Jindal Steel Limited (JINDALSTEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Jindal Steel Limited Q1 FY '26 Earnings Conference Call hosted by Nomura. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Jashandeep Chadha from Nomura. Please go ahead.

Thank you, Muskan and good afternoon, everyone and thanks for joining the first quarter call for Jindal Steel Limited. I'll quickly hand over to Mr. Vishal Chandak, the Head IR and Strategic Finance; and he'll take you forward. Over to you, Vishal.

Thank you very much, Jashandeep. Good afternoon, good day, ladies and gentlemen. I welcome you all to the Q1 FY '26 earnings briefing of Jindal Steel. I have with me from the senior management team, Mr. Sabyasachi Bandyopadhyay, Whole-Time Director; Mr. Pankaj Malhan, Executive Director and Mr. Sunil Agrawal, Head Finance. Without much ado, I'll hand over the phone -- and Mr. S.K. Pradhan, as well -- sorry. Mr. S.K. Pradhan, Head of Marketing of Flats. Without much ado, I will hand over the floor to Mr. Sunil Agrawal for the opening comments. Over to you, sir.

Thank you, Vishal. So good afternoon, ladies and gentlemen. I welcome you to the Q1 financial year '26 earning briefing of Jindal Steel. Let me quickly brief you on the global economic scenario. IMF in its recent update in July has revised global growth forecast for calendar year '25 to 3% from 20 -- 2.8% in its April forecast, reflecting improved financial conditions and improving certainty to the tariff regime as compared to previous quarter. China continues to grow well over the stated target of around 5%. The IMF forecast for calendar year '25 is 4.8%. This is partly driven by front ending of the exports to the U.S. before the tariffs come into force. However, the tariff related to uncertainty continues to linger on. Global inpatient is tended to gradually decline from 5.6% CY '24 to 4.2% in CY '25. India's crude steel production grew 1% quarter-on-quarter to 40.6 million tonnes in Q1 FY '26, while demand contracted 5% quarter-on-quarter to 38.3 million tonnes due to seasonal weakness and early onset of monsoon. Steel export declined by 4% quarter-on-quarter to 1.6 million tonnes and import declined 19% quarter-on-quarter to 1.9 million tonnes. India remained net importer of steels in Q1 FY '26 for fifth consecutive quarter with 0.3 million of net imports. Chinese steel production continues to outpace its weak domestic demand, resulting in elevated export impacting price globally. China is currently running on annualized export of 116 million, highest ever, which has existed in several countries, taking measures to stem the low-cost import from China. Several countries have either imposed or increased safeguards or antidumping duties against Chinese steel imports to shield their domestic industry from unreasonably low price imports. Government of India introduced a provisional 12% safeguard duty on select steel imports, effective April 21, '25. This result has stemmed the flow of imports, the provisional duty will be effect for 200 days. During the quarter, domestic HRC and TMT price increased on a sequential basis. HRC prices were partly supported by the 12% safeguard duty on most of the flat steel imports effective April 21 but corrected later due to weak domestic demand. TMT price opened on a strong note but dipped down due to the early arrival of monsoon and subsequent inventory in the system. Now let me start with the key quarterly numbers. Production during the quarter 1 was marginally down by 1% quarter-on-quarter to 2.09 million tonnes, sales volume at 1.9 million tonnes, down 10% quarter-on-quarter basis on account of replacement of inventory after excessive drawdown in Q4 of FY '25. This is the seasonally strong quarter. Consolidated gross revenue fell 8% quarter-on-quarter to INR 14,336 crores on account of lower volume, partly offset by increase in the ASP. During the Q4 earnings call, we guided for savings of around $10 to $15 in our Q1 coking coal consumption. Our actual coking coal cost has reduced by $11 per tonne, in line with our guidance. Consolidated adjusted EBITDA for the quarter stood at INR 2,984 crores and adjusted EBITDA per tonne stood at INR 15,680 per tonne, which is up by 35% on quarter-on-quarter basis. Consolidated PAT for the quarter stood at INR 1,496 crores, which is 36% higher than the adjusted PAT on quarter-on-quarter basis. The strong financial performance was driven by higher ASP and lower input cost, including reduction in conversion cost. Coming to our debt profile. Our consolidated net as at 30 June was INR 14,400 crores, which has increased by INR 2,443 crores on a sequential basis primarily on account of working capital buildup. Accordingly, net debt-to-EBITDA stood at 1.49x at the end of the quarter. We reached our commitment to kept the net debt to EBITDA at 1.5x, underscoring our position as one of the strongest balance sheet in the industry. On total CapEx in the quarter stood at INR 2,226 crores. Out of our total announced CapEx of INR 47,043 crores, we have spent INR 28,150 crores till 30 June '25. On mining front, we have won Roida-1 iron ore and manganese block in Odisha. This block has an EC capacity of 3 million tonnes per annum and estimated reserve of approximately 126 million tonnes. The company had already started extraction of iron ore from this mine. We plan to extract around 1.6 million tonnes in FY '26 from this mine. I am pleased to say that we have successfully commissioned our first 0.2 million tonne continuous galvanizing line at Angul. This makes an important milestone in our journey and reinforces our commitment to deliver high-quality value-added steel products to meet the evolving needs of diverse industries. As informed previously, the commissioning activity of blast furnace 2 have already begun with the lighting of 3 gas stoves in Q4 FY '25. We are on track to deliver the first hot metal from blast furnace 2 in this month. Rest of the project, including BF-2, BOF-2, slurry pipelines, SDPP are progressing well as per scheduled timeline. We expect the slurry pipeline to be commissioned during the current fiscal year. For Q2 FY '26, we expect the consumption cost of coking coal lower by around $5 per tonne. The iron ore costs are currently flattish on quarter-on-quarter basis. Domestic steel prices are currently lower by 5% to 7% compared to Q1. While prices are soft currently but the early indicators says that the possibility of turnaround. However, it is a little early to talk about how Q2 is setup. With this, I open the floor for question and answer. Thank you.

[Operator Instructions] The first question is from the line of Rajesh Ravi from HDFC Securities.

Yes. Could you explain the volume -- reasons for volume decline on a year-on-year basis? And given the earlier guidance of 8.5 million to 9 million tonnes, with Q1 volumes sharply down, is the guidance still remains? Or do you look to cut down on the same?

Saby sir?

Yes. Vishal, I was going to -- Good afternoon. Hello, everybody. Thank you for joining. From our standpoint, production was broadly stable quarter-on-quarter basis in the first quarter. Sales volume was certainly impacted by 10% but that happened because of the early onset of monsoon, also had an inventory buildup, so which certainly will get liquidated over the entire course of the year. As far as guidance towards the production and sales for the balance of the year and for the full financial year, we remain on course and we remain committed to those numbers.

What was the utilization in this quarter?

Utilization in terms of?

Production utilization, which you share every quarter?

In this quarter, capacity utilization you are asking for?

Yes, yes. Correct.

Yes. So we were roughly about, I would say, 90%, 92%.

So can I take this question?

Yes, Sunilji.

Yes. In our basically [indiscernible] plant, we -- our capacity utilization was 95% and Angul, we are roughly around 83%, 84%. On an average, we can say that's the blended 90%.

Because March, you had mentioned capacity utilization already 5%. And from there, sequentially, volumes are down 2% -- 1%. So surprising how are we saying utilization is close to 90%?

So I think basis..

Sir, could you please repeat your question. Your audio is not clear. Can you please repeat the question?

I'm saying in March quarter press release and presentation utilization was mentioned for company at 85%, with production number shared at 2.11 million tonnes, the 2.09 million tonnes it should be lower than 85% because you mentioned it is closer to 90%.

So if I look at the capacity at this point of time basis, Angul and Raigarh, without the additional capacities that are yet to come in, in Angul, we are broadly at about 90% of our capacity utilization. As Sunilji talked about, Raigarh plant running about 95% and Angul at about 85%, 84%, 85%.

Overall, we can say that last quarter, it was 88% and the current quarter is 87%. 1% production is down from quarter-on-quarter basis.

Understood.

So Rajesh just to -- yes, yes, just to clarify, the capacity utilization is down by just 1%, production remains stable. The decline is on the volume. Production remains stable.

The next question is from the line of [ Amit Dixit from Goldman Sachs ].

Yes. Congratulations for a good set of numbers. A couple of questions from my side. In the presentation deck, while you have mentioned on the Slide 32 about the time line of blast furnace - 2 commissioning which is Q2 FY '26. Is it possible to mention the time line of BOF-2 as well when it is expected to be commissioned? When do we precommission tests, that commissioning time line would be great.

Let me take this question. You rightly said that we are at a very advanced stage in terms of our blast furnace #2 startup. Sunil mentioned a while back, we've all completed our [indiscernible] tryout, furnace tryout. And we're just trying to inch the last leg of commissioning activities. But I see sometime very soon, we would be able to announce BF-2 and BOF-2, if I was to take that, it would be starting almost sometime very close to blast furnace 2 also. So we are at the advanced stage of commissioning at both these units.

So is it reasonable to expect that it would also be commissioned by Q2 or max by Q3?

BF-2, we are expecting in quarter 2 of FY '26.

Great, sir. That's helpful. The second question is, if I look at the P&L, the raw material cost per tonne has gone down by almost INR 3,500, INR 3,600 per tonne. Now while the coking coal is one factor over there, just wanted to understand what are the other factors that resulted in such a sharp decline in raw material cost per tonne? And is this sustainable -- some of these factors are sustainable going ahead?

So let me take this question, sir. So if you remember, sir, last time, we have announced one-off -- one item of one-off around INR 231 crores that has a effect of INR 336 per tonne. If we net of that, our net improvement is around INR 2,864 -- sorry , INR 336 is our captive commission, if you reduce that. So net commission is INR 2,864 and due to one-off items in the Q4 '25 around INR 1,200 per tonne was the effect. And if we deduct that, so net impact is around INR 1,600 something per tonne, which has come out of coking coal that we have already announced that we have saving of around $11 per tonne during the quarter. So that has resulted in around INR 500 per tonne. And second is the PCI also, we have saved around INR 200 per tonne. And we have the saving in other items as well on scrap and other items that amounts to INR 900 and INR 1,000 per tonne. Hope this clarifies.

Yes, sure. It does. I have other questions, I'll come back in the queue.

Amit, this is Vishal here. I think the gap which everyone is looking at is, we are missing out the point that in the previous quarter we announced a one-off of INR 331 crores, which was primarily residing in the raw material costs. Adjusting for that balance has all declined in the raw material costs broadly.

Yes, sure. I mean the bridge that was explained was quite good.

The next question is from the line of Amit Murarka from Axis Capital.

Congrats on a great result. So just on the Angul 2 commissioning, like, would you be able to also provide some guidance volume that we can expect from BF-2 and BOF-2 this year and next year?

Amit, that's a wonderful question and our guidance remains the same, in fact, which Saby also mentioned a while back. So we're committed to the guidance that we've stated at the start of the year, both in terms of production and dispatches and we're very hopeful of hitting those numbers.

Okay. Okay. Sure. Also, I was just seeing the presentation like the sectoral split of volumes. So, like, auto seems to be only 3%, whereas flats is 44%. So I believe flats earlier used to be like 20%, 25% range, which is your plates. So where does this increase come from then, if not from auto?

So Pradhanji, if you can -- Mr. Pradhan, you can take that question.

Yes, good afternoon and -- see, we are the -- most of the flats are coming from the new commissioning of hot strip mill which we have done. And auto, the ramp-up takes some time. So we have started supplying to a lot of auto manufacturers, trial lots and all. But major volumes of auto, we are supplying to a lot of value-added segments. So if you have seen our value-added sale has gone up to 72% in this quarter compared to the previous quarter. So a lot of supplies to the very high grades of HR coils and -- HR coils. So that is what has contributed to increase, other than auto, right?

Sure. And by when do you think the auto volumes could start [indiscernible]

It has started. Yes, it will start ramping up as we'll move ahead in the quarter-on-quarter.

Okay. Got it. And just lastly on Tensa, like did you produce any iron ore from Tensa in the quarter?

Yes, we did produce a bit of that coming from Tensa. But yes, Tensa is towards the end of the mine life. And if I was to just share with you guys, the results, what we've seen is minus Tensa, almost for this quarter. The important part is to have our [indiscernible] done and that's how we've gone ahead with Roida-1 mine. That would be actually compensating for the loss in volumes from Tensa getting into the future quarters. So Tensa did contribute but a very minimal impact of that in this quarter.

Sure. And if I could just squeeze in one last question. You seem to be having opening inventory of 0.2 million tonnes. So given that steel price has corrected a lot since the last quarter, could there be any [ NRV ] impact that would come in on this opening inventory?

Yes. So certainly, the effect of price reduction maybe but we are maintaining that inventory from the quarter-on-quarter basis. And it will sequentially will have the effect. Since now the prices are moving upwards, so we'll -- we don't see much effect of that.

Sunilji, if I may add, in fact, on an aggregate basis, we do not anticipate any major impact at all. It's going to normalize itself and we actually stand with a position of gaining a little bit from the price depression that happened and now gaining back regaining back its ground.

The next question is from the line of Prithvi Jhonsa (sic) [ Parthiv Jhonsa ] from Anand Rathi.

My first question pertains to the net debt position. I believe this is the highest threshold level we have reached post 2021 right? And in the opening remarks sir informed all of us that this is like 1.5x of threshold. So it is fair to assume that this is the peak and from here on going forward over next 2 to 4 quarters, or we should see some debt reduction happening, once your facility comes up [indiscernible]?

Sure, sure. So we are seeing this as a peak because I have spoken that we have built up the inventory in Q1 for around [ INR 2,400 crores ], which is getting liquidated in Q2. So that will facilitate the reduction in the -- that will improve our cash position. And now we are going to start the blast furnace and our BOF-2 that will start contributing and we don't see this 1.5 breaching any more. So we are at the top of our -- the net debt-to-EBITDA limit that we have set.

Parthiv, This is Vishal here. Let me reiterate over here. We had an inventory buildup which led to a working capital pile on. We still have contained the net debt to EBITDA at 1.5x. We have an accelerated payout because the facilities are commissioning, cash flows are yet to come in. We have still maintained net debt-to-EBITDA at 1.5x. 1.5x is sacrosanct to us. It's a red line, we will not breach. I reiterate, we will not breach. So and coming quarter 3, the situation will automatically improve. And let me reiterate in Q2, we have already crossed almost half of the Q2, we are still below 1.5x. So I think the stress is beyond us now. We are looking for some good times ahead.

My next question is pertaining to the value-added side of the business, right? I believe the 72% is one of the highest in the industry. Usually, the industry is around 60% to 65%. Now how --#1, how confident are you to now ramp-up from here on, say, 72% going forward? And just a very technical question, like what do you perceive as a value-added product? Is it after a certain conversion, what is termed a value-added? Or how do you foresee a certain product to be value added? Like what quantifies or qualifies it as a value added?

Yes, can I take it, Vishal?

Yes, yes. Pradhanji, please go ahead.

Right, right. So value added in our case, category to category, it's much different. But then whatever has a -- if you take a thumb rule or set a benchmark and anything above 50 MPa strength value added in place. In HR coil, we are most of the high carbon, medium carbon, different grades. So it is the grade which defines whether we feel it is value added or not value added and the jump in realization. These 2 parameters we consider when we are deciding the -- whether the product we will treat it's a value added or not value added and it's consistent.

Can I add to that, Sushil?

Yes, go ahead.

So in plates also what we do is typically we got a heat treated segment, which is absolutely high-grade plates, which is getting into a very specialized sectors like defenses, automobiles, and even high end of construction, which is one of the reasons -- one of the good examples is Chenab bridge that we did. Then of course, the value addition that we give to the customers in terms of the solutions, which is largely coming from the fabricated structures, then some high alloy wire rods, all these and even the large-sized TMTs, we are the only company making 50 mm TMT. So these all falls under value-added offerings from the company.

Yes. And the second part of the question was whether the 72% is sustainable, considering that the industry is operating somewhere around 60% claims. So in this quarter, or what has changed since we are ramping up HR coil facility and we are not at the fully utilized level of HR coil. So our focus is entirely on getting the best out of the asset and that's how the very high volume concentration of value-added products we are making in our hot strip mill.

And sir, if I may just squeeze in a very quick one. Just wanted to get the percentage of longs and flats this particular quarter.

44% is I think our flats and 56% is longs.

Sushil, if I may quickly add on that, the point that you are making that very regeared and shifted focus even in Raigarh plate mill to produce plates, along with the furnace normalized and the upcoming facility of [ HTC ], which is about the commission here will certainly help us, all of us to not only retain the value-added percentage but also add up.

The next question is from the line of Rahul Kumar from Vaikarya Capital.

Actually, just a question on the industry in general. What has been the trend in the HRC imports from China to India after the input -- BIS norms of the input materials has, let's say, in the month of July and August, how has it fared?

Vishal, I'm taking this question. So Chinese imports has practically stopped now and except for some advanced license import -- against advanced license. Two factors. One is the Chinese prices improved by roughly around $50 in last 1, 1.5 months' time. So that is made the price almost unviable for them. Today, in fact, Chinese imports are at a premium to domestic prices. Okay. So that is one. And also the QCO order in melt and pour, the strict enforcement of that, that has impacted the imports from China. Going forward, we are not seeing China as a major threat directly but indirectly it may have an impact. What you are looking at, India is becoming a net importer for fifth consecutive quarter, right? Our exports are very low. So in the international market, we are not able to compete because of the Chinese factor. And Chinese imports -- exports, it's an all-time high. This year, they're roughly exporting 9 million to 10 million tonnes every month. So that's having a impact globally.

Okay. Okay. So let's say, I mean, theoretically, hypothetically, if the China HRC prices go down, would these BIS norms -- I mean because of the BIS norms, the imports will still be very low?