Jindal Stainless Limited (JSL) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us on Jindal Stainless Limited's Q2 and H1 FY '21 Earnings Conference Call. We have with us Mr. Abhyuday Jindal, Managing Director of the company; 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 have the forum open for an interactive question-and-answer session. Before we start, I would like to point out that some 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 would like to invite Mr. Abhyuday Jindal to make his opening remarks.

Thank you. Good afternoon, everyone. On behalf of the management team of Jindal Stainless Limited, I welcome you all to this forum. I trust that you and your families are safe and maintaining all precautions against the spread of COVID-19. I would like to first share the key highlights of the period, following which Anurag will take you through the operational and financial highlights of the quarter and half year ended on September 30, 2020. As the country moved into the unlocking phase, we started witnessing a noble improvement -- a notable improvement in the overall demand across various sectors. A better-than-expected rebound in business sentiment, coupled with JSL's agile response and manufacturing and supply chain adjustments, led to improved financial and operational performance in Q2. The domestic consumption of stainless steel made a gradual recovery through the second quarter and has reached pre-COVID levels now, in major sectors like auto, decorative pipe and tubes and railway as well. Within auto, we witnessed remarkable recovery in 2-wheelers and passenger vehicles. On the back of festive season, season demand in Hollowware and consumer-facing segments also picked up. Our capability to innovate and expand product portfolio to mirror the market trend in a short span of time has enabled us to stay ahead of the industry growth in these unprecedented times. And as we speak today, our plant is running at near full capacity. Moving on to our market initiatives, buoyant by the exceptional response received in the Pipe & Tube segment, we launched the second phase of the co-branded initiative as Jindal Saathi 2.0 during this quarter. This will cover even larger geography and remote markets. We are confident that this initiative will further help us to limit the counterfeit market, expand our presence in the current INR 7,000 crores pipe and tube market. It will counter forgery and bring genuine stainless products to our customers. On the industry front, to address the issue of subsidized imports, as per the recommendation of DGTR, the Ministry of Finance, government of India has imposed provisional CVD on Indonesian import for 4 months. While this is likely to provide interim relief for the domestic stainless steel producers, the industry is hopeful that the government will continue to battle such issues in future by having long-term solutions in place. To conclude, overall, the sector fundamentals are strong, and the domestic demand continues to grow at a steady pace. As the recent macroeconomic parameters are pointing towards a broad-based recovery in Indian economy, and with the onset of festive seasons, we look forward to continuing witnessing this positive demand. Before I close, I would like to share that the Board has also approved constituting a committee to explore and evaluate various options of consolidating of the stainless steel business of JSL and JSHL and/or other group entities by the way of a scheme of arrangement or otherwise. The ultimate goal is to realize greater synergies and with an objective of maximizing value for all our stakeholders. With this, now I would like to hand over to Anurag, who will take us through the operational and financial highlights of the quarter and year ended on September 30, 2020. Thank you.

Thank you, Abhyuday. Good afternoon, and 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 and half year ended September 30, 2020. As Abhyuday mentioned, earlier-than-expected bounce back in sales led to the net revenue from operations for the quarter at INR 3,156 crores. Following a sharp demand recovery on Q-on-Q basis, sales volume stood at 2,30,350 metric tonnes, almost touching the pre-COVID levels. The operational performance of Q2 FY '21 was supported by high demand from 2-wheelers, decorative pipes and tubes and railway segment. Demand in consumer-facing segment also picked up in Q2 FY '21 on back of the festive season stocking. EBITDA for the quarter registered 11% increase on a year-on-year basis at INR 352 crores. The streamlining production, inventory and supply chain management, according to emerging customer needs, largely assisted the company to post strong operational performance in Q2 FY '21. The finance cost for the quarter stood at INR 124 crores, registering a year-on-year decline of 11%. Coupled with the strong operational performance, this enabled company to register a substantial 88% year-on-year increase in the PAT performance. Let me now briefly take you through our financial performance on a half yearly basis. The sales volume of H1 FY '21 stood at -- still at 19,164 metric tonnes, backed by a strong recovery in Q2 FY '21. Our EBITDA in H1 FY '21 stood at INR 430 crores. Despite COVID-led business challenges, the EBITDA per tonne in H1 FY '21 stood at INR 13,469, within the range that we have been guiding so far. With consistent focus on deleveraging, the finance fourth quarter same period registered a 10% decline year-on-year basis. Profit after tax for the period stood at INR 11 crores. JSL's relentless focus on strengthening its balance sheet has enabled us to garner a rating upgrade from CARE rating and reaffirm Fitch India Rating and Research and during the first half of the fiscal despite COVID. As on September 30, 2020, our net debt stood at INR 3,215 crores, which is lower by INR 1,477 crores over the last 2.5 years. Going ahead, the company appraises to consistently undertake sustainable efforts to further improve its balance sheet and overall financial position. In conclusion, I would like to say that successful CDR exit and consistent improvement in financial ratio, the -- your company is now very much focused and confident on delivering the consistent performance going forward and create value for all its stakeholders. This brings me to end of the address. I would now expect moderator to open the line for Q&A session.

[Operator Instructions] We have a first question from the line of Amit Dixit from Edelweiss.

Congratulations for a good set of numbers. I have 3 questions, if I may. The first one relates to your EBITDA per tonne performance, which is higher than what we had guided in last quarter. So do you see this INR 15,000-plus EBITDA per tonne as a one-off thing? Or is it going to sustain going forward? That is the first question.

Okay. You want to answer, Amit, all the questions first? Or do you want us to answer one by one? We can answer one by one.

Yes, sure. That is fine.

Yes. Okay. So EBITDA per tonne, as -- if you see on an H1 basis, we are still -- we have been guiding you consistently of the range of INR 12,500 to INR 14,500. The one quarter year performance should not be taken into this. Though overall market is looking positive, but we are very confident, even despite all the challenges. Any challenges come, we will be delivering what our guidance is, INR 12,500 to INR 14,500, even if the second wave of COVID or anything comes up. So overall, we are very confident of delivering on a full year basis INR 12,500 to INR 14,500 per tonne.

Wonderful. That helps. The second question is with respect to debt reduction. So while it is reasonable that we have seen debt reducing progressively quarter after quarter. But is there an ultimate debt or some kind of leverage ratio that we are targeting before we focus on other avenues of capital allocation, such as capacity expansion or giving money back to shareholders or any of these sort of things?

See, our focus, Amit, is closely monitoring the debt leverage ratio, which is primarily the debt/equity and debt/EBITDA. Debt/equity is now well in our control. I think we have a good headroom from debt/equity perspective. But debt/EBITDA because there was variation, Q1 EBITDA was very down. And therefore, there were certain tailwinds on the EBITDA side. But now whilst it's looking positive, I think -- but we would like to keep a very close watch on our debt/EBITDA, so that our debt servicing never becomes a problem as we have experienced in the past. So with this, now we are -- overall, we look in a comfortable position, I would say, barring some of the debt/EBITDA, which is primarily because of the lower Q1 performance.

No. Is there a specific number that you're targeting with respect to net debt-to-EBITDA, such as 2.5x or something like that? I mean...

Typically, 2.25 is the number which comfortably lender expects.

Okay. Okay. Fair enough. The third question is, is it possible to provide some more contours around the options of reorganization or consolidation? I mean, particularly the time line that you're looking at? Or whether it would involve all the 4 entities, Jindal Coke, Universal rolling mill and Hisar? Or I mean, is it possible to provide some more color on this? And particularly the time line?

Okay. See, the Board reviews are saying we have -- Board has now authorized the committee to look at all the -- best of all the possible options. And largely, idea is to -- as we mentioned, is to consolidate the stainless steel business of the group. Now that's the pain starting. I think overall, we are just committing to look at that best perspective from the interest of lenders as well as shareholder, which includes the minority shareholders. Considering all this, we expect the committee to come out with -- go with the Board recommendation before -- shortly before the end of this financial year. In next 2 to 3 months, I think committee will finalize the schemes. And then we will share with you once it's approved by our Board. But largely to answer, I think there are 2 main entities in the group -- the Jindal Group, which is the JSL and JSHL. As we have mentioned also, the idea is to consolidate the stainless steel business. Now in what form and scheme of arrangement, that is still to be -- that is still work in progress and it's being worked out.

[Operator Instructions] Your next question is from the line of Vishal Chandak from Emkay Global Financial Services.

Once again, congratulations on a very good set of numbers, sir.

Thank you.

The EBITDA per tonne especially was way beyond what we expected. Coming to your guidance that you just mentioned, I know that you still would like to maintain the full year guidance for INR 12,500 to INR 14,000. Given the fact that we have already done INR 12,800 for the first half, do you think it is -- we would be touching more on the higher side? Because if we look at the lower side then, year onwards from second half, are we saying that the performance would be slightly muted? Or we should build in a robust performance?

Looking at the way the country has picked up and the demand is there from the auto sector and Hollowware and other consumer-driven products, we think it should be towards the higher side. So more towards 13.5% to 14.5% -- INR 13,500 to INR 14,500, sorry. That should be on the higher side.

Great. That truly helps. Second, sir, my question was with respect to overall debt that you have completed. You mentioned that 2.25x is what the lenders would be comfortable. But would you be looking at leveraging up to, let's say, INR 2,000 crores, INR 2,500 crores? Do you have any particular number in mind before you start looking at the CapEx for the next phase of growth there for JSL?

See, I think let me answer from the debt perspective, and then I will ask Abhyuday to just enter at what kind of CapEx opportunities we have in Odisha. So just to from -- I think, overall debt perspective, as I mentioned, debt/equity, we have really brought under control. I think that looks good. EBITDA and debt service coverage ratio is also a function of the current year EBITDA and profitability. So that sometime because Q1 was actually a challenging quarter. But this time, we want to go in a fashion that even if some challenges come first in 1 or 2 quarters, I think we are not at a stress. So that's why we want to really careful planning. This looking at now -- they've looked the opportunity at least, and we can always do a smaller part of the CapEx going forward in next -- maybe next financial year. I think maybe, Abhyuday, you would like to mention that...

Yes. Basically, we have a huge operating leverage in Odisha. And right now, at the time because we are almost bearing on 100% capacity, we also internally are looking at exactly like you're asking the same question. That when should we plan our CapEx? When should we be sort of coming up with these new? So we can do it in a modular way. That is what we've decided because of the operating leverage, because when we were constructing the factory, 10 years, 12 years back, the way it was made was that the second phase of expansion with modular projects, either adding 1 AOD or 1 mill or 1 rolling mill, we can increase the capacity to 20% to 30% easily. So that is the plan. We don't want to take on further debt right now. We want to further consolidate. And our CapEx -- we're going to go in a modular way. So looking at the current demand and what capacity or what equipment we will need to add, that is what internally the work is going on.

Sir, if I may squeeze in a couple of more questions over here. With respect to your CapEx only, as you previously mentioned that the option that we are currently looking at is merging or we will be looking at reutilization of both the stainless steel businesses. But given the fact that we have additional rolling capacity, and if we merge the rolling mill as well, so wouldn't that be a little quicker in enabling us to harvest more benefits from the expansion, rather than setting up a new HSM altogether? That would again be a 2-year long gestation period.

See, Vishal, rolling the HSM is actually in other entity, and there is no -- because that -- we have a good arrangement on arm's length basis, which is very well trusted by -- has been done as part of the lenders and also fair practices. That will continue for a long term. So we don't have to add -- even if we don't merge JUSL, we don't have to add that because that will continue with that same arrangement in the JUSL, what other associate company is.

Sure, sir. Sir, with respect to the ICD that JSHL has given to JSL, excuse me, kindly help us understand what is the net outstanding balance? And how would you want to treat this in a scheme of arrangement with JSHL?

See, to answer the second question first. Outstanding ICD is currently at around INR 900 crores, is the principal outstanding. Now how will it be treated? I think just wait for, as we said, I think we will come out with the final scheme of arrangement with that. But obviously, at group level, obviously, if the 2 -- these 2 company gets merged, obviously, the net debt will be reduced to that extent because group company debt is INR 900 crores.

I completely agree, sir, that the INR 900 crores gets knocked off because of the group consolidation. But when, let's say, hypothetically, if you're looking at some kind of a swap ratio or a swap arrangement at a fair value. So one was how much is the interest on the cash flow? I think that would also be outstanding. So what would be that number? And would JSL be giving an equivalent value over there? Or we should just think it as -- how do we look at that number? That's what I was trying to look at.

I think, see -- so I think for, as I said, that will be a detailing of the scheme of arrangement. I think we'll have to wait for that because we are -- for the swap ratio, there are multiple methods, and we will be -- because depending on -- we have 2 listed entities. So it will be a very fair way we'll have to come out with based on the precedences and without any of the equity. I think those -- so let's wait for that. I think we are working with our advisers on that business to come out with a very fair way, which is obviously in the best interest of all the stakeholders.

We have next question from the line of Nishith Shah from Aequitas Investment.

Congratulations on a good set of numbers. I wanted to know what are the imports that are there currently? Like, say, in the month of October, what kind of imports did we see?

So import has a little bit picked up, I would say, from still our FTA countries. From Korea and Japan is where the imports have picked up a little bit. And China is still sending materials. Even though there is duty and there is dumping, but China is still sending material, and it has picked up from the other FTA countries, which is basically Indonesia -- sorry, Korea and Japan.

Could we get the volume numbers?

Volume, I think, it is not out as of now. The official numbers for October are not out. We can get back to you.

Okay. The next question I had was, how do we see raw material cost trending in the next half of the year, in H2?

Again, for nickel, it is very, very difficult to predict what it's going to be. But the way all commodities are looking, we also expect our commodity prices to be on the higher side, about INR 15,000 level for nickel. And I think there's going to be strong performance on commodity side. Anurag, any...

Yes. I think, see, overall, right now, all the metal and prices at underlying commodities are looking on the upper-upper side. Having said that, I think the good thing, as we have shared with you earlier, we have really done our very agile supply chain. So in terms of we are -- we closely monitor our underlying raw material exposure to reduce the inventory variations at any of the performance on a regular basis. So that I would really -- that will be our endeavor to continue monitoring the underlying commodity performance in our overall WIP and raw material and finished goods inventory.

Right. But don't we benefit because we are making stainless steel out of the scrap route?

No, it's all governed by market prices. So I mean, not really in that way.

See, just to add -- yes, yes.

Eventually the scrap price is also some underlying commodity moves, depending on the quality of the scrap price also. There could be a time line, but eventually, that also moves.

Okay. And can we have the industry-wise numbers? I mean, you mentioned that you're seeing strong demand from auto, pipes, railways. So sales numbers, industry-wise, like how much percentage of our sales went to the railways division and autos division?

So railway was a little bit down actually because the 3 coach factories have cut their production. Auto picked up. Auto in percentage, Mr. Anurag will calculate. But auto, let's say, we used to do an average of 8,000 tonnes, 7,000 to 8,000 tonnes. Now it has picked up to 12,000 to 13,000. So on a jump of 30%, 35%. And our Hollowware segment also picked up by the same percentage, I would say. We were doing an average of 10,000 to 11,000. That has gone to 14,000 to 15,000 also now. Railway has dipped, I would say, by about 10% to 15% actually.

Okay. So when do we expect the final CVD to come?

I think they'll take a time period of 4 months. So we're expecting around Jan.

Second...

I think Q4. It's tough to say, I mean, how government will behave. But I would say Q4 is the time.

Okay. My next question is regarding the defense sale. So I understand, JSL Hisar is approved for supplying stainless steel to the defense sector, right?

Yes. Special steel. If not -- I won't call it stainless steel per se. It's more special steel, yes.

Special steel. So in case the merger goes through the -- the approval would still stand, right?

Correct. Correct. Absolutely.

Okay. And what is the kind of cash outflow we expect on interest for the remaining half of the year? Is it going to be at the same level?

More or less, it's going to be same level. Reason being is that now volumes are going to pick it up. So same like term loan will remain. Obviously, there would be some slight step of order index. But overall, then the working capital volume will be increasing because as the sector volume will require more working capital inventories and all the things, Q4 probably. So I think we should say almost the same level we should close the year.

We have next question from the line of Sunil Jain from Nirmal Bang.

Congratulation for good number. Sir, my question relates to -- hello?

Yes. Go ahead.

Yes. My question relates to -- since post CVD implementation, are we seeing any change in the prices of stainless steel adjusted to raw material? Hello?

So there is -- I won't say there will be too much of a direct linkage, but because of the sentiment, there has been an upward trajectory because of that, but we can't relate it directly to CVD.

Mainly because of the demand outlook [ input, that sort ]?

Correct. There are 4, 5 other factors. CVD definitely does support it and helps it, but it's not the only factor.

Yes. And can you give some outlook on the graphite plan? Direction to that?

Yes. So graphite electrode prices have been more or less stable at this similar level, around the Q1 level, INR 275, INR 278 per kg. And the domestic prices are likely to remain within that range only.

Okay. And so with this month, it depend on -- it will be -- [indiscernible] there will be I guess any -- provided that the 2 company merge. So to be specific, the minority shareholders will -- you can think commitment that minority shareholder will be fully taken care of?

Yes. That goes without saying I think. Maybe Abhyuday?

No. That is definite. I would also like to give my sort of assurance here. Thank you. My assurance that, that is a big concern for us. We know as a company, as an organization, last 10 years, we have not done anything. But this is some time that if the performance remains strong in Q3, Q4 as well, then a lot of plans are there, actually. Let me not say right now, but there are a lot of plans that we'll not preempt, but we will be taking care. I would like to give that assurance.

We have next question from the line of [ Navneet Piav ], an investor.

Congratulations for a wonderful performance, not just over the last quarter, but over the last 2, 3 years. It's quite remarkable how you've turned around this company. My question is, I think, Anurag had recently come in an interview guiding on the second half EBITDA as well as the volume. So since you're operating at full capacity, does that mean you're doing at about 90,000 tonnes per month right now? Or is it lower? I think 1.1 million translates to available 1.1 million capacity, or is it a little lower?

See, what I said is that because Q1 volumes were very low. It's less than almost -- so I think if we consider that, the year still, despite a low Q1, we expect not more than 10% down as compared to the previous year. We cannot obviously achieve the previous year volume in this year because -- even if we done at 100% capacity currently, obviously, because of the quarter 1 impact, it will always be on a 4-quarter basis, there would be some impact, but impact will not be like one quarter is 25%. So we are saying, I think, we will recover a large part of it. But still, there would be 10% reduction from the previous year volume side. On profitability side, I think we are seeing a strong demand in all the things. I think overall, we should be able to done better in our profitability side because all the measures which we have taken internally as well as support by the external demand.

Okay. Perfect. Second question is, with respect to your parameters, we would probably reach your desired numbers in 3 or 4 quarters of, at the max, 2.25 debt-to-EBITDA. So on the CapEx that you were alluding to earlier, how long does it take? I remember, Anurag had once mentioned that you can raise your capacity from 1.1 to 1.8 with a INR 500 crores CapEx in Odisha. So 2 questions related to that. How long will this program take if you were to go ahead with it? And second, do you see the Indian market absorbing the incremental 0.7 million tonne, if you were to go ahead of supply coming in? As in is the demand growing at the same pace?

Okay. I'll take this question. So to set up and to expand by another 0.8 million, yes, it would cost us only around INR 500 crores, INR 600 crores. But because these are major equipment, big equipment coming from Europe and all these U.S.A., so it takes -- ends up taking about 18 to 24 months. That is the time for installation and commissioning. And by that time, we definitely see the market also increasing. Market -- stainless steel market actually is growing at 10% to 12% per annum. It is the fastest-growing metal. So all segments, railways, auto, consumer-driven products, Hollowware, they are all growing. ABC sector is a very big one. Infrastructure -- stainless steel and infrastructure is growing tremendously. There are projects we're doing. FOB, stainless steel Brazil are coming up. At least 4, 5 will come up next year itself. So in terms of demand it is absolutely very strong, which is why other countries, other companies were also looking at India as the big market. And also the demand will definitely support the expansion.

Okay. Understand. So on...

[ Navneet ], just one to add on this, just to clarify on one part. This INR 500 crores to INR 700 crores we are saying about the melting. And if we have to double the poor doors, there would be a requirement of another INR 500 crores to INR 700 crores. Just to give you that perspective, depending on that -- as Abhyuday mentioned, we can always go in a modular way. That's an option with us, because we don't have to now do all the CapEx together. But just to give you that, to double each capacity, it will be that sort of block, INR 500 crores to INR 700 crores.

Okay. I understand. So a decision on this respect could be expected from the management maybe in the next 12-odd months, right? Because your debt should be broadly under control by then.

I think Abhyuday just shared with us. By March, we will come out with the our CapEx plan, what kind of CapEx we will be doing.

We're just working on that because like you are saying, we need to also plan it according to the demand and which segments. That is what we are just working on. And by next quarter or by -- yes, Q4, we can definitely update on that.

Your next question is from the line of Ashish Kejriwal from DAM Capital.

I have 3 questions. One is what's your game plan for your overseas operations? We still are seeing that are they are loss-making. And are we trying to do something to make it profitable? So what's the update on that? Secondly, in terms of working capital, basically inventory because we are still running at high inventory of more than 2 months and 2.5 months. So is there a possibility of when you are reorganizing your supply chain that we can see some kind of reduction in inventory to maybe 1, 1.5 months? And third question is on debt. When we are saying around INR 3,200 crores debt at the end of second quarter, does this include the moratorium cost interest, which we have taken into consideration?

Okay. Let me answer the last question. And maybe in international operation, I will ask Abhyuday to take a lead, and then I will add later on. Debt side, INR 3,200 crores, to answer your question, yes, it includes the interest of moratorium part. So it's the total outstanding at our balance sheet as on date. So it includes interest moratorium, principal moratorium, everything what we have taken. On working capital, inventory side, the number wise, I think, directionally, Abhyuday will brief you that what kind of -- what we are doing on the operational side. But overall, I know there are the increase in the inventory level at the end of Q1. But now it's coming under control as our sales is increasing, and that was actually unprecedented time because even in the March, we were stuck up with a very high end -- year-end inventory because suddenly lockdown happened and we really could not liquidate. So these 6 months were really -- we were really seeing a challenge. But now, with things coming under back to the -- back on track, hopefully, inventory level, we are keeping close watch on the inventory level, and it should come down.

Yes. So inventory, actually, I am personally monitoring that. And if you see, if you study the company over the last few years, it has really come under control. One thing that we focus on is age inventory. Because of the cycle that we have and the production and process that we have in the plant, WIP, we do need to carry for about 45 to 60 days. But FG is completely controlled and not more than 30 days, any FG is increased. Yes, because of Q1, we are carrying something. But I would say, next 2 months, even that would be completely 0. And then we're working on just fresh inventory. So there is no actual inventory loss or inventory carrying cost on that. To answer on the overseas companies, Indonesia has seen some recovery now. We are seeing better orders coming in from domestic market and from our export market. Investigation has started because Indonesia was also suffering because of dumping happening from Chinese companies, from China into Indonesia. Now the government has also started investigation into dumping of materials from China. So that would also help us increase the domestic share, increase our margin domestically. Our service center in Spain is doing very well. I think maybe right now, because if there is another lockdown, that would take an impact. But before that, I think it's doing very well. And we are also looking at maybe adding 1 or 2 more equipment there, because demand from Spain and France and Italy is quite strong.

So, coming back to our inventory thing, is it possible to reduce it to, let's say, around 1, 1.5 months? Because we are a one-plant company. And someone in a different build, but they are also on the converters. They have reduced their inventory significantly. So just wondering that when we are reorganizing our supply chain, is it possible ever to reduce it to, let's say, 30, 35 days? Or do you think that 45, 50 days max we can do?

See, it will be gradual process. I would say immediately, it may not be possible. The reason will be that because large part of our raw material is imported. And we are -- though we are -- as Abhyuday mentioned, we are actually working on various things to bring it to domestic, opening the yard next to -- by the [indiscernible] but that will -- that's a gradual process. So if -- when we have a large partner coming as an import, almost 60% raw material is still imported here. And then there is obviously a production cycle. So immediately, 30, 35 days is really not realistic, I would say. I think, yes, in the long run, probably a year certain -- maybe 1 year down the line, I think certain things will be possible. But yes, we are working really continuous reduction. As you've said, we have really -- as Abhyuday mentioned, we have really seen a good remarkable improvement in our overall cycle as -- because we are really closing on the ordering process, just-in-time ordering, getting into the -- maintaining our -- the entire material in transit to the ordering, to the plant level inventory of WIP. But 30, 35 days, I think, it's too unrealistic at this moment.

We have next question from the line of [ Nilesh Doshi from JL Capital ].

The first is on the subsidiary level, I mean, someone did ask. Can you give a time line when you can come at even breakeven or EBITDA positive?

So what Abhyuday mentioned, let me just tell you that Spain subsidiary, Iber, is really now doing well. Barring, obviously, we cannot commit on what -- if the second lockdown and how long it's there. But right now, it looks good. And I think with this pace, I think Q3 itself, we will be having a breakeven. I don't think Q -- Iber will go along because -- and it was generally maintained on a positive side. Only because in Q2 and Q1 because of this COVID thing, they really maintained some of the negative EBITDA. But otherwise, Q3, we are looking on a positive side in Iber. Indonesia, as Abhyuday mentioned, there is certain challenges, but we have really done on our business model, reworked on business model. With this, we are hopeful in next 1 year. I would not say that next quarter itself will be in positive side. But yes means it will -- you will start -- you should start seeing some of the positive movements happening. But I think it will be because all these investigations and all these things, the correction takes time as we have seen in India also last time. So maybe around 3 to 4 quarters is still time to get into those type of things. But yes, cash breakeven, they should come out -- come faster.

So can we expect from Q3 onwards a reduction in the PBT because there's a INR 20 crores loss difference at PBT level? So can we expect the reduction of this INR 20 crores quarter-on-quarter?

See, Q3 will not be realistic for us to commit frankly. Q3 is because still, there are certain challenges and headwinds over there. I think, as I said, the ideal thing will be somewhere in Q1 next year, we should start seeing some of the positive improvement. I think it's -- next 2 quarters will be obviously challenge. But you will see the better than what we have been delivering. Obviously, you will start seeing certain -- noticing certain improvement, but I will not say it could wipe out the losses.

Second is, Anurag, you have been trying to be very conservative. I mean, if you see your Q2 EBITDA and if you see the graphite prices are under control, nickel is pretty stable, although, yes, you haven't taken the antidumping advantage in the pricing. But the kind of demand what we are seeing from outside, even we have been tracking, I think your Q3 numbers should be much better than your Q2 number on EBITDA side. I mean, on overall yearly basis, you have been guiding that's fair enough. But -- and especially when you're running at full capacity, I think you should also get advantage of capacity utilization. So am I correct that, yes, you have been conservative, but Q3, Q4 appears to be pretty strong.

No. As you rightly mentioned, because Q3 will surely be better than Q2 because Q2 -- by September, as Abhyuday mentioned, we reached to a normal level. So considering that, October, November, December, if we pull all 3 months, we run at those capacity, yes, you are absolutely right. It should look better than what we have delivered in Q2, no doubt. Q4 also, if the trend continues, yes. But as you know, in terms of our guidance, we always want to make sure that what we gave you the guidance, that will be delivered despite whatever challenges come over a year basis. So like, therefore, we have been saying because it should not happen that because business could have any sort of challenges at any point of time. So with this, we are very sure now we have what we guided you for the -- at the beginning of the year for the full financial year, despite the quarter was wash out. We will be able to -- so you should appreciate that at least we were actually taking cushion of from you and cushioning you from all the challenges which we will, and we will make sure that those challenges we overcome as a management team.

The third is what we read and understand is there is a tremendous tight supply in MS scrap globally. Are we facing any challenges in sourcing the scrap? Or we have lined up and we are very confident and comfortable that we should be able to manage?

No, we are -- no, raw material side, we have no issues from any of our raw materials currently. The MS scrap also we're well booked and controlled in that.

And are you seeing any tightness in the supply side?

No, not as of now. Nothing that my people have got back to me. And there is no indication of that also.

[Operator Instructions] We have next question from the line of [ Nirbhay Mahawar from N Square Capital ].

I just wanted to follow-up regarding your CapEx plan. You mentioned that you'll be able to add close to 0.8 million tonnes of capacity with INR 1,000 crores to INR 1,200 crores total CapEx. Is that correct?

Yes, you are right. So depending on both melting and...

Melting and rolling together.

Yes. In -- our cold roll is right now 0.45 million, not 0.8 million. So I am saying double the capacity. So cold roll will actually then only be 0.45 million when we double it.

Okay. So, sir, over what time frame, let's say, do you plan from? If you start from next year, first quarter onwards, what would be the time frame required to complete this CapEx? And...

It takes about 18 to 24 months.

18 to 24 months. And if I extrapolate current revenue and current realization, you will be able to generate close to INR 10,000 crores plus realization out of this CapEx?

See, if we double, obviously, you can almost match that number because what we have been running, obviously, that same number will...

I think you can take that, yes.

So the incremental capital output ratio is going to be 10x the capital employed. Is it -- am I reading it right? Or there is a catch in this?

Yes, incremental capital employed will be much better. Because in any greenfield -- because we'll be doing at 1/5 of the greenfield cost. This is a brownfield, as Abhyuday mentioned, modular way and the brownfield project, so which is almost 1/4 or 1/5 of the normal CapEx cost.

Fair enough. And this -- the scope of capacity expansion between both the companies, only JSL can expand capacity, am I correct? JSL Hisar does not have the desire to extend CapEx?

Yes. So because of the land bank that we have in Odisha, more of the expansion and growth will come. But Hisar, we are also continuously going to expand there as well. So maybe we can answer a little more in the next investor call. And yes, we are increasing our FPD there and special steels also. These are 2 areas. So more value addition is going to happen in Hisar. More high-end equipment, we will put there. But for our homogenous mass production, that expansion is going to happen in Odisha. So volume versus value. Hisar will focus on value. Odisha will focus on volume.

Yes. But the operating leverage will happen in JSL.

In Odisha, correct.

We have next question from the line of [ Asha Patel from India SME Investments ].

Congratulations on a great set of numbers. My first question is pertaining to the CVD. For what roughly the tenure, which we are looking forward if the CVD gets implemented?

See, as per the government stated times, it comes for 5 years, I mean, as per the process and that is generally applicable lifetime. When China CVD came, it was applicable for 5 year, and that's the normal process.

Okay. For sure. And last question is, earlier, we were also talking about setting up industrial estate in Jajpur for our downstream industries of stainless steel. So what is the current situation?

So that is still on track. We are still working on land acquisition actually with the Odisha government, which we should complete within the next 6 months. And we've already worked on the investment proposal. We're already in talks with getting few people who are going to set up factories there. So the process is on. Maybe, yes, that's a good point you have asked. I will get more details in our next call. Because still, land acquisition is where we are still working on. Once that is done, then project detailing, mapping of the whole land and how we're going to create the infrastructure, all that is done. We, from our side, are completely ready. It is just the land acquisition. When land is with us, then we can start the work.

So the way in which we would be benefited is that our secondary industry would be just by our side, so logistics costs would be reducing?

Basically, we will be creating the market. Now just to give you the example of what we're trying to do, from our Hisar factory, 80% of the sales happens within the North Indian region. So even though raw material, we need to bring it, there's a huge logistic cost, but the market is right there. So same thing we want to do in Odisha. Raw material is also there in Odisha. And if we can create a strong downstream industry there, then all or -- I would say, not all of it, but at least 40% to 50% of our output from there can go into these industries.

So logistics cost can be saved, basically. Huge synergies can be generated there?

Tremendously will come down because we are in the raw materials belt and the market is there. Right now, the market -- East market is growing actually at 15% to 18%, but the volume is still from North and West India and South. So -- but once we create the East market, once that grows, then we control typically all 4 regions, I would say.

So, currently, in volume terms, how much are we selling? How much are we able to sell in the East market in and around Odisha?

It will be about 10,000 tonnes to 12,000 tonnes only.

Okay. Okay. And sir, what will be capital outlay from our end? So when you are selling -- when we say that we are setting up an industrial park, so do we bear all the cost pertaining to the land acquisition?

Yes.

Okay. Roughly how much do we plan to spend in that?

The infrastructure and the land we have to set up, then we will monetize it by bringing in our customers.

So it will not be a strain on our balance sheet. Because, yes, means we will facilitate everything. And eventually, it will be monetized because we are -- by transferring to the smaller because they cannot individually do those kind of acquisitions and facilitation with the government. So those we will do, but it's not that we will be taking it on largely on our balance sheet.

Got it. So more fixed assets won't be blocked basically?

No, no, no. This will not block our asset side.

Ladies and gentlemen, due to time constraint, that was the last question. I'd now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you, everyone. I would like to thank everyone for attending this call and for showing interest in Jindal Stainless Limited. JSL remains positive that its strong positioning in the stainless steel industry, improving macros would help it deliver steady and consistent growth going forward. I hope we have been able to answer all your questions. Should you need any further classification or would like to know more about the company, please feel free to contact our Investor Relations team. Thank you once again, and wishing you all and your loved ones a very happy and prosperous year -- a Happy Diwali and a prosperous year ahead. Thank you.

Thank you very much, sir. Ladies and gentlemen, on behalf of Jindal Stainless Limited, that concludes today's conference call. Thank you for joining with us, and you may now disconnect your lines.