Jindal Stainless Limited (JSL) Earnings Call Transcript & Summary

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

you. Good afternoon, everyone, and thank you for joining us on Jindal Stainless Limited's Q3 and 9M FY '21 Earnings Conference Call. We have with us today Mr. Abhyuday Jindal, Managing Director of the company; Mr. Anurag Mantri, Chief Financial Officer; Mr. Goutam Chakraborty, Head, Investor Relations; and Ms. Shreya Sharma from the company's Investor Relations team. We will begin the call with brief opening remarks from the management. Following which we will have the forum open for an interactive Q&A 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 earnings presentation shared with you earlier. I would now like to invite Mr. Abhyuday Jindal to make his opening remarks. Thank you, and over to you, sir.

Thank you so much, and good afternoon to everyone. On behalf of the management team of Jindal Stainless Limited, I welcome you all to this forum. I trust all of you and your dear ones are well and safe in these challenging times. And I would first like to share the key highlights for the period. Following which, Anurag will take you through the operational and financial highlights of the quarter and 9 months ended December 31, 2020. Year 2021 has begun on a very positive note with substantial breakthrough that have been achieved on COVID-19 vaccines. This development should play a major role in restoring the overall business momentum for the broader economy, which we have already started witnessing. As we look back, the Indian stainless steel business as well as global demand was impacted in an unprecedented manner due to the pandemic. Despite these challenges, the Indian economy gained momentum and the industry managed to get back in the driving seat as the demand saw V-shaped recovery. The third quarter witnessed a healthy revival in various end-user segments, like auto, ornamental pipe and tubes and industrial fabrication. Additionally, our co-branding initiatives notably augmented sales in the pipe and tube segment. Backed by our R&D efforts, we successfully indigenized various grades for auto BS-VI requirements that enabled us to capitalize on the growing demand. Recently, the Indian Railways released an order for making 44 new Vande Bharat Express trains, which is a major opportunity for us as the train features complete stainless steel bodies. Besides this, we have been supplying stainless steel to various metro projects across the country. On the industry front, the recent announcement pertaining to the revocation of the CVD on stainless steel import is not encouraging at all. While the provisional duty did not have any immediate impact on our pricing, on a long-term basis, it was crucial to provide a level playing field to the domestic producers. Nevertheless, we will continue to work closely with the government on this issue of irrational and subsidized imports. Additionally, since the DGTR has been closely monitoring the trade situation, we are hopeful that the import may not be at subsidized prices and an attempt to advance its Atmanirbhar vision, we expect that the Indian government will undertake necessary initiatives to protect the interest of the domestic industry going ahead. Having said this, the announcements in the union budget, furthering their [ craft ] on infrastructure and capital spending, we are well placed to benefit from the impetus towards improving stainless steel demand in the domestic market and driving customer inclination towards locally manufactured products. The global demand also remains strong and our wide international customer base provides us the flexibility to adjust our export market share according to the market scenario. To conclude, I would like to reiterate, overall, the sector fundamentals are strong. And the domestic demand continues to grow at a steady pace. As we look ahead, the usage of stainless steel across sectors like ABC, automotive, railway, process industries and consumer durables is only expected to increase. The growing stainless steel demand coupled with strong positioning in the industry should further enable us to gain traction and build momentum. On the whole, we are very confident of the future growth potential and opportunities across our markets over the medium to long term. Thank you.

So 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 9 months ended December 31, 2020. The net revenue from operations for the quarter stood at INR 3,452 crores, registering a 9% year-on-year increase. Backed by a V-shaped recovery, as vested by Abhyuday, in domestic demand, our sales volume grew 5% year-on-year basis to 250,562 metric tons. EBITDA for the quarter registered a healthy 47% increase on a year-on-year basis at INR 445 crores. EBITDA per ton improved to INR 17,745 in quarter 3 '21, registering a strong 40% Y-o-Y increase. Continuous and accelerated deleveraging and interest rate rationalization brought down the interest cost by 16% to INR 117 crores in Q3 on a Y-o-Y basis. This, coupled with a strong operational performance, largely enabled the company to register a substantial 170% year-on-year increase in the PAT performance. Despite COVID-led business challenges, our 9 months FY '21 sales volume have managed to achieve close to 82% level of our sales quantity for the same period last year. Additionally, our EBITDA per tonne in 9 months FY '21 registered a 14% year-on-year increase and stood at INR 15,349 [ to ] INR 372 crores. Profit after tax for the period stood at INR 162 crores. The company continues to work diligently towards deleveraging and has consistently been able to reduce its debt. Accordingly, over the last 9 months, we have been able to reduce the gross debt by INR 890 crores, which stood at INR 2,615 crores as on December 31, including of [ third ] intercompany debt. Excluding intercompany debt, the external debt is now stood at INR 1,659 crores only. JSL's strong focus on strengthening its balance sheet and maintaining robust operating performance has enabled us to recently garner rating upgrade from both Fitch and CARE ratings by 2 notches of -- to BBB+ in last 5 months despite pandemic-induced disruption. Going ahead, JSL aspire to maintain disciplined focus on the balance sheet and its overall financial position. I would also like to mention that the entire merger process is also progressing well, and we expect to complete it -- the entire merger process by H2 FY '22. In conclusion, I would like to say that overall, things are moving in the right direction, and the company remains confident of delivering consistent performance going forward. This brings me to the end of my address. I would now expect now our moderator to open the line for Q&A session.

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

Yes. Congratulations for a very good set of numbers. I have 3 questions. The first one is, of course, on the topic of revoking even the provisional anti-dumping duty. We were quite hopeful that the final ADD would be imposed and -- from Indonesia, in particular. So what are the next steps that you see in this direction? Would you be appealing to the government to consider the case? Because in a stainless steel unlike carbon field, the onslaught of imports is quite a bit. So I just wanted to know your next steps and how do you see the industry situation evolving from here.

No, absolutely, Amit. That is something that immediately after the budget, we have definitely started already working with all the ministries, all the organizations. And it was something that is a shock because proper due process was followed by DGTR to recommend all these findings. So it has actually been taken up very strongly by the Commerce Department itself. That's why these things were done. Plus on the CVD, there is still hope. There is still time till about March that CVD on Indonesia can come back. We are working very strongly with them. But there are also few other positives, I should mention, is that in terms of now because what the situation is going to happen, countries are aware that again, if they start dumping and they start throwing material again, then the country, DGTR is very active. They already gave these recommendations, and definitely, the government will support us. From our side already, there are a series of meeting lined up from Revenue Ministry to Steel Ministry, where we're going to take it up very strongly. And it's not only the plight of Jindal Stainless, but it's the industry as a whole. So we have not -- we are quite sure that something or the other will be reinstated.

Okay. The second question is essentially on the CapEx. So now the deleverage -- after the deleveraging, we have seen that net debt-to-EBITDA is at 2.3x. So would you be looking to reduce it further? And when can we expect the -- I know you mentioned in the last call that we would be getting the updates. But just wanted to understand when can we expect the next round of brownfield CapEx at [ Kalinganaganar ].

So Amit, so our idea is that, obviously, the -- Orissa provides a very good opportunity to do the brownfield CapEx at a section of almost 1/3 or 1/4 of the cost of normal greenfield CapEx. So just to again restate our number just with -- just INR 2,000 crores to INR 2,500 crores, we can double the certain capacity, so -- which still remains as a very strong fundamental. The other thing which obviously is -- and now will be very prudent. And most of the CapEx will be now internal funded to internal approval. Because these spends, what it means, technically is that INR 2,500 crores CapEx that in any financial year, the outflow will not be more than INR 1,200 crores to INR 1,300 crores. That's max. And it will take at least 20 to 24 months to come up. So by next quarter, one-off, first day, by May, we will finalize our coal plant. But yes, we expect we will not increase the leverage at [ -- for sure ] and most likely, we will continue to focus on this type of CapEx can be met very well with the internal approvals. And just to reset why what I'm saying further because most of the deal building, which we have done, this is very important to note, is done in a very structured manner. So we have not created a long-term, short-term liability mismatch in our balance sheet. What we have done, we have actually prepaid the installment for the next year and FY '22 as well as partly for FY '23, almost quite a large installment of it. So with this, that gives us clear headroom for the free cash flows available for FY '22 and FY '23. By -- based on our current plan, we expect by end of the financial year, our FY '22 repayment liability on the debt side will only be -- remaining only less than INR 40 crores. So -- which used to be, on an average, if you see is INR 600 crores. So that will not be available, and that debt servicing burden will not be there at all. And also, it will further reduce the debt interest also. So the debt reduction has not happened to the tenor reduction in short. It has happened to the strategically planned up prepayment of advance installments, serving both the proper interest rate reduction as well as the balance sheet robustness.

Wonderful. That's very helping. And the last question is a bookkeeping question. If you can, let us know the split between various series in terms of volume, 200, 300, 400.

Yes. Sure, I will give you the list. So on 9-month basis, quarterly -- this quarter, the 200 series was 28%, 300 was 49% and 400 was 23%. On a 9-month basis, 200 was 26%, 300 series was 52% and 400 series were 22%.

We have next question from the line of Vishal Chandak from Emkay Global Financial Services.

Yes. Congratulations on the excellent set of results, sir. So my first question was with respect to our domestic and export mix, and how was the blended -- how's the blended realization on both the fronts moving. Are the exports more lucrative on a blended basis? Or it's still fine [ this period ]?

Yes. I'll just answer first before Anurag will share the numbers. In terms of realization, domestic is our market. This is the market where we get a clear premium. We have a very, very strong brand name. So this is also another sort of barrier for any imports that are going to come to the country. So that is just, I want to reiterate that because of our strong positioning, brand name, and the kind of strong R&D that we have, that domestic market is always, always going to give us the best premium. Anurag can share the number.

Yes. So Vishal, like just to share with you this quarter, and what Abhyuday mentioned, we reduced our export to just 15%. And because domestic market demand was also very strong. And again, now what we have been saying, we -- on an export side also, we don't compete on price. We compete in the quality market. So most of our exports are into the European Union, U.S. or maybe the Russia market. Not to like the emerging markets like Africa or any other country. So our export market is also a very niche sort of market. And good thing is that being a largest player -- and we have -- we are probably one of the only stainless steel company now in the world who have 120-plus product grade. So we are present across segments. And within, say, 45 days, our operations are so flexible, we can switch among the grades. So depending on the market and the margin, we can -- we are -- so we may increase the export, and again, maybe 1 or 2 quarters down the line. So we are flexible. But again, as I said, our thing will not be that [ export ] will bring down the margin because we always import on the quality markets.

No, that's a very elaborate answer. My second question was with respect to the performance of the subsidiaries. I understand the performance of the Indonesian subsidiary has been quite heartening. So if you could just give some more color on that. Plus, if you could also highlight how sustainable are these turnarounds that you see today.

So -- no, certainly because the whole market, steel market, stainless steel market, has seen a recovery in the last 6 months. So on a similar basis, Indonesia, our Indonesian unit has also seen a very good performance in the last quarter. This is definitely, we feel, sustainable for 2, 3 areas. One, we have gone for local sourcing now. So we are sourcing cheaper raw material for our Indonesia factory from Indonesia, basically, which gives us a huge benefit [ earlier ] than sending from India. Secondly, now we have started supplying from Indonesia to U.S. market as well. Earlier, we were not targeting U.S. Now from Indonesia, we're targeting U.S. and got good orders from Russian exports as well. So that we have a good customer base, niche products that we are servicing. So that market is going to remain. Second -- third positive for Indonesia is that Indonesia has also started antidumping investigation on Chinese companies. So that will give a very big and strong post to the domestic Indonesian market. Their margins because of dumping happening there had also reduced, but with the change and with the dumping duty coming in, domestic market would also get a big push.

Sure. That's helpful. And on the European subsidiary, any color you have, sir?

Yes, this subsidiary also -- now if you see Spain was the worst hit in this pandemic and they witnessed 3 series of lockdown. But as you would have noticed, now, good thing is that, that also still, despite all these challenges, the subsidiary is also now coming back to the normalcy. And I think within a quarter, next quarter or maybe, I think, within the next 4, 5 months, I think we will see them back on the numbers. There's no alarming situation. I think in this quarter, they have again come back to the EBITDA positive. And gradually, they are in the right direction to achieve the normalcy.

We have next question from the line of Vikash Singh from PhillipCapital.

Sir, I just want to understand in terms of your profitability this quarter was pretty good. But if I look at the chrome prices as well as [ nickel ] prices, they are still tendering much higher than the [ 3Q levels ] while stainless steel prices probably now would see some downward pressure after this thing. So how do we see our overall profitability going forward? Any guidance on that?

Yes. So see, we feel that our profitability will definitely be maintained because our company has a lot of strengths. We are a very, very flexible company, and we are present in all segments. So whenever we see -- if we see some pressure coming in a particular segment, then we can always change our production to cater to other segments where we're seeing better margins. So another example that I can give is now if we see a pressure coming in 300 series. But our margins in -- so, let's say, 400 series was already protected because the segments we play in, our customer base does not move away very fast. Like auto, we have almost 1 year contract. Then Railways, we are the largest supplier to railways, white goods segment also. These are approved materials. So once you're approved, then it becomes very hard for any other supplier to get in. So in terms of our flexibility is very high. Secondly, any pressure that comes on domestic. And like Anurag mentioned, last 6 months, we have been cutting our exports over time because domestic demand is so increasing with certain impact because of CVD coming, which we don't consider to be very high, we can always, again, increase our export and we export only to the high-margin countries. U.S., Europe, Russia. So that way, in terms of profitability, we don't see any major challenge coming in the future.

And we've maintained our guidance of 14,000 to 16,000 of average [ EBITDA per ton ] which we have been guiding to the market.

We move to the next question from the line of Dixit Doshi from Whitestone Financial Advisors.

Sir, one question from my side. If I see the chart which you have given for ferrochrome prices, it's been in upward time from last 2, 3 quarters. And recently, there are news that it has moved up to almost INR 90,000 plus. So if you can update what are the current prices and how do you see the trend.

So ferrochrome is, I think, the only commodity where prices are still keeping strong as compared to other commodities. So currently, the price is between INR 95,000 to INR 1 lakh. And because there is good demand in stainless steel, and also there was some ban from South Africa, we expect the prices to remain at this level only at the moment.

Okay. For at least next few months?

Yes.

Okay. And is it also because there were some news that South Africa is planning to impose export duty and -- which...

Correct. Exactly. That was another reason that why...

They already imposed or they are just planning?

No, I think they are imposed. We -- I'm not exactly sure. I don't want to give the wrong information. But because of the news also why the price picked up.

So it's -- and basically, it was -- the demands from China, so is still very strong. So that is the reason the prices are likely to remain a little...

The demand is more than the supply in the international market.

We have next question from the line of Ritika Gupta from Aequitas Investments.

Congratulations on a good set of numbers. I wanted to know like how do we see realizations going forward? We didn't see any uptick in realizations in this quarter compared to Q2.

Yes. Ritika, so as you see, realization in stainless steel -- again, I'll explain that it's also combination of factors, which also includes the underlying raw material prices, which were actually up but -- then the mix also. But the mix also has a very big thing. So the moment certain changes happen on 300 series mix, the realization comes down, but that is not true for EBITDA. So it's not that it's correlated with the EBITDA. So it's not like carbon and steel where the realization could directly be linked with the EBITDA. So you may see a realization because of the lower mix or because of some operator price is lower. But you may still have to see a similar sort of EBITDA ranges on a part-time basis. So that's the reason, basically, a certain mix and certain segment changes. And plus, as we have been saying that we have been very cautious in our -- increasing the realization post -- provision of CVD, which also is reflected clearly in this fact that we have not taken any disadvantages or any of the thing, and we continue to supply more on the domestic market.

Okay. And given that we've done so much debt reduction, what kind of quarterly interest cost can we see going forward in FY '22?

FY '22, we expect between long term and short term because our short-term [ user interest ] also there. So put together, our total cost will be around INR 250 crores somewhere. So that's what our target is, to have a total interest cost of INR 250 crores, excluding on the -- because next year, obviously, the margins should also be here at the time, excluding the INR 900 crores of intercompany index.

So you're excluding that. Okay. And do we see our exports going back up again, considering now it's going to be a free market for even imports?

Yes, we do see that because over the cost, as Anurag said, we had drastically brought it down to about 10,000 to 15,000 tonnes per month. Now we do and easily because our customers are still demanding, and we're still supplying them in small quantities. So we can see that possibly going -- depending again, domestic would be a priority. But whatever impact is there, we will see that going up to between 20,000 to 25,000 now. But that would be March, April onwards, I would say.

Okay. And are we facing any logistic challenges? Like we hear about container shortages, et cetera. Do we face any of those issues?

So not any drastic or major issues because again, we had brought down our exports drastically and containers are mainly needed for exports. So at this moment, we don't see it. But going forward, since we already know, we want to pick up our exports, our logistics team is quite capable in already organizing the requirements.

Okay. And would we like rethink our CapEx, given now this import duty is revoked?

So we have discussed this internally and looking at our, again, flexibility and numbers, our expansion that we want to double our asset capacity in Orissa is still intact, and we will still do it through internal approvals.

We have next question from the line of Vikash Singh from PhillipCapital.

Sir, just wanted to understand once we look into the doubling of the capacity, how much should we benefit we can get in terms of operating leverage, if you could have any idea regarding this thing

After doubling, how much do we expect in operating leverage?

So how do operating leverage would work in our favor in case so basically -- obviously, some costs would be same. So how do we see that the operating leverage or the cost coming down per tonne basis? Any work you have done in this sector?

Yes. So I think there are 2 ways to look at it. One is that because when you have an initial CapEx, which is almost, let's say, 1/3 or 1/4 of the cost, so that itself gives a clear advantage in terms of the going forward, the depreciation and other things. So that initial cash outflow will be much lower, and the payback could be much faster than in that case. Also with that, because depending on the balancing in the product sales, I think this will surely bring down the per tonne cost further, in fact, which, also, in our case, is a continuous thing -- effort. So you would have seen in last 9 months itself, we have continuously focused on various cost efficiency measures, so which will continue. And surely with the larger volumes, that we'll further bring down. But I think we will not like to put a number right now because let the CapEx plan gets finalized by as I said in the next 3 to 4 months, and then we'll decide.

Okay, sir. And sir, considering that we are already a dominant in the domestic market, this incremental capacity would largely be export-oriented?

No. Actually, we are actually seeing the demand in stainless steel to be very, very robust. All segments that we are present in are growing at 10 to 15 capacity. So actually, we will be falling by the time -- because our expansion will take about 18 to 24 months. So it will be very well-placed to meet the domestic requirements, and most of it will be pushed into the domestic market only.

[Operator Instructions] We have next question from the line of Bhavin Chheda from Enam Holdings.

Congrats to the team for very excellent operational performance. Sir, from the current capacity, how much more volumes you can push? That's the first question. And second on, as you said, expansion over next 18 to 24 months, so how much you are spending for that? And what exactly you are doing under expansion plans, for all sites? So at Orissa, how much you're expanding? And which capacity you're expanding to? Are you putting any power plant also in that? Or is it just SMS?

So basically, to your first question, definitely, we will see a volume growth as compared to last financial year, and it will be to the tune of 8% to 10% from our existing capacities itself. In terms of expansion, we are doubling our SS expansion -- SS capacity, sorry. And it will be to the tune between 2,000 to 3,000. But we are still working the final details of the numbers and what equipment will be coming up, that very soon, we will be sharing with the community at large.

Okay. You're starting to double, I thought the original plan was from 1.1 million to 1.6 million. You are looking beyond 1.6 million?

So from 1.1 million, it will go to 1.9 million now. Almost 2 million tonnes.

Almost 2 million tonnes. Okay. And existing capacity, probably you can reach next year just under 11 lakhs, right?

Correct.

You're already at 2.5 lakhs of run rate per 1 million, so you can push above 1 million in '22?

Yes. So basically, that's what, as Abhyuday mentioned, that next year, we are still targeting at least 8% to 10% of volume growth through the existing capacity.

Okay. And even after this duty adjustment, so has the selling price got adjusted or they have been falling because of the fall in other raw material prices, scrap prices and all that?

So as that is a misconception that was there in the ministry and everything that actually -- which the data we're providing is that the price increase that happened was only because of raw material price increase. We did not take any advantage of the CVD coming in. Similarly, with the CVD going away, also, we're not going to take any drastic price reduction because we have very good strength in the organization. We still see our order booking is very healthy. There is a lot of demand for Jindal-made materials. And because of CVD going in, one thing which I would like to mention, maximum imports are going to come in sectors where we are anywhere very small market share and we don't want to play in those segments. We rather play in high demand, high-margin segments where quality is the main factor. So we don't see any drastic price reduction because of CVD. With raw material prices coming down or rising, we would definitely make price corrections.

And what would be the maintenance CapEx right now and the debt reduction plans going ahead?

See, Bhavin, our maintenance CapEx typically remains around INR 150 crores a year. In our case, INR 125 crores to INR 150 crores. Actually, within INR 150 crores. But crossing that. INR 125 crores is the average number, which we done on a maintenance CapEx. And debt reduction, as you would have seen like 9 months, we -- despite all this, despite the lower quarter 1, we have reduced the debt by INR 890 crores, gross debt by INR 890 crores in JSL. So with this, I think, more or less, likely this year is we are going to add with this kind of debt level, maybe slightly lower but more or less on this level. And next year, as I said, scheduled repayment, what we are targeting is actually, which is there as a schedule liability will not be more than INR 35 crores next year, remaining liability. So depending on them, now we are in a good situation in terms of our debt equity and also -- so our target is that to maintain those kinds of ratios. And within that, we will operate. So any expansion plan also, as Abhyuday mentioned, will also be largely funded to internal approval because we have a sufficient cash flow headroom available because of almost 0 liabilities on the debt side for next at least 1.5 years.

And how much CapEx did you do this year?

This year, CapEx will be, say, around maybe INR 300 crores.

We have next question from the line of [ Shanti Patel ] from [ Shanti Patel Investment Advisors ].

Just wanted to know what is the market share of your company in India and in international market?

Market share, I would say it is at about 55%, and it varies over segment to segment. So certain segments, like I was mentioning, which are high-quality, approvals are required, then we have a market share going up to 70%, 80% also. Then low-end segments, utensil segment, Hollowware segment, where margins are also lower plus DC imports coming in there as well, we have a lesser market share, 20%, 25%. So that is why an average, our domestic market share to the tune of 55%. And export is a bit tough to ascertain because we're only exporting about 10,000 to 15,000 tonnes, and that is spread across 4, 5 major markets. So to ascertain really what market share we have in international market becomes a bit challenging.

We have next question from the line of Gaurav Rateria from Morgan Stanley.

So sir, 3 questions. Firstly, what is the overlap in terms of imports in segments where we operate in terms of what is the volume mix from segments where imports are largely coming? Secondly, what is the difference between the cost of landed imports and current domestic price? And thirdly, what is the channel feedback? Have people paused on ordering because of concerns around price reduction?

Okay. So to your first question, which was which segment they're reporting in, there are 2 major, and these are very low-end segments without major quality parameters. So that is -- one is the utensils segment. Other one is pipe and tube. And third one, Anurag? I think these are the 2 major ones. If you ask me, that is what we saw in the past, and that is, again, where we see major imports coming in. Prices, do we have the figures for...

The prices, it actually keeps varying depending on -- because the import landed prices also varies with the underlying raw material prices. And see, we'll have to -- what we see generally by our domestic prices get almost then aligned. Obviously, we get certain premium because of our quality, as Abhyuday mentioned, is that on that certain segment which we operate, which are -- we have obviously higher and differentiated pricing, and which customer also pays to us. Otherwise, more or less, on a lower end segment, it's different. So it's not a like-for-like comparison, let me say, prices-wise. Because the operating segment of the import, as Abhyuday mentioned, is a very low-end segment, very different segment while we -- the segments which we operate are very different.

Sir, what is the proportion of volume coming from these segments where imports come like utensils, pipe and tube, which you mentioned? And also one more question on the channel feedback? What proportion of inventories normally with the channel. Is there any destocking left? Or if there's no destocking going on? And what is the channel feedback with respect to this new flow around removal activity?

So see, in terms of channel feedback, there is definitely a little pause, not in because of CVD, also because now certain raw material prices have started moving down. Domestic demand is very robust. So they will not be able to hold off order booking for very long. And we expect and we've already started seeing that happening again. It was only maybe just immediately after the budget, there was a maybe a stoppage for 2 or maximum 3 days. But already, it has picked up again. And in terms of numbers per se, again, it becomes very difficult to say that what kind of percentage of volumes are going to enter in these segments, but these are the 2 major segments. Again, because the custom data comes, it takes time for us to verify and then ascertain that. So I will not want to give wrong numbers. But the 2 major segments are, again, pipe and tube segment. You can see Hollowware segment. If you want actual numbers, then I will ask the team to get back to you with actual numbers of this import data.

We have next question from the line of Dewang Sanghavi from ICICIdirect.

Congrats on a very good set of numbers. I have a couple of questions. Firstly, actually, what is the contribution of Railway segment in overall volumes? And going forward, we see a lot of traction in Railway. So what kind of market share or what kind of volume numbers you expect from the Railway segment in terms of our overall product mix?

So Railway, our percentage in Railway in terms of -- from our company side is about 10% to 15%. And with the new good budgets that have come for railways and their expansion plans that are coming. We see this going up to about 20% of our total pie. And that is also in line with company strategy because we want to increase our strategic pie. And maximum railway is 400 series. So that is why as a company's strategy as well to move away from high-volatile raw materials into high margin and stable segments. So we want to increase Railway segment, which is about between 10% to 15% and take it up to 20%.

Right, sir. And in terms of margins for Railway, it will be higher than the blended margin? Is there a right assumption to take?

No. I think you can take it to the tune of between 14% to 16%. So again, Railway has different grades, various grades going for different applications. So at an average, we can say it's about 14% to 16%.

Yes, similar to our guidance. And then secondly, I wanted to once we finalize the capacity expansion plans at Orissa, how much time take to kind of commercial that capacity?

It takes about 18 months, and then with commissioning to maximum 24 months.

Right, sir. And we are targeting 8% to 10% volume growth next year. That's the figure you said you wanted to...

This financial -- I mean, upcoming financial year or the existing quarterly...

Yes. FY '22.

Yes.

Yes. And on an EBITDA per ton basis of 14,000 to 16,000 tonnes.

Yes. We're continuing with our same...

We have next question from the line of Sunil Singhania from Abakkus Asset Management.

A few questions. You mentioned that interest cost next year, ex that INR 900 crores, would be INR 250 crores. Just a small clarification here. We have reduced debt by INR 900 crores. So is this interest cost reduction only due to debt reduction? Or we are getting some benefit of rate reduction, also? Because rates generally have gone down quite significantly. And particularly given the fact that our debt equity and debt to EBITDA would be one of the lowest in the last 4, 5 years.

So Sunil, it's a mix of both because that -- largely it was debt reduction and partially because of the debt interest rate reduction also. But having said that, the large part of the debt of around INR 800 crores, which was raised just the pandemic for exiting CDR and paying off of the OCRPS of INR 800 crores. That had a rate locked in for 2 years. And that is not possible to reduce because -- and not to even prepay. So -- because that was the -- that time, those were the prevalent rates, and those were there. So besides that, otherwise, there is a debt reduction -- interest rate reduction also of almost 1.5% on the overall basis.

Okay. So this is a combination of both. And this, Anurag, will be visible every quarter or it will be more back-ended because debt now has come down like by INR 1,000 crores. And you mentioned that fourth quarter may be slightly more, it will be reduced.

No, no, it will be visible on the quarter now because most of the debt we have reduced. So you will start seeing that, in fact, quarter 4 onwards itself.

These targets have been given to the finance team to reduce interest costs.

Right. The second thing is this -- duty has been reduced on scrap to 0 from 7.5%. So while we might get a little bit impacted from finished product imports, does this duty help us in raw material costs?

No. Absolutely. It's going to give us good impact. And at an average, I have not -- at an average, it will benefit us by about INR 60 crores to INR 80 crores, I would say. And we'll see the impact on the imported SS scrap coming in. Plus, there was a lot of domestic buyer, domestic suppliers were also importing SS scrap. So even on that, we will see a price reduction. That overall stainless steel plus copper also duty has come down. So the copper number, I'm still waiting for, but that should also have some positive impact.

Mr. Singhania, do you have any further questions?

I think we lost the call. [Technical Difficulty]

Mr. Singhania, can you hear us?

Yes, sorry, I got dropped out. So this, Abhyuday, this INR 60 crores to INR 80 crores is on annual basis?

Yes. On annual basis, correct.

But it should be more, right?

Because these, Sunil, over time, we've actually moved maximum of our buying to domestic because of these challenges that we saw duty and volatility that was there. So over time, this is to be almost 20%, 30% domestic, 6, 7 years back. Now we move to 60%, 70% domestic buying.

But pricing would be import-determined, right, even in the domestic side?

Yes.

So the gain might be more also, it is possible.

Yes. The gain, I mean, I'm being a little conservative, but if minimum should be 60% to 80%, we should get.

Okay. And on taxation, and other, why is the tax rate,40% for us?

See, this is not a cash tax again, Sunil, just to clarify. And because there were certain unwinding of the -- because either we had an ECB in our book. So there were deferred tax assets created on those. So there are certain adjustments, but all these are book adjustment, there is no cash tax output.

We have next question from the line of [ Saket Kapoor ] from [ Kapoor Company ].

Sir, firstly -- firstly, sir, what are the factors that have reversed post the Q3 exit? In terms of the demand side or the duty affecting us, so how are things now shaping up post -- there are so many moving parts for us that has happened over a period of last 1 month. Has that affected any way the exit rate, which we have exited for the quarter -- the third quarter?

No. We still are quite bullish on the demand that is there in the market. There have definitely been some negatives of the budget, and there are a lot of positives on the budget as well. Plus some of the positives, the infrastructure, they have increased spending will definitely overflow to the stainless steel industry as well, not only to the steel industry lot of new projects are coming up. Power plants are coming up. There's a good push in water infrastructure. And all those stainless steel is a clear player metal of choice. So we see great demand coming in from -- because of this new budget as well. Secondly, with the import duty coming down on raw material, also gives us a push. In terms of -- what was your other question, sorry?

Sir, my point is, sir, only -- it is only a mere sentimental [ BRA ] that has happened with this revocation of CVD and all? Or has it also affected the financial and the operational part of the company, the business sentiment?

No. No, we are not seeing any major financial impact because, again, of the flexibility of ours and the strength that the company has. So any time that we do see pressure on the domestic margin and volumes, then we have high margin, good quality-driven countries available to us, like U.S. We have decreased it, our imports -- exports to U.S. to the tune of only 500 to 600 tonnes per month. Now again, we have a very strong customer base there, and we can easily take that up to 5,000 to 6,000 tonnes per month. And that is the highest margin -- other than domestic market, that gives us the highest margin. Same day, Europe, regularly, we have been selling 9,000 to 10,000. We can continue that. Russian market, also, we've seen a good uptick in demand there. So in terms of our financial performance, with this duty there or not there, we don't see any major impact coming from that side.

Okay. And the availability part, sir, because your consumers were of the view that -- not to quote anybody name on open forum that there was -- the waiting time was there from your side, and they were having as sigh of relief with now easy movement of goods with duty getting reversed. And this is from that -- I'm quoting from the top of one of your customers who was exuberant after this reversal, sir. So that was my point, that the -- if that has not been the case, then it is only a sentimental fair play that is coming in?

So see, again, it's -- we'll have to get into details to understand this point because, again, it totally depends on the segment, it depends on the customer, which segment he is applying to. So if they are in the high-margin segments, high-quality segment, then it will be more sentimental. Because to get approvals, to supply materials, right, quality materials, just by dumping will not suffice. And where this will happen is in the very low quality, low-margin segments like utensils, Hollowware and the pipe and tube industry. But again, we, as an organization, have done a lot to counter this already. Like in the pipe and tube segment, we have a very strong co-branding initiative. So because of that, because of the demand that we see because of people are demanding Jindal steel products, we don't see any major impact on the margin side from our pipe and tube segment as well.

Okay. And a small point on these items of stores, spares and power fuel, that have inched up on a Q-on-Q basis. So how are these items going to shape up the benefits of lower power and fuel are continued and the stores and spares, also, I think it's about the electrode prices. So how are these 2 items going to shape going forward, sir?

See electrode prices, I think probably, we expect to remain at this level only because that's how -- and I believe this business is the -- this is not at lower prices also because -- so there were obviously earlier, there was a very high price. So electrode prices should remain in our opinion in this level. So therefore, our store and spare costs should continue to reflect that. The power also...

Power will come down, we believe, because, again, in terms of strong sourcing by our people, that has already seen an increase in our power profit. But power cost overall in the country is also expected to come down because in this budget, the government has given it a good push, so a lot of new power plants are coming. Plus there is a new electricity bill expected. That will also really improve the competitiveness of all power plants and further reduce the cost to consumers like us.

So [ Saket ], just to add, if you look at the partner business of these 2 items, stores and spares and power and fuel, on a year-on-year basis, both have actually come down by 13%. And on a quarter-on-quarter basis, more or less, they're stable.

Right. And last point on the receivable date, sir. With the improved buoyancy in the market, what have been the receivable amount as on -- the receivable payable figure that you could share or the receivable days that would be giving us. An example would be cash flow generated and the repayments are scheduled for quarter 4.

This receivable days, as we have been very ever consistently, very tight control on our receivables. And it's actually less than 30 days. So it remains -- sometimes it goes to maximum, say, 32 days, but typically, it remains actually less than 30 days. And we will continue to maintain those momentum. It will probably further come down to less than 25 days. But this is what the range within 30 days, which we get most of our receivable as per our payment terms. So we don't have a challenge of the -- any bad debts or any bad receivables. But your second question on the quarter 4 scheduled repayment, there is 0. There is nothing which is scheduled. Whatever if we pay, we will pay voluntarily so -- because we have already paid all our quarter 4 liabilities in advance.

Okay. So we are planning anything, sir, with the improved cash flows, which we envisaged for the fourth quarter? Is it prudent for us to lower down more of debt, even voluntary?

I would say in this -- it's early. I think we have done a very accelerated repayment in quarter 3, and almost INR 890 crores [indiscernible] last 9 months mainly in quarter 3. There might be some reduction, but it may not be large, significant reduction now on. But I think is a good level for us to maintain in this entity, at this level. But yes, having said that, I think there may be some minor reduction in quarter 4.

Right. And lastly, on the merger part story, sir, any update you want to share? And secondly, there is a very strong discount to which the Hisar shares are trading, if you take the convergent cost. What is the thought process? Abhyuday, if you have any views to share on the same?

Your second question is we are not right -- we are not placed rightly to answer the second question. Because stock price, we cannot comment from our side.

No. Sir, I'm talking about the conversion ratio only. The way market is discounting the Hisar stock. When the ratios are there in the public domain, still, the differential -- the conversion cost between -- from Hisar to JSL, JSL is ruling at a premium. So that was my point, I would like to highlight that. That's all, sir. That is an observation, if you people have anything on that aspect? And secondly, on the merger process or, if you could throw any update on that, sir.

Thanks for your observation. And I'm sure, I mean, as a market participant, you will take whatever steps you would like to take. Second, on the merger, let me update on the merger process because we are on target. I think -- so SEBI approval is in the process right now. And then post which we'll move to NCLT. The lender's approval also is moving in the right direction. The REIT Bank has already approved [ lease I think ]. And -- which actually follows -- with other lenders following on the same basis. The consortium has also taken note. So we are very confident of achieving this in H2 FY '22. There is no hiccups right now.

Okay, sir. And lastly, sir, we should conclude this year on the same note as we have been growing for the last 2 quarters. I mean quarter 2 was better quarter 1, then quarter 3 was substantially better. So even on a conservative basis, we can look on replicating in the volume terms and as you have guided for the EBITDA number -- per tonne numbers, also, we can replicate it on a conservative basis for the fourth quarter that will be exiting the financial year. That is a good understanding, sir? Depending upon as we are February 5 altogether. We have already done 1 month in this quarter.

Yes. So quarter -- what we'll say, I think we just reiterate our guidance of FY '21, the EBITDA per tonne of INR 14,000 to INR 16,000 what we were guiding. I think we are good to achieve that. We are hopeful that we will be able to achieve this. Quarter 4, obviously, as you rightly mentioned, is that we are right now looking okay, completely from that perspective. But I think we still have some months to go, almost 1.5 months to go, more than 1.5 months. So it's bit premature. But yes, I mean, overall, I think on a year basis, we are expecting what we guided earlier for FY '21. In terms of the volume, in terms of EBITDA per tonne, we are confident of achieving that.

We have next question from the line of Vishal Chandak from Emkay Global Financial Services.

Sir, I have a follow-up question with respect to the CapEx plans. You mentioned that it will take about 18 to 24 months to commission the next level of growth, which is from 1.1 million to 1.9 million tonnes. And that would entail the CapEx award in the range of INR 2,000 crores to INR 3,000 crores, which we have still not finalized. So just wanted to understand, even though it is a brownfield CapEx, you do need to set up certain equipment. It could be another arc furnace. It could be another SMS. Rolling, I understand would be, obviously, be done through the [ JSL ], which has an excess rolling capacity. But other than that, a couple of [ AOD ] furnaces, et cetera, would you think [indiscernible] months is a time good enough by then we can commission the next round of growth? Or it will take a little more than that?

So we feel, in fact, it can happen faster because of when this plant was constructed back in 2006, '07, then all spaces for our expansion was already created. So major -- of the -- there is no shed building required. Space has already been created for each equipment coming up. Like, for example, for AOD. So there will AOD coming up. Already, there's a space created from much -- I mean, from the start for the second AOD to come up there. So that is why there is a huge operating leverage there, which we now want to take advantage of. And we're already -- from my point of view, we're already late. We just maybe started with 1 year back to meet the demand of the -- to meet the domestic demand.

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

Thank you so much. I would like to once again thank everyone for attending this call and for showing interest in Jindal Stainless Limited. JSL remains positive that its strong positioning in the stainless industry and improving macro would help us to deliver steady and consistent growth going forward. I hope we have been able to answer all your questions. Should you need any further clarifications or would like to know more about the company, please feel free to contact our Investor Relations team or Citigate. Thank you once again for taking the time to join us on the call, and please stay safe, everyone.

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