Jindal Stainless Limited (JSL) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Q1 FY '22 Earnings Call for Jindal Stainless and Jindal Stainless (Hisar). I would like to thank Mr. Jindal and Mr. Anurag Mantri for providing us with this opportunity to host them again for this conference call. So for today's call, we have with us Mr. Abhyuday Jindal; Group CFO, Mr. Anurag Mantri; CFO of JSHL, Mr. Ramnik Gupta; Head IR, Mr. Goutam; and Ms. Shreya. So without much ado, I hand over the floor to Goutam. Over to you, Goutam.

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

Thanks, Goutam and Vishal, and good afternoon, everyone. On behalf of the management team of Jindal Stainless Limited and Jindal Stainless (Hisar) Limited, I welcome you to this forum. I wish safety and wellbeing to you and your dear ones in these challenging times. First, I would like to share the key highlights of Q1 FY '22, following which Anurag will take you through the operational and financial highlights. At the beginning, I'm excited to announce the next phase of our growth journey. We are doubling our stainless steel mill capacity through brownfield expansion, from 1.1 million tonnes to 2.1 million tonnes at Jajpur, which is expected to start in the next 18 months. This expansion will be less than 1/3 of the greenfield project cost. The three-pronged expansion plan constitutes expansion of melting capacity, commensurate strengthening of backward and forward linkages. The estimated cost of our expansion is around INR 2,150 crores. In Hisar, we plan to leverage our leadership position by expanding our specialty product division, thereby strengthening product mix. Estimated cost of expansion -- cost of CapEx is around INR 450 crores, which includes previously announced INR 190 crores for our precision strips. The 3x expansion of precision strip will strengthen the company's presence in segments such as auto, process industries, oil and gas and also cater to niche segments like aerospace and electrical vehicles. The blade steel expansion by 1.7x will help us in consolidating our leadership position, both in domestic as well as export markets. I would like to mention about our initiative to fight COVID. As a group, we have supplied over 6,000 metric tons of liquid medical oxygen to hospitals across Haryana, Orissa, Andhra Pradesh and Delhi. We have offered free vaccination to over 35,000 employees and families. We have also -- we are also operating a 500-bedded COVID emergency hospital in Hisar. And our Jajpur facility has supplied over 50 metric tonne LMO on a daily basis to Orissa, Andhra Pradesh and other nearby states. We are committed to extending any possible help to our employees and the community at large in fight against COVID, along with our various social initiatives, and we are already geared up for any wave 3 or wave 4 expected. As a responsible corporate citizen, we are also focused on sustainability and maintaining healthy environment. Operating through [ EIA ] helps us in reducing our carbon footprint. Increasing the recycled content share is a single most effective measure to reduce our environmental impact. This ensures considerable reduction in CO2 emissions across supply chain. As an acknowledgment, numerous awards received by both JSL and JSHL are testimony to our efforts on the environment, health and safety front. Our merger is progressing well. And as informed earlier, we have already filed application with NCLT. We are in the process of getting requisite approvals. The overall process is likely to be completed in the second half of this financial year. Post the strong recovery seen during the last 9 months of the previous fiscal year, this year also started with a positive sentiment. With some initial adverse impacts of statewide lockdowns, demand in key segments like auto, pipe and tube, railways and special grades started to stabilize towards the end of the quarter. Our operational performance during Q1 FY '22 improved on account of better product mix and efficient cost management. Key raw material price trend remains strong in Q1 FY '22 as well. I'm happy that the credit rating for both the companies improved to A+ as a result of accretion from prudential -- prudent financial management and focused deleveraging. On the import front, after the suspension of CVD in the Union Budget in February this year, share of imports in the domestic market increased to 34%, against 24% in Q4 FY '21. Domestic industry is pursuing its case on a level playing field with government continuously. Overall, the outlook of stainless demand remains robust on the back of faster vaccination drive, improvement in availability of liquidity and overall economic recoveries brought by improved business sentiment and infrastructure stimulus supported by the government. With this, I would like to hand over to Anurag to discuss the operational and financial performances. Thank you.

Thank you, Abhyuday. Good afternoon, and warm welcome to everyone joining us on call today. We have shared our investor presentation with the stock exchanges, and I hope you have already gone through the same. As Abhyuday mentioned that despite the localized and statewide lockdowns, our performance has been robust in Q1 FY '22. Let me now discuss the overall performance of the post combined entity first, and then I will discuss our other key developments. On the back of our flexible business strategy, we have increased our share of export sales to cover the temporary challenges in domestic market in Q1 FY '22. Our constant efforts to improve the sales and product mix backed by agile supply chain helps us in proactively capturing the high-quality product segment in India as well as in niche export segment in Europe, Russia and U.S. As you all know, Q1 FY '21 was impacted severely by COVID. Therefore, I'm not comparing our Q1 FY '22 pro forma performance on Y-o-Y basis because then it is not a right comparison to make. However, on a sequential basis, too, the pro forma combined entity EBITDA of [ INR 955 crores ] is up by 9% on a TTM basis. On a TTM basis, the pro forma stand-alone combined revenue grew by 22% over FY '21 numbers to INR 23,439 crores. On TTM basis, the EBITDA rose by 35% to INR 3,256 crores while PBT grew by 79% to INR 2,146 crores. With consistent focus on accelerated deleveraging, we have reduced our debt by more than 30% since the onset of pandemic in March '20. The pro forma stand-alone net of the combined entity now stands at INR 2,739 crores at the end of Q1 FY '22, down -- this is down by INR 400 crores as against the March '21 number. As a result, our gearing ratios have improved further. The pro forma debt equity ratio now stands at around 0.4x while the pro forma debt EBITDA ratio now falls to -- falls from -- falls below 1 at 0.8x. Our focus on maintaining a strong balance sheet will continue going forward, as mentioned by Abhyuday. I'm pleased to share that both the entities' rating agencies have been updated, and JSL and JSHL now both are into A+ category. During the previous call, we informed about the CRISIL upgrade. Now Fitch India Ratings has also upgraded the JSL's long-term rating to 3 levels from BBB+ to straight A+. Accelerated deleveraging prepayments of debt along with the strong operational performance were key reasons for this upgrade. Regarding the merger process, we had already informed you that after obtaining the necessary approval from stock exchange and SEBI, company has filed the first motion application before NCLT, and we are awaiting hearing on this. Now let me just elaborate the expansion plan, which Abhyuday just outlined. We are going to double our melt capacity at Jajpur and further strengthening backward -- forward and backward integration by leveraging our world-class Jajpur infra. Estimated project cost is envisaged at INR 2,150 crores, which, as Abhyuday mentioned, is less than 1/3 of the greenfield project cost of similar nature. SMS -- in this process, the SMS capacity will be doubled at an estimated cost of INR 530 crores by Q3 FY '23. On the downstream side, combo line, which is HRAP capacity, and will go up by 1.6x to 1.25 MTPA. And CRAP capacity will increase 1.7x to 0.75 metric tonnes. This will be done at an estimated cost of INR 1,250 crore by Q4 FY '23. As far as backward integration is concerned, we plan to spend INR 715 crores to take ferrochrome capacity from 0.25 to 0.35 metric tonnes per annum by Q3 FY '24. We also intend to spend balance amount to quality lab and some of the balance of plant to aim to enhance quality assurance for new generation grades in high-end segment and also to improve serviceability for better customer experience. Coming to JSHL, which consists of -- with consistent focus on value-added specialty products, we are expanding our precision strip capacity by 3x to 60,000 metric tonnes per annum in 2 phases, Phase 1 by Q2 FY '22 and Phase 2 by Q4 FY '23. This will be done at an estimated cost of INR 250 crores, which includes INR 190 crores of our Phase 1, which we have already announced earlier. This will be done this -- once this is done, this will take our global market share from less than 3% currently to over 8%, especially in the strip segment. This will also help us in targeting net segment like aerospace and EV, as mentioned by Abhyuday. As you know, we are the largest blade steel producer globally, to further consolidate our position, we are expanding our blade steel capacity by 1.7x to 24,000 tonnes per annum at an estimated cost of INR 200 crores. The project is also going to be completed by Q4 FY '24. Put together, the cash outflow from this CapEx will be split margin to FY '22 and FY '23, approximate INR 1,100 crores each year. Therefore, that this merger is going to complete. We have laid our next level of growth plan. And with consistent focus on balance sheet, with the strong stainless demand across various segments, we'll be ready with our white product basket and value-added products to cater to that. This brings me to the end of my address. I would now expect moderator to open the line for the Q&A session.

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

Congratulations for a very good performance in a COVID-hit quarter. I have 3 questions, if I may. The first one is on your CapEx plan since you are also augmenting HRAP and cold-rolled annealed product capacity. So what kind of incremental EBITDA per tonne would you expect from these, from your enhanced capacity, say, in FY '24?

See, Amit, overall, we would guide on the overall payback period for these capacities. But as far our estimate currently, the payback of these facilities will be less than 3 years. So maybe on a specific EBITDA per tonne, I think let's wait for as we go near to the start of the facilities because we'll have to see the ramp up. But overall, we are confident of payback of less than 3 years.

Okay. That's helpful. The second question is on the stainless steel industry as it is. If you look at the stainless steel prices in China, they have gone up almost 10% from a very high level in the month of July. And our guidance, of course, we have outperformed our guidance consecutively for 3 quarters. So in light of the prices remaining much higher at the present stage, and the fact that China has implemented -- I mean increased export tax on ferrochrome and nickel prices are like almost in a wildfire kind of situation. So stainless steel fundamentals look good. So all in all, what kind of guidance would you maintain for the rest of the year in terms of your profitability, EBITDA per tonne?

So Amit, because based on just one quarter and we are just beginning of the financial year, so right now what we do is that our full year guidance for FY '22, we are upping from our earlier guidance. If you recall last call, we gave a 15,000 to 17,000 EBITDA per tonne. Now looking at the scenario, we are upping it to 18,000 to 20,000 per tonne on an average basis for both entities' consolidated fund. Now your question whether looking all the good, I think we will keep updating and we'll be very transparently sharing with you, and we are now regularly interacting on a quarterly basis. When we see -- when we move ahead more on the financial year, we'll see how the various events unfolds. And so -- and then we will see how, whether we need to revise this guidance further. One thing I want to make sure that if you recall, even in last year when we -- there was a nationwide lockdown, whatever guidance we gave before that, even we didn't give any excuse to the external situation and we make sure that those guidance was met even when the scenario was looking very bad. But we are hopeful of the full year basis. So considering the various external factors, which may right now look good, may not look good after some time. But what we are seeing is that we are confident of 18,000 to 20,000 per tonne at this moment for the full year basis.

And this, you are guiding for the merger -- I mean considering the merged entity, both together, JSHL and JSL?

Yes.

Okay. Great. The third question, if I may, is on the -- we have recently executed an MOU with Tata Steel on chrome mining. So I just wanted to -- and these are still initial days, I know, but I just wanted to understand the kind of benefit in terms of ore production, the cost benefit that you would get for your ferrochrome business on this.

Yes. Amit, like you said, it's still early stages, but the basic idea is that there was a good amount of reserve, almost close to 1 million tonnes of chrome ore is available in the joint boundary between Tata and our mine. So the idea is that because right now, we were buying our chrome ore either from OMC, from Tata or even importing some ore, and we're not consuming our ore available within our mines. So once that starts happening, there will be tremendous impact on the cost. Right now, it's really tough to say because yes, prices of chrome ore also rising and mining has been closed for the last 2 years. So that is why I stopped to give any monetary details as of now. But we know that there is tremendous amount of ore available. In the next 5 years, we want to mine this 1 million tonne resource that is available to us.

Can I ask a follow-up on this?

Yes.

Okay. So just wanted to understand, 1 million tonne in overall context, daily ore capacity, ferrochrome capacity, will increase to 350 kt. And as I understand, you would require roughly 2.3 for 1 tonne of ferrochrome. So 1 million tonne is really not enough. So do you expect that there would be more ore available that you might not have explored. But given this MOU, you would like to explore. So I mean you must be seeing some higher opportunity than this 1 million tonnes.

I said what we already know. It's clearly visible that further -- once we start excavating, then we are expecting a lot more minerals to be found. And we do have plans, which are not put in place right now, but we're still talking of going for underground mining as well. So when we go for underground, there is enough capacity available for us.

And what are the time lines for this? Sorry, I think you mentioned but I missed it, the time line.

The Tata mining you're asking?

Yes.

Tata mining, we expect by Q4 of this financial year to get that started.

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

Congratulations to the team on the excellent operating performance. First question is on the expansion plan, which you detailed quite well. Just want to understand with the new capacity, what should be the volume ramp-up? And then how many years should we take ramp-up, very high capacity utilization starting end of FY '23?

Sumangal, we are expecting the full ramp-up of the capacities by FY '25. So within, say, because we're still be starting end of this '23, the ramp-up will end gradually. So 100% ramp-up of most of the capacity we are expecting to complete by FY '25.

Understood. And will it be fair to expect that the new capacity, the fixed cost and the conversion cost efficiency would be much better than the existing capacity?

Yes, absolutely. Because the way the plant is planned out and then we will be consuming more of our liquid ferrochrome as well. So definitely, it will bring us sort of improvement in our cost efficiency.

Understood. Understood. Second question is with respect to this chrome ore mine with Tata. Just want to clarify this 1 million tonne is our share? Or is the total share? And whenever we start producing...

1 million tonne is our share, our shares.

Got it. Got it. And what could be the production -- annual production out of this 1 million tonne reserves? And how many years can we produce that?

It will take about 5 years, and we have the capacity to produce almost 24,000 tonnes in a month. So that is the limit that we are at. Maybe we can go for some conversion outside also. And we're also looking to increase our ferrochrome capacity as well. So as of now, we can do about 24,000 tonnes a month, maybe 24,000 to 26,000, I would say, and it will take about 5 years to consume this 1 million tonnes.

Understood. And our mining costs with royalty, et cetera, is it fair, as of today, it could be somewhere around $70, $80?

See, because like I said, mining has been closed for the last 2 years for us. So it is a little tough to give that number, but we don't have any premium that we need to pay because this mine, we did not buy in auction, we bought it before. So royalty will be there, but there is no premium that we need to pay that other miners are requiring to do right now.

Got it. Got it. That's very clear. Just one last question on the overall industry. This recent increase in ferrochrome export tax in China, how do you see this impacting chrome ore prices, ferrochrome and then translating into stainless steel? And how do you see this impacting us?

So we definitely see that the ferrochrome price should go up because there is some supply issue from South Africa as well. And like you said, the export duty has come on China. So we expect these commodity prices to go up. I think in terms of our customers because it is pass-through for us, we should not see any negative impact on the company at all.

The next question is from the line of Apurva Shah from PhillipCapital.

Congrats to the team for the fabulous performance. Sir, my first question is on the industry side. So can you say some quantitative data? Because if I look at your current press release, where you have mentioned imports increased to 34 percentage. So can you just throw some light on what is the exact number of import and what will be the average utilization for the domestic producers?

As an industry as a whole, you're asking, so yes, if I talk about domestic industry, other than Jindal Stainless, it is not a very promising situation. And this is only due to the imports that are coming in. We have on average in the last 3 months, if I can say, almost between 50,000 to 60,000 tonnes of stainless steel that's coming mainly from China, Indonesia, as always, and that is creating an impact because these are coming in the low-end segments where Jindal Stainless does not or has a very, very small market share. They don't come in the segments in our process industries, in railway, very limited in auto, but more in the homeware, utensils, these are the areas, low-end markets. So that is where maximum of the producers are getting impacted. If you ask at the industry level, I think industry is operating at maybe 65% capacity utilization.

Great. Sir, the reason why I'm asking is like we are coming out -- we are just doubling our capacity from 1.1 to 2.1. So what will be our plan? So does it also mean that we will be looking for higher sales in export market, looking at the current China situation and a combined entity from 85-15, so 85 domestic and 15 export, roughly, numbers. Maybe 3 years down the line, the ratio can be different. So what is your strategy to utilize this 1 million tonne incremental capacity?

Strategy is always to grow the domestic market and maintain our market share on the domestic front, which you said very rightly that it has been around 85% to 15%. We are very flexible because we participate in the highest end market from our export side. And looking at the facilities and the number of grades you operate in, we are very flexible. So depending on the nature, how we expect, actually, domestic industry to grow at 8% to 9% over the next 3 years. So again, maximum of our capacities will be sold in domestic market. I think the ratio will still remain. You can take a range between 75% to 85% domestic market and about 15% to 25% export market. But we are very flexible to switch if required.

So yes, as -- Sumangal (sic) [ Apurva ], as Abhyuday mentioned is that these flexibilities which we have built in our entire business model is -- so like last quarter, it is the best. Again, we have -- and we have done it in actually every quarter in the last 5, 6 quarters. You would have seen we have really moved these geographical breakup as well as segment-wise, depending on where we are getting the best price and best outcome of our product. So like when quarter 1, some of the statewide lockdown was there, we immediately increased our exports. And just to, again, reiterate at the course of, again, repeating it, we are exporting only to European, U.S. and Russia, okay? So it's a very, very quality segment. We are approved supplier for most of these buyers. So we have a greater flexibility, how we plan out. So that's why we are confident this ramp-up will be, for us, will be by FY '21, and we don't have any challenges. We are not seeing any challenges as of now on this.

Great. Sir, my second question is on the specialty product division of JSHL. So can you share some economics for this division? And looking at the current CapEx of INR 450 crores, what can be the maximum revenue can generate from these segments? So maybe currently 7 to 8 percentage of the total revenue, how much portion we can reach in maybe FY '24, '25?

So Sumangal (sic) [ Apurva ], you rightly mentioned about that. So in terms of the total quantity what we sold it, so it contributes around 6% in terms of the quantity. And if we look at the value-wise, it's 12%. So when we will be doing these expansions over the period of next 2 years, so that percentage will increase, and that is what our focus that we contribute more from this value-added product from the Hisar plant. So that focus will be there. And this delta will increase also. So I will say that in terms of the quantity, if I maintain the same capacity utilization right now, what we are doing. So -- and that average percentage -- so this percentage will grow -- slightly increase from 6% to in the range of 8% to 10%, I would say. And in terms of the value-wise also and looking at the market price at current market price, so this range of 12% will also increase to 15% to 18% in that range, which will help us to maintain our EBITDA margin as well as our EBITDA [ per tonne ].

INR 450 crores of CapEx, how much revenue we can expect? And do -- sir, I mean, what kind of realizations of margin we can expect from this division?

So Sumangal (sic) [ Apurva ], which I mentioned about you...

Sir, this is Apurva. Apurva from PhillipCapital.

Yes, Apurva, sorry. I'm sorry. Apurva, right now, which we discussed with you that if I talk about the current situation, so it is 6% in terms of the quantity and 12% of the value-wise. So on that ratio, when -- we will do the expansion after 2 years. So in the same trend, that percentage will increase at that period. And in terms of that, you're asking about the payback period, so it will be less than 24 months, we will achieve that payback period over the next 2 years.

The next question is from the line of Rajesh Majumdar from B&K Securities.

Congratulations, of course, on a very healthy set of numbers. So sir, I have 2 questions on the scrap side of the trade, actually both are related. The first question is when you gave a guidance of INR 18,000 to INR 20,000 per tonne, what is the kind of product price fall you've built in, in terms of the actual price -- finished product price fall [indiscernible]. Hello?

Sorry, just one second. You are asking about the different series price mix?

Yes. I'm saying when you give a guidance of INR 18,000 to INR 20,000 as compared to the ruling rate of 24% to 25%, what's the kind of product price fall on an average you take when you take -- when you gave this guidance?

Rajesh, here, I would like to, again, reiterate that it's not -- and we should always, again, differentiate. We are into very different business, and carbon is still high. I must say that. So it's intact, not in the [indiscernible] product range price. And we have also luxury that we have 120-plus product range to cater to each and every product side as well as the segment side. What we endeavor to do is that to improve -- optimize the EBITDA per tonne for the benefit of all the shareholders. The product mix, whether export, between export, domestic between auto, railway, industrial fabrication process, pharma, dairy, we remain flexible. Wherever we can capture the best of the product because we have an entire manufacturing process also now very agile. So I would say that it's difficult to give you because it's not that we will -- suppose we do more of 400 Series in this mix, the average price will then fall, but your EBITDA, absolute EBITDA will still increase. So it's a very different from it that...

I understand. Yes, constant mix is like what is the assumption behind this guidance. I mean just trying to get that. What is the assumption that you have reduced your guidance, say, from this current rate? Is it just being conservative? Or is there some calculation behind this? That's all that I want to know.

No. So there is a -- these are based on the various segments, which we see because some segments also have a cyclicity. So overall, on a full year basis, we take certain mix expectation of the mix. But having said that, let me give you the rider. In the last 12 months, those mix have always changed. So like when you are expecting some, say, specific 300 Series to be sold, suddenly the 200 -- 400 Series offtake increase. Last quarter, 300 Series offtake increased. So these are very dynamically moving markets at this point of time, especially when localized in domestic as well as international lockdown logistics challenges happen. So therefore, warranting is the 2 have the full cadence of if the plant at fully utilized and more focused on the EBITDA per tonne. So it's not that the -- we -- suppose we are targeting, say, average selling price, average today, if we are running at 1,50,000. I'm not saying that we will only continue to run at 1,50,000. We may come down to this, but our EBITDA base will not come down. So therefore, this question itself, I don't want to have too much of focus on this because stainless steel is completely different product segment altogether.

Sir, if I put it in a different way, is the lower guidance dependent on the market conditions more than the price then? Is that the way you're looking at it?

It's because of the market segmentation. It's because of the market segmentation because if you talk, like Anurag was mentioning, 400 Series, auto was down in this quarter. So once that picks up and then the [indiscernible] segment picks up, then there could be little price correction. So it totally depends on the market segment that we want to target. But like we said, we'll definitely maintain our margins. We want to maintain our ratios, which is why we are at a very flexible model. We can switch between our series between segments.So it's totally, totally as per company strategy.

Got it. Got it. Got it. So -- and my second question was relating to the scrap market. So we've been increasing our asset scrap consumption over the years. How confident are we going forward that we will be getting this kind of scrap availability and this will go up more over the years?

Absolutely. There are a lot of things that we have put in place. So one thing that I would like to add is that we have a plan to set up 2, 3 yards in the international market where we do our own sourcing at a very cheap price to bring in our own scrap. Secondly, we are getting and we're pushing our domestic suppliers to source more material looking at our requirements and also going into a value-in-use model where they create yard next to the factory and we pay them as and when we consume the material. So this we already did with 2 suppliers, [ Kasigura and MM Ceramics ], and we're also working with many other scrap suppliers to do the similar kind of concept. And currently, because of the logistic issues, scrap ratio is a little down. But over time, over this year, we will get back to our almost 80% scrap ratio. And every year, you will see an uptick in that.

Okay. Because recently, we've seen a deal in the [ SS ] scrap market in Europe, which is at a pretty significantly high valuation. So it feels that the acquisition of a scrap player may make sense. [indiscernible] bought out the stainless steel scrap merchant at 7x valuation, EV/EBITDA valuation. So I was just wondering whether you have any plans to move upstream.

So that is why we are actually -- the plan that we put in is actually moving away from our European and American suppliers. So maximum of the sourcing is now domestic and nearby countries like Southeast Asia and Middle East as well. So that way, looking at the kind of plan European makers have, we, as a strategic reason, which has worked very well, we have moved away from European suppliers. Now our dependence on them is not more than 15% to 20%.

So you're really confident of our scrap availability improving over the years. So you see the kind of scrap that's generated in the region?

Absolutely. Absolutely. Because as the consumption is picking up, which also we are witnessing, scrap generation will also improve. Plus looking at our expansion plan, we're already in discussion with all our major suppliers of sourcing more scrap domestically and from nearby sources. So we are very confident on our sourcing front.

[Operator Instructions] The next question is from the line of Abhishek Mody from Emkay Global Financial Services.

My question pertains to PLI scheme. Since the combined entity into stainless steel, so any plans going ahead with PLI into account for the company on a combined level?

So we are representing and working with the government to get some PLI scheme for stainless steel as well. But currently, the scheme has come more for carbon steel players. So direct benefit we will not get, but we are already representing and working with the government to bring in some for stainless steel as well.

So current is not flexible for the company, you're telling that way?

No. Currently, we will not be -- we are still working on certain grades, but maximum benefit will come to carbon steel players.

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

Sir, my question is on the EBITDA per tonnage bridge. If I look at FY '20, we are somewhere around 13,000 and now we are at 24,000. So my question is, is it possible for you to break it into different parts in quantitative terms roughly how we have moved from this 13,000 to 24,000? And what kind of sustainability we look at because every quarter, we are changing our guidance, but more or less now we are behaving like carbon steel. So stainless steel is no more the way it used to be earlier. So my question is only that, how can you bake from 13,000 to 24,000?

So see, this is a very complicated question because -- and there is no straightforward answer. Over last 2 to 3 years, there have been a lot of changes, a lot of improvement, advances in the whole world. Pandemic has come, all countries that you see have announced huge infrastructure spends. China is now stopping their own players from exporting because they see good demand and they see requirements within their own country. Commodity prices have all risen over the last 2 years, they've been on an uptick. So there are multiple areas, plus the company has worked tremendously on cost efficiency, domestic sourcing improving our cash flow, reducing our interest rate. So there have been a bunch of assets. I know interest rate will not impact our margins. But there are a bunch of areas, a mix of areas that the company has worked on, plus external factors that have led us to reach an EBITDA margin of almost 24,000 tonnes. So I don't know, Anurag, if you can answer better. But there's no straightforward answer to say that this has happened, which is why 24,000 tonnes have been achieved.

Yes. Go ahead, Ashish.

Because now when I'm looking at below gross margin, cost is more or less the same what it used to be in FY '20. So the entire increase according to the numbers which we have been seeing is because of improvement in gross margin. So whatever company is doing, that's not reflecting efforts in the operating expenditure, except for the gross margin. So my only question is whether it's all macro driven or something which we can see in the numbers also?

Yes. So Ashish, let me just correct the right understanding. And again, I'm repeating it what I had replied to the previously. The gross margin, if you recall, is a -- we announced the raw material prices, right, underlying. The 300 Series gross margin is way lesser than the 400 Series gross margin because the nickel is not there in 400 Series. The gross margin will be much higher in 400 Series, right? I think, therefore, the comparison of doing like a very vanilla type with the carbon steel, there is not like or maybe any other metal. Because if we sell more 400 Series, the gross margin will look pretty high, but we are still guiding that. I think for ease of purpose, I think what we are seeing should leave us that flexibility to capture the best margin, best product range at that particular point of time. And it's difficult to predict, and we have seen most of the like -- even most [ quota ] prediction was there. If you put up in January '19 before getting into the pandemic for auto, have completely proved wrong. Because when we opened in -- after the first lockdown, suddenly we saw 2-wheeler auto segment demand grows to a large extent. And we supplied most of our quantities because of the fuel tank of 2-wheeler with large quantities in auto because we are getting the right price benchmarks also over there. So this is very difficult to predict on those terms because in these uncertain times. What we have done is that, like Abhyuday mentioned, I'm not getting into the external factor what -- how it's paying out because it's very difficult to predict those. Again, I'm repeating it. But we have made our business model so flexible. So let me give you a few data points. On November '19, we increased our Jajpur capacity by 35%, from 0.8 to 1.1 with a just cost of INR 40 crores. What it means? Then we made -- it helps us to enhance our product range. So with this, after this as well as the combining with Hisar, we now can cater to each and every product range segments into stainless steel industry. Probably, we are one of the only company in the world who have 120-plus stainless steel product range. So that gives us a huge flexibility to shift over this -- between the product range and the segment. This is one. But this is also not going to give the results till the time you have a manufacturing facility and supply chain completely agile to that. So that, as Abhyuday mentioned, we have shifted our entire supply chain work extensively with the supplier. So bring down but near to our capacities. Now whatever we support suddenly, there is a 300 Series requirement increase last quarter. What it means? We have to increase the nickel sourcing at that point of time. That is not possible if we were still buying with the 2 years previous model of the U.S. and Canada show. Now we do immediately increase because we've actually shipped, worked with on this, specifically on these tasks. So I think the performance, it's not taking to this. I think it's a combination. As Abhyuday mentioned, is that we have consistently worked on these partners to have a very flexible product mix. And to support that product mix, what is getting demanded in the particular market or particular segment? To immediately change our manufacturing lines as well as the supply chain aligned to that so that we can cater to the best to optimize the margins overall.

And just to answer your question specifically. See, that is why we are not coming out with a statement saying that we would achieve 24,000 tonne average EBITDA for this year. We do realize there are certain macroeconomic factors that have supported this, which is why with our flexibility in mind and the kind of switch we can do between domestic and export, we still feel 18,000 to 20,000 is definitely achievable even going forward. On that end, that is the reason why we're not also claiming that 24,000 is what we can achieve this whole year. So there are a lot of domestic factors, I mean, in how -- what we have done to ensure that we achieve 20,000 EBITDA, plus there are certain macroeconomic factors, which have also supported the business and any metal company at this stage right now.

Understood, sir. Because of my only worry is that can we go back to 13,000 to 15,000, which we are claiming 1 year back because obviously, macro factors are supported right now. We don't know 1 year down the line, whether that will be the same or that will change.

Not with the processes that we have put in place should we fall back to such a low level. It can definitely reduce, I will not say, now, commodity crashes, then our margins will come down, but not to that extent.

See, the situation as the earlier capacity was much less. So with the increased capacity, the cost efficiency, optimization also come in the wider product range. So when you are talking the time we were having only 0.8 million tonne capacity in Jajpur largely. I'm not taking the period of like nationwide lockdown in Q1 of FY '21. This is not the comparable period.

But also that's what I am saying. Whatever improvement we have seen, we have seen in gross margin rather than in other expenses, which is -- which can be lower because of higher production.

Gross margin is, again, not the benchmark for the stainless steel industry to look at because of -- it will vary considerably with the change in gross margin. Higher gross margin doesn't mean higher EBITDA per tonne. It could be vice versa.

And sir, secondly is, what assumptions we have made while saying that no payback period of less than 3 years? Any range of EBITDA per tonne, which we have thought of before during this payback period?

It's less than what we are guiding, much less than what we are guiding. For our internal composite payback, which we have commenced, much less than what we have guided.

Is it 13 to 15?

I would not like to put a number. It's much, much way less than what we have been guiding because all our internal planning has to be on very robust basis. Whatever market conditions are.

Every quarter, we are changing our guidance upwards, and obviously, this is positive for market but it's difficult for us to estimate in a broader range also. And that was because earlier we were looking at stainless steel as more of a conversion and value addition, but it's behaving like a commodity now. That is our main issue. Anyway, and last...

As Abhyuday mentioned, it's not really -- there are some commodity play just coming. It's not a commodity play, it's basically because of raw material increases, there are certain -- because the people go and are buying at speed, there is more of the inventory holding and starts happening at a distributor level. There are obviously certain positive side of the inventory valuation bids start reflecting. That's part of it. But largely, it's more because of a part of it. So it's a combination. Therefore, we are not guiding what we are right now earning. So it's not that -- it's difficult. You may appreciate, it's difficult to have a benchmark like in stainless steel because the product range is very, very different.

Understood. Understood. And sir, when can we have our tax cash outflow?

We will have [indiscernible] this FY '22. Somewhere in FY '22, we should have that number.

The next question is from the line of Dewang Sanghavi from ICICI Direct.

Congrats on a very good set of numbers. I have a couple of questions. So firstly, can you throw some light on the trend in prices of key inputs currently versus Q1, something like an electrode pricing or a ferrochrome pricing?

So steel imports, actually, we are still seeing it's at, like I said, at an average of around 50,000 tonnes that are coming in the month-on-month last 4 months.

Sir, I was asking the key input like electrode pricing and ferrochrome pricing. What was...

Yes. So if you talk about the electrode price, if I talk about the last year when you're talking about the same quarter, it was around 250 range in that part. So if I talk about the current status as on date, so it is also hovering around at [ 257 ]. So if I talk about the nickel, so it was the last year it was at the low base level at that time. It was around $12,000 per tonne. So now at [ end of June ], it was 17,000. But if I talk to today's situation, so it is hovering around 19,000-plus.

I said they have gone a little higher, but that has not impacted us from a margin perspective.

Right, sir. And if I look at the stainless prices in China, they have gone up from June quarter also. So are the current prices higher than the Q4 average or Q4, I said, in this case? For the Q1, is it? My mistake.

So we'd rather talk on averages rather than quarter-on-quarter, which is why we still are sticking that 18,000 to 20,000 on an average for the whole year, we will definitely achieve.

Right, sir. And was there any inventory gain in Q1?

See, again, as Abhyuday mentioned, is this inventory valuation positive or negative side, this could be there marginally, but we have actually reduced that, our entire inventory cycle. So that is actually now on the long run, it's not going to impact too much. Because earlier also, we are now monitoring on almost a daily basis or a weekly basis, our [indiscernible] for any material inventory. It's a nickel in and nickel out. Whatever we are selling and what we are quantitating. Most of you know that transit time is also reduced the price which we are buying is almost on a real-time basis now with most of the suppliers. So our risk to that has considerably reduced. Now most of that -- so it will be a combo. It's difficult to predict that inventory gain or not because it's a combination because then suppose the prices are going down, there is a tendency among the distributors as well as the purchasers to also keep buying the larger quantity and booking the larger quantity at that point of time for a longer period. So that also plays into this game. So overall, I would say, yes, whenever there is some positive buoyancy, I would put it more, as Abhyuday mentioned, on a coverage, some part of it, which can reflected on these parts. But overall, the risk of like the large fluctuation has been reduced. On a longer-term basis or more 4 to 5 quarters, we will always be updated because we are now monitoring our each and every exposure very carefully. So we have put up a very robust self-management system of monitoring these -- what remains in our system on a daily basis.

So it would be marginal because the working capital base has reduced? Is that the right understanding?

It will be marginal as compared to what it used to be 2, 3 years back. It will be marginal.

The next question is from the line of [ Palau Agarwal ] from Antique Stock Broking.

I had a question on the export taxes that has been enforced [ in Russia ] effective from 1st August to December. So I think Russia exports a lot of nickel into the global market. So with this export tax, do you think the cost curve will go up and this can actually ultimately benefit your margins in the long run?

So nothing to do with Russia for us as such because we don't buy any nickel from Russia or maybe less than 1%. So Russia factor will not impact us. But yes, because of the news coming out, with China also putting export duty on nickel pig iron, there will be an increase in nickel prices that we will see, yes.

So nickel line for us is mostly a pass-through or there'll be some impact on the inventory that we hold?

It is a pass-through with little time lag, but it is a pass-through.

Okay. Sir, just one more question on the merger. So once -- I think there is some intercorporate debt that is there between the 2 entities. So when the merger happens, this would be knocked off, but how will the loans and advances be treated in Jindal Hisar? So would there be a complete elimination of the intercompany debt? Or how would the restated balance, pro forma balance sheet look like?

So you rightly mentioned about that. So in terms of the -- if I talk about the 2 listed companies in terms of that. So one is we are showing as the receivable, which is given to the -- from Jindal Stainless (Hisar) Limited to the Jindal Stainless Limited. So one is on the borrowing side, it is appearing, and other is the receivables side. So when this NCLT approval will come and when we will be presenting the merged balance sheet, so this will be scaled up between the 2 things as a single merged entity.

Sure, sir. And how -- I mean the exchange ratio is there, but I believe there is some, again, intercompany shareholding. So it would also help if you could give us some idea of post the merger, what will be the share capital body of the merged entity.

The merged entity share capital will be 84.63 crore shares.

Okay. This helps a lot.

Sorry, 82.63 crores. Sorry. Sorry, my bad. 82.34 crores shares.

Okay. This is after eliminating all the subsidiary holding or everything, this will be the final number?

Yes.

The next question is from the line of Sunil Singhania from Abakkus.

A couple of questions. One is on the taxation side, Jindal Stainless has now 35% tax. I'm talking about provision, whether paid or not, and Jindal Stainless (Hisar) has 25% tax. On a consolidated basis, what would be the tax provision percentage?

So Mr. Sunil, that we are in the process of getting the NCLT approval stage. So when we will be combining, both the company put together. So we will be -- because one is on the lower base and one is the higher way. So looking at the past losses, what was there in the MAT credit tier. So that position we will be evaluating because we are in the process of the -- of merging stage. We're getting the valuation done by the independent valuer. So as this process will get complete, so we will be announcing that what percentage we will be applying...

[Foreign Language] Taxation is...

So you're right. You're absolutely right. But in the finance sector, if you -- if I talked about '21, '22, so because government has brought some changes there. So as the scheme of the merger, which we have announced it, so it is acquisition methods we are following that part. So we are evaluating from that angle, so that's what I am saying...

Corporate tax is at 25%. So logically, it should go down to 25%, right?

Yes, you rightly mentioned. Yes.

The second thing is on the subsidiaries. Obviously, last year, first 2 quarters, we had some stress in the subsidiary. Then the next 2 quarters, Q3 and Q4, all the subsidiaries did very, very well. This quarter also, all the subsidiaries are profit-making, but there has been some dip in the Indonesian subsidiary and the Steelways subsidiary in terms of EBITDA. Can you throw some light on how the subsidiaries should be looked at because there will be substantial INR 400 crores of EBITDA coming from these 4 subsidiaries.

So Sunil, Steelway I will take up. Steelway basically is only temporary because you see Steelway is catering to the small customers, who were the maximum impacted during this lockdown which happened in end April, May, because they are catering to less than, let's say, 100 tonne customers. And they were the ones who had the maximum labor issues, they had to shut shop. So already from Q2, you will see JSHL coming back because all the lockdowns are now over and their customers are also operating again. [ PT DSI ], the issue that we're actually facing is completely due to logistics. [ PT DSI ] from an export-dependent [indiscernible], again, Europe and America. And there, we are facing new challenges from a logistics point of view. So the cost of shipping has drastically gone up. We are in talks with all our customers to renegotiate the prices and supply at a higher trade, higher price as well. So Indonesia, getting all positive information from the team there that customers -- because it's a world phenomenon. It is not only dependent or because of one country. So the customers are accepting it and they are increasing and increasing prices. So Indonesia should also see an improvement in Q2, but JSHL will definitely come back towards previous levels.

And coming to the core business, obviously, the company has come a long way from a maker of stainless steel, which was not exactly completely high grade to now spending more resources and producing more precision stainless and other high-value added stainless steel. Doesn't that logically mean that our band of EBITDA, which used to be at a company level earlier should logically even withstanding the ups and downs in the economy and prices, should have moved up largely because we're doing more value-added? And even this INR 450-odd crores is towards precision stainless still and blade steel.

So that -- definitely your point is absolutely valid and correct from the SPD point of view. But the challenge, and I would love to invite you or our other investors also to the factory to really get the sense of it because Hisar, we still want to keep it fully loaded. So that is a challenge that we then face in terms of we might have to produce some low value-added segment grades, which, overall, will bring down our average EBITDA. So from our special products, blade steel, those margins will still increase. But because we're increasing that, we will not be able to cast our wider products to the same extent, and we end up making patch-up. So that brings down our overall margin EBITDA. So that is the only factor which will bring it down.

Last one question, Abhyuday. You know about my -- a little bit of soft corner for the B2C business. You have created very good products. Why is the push not there in a more aggressive manner on the B2C business, which looks very good, but has been growing rather timidly given the opportunity in India?

There were some internal challenges, which now we are rectifying. We are bringing in more automation, if I can say. We had some labor challenges, some quality challenges because of that. And now we're bringing in further automation. So our efficiency, cost reduction, quality improvement, all those areas we're working on. Along with that, we're coming out with a branding and marketing strategy as well. So yes, we have been lagging behind on the B2C front, but that is the focus, and I'm really focusing on that now. So hopefully, next coming quarters, we will see an improvement from that side as well.

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

Congratulations to the full team for such fabulous numbers. Sir, I wanted to understand more on the exports market. So sir, how is the demand there and the realizations going in the exports market? And do we still feel any challenges for exports?

So export market from a realization margin point of view is actually doing phenomenally well. That is, again, because of the China factor, that China is trying to export less. So companies with good quality and cost efficiency like us are able to take advantage of that. So from again, U.S., Europe, we see very good margins despite the fact that there is duty on both deals, I mean, on India from both these countries. So we still see good demand coming in, and we see margins also being up. What was your second part of the question?

Any challenges for exports?

Only challenge I can say is from a container and shipping perspective and more in the eastern front. So now to tackle that, what we are doing is we are also targeting JNPT and Mundra port as well to cater to our U.S. customers.

Okay. And sir, my second question will be -- no, okay. So all my other questions are answered.

The next question is from the line of Jimesh Sanghvi from Principal India.

Congrats on a good set of numbers. A couple of things. If you can share the breakup of the 200, 300 and the 400 Series for probably FY '21 and for Q1. And second was on the raw materials sourcing, has there been any shift in the last 2 to 3 years? If we have shifted more towards the stainless steel scrap in terms of our overall raw material or ferronickel, if you can share some data points on that as well.

I'll take your second question first. In terms of -- see, scrap has always been a clear focus and clear strategy for the company. Again, it is totally depending on market factors. And the kind of equipment we have, we can always fluctuate between consuming more ferronickel or scrap. So if you're getting a better price in ferronickel, then we increase the consumption of ferronickel to that extent. But in most cases, and on average, scrap is always you get better discounts. So that is why we operate at almost between 70% to 85% from a scrap ratio perspective. Your second -- first question was on?

Ratio.

So yes, Jimesh. So in Q1 FY '22, we see in JSL, the previous mix was like 200 Series, 17%, and 300 Series was 53% and 400 was 30%. And whereas in JSHL, it was 37% of 200 Series, 46% of 300 Series and 18% of 400 Series.

And can you share this number for Q4 as well for FY '21?

Yes, sure. Can I send it across to you offline?

Sure. And sir, on -- fine, not a problem. Sir, on the stainless steel scrap, as you said, that we consumed generally between 70% to 85%, what will be that percentage right now? Will it be more towards the 85% range? Or will it be more towards the 70% range?

Currently, as we talk, as on day-to-day, it is on the lower side, only because again of the shipping issues that we are facing across the globe. We see that improving and coming back in October. So immediately, our scrap ratio will again hit that 85% level. Right now, we're at the lower band, you can say.

Okay. So currently, we are consuming almost around 25% to 30% of ferronickel. Is that the right assumption?

Correct. You're right.

[Operator Instructions] The next question is from the line of [ Rene Zaveri ] from [ JNJ Holdings ].

Yes. Sir, my first question is what is the debt as on 30th June of the merged entity, pro forma?

It's less than 2,800, and that number is 2,789.

So this is long term, short term as well as current maturities?

This is only fund-based debt, long term as well as short term.

Yes, you are right. Current maturity long term, short term together.

Okay. And Sir, if you can just -- and what would be the average blended interest rate?

See, put together, working capital, because we have a large working capital lines also, almost close to INR 4,800 crores. Put together, the blended interest rate is close to 6% utilized, depending on the utilization of those lines.

And if you could just throw some light on the CapEx number, including the maintenance CapEx for FY '20 and FY '23, please?

Rene, if you -- I would refer that you go through our presentation. We have given very specifically the CapEx phasing as well as the detailing. So please, I would say to go through that. And if you have any residual questions, happy to answer towards it.

Okay. Last question from my side is, basically, the interest cost for the year, as you were alluding in the last call, would be less than about INR 400 crores, right? And after this debt reduction in Q1, it will be still further lower.

It will be further lower. Last time, yes, you are right, we guided less than INR 400 crores. Probably, it will be less than INR 375 crores or maybe INR 350 crores, I think. But less than INR 375 crores, what we can guide now.

The last question is from the line of Vishal Jajoo from Tata Investment Corporation.

My question was in the B2C business, Jindal Lifestyle, as far as I understand, we have 2 major customers, one is the railways and second is Whirlpool. So what plans we have with regard to addition of more clients? And secondly, in Whirlpool, do we supply to Whirlpool India or Whirlpool worldwide?

We supply actually Whirlpool worldwide, and we are the biggest supplier in a particular segment to them, which is KitchenAid. And already, they have asked us to increase the capacity, which is what I was mentioning. We are going for further automation in our plants to increase the output, improve the quality, bring down cost. And already, we have started. We've added 2 new OEMs in the last year. One is Havells India, other one is Tata Motors for a certain product, same -- similar lines. We are also working to add at least 2 more OEMs in this quarter, and that is our strategy going forward.

And secondly, sir, I visited some of your stores also. So what is the outlook that we have in that particular business over the next 3 years? Because in the last couple of years, there has been a lot of volatility maybe due to the railway orders or the Integral Coach Factory orders. But where do you see this business scaling up over the next 3 years?

So let me get back to you exactly because this is -- our CEO for the JSL Lifestyle is not here with us, but we see good growth at least to the tune of 15% to 20% coming in the railway business every year. We are adding new equipment. We started supplying side wall, roof and the train to the railways. We are planning to expand this facility in our Chennai plant. We have a Chennai service center. Along with the service center, we're planning to expand for our lifestyle business, both for kitchens and for railway business in the south. So we see good growth coming. We are the strongest player in this segment, supplying to railways. So definitely, we see at least 15% to 20% growth every year for the next 3 years.

So sir, one last question from my side. The investments that we will be doing with regard to the automation plus the new OEMs that we are adding and the request that has come from Whirlpool to increase the capacity, so what is the CapEx plan in this business then?

It's -- mostly, largely, what we are planning right now is we'll be currently met by our existing capacity, largely. There would be some balancing which will be required. But I think as we move with the order, I think we will be adding some, but it's right now not major CapEx plan, which has been planned out for lifestyle.

Chennai plant will incur some CapEx definitely. In our existing facility, there will be minimal, minimal addition. Chennai plant will incur some CapEx, not more than, I would say, more than INR 25 crores to INR 30 crores.

The last question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, we have seen an inventory buildup for both our units. So what kind of ramp-ups are we seeing for the month of July as you are exiting July? How is this inventory closing down has happened?

So Saket, we actually have an annual shutdown that is planned for this quarter, which is why inventory buildup was required. That will help us. We have this annual shutdown coming in the month of September. So this inventory will be diluted by then.

Right, sir. And sir, lastly, sir, what -- the guidance given to us for the EBITDA, what kind of cash flow on the merged entity is expected for this year? And how is the cash going to be utilized? If you could give a framework on the same, sir?

Yes. So basically, the guidance which we have given is on EBITDA per tonne side, 18,000 to 20,000. Volume side, what we have guided is probably we'll be doing close to 15% to 20%, more towards 20% of overall volume growth in the combined entity. So that put together is the overall EBITDA, which we'll be targeting. Interest cost on the cash side, the cash outflow side, the scheduled debt repayment, which is remaining for this year is INR 35 crores. And the interest cost, which we have already guided, is less than INR 375 crores. So this will be how the math will stack out.

And on the CapEx front, how much will be the...

Sorry. The CapEx side, as we have mentioned in our presentation also that our annual outlook for the CapEx, new CapEx will be close to INR 1,100 crores. And over and above it, there is the sustenance and maintenance CapEx, of which remains in the range of -- expected in the range of INR 250 crores to INR 300 crores.

I would now like to hand the conference over to Mr. Vishal Chandak from DAM Capital Advisors for closing comments.

Thank you very much, Mallika. I think we had a lot of investors' queries addressed in this session. And thank you very much to the management team from JSL and JSHL. So I would request, Mr. Jindal, for his closing comments, please?

Thank you, Vishal. I would like to thank everyone for attending this call and for showing interest in JSL and JSHL. Completion of merger, along with slated capacity expansion and better product mix, will help us maximize the value for all our stakeholders. I hope we have been able to answer all your questions. Should you need any further clarification or would like to know more about the companies, please feel free to contact our Investor Relations team. And I can see that there is a lot of interest coming in our subsidiaries. So what I will ask our IR team to do is, maybe every quarter, we invite one CEO from the subsidiary so that any questions further can be answered. So maybe next quarter, we'll invite our Lifestyle CEO. And the one after that, we can invite our Service Center CEO to come and answer because I'm happy to see that there is lot of interest coming in. So thank you, once again, for your time, and hope to see you -- or hope to speak to you on our next call. Thank you.

Thank you. On behalf of [Audio Gap]