Jindal Stainless Limited (JSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Jindal Stainless Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on the Q3 FY '20 earnings conference call of Jindal Stainless Limited. We have with us Mr. Abhyuday Jindal, Managing Director; Mr. Anurag Mantri, Chief Financial Officer; and Mr. Goutam Chakraborty, Head, Investor Relations, of the company. We will begin the call with brief opening remarks from the management, following which we'll have the forum open for an interactive question-and-answer session. Before we start, I would like to state that some statements made in today's conference call may be forward-looking in nature, and a disclaimer to this effect is available in the results presentation that was shared with you earlier. I would now like to invite Mr. Abhyuday Jindal to make his opening remarks.

Thank you, Anoop. Good afternoon, everyone. On behalf of the management team of Jindal Stainless Limited, I would welcome you all -- I would like to welcome you all to this forum. First, I would like to share the key highlights for the period, following which Anurag will take you through the operational and financial highlights of the quarter ended and 9 months ended on 31st December 2019. Let me start with the stainless steel scenario. During the 9 months, the domestic industry continued to face challenges due to irrationally priced and high imports, particularly from Indonesia and the subdued demand from certain industries like auto. Despite the current challenging industry scenario and Q3 being a seasonally weak quarter for us, JSL has been able to deliver healthy volume and maintain its market share. This was due to its resilient business model, robust product mix and diversification into specialties. We welcome the initiatives taken in the recent budget on [ centering ] anti-circumvention and affirmative action on injury to the domestic industry. The acknowledgment of the impending import issues under India's active FTAs in the Union Budget is a positive move in favor of the domestic industry. I would also like to highlight here that the imposition of countervailing duty on imports of stainless steel pipes and tubes from China and Vietnam has resulted in a significant decline of imports of these products into the country. Additionally, we are also happy with the announcement on allocation towards national infrastructure pipeline, transportation infrastructure and other spends on infrastructure developments, which were made in the Union Budget. As usage of stainless steel continues to gain momentum in various sectors like ABC, automotive, railway, transportation, consumer durables and process industries, we are confident that consumption rate will remain healthy for the foreseeable future. Now moving on to company-related developments. During the quarter, JSL received all necessary approvals for the capacity expansion to 1.1 million tonnes from 0.8 million tonnes. This expansion was undertaken through equipment and process debottlenecking, for which the company incurred a nominal CapEx of only around INR 50 crores. With this, our volume growth projection remains intact. In 2020, Jindal Stainless will turn 50 years. We cherish our legacy as an institution that has created a world-class integrated facility, pioneered advancements and made India self-reliant -- made India self-reliant in stainless steel. The company has heard -- earned multiple recognitions for its state-of-the-art manufacturing facility and visionary leadership that has enabled it to offer wide range of stainless steel products of the highest quality. The necessary initiatives undertaken in the recent past, to develop newer international markets, has enabled us to increase our market share in Middle East and Russia during the quarter. To conclude, we remain cautiously optimistic in the near term and believe that inherent strength of our business coupled with our leadership position in a sector with enormous opportunities should enable us to create tremendous value for all stakeholders in the next 2 to 3-year horizon. With this, I will now hand over to Anurag, who will take us through the operational and financial highlights of the quarter and 9 months ended on 31st December 2019. Thank you.

Thank you, Abhyuday. Good afternoon, and a warm welcome to everyone joining us on the call today. I will briefly take you through the company's operating and financial performance for the quarter under review as well as for the 9 months ended 31st December 2019. During Q3 FY '20, JSL registered an encouraging 17% year-on-year increase in sales volume, which stood at 239,283 metric tonnes. This was largely due to the JSL's robust product mix and an increased diversification into special grades. The company's ability to actively shift its product mix to cater sectors witnessing an uptick in demand has largely assisted in improving the -- improving its volume. However, despite registering a decent improvement in the volumes, the company's revenue performance largely remained flat. As Abhyuday mentioned, this was largely due to the pricing pressure we witnessed due to irrational dumping happening into the country. Additionally, the strict antidumping laws in countries like EU and U.S. results in leading various Chinese players operating out of Indonesia and other Southeast Asian countries to target India as the potential market and residual dumping ground for stainless steel products. Therefore, we strongly believe that the government must proactively review all the FTAs provisions to strengthen and ensure the level playing field for the domestic industry. Despite the challenging conditions and seasonal cyclic -- cyclicity, EBITDA for the quarter registered a strong 33% increase on a year-on-year basis at INR 302 crores. EBITDA per tonne improved to INR 12,640 in Q3 FY '20 versus INR 11,149 in Q3 FY '19. Improvement in operational efficiencies enabled the company to report a healthy operating profit. JSL's focus on deleveraging -- deleveraging is enabling us to consistently reduce its interest cost. The interest cost for the quarter stood at INR 140 crores, registering a year-on-year decline of 5%. Net profit for the quarter stood at INR 56 crores as against INR 52 crores in Q3 FY '19. On a 9-month basis, net revenues from operations were stable at INR 9,416 crores as against INR 9,334 crores in 9-month FY '19. EBITDA stood at INR 933 crores, which was up by 12% from the corresponding period. In 9 months FY '20, the company reduced long-term debt by around INR 355 crores, which led to a decent reduction in the interest cost. Accordingly, the profit after tax for the period was INR 175 crores. On the balance sheet front, our net debt stood at INR 3,597 crores as on the 31st December 2019. We have repaid INR 435 crores of long-term debt in the last 9 months, and we will continue to focus on the healthier balance sheet. To conclude, we have successfully overcome certain external macro challenges over the past few quarters and have registered an improved performance despite the quite challenging market condition. Given the healthy demand outlook for stainless steel and our dominant position within the sector, we are confident of further improving our -- upon these results going forward. The company has already been able to reduce its debt as per the plan, and it is our endeavor to further strengthen the balance sheet position on the back of healthy cash flow generation. This brings me to end of my address. I would now request moderator to open the line for the Q&A session.

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

And congratulations for a strong set of numbers in a challenging quarter. I have 3 or 4 questions. The first one is on volume. So as I see, we have already achieved 695 kt in 9 months. And even if we stick to a very conservative volume growth for the last quarter, we could be well at around 950 kt for FY '20. Is it a fair assumption?

Yes. Amit, that's a fair assumption to take. So last quarter, we did around 2,39,000. And as you heard that if we repeat the Q4 with the same, even similar volume, not the increased volume, I think we should be able to fairly deliver the 10% growth on a full year basis, which we have been guiding consistently since our quarter 1 call.

And for -- talking about FY '21, assuming if we grow at industry rate, of course, we have been growing higher than that, and in terms of 1.1 mt is also complete, so can we go up to, let's say, 1.05 or around that by FY '21?

See, our endeavor is to deliver at least 10% growth also in FY '21. So -- and we are well poised -- capacity-wise, we are well poised to target that. I think since we have a robust product mix, depending on the market condition and also the -- how the situation in the dumping -- on the dumping side remains, but yes, Amit, 10% is a fairly safe bet to assume for FY '21.

Okay. On debt side, we have seen that while external long-term debt and short-term debt has been coming down. And today is a continuous deleveraging. But OCRPS liabilities have been going up. Just wanted to understand why don't we pay off this OCRPS and end this ballooning, which has been continuing and stresses the balance sheet per se? And as per the pricing formula, if I understand correctly, we're also at the risk of equity dilution. So why don't we just end this OCRPS?

Yes. No, I think it's been a suggestion. So our endeavor is to pay the OCRPS. So let me put it in 2 parts. One is that yes, Amit, in terms of the risk of addressing the dilution on the further equity, which we have to -- because we have a redemption right until October '20. And we must pay this OCRPS. Now in terms of the debt, why it's increasing, because that -- because OCRPS, we will be able to pay right now only from the external debt. So because from -- we'll have to pay in one go, the entire INR 558 crores of the principal, principal is the INR 558 crores. And almost INR 200 crore is the accumulated recompense on the OCRPS. So technically, we'll have to pay almost INR 720 crore approximate of amount to one-time settle this. And first, let me address why it's increasing because we -- whatever is the interest accruing, we are not paying right now, and that interest is getting accrued in the debt itself. Therefore, our debt shows the increase. So eventually, it's only -- it's not actually a principal increase. It's only the interest accumulation which is happening, so from that perspective. Now when we -- so when we get -- we are in the process of as we last time shared, that we are in the process of getting the external funding tied up, and we are in discussion -- advance discussions with a few of the players, and we will soon -- we hope to soon address this OCRPS problem. Now this will also -- but the debt will not reduce, because this new debt will replace exactly the same debt. So overall, balance sheet-wise, you will see the similar amount replacing then by the newer debt, but yes, without the optionality of the conversion. So we will replace with the pure debt rather than the optional convertible structure. And we have time until October 2020 as per the time line. So that cannot be converted before November 2020 by the bank. And we are well placed right now. And soon, we will -- I think we hope to close the deal soon to get this refinancing done. While it's a fair question, I think that's primarily our foremost agenda right now to address this OCRPS.

Great. In this quarter, we have achieved the highest ever volume in the history despite considerable import pressure and auto segment not doing great. So I just wanted to understand the split between different series, 200, 300, 400, how much export was there as a percentage of total sales?

Export, you can say, Amit, was still about 17% to 20% of our total sales and definitely, we saw an increase in Europe for that. I mean there is a quota system, so we're meeting our complete quota numbers. And series, it still remains the same. You can still see 300 series about 35% for us. And 30% for 200 series. Quarter 3, sorry, quarter 3, 300 series almost 45%. For us, 200 was 32% and 400 was remaining, almost about 25%.

Great. That helps. One last question, if I may. You talked about in your press release about the raw material strategy in order to optimize the raw material cost. So what are the changes that you are focusing on, I mean in the raw material strategy? Because raw material cost, I understand, is a very important component of your business.

Basic strategy, what we're trying to do is because all our raw materials that we get, most of it is coming from very far off places, we're trying to reduce the lead time. So instead of sourcing from Europe and U.S., we have started sourcing from Southeast Asia, Middle East and more and more from domestic. So by reducing the lead time, we can take care of the price volatility that happens. And also, then what we have also started doing is, we started getting big trading houses, big suppliers to set up yards inside our factory, and we started a pay-as-you-use model. So they are stocking material for us, and we are paying real time and using that material. So even that helps us in creating or reducing that price volatility. So basically, we're trying to reduce our working capital requirement in this way by bringing our raw material sources closer and focus is on strategic raw materials. Like we have completely done away with using pure copper now. Pure nickel, pure copper, all pure items of raw materials, we have moved away from, and we're looking at alternate strategic sources of raw materials.

The next question is from the line of Ritika Garg from Aequitas Investments.

Sir, I wanted to know, we grew 17% in volume terms in this quarter and imports also surged. So what rate did the industry grew at?

Industry is growing at about 8%, you can say. 7.5% to 8%.

Okay. So then how does it explain the surge in imports? I mean because as volume growth is also 17% and imports also grew considerably, right?

Yes. So imports also is growing. So basically, what we are saying, that overall there are also unorganized set of market, especially in the 200 series, there is a large sort of Hollowware segment. So that is also what we believe, because a lot of growth remains unreported. I think that's growing at a much faster pace. And a lot of import are actually backfilling that. So I think you are absolutely right, that we are actually capturing our market share, but we have a potential of capturing much more than that. And we have been now, right now, able to capture only the market share only to the extent of the growth part.

And actually, one thing that happened was basically that the -- company that has set up in Gujarat now, they brought in a lot of material in one shot. So that is why there is such a high surge in imports. And now over the next few months, that has drastically come down. So that is why they brought in more than material that was required. So that's why you've seen that percentage go up drastically.

Okay. So those -- the Indonesian player has started operations?

They have started operations, yes.

Okay. And what is their capacity like?

Their capacity, you can say, is about 30,000 tonnes a month, 30,000 to 40,000 tonnes a month. Cold-rolling capacity.

It's only cold-rolling, Ritika.

It's a ramp-up, just -- we can't say that today from day 1, they will start supplying 40,000. So it's ramping up that's happening, but operations have started.

Okay. And which series would they be doing?

Their focus will be almost 90%, you can say, on 300 series, 90% to 95%.

Okay. And this time, I saw we've done more of 200 series. 200 series has a lower realization, right?

No, 200 series actually is now, because there is less competition in it, it gives us a better realization, and we are also targeting supplying directly to consumers. Rather than giving to the trade market, we are now going to OEMs to more direct -- consumer directly. So our realizations are coming better in that.

Okay. Now my next question is regarding raw material supplier. I understand like we get a lot of our stainless steel scrap from Southeast Asia, I mean from the East Asian countries. Are we seeing any impact because of, like, coronavirus?

Until now, honestly, we have not seen any impact of coronavirus on our raw material supplies. But even if we start seeing, we have alternate already geared up. So in case that impact does happen, we will switch to our alternate sources. So scrap is available all over the world. Because Southeast Asia was more from the idea to reduce our cost and to add that benefit, but until now, to date, we have not seen any sort of reduction in supply from Southeast Asia. And China, we were anyway not getting any scrap.

So more than reduction in supply from Southeast Asia, I think, wouldn't transport be your concern?

Transport in terms of lead time, you're saying?

Yes.

No, that is definitely a concern, but the priority is that we need to keep our factory running. So if because of virus, countries ban import or export or something, then only we will go for alternate and go for Europe or further off sources. But to now, we're not seeing any challenge and even our suppliers have not given us any intimation that some challenge could come.

Okay. And what about dumping? Are you seeing like reduced dumping in January, February because of this? So how is this? Like what is the...

That we are already -- we are already seeing that, actually. If you see, just to give you a ballpark figure, imports used to be the tune of 45,000 to 50,000 per month. And in January, we saw imports about 25,000 to 30,000. So already, we are seeing that impact.

Okay. And EBITDA per tonne, can you tell me that what would be the hierarchy for 200, 300 and 400 series?

See, because if tonnage-wise, what happens is that -- so they are -- let's split in 2 parts. One is the revenue realization. Revenue-wise, the pricing-wise, 300 is the highest-priced product because of the high nickel quantity because the raw material is also high. And it comes to 200, and then it comes to 400 series in terms of the absolute sales realization. However, in the margin side, as Abhyuday mentioned, now 200 has also picked up as well, and then depending on how we see pressure coming on the CNV, because of our robust product mix, we are very agile in terms of shifting our product mix and the segment very fast in terms of and keeping our pace with the margin as well as the volumes. Now with that tightening now, right now, 200 series margins are also coming at a very good pace, which used to be a lower, but as Abhyuday mentioned, it's now -- we are seeing a more normalized margin in 200 series also.

Okay. And I saw that you have reduced debt to the tune of INR 375 crores. But in terms of long-term debt, I see that most of your foreign currency debt has been reduced.

You are absolutely right, because as per the repayment schedule, the largest repayments out of the INR 500 crores repayment annually, almost 50%, INR 250 crores plus, actually, more than 50%, is of the foreign currency debt.

So the interest impact, when will I start seeing interest cost reduction in our numbers significantly?

So if you see 9-month basis, that's a better view because what happened, the repayment of ECB actually happens at the October, November. So very [ tail end ] of the time. So -- but if you see the like-to-like period, 9-month, you are seeing -- you can see the interest cost reduction.

Okay. Can you tell me what would be my cash outflow for interest cost in the 9 months of FY '20 versus 9 months of FY '19?

The 9-month -- no, cash -- so let me give you the interest number, because in this OCRPS' interest is also included, which is not paid in cash, but I mean -- you mean to say the total interest.

Yes. What is the total, sir? No, I don't want to know the ForEx impacts and everything, because that really distorts the whole analysis.

Yes. So no, no, ForEx impact is not included. So basically, the INR 358 crores was in quarter. So you are saying 9 months, right?

Yes.

9 months, our interest cost was INR 453 crores last year, and this year, it was INR 424 crore.

Exactly. So that's what I am saying, that there is not much difference in your interest cost.

Yes, but -- no, see, because...

If you look at from a 12-month perspective, you would have reduced your debt by around INR 500 crores?

Okay. So in this, basically, the INR 66 crores of OCR -- because so what happens is that the overall reduction is actually almost interest cost is INR 125 crores. But in the -- in the numbers, what you're seeing is, actually, is the interest of the OCRPS getting added.

But that is added -- yes, that is fair, right, if it is being added?

But last year, it was not being added to that, it's compounding impact.

Okay. So when do you think that the interest outflow is going to effectively start reducing and showing it's -- like -- we can see it in our financials side?

See, if you see last year, full year, we had an interest of INR 614 crores, right? This year, we should be somewhere at around INR 575 crores, INR 565 crores. And next year, probably, I think we should reduce it to, obviously, OCRPS, which replaces one debt to another debt. So it's not going to change much in terms of the overall debt quantum. However, the ECB will get repaid. And ECB being the lowest interest cost right now, so obviously, that -- the impact will not be commensurate. But approximately, we should see another INR 50 crores reduction in the interest cost.

So you are telling me that now the balance repayment that is going to happen, that's going to be foreign currency debt only?

No. I'm saying that out of that debt, which we repay on an annual basis, 50% is foreign currency debt. More than 50% -- almost 55%, is actually foreign currency debt.

What about going forward? What about the next 12 months, what is the repayment like?

Next 12 months also, we have a repayment of close to INR 500 crores. Out of which, again, INR 265 crores is the ECB.

Okay. So as -- when we restructure our debt from this OCRPS to regular debt, what will our effective interest cost be on that new debt?

I think it's too early. Let us get into the new debt and then I think we should talk about this INR 50 crores.

Okay. And how much would be the contribution from the railways in this quarter?

Railways currently are in JSL is around -- we are currently knocking at 12%. Last year, it was 8%. So railway, we have really increased our share from 8% to 12% in 9 months.

In quarter 2, it was 15%.

Sorry?

In quarter 2, railways contributed 15% to our revenue.

No, I'm talking about 9-month to 9-month basis because that's the better way to look at it on a perspective because quarter-wise some...

Yes. Railway come to tenders. It's very difficult to see quarter by quarter. It's fair to see it a little longer term.

And now that we see our imports reducing in Jan, do you think that antidumping duty will not be levied then on stainless steel?

No, I don't -- definitely think it should come, because they take a 1-year period, and there is very clear injury that has been happening in the domestic industry. So they will not be taking a limited view. And this, I think, I don't think so, these 2, 3 months will come under consideration. Because we've already taken a 1-year period, and all data has already been shared and there's clear injury happening to the domestic industry, and there is clear data given that dumping is happening. So I don't think so, these imports coming down will impact, because then we have to see the import that came in October, November. Like I shared, almost 1,30,000 of imports came. So they will have to factor in both these things. So I don't think so, this will create any -- or any change -- make any decision change because of that.

And when do we see this coming back?

It's tough to answer, but we're expecting by March, April, it should come.

Okay. And with this new...

Ms. Garg, I'm sorry to interrupt, but may we request you to rejoin the queue?

Okay.

[Operator Instructions] We take the next question from the line of Ashish Kejriwal from IDFC Securities.

So this is in continuation of the earlier questions in terms of OCRPS. We have been looking at this for the last 5, 6 months. So my question is, is it a precursor to CDR exit? Or what is the main issue because of which we are unable to do it so far?

Yes. Ashish, so let me, I think, explain how this -- so CDR exit has been approved, obviously, is -- was on 31st March 2019, it will effect from. Now -- but as part of the CDR exit, what we agreed is that, that all the recompense we agreed to pay in cash, not -- we had an option as per the CDR guideline to convert into the debt, which is allowed in the CDR guideline. But we decided to repay in cash and because of that, there is a -- now all this OCRPS is getting accumulated as a recompense. It's not being converted into the debt. If it would have been converted into debt, then we would have dealing the CDR exit separately. But since we agreed to repay in the cash and to complete the chapter of OCRPS also. So therefore, we decided to pay completely in cash and then we have to get a new debt to repay this entire OCRPS plus the recompense. So part of the recompense, which we have already paid on the other debt, OCRPS recompense is right now pending. So the only milestone for the CDR exit is now the payment of this OCRPS recompense, which we are hopeful now we will pay soon. I think, hopefully, our target is still March. I know it got delayed. What we were targeting is earlier in December, but I, due to the certain bank's approval, we got delayed because not all the banks we got the approval. So I think we are now in the process, and hopefully, to complete this target.

Sir, first of all, what is this OCRPS recompense amount for this OCRPS?

It's accumulating at 12.58%. So right now, as on December, it's close to INR 200 crores.

Okay. So because in our CDR also, there are a lots of banks which are involved. So definitely, I think the same banks can't give extra loan for this conversion of OCRPS. So we must be talking to different banks which are not a part of CDR. Is this the issue which we are facing? Or is there any other issue which is taking some time?

So yes, means, we -- right. You are absolutely right, existing lenders cannot refinance this and because of that, that large set of lenders are not available. But then having said that, I think we have sufficient number of lenders. We have got a sufficient interest on the new lenders. So the large set of lenders were really not accessible for us for the -- especially for this transaction. But I think given our turnaround thing, we got a good response from the other lenders, which was obviously the combination of banks and other points. I think, hopefully, we should complete it soon now. But the issue was also not the closing of this. Also, there was issue on the banks. Because of the large number of banks, we had to get each and every bank's committee approval separately, although despite -- so this was approved by consortium. So that also actually -- that took some time because of the few tail-end lenders.

Okay. And sir, secondly, in terms of antidumping duty, because we are growing in line with the industry. And in fact, our domestic volumes are also growing at around 10%. Then also, can we justify the injury to the domestic sources because of the imports?

Yes, so definitely. Antidumping, the rule is, if you go into the antidumping rules, it has nothing to do with how much we are supplying or how much we are increasing or how much we are earning. It is to do with the dumping which is happening from those countries, they look at that. If you're selling it at a lower price than you're selling it in your original country, then you're dumping material. Or if there is injury happening, which is -- in stainless steel, it is not only [ interest ] areas. There are multiple other companies in this industry who have practically -- had to go into NCLT or close their shop. So the government will be looking at them also. So even though we, as a company, because of our efforts, because of our cost reduction, because of our strategic selling, we're able to compete with them, but there is clear, clear injury happening, which we have shared all that data. So antidumping is very, very clear in terms of that, there is injury happening to domestic players.

Just to add further and, Ashish, basically, so as after the [ seizing ] on China last time, the importers base shifted to FTA countries. So -- and just to give you that number perspective, FTA imports in the country in FY '17 were just 26%, which in 9-month FY '20, FTA countries' share of India's import in stainless steel is 70%. And Indonesia, which used to be 1%, now Indonesia share is 47%. So that itself says, so it's country-specific. If you see the data, you can -- where it's not about the overall data, because the Chinese imports have reduced, but the FTA countries imports have increased.

Yes. So what is the outside date for the same, sir, that we are expecting it to happen by March, April? But what is the expected...

I think as per comment...

It's very difficult to say. I mean what the government -- by when they will come up, but we are -- the time line, we understand, is March, April, but it's very difficult to say.

The next question is from the line of Yash Doshi from SBICAP Securities.

Most of the questions have been answered, sir. Just one question. We have seen this BS-VI implementation date coming soon. And earlier, you are expecting the content of stainless steel into the vehicle higher. So are we seeing any traction in terms of total tonnage going into, although the vehicle sales are down? But are we seeing any traction on the same?

So I'll answer it 2 ways. We have actually started seeing a upturn already in our regular BS-IV material that we used to supply. That demand has also picked up. And volume in the special grade for BS-VI has also picked up, marginally, but our realization is better in those grades. So from that angle, both areas we see auto segment coming back up.

Okay. And sir, the first kind of question on the profitability of the subsidiaries. We are seeing although the pace of drag has reduced in Q3, but still, if you were to just mathematically do consolidated margin, stand-alone, there is still some profitability drag. Sir, any comments on how do you see the profitability of subsidiaries from -- in Q4 and going ahead?

Okay. I think, yes, that's a very valid point that you have brought up. We are -- one of our subsidiary, PT Indonesia, is dragging the whole consolidated down. And we have a drastic change of strategy there. We have further -- I mean we're basically focusing on reducing our fixed costs there. And we're focused now more on developing the domestic industry and sourcing raw material from the domestic industry. So now we will be sourcing our raw materials within Indonesia and supplying within Indonesia as well. So that way, we see our margins coming back up. We're trying to bring in -- I mean reduce our fixed costs by reducing manpower, by reducing certain other equipments or selling off certain equipments which you don't use. But Indonesia, to be honest, it's still a challenge we see in the next few quarters. But after 6 months, we see another -- we see a positive swing then.

Okay, okay. And sir, just to clarify, the CDR exit, is there any stop date as such? As in is there -- does the CDR exit have to happen before end of this March, based on the terms agreed earlier?

No, no. So there's no actual stop date because that has been approved because on that, it's only the process, but yes, if I put it indirectly, I think OCRPS recompense date should end in October 2020. So from that -- and so it's a linked one because then for CDR exit, we'll have to pay OCRPS recompense. And for that, we have a right to repay the OCRPS until October 2020. So technically, that means we should complete the OCRPS on a [ pure ] basis and technically before October 2020. But as we said, we are hopeful of doing it much faster now.

Okay. And sir, this is a bit of a broad question on a very -- you can say a very long-term perspective. Now since we have already -- in terms of growth opportunities, we have already reached for the [ mt ] for 1.1. So what will be the growth? Because if you -- if you grow 10%, we'll be probably reaching our capacity by -- in next 2 years. So what do you see in terms of growth horizon say, 3 years or post 3 years from now? And as you told, there are a few now assets lying in NCLT, would you be having interest as of now for these [indiscernible]?

We will definitely be into the market, if there is any asset that does come for sale. And in terms of our capacity expansion for the next 2 to 3 years, we would like to take our plant, Jajpur plant, to about 3.2 million tonnes. That is what we have set up the facility for. All our infrastructure is already ready. With minimal investment, we can take it up to 3.2 million, but we will go in line with the market. We want to, again, deleverage. That is our focus. We want to improve our ratios. With that, the market is growing, and the company can sustain this investment. Then only we will take this forward. But as of now, if I just ask -- if I answer your question, what is our plan, we would like to take our Jajpur unit to 3.2 million tonnes.

And sir, any enablers, which you'll see, probably this CDR/OCRPS being one of them?

Enablers for expansion? No. That will only bring our books back to normal. We will be completely out of CDR. All our financial stress will be over. So that will not lead to us making capacity expansion. It will be totally dependent on market.

The next question is from the line of Vishal Chandak from Emkay Global.

Sir, could you please walk us through the cash flow for the 9 months on a consol basis?

Cash flow for the 9 months was around INR 55 crores cash generation after the repayment.

INR 55 crores generation after repayment. And what would have been the CapEx?

See, CapEx in this was around INR 142 crores.

INR 142 crores. Okay. Sir, what would be your targets for the CapEx for next year, typically about INR 200 crores annually?

Our average annual CapEx remains in the range of say, around INR 175 crores.

So that is all-sustenance CapEx?

Yes, sustenance and certain very low level of maintenance and sustenance as well as some of the balancing CapEx, which we do, but typically that's what the range be, INR 175 crores that we incur.

Sir, in terms of balancing, you mentioned from 0.8 million to 1.1 million tonnes. Is there any balancing required still at the plant or it's all generally achieved?

It's achieved. As Abhyuday mentioned, we have now got even the consent to operate also, and it's up and running now.

Okay. And sir, now that you, a lot of -- you're probably closer to the exit of the CDR officially by October '20. Do you have any plans to pull back all the rest of the group companies into the same fold? Or you still want to continue with the same arrangement of JSL, JUSL, et cetera?

See, I think it's a bit early to say. As we shared last time, I think Abhyuday mentioned, is that obviously we are evaluating what makes the best commercial sense and best for the stakeholders. We will take that call.

The way we are trying to look at it is what is going to create maximum shareholder, stakeholder value, and that is what we're going to do. Because as a company, we have suffered and our shareholders have also not earned anything with us. So as a management view now, we are in the process of discussion, whatever is going to create maximum, maximum shareholder value, that is what we are going to do.

But as we mentioned, I think the first priority is to pay this OCRPS and complete the CDR exit. And we'll decide in the due course after the careful evaluation.

Got it. And sir, lastly, when you said that long term, at least from a medium-term perspective, we are looking forward to integrating to 3.2 million tonnes. And we have the basic infrastructure in place. So incrementally, what kind of CapEx you believe would be required to ramp up from 1.1 million to 3.2 million?

It's very early to say right now for the whole, because to take it from 1.1 million to increase another 1 million tonnes, you will require about INR 500 crores to INR 600 crores, because all the infrastructure base, everything is already set up. To take it further to another 1.6 million, we will have to get back to you on that exactly.

The next question is from the line of Meera Midha from Edelweiss.

Sir, I have 2 questions. The first one being on the power and fuel cost, that has fallen substantially in this quarter. Could we know what the reason for the same is?

Coal cost has come down.

Meera, it's basically because of the coal prices. On a year-on-year basis, if you look at it on a per tonne basis, it's almost like INR 2,000 per tonne decline, which we can see in power and fuel cost. So see with coal cost and also some of the other materials like propane and furnace oil prices were actually higher in Q3 FY '19. So that has, on a year-on-year basis, actually making the impact. But if you look at for last few -- 3 quarters, then it is more or less in that range only. Also, if you look at the...

It is expected to continue, right?

Yes. Basically, Q-on-Q basis also, if you look at we had to purchase power from the grid last quarter. So that also impacted a little higher cost in Q2, if you compare on a Q-on-Q basis. So more or less, this should...

Yes. I think the better way to look at it on a 9-month basis, because quarterly -- because then it gets a better average out. Due to the shutdown also sometimes we -- the consumption goals varies. So -- but typically, I think we expect not major changes in our power cost, it's going to remain almost 5% to 6% range of our total cost.

My second question is on the volume light EBITDA growth that we've seen in this quarter. So if I look at the EBITDA per tonne in the realization, they have been falling for the past 3 quarters. Now is this primarily due to a product mix shift? Or should the 12,500 to 13,500 be the new normal?

No. So it was -- the margins are under pressure because of the import and the dumping that is happening. And the way we're trying to tackle it is through changing our product mix. So maximum of the dumping and injury was happening in 300 Series, which is also our largest segment. Now you will see that we are reducing our 300 Series quarter-on-quarter, and we are increasing 200 and 400, where realizations are better. So by changing our product mix, we're going to maintain our margin and trying to increase our margins.

The next question is from the line of [ Nirav Parikh ] from India SME Investments.

Congratulations on a good set of numbers. My first question is regarding the -- except OCRPS, average interest rate on our long- and short-term debt would be around...?

So our total long-term debt is around INR 3,291 crores, out of which if I remove OCRPS of say, INR 700 crores, INR 760 crores is the OCRPS out of INR 3,291 crores.

And on long-term debt, what is the interest?

Long-term debt interest is around close to around 11.3%. And the short-term debt is INR 378 crores.

And interest on short-term debt?

Interest on short term is also in the same range, 11.1% to 11.3% depending on average interest rates. But a lot of we do through the vendor financing and other ways, which are more cheaper. So if you see our overall weighted average cost, what we utilized from our non-fund base by converting those into the fund base through the channel financing and vendor financing, the average interest cost for the utilized cash comes to close to 9%.

Okay. And how much debt we plan to pay this quarter?

This quarter will be close to INR 40 crores.

Okay. I wanted to understand how do we source our ferrochrome? Do we buy the ore and then smelt the entire thing at the requirement?

Yes. We have submerged-arc furnaces, and we buy Chrome ore from Odisha Mining Corporation, and we get a little Chrome ore from our own mines. And we're basically making our total ferrochrome requirement have been met through our submerged-arc furnaces.

What proportion of chrome we acquire from our own mine?

What percentage? Maybe you can say 10% right now, 5% to 10%.

[Operator Instructions] The next question is from the line of [ Parthiv Jhonsa ] from NVS Brokerage.

Sir, I've got a question. We have drastically reduced our debt to around, I would say, about INR 400 crores, INR 450-odd crores during the first 9 months. However, our interest, so we have basically reduced the debt quarter-on-quarter. But however, interest cost has been stable at around INR 145-odd crores every quarter. So can you just give some kind of explanation for that? Because quarter-on-quarter, our interest cost is not going down.

Yes. I think mentioned in my earlier thing is that most of our debt repayment are actually back ended. It happens mostly in October, November time.

Absolutely. Yes, even in the last call, you said that it usually happens during the end of that particular quarter. But if the same has paid during the end of quarter, so even if 1 quarter trailing effect should also be -- have been reflected.

Yes. So if you see the quarter 3 last year, our interest cost was INR 147 crores.

Correct.

And this quarter was INR 140 crores.

Okay, okay. I was actually looking at the consol basis. Okay. Sir, the next question is, I believe you have about 45% to 50-odd percent on the 300 Series, right?

Yes. See, it's actually the...

45%, yes.

Yes, 45-odd percent of the top line is on the 300 Series. On the same, the 300 Series consumes the max amount of nickel, if not mistaken.

Yes.

Yes.

And the nickel prices have not dropped as expected. It's still hovering around that same level. It has not dropped to that 12,500-odd level, which we had seen, I would say, 7, 8, 10 months back. So what -- how do you perceive this raw material going forward? Because it is almost like what would 30% of that -- almost 25% to 30% of the raw material consumption for that particular series. So what is the take on the nickel, particularly nickel, because we have Chrome ore mines of our own, but nickel we procure from outside, so what is your take on that?

It's a very difficult call to take on nickel because it's the most volatile raw material that is there. And we, generally, as a company, we don't make a call. The practice that we follow is we follow our buy-and-sell practice. So whatever price we buy it at, we try to sell it at the same price. So that is one way where we try to restrict any volatility that happens. And if I just say looking at market conditions, it's very tough to say, but it -- a lot depends on the demand coming in from China. So if that reduces then nickel price should come down. But it's very tough to, make a call or give you any kind of analysis on nickel.

The next question is from the line of [ Saket Kapoor ] from [ Kapoor & Company ].

Sir, if we look at your other expenses component, that has remained elevated, even if we take it on a quarter-on-quarter basis and year-on-year also. How would you explain this?

Yes, there are certain rise in the admin charges and basically other manufacturing expenses because of which has gone up a little bit. But it's not a significant one.

Sir, if you compare, [indiscernible] sir, year-on-year, it is up by 10%.

Yes, but then the component...

[indiscernible]

Hello?

Yes, sir.

See, on a percentage volume basis, because it includes the part of the selling expenses and so selling expenses is basically the freight and other selling commissions and all these are also linked with the volume. So I think the better way to look at the percentage to the sales rather than the absolute increase because that's a normalized way to look at it, and which is consistent.

One more thing, just to add on to this, rather than looking at into a percentage term, if you look at it on a per tonne basis, then it is not actually increased. In fact, on a quarter-on-quarter basis, it has decreased, or even on a year-on-year basis.

Okay. Sir, you've spoken in length about the OCRPS effect. Sir, what about the intercorporate loans, sir? When will this get liquidated? What is our game plan for this one? We are booking the interest as of now and no payment are made for it or actual payment is also made?

No, actual payments are also made on a basis, regular basis on this amount. Right now, I think so to 31st March '19, all the payments have been made. And after that, I think the -- some payments are pending. But otherwise, in terms of the ICD, we will continue because it's a subordinated ICD within the group company. It will not be paid immediately.

The next question is from the line of Rituparna Ghosh from Cogencis. [Technical Difficulty]

I think we can move to the next participant.

Sure. We'll move to the next question. The next question is from Ritika Garg from Aequitas Investment.

So the Indonesian player has 50% capacity of ours, right?

No, less than 50%. Around 30%, 35%.

35%. And how do we -- like we see this substituting our imports or like do we see him eating some of our market share?

No, definitely substituting imports because this was one of the major companies that was dumping directly into the country. Now, they will be sending it to their facility first and then through that. So substituting imports is the main factor that we see.

Okay. And you mentioned that you were looking at improving your return ratios. Your ROE currently is 8%, and your ROCE is 12.5%. What is it that you target, maybe in the next 2 years or 3 years?

See, if you -- it's -- if you go back, I think just in FY '18 itself, our ROE was almost 13%. So it has come down recently, I know, because of EBITDA being under pressure, in terms of debt. But I think, obviously, as we would always sure -- like to see it up over 15%, but I think it's -- I think immediately, we'll have to really -- there are a lot of short-term factor which will play, I think, but obviously, we continue to do more cost optimization and all, which should improve our margins. But I -- at this point of time, we will not guide you like what we are targeting immediately because, right now, we'll have to focus a lot on how that trade scenario is panning out across the globe. So that will have an impact in terms of how we improve our margins.

The next question is from the line of [ Navin Vaya ] from [ Investo ].

I have 3 questions. So one was about the Indonesian player that you're mentioning. See, if they are going to replace imports, will the import duty actually help in increasing the prices? Because they are going to give the same quarter, I think, 500,000 tonnes -- sorry, about 600,000 tonnes. So that was one. The second, you've mentioned about the capacity increase by 1 million tonnes would cost about INR 500 crores. When do you think you can plan to do that? And how long does it take to build up that since the infrastructure is already there? And last, before you answer, your tax rate was about 40%. So what's your sustainable tax liability?

So let me answer first on MAT, and then I will ask Abhyuday to answer next. So right now, we are under MAT. We have close to INR 75 crores of unabsorbed MAT credits still available. And once we absorb that, I think then -- right -- as of right now, we are not moving into the new tax regime, because we have unabsorbed losses from the past, which will give us a tax shelter. Once we absorb all those, I think then maybe a year down the line, we'll, depending on our earnings, we'll move to the MAT.

But duty coming in should definitely help us increasing our margins. And the time lines, again, we're going to go along with the market. So if the market is demanding that growth, and we see we need to invest further, then we will. But otherwise, to give you a time line by when we want to achieve this 1 million increase is a little hard to say at this date.

See, as we shared earlier, is that we -- our -- any expansion will be obviously evaluated with the market condition as well as our balance sheet focus. And as Abhyuday mentioned, the deleveraging is going to be the first focus. And obviously, it's not a debt -- it could not be debt-funded expansion. And right now, we are not in a hurry. I think with this 1 million, which we have recently achieved, 1.1 million tonne, I think that takes care of at least 2 years' growth. So we have sufficient time for us to think carefully of what we take it forward. However, obviously, the advantage for us is the huge operating leverage, so like as Abhyuday said, INR 500 crores, we can actually put up a -- we can double this 1 million tonne of this capacity of our cold roll, then we can put up another. So we can always go in a modular way of creating the expansion, because being a brownfield...

Yes, it will totally depend on how the market is growing. So that is why we are wait and watch play. But first priority is to redeem OCRPS, reduce our debt further, get the company into a very healthy position, then we will look at expansion after that.

We'll be able to take one last question. We take the last question from the line of Rituparna Ghosh from Cogencis.

Sir, can you hear my voice?

A little soft, if you can speak a little louder, please.

Okay. [Technical Difficulty]

Rituparna, we can't really hear you. Request you to use the handset, if you are.

Hello, can you hear me now?

Yes.

Yes. So sir, what is your view regarding the fall in alumina and nickel price in the last 3 months? And you were talking about some alternative strategic raw materials, what were they?

Okay. So first thing on nickel sliding again, like I said, it's very, very difficult to predict what price of nickel or how it will be moving up or down. It totally depends on the supply and -- or maybe the demand coming in from China, I would say. In terms of alternate, I don't know how much I should be talking on this. If you can actually contact us separately for this information, then I will be willing to share it. But on a open call, it's a strategic area, and I would not feel comfortable sharing this openly. So definitely you want this information I can share it, but I will request you to contact our Investor Relations team separately.

Okay, sir. And lastly, sir, like you said, on the nickel prices, so has that impacted stainless steel imports? Or anything on the price terms of stainless steel?

It's a -- see, nickel is -- largely remains the pass-through model, obviously, with some time lag. So only the time lag varies. Otherwise, if nickel is down, typically, the realization also comes down. And if nickel is up, the realization tends to go up. Obviously, they would all -- as I said, always a rider that there would be a time lag. So it does not happen immediately.

We'll take that as the last question. We will take one last question. We take the last question from the line of [ Jai Balaji ] from [ Jai Balaji Securities ].

Sir, I would like to ask Mr. Jindal, specifically. Sir, you were mentioning about creating stakeholder values going forward. So could you tell more on the ways in which the same will happen? Expansion and all are in the end going forward depending on the market. But what are the -- if you could give more color for the investor community?

Again, I will be -- it will be a little easier to share in the next quarter, because right now, we are in terms of discussing exactly what will be the best process. So for example, should we have 1 company or should we maintain to have 2 companies; how much cross-holding will there be or will we completely do away the cross-holding; subsidiaries, do we include into 1 company or not. So these are the kind of things wherein -- we are in the midst of discussing. We are having a lot of brainstorming regularly. So by next quarter investor call, I will be able to share more details.

Okay. And sir, there will be a call for Essar also. I hope Mr. Jindal you would be there to enlighten us there also?

No, I will not be able to join that one because I have some prior commitments already. But my team is very capable to answer all your questions. And if anything specific is required, then you can contact our Investor Relations team to have a separate chat with me or even a face-to-face meeting, I'm very happy to do that.

Thank you very much. We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you. I would like to thank everyone for attending this call and for showing interest in our company. JSL today is well poised to maximize all opportunities in the growing stainless steel industry. Our strong positioning, coupled with supportive macro, should also help us deliver steady and consistent growth going forward. I hope that 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 contact our Investor Relations team or Citigate. I'd like to thank everyone once again for taking the time to join us on this call. Thank you.

Thank you very much. On behalf of Jindal Stainless Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.