Jindal Stainless (Hisar) Limited (JSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Joint Q4 FY '21 Earnings Conference Call of Jindal Stainless Limited and Jindal Stainless (Hisar) Limited, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Chandak from DAM Capital Advisors. Thank you, and over to you, sir.

Thank you very much, Steve. Ladies and gentlemen, good morning. Welcome to the Q4 joint earnings call for Jindal Stainless Limited and Jindal Stainless (Hisar) Limited. As you know, the merger process of Jindal Stainless (Hisar) and Jindal Stainless Steel is currently ongoing, and we expect some good news coming through the management pretty soon. So I thank Mr. Jindal and the rest of the management team of the JSL Group for giving us this opportunity to host the Q4 earnings call. And without much ado, I hand over the floor to Mr. Goutam Chakraborty, Head, Investor Relations for further. Thank you Goutam.

Yes. Thank you, Vishal, and welcome, everyone. We'll begin the call with brief opening remarks from our MD and the group CFO, following which we'll have the forum open for an interactive question-and-answer session. Before we start, I'd like to point out that some of the statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation that was shared with you earlier. Now I'd like to invite our MD, Mr. Abhyuday Jindal, to make his opening remarks. Over to you, sir.

Thank you, Goutam. Good morning, everyone. On behalf of the management of Jindal Stainless Limited and Jindal Stainless (Hisar) Limited, I welcome you all to this forum. I trust all of you and your dear ones are well and safe in these challenging times. First, I would like to share the key -- I would like to share the key highlights of the period, following which Anurag will take you through the operational and financial highlights of Q4 and the full year ended 31st March 2021. First and foremost, in these times, I want to highlight that as a group we focus more on maximizing our support for the COVID care on a top priority. Since the onset of the pandemic in 2020, we have supplied more than 3,600 metric tons of liquid medical oxygen at various hospitals and medical facilities in Delhi NCR, Haryana, Orissa (sic) [ Odisha ], Andra Pradesh and various states of [ the state ]. We have been consistently supplying liquid medical oxygen of up to 9.5 metric tons per day from Hisar plant and over 40 metric tons from our Jajpur facility. This is on a daily basis to serve our country's demand. We have further even reduced our production to increase our oxygen production. The Jindal Stainless-operated O.P. Jindal Modern School has just been converted into a 500-bed COVID hospital with dedicated oxygen supply on all beds directly from our Hisar plant. The facility was operational on May 16 in a record time of 2 weeks. Additionally, Jindal Stainless is bearing the total cost of vaccination for over 35,000 employees, contractual workers, retailers and their immediate family members across the country. The health and lives of our employees as well as our nation's citizens is of utmost important to us. As you are aware, JSL and JSHL had announced their merger. The process is going well, and that is why we thought of interacting with you through a common forum. I'm happy to share that JSL and JSHL have received necessary approvals from SEBI and stock exchanges ahead of expected time. Immediately after that, the first motion of applications have been filed with the honorable NCLT. As we have been saying, we expect this process to be completed in H2 of FY '22. And another note I would like to add, which is a great achievement, is that the company has achieved A+ rating for the combined entity, and this is 3 notches up. And I would ask Anurag over his presentation and call to give more details on that. As I had also said earlier, after COVID-induced challenges, the calendar year 2021 started with an upbeat sentiment. Robust V-shaped recovery in demand has been very helpful. Globally, as well, we are seeing strong recovery in demand, which has been helpful for the stainless steel sector. Investment activities in the metal and commodity segment globally further pushed up the stainless steel raw material prices, which in turn were reflected in stainless steel prices. Demand recovery, coupled with strong operational performance and consistent deleveraging measures led to a good Q4 for us. Our agile business strategy continues to help us align our exposure in domestic and export market. Building on the Q3 trend, even in Q4, we focused more on the domestic market due to steady demand across key segments. Efficient production planning, inventory management and supply chain strategy has continued to help us mitigate the market challenges effectively. The fourth quarter demand was driven primarily by segments like auto and a healthy revival in demand from Pipe & Tube segment along with railways and allied infrastructure. Demand from segments like elevators and lifts and Hollowware segment also remains strong and is likely to continue. Localization efforts by the government and the company's initiative for innovation led the demand for special grades in auto segment to grow in Q4 FY '21 phase of Jindal Stainless. SPD division grew by 8% in Q4 FY '21 over the corresponding period last year. With further push on indigenous production and expected economic recovery, healthy demand is likely to be generated in the future as well. On the industry front, as I mentioned, demand had been robust and is likely to remain so with gradual easing of restrictions and with steady vaccination progress in India and other countries as well. On the policy front, revocation of CVD has not been encouraging for the industry, primarily for the MSME segment. The industry has been closely engaging with concerned authorities for imposition of CVD and AVD after final recommendation by the DGTR. Globally, almost all countries either already have or are being in the process of implementing trade restrictions to protect the interests of their domestic industries. We believe that the Government of India with the vision of Atmanirbhar Bharat will address this issue to provide a level playing field to the domestic industry. With this, I would like to hand over to Anurag to discuss the operational and financial performances. Thank you.

Thank you, Abhyuday. Good morning, and warm welcome to everyone joining us on the call today. As Abhyuday mentioned, we are doing the joint -- this time joint earnings call this time as the merger process is going well, and it will be easier for you to understand the performance of the 2 companies. We have uploaded our investor presentation on our website, and I hope that you have already gone through of the same. Despite many challenges, our performance has been robust in Q4 and in FY '21 as well. However, without going into the individual performance, let me give you a holistic view of the [ performance of ] combined entity. You all know that COVID-19 has had an adverse impact on our performance, as we had shut down our plants for more than a month during Q1 FY '21. A strong recovery in demand, coupled with our risk mitigation measures, however, helped us in offsetting most of the negative impact of Q1 on the volume and revenue during the remaining part of the year. Our quarterly operating performance has been improving gradually since Q2 to FY '21. During the last 9 months till Q4 FY '21, i.e., Q2, Q3, Q4 of FY '21, the combined pro forma revenue grew by 17% Y-o-Y basis. On a standalone basis, the pro forma combined revenue of FY '21 is seen at INR 19,175 crores. Strong business sentiment, improved pricing, backed by increasing raw material prices and our flexible business strategy as merited by Abhyuday has helped our EBITDA performance. For the last 9 months of FY '21, including Q4 FY '21, the pro forma combined entity EBITDA surged by 52% year-on-year. For the FY '21, the standalone pro forma combined EBITDA stood at INR 2,408 crore, which is an increase of 20% over FY '20 on a full year basis. I'm pleased to inform that our continuous focus and -- continuous and focused approach, we now have a robust balance sheet. Despite COVID-induced challenges, we have done accelerated and efficient daily [ raising ] and reduced our external debt by 1/3 over last 1 year. This helped us to bring down the pro forma entity debt equity at 0.5x at the merged entity level, which is one of the best in the metal sector. Pro forma debt-to-EBITDA at the merged entity level has also dropped to 1.3x at the end of -- at the end of FY '21. Pro forma entity -- pro forma merged entity now net debt stood at combined entity level at INR 3,125 crore. With a stronger financial position, we have received a rating upgrade by the major rating agency, which is present CRISIL, and which they have given us that straightaway 3 notches up from BBB+ to A+. That rating is based on the healthy business and financial profile, improved operating performance, efficient working capital management and deleveraged balance sheet, which is adding to the liquidity as narrated by them in their rating rationale. As far as the merger process is concerned, as Abhyuday mentioned, it is progressing well to create an asset conglomerate of its 1.9 million tonnes capacity, having a strong global footprint and pan-India presence coupled with a strong financial positioning. We expect the process to be completed as per our -- the timeline which we have guided, which is H2 FY '22. In conclusion, let me reiterate that the merger will put us among the top 10 global players with 120-plus product range, along with value-added specialty product range, which will help us to cater all the segments with auto, railways, metro, consumer durables, infrastructure, etc. Along with this, a very lean and flexible supply chain will help us to quickly switch our product range. This will give agility to quickly alter our product mix, segment mix and geographical mix to give us the business model as mentioned by Abhyuday. This brings me to end of my address. I would now expect the moderator to open the line for Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss.

At the outset, I would commend you for laudable effort towards COVID-19. Really, very, I would say, helpful. And I have 3 questions. The first one is on your EBITDA per tonne guidance. We had been given the guidance of INR 14,000 to INR 16,000 per tonne. But in last 2 quarters, we have exceeded that guidance, particularly in Q4, we have exceeded it quite a bit. Now first, what are the key drivers of this outperformance, and whether in light of new stainless steel prices currently and outlook, would you be revising this guidance in FY '22?

Anurag?

Yes. So basically, Amit, you are absolutely right. Our last few quarters have been -- we have been delivering very strong performance. So overall, year-on-year basis, we would still not say that we will be continuing all the quarters at the same because you know there will be some up and down cycles, which could always be expected. Having considered that, we are now guiding revising our guidance of 15,000 to 17,000. So we are increasing to the 15,000 to 17,000 on a full year basis. Though quarterly some of the quarter's higher performance will be higher, but on a -- we are confident on a full year basis that we'll be able to deliver 15,000 to 17,000 EBITDA per tonne. Considering any challenges or some other challenges coming on during the -- maybe Q2, Q3, any time point of time. But we would always like to meet our guidance in terms of what we are trying to guide to the market.

Okay. Fair enough. The second one is on essentially import pressure after revocation of CVD and AVD. What kind of import pressure we see post April? I mean, you alluded to this in your opening comments, but if you can quantify it a bit, that would be helpful. And what is the rationale that you are hearing from government for revocation of such duty, and what are the bottlenecks that you see ahead in kind of the reinstating these duties?

So one thing, Amit, which we as an organization have been focusing for very long because we know duty can be there and they can be removed, as we saw already. And we really don't want to depend our position and our company performance on these kind of duty. So clearly, we are focusing on segments where imports will not come. Major imports from China is coming in the 200 series. And that is also an area where we are not very strong, in Hollowware. I mean these lower segments where we supply for utensil segment, we are actually not present in a very big way. Only about 8% of our sales or even less go to that segment. So we are not drastically impacted, but there is obviously sentimental pressure, I would say, but in terms of the segment that we focus on and because of our strong position and our unique supply chain that we've created in force, we don't see it becoming such a big challenge. It's more sentimental that these pressures come, but we focus more on industrial segments where approvals are required. We're focusing more auto segment now. Railway has picked up again. So [ anywhere ] we have a major market share in all these areas. So that is going to continuously become our -- and going to be a focus in the coming years as well.

Okay. So the next question was that you already might be discussing the different industries and also what kind of rationale you hear from the [indiscernible] MSME segment, I'm sure that might be the intention of government to go for revocation of these duties. And what are the bottlenecks that you're facing at this point in time? Because see, this is a very big, I would say, hangover for the -- overhang on the stock rather at this point in time.

Correct. So the steel ministry is completely supporting, and they are in agreement with our plight. So as discussed earlier, by September is a window that they have given us to reappoint these duties. Whatever they revoked instead, they could reappoint back in September. So we are working very closely with them. We're sharing all the data and we're sharing the import data with them, how much is coming from all these countries where duty was supposed to be established. So we're quite confident that by September, some of these duties should come back. But again, I said, we are not basing our performance, and we are not saying that with the duty being there or not being there, our performance and our numbers will dip.

Would you have handy the data on import post April? Or I can take it from Goutam post the call.

We'll share that with you. I'm not -- exactly is not -- bear with me for a moment, but I think Goutam, please share that with Amit.

No problem.

The third and last question is on the essentially, the demand side, particularly in domestic market. In Q1 FY '22, do you see demand weakening a bit so to that extent, what kind of [ exporter ] portion would you guide for Q1? And since you have reduced production to supply oxygen, would it impact your sales volume as well in this quarter?

Mr. Sood, you can take that one up, I think.

Yes. Just to answer, start with the first question. The oxygen, what we are supplying to hospitals and for medical purpose is not impacting much our operations, because what we are supplying is liquid oxygen, which is roughly 3% to 4% of the total oxygen [ that lives ]. [indiscernible] and it is not impacting at all. Second thing is, in the Q1, yes, just to be on the safer side, we see that demand can fluctuate from the domestic market. We are keeping slightly more of volume for imports, and export volume used to be about 15%. We are targeting to take it to 20%, just to deal with any risks from the lower demand from the domestic market. What was the third question, if I could...

No, so the question was -- no, it's fine. That's fine. The question was at what kind of volume can we expect in Q1 FY '22?

See, Amit, Anurag here. I think taking one thing here. I think on -- as we mentioned that we would be flexibly playing because we have developed now our supply chain and production lines in such a flexible manner so depending on the demand and product line, which we keep playing between the geographical mix also between export and domestic market. So as Mr. Sood mentioned, like when we saw some of the initial surge in the COVID cases, we were not sure whether nationwide lockdown could happen, we actually increased some of our export mix in the booking at that point of time, so that our volume remains on track. Overall, I can tell you, I think, rather than looking quarter-on-quarter, we are seeing that let's look at FY '22, we had, I think our export volume, given the current outlook, should remain in the range of 15% to 20%.

And what would be the total volume like in FY '22? [indiscernible]

We are targeting a volume of -- volume growth of around 20%-plus as compared to FY '21. So we should have at least 1.7-plus -- million tonnes at a combined entity level together. [indiscernible]

The next question is from the line of Ashish Kejriwal from Centrum Broking.

Only one question from my side, all others have been answered. What sir, up we have not divulged any [indiscernible] on CapEx. So one is on that. Obviously, we need to learn that because we are already getting delayed on capturing the market share maybe? Or -- one is on that. And should there be any possibility of inorganic expansion also?

Abhyuday, shall I go ahead? You want to answer.

Yes, I can answer a little bit. So basically, CapEx plan for the next 2 years is to the tune of around INR 3,000 crores. And mostly, this will be through internal accruals. And this year, the outflow that we are planning is just of around INR 1,100 crores to INR 1,200 crores only. This is mainly to double our capacity, and we will take it up currently from a double, vertical increase by 0.9 million, I can say, on melting capacity. So from current levels of 1.9 we'll be going to 2.8 million. And we are also increasing our hot rolling and cold rolling capacity as well. And in terms of delays, there are no major delays. There is little hiccups because of these lockdowns that are happening. But the kind of systems we have put in place and the kind of operating leverage and the basis that have been created, we can recover this quite fast as soon as things normalize by June, I think.

Have you started ordering or we start ordering...

We have already started ordering.

Okay. Second one on inorganic expansion. Can you answer that?

Yes. Yes, Ashish. Sorry. Sorry, Abhyuday, go ahead. I didn't hear.

From inorganic expansion point of view, definitely, there is nothing on the table as of now, but there are a few assets that we will definitely look at when Salem -- if and when Salem comes up for sale and there are further smaller assets which would only add to our value chain. We are not looking at acquiring anything outside our business or some other asset like that, but stainless steel assets which add value to our business, we'll be looking at that as and when time comes. But as of now, there is nothing major on the pat., Anurag, is there anything to add to that?

Yes. No, no, I think you have answered. So that's what is -- so depending on, as you know, there are limited effects which are there, but we keep evaluating. And if you like something at the right price and which could add, which could be more EBITDA accretive to our business, surely we will look at it. So as Abhyuday mentioned, we have really structured our balance sheet in a way that technically, if you see our debt repayment schedule, debt repayment, we have actually repaid all the -- so whatever debt reduction we have done, we have done very strategically. We have prepaid our FY '22, FY '23, and we are right now in the process of we are now paying FY '24 installments. So FY '22, we have already shipped between -- at the merged entity level, only INR 75 crores, INR 76 crore of the scheduled debt repayment. So technically, we don't have any of the debt servicing obligation remaining in FY '22 and similar is the case in FY '23. All this will lead to a state of a free cash flows for us, which we said we want to effectively utilize for our CapEx plan to improve our capacities as well as the cost efficiencies. And also at some point of time, depending on if inorganic opportunities come or otherwise, we will continue to see accelerated further deleveraging programs to reduce our debt further.

Sure. Sure. That's helpful. Sir, lastly, only, is there any number in your mind which we will not grow in terms of net debt to EBITDA?

See net debt to EBITDA, currently, we are running at 1.3x. And as you recall, last time we said we would always like to keep below 1.5x. That's what our target. We are already below that target. And we continue to be maintaining. Obviously, our endeavor to keep it further down, but I think guidance wise, we always would like to keep it below -- much below 1.5x.

Okay. The reason why I'm asking is the kind of volume guidance or EBITDA guidance we are giving and the kind of organic CapEx plan which we have. In fact, there are enough rooms for us to further deleverage balance sheet unless and until we go for any inorganic expansion?

Absolutely.

Absolutely. Perfect.

You said it well, in fact, Amit. So there's no inorganic growth opportunity. As I mentioned, deleveraging will continue to [ accelerate ].

[Operator Instructions] The next question is from the line of Bhavin Chheda from Enam Holdings.

Yes. And overall excellent the management team for excellent turnaround is import the company. And I think the merger entity is looking much more stronger. Sir, a few questions. Sir, I think first on the margin guidance, which you said 15,000 to 17,000, if I heard correctly, you're building in conservatism for the second half, right? The current margins, despite the anti-dumping, margin levels are running strong, but you are building some conservatism for second half, right, if I heard it correctly?

Bhavin, I would like to look at this way. We are right now just probably 1.5 months in the new financial year. And the guidance, which you would like to give, it's not that we keep revising, as you know, consider last 2 years. In fact, when nobody was knowing even COVID will come, we still, even despite the COVID, met our overall year guidance. So it's not that, that we would like to come back suddenly with the external and giving excuses to the external sector suddenly, and say that, okay, guys, now COVID has happened, and my guidance gets reduced to this. So if you recall, even last year, FY '21 guidance, we still maintained despite the COVID even on our Q1 call itself that then outlook was looking very bleak. So frankly, we don't know how these such things will pan out. Considering all these factors, I think, obviously, we would like to deliver the maximized EBITDA as Abhyuday mentioned, that's what our target in terms of the operating efficiencies, kind of flexible supply chain which we have planned. But I think, please, I think we should have a guidance at 1.5 months we will [indiscernible] to you the 15,000 to 17,000 on an overall year basis.

Sure, that's a good number. Second, on the capacity, de-bottlenecking plants from 1.9 million to 2.8 million you mentioned. I believe that would be in a phased manner, and yes, then any timelines of when incremental 0.3 million or 0.5 million will start kicking in? How are you phasing this out?

Abhyuday, you want to answer that?

Yes, yes. I can take. Just to answer the question, we would be commissioning that entire project by September 2022. And then there will be natural ramp-up of the production facilities. And by March '23, we should be attaining the figures what we are giving, 2.3%.

Okay. So you think September '22, roughly, that we complete this projection. And you said you are increasing hot rolling and cold rolling too. So any number to hot rolling and cold rolling capacities from -- as you are expanding?

Yes. As you must have noticed that we are expanding our steel melting shop capacity by almost 0.9 million tonnes. So we would be actually implementing the similar kind of hot rolling capacity implementation plan as well. So it will be putting up relating capacity.

[indiscernible] and we said that we are in the process of and started gradual ordering, I think, give us a quarter's time, and we will come up with a plan how we'll be doing the various plays because we are still in the midst of negotiation in the process. But as Mr. Sood mentioned, that's what our targeted timeline overall. So I think by next earning call, we will be able to give you more full detail what kind of capacity and what kind of equipment we are getting into.

But just the number -- the matching HR and CR capacities will be added in this phase.

Sir, matching CR also? Because I believe CR won't be equivalent to the HR right now also.

Today, we are at around 50% to 55% of HR capacity [ of melting ], and it will remain so after this capacity execution.

Yes. And any update on a couple of our subsidiaries, maybe we have a CR mill in Indonesia, what's the update there how it is operating, what the profitability there? That's one subsidiary, and other is the Jindal Lifestyle, how it has been doing and what are the plans there?

Anurag you would like to take it up, sir?

Yes. Maybe Indonesia, you would have seen that we have really made a good turnaround in Indonesia in last 2 quarters. So Q3 and Q4, because we did quite a few strategic change in Indonesia. One is that overall entire -- their cost structure and tech cost structure, we have aligned to a lower production volume, because there, we were seeing sometimes challenges from even Chinese input. So one is that we have -- make it more -- made it more agile, our entire cost structure, so that even if the volume drops, we get into a profitability growth. Second, now we started sourcing the raw material, which earlier we used to supply from India, from the local Indonesian player, which is we are obviously getting for us to a more cheaper than as compared to the Indian materials. So that's the second part in this. And third, we have also improved their product range to make it to cater to high-end products and especially the U.S. and other European market exporting. So all these are resulting as good profitability growth. So maybe number each point if you want to know, I'm sure -- or we can share with you. But in this quarter, we did EBITDA of INR 23 crores in Indonesian facility. And in Q3, we did a INR 30 crore of EBITDA in Indonesian facility [indiscernible]. We can share with you, Goutam and we can share with you the full detail on full year basis. Full year basis, also, if you see, Indonesia has delivered in FY '21 at INR 38 crore EBITDA, which was a INR 38 crore loss last year. So there is a good swing of almost INR 75 crore-plus between [indiscernible] because of the measures which I explained to you.

What the volume run rate there? I think the mill was 50,000 tonnes CR, right?

Yes. So right now, as I said to you that more than the volume, we are not targeting the volume. That's why, Bhavin, I was trying to explain you that our entire focus on Indonesia shifted from volume -- on the volume to the high-end product range. So we will -- we are not trying -- because so that this is despite the much lower volume, we have managed to get a much better profitability.

Now Lifestyle, I can take up. Lifestyle, basically, last year, the performance was a bit subdued only on account of railways, railways because we are the major supplier to railways and all 3 core factories either were closed or had drastically cut their production below 50%. So that was the reason that Lifestyle was a bit subdued, but this year, we see very strong performance coming, because Whirlpool, which is one of our biggest customers, we're the biggest customers in Whirlpool in a particular segment, that they have doubled their requirements from us. So now quarter-on-quarter, we'll be supplying almost 9 lakh goes to them. We have added 2 new OEMs as well. Tata Motors has been added as a OEM, with strong products we're going to be supplying, and also Havells is another OEM that we have added recently. Last year, similarly to Tata Motors, we're working on adding Ashok Leyland and Eicher Motors as well. So these OEMs are long-term partners. They give us good EBITDA margins, and they will continue for many years to come, plus railway backup as well. So with these 2 segments coming back up and strongly, Lifestyle performance will definitely be very strong this year.

The next question is from the line of Vikash Singh from PhillipCapital.

Congratulation on good set of numbers. Sir, I want to understand that our quarter-on-quarter debt has increased close to INR 200 crores despite [indiscernible] cash flow would be -- should be somewhere around INR 200 crores higher. So is that -- we are suffering on the working capital side, or there is some other reason behind it?

Vikash, there is a reduction also in the quarter-on-quarter because if you see the numbers, obviously, the large -- some part of short-term debt has increased because we have repaid more on the long-term debt. But overall, if you see the fund-based in long term/short term, there is a reduction on quarter-on-quarter basis also.

So what would be that amount? Or if you can tell me.

So overall, that's what we said is that our gross debt number was close to INR 3,200 crore and net debt number was INR 3,100 crore on a merged entity level. Maybe Goutam and [ Chetan ] maybe one of them can tell you the reconciliation of this on quarter as well as year basis.

Yes. But you see, I was referring to your presentation and the net debt number which I was talking about on a quarter-on-quarter basis from INR 2,600 crore jumped to INR 2,800 crores basically.

No. No, I think there is maybe -- we'll send you the number. I think that's not -- we'll send you. There is a continuous reduction in that, though quarter 4 reduction was lesser, I must say that, because we accelerated more from -- in quarter 3 itself. And then quarter 4, we actually tried to pick up more on the short-term side.

Okay, sir. Sir, my second question pertains to our CapEx. So when we are talking about the [ mapping ] [indiscernible] also, the current CapEx guidance which you have given includes that. That is over and above what we have guided so far.

It includes that. It includes that. So when I said -- when Abhyuday mentioned that 3,000 crore, which include capacity expansion and some of the -- even the operating efficiency CapEx also. So it's a combination of this. And therefore, I mentioned that we are in the still in the midst of the planning and finalizing it. I think by next quarter, we'll be able to share more specific details on this.

Okay, sir. And lastly, if I may ask one more question. Sir, have we got any inventory benefits or more or less is negligible for -- if you put the share that would [indiscernible]?

Interesting question. I know also, if you recall earlier, we used to have an early, much higher volatility into the -- some of these -- because of underlying raw material up and down. But as Abhyuday narrated, actually, the focus we have done in last 2 years is mostly on our supply chain, sourcing, getting the raw material sourcing nearer to the plant and entire sourcing and strategy which Mr. Sood is leading on this part. So what we do is that now we monitor all these exposures on an almost real-time basis. Now for net exposure of commodities depending on what kind of product mix we have sold on that particular week or quarter or a particular day, and what kind of booking we are doing through the various incoming chemistry on this part. So depending on that, we -- what we said, like, for nickel, for example, if you pick up one of the raw materials, [indiscernible] you that our typical, we would like to maintain the range of 6,000 to 7,500 relation between these 2 countries of overall, because that is to give us the flexibility of supply chain. So any point of time the movement may not go beyond this because we will make -- we then make sure that our exposure remains always is in this range and gives us enough headroom and flexibility to play with our product mix, our supply chain. So I would say rather than getting into specifics of quarter-on-quarter inventory number, I think that's the way we have confidently shared that this 6,000 to 7,500, which is nickel is the most volatile, is our range. Similar thing we do for other raw materials also.

So our guidance basically is basically not factoring in these changes and we mostly we are factoring in the [indiscernible] for kind of flexibility, right, in terms of EBITDA per tonne guidance?

Sorry, I didn't get your question, Phillip (sic) [ Vikash ].

So in EBITDA per tonne guidance, we are actually building that kind of the modeling, right? That the inventory gains or losses would not be there.

Absolutely, right.

Yes, absolutely.

The next question is from the line of Nishith Shah from Aequitas Capital.

And congratulations on a very good set of numbers. And I really appreciate our fight against COVID by supplying medical oxygen. Sir, I have 3 questions. First question is, I recently read that ferrochrome prices have gone to INR 80,000 because of lower demand from stainless steel players. So how much are we -- our production is impacted because of the second wave? And how much do you see that for the industry?

I think Mr. Sood, Mr. Sood, that should be for you take it up.

Yes. I just did not hear it. I have some network problems. Can you repeat?

Ferrochrome prices gone down to INR 80,000. Yes, better if Nishith, you repeat your question.

Yes, sure. So sir, I recently read that ferrochrome prices are down to INR 80,000 because of lower demand from stainless steel players. So one, how much is our production impacted in the last few months? And then second, how much do you think -- do we think that the industry production is affected?

Okay Nishith, if I could answer your question correctly, the ferrochrome prices are more so driven by the Chinese demand prices. If the Chinese demand goes up or goes low, actually, it drives all the ferrochrome prices. Because most of the ferrochrome, what we are producing here in India, it also gets into the production of China and southeastern Asian countries. So the demand at India has not gone down. I'm not sure I am audible?

Yes, yes.

Okay, yes. So the demand in India has not gone down. It is just effect of Chinese demand. And any other question, if I could answer your question?

Okay. Sir, my second question is that recently we heard that significant steel demand -- steel capacities have gone out in China because of some change in regulations. So are you aware that any stainless steel capacity has gone out?

No. What we have heard from China, whatever information is available, the small-size plants, for the reason of actually causing environmental concerns, having environmental concerns and I think better pollution control systems, temporarily they have been put out of operations. Otherwise, none of the stainless steel plants have been put out of services, put out of operations. It is only just to maintain the inventory levels, they are trying to optimize the production. That's all.

Okay. And sir, my last question is, I want to understand, are we facing any significant cost increase or availability issue for any of our input commodities?

See the problem is the strong disruption in the shipping industry. So most of our raw materials, we are like nickel, iron scrap, stainless steel scrap, we are actually sourcing from countries like -- the regions like Europe, U.S. and southeastern Asian countries. So there is a lot of disruption, and this disruption has led to a sharp increase in the shipping prices, shipping costs. So one way, it is the challenging -- challenges in the availability. And another way it is increasing the cost. But the demand side, actually, there is a very strong demand, so it is offsetting the increase in the shipping costs.

The next question is from the line of [indiscernible] from Molecule Ventures.

Yes. First of all, congratulations on a phenomenal set of numbers. I also witnessed the balance sheet cleanup, and I would appreciate because none of the companies I have seen have cleaned up the balance sheet in such a fast manner. I had 2 queries, both of them are finance related. First of all, from JSL consolidated numbers, the cash outflow has been for towards debt repayment, community work, noncurrent and current outflow has been INR 830 crores. But when we are trying to tally that in the balance sheet, from the noncurrent portion, we have reduced INR 123 crores and from the current portion, we have reduced INR 132 crores. So accumulation of INR 255 crores. I'm not able to match the remaining INR 574 crores of debt repayment in the balance sheet. So can you please help me out how is it classified?

Sure, we can tell you the reconciliation. Basically, the current and noncurrent quantification in the balance sheet is in the long-term debt of residual maturity of less than 1 year, falling net installments in the next 1 year actually are into current asset side. So maybe we'll give you the -- I will ask Goutam to share with you these reconciliation also.

Sure. That would be very helpful. And the second question is that if you see in P&L, we are incurring finance costs of INR 480 crores, but actual cash outflow is only INR 340 crores. So the difference of INR 140 crores, is it pertaining to JSHL's [ entity ] which we are entering, but not giving out -- the cash flow is not flowing? Is that the case? And if that is the case, how do we -- do we plan to repay to JSHL? Or it will be adjusted in the merger itself?

You are right on your first part, this is because of debt. And as we mentioned, our merger scheme provides for cancellation of this entire loan along with the interest. So that's how the merger team was adopted. Therefore since now merger is just a corner away. So that's how this will get canceled in the merger process. So I think the bad debt, that's why I covered in my speech as well as Abhyuday, debt -- to look at debt combined entity numbers.

The next question is from the line of [ Namit Baya ], from an individual investor.

Abhyuday and Anurag, congratulations for a wonderful set of numbers quarter-on-quarter. I have 2 questions. One, what is your combined market share of the 2 entities right now in India?

Anurag, I think it's above INR 8,000 crores now. It's INR 8,400 crores, INR 8,500, I believe?

Yes. I mean, frankly I haven't checked the [indiscernible]. I see there's now INR 4,650 crores is the JSL market cap securing and INR 4,370 crore is for [indiscernible].

I'm talking about the market share, not the market cap. I was talking about the market share of your stainless steel products in the market.

I thought you're talking about total market. Okay.

So we have about -- you can say about 55% of the market share, 55% to 60%, and it varies segment to segment, but overall, we can say about 55% or 50% to 55%.

Okay. And do you see adequate growth in the industry to absorb the incremental capacity that you're putting up in the next 2 years?

Yes, definitely. We might even run short actually, because stainless steel is growing. It's the fastest-growing metal. It's growing almost at 8% to 9%. And with the infrastructure push that is given by the government, government has come up with some very good policies also to support stainless steel. Like one example I can give you is that any government project has to now calculate the life cycle costing before using any material. And when that is happening, or when that is done, then stainless steel is always a clear winner. So over the course of a project entity, costs will be recovered almost double or triple times as compared to other materials. So these policies with the infrastructure push given to the government and this, another thing that we have seen all across the world is that, as the economy improves, as the GDP improves, the per capita consumption of stainless steel also improves. So India is at a very low level of only 2.6 kg per capita, world average at 6 kgs. Developed countries, if I talk about, are about 18 to 20 kg per capita. So India, that has a very long way to go. Railway is completely stainless steel, switching over to stainless steel. Auto, with BS VI norms coming in, tenders will require it in all 2-wheelers, commercial vehicles, passenger vehicles, all that increased. So if we see in terms of demand side, there will be very good robust demand, and that we don't see as a problem at all with a capacity addition. Plus export market is available to us. We are the best-in-class quality, we compete with everybody in their own market for quality, and any dip in domestic demand, we can easily substitute and supply to Europe, U.S., Russia has become a very important market for us. Korea is opening up again. So we see no issue from our capacity addition side.

Okay. That's quite helpful. My second question is in part regarding the export competitiveness of the company on [indiscernible]. So I believe your export competitiveness has increased in the last 2 or 3 years. So one, what really has changed? And then if you are export competitive, then how does import dumping really affect the industry, if we are competitive at a global level, then import should not affect us too much, right?

So see, domestic market is still our strongest market. That is where we want to -- we have created a huge supply chain efficiency. We created warehouses all over. So that way, we don't feel imports will impact. It's not sentimental, that once people start importing and prices are a bit lower, then that just creates a negative impact from a sentiment point of view, and why have we been able to export is again because of our quality. We continuously work on our yield improvement, cost reduction, efficiency improvements, but the main reason we're able to get a good EBITDA is because of our quality. We are one of -- again, I'm saying we're one of the best. We're supplying almost -- biggest supplier to Gillette. We're supplying to auto industry all across the world. So that is the main reason why we're able to get good EBITDA margins. And people don't treat us like Chinese products. It's now if a Chinese company has to go sell in Europe or U.S., they really need to cut down their margins, really need to cut down on the price because they don't meet the quality standard. But because we meet the quality standard, we have a robust system in place. That is why they end up giving us that margin as well.

Okay. So ex of China, what would our rank be globally?

Ex of China?

In terms of stainless steel production, we're #2 in the world, actually, after China, India is #2 now.

No. The new scheme that you mentioned, the combined is...

The combined will be top 10. Combined entity will be in top 10.

So ex of China, if you remove Chinese manufacture.

Except China, we'll be in top 5, then I would say.

Okay. And our export EBITDA is comparable to our domestic EBITDA on what we sell in exports? Or is it lower, higher?

It fluctuates. Again, it depends on market to market, economy to economy. But you can say over the last few months, we've actually seen a little higher margin from export.

Next question is from the line of [ Saket Kapoor from Kapoor Company ].

And congratulations on doing all the good things at the appropriate time. Sir, if I could, just summing it up what the conversation we are having, sir, what likely should be the EBITDA per tonne on the export part, sir? Is it incrementally higher than domestic one?

Yes, no. Anurag can take this one.

Yes. Saket, basically, we have given a company wide guidance as a 15% to 17%. And as you mentioned, yes, we want to keep the flexibility between our export mix and domestic mix, depending on the margin. So since we have our very flexible product range and flexible production lines, we will always be trying to keep push to the -- our products in the market where we, at that particular time gets better EBITDA. So it will always be keep moving. So it's -- this is like for is the example of the auto, [indiscernible] in FY '19, they were not at a good profitable margin. But when the first lockdown opened, we saw that the auto [indiscernible] a better price. So we actually pushed into auto in India itself. And then we reduced our exposure. Similarly, but even in Q1, when Indian market was slow, we actually was morphed into the export market, because Europe and Asia was giving a good margin and it was taking a good uptake. So I think that's the way to look at it, overall, let us manage the mix between these 2 overall are within our guidance is 15% to 20% even are looking at as a mix. As Abhyuday mentioned, our priority will always be domestic market; that remains for us. And overall, we will be able to see a share on so a combined basis of 15,000 to 17,000 of EBITDA [indiscernible] .

Right, right. Sir, now with the exercise of debt reduction that has happened, what should be the absolute finance cost numbers before next year? Just a ballpark number. We have seen a significant reduction for this year. And now going on and we should be seeing upgrade also, sir, we should be looking for a revision in the [indiscernible] also?

Yes. So next year, interest cost should be less than INR 400 crore. In fact, it should be somewhere around INR 375 crore number. And because we will be targeting it that. So that's almost 40% sort of further reduction in our current costs.

Combined one, INR 375 crore.

Combined one. I'm talking about combined interest costs.

Okay. And reduction of 40% from these current year numbers?

Yes, close to 40%, it will be in [indiscernible] if you see...

I'll work out the math there, not an issue for that. And sir, as you told that we are managing the inventory by -- in the best way. So sir, just a ballpark number on a year-on-year basis. How has this inventory gain and loss played its part for the last financial year? If a basic understanding you can give, just to understand the [ regimes ] we used to place earlier, and now with the changes the team has done, what should be the likely number on a year-on-year basis, sir? How has the inventory movement attributed to the [indiscernible]?

Saket, as we mentioned, the EBITDA guidance which we are giving, as Abhyuday mentioned, obviously, we'll be considering any of the volatility which we keep getting, we never know what kind of volatility. So that's how we should be looking at the numbers.

Right. Sir, lastly, 2 points, small points. So one is on the -- how are the prices for the -- sir, I think the stores and the spares have -- has been an inflationary trend Q-on-Q. So what factors have attributed to it? And so -- and correctly, sir, how are the BFIs and these ferrochrome prices faring, sir?

Maybe Mr. Sood will also take the question.

Yes. Stores and spares, I would say there has been very tight control over the inventories, and this is being reflected in the balance sheet. You have seen the numbers. And about the [indiscernible] pipe electrodes, Saket, [indiscernible] pipe electrode has been steady at around below INR 300 per kg level. And in future also, we see it is going to remain so. So I think that was the last question. [indiscernible]

Okay. Okay, sir. And lastly, sir, since now the pro forma basis we are giving us the presentation, it would be more comforting for investors, if we get subsidiary updates also separately in the presentation, mentioning the volume, the EBITDA numbers and the significant highlights, because Abhyuday sir has highlighted about the Whirlpool story, so if that would also be just a...

That's a good point. Goutam, please take care of that for the future. I agree with Saket.

Yes, sir. That would be really very helpful. And sir, for the capacity expenditure -- okay. I can -- just so I just conclude, INR 1,100 crores CapEx, which you are doing, that entire amount will be spent for this financial year itself, sir? I just missed -- and then the capacity will commence, sir? [indiscernible] was telling me, but I missed it all.

Capacity, I mean it should be commissioned by September of FY '23, I believe, right, Mr. Sood?

Yes. The total plan, Saket, is not INR 1,100 crores. It is about INR 3,000 crores. And this year, the guidance is INR 1,100 crores. Partly, we are going to expand towards that CapEx, okay? And this commissioning of this new project will start coming up in September 2022.

There is no commission for this year. It's INR 1,100 crores will be spent and capacity work in progress only?

No, not for this.

The next question is from the line of Chetan Shah from Invesco Asset Management.

I have 2 quick questions. One, in terms of the CapEx, if you can give us any -- does the INR 3,000 crore also increase the CapEx we'll be doing in [indiscernible], or that's separately over and above this?

Sorry, Chetan, can you repeat your question again?

Yes. So I'm just trying to understand that this INR 3,000 crore CapEx which you talk about is our parent entity. Is there any plan to do any CapEx in our subsidiaries both in terms of Indonesia and Lifestyle entity? If you can give some flavor on that.

See Chetan, let me say that this INR 3,000 crores is -- as we said, it's still probably in a planning stage. It's not a firm number. It's not a rounded off number, something like that. Because if we give an approximation range as we have been saying, that approximate this could be the CapEx, but it will be phased out into payout will be phased out in 22, 24 months. Subsidiaries, we also do some of the smaller CapEx. But considering this, Indonesia may not be doing much of the CapEx this year at least, but still...

[indiscernible] CapEx next year at least.

Yes. Sir, my second question about the new CapEx for new capacity of 0.9 million tonnes. These are focusing more on better value-added product. So I'm just trying to understand that if my current capacity of 1.9 million give us on an average 15,000 to 17,000 EBITDA per tonne, can my lead capacity give you on the little on a higher side if everything remains steady and it has a better return and a cash flow opportunity vis-à-vis [indiscernible] one or [indiscernible] or I'm thinking like too much ahead of time. Sir, just to get your sense on that, please?

So see, in terms of -- see, because of our, again, strong fundamentals, continuous focus on cost reduction and our strong brand name that we get, we definitely feel we'll be able to maintain this EBITDA. Totally, continuously, we are focusing further on cost reduction, yield improvement, which should happen, more use of liquid ferrochrome, better [ keeper ] domestic raw materials which we get, then definitely, we'll be able to get a higher EBITDA margin as well. So the market is growing very strong, and segments are growing strongly as well. And then I don't see any challenge in maintaining this EBITDA margin at all.

Okay. Sir, just one last question and maybe a small addition. If you can [ read ] in our annual report of the merged entity, if you can articulate our dividend point because we are kind of out of the woods and no major financial burden in terms of utilization of cash flow which we will generate and also in terms of our future capital expansion, if you can give some sense on what will be our dividend policy going forward, if you'll give us some confidence as a shareholder and also a idea that how the going forward, the cash flow will be utilized at the entity level, if you can provide some...

Definitely -- that is definitely on the card for us. On the more entity, we would like to pay out some dividend. So Anurag, if you can incorporate that.

Yes, so maybe it's, as Abhyuday mentioned, and it's the same, that's what we will do once we get to a merged entity balance sheet once the merger is complete. I think we will surely look into your position and incorporate that.

Sir, just one last addition from my side if possible. Most of us try to grapple with getting the right pro forma numbers. And in our, just the 2 or 3 data points has been given, if you can share to all of us or maybe to a [ sheet ] the exit pro forma P&L and balance sheet, will help most of us to take care of things going forward with you. Rather than keep discussing your team for a few small data points. Just a humble suggestion.

Chetan, if you see, I think, just to be clear on this, I think we have shared revenue, EBITDA and debt number, I said pro forma numbers, because both the companies are separately listed, the full P&L cannot be published. I think besides this, if you have any number, I think, please let us know what is the number you need.

The next question is from the line of Vishal Chandak from DAM Capital.

Yes. Sir, my first question was with respect to the merger. Do we foresee any merger synergies coming into play over year in a significant way, given that these 2 operations are at a distant locations?

Anurag?

Yes. So see, the merger synergies, Vishal, as we mentioned, is that mostly the immediate synergies but mostly on the balance sheet side. So in terms of the overall interest cost of what we are doing in terms of the crossover of ITD cross holding and all this will go away. And that will be a more balance sheet optimization, right? P&L side also, there would be some synergies. I will not say immediately the large, but surely, I think, going forward, and as we get into a more into the early CapEx spending, that will -- you will start seeing a more P&L level synergies also and maybe economies of the scale cost efficiencies getting reflected in P&L. But immediately, the benefit of merger was more on as strong as balance sheet side.

Got it, sir. Sir, my second question was with respect to the CapEx. You mentioned that your growth CapEx for the next 2 years will be INR 3,000 crores. Does this reflect only the expansion at Jajpur? Or it also includes the CapEx that we have already announced on the [indiscernible]?

CapEx is more or less now completed and [indiscernible]. So I think it will be -- so maybe some of the regional payments will be there, but it's not much, actually. And this is mostly into the Jajpur [indiscernible], some of the cost efficiencies CapEx.

Okay. So would that also include the maintenance CapEx? Or if you could just help us with the maintenance CapEx?

Maintenance CapEx will be beyond this, probably. I think that typically we run a maintenance CapEx between the 2 entities, and that will also end up INR 250 crores to INR 300 crores.

Got it, sir. Sir, you also mentioned that we are looking at assets within India for an inorganic expansion. And given the fact that we have close to 50%-plus market share in the domestic market, aren't we likely to hit antitrust blockade the moment we put up anything for merger or acquisition?

That will be surely a part of the division and with the pre-approval whenever its substitution arise from proper [ CCA ] or something approval, those will always be with that. As Abhyuday mentioned, one of the largest assets is [indiscernible] government divestment. So it has to come with that comfort level.

And that would also mean you would cross close to 65%, 70% of stainless steel market share?

[indiscernible] forward because we analyze that part also. It's market-wide, it's a segment wide, but it's really not that overall effects, geographic, even not as something like that. So there are much more to this actually when we look at it. But yes, that will be surely with any inorganic will be with the [indiscernible] the approval from this part.

Got it, sir. And sir, if I may squeeze in one last question. With respect to any -- do we have any deferred tax asset in our balance sheet still which can be used up? Or we are now back to cash tax now?

We have some left. Maybe -- we have some left, but in FY '22 early, depending on the EBITDA guidance, we again, it may get adjusted in between. We'll ask Goutam to share with you the deferred tax effect. Goutam will share too.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you so much. I would like to thank everyone for attending this call and for showing interest in JSL and JSHL. The completing -- the complementing strength of the 2 companies would continue to improve our market positioning, supported by the strong growth in demand which is expected in the future. I hope we have been able to answer all your questions. Should you need any further clarification or would like to know more about the company, please feel free to connect with our Investor Relations team. Thank you once again for taking the time to join us on this call, and we'll insure that all your good suggestion and points will be incorporated in the next call. Thank you, everybody.

Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.