JSW Steel Limited (500228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '21 earnings conference call of JSW Steel Limited, hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Murarka from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Thanks, Faizan. Good evening, everyone. On behalf of Motilal Oswal Financial Services, I welcome you all to this call. I will now hand over the call to Pritesh Vinay, who is the Vice President, Corporate Finance and Group Investor Relations at JSW Steel. Over to you, Pritesh.

Thank you very much, Amit. Good evening, ladies and gentlemen. It is my pleasure to welcome all of you on the first quarter fiscal 2021 results earnings call of JSW Steel. We have with us today the management team of JSW Steel represented by Mr. Seshagiri Rao, the Joint Managing Director and Group CFO; Mr. Jayant Acharya, Director of Commercial and Marketing; and Mr. Rajeev Pai, CFO. We will start with a few minutes of opening remarks by Mr. Rao, and we can then open the floor for Q&A. With that, over to Mr. Rao.

Good evening to everybody. I invite you all for the briefing of our Q1 FY '21 financial performance of the company. The COVID-19 pandemic outbreak had a very profound impact on the companies and also on people and on the entire world. But the impact is not uniform across the regions, across the companies. It is different. For instance, even in India, if we see that the impact is much deeper in the case of urban areas, and also in the South and West of India, relative to rural India, or North and East of India. This is one observation which we have when we see the demand recovery in the regions. After the lockdown in March 2020 when it was opened up, the kind of challenges, which continued for some time, either by way of supply disruptions, lack of availability of labor, lack of credit flow or disruption in demand. These are some of the challenges which we have seen in the quarter. After we try to find solutions to these issues and the continuity of the production and operations because the spread of COVID-19 impacting the people around our factories and also some of the employees, this also has impacted the overall performance in the month of June 2020 at our Vijayanagar plant. During this period, if I look at the global steel production side, there is huge adjustment in the supply side we are seeing other than China. The numbers which have been released by World Steel Association, the production adjustment is over 14%, other than China. There is quite substantial adjustment under supply. And at the same time, the increase in iron ore prices, plus supply side adjustments and very, very robust demand in China, particularly their exports are coming down. Their imports are growing. Their production is increasing. This all shows a very robust recovery in China and also improvement in prices in China. With that, China is able to absorb some of the steel production that is available in other parts of the world, particularly in India. So India is concerned between April to June, the demand has fallen around 55% and the production has also fallen by 40%, 43%. But in spite of fall in demand and also adjustment in the supply side, there is surplus production in India, due to which there is a huge amount of export increase that has happened in the quarter. So 5.5 million tonnes of steels, which was exported from India during the last quarter. But in these exports what is very relevant to see is that 41% of the exports from India are semi-finished, slabs, billets, that is the kind of products which were exported. It is also interesting to see that a majority of the semi-finished products reached China. That means, their infrastructure demand not only absorbing their increasing crude steel production and the resultant finished steel, they are importing semis and converting it into finished goods and using for their infrastructure built-up. So therefore, it is a great opportunity for India to fill up these gaps, which are there in terms of increasing our exports in the last quarter. What is also interesting in the last quarter, in spite of fall in demand in the overall quarter, if I compare the opening stock in the system as on April 1, 2020, versus June 30, 2020, the inventories have come down. So this is the context in which JSW Steel has performed in the last quarter. Actually, the time available for showing our performance actually was 2 months. So these results, I should say, it's for 2 months, even though it is for the quarter. So steel production was 2.96 million tonnes, and the consolidated sales were 2.79 million tonnes. 57% of our total consolidated sales were exported, 1.58 million tonnes for our sales. But when the country as a whole exported, 41% of the exports, semis, whereas JSW Steel has exported different segments of products. Our semis are only in the range of around 20%. The net sales realizations sequentially have fallen by 12%, which is around INR 4,800 per tonne on a blended basis. Iron ore prices were lowered in India, so that benefit has come in the last quarter. Over and above that, whatever cost initiatives we have taken in terms of natural gas price reduction, our ferroalloys, our spares, this neutralized to some extent, the increase in cost of coal. Coal prices were higher in the last quarter by $3 to $4 per tonne. So after neutralizing that impact, net-net, the cost of production was lower sequentially by 4%. So the EBITDA per tonne was INR 5,102 on a stand-alone basis, showing an EBITDA margin of 13.8% in the last quarter. Our Indian subsidiaries together contributed INR 168 crores, Coated INR 28 crores, Amba River Coke INR 118 crores, JSW Industrial Gases INR 6 crores, VTPL INR 9 crores, all together is around INR 168 crores, even though it is lower either sequentially or compared to last year. The EBITDA on a consolidated basis is INR 1,341 crores, on a stand-alone basis is INR 1,429 crores. The consolidated EBITDA was lower when compared to the stand-alone EBITDA. The losses from overseas, either U.S. Plate and Pipe mill out of Ohio or Italy, all together, INR 247 crores are the cumulative losses in the quarter from overseas operations. After netting out these overseas losses and the positive EBITDA that's coming from Indian subsidiaries, the consolidated EBITDA was INR 1,341 crores, which is INR 4,806 per tonne. After netting out interest and depreciation, the profit after tax was reported as INR 582 crores. So in the last quarter, we have covered our full interest, even though the operation is effectively for 2 months. We recovered full interest and part of the depreciation. If the impact of COVID at our Vijayanagar operations are not there in the month of June 2020, the results could have been much better. During this quarter, we have started production in our Odisha mines from July 1. So during this quarter, we have used this period to finalize MDOs, mine development operators. We also finalized the transport. We have signed all the agreements. We have made the payments. With all that, we could operationalize all the 4 mines on 1st of July 2020, and we have a plan of -- plan to produce 1.2 million tonnes in the month of June -- in the month of July itself. The dispatches also have commenced from these mines in Odisha. We feel it is a game changer by having captive source of iron ore from Odisha to meet our requirements for producing steel. The debt of the company as of June 30 has gone up by INR 1,054 crores when compared to March 31, it is INR 54,527 crores, majorly due to outflow for operationalizing Odisha mines. Here, in addition to incurring capital expenditure of INR 817 crores towards NPV payment, towards TAM duty, towards other charges, the company has also paid total INR 1,290 crores as upfront fees for these 4 mines together. This INR 1,290 crores will be adjusted against the future premium payable. That means, if we are getting iron ore from these mines during this period, there is no additional amount which we need to pay to the government. So iron ore will be available to us only by incurring the cost of mining and also transportation. So what we need to pay as a premium is already paid almost for the entire year. So this is adjustable premium. The debt equity of the company is 1.54. Debt to EBITDA is 5.74. We have given the guidance of 16 million tonnes for the year production and 15 million tonnes of sales. So whatever we have done in the first quarter, 2.96 million tonnes of production and 2.79 million tonnes of sales. So I want to assure you that we will be able to meet this guidance in the balance 9 months period. Now Vijayanagar has become normal, so the operations are again inching up close to 90% capacity utilization. So this quarter, we will do well relative to last quarter in terms of production and sales volumes. Over and above the improving demand in the domestic market, particularly from solar, packaging, appliances, infrastructure, and construction activities, we are also finding global supply chain realignment, which we feel is a great opportunity. So we are working very closely with the engineering industry because there is huge amount of engineering export from India, and also capital goods industry and automotive -- automotive component industry, to supply steel to them to enable them to export or import substitution, we are working very, very closely with these industries. As regards to our projects under implementation, I'm very happy to say that there is an improvement in terms of availability of labor. The last time when we announced our results for March 20, in the month of May, we said the number of workers at our project site in Dolvi has come down around 3,000 from 15,000. So during this period, we have seen significant improvement. Now it is almost close to 4,900 people are working. So there is 1,900 people additionally came in. We are seeing every day, some people coming back and joining. So we feel, again, we can restart and ramp up the project work both at Dolvi and Vijayanagar. So we are very, very closely watching the developments. And looking at completing these projects as guided in this year -- in this financial year. The acquisition of BPSL and Asian Color, there are certain developments. So in the case of Bhushan Power and Steel, the case is expected to come up for hearing in the Supreme Court. So the Supreme Court hearing, once it is decided, we will go ahead and complete the acquisition of BPSL. As for the Asian Color is concerned, it is yet to be approved, the resolution plan by NCLT. And I understand, there is some intervention application by one of the private equity funds from U.S.A, saying that they would like to improve the offer. So this case is coming up for hearing on Monday. So we will watch the developments in this regard. With this, I seek any clarifications which you need on the results. Thank you.

[Operator Instructions] First question is from the line of Indrajit Agarwal from CLSA.

A couple of questions from my side. First, on the guidance. So our ask rate for the last 9 months is about 8% growth Y-o-Y in terms of volume. So how to see the proportion of exports panning out in the last 9 months versus what we have done in this quarter and what it has been in the last year?

Yes. So exports, we will be able to -- we'll be taking a decision with respect to the demand, how it gradually improves in the domestic market. But as we see it today, the domestic market demand has been improving month-on-month, May to June, June to July. So we do expect a gradual improvement in the demand in India. And with that, the export would moderate directionally.

Sure. That is helpful. The second question is on the current quarter input costs, mainly on iron ore and coking coal. So have we seen domestic benefit of iron ore cost reduction that we have seen earlier? Or there is still some more benefit to come in this quarter? And also, similarly, for coking coal, what do you expect in this quarter and the subsequent quarter?

The coking coal, last time, we had guided that quarter 4 and January-March and April-June would be flattish. I think we had $3 to $4 extra in quarter 1, April-June 2020 as against quarter 4, January-March '20. We expect July-September to be down by $20 to $25.

And iron ore?

Iron ore, whatever price increases that have happened in this quarter, INR 200 price has been hiked by NMDC, so that impact will definitely come for part of the quarter.

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

Sir, first question is with respect to the steel price trends. If you could share some color as to what was the average price -- exit price? And how are the prices shaping up in July?

So in the last 2 months, that is May and June, the prices in the domestic market declined, in line with what happened internationally, but though with a lag. So if you were to see, international prices in April had come down, let's say, from January, it was $490-odd, FOB China, and that came down to over $400 in April. And in India, also, the prices came down post April. April was virtually a washout, as you're aware, because of the lockdown. So price impact started falling out in May and June. But in the month of July, we have seen a modest increase in the Indian market in prices, in line with what has improved in the international market. I think part of that has played out. Prices, as we speak today, it would be Shanghai is at $470, which was, let's say, $400-odd FOB in April. So we are looking at a price correction as the demand in the world is picking up and situations are normalizing. We do expect that there would be a price correction upwards in the Indian market in the month of August, as we see, and we are monitoring that, and we will be able to decide in the next few days as to how much that would be.

Okay. And sir, with respect to the auto contracts, we read that it is still under negotiation. So is it still status quo? Or is there some progress there?

No. So auto, I think, as all of you are aware, the auto industry has gone through a rough phase. And therefore, the volume requirements by the auto industry in the last quarter was very minimal. The production dropped by 79%. So a discussion on prices at that point of time was not appropriate. I think the discussions are now on. I would consider that April-June, by and large, you can say that the auto prices would have rolled over. But as far as July-September and beyond is concerned, we are discussing with the auto majors, and we will take a view.

Okay. Sir, second question is with respect to iron ore. Now if you look our total annual requirement would be somewhere close -- I mean, between 25 million to 30 million tonnes. So if you could break up what are -- I mean, the sourcing, what we expect in FY '21 with respect to Karnataka -- captive Karnataka merchant, Odisha captive and what is remaining, which we would be buying from outside?

Yes, at Vijayanagar, the total requirement is around 21 million to 22 million tonnes. Out of that, we expect our captive on commissioning of other 3 more mines which we got, that also expected to be commissioned. We are planning to sign the mine development agreement with the Karnataka government, if not in this month, early next month. So these 3 mines also, we are planning to get operationalized in this quarter. So with that, from these 9 mines, which we have, 6 already operational, 3 we wanted to get it operationalized. Together, we are expecting between 7 million to 8 million tonnes of captive iron ore out of 22 million tonnes. So balance, we will source based on availability within Karnataka. Otherwise, part of it may come from our mines in from Odisha. That is how we are planning. But a small quantity, maybe around 2 million tonnes, may come from Odisha in case there is a problem in availability within Karnataka. That is how we are seeing as far as Karnataka sourcing is concerned. If I see the other plants, either Dolvi or Salem, their entire requirement can be met from our Odisha mines. As I mentioned to you last time, the environmental clearance that is available for all the 4 mines together is 29 million tonnes. Out of these 29 million tonnes, if we see the average production, which they have made in the last 2 years, 17.32 million tonnes was the average production. So our obligation is 80% of the -- sorry, the average production in the last 2 years was 21.65 million tonnes. 80% of that is 17.32 million tonnes in a year, in a financial year. That is our obligation under the agreements, which we signed. So therefore, the production could be in that range from these mines. So this is enough to meet all our requirements both at Dolvi and also at Salem. That is how we are planning to source the iron ore requirements for these 3 units.

The next question is from the line of Pinakin Parekh from JPMorgan.

Sir, my first question is just how should we look at the blended ASPs per tonne from 1Q to second to third Q? Because domestic prices will increase. They have seen an increase in July. They should increase in August. As you mentioned, due to regional adjust, the export prices have increased and JSW has a meaningful export component. Also, one would assume that as domestic sales increase and the export share on the margin comes off, domestic sale volume increase, which has higher blended ASPs. So given where 1Q was, how should we see 2Q and 3Q realizations trending? Can it be INR 3,000 to INR 4,000 per tonne higher versus where 1Q was based on a combination of these factors?

So I think one thing which I would like to highlight is that the exports in the last quarter were maximum in the month of May. April, anyway, the sales were very low overall. May was maximum of our exports, and it was moderated in the month of June. So we went down from May to June as the domestic demand in June picked up. And we see the export from June to July also moderating somewhat. So therefore, I would say that as the domestic demand is picking up, we are also taking actions to see that we are balanced between our domestic and export volumes. As far as -- so there is a mix change, which is going to happen. So one is that, last quarter, we did more of -- we had to do more of exports, and we did more of semis than our normal level of semis, both will undergo some change as we go into the quarter, July, September. International prices we discussed. I think international prices have gone up. And domestic, we have seen modest increases. And we expect that in the month of August, also, there will be a price increase. The other thing which you need to consider is that the inventories have come down. As our India production versus India sales would have given you an indication that the exports has actually evacuated stocks, imports have gone down. So to that extent, the inventory on ground in India has also gone down. So we are quite hopeful that directionally, July-September, both from a mix point of view and a price point of view, it will be better. We would not like to put a number on the table as we are still evaluating as to what the options are with respect to the price increase in August.

My second question is on Bhushan. Now Mr. Rao, you mentioned that there's a Supreme Court ruling. And once that is done, the company will complete the acquisition. So just regarding clarity on that. Given that there has been a meaningful time line between when the proposal was accepted to the final completion. Just trying to understand, sir, what will happen to the cash, which is residing on Bhushan Power? Would JSW steel have access to all the cash that has been earned since the proposal was accepted? And at this point of time, should we continue to assume that Bhushan Power will not be consolidated into JSW's book?

As far as the sharing of EBITDA accruals during the CIRP period, as per the judgment of Supreme Court in the case of Essar, is governed by the RFQ. Whatever they have mentioned in the initial RFQ, I think that guides who has to get this amount. So when this EBITDA was litigated to whom it belongs to, and the NCLT judgment, in the case of Bhushan Power & Steel, it announced that it belongs to lenders, we went for an appeal. And NCLAT has clearly mentioned in their judgment based on Supreme Court judgment in the case of Essar, the EBITDA sharing is governed by the RFQ, whatever is mentioned in that, that's how it has to be shared. Our understanding is, as per RFQ and as per our resolution plan, it should belong to us. So to us means to the resolution applicant.

So just to clarify, the entire EBITDA, right? And this is not contested by the lenders? Or this will still require another round of Supreme Court hearing?

Instead of lenders contesting, I think it is the erstwhile promoters are contesting on this issue.

Understood, sir. And on the consolidation post the ruling, I mean, we should still expect it to remain off JSW's books, right?

Yes, yes. It is equity method of consolidation. This we have clarified earlier. It will continue to be as and when the acquisition is complete.

The next question is from the line of Amit Murarka from Motilal Oswal Financial Services.

So my question is around Dolvi. So when like, let's say, by 4Q, we are done with the Dolvi expansion. But given the domestic demand environment, how do you think the ramp-up could be in that asset? Or will we have to resort to higher exports once again?

So Dolvi, actually, our expansions are planned in line with our expansions which are happening in our downstream facilities. So JSW Coated is also expanding its operation by almost 2 million tonnes. So out of the production of Dolvi, 5 million tonnes, our internal consumption itself would account for 2 million tonnes. Capacities of the downstreams are coming in place in this financial year itself, in line with the Dolvi coming up in the last quarter. The balance quantities would get, one is the domestic demand improvement, which would happen. Second is that our downstream operation in Vijayanagar, if you recall, we had said that our CRM is undergoing capacity modernization and expansion. So about 1 million tonnes extra will -- of hot rolled coil will go into our downstream operations at Vijayanagar, which will vacate about 1 million tonnes of material from there, which would be shifted to Dolvi for execution to the markets, whether it is domestic or exports. And there will be some additional domestic market and export market combination, which will work for the rest of 2 million. So that way, we are not -- I think the balance is quite stable.

Okay. And on the overseas assets, we had earlier laid out a plan of turning to breakeven in a few quarters, but what is the revised estimate now?

So the losses are steadily coming down. Now in the case of U.S. Plate and Pipe mill, the Phase 1 modifications are completed. Today, unfortunately, the steel prices in U.S.A. have come down. In fact, it is the first time we have seen for the last several years where U.S. steel prices are lower than China. In that context, right now, there is a depressed market conditions as far as the U.S. economy recovery is concerned. So we have to still watch how the economy will shape up, particularly in the context of COVID-19 impact. At least U.S. Plate and Pipe mill because of this modernization completion of Phase 1, we expect that the losses will substantially reduce. By third quarter, that is the next quarter, it should positively contribute to the EBITDA, and how we are seeing Plate and Pipe mill. As for Ohio is concerned, we have evaluated in the context of falling prices and the falling demand in U.S.A., if we'll continue the operations as it exists today, we'll be losing more money, particularly when we are planning to revamp the electric arc furnace. This electric arc furnace revamping gets completed in the last quarter of this financial year. So if we can take this shutdown during this period, we'll be able to reduce our losses in Ohio. So once the EAF revamping is complete, then we would like to restart operations. Keeping that in view, we have taken shutdown of our Ohio plant. With that, you will find from these 2 units, the losses will come down. And from Q4 onwards, things will become much better in terms of overall operating EBITDA contribution is concerned from these 2 operations. Similarly, in our Italy is concerned, there also we have -- we are focusing on the rail mill and the grinding balls, not on the wire rod and bar mill because, there, the contributions are not looking better. So that is why we are not operating those 2 mills, and we are focusing to optimize and maximize the production from these 2 units, which are contributing positively. There also losses would come down in this quarter. And in the next 2 quarters, it will contribute positively with from Italy.

The next question is from the line of Anuj Singla from Bank of America.

Mr. Acharya, first question for you, sir. In terms of the lending cost of imports, could you guide us where the domestic prices are? And do you see a probability of the discount to the domestic prices converging towards the end of the year given the domestic demand outlook that you have?

Yes. So you're aware that -- Anuj, good to hear you. So $489 is the antidumping price, as you're aware, which is prevalent into India. Now based on that at the exchange rate, broadly, near the ports or a little distance into the hinterland, the prices landed from imports would be anywhere between INR 38,250 to maybe INR 39,500 depending on the freight and cost from the port. So that is the imported landed prices today. The domestic prices are at a discount to the international prices today. So therefore, the domestic prices would certainly be going up. And directionally, yes. By when and how much, that's, as I said in my earlier clarifications, that's something which we are working on. And we will decide how much increases we should be able to take for the month of August.

Okay. And sir, second question, we had mentioned in the last conference call that the smaller players were struggling because of the issues related to labor, liquidity, and they were not able -- so we were able to take market share away from them, given the domestic demand environment was weak, still that supported our volumes. Does that still continue? Or that has -- has that thing changed due to the higher prices in the domestic market?

Sorry, I didn't understand that question exactly, Anuj. If you can just... What is it?

Sir, these were the smaller players, the unorganized industry. So they were struggling. And so because of that, there were supply side issues. The major players would actually sell more in the domestic market because of the supply reduction from the smaller players. So I'm worried about the supply side ramping up on the unorganized sector side as well. Is that a risk to the pricing when we look forward to pricing recovery in the second half of the year?

Understood, understood. So you have to differentiate between flats and longs. So flats -- as far as flats is concerned, that's anyway, I think, primary producers are the main players in the flat product space. So there, I do not see much of ramp-up from the smaller unorganized player. There are a few. Also, that having said, in the long steel, where the impact was more in terms of -- one is the supply disruption because of the labor and other issues. Second is because -- again, because of the labor and because of the lockdowns, the construction activity in especially the metros and urban areas were impacted. But now the supply side, while they have picked up, in the last few days, in the long products also, we have seen pellet prices moving up. We have seen sponge iron prices moving up. We have seen rebar prices moving up in the last 2 days. So while the supply side is also corrected a bit with respect to on the positive side, some of the unorganized players on TMT have started producing somewhat more. But the demand side has also picked up with the opening up of lockdowns. And the prices, therefore, have corrected upwards. So I think from that perspective, flat, to conclude, I don't see much of an issue from the unorganized. The longs, yes, they have picked up somewhat, but also the demand has opened up vis-à-vis what it was earlier. Prices have picked up. So we will watch this space going forward. July-September, keep in mind also that for longs, construction activity, a little bit, as disruptions are there in areas because of the rains. But this time, because of the pent-up demand of completion of infrastructure construction activities, which could not be done in April-June, some of the demand of that is now getting pushed into this quarter, where people would need to complete before major part of the monsoon hit them.

Okay. Understood. And lastly, one question from Mr. Rao. Mr. Rao, regarding the furnace upgrade at U.S. operation, what is the CapEx there? And is it a part of the INR 9,000 crores guidance, the CapEx guidance for the full year, which you gave earlier?

That way, in the U.S. Plate and Pipe mill, there is no CapEx involved. Even Phase 2, we have put it on hold, as I mentioned last time. Only in the case of Ohio, there is a $25 million of CapEx for completing the EAF ramp up, that is not part of the INR 9,000 crores. It is over and above INR 9,000 crores.

Okay. Only $25 million is the number?

Correct.

The next question is from the line of Abhijit Mitra from ICICI Securities.

So my first question is on iron ore. So at the beginning on the call, you did mention that INR 1,290 crores is upfront payment that you have paid, which should suffice for majority of the premium payments for this year. So what is the kind of volume that you are looking at? And what kind of accounting will we follow for this INR 1,290 crores? Has this passed through capital line item, and thereby, it won't appear in the operational cost item for the next 3 quarters? Or how is this sort of going to get accounted?

The cash flow increase, INR 1,290 crores is an advance for raw material. Whatever amount of premium which we have to pay to the government on extraction of iron ore, I need not pay that at that time. I've paid in advance. Therefore, whatever quantities, which I said in a financial year, 17 million tonnes is obligation which we need to do. There's only 9 months, which we have to do. 9 months, proportionate to 17 million is what we have to mine compulsorily there. So to that amount, premium, we need not pay. This INR 1,290 crores is more than enough to cover the premium payable on this quantity.

Okay. That's helpful. Secondly, I had a small question on overseas subsidiary. So just -- if you can help me just clarify or understand what is the nature of operations that we have at Periama Holdings?

Periama Holdings is a holding company that holds the asset of Plate and Pipe mill and also the coal mine.

Okay. And the advances that we have given is mainly related to the mining operations? Or...

So it is relating to U.S. assets, either it's for Plate and Pipe mill or for U.S. coal operations.

Okay, okay, okay. And -- okay, got it. The last question is on reduction of imports. So which are the areas where you see you can sort of cut out the imports from China? And what are the cost implications? If you can -- I have 1 item in mind, which is essentially graphite electrode. What sort of implications do you see there?

So as far as steel industry in India importing raw material side from China is majorly refractories and also, certain portion of rolls. These are the items which we do from China. So there are several alternatives available to source these items outside China. So that we are exploring.

[Operator Instructions] The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

I just have one question. Given that there was a buildup of a lot of scale and efficiency in India, does it make sense to buy back some overseas assets? What strategic value does it have for the company in the long term?

No, let's say, as far as Italy is concerned, we will be supplying billets from our Salem unit. And also partly, it can be done from Monnet in future. So there is a big integration of supplying billets and blooms for the rail mill in Italy. That way, there is a good integration of our Indian operations with Italian operations. As far as the U.S. is concerned, the coal mines, which is a financial hedge for us. Whatever coal we are getting there, we are selling it there and buying in India. So it is a financial hedge. Then, the U.S., Ohio and the Plate and Pipe mill is concerned, those 2, we are integrating in future, thereby we will be able to get the benefit of melted and poured in the U.S.A. by supplying slabs from Ohio to U.S. Plate and Pipe mill. We also invested for modernization of Plate mill. Phase 1 is complete. Now unfortunately, this COVID-19 impacted the oil and gas industry and also the overall economy. We expect a recovery to happen, if not immediately in the next few quarters. So one is our presence in the U.S. will give us what the market -- what is happening in the steel market in those continent. That will also help us in future to get good return on our capital employed over a period of time. So therefore, it is strategically important for us to have these assets. So we are working very hard to turn around these units. That's why, further commitments have been made in the capital side, both at Ohio and also at Plate and Pipe mill.

The next question is from the line of Ritesh Shah from Investec Capital. As there is no response from the current participant, I have muted the line. The next question is from the line of Amit Dikshit from Edelweiss.

I have a couple of questions. One is on the overall strategy with respect to Odisha mining operations. So while I understand one of the mines in Jajang has got low-grade ore and -- is there a strategy to export from that mine? Also, what would be the relative cost of iron ore supplied from Odisha versus what you are getting now?

No. As we have indicated last time, if I take it -- if I calculate the weighted average of premium for all the 4 mines together is 105%. That means, if INR 100 is the market price, I have to pay 105% as a premium to the government, plus we have to incur the mining cost. Therefore, on the face of the equation, you'll find that there is an additional cost involved here. So the way we are trying to optimize, as I mentioned to you, we have finalized the contract for mining, MDO. We also finalized contract for transportation. If I look at these 2 aspects, as on date, these costs are at least 10% lower than what it used to be generally in Odisha. So there is some savings, which we're doing in the transportation cost. Even without going into long term, what we're going to do in reducing the transportation cost, even today, there is some savings relative to what we used to spend. The second is, once we have the mine, we will be able to do a very scientific mining in a manner that we'll be able to optimize our steel production either in terms of producing only that type of grade of iron ore, which is required by us. That will also give intangible benefits to the company. So therefore, in long term -- medium-term to long term, it is definitely a great advantage to us. And the second point is, when significant portion of steel players who used to buy the iron ore within Odisha from the merchant miners, today, they got the mines, JSW got the mines. JSPL also not buying in the market right now because they have -- they are sourcing from the other mines. Similarly, the other steel players also got mines in the auction. So therefore, the steel players -- large steel players who are buying iron ore from merchant miners, they're not buying today. They have their captive sources of iron ore. So in this context, what is going to happen to iron ore prices in India is we have to see how it will shape up in the future. So overall, strategically having our captive mines to feed our steel mills is very, very important for us. So even though we have paid higher premium in Karnataka, it is working as a great leverage for us in sourcing the iron ore for our Vijayanagar plant. We feel that similar benefit will come to us from Odisha mines. Over and above that, now, JSW infrastructure has set up an 18 million tonnes iron ore terminal at Paradip port. It has now become operational. So it is a great synergy for JSW Steel Odisha mines to bring through this terminal, iron ore to our Dolvi plant and also Salem and Vijayanagar plants. So that is another advantage, which we'll be able to get. In future, a lot of things which we can do to optimize iron ore cost.

Okay. Great, sir. The second one is on the -- on overseas subsidiaries. Some of your peers, overseas peers have got state aid in Europe. Are you also expecting or have got some state aid in Italian and U.S. operations?

Yes. In the case of U.S., we have got a total of $2.5 million grant subject to certain conditions to be fulfilled and tested over a period of time. In addition to this $2.5 million grant in the U.S., we also got a loan of $10 million as an assistance in the U.S. So $10 billion is a loan and $2.5 million is a grant, which was there at U.S.A., which we already got. In the case of Italy, you want to clarify Jayant?

So in the case of Italy, the government has given some assistance for the workers for about 18 weeks during which the COVID impact was more. So that may be in the range of EUR 0.9 million to EUR 1 million, that is getting crystallized. In addition to that, the government is considering soft loans, but that has not yet been finalized or announced.

So this $2.5 million in U.S. and EUR 0.9 million to EUR 1 million have flowed through P&L, right, if that is the correct understanding?

No, it has not flown through P&L because there are certain conditions to be fulfilled. So in the case of grant accounting, we need to comply those conditions. So it is not flown as on date through P&L.

The next question is from the line of Ritesh Shah from Investec Capital.

Sir, my question was on iron ore. How should one look at the economics? I think the annual report does make a mention of royalty rates actually going down. There has been some press reports on that. And then secondly, on IBM notified prices. So this too related to economics, and you did indicate on the ore sourcing strategy. I just wanted to understand how does JSW Techno and BRPL assets also fit into the overall strategy and sourcing?

No, as for IBM pricing is concerned, it is average of the unrelated parties sale price, which will go into IBM average price, which they will declare grade-wise. So that is a price based on which the premiums are to be paid. So IBM has been declaring. What we understood is that there is some amendment which is going to come to the mining law, which includes the National Mineral Index, which is going to come, that would replace the current IBM price methodology. So that we have to see when it will come, when this amendment would come, what would be the methodology for calculating this National Mineral Index price. So the way today, the coal price index has been indicated in the case of coal auctions, a similar thing is likely to come in the case of iron ore. So that we have to see how it would shape up.

Right. Sir, royalty and JSW Techno on overall scheme of things?

JSW Techno. I didn't understand this question.

Sir, the BRPL assets, which are there under JSW Techno. So when we look at ore sourcing strategy, should we consider this also into it? Or is that something entirely different?

That is an independent company, it is no way related to JSW Steel. So these mines after meeting our captive requirements, if any surplus is there which are not captive, that can be sold in the market. If it is captive, 25% can be sold in the market if there is a surplus. So we will just see whether there will be a surplus after meeting our requirements. So BRPL is an independent company. Therefore, at that time, we will take a call on that.

That helps. And sir, secondly, you did indicate about Bhushan Power. Sir, can you exactly illustrate, basically, what is the problem? I think it was regarding the attachment of assets. Is that the only thing? And there was -- the erstwhile promoters had also mitigated something. So if you could just help us refresh that, that would be quite useful.

No, NCLAT judgment when it has come, there are certain appeals, which have been filed in the Supreme Court, one is by erstwhile promoters. The second is certain operational creditors. The third is ED has not filed, but mentioned in the Supreme Court hearings that they're going to file an appeal to the NCLAT order. But when CoC filed an application, for that ED responded by way of an affidavit, which they confirmed in that affidavit that they will be filing an appeal. So therefore, in summary, there are 3 litigations, which are pending: One is ED; second is operational creditors; third is erstwhile promoters. So these 3 have to be disposed of for us to implement the plan.

Right. And sir, just last question, in the last call, you had indicated cost savings up to 15% of fixed cost. Sir, does this number come to around INR 900,000 crores. If this is an annual number, have we realized any benefits in this quarter? And are there something which are sustainable that one can look at it on a year-on-year basis as well?

No, the total NSR reduction in the last quarter on a sequential basis, I gave a number of INR 4,800, where cost reduction, I have mentioned about 4%. So this 4% reduction... [Technical Difficulty]

Sir, we are not able to hear you. Sir, we are not able to hear you, sir. Ladies and gentlemen, there is an audio loss from the management line. Request you all to stay connected. Thank you. Ladies and gentlemen, thank you for your patience. Line from the management is connected. Thank you, and over to you, sir.

Yes, Faizan, can we please take the last question.

Sure, sir. The next question is from Gaurav Rateria from Morgan Stanley.

Sir, just what is the impact of product and market mix shift on realization per tonne basis and EBITDA per tonne basis?

Can you repeat the question? What do you want to really get from us?

Sir, I want to understand, there would have been some like-for-like correction in the steel prices, ex of that the product and market mix shift happened during the quarter, due to which there is an impact on realization and impact on EBITDA per tonne. So I just want to quantify how much is the impact on realization and on EBITDA?

No, it is very difficult to quantify what could be the impact on NSR. If I see last quarter, average exports were 57%. We've already guided in this quarter, the domestic demand is improving. April, May and June, steadily domestic share is going up and export share is come up -- coming down. So a similar trend will continue in the Q2. So the impact of the change in the geographical mix will definitely improve the overall NSR and EBITDA, but we will not be able to quantify that. The second is product. Product, Jayant already explained to you, there were semis almost close to 13% of our sales last quarter. So that will substantially reduce in this quarter. So therefore, the impact of the mix in the product mix change, that also will improve the overall realization and also the EBITDA.

Okay. Sir, just to clarify on this INR 1,290 crores cash flow payment you made for the iron ore, so this will be debited to the P&L as an expense over the coming quarter as and when you keep mining the iron ore, right?

Yes. You're absolutely right. It's an advance today, advance for raw materials. So as and when extraction happens, when we lift the material from the mine, this amount will be adjusted towards the raw material cost.

Okay. Sir, last bookkeeping question, what is the cash flow from operations during the quarter? And what is the acceptance number?

Acceptance number on the revenue account is $1,307 million, 1-3-0-7. On the capital account, it is $364 million.

Sir, cash flow from operations?

Cash flow from operations, we have a positive cash flow from operations. You see, we have an EBITDA of INR 1,341 crores. We have covered our full interest. So there is a positive cash flow from operations.

Ladies and gentlemen, due to time constraint, we'll take this as the last question. I would now like to hand the conference over to the management for closing comments.

So thank you very much for attending this conference. What I can tell you is, in this quarter, there will be improvement in the volumes. Vijayanagar has stabilized and inching towards increasing the capacity utilization. So we will do, in terms of volumes and product mix-wise, better than last quarter. Number two is domestic demand steadily and gradually improving. So our dependency on exports, which we have done in the last quarter, also gradually will come down in this quarter and going forward. That will give an advantage to us in terms of overall improvement in EBITDA. The second is cost side, the targeted cost reduction, other than the 2 key inputs, that is, iron ore and coal, that benefit partially, again, will come in this quarter. The last one is coal. Coal prices have come down internationally by almost $40 per tonne. So part of that benefit will come in this quarter. So cost side, there could be a reduction over the last quarter. Volumes will improve. Geographical mix will change. Product mix will change. Semis will come down. So these are the certain benefits which will flow in this quarter. Over and above that, Odisha iron ore production, we will ramp up. And also, we will commission our 3 mines in Karnataka. So these are what we are seeing in this quarter. And on migrant workers coming back, we also focus to complete the projects which are there. So in this year, as far as JSW Steel is concerned, we have big change which is happening. Integration of raw material, that is particularly iron ore. The second is the increase in capacity, that is 5 million tonnes in terms of crude steel, plus doubling of downstream capacity, that is the most important thing. All these projects will get commissioned in this year. So that is the kind of transformation that is happening in JSW Steel in terms of capacity increase, in terms of lowering of cost, in terms of integration with the raw materials and also reducing the losses and making overseas operations profitable. These are the areas which we'll be focusing in the balance 9 months and work very hard to achieve our guidance, which we have given, a production of 16 million tonnes and sales of 15 million tonnes. Thank you.

On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.