -- that surplus were at some point in time was credited to the balance sheet, so now it's gone away from the balance sheet, and there was a deferred tax impact on account of that. So the BSPS, there is no cash outgo. The BSPS is a done story at this point of time. What in Q1, it was completed, the buy-in was completed. Now the separation has been completed in some ways.

[Amit Dixit, analyst]

Great. And all the best. That's it.

[Operator]

Next question is from Ritesh Shah of Investec. Ritesh, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move on to our next question. The next question is from Ashish Kejriwal of Nuvama. Ashish, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move on to the next question. The next question is from Ashish Jain of Macquarie.

[Ashish Jain, analyst]

Sir, my question is on India growth plans. I think you clarified that the Kalinganagar 5 million ton will come in the next 6 months or so?

[Thachat Narendran, executive]

I said the blast furnace will start and it will ramp up. So you would see next year as a year of ramp-up of Kalinganagar, next financial year.

[Ashish Jain, analyst]

Right. So sir, what are we planning in terms of our next phase of growth because we have a well laid out plan in terms of where we want to be in financial year '30 in terms of domestic capacity. So what are the thought process in terms of when do we take up the next phase of expansion, because there is a 3-, 4-year time frame for that?

[Thachat Narendran, executive]

Sure. So one is the ongoing projects are, like I said, Kalinganagar and the Ludhiana EAF project, which the groundbreaking has just been done. And in the next 2 years, we should have that capacity up, that's 0.75 million ton. So these are clear cut for the next 2 years. Over the next 6 months, we would be finalizing the plans for Neelachal expansion and also working on the Kalinganagar Phase 3. So in terms of opportunity, we can grow Neelachal 1 million to 5 million over the next few years and the plans are being developed, will be taken to the Board in the next few months. We have an opportunity to take Kalinganagar from 8 to 13 as we finish this expansion, you can move seamlessly into the next phase. And the Bhushan plant in Meramandali, which can go from 5 to 6.5 as the first phase. The second phase, moving it from 6.5 to 10, we'll need a little bit more land in the surrounding areas. So if you look at Bhushan going to 6.5, Kalinganagar going to 13, Neelachal going to 5. You're already at about 25. Jamshedpur is already at 11. So you have 36. You have at least 1 EAF, which is the Ludhiana, so you're pretty close to 37. And beyond that to 40, you have an option of scaling up other EAFs. We are already looking at South at the next location.

[Ashish Jain, analyst]

Naren, sorry. Sir, I understand the road map and all because we've been talking about it. My point was more like why are we kind of delaying taking up the expansion? Are we kind of going slow because of our balance sheet focus? Because if I compare with what our peers are doing in terms of expansion, at least at this moment, seem to be a bit more aggressive or ahead of time. And especially given the India growth story and the volume expectation and all, do we think that we are running the risk of kind of losing market share from -- at least from a capacity point of view?

[Thachat Narendran, executive]

Not really. I think -- of course, we will keep an eye on the balance sheet, and we want to make sure that we drive that balance between our debt levels, balance sheet and the growth. But India is value-accretive growth. So I think India business is always cash positive, and we can, in some sense, fund the growth. So to that extent, the India growth will always get priority. But we are also going through a process where a lot of detailed engineering is done. So we are trying to reduce the cash-to-cash cycle in our expansion projects. So to that extent, we are doing a lot more engineering work before we start spending, taking it to a higher [ FEA ] levels before we start the spend. So the work is going on continuously. There's no slowdown in the pace of work, but we will obviously time it appropriately. And we have said we will be 40 million -- or we can be 40 million tons by 2030. So that is very much on track.

[Ashish Jain, analyst]

And if you can comment on it, are we likely to kind of prioritize NINL first just to optimize the cost there because the current scale is quite small or we are open to everything at this moment?

[Thachat Narendran, executive]

I think in terms of sequence, apart from the EAF projects which can operate independently, I think after Kalinganagar, 5 million, which is moving from 3 to 8. The next phase is most likely to be Neelachal expansion. And then you have both Bhushan and the Kalinganagar 8 to 13 happening parallelly.

[Ashish Jain, analyst]

Okay. Great.

[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]

So we'll start with the questions. I think many questions on TSUK. Is the restructuring now done? And does it include employee separation costs? And what will be the CapEx guidance now for FY '25?

[Koushik Chatterjee, executive]

So the restructuring is not done. We have taken provisioning as both Naren and I mentioned that we are undergoing a consultation process. That is the process laid by the law of the land in the U.K. and that process involves first the informal consultation and then the formal consultation. We, for the last 1.5 months, have been in formal consultation with the unions, their advisers, their reps at the ground level, and we will shortly commence a formal consultation when we finish the informal consultation of hearing them and them getting us on our way forward and the transition plan as well as the financial impact that the running of that business is causing. So the restructuring is planned, but it's not in the execution phase. It will happen in some -- in the way that we are proposing and in agreement with the union. The unions obviously are very sensitive to the impact of the restructuring. And we recognize that. And as I said earlier, as a responsible corporate, we do all that we can do in a coordinated manner. So it's not completed, but we have a constructive obligation arising out of the fact that any restructuring poses and that's what's been provided.

[Samita Shah, executive]

Yes. The other question was on the CapEx for FY '25.

[Koushik Chatterjee, executive]

Yes. So I think it would be best to talk about it in the next call in the first quarter because that's when the plan gets finalized. Obviously, the priority wise, Kalinganagar is the #1 priority to get completed. We want to ensure that the plant -- the facilities get started. So that's the main priority. And we can see that FY '25 that will rank the highest. This year, our spend has been higher on India CapEx, and we will continue to be so in the next year, too.

[Samita Shah, executive]

There is another question on TSUK. I think you've answered it, but maybe you could reiterate. Have we taken complete provision for [indiscernible]?

[Koushik Chatterjee, executive]

In the U.K., yes, we have taken -- I think there was a question earlier that have we taken complete provision for the heavy end. The answer to that is yes. And we have both on the asset side as well as on the investment side. As far as U.K. is concerned, we've taken the provisions.

[Samita Shah, executive]

The next question is also on U.K. It says, the International Steel Traders Association have raised concerns about Tata Steel U.K. utilizing most of the [ same ] quotas in the past few quarters. So how will Tata Steel U.K. continue to import steel? And how will that actually work?

[Koushik Chatterjee, executive]

So I think there are safeguard quotas at this point of time, and we are -- we will look to engage with -- formally with the trade regulatory authorities at appropriate time. And because the quotas are also in the context of the fact that if the upstream in the U.K. does not upgrade, we are the only flat product producer. So from a trade perspective, that will be addressed in due course of time.

[Samita Shah, executive]

There is a question on Chinese steel imports, which I suppose is for India. It says, we have seen -- no, it might not be for India, it says, we have seen over 1 million tons of imports in the first half of the fiscal year. Do you think the government will start an antidumping investigation?

[Thachat Narendran, executive]

So I think the government has recently also mentioned that we'll be looking at the certifications that are required and whether the steel coming in has those appropriate certifications. So to me, yes, imports is higher than it has been last year. We've seen worse in the past. The larger concern to me is less of Chinese imports into India, more of Chinese exports across the world because that's already 8 million tons for the last few months, which is not a good situation from an international price point of view. The Indian market has been strong, and so domestic prices have been stable because everyone is able to sell what they produce. But internationally, we are hoping and expecting that China will be exporting less over the next few months than they did in the last 6 months.If you go back to the 5 million, 6 million tons a month level, then you will have more stable steel prices. In the past, we've seen 10 million tons a month level. And now we have, last 4 months, 5 months, it's been at 8 million tons a month. In India, yes, we are watching the imports. If it, of course, keeps going up, then there is certainly a case for looking at it, and we will talk to the government at that time. Yes.

[Samita Shah, executive]

Next 2 questions are on India. This is about the subsidiaries and the merger. The first one is when do we plan to integrate NINL with stand-alone, and we get any tax benefits because of the mergers of Tata Steel Long Products and other entities?

[Koushik Chatterjee, executive]

Yes. So first question on NINL. As part of the [indiscernible] divestment process, there was a cooling off period of 3 years before -- and this is not for NINL, it's generally. And therefore, we will have to wait for that period before we consider that. But in the meanwhile, the NINL, as Naren mentioned, the expansion, the stabilization and the sweating of the assets are continuing. So yes, there is time period after which we can consider that. And the tax losses of TSLP, et cetera, are part of the integration planning in which you see some of it also reflected in the balance sheet.

[Samita Shah, executive]

The next question is on our ABJA bonds. What are your plans to refinance the 2024 bond maturities? And also another question, whether the CapEx and working capital trends will continue to reduce cash balance in the next quarter?

[Koushik Chatterjee, executive]

So the first one, the ABJA bonds, we are looking -- certainly, it forms part of our deleveraging. There are 3 elements of that bond, and we will certainly look at our cash flow planning for next year. And if we are confident about repaying some part of it and refinancing the balance, we would certainly want to reduce and get the ABJA bonds paid off in due course of time whenever they're due, mostly next year and then in 2028. And that's how we are planning our financials on that basis.As far as CapEx is concerned and the cash burn is -- cash levels are concerned, I think the CapEx will soon turn into generation of CapEx as the Phase 2 expansion of Kalinganagar comes in. So we should start seeing them benefit from FY '24, '25, second half in particular. And then as the ramp-up reaches '24, '26, should be the one where we will get the maximum benefit. So once those kind of things happen, the debt levels will certainly start looking down.

[Samita Shah, executive]

The next question is back on Europe. What kind of sales volume do we expect from TSUK and Netherlands in FY '24 and FY '25?

[Koushik Chatterjee, executive]

So FY '24 and '25, I think FY '24 numbers, we had guided for earlier.

[Thachat Narendran, executive]

I think the projection now is about 8.5 million for FY '24.

[Koushik Chatterjee, executive]

Yes. That is total TSE.

[Thachat Narendran, executive]

Yes. Yes. That's right. '25, I think, hopefully, we'll go back to the longer-term level because this 8.5 million factors in that we had a blast furnace done for quite some time. So Samita can share with you the...

[Koushik Chatterjee, executive]

More closer to 10 million.

[Thachat Narendran, executive]

Yes. Between 9 million and 10 million, yes.

[Samita Shah, executive]

The next question again is on volumes for FY '25, and we don't really give them so early, but I'll just take this question. What is the time line for KPO-2 blast furnace commissioning? Which I think you answered. How much commercial volumes expected in FY '25? So I think this is more related to TSUK Phase 2.

[Thachat Narendran, executive]

Yes. So I think we'll probably give better guidance in the next call. Blast furnace has ramp up fast. We have -- then the steel melt shops and the hot strip mills also, too. In fact, we will probably have a bit of extra slabs for some time, but I think we'll be in a better position to give guidance in the next analyst call for next year's volumes.

[Samita Shah, executive]

Again, questions on U.K. I'll just club a couple of them. What will be the cash outflow in onetime restructuring, excluding the staff-related cost? And what is the funding plan for the GBP 750 CapEx needs of U.K. transition? And will there be any further impairment charges expected?

[Koushik Chatterjee, executive]

So the last one first. I don't expect -- we don't expect any further impairment charges in the U.K. We've taken all of that. The funding plan for GBP 750 million will be a mix of, first, the equity from India and part of it would be debt. That is something that we are working on. I think the cash flows are strong enough as projected to support that. So we will combine the 2, but there will be a larger equity component from India to support it, and then we can replace the same. What was the first question that he said, Samita?

[Samita Shah, executive]

This was about the cash outflow in terms of the restructuring costs at U.K. excluding employee costs.

[Koushik Chatterjee, executive]

Well, that's like trying to slice the cake. I think we just need to go through the consultation process first, and then we will be able to firm that up. I can give you the elements of that restructuring, which will be elements like decommissioning or mothballing any of the facilities, especially as in our current context, the hot strip mill will have to be upgraded, the caster has to be upgraded. So during the time these are upgraded, they will be decommissioned or mothballed to facilitate that one. So I think those are the ones I would say that the redundancy provisions or the restructuring costs largely relates to the people, but we don't yet have a handle on the number until we complete the consultation process.

[Samita Shah, executive]

The next question is on India, on the NRs and the market conditions. I think you mentioned it in your speech, Naren, but if you can just elaborate about it and the outlook for the rest of the quarter.

[Thachat Narendran, executive]

I think what we've guided is Q3 will be about INR 2,200 per ton higher than Q2 as far as realizations are concerned. Like I said, demand is strong. We've seen 10% growth in consumption year-on-year because all engines are firing, automotive is strong, construction is good, rural markets are picking up. So I think the only kind of tap is a little bit more on what's happening in the international markets and international prices, but domestic is quite strong.

[Samita Shah, executive]

We'll move to Netherlands, where there are questions about the potential decarbonization project. What will be the CapEx? What is the configuration they are looking at? Would there be a production loss in the interim? And how will we fund it? I've just clubbed 3, 4 questions.

[Koushik Chatterjee, executive]

So -- sorry, you want to go?

[Thachat Narendran, executive]

No, go ahead, Koushik.

[Koushik Chatterjee, executive]

I think we -- just now we are in conversation with the government on the configuration. The -- and based on that configuration, the CapEx will be finalized. And it is -- the intent is, as I -- as we said earlier that the blast furnace 6 will continue because it's a new furnace. And then one of the other furnace will get replaced. So what is the configuration exactly is something that we will be looking at. But roughly, from a volume terms, it will be -- the first phase will be a 3 million ton transition. But I think the funding, the CapEx, et cetera, is a matter of negotiation and discussion with the government. And we are deeply engaged in it. The submission of the broader plan is going to happen shortly. And then based on the feedback, as Naren mentioned, we will go through the phase during which the negotiation for the support is discussed and the balance will be by the company, largely out of Tata Steel Netherlands, and that's the funding plan that we will finally come about and disclose. So there's some time to do that. It's not happening imminently, but it will certainly happen in the near future.

[Samita Shah, executive]

There is a question on India now, which is more about our strategy vis-a-vis downstream assets. Is it about market share? Is it about profitable growth? Can you explain how you see this growth panning out in India?

[Thachat Narendran, executive]

So I think downstream has always been an important part of our strategy because we see that as you have more downstream businesses, you are closer to the customers, final consumers, you are also insulated to some extent from the cyclicality or at least there is a lag in the cycles and that helps us. So our biggest downstream presence is in the tubes business, the pipes business, which is today 1 million tons, and we want to take it to about 4 million tons by the end of the decade, and that will keep pace with our hot rolling capacity when we are at 40 million tons of steel, we will have about 27 million tons of flat products. So we think a 4 million to 5 million ton tube business is a good footprint and downstream to support the upstream as well as add value to the upstream.The second big downstream business is we have the wires business, which is more linked to long products, where, again, we are the large player with more than 0.5 million tons and a strong market share in segments like the stranded wires and tire bead wires, et cetera. There, again, we want to double it in the next few years, and that will also be aligned with the Neelachal expansion. The third one is the packaging or the tinplate business, where again, we are about 400,000 tons, and we want to take it to about 1 million tons. That will also support the flat products business because it's a downstream of the flat products business. I'm talking only of India because we have a big packaging business in Europe as well.The last one is, of course, linked to Metaliks, which is a DI pipe business that is downstream for the pig iron that we make through the mini blast furnaces that we have in Tata Metaliks. There, again, we are a big player and we aim to become, Koushik, about 1 million tons, I think? Yes, 1 million tons over the next year. So we think these businesses, which have always traditionally added value, these may be -- the EBITDA margins of downstream are lower than the typical steel business, but the ROIC tends to be higher because these businesses are run like that. And I think that's our ambition as far as downstream. There are many other smaller things that we do, but these are the 4 big ones.

[Samita Shah, executive]

We have some more questions on the bonds. I think we have either some bond investors or some banks on the call. So this is in terms of the bond maturities for next year. Will you come offshore? Or will you look to do onshore financing instead?

[Koushik Chatterjee, executive]

So I think it's premature to say that, but we would certainly first look at what we can do internally and then -- and the balance outside. But typically, we'll first look at -- also look at options and the India balance sheet in preference to anything offshore.

[Samita Shah, executive]

And I think the last question is on TSN. This is about, again, the performance in this quarter, and I think we mentioned about slabs, et cetera. So there are a few questions on how do we manage really the slab inventory? Do we have a policy and what is that approach towards managing the price risk for TSN as well as TSUK because they buy slab?

[Thachat Narendran, executive]

So normally, TSN, we don't buy slabs. It's just that we stocked up on slabs because we knew the blast furnace was going down, and we needed the slabs to take care of our customers and our orders. But otherwise, it's a fairly balanced facility. We make as much slabs as we can consume. And if there are extra slabs, we can always look at selling it, but we don't necessarily buy slabs in Netherlands. U.K., also, we don't buy slabs. But going forward, depending on, as Koushik said, the outcome of the consultations and the way we plan the transition, we will decide what to do and when. But again, I repeat what Koushik and I have said, whatever we do, we will try to make sure that the business is run in a cash neutral or cash positive way.

[Samita Shah, executive]

There's one more question, I think, in terms of Tata tinplate. So this essentially says that results have been poor at a time when the demand has been quite strong. Is there an excess supply of tinplate in the Indian market? And can you comment on the market position?

[Koushik Chatterjee, executive]

SSo I think there are fundamentally 2 points. One is that the value addition, which is the gap between the hot coil and tinplate has shrunk in compared to the previous quarter significantly. And the -- there is an issue on -- not on supply of prime tinplates because that's not the point. The issue has been, there has been a lot of import of nonprime tinplate into India. And that has created a supply-demand imbalance, which is -- which has also -- from a health point of view and a product quality point of view, has been taken up. And hopefully, this will get reversed in the future. But we also see a certain amount of firming up of the value addition and improvement from the value addition that was there in the second quarter. The second quarter was really difficult because it suddenly shrunk. But as I said, it's not because of supply of prime tinplate from us and our peers, but it was more on the nonprime imports that came in.

[Samita Shah, executive]

I think that ends the questions we have. So we will end the call now. Thank you very much, everybody, for joining us today, and I hope we were able to provide you all the clarifications you sought. And until the next call, thank you.

[Thachat Narendran, executive]

Thank you.

[Koushik Chatterjee, executive]

Thank you.

[Thachat Narendran, executive]

Thank you, everyone. Thanks.