Jindal Stainless Limited (JSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Jindal Stainless Limited Q1 FY '27 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference call to Mr. Parthiv from Anand Rathi Share and Stock Brokers. Thank you, and over to you, sir.

Thank you, Parin. Good evening, everyone. And on behalf of Anand Rathi Group, I thank the management team of Jindal Stainless for this opportunity to host their Q1 FY '27 Earnings Conference Call. We have the following members of the management with us today. We have Mr. Abhyuday Jindal, Managing Director; Mr. Tarun Khulbe, CEO and Whole Time Director; Mr. Kunjal Mehta, CFO; Mr. Kapil Arora, EVP, Finance; Mr. Angad Khurana, Head, Investor Relations; along with Mr. Abhishek Tami, who is also part of IR team. I now hand over the call to Mr. Angad Khurana to take the conference call forward, followed by which we will open the floor for question-and-answer session. Thank you, and over to you, sir.

Thank you, Parthiv. Good day, everyone, and thank you for joining us for the company's Q1 FY '27 earnings call. I hope you all had a chance to review the results and the company presentation uploaded on the exchanges and on our website earlier. Our discussion on the call will follow that presentation. Before we begin, I would like to remind you that some of the statements made today may be forward-looking in nature and are covered by the disclaimer on Slide 2 of the earnings presentation. Joining me on the call today is our senior leadership team, who will take you through the key business developments and the performance for this quarter. After the remarks, we will open the floor for questions. With that, let me hand it over to our MD, Mr. Abhyuday Jindal, to take you through the highlights. Over to you, sir.

Thank you, Angad and a very good evening to everybody. I would like to welcome you all to the Q1 FY '27 earnings call. I would also take the pleasure to introduce our Group CFO, Mr. Kunjal Mehta, who has joined us last quarter, and I'm sure you would see all of -- I mean, you would be meeting him physically over the next few months and quarters. I will begin by outlining the key business highlights for the quarter ending June 2027 and the progress we continue to make across our priority sectors. Following that, Mr. Khulbe will take you through our operational and financial performance. Our sales volume in Q1 FY '27 remained resilient year-on-year despite a challenging operating environment marked by industrial gas supply constraints and logistics uncertainties due to the Middle East crisis in the initial weeks of the quarter. In the domestic market, JSL delivered a resilient performance, supported by steady demand across key end-use sectors such as automotive, railways, metros and white goods. Building on the strategic brand transformation initiated last year, we continue to strengthen JSL's consumer-facing presence while reinforcing our market leadership across the stainless steel value chain. During the quarter, we launched a nationwide print and television campaign featuring our brand ambassador, Ranveer Singh, significantly enhancing brand visibility across key markets. We further amplified our engagement through our association with Sunrisers Hyderabad through co-branded digital content, on-ground stadium branding, social media collaborations and customized retail activations. In addition, we expanded our presence on marquee sporting platforms through strategic partnerships with Jio Hotstar and Star Sports as the official Super 6 partner, Super 6 partner for the India versus Afghanistan series, enabling large-scale audience reach and brand recall. Together, these initiatives will help strengthen top-of-mind recall, support channel partners through co-branded outreach and enhance long-term brand equity as consumption-led applications of stainless steel scales up across India. Stainless steel demand in the passenger coat segment continues to be supported by the ongoing transition from [indiscernible] to austenitic stainless steel in Vande Bharat train sets, further driving higher demand for value-added stainless steel grades. A key development during the quarter was ICF Chennai's specification for the K-Rite project in Karnataka, which mandates the use of high-strength austenitic stainless steel for both coat shell and underframes, further expanding stainless steel applications in railway coats manufacturing. The ornamental pipe and tube segment is expected to benefit from improving market sentiments in the coming months, supported by enhanced channel engagement, focused market initiatives and increasing downstream visibility through digital partner programs. On the export front, global trade sentiments remain dynamic and regulatory challenges changes, evolving trade policies and geopolitical developments across several regions. Despite these headwinds, JSL demonstrated strong execution capabilities, delivering robust volumes on a quarter-on-quarter basis while maintaining a focus on expanding into markets such as Japan, South Korea, European Union and Americas. Quality standards are fundamental to ensuring public safety, product reliability and the long-term strength of India's manufacturing ecosystem. Continued clarity and consistency in the quality control framework will be important in maintaining a level playing field and supporting quality-focused stainless steel players across the value chain. We remain optimistic that the regulatory framework will continue to evolve in a manner that balances the interest of consumers, manufacturers and the broader economy. Volatility across the globe continued to shape energy markets and global supply chains. Unavailability of industrial gases and logistical challenges negatively impacted industrial activity last quarter. And while the situation has improved, we continue to proactively track the developments on these fronts. On the topic of sustainability, we continue to make steady progress on decarbonization road map during the quarter. Our Hisar facility achieved a 12% year-on-year reduction in greenhouse gas emission intensity. upgrading to energy-efficient ancillaries and commissioning advanced waste heat recovery systems enabled this feed. These effects -- these efforts reflect our continued commitment to building a cleaner, more sustainable and energy-efficient business while remaining firmly aligned to our long-term net zero ambitions. With this, I would like to hand over to Mr. Khulbe to discuss our operational and financial performance. Thank you.

Thank you, Abhyuday. Good evening, everyone. Welcome to the call. I would like to begin by providing a detailed overview of our operational and financial performance. JSL reported a resilient consolidated financial performance in the first quarter of FY '27. Revenue, EBITDA and PAT all grew year-on-year 10.5%, 1.4% and 7.7%, respectively, despite a challenging operational environment, where there were multiple complexities like industrial gas unavailability and logistics uncertainties. These 2 factors, particularly the gas crisis that impacted production balance in the first few weeks of the quarter, impacting our finished goods sales volume, which were down by 7.3% year-on-year. Amid severe gas shortage during the first few weeks of April '26, JSL's focus remained on value-added product mix and thinner product segments during the quarter, supporting the company's profitability. Our subsidiaries also saw production disruptions during the quarter, but despite the challenges, they supported the group's overall EBITDA. As a result, we are pleased to report a stronger balance sheet. At the end of the quarter, our consolidated net debt has further reduced to INR 2,950 crores with a net debt-to-EBITDA ratio at 0.53x, comfortably below 1 and a net debt-to-equity ratio of 0.14x, reflecting our prudent fiscal management. All our announced CapEx plan remains on track and adhering to stipulated Hisar and Karur are progressing well. We also continue to stabilize production and certifications of our recently commissioned 1.2 million tonnes per annum stainless steel melt shop in Indonesia. With our large projects progressing well, we remain fully committed to deliver on our sales volume target of 3.5 million tonnes per annum by FY '29. To mitigate risk, the company is taking active steps in diversifying its energy mix such as introducing pipe natural gas to our Jajpur plant. Similar plans are on track for our Hisar and Ghaziabad facilities as well. The company is also looking at further expanding its green hydrogen capacity at Jajpur with the previously announced 600 mmtu per hour project with Green Energy expected to be commissioned in this quarter. We remain positive on the India SSS story. Even in an uncertain macro environment, sales grew in automotive, appliances and white goods, railways and metro segments. We continue to see strong long-term demand momentum in upcoming sectors like nuclear, semiconductor, ethanol, desalination plants, LNG terminals, robotics, EV and green energy. With our ethos rooted in quality, customer service and cost leadership, JSL remains poised to be the leading domestic stainless steel company for years to come. On that note, I conclude my remarks and invite the moderator to begin the Q&A session. Thank you.

[Operator Instructions] The first question is from Amit Dixit from Goldman Sachs.

Congratulations for delivering robust numbers despite a very challenging macro environment. A couple of questions from my side. One is on the sales volume, while we saw a decline in this quarter because of obvious reasons. Now how confident we are of delivering 8% to 10% growth in FY '27 on sales volume? And is that we also saw an impressive surge in exports. So was it something opportunistic? Or do we see it continuing going ahead that exports would remain around 11% of our sales volume?

Thank you, Amit, always for your question. So as of now, because we are still -- we had given our guidance for H1, we would still like to stick to the numbers that we had began the year with. And we're quite confident that we should be able to achieve. But if any change is there, then in H2, I would be coming up with fresh numbers. And from your export query, so as per absolute volume, export has stayed consistent quarter-on-quarter. It is only because of this lower base of sales, percentage in export is looking slightly higher, and we would like to maintain this volume of export because as you know, EBITDA maximization is always going to be our strategy and export does help us in maintaining that.

Okay. That's wonderful. So the second question is that about this 1.2 MTPA project in Indonesia, which Mr. Khulbe alluded to in his remarks. Just want to understand when will the contribution from that project to start in terms of additional sales volume? And also if you can highlight the performance of Rathi Steel in this quarter?

So Indonesia, our steel melt shop, now it has started ramping up. This is what I will say. And here onwards, gradually, the sales will start coming up from there because it was under some local approvals and certifications, which were required for the shop to do the business that was the process it was going through. So now I think we are reaching to a stage from where the volumes will start selling. So far as Rathi is concerned, there the quarter 1 was impacted again by the fuel as well, and that is why the capacity utilization was lower. Otherwise, from the operations point of view, we were already hitting Rathi capacity utilization at around 80%.

The next question is from the line of Alok from Motilal Oswal. Just had a couple of questions.

So first is on the sharp increase in the power and fuel cost, which is mainly the gas price increase. So what is the cost -- how is the cost trending now in the second quarter? Would we see a very similar trend of first quarter continuing? And so where could we see the EBITDA per tonne moving because from the current levels of 1Q? That would be the first question.

Okay. So see, the gas cost, what -- I mean, like in our case, it was more of propane and LPG because that is where the restrictions were imposed by the government, and we were compelled to buy from the open market whomsoever was having the cost and the prices went even to the 3x before the war started. Now 2 things have happened that, one, we reduced our dependency on propane and LPG by -- because we started using pipe natural gas in our Odisha plant. That process we started. And also, the prices have also toned down than what the peak we saw -- now to answer your question that whether it impacts EBITDA per tonne, basically, these kind of costs increase, we try to pass on to the customer in both ways, either when they go up or when they come down. So practically, that is how we normally do the business.

Got it. And also, we had guided for around INR 18,000 to INR 20,000 of EBITDA per tonne during the first half. So does that number stand revised now slightly higher in higher end of the range?

Alok, we would still be sticking to that. We would still be sticking to the guidance that we started with. And if any change required, then the end of next quarter, I will come back with fresh numbers.

Sure, sure. Just last question. So any color on the volume growth we could see for -- we are targeting for this year based on the various issues related to production and geopolitical situation, what kind of volume growth.

Definitely, there was a dip like we shared already because of these uncertainties and gas shortage in Q1. So we are trying to make up those shortfall and the volumes. And again, by Q2, I will come back with exactly what we feel the year-end would look like.

The next question is from the line of Sumangal from Kotak Securities.

Just continuing on the previous one, is it possible to share what was the volume impact because of the gas shortages? And was there any cost inflation that could not be passed? I mean, I believe given that there will be some bit of lag in the pass-through. So had this issue not been there, what -- how the quarter would have shaped up just based on our estimate?

No. I mean, definitely, if you ask if the situation had not been come, then we would have delivered on our volume guidance and volume growth as we had discussed. So that is the major impact that we saw. And yes, it is definitely a pass-through mechanism with a certain amount of lag. So with this substantial gas increase, which India saw and we did not see our neighboring countries or competitors impacting that much to the level that we got. So we were not able to pass on maybe 100% of the gas price increase.

Okay. So both margins and volume would have been better?

Volume definitely would have been better. That much I can tell you. Margin is a factor of multiple things.

And say, from 2Q onwards, are we going back to normal or it's going to be a gradual recovery? In terms of Q2? In terms of volumes.

No, it will always be a gradual recovery. There is no magic wand that we have that suddenly you can create that. So it will be a gradual recovery over the next few quarters.

Got it. I have one question with respect to Europe. So generally, I just want to understand, I mean, how is the CBAM implementation evolving? And how is it shaping for us as a geography?

So we have kept ourselves absolutely ready. We have got all the verifiers that are internationally accredited already with us. What we are waiting for is still European Union to appoint the verifiers. So we, as a company, like you know, we've already spoken about how we've invested in renewable energy, green hydrogen. We are anyway a scrap-dependent player. So we are keeping ourselves absolutely robust and ready every time whenever we've got from DJSI, Sustainalytics or S&P-approved agencies, Everywhere, our scores are coming on the higher side and top of the industry numbers. But directly to say what European Union, we are still waiting for them to appoint the verifiers. And we will maintain because now European Union has also reduced the quota, and we are quite confident that we will entirely meet that quota requirements ourselves.

Got it. And out of the 10% volume mix, how much would be Europe in exports?

Almost 40% Okay. Europe and U.S. combined is around 60%. So yes, you can take it fluctuates between, if I say Europe, 30% to 40%.

We already developed other markets.

The next question is from the line of Pinakin from HSBC.

My question is essentially that in the medium term, when do you expect to start new CapEx programs given that your balance sheet has improved materially and cash flow generation remains strong?

So already, Pinakin, we, over the last few years, have been regularly investing in our CapEx. And as of now, the main focus is to increase our downstream finishing cold rolling capacities. So by next year, you will see an increase from 2 million tonnes to at least 2.6 million 7 million tonne increase in our downstream cold rolling capacities. Actually, our this year CapEx plan is also what we have provided the guidelines is around INR 2,800 crores, which is on course. And all this is basically to create this downstream more value-added products. Cold rolling is what the market demands, and that's where we are investing.

And when do you expect to have more clarity on the Maharashtra investment?

So Maharashtra investment, actually, unfortunately, we can say that we are still working on the land in India, land acquisition, particularly at the scale at which we are trying or we have to looking at the kind of plant we have to set up, takes a little bit of time. Maybe give us another 1 or 2 quarters, and then we'll come out with our detailed plan on the Maharashtra. Things are progressing well. It is definitely taking more shape every quarter. But I think we still need another quarter or 2 until we are absolutely clear cut on our plan.

Like I said even last time, I don't want to mention something and then come back and revise it again and again. So once absolute clarity and confidence is there, then I would first myself approach all of you to commit and give that clarity on Maharashtra.

The next question is from the line of Satya Jain from AMBIT Capital.

Just on the volume guidance, I know you updated the guidance at the end of 2Q, but maybe can you share what the volume growth looking like in the last 2 months, maybe June and now July also? Is it possible to share direct what's -- so that it's easier for us to gauge where the volume growth is...

It's too early to share these numbers. If you give us another quarter, Satyadeep, then definitely I'll come back.

On the export, you mentioned you're developing other markets, South Korea and all is what we saw.

Is it specific area... Sorry?

Are these similar profitability as compared to in terms of...

No, no, absolutely. We are only targeting these markets if we are seeing substantial margin improvement and margin increase in those areas because 2 things as our philosophy always mentioned, domestic market is our focus and priority. And second is EBITDA maximization. So in these geographies, we will only go and we will sell limited products. We cannot compete with the local selling vanilla grades of stainless steel -- so we will only sell those grades or those products where we're getting a good margin profile, which is why we're targeting countries like South Korea, Japan, Brazil, which has the ability to pay us good margins.

Do you see potential for -- I know export mix had been stagnant for the past few quarters, and you also have the CBAM in Europe. Is it possible that given these new markets, the export percentage increases for you in the next couple of years?

Export percentage, again, we don't see a major increase because domestic will be a priority. So that's why the first or maximum allocation will be given to domestic market. And then only we will look at export. Plus these geographies will take a little larger times to increase the volumes. Entry in Japan has been very good. Korea, we have a good presence. But to further increase volumes, I think it's over a few quarters that we can target only if we are not able to maximize supply into domestic market.

Okay. And the HRAP is it on time for commissioning towards the end of the year? In the SMS also that you commissioned given what you're seeing right now, do you expect the SMS slab from there to come to India, which means that you maybe replace it with your own EAF...

You have to understand that is never the case to replace our own melting per se. So it is again, wherever we're getting the lowest production cost and cheapest cost, we will try to maximize that. But we will continue to melt in India also and increase our melting in India also and source slabs from our asset in Indonesia. And HRAP and all our other CRAP downstream projects are absolutely on track. And every few months, they are coming on stream.

And just -- I mean, one more point, let me tell you that we always have the flexibility to bring even HR coils from Indonesia in place of our slab or getting converted depending upon the need. That flexibility remains with us.

The next question is from the line of Ritesh Shah from Investec.

First, a few questions. First, any update on antidumping duty, QCO, how are we looking at it?

Dialogue with the government is on and is constantly happening. Antidumping, we had a meeting a couple of weeks back with DGTRBG, and it's definitely moving in the positive direction. They are appointing verifiers now. And I hope next few months, I'll have more clarity to provide also. And yes, public hearing is scheduled for 9th September also for that. And Ritesh, what was your second question? Antidumping was one. And QCO. QCO, I think, again, it's something that we are in dialogue with the government. We expect that this extension that we have given to March should not be further extended. We have gone and explained to them that how important QCO is for good quality material to come in the country. We don't want our products, infrastructure to be built on Chinese substandard products. So there is some level of realization. I think it became a larger topic because QCO was not suspended only on stainless steel, but a plethora of goods and goods that were coming into the country. So I believe now government is understanding and realizing. But I feel on QCO until March '27, we will not see any reversal. After that, is what we're trying that it should not be further extended.

Sure. My second question is on CBAM. Would it be possible for you to quantify what is our exact carbon intensity for both the plants separately? And is there a specified benchmark number that we are aware of set by European Union?

So I think I will ask Angad to take these 2 questions offline with you. I don't have the immediate figures in front of me, but there is a lot of work done on this, and I'll ask Angad to update you separately on this.

Sure. Just a related question. What is our scrap feed right now, say, for last year, full year and Q1 FY '27?

So at Hisar, I believe it is around almost 85% to 90% at Hisar and at Jajpur, it is 70%, 75%.

This is for Q1 or for last?

This is... In general, I'm saying Q1 should also have been the same. I don't have immediate Q1 numbers. But generally, that is what we target and a scrap maximization is always our target. And secondly, just again I was just going to say from the export and European Union front, just for everyone's clarity, it is not CBAM that is going to impact our numbers in any way. It is more that this quota that has come. That is why European numbers will look lesser than what it was earlier.

Sure. And the scrap that we are using right now, what category does it fall under? Is it pre-consumer or post-consumer scrap?

You have to explain it to us also what this means, Ritesh, even I'm not aware of this.

Yes. So I'll give a call, there's a new amendment which has come up, which doesn't allow pre-consumer scrap, but I'll call you, sir, after this call. Sir, I'll just move to the next question. Specifically for RKEF, any -- if you could provide some detailing around how the contribution was. The reason I ask this is to what we understand is the Indonesian government has changed its benchmark on nickel ore. So it would have had impacted the profitability over here. So I think last quarter, we did give some range on what the profitability could look like. Does that guidance actually change? Was it very different? And what does it mean going forward?

Well, Ritesh, this -- of course, RF business always and we all know that nickel being very volatile, so this business is volatile. And as we always say that this business mainly gives us security of the raw material availability. In fact, you all must have heard that even when Mr. Modi visited Indonesia now they were signing an MOU for the plant to -- on the similar line what we have already invested. And a couple of other international players like COSCO are also going over there to invest because these are very strategic investments and requirements, nickel being there. However, coming to the profitability, as we had indicated that last 2 quarters, even last quarter has been positive on this business and it has -- the EBITDA has been positive from this business.

Okay. And lastly, you indicated basically ongoing projects at Jajpur, Hisar and Kharagpur. So would it be possible for you to provide some color around capacity and time lines over here?

I think every quarter, if I tell you, there are at different stages, every quarter over the next, let's say, 1 year, some new equipment in each of these facilities is coming up, starting with, I think, Jajpur first, then Kharagpur, then Hisar. And then 2.6.

And then all this, like already Mr. Jindal stated before that with all these investments, eventually, we are targeting our cold rolled capacities to take to 2.64 million 2.67 million by FY '28.

The next question is from the line of Ashish Kejriwal from Nuvama Institutional Equities.

Congratulations on maintaining profitability in this environment also. Sir, my question is on scrap purchases. Is it possible to share how much percentage of scrap we use do we purchase from Europe? And are we seeing any bottleneck going ahead in that?

So Ashish, this is the maximum effort that we did over the last few years is on our supply chain. And if I can tell you, practically, maybe less than 2% or 3% comes from Europe, which is not available in, let's say, in this part of the world. Our scrap strategy is domestic and Southeast Asia and almost 90% to 95% of our scrap comes from this market. Certain quantities come from Europe and U.S. as well, but very limited.

Secondly, in terms of our blast furnace, which was about to come at the promoter level, any color which you can give, whether that has started or it started.

As you know, this is a JSL Limited call. Anything on the private company side, I would be happy to take it all separately. You can always get in touch with me, and I'll be happy to answer your question.

Sure, sure. Lastly, in terms of your products because you are saying that every quarter, we are going to commission one of the other plants. So is it possible to share like, for example, HRP plant, which was 1.1 million tonnes, at least when that is going to start because that was in the first phase of the plant, which we expected first half of FY '23.