JSW Steel Limited (500228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings Conference Call of JSW Steel Limited hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashutosh Somani from JM Financial. Thank you, and over to you, Mr. Somani.

Thanks you, [ Lutija ]. Good evening, everyone. Thanks for joining in for JSW Steel's 4Q '21 Earnings Call. I hope you and your loved ones are keeping safe and in good health. Firstly, I would like to thank the management for giving JM Financial an opportunity to host the call. I would hand over the call to Ashwin Bajaj, Group Head, Investor Relations, to introduce the management and take the call forward. Over to you, Ashwin.

Thanks, Ashutosh and thank you for hosting the call today for us. Good evening, ladies and gentlemen. This is Ashwin Bajaj, and it's my pleasure to welcome you to JSW Steel's Earnings Call for Q4 and FY 2021. We have with us today the management team represented by Mr. Seshagiri Rao, Joint MD and Group CFO; Dr. Vinod Nowal, Deputy Managing Director; Mr. Jayant Acharya, Director, Commercial and Marketing; and Mr. Rajeev Pai, CFO of the company. We will start with opening remarks by Mr. Rao, and then open the floor to Q&A. So with that, over to you, Mr. Rao.

Good evening. Good evening to all of you. I welcome you all to the briefing of our financial performance for the Q4 FY 2021. We are in the midst of second wave of COVID-19. This time, that has a serious effect on the lives of several people in India. So the company has been playing a major role in supporting the communities and the nation, and we're one of the largest contributors of oxygen supply. And we are supplying almost 1,200 tonnes of oxygen, medical oxygen per day. We also set up oxygenated hospital beds in a record time, 1,000 jumbo hospital at Vijayanagar and the 100-bed hospital at Dolvi to be scaled up to 500 beds. So that way, we are trying our best to ensure that whatever we can do to get out of this problem in supplying medical oxygen to the needy people, we're doing a major focus. As we have seen in the last year, the way we have commenced the financial year under tremendous constraints following the first COVID pandemic, you have seen worst contraction in the known history, dislocated supply chains, major slide in demand, complete uncertainty. But within a short span of time, because of the charge by China, where they have recovered early, and they have announced a series of measures to disrupt their economy. Their 14th 5-year plan, they put a growth rate of 5.5% and $750 billion each year growth, the $550 billion of stimulus. So they recovered very, very well. In support of Chinese initiatives, there are a series of measures that have been taken by various countries that all led to a V-shape, very faster recovery in steel demand and economic growth all over the world, including India. As far as India is concerned, where we have seen a drop of almost 57% to 60% demand in the quarter 1, where the demand was only 12 million tonnes. By the Q4, the demand went up to 28.9 million tonnes. That itself shows the recovery was much, much faster than everybody anticipated. Coming to the Q4 2021 is concerned. JSW Steel has delivered good results. We have shown 4.1 million tonnes of -- for the crude steel production full-year growth of 6% year-on-year. For the year as a whole, it was 15.08 million tonnes. It is 99% of our revised guidance of production of 15.2 million tonnes. If you recall, in the last call, we'd mentioned that we will not be able to make up what we have lost in the Q1. So 16 million tonnes of production guidance, we have reduced it to 95% of that, that is approximately 15.2 million tonnes. If I compare with 15.2 million tonnes, we have achieved 15.08 million tonnes of production, which is almost 99%. Our consolidated sales were 4.06 million tonnes, which is 11% growth year-on-year. And for a financial year, it is 14.95 million tonnes, which is again, 99% of our guidance of 15 million tonnes. So in terms of volume of production and sales, we are -- as per the guidance in terms of sales and in terms of revised guidance in terms of production. What has contributed in the last year to achieve this guidance is that exports in 1 quarter, it went up as high as over 30%. And in the following quarters, we brought it down as low as 12% to 13%. In the last quarter, again, we increased to 25%. If you look at July -- January and February, in the beginning, there was some slackness in the demand. But because of holidays, during that time, we increased our exports. So whenever we are seeing some domestic demand slackness because export markets are doing extremely well, we have supplemented the export with the domestic offtake. For the last quarter, we had exports over 1 million tonnes, which is constituting 25% of the total consolidated sales. Over and above that, value-added steel products, that is also one of the very, very important element in actually these volumes. So it decreased by 37% year-on-year and around 5% on a quarter-on-quarter basis, which constituted 59% of the total sales in the last quarter. NSR has gone up by 39% year-on-year basis and 19% on a quarter-on-quarter basis. Costs also have gone up. If you look at iron ore April 20 versus March 21, it has more than doubled. So that got reflected in terms of overall increase in cost, notwithstanding the lower coking coal prices during the year. The cost of production went up by 12% on year-on-year and 10% on quarter-on-quarter. The EBITDA per tonne on a stand-alone basis is INR 19,756 per tonne, which is 32.9%. On a consolidated basis, this EBITDA per tonne went up to INR 20,792 per tonne. There is a substantial increase in the EBITDA per tonne or absolute EBITDA from standalone to consolidated. The profit of -- the EBITDA stand-alone number is INR 8,021 crores, and there is an exceptional item of INR 386 crores in the stand-alone numbers, and INR 83 crores in the consolidated numbers, which is on account of impairment towards loans given and also the interest receivable from both the subsidiaries. With that, the profit after tax for the stand-alone company was INR 3,931 crores. As I was mentioning, the domestic subsidiaries like [indiscernible], AACIL, Vallabh Industries, VTPL, Industrial Gases, all have done exceedingly well. In the quarter, we have contributed INR 822 crores, we serviced INR 227 crores in the Q4 of last year. So there is a huge amount of turnaround in the domestic subsidiaries. Just to complete domestic subsidiaries performance for the year, it was INR 2,132 crores as in INR 1,038 crores in the previous year, it has doubled as far as domestic subsidiaries contribution is concerned. Overseas subsidiaries in this quarter, excluding one-off items, it is INR 164 crores. If I add the one-off items, the loss was INR 332 crores. So overseas subsidiaries remained a drag even in this quarter. But what is encouraging is that in the month of March, when we restarted Ohio and Baytown, it is the first month where it was a positive EBITDA. It started only in March, quarter as a whole. Still, there was a negative EBITDA in the overseas subsidiaries. Taking into account the domestic subsidiaries' good performance and certain losses in the overseas subsidiaries, net-net, including the consolidated adjustments, for the Q4, the contribution in consolidation is INR 419 crores plus in the EBITDA number. With that, if I look at consolidated EBITDA, it was INR 8,440 crores, showing a growth of 184% year-on-year basis. Profit after tax was INR 4,104 crores on the consolidated quarterly profit. Year-on-year, yearly numbers for FY '21, the total profit was INR 7,786 crores. These are our financial numbers. We have completed, as you know, acquisitions of Bhushan Power & Steel, Asian Colour Coated, Welspun plate and pipe mill in the last year. BPSL, the turnaround is going on. After we took over on 26th of March 2021, we have focused majorly on 2 areas: how to reduce the cost of production, which appears to be 15%, 20% higher than what it should have been, for which there should be some CapEx to be committed. Or we have committed CapEx to the extent of around INR 850 crores. So that is being spent in the next 12 months' time. We will be able to reduce the cost of production in Bhushan Power & Steel through various measures there. The second area is that the overall capacity of Bhushan Power & Steel is currently working around 2.7 million tonnes. So we have to increase the capacity with a limited amount of CapEx, which is approximately INR 700 crores to INR 750 crores. This, again, we have committed there. This will take the capacity to 3.5 million tonnes. So with INR 1,550 crores of CapEx, we'll be able to reduce the cost of production, and we'll be able to increase the capacity to 3.5 million tonnes, which will get completed between 12 to 18 months' time. Another thing is whatever cash that was available in the company, out of that INR 1,800 crore prepayment, we are doing it is the loan that we raised in the target, INR 10,800 crores of debt is being reduced to INR 9,000 crores. Asian Colour Coated again is a turnaround story. It has done exceedingly well. It has shown INR 130 crores EBITDA in the last quarter. Welspun, we are just completing the transaction. Even though the agreements are signed, the payments are going in this month and last month. So once it comes -- once the payments go there, then we will work on how to turn around as the results on plate and pipe mill is concerned. The total debt of the company as on 30th of March '21 was INR 52,615 crores, which was lower by INR 858 crores compared to the debt as on 30th March '20. But what is interesting here is debt of INR 52,615 crores after a cash outflow of INR 15,000 crores. The INR 15,000 crores consists of INR 8,233 crores on the CapEx and INR 1,550 crores an acquisition of Asian Colour Coated, INR 5,230 crores on acquisition of Bhushan Power & Steel. So after spending this INR 15,000 crores, our debt has come down by INR 858 crores, there is a good degree of deleverage as regards to debt. The average debt cost has come down to 5.83%, almost 41 basis points lower last year. Debt equity is 1.14, debt-to-EBITDA is 2.61. Our acceptances on the revenue account is [ 987 ], acceptances on CapEx account is [ 558 ]. Turning to ongoing projects at Vijayanagar. We have commissioned PP-3, we commissioned wire rod mill, we have commissioned CCL2, we have commissioned PLTCM. These are the projects which we have already completed and are working now. The coke oven plant, the CCL3, these are the 2 units which will get commissioned during this financial year. Coming to Dolvi, our -- the pilot plant has already been commissioned. Coke oven plant expansion, one battery has already been commissioned and working. HSM, we have already commissioned and the slabs have been rolled up to plates. So balanced work is going on in the HSM, hot strip mill. Only 2 major units where there is a work for 45 days to 60 days on the blast furnace and the melt shop. The second COVID wave is not there, with all completed, and this should be up and running by this time. But unfortunately, second COVID wave has made many of the workers again leaving the site. There were 18,000 workers in the March who are working there. Now it has come down to 7,000 people as far as the strength of people working there. At the same time, the foreign supervisors, equipment suppliers who are present at the site, all of them have left. Now they are giving online assistance and support to us, but we have to get back all the people who left. So we expect that they would come back in a month's time once the number of cases are coming down, vaccination increases. We expect a positive outcome here. They will come back and restart the work. So once they come back, we expect within 2 months' time, we will be able to commission the entire integrated operation. So instead of commissioning on 1st of July, it is getting postponed by a quarter, so it will be 1st of October, we'll be able to commission the Dolvi expansion fully. Downstream, all the units have been commissioned accepting [ tin CAL ] and [ seal line ]. That is all have been commissioned and working in the downstream. If I look at the capital expenditure that is pending on all these projects together is around INR 22,350 crores, which also includes some new projects which we have taken up as a part of expansion here. The 2 important projects which are here in the part of this INR 22,350 crores is INR 380 crores for CapEx at Vijayanagar to increase the hot metal capacity. In the Corex 1, 2, VF-1 and VF-2, which are operating, we wanted to increase the hot metal capacity, so there's additional CapEx we're incurring there, and also in the melt shop. Basically, VF-3 shutdown, which we have planned, is not being taken in this year. So to supplement the loss of hot metal, which could have come from completion of VF-3, that small amounts we are spending to increase the hot metal capacity thereby, the commission of facilities of wire rod and pellet plant, we'll be able to use at Vijayanagar. Over and above that, the coke oven plant, which is there at Vijayanagar, 1.5 million tonne. By spending another INR 800 crores, we'll be able to expand to 3 million tonnes. That would meet the incremental requirement for another 5 million tonne of capacity. That is why we took a call to include another INR 800 crores and increase the capacity of the coke oven plant from 1.5 million to 3 million tonnes at Vijayanagar. Including these items, the outstanding capital expenditure on existing projects is INR 22,350 crores. Over and above that, the way we are working is that what our cash generation that comes in the operations, out of that, we have given a policy of 15% to 20% of our consolidated profit, we distributed as the dividend. The balance amount, the main focus is on growth. If you see the track record of JSW Steel, we have been spending on CapEx, the countercyclical investment. When there is a downturn, we start investing. That is why our capacity expansion at Dolvi is coming at the right time when markets are looking up. Similarly, if you look at next 3, 4 years' time, we expect that there will be a mismatch in the growth in demand versus the supply that is coming into the market. It is the right time to commit further investment, particularly brownfield expansions. So in Vijayanagar, with the improvement in iron ore supply, we feel that we should immediately commit in the brownfield expansion by another 5 million tonnes at Vijayanagar. We can quickly do that. Even though we have given 3 years' time, we should be able to do much faster. So there is an additional CapEx of INR 15,000 crores for 5 million tonne expansion at Vijayanagar. Over and above that, what we observed as far as Orissa mines are concerned, you know all the 4 mines have been commissioned and also 9 months at Vijayanagar. What we have seen during the operations is that there is an inefficient [indiscernible] operation, number one. We can replace it if we can make investment on the mining equipment. Then we can reduce the cost, improve operations, that is one. Number two is that the quality, if we can reduce EBITDA for nominal increase in fee, then the productivity at the plants will go up substantially. Therefore, we have to create washing facilities and some grinding facilities at mines. If we do that, then there is a significant improvement in quality with the resulting benefits at the plants. So with that, we wanted to commit that capital expenditure at the plant. Over and above that, digitization plus other infrastructure facilities. Also the there, we are committing INR 3,450 crores for the Orissa mines. Similarly, in Jammu and Kashmir, there is a state where a lot of incentives are being given, and we are also supplying our downstream products in the state. So we are committing INR 100 crores to set up the color coating line there. Then in the last year, we have not committed any normal CapEx or any special projects. So we are committing INR 6,565 crores towards normal CapEx and special projects and roles during the year. All this together is approximately coming to INR 125,200 crores. The total CapEx is INR 47,500 crores. Out of this INR 4,500 crores in this year, we will be spending INR 18,240 crores as the CapEx. Here, I would like to guide is that our debt-to-EBITDA, we have been saying that we would like to maintain it 3.75:1. But considering the kind of cash generation that is coming from existing operations and the new capacities that are getting commissioned in this year, we will be able to internally have a target of bringing it down to 2.75:1, that is how we are working as far as debt-to-EBITDA is concerned, in spite of the additional CapEx commitments that have been made. I'm also happy to share with you that today, our Board has approved, subject to approval of shareholders, a dividend of 650% -- INR 6.50 per share, which is working over to 20% of the consolidated net profit. Coming to the next year, what is that we would like to give the guidance for production and sales. For the production, we will be achieving 19.5 million tonnes for JSW Steel and its subsidiaries. The way we break out this 19-point -- breakout this 19.5 million, the 17 million tonnes from existing installed capacity of 18 million tonnes. If we commission our Dolvi expansion by 1st of October, we expect at least 1.5 million tonnes from our Dolvi expansion and 1 million tonnes from our integrated operations from Mingo. All these 3 together, we will be able to deliver 19.5 million tonnes total production crude steel production as it is 15.2 million tonnes of last year, so a 28% growth. But there are 2 more companies, which are significant. They are under joint control of the company. Even though they are technically not consolidated to the company, but to give you an idea that if these 2 companies, production and sales numbers are included, as JSW Steel, what would be our total production and sales guidance for the year. We said 22.94 million tonnes will be the production guidance, crude steel production guidance, including Monnet and Bhushan Power and Steel. Similarly, sales numbers, if I can spend a little more time here. Our sales guidance for JSW Steel and subsidiaries is 18.4 million tonnes. The breakup is 16 million tonnes from JSW Steel, 1.4 million tonnes from Dolvi expansion, and 1 million tonnes from Mingo, all 3 together is 18.4 million tonnes. And other 2 joint control companies, if we add, then the total will come to 21.63 million tonnes. So the production guidance for JSW Steel group is concerned 22.9 million for production and 21.60 million tonnes as a sales. Then we are seeing some impact on account of second COVID wave. The demand was lower in the month of April, was 6.5 million tonnes or 6.8 million tonnes, which was much lower than March. But this is continuing even in the month of May. In order to supplement whatever slackness in the domestic demand, we have increased our exports. So that way, overall, we are doing reasonably okay. What we expect going forward is this massive pent-up positive savings, which are ready to be spent, rapid deployment of vaccines, containment of virus, expanding stimulus, low interest rates, dollar weakness, accommodative monetary policy, government-led infrastructure spend, which is commodity intensive, China Plus One, all the Chinese policies announced at different points of time, these are all very positive for good global growth and also positive for the commodities and the team, that is how we see. In India, we expect the steel demand to pick up the way we have seen in the last year once second COVID wave subsides and vaccination drive increases. The demand, which was 94 million tonnes in the last year, In this year, we expect to be around 110 million tonnes. World Steel Association is talking about 106 million tonnes, but we are a little optimistic than World Steel Association. It will be in the range of 110 million tonnes. So the incremental demand over previous years will be in the range of 16 million tonnes. With this, I invite you to ask any questions or clarifications.

[Operator Instructions] The first question is from the line of Sumangal Nevatia from Kotak Securities.

Congratulations on a great set of numbers. So first question is with respect to BPSL acquisition. Given it's a substantial acquisition, if you could just share some more detail as far as that would be the accumulated cash flow at the time of acquisition, recent profitability run rate, maybe EBITDA or something? And in a few years, how do we plan to -- I mean do we have plans to fully acquire the partner stake? And what would be the structure in that case?

As far as BPSL is concerned, 26th of March 2021, the acquisition was complete. So we hold 49%. Another group company of JSW Group holds balance of 51%. And as we have been guiding the market that the consolidation would happen, it is only equity consolidation. The way our track record is as and when we acquire financially distressed companies, we keep it as separate SPV and then we turn around and then bring it to the fold of JSW Steel. The story is similar even in the case of Bhushan Power & Steel. The second point is as regards to the operations of Bhushan Power & Steel is concerned, we have given the guidance of Bhushan Power & steel and Monnet together. To be more specific on BPSL, out of this guidance, the production number of Bhushan Power & Steel for the year is 2.8 million tonnes for FY '22. And the sales number is 2.6 million tonnes. That means we will be operating the Bhushan Power & Steel at 100% capacity. If the capacity is 2.7%, we will be operating it fully. So this will positively contribute, definitely. Number two, as far as cash balances are concerned. As I mentioned to you, those cash balances are being used for CapEx, which is INR 1,550 crores. And also, we have committed INR 1,800 of prepayment, which is done today. So with that, the debt in Bhushan Power & Steel is coming down from INR 10,800 crores to INR 9,000.

Understand. That's helpful. The second question is with respect to our CapEx plan. This INR 3,500-odd crores spend towards mining and efficiency, right? I mean it's quite a substantial one. Is it possible to share what kind of cost improvement or returns are we expecting once we complete this CapEx, maybe in terms of iron ore cost improvement or steel overall cost reduction?

INR 3,450 crores, which we are committing in [indiscernible], the payback period is in the range of 4 years. So that is the kind of upside that would be available. And a conservative estimate payback is 4 years. So this will make a huge change in terms of productivity improvement, alumina improvement and the steel improvement, plus the overall production improvement. Let's say, this is a game changer as far as the overall mining is concerned in these 4 mines.

Sir, does this include certified clients as well?

No, it doesn't include certified clients. It is only at the mines we are spending this money to improve the quality, digitization and also to do the mining on our own by buying the mining equipment to replace the MDOs over a period of time.

[Operator Instructions] The next question is from the line of Pinakin from JPMorgan.

For my 2 questions. My first question is on the Vijayanagar expansion of 5 million tonnes. Historically, there's supposedly a Supreme Court cap on the iron ore, which can be mined in that particular state. And previously, there were some regulatory issues in terms of getting approvals to expand by 5 million tonnes. So where do we stand at this point of time on the potential cap of iron ore mining in Karnataka and the various regulatory issues over there?

Total iron ore cap, as you know, is already increased to 35 million tonnes. Plus over and above this 35 million tonnes that will come out of the auctioned iron ore mine fees in excess of that. That means category C mines, which have been auctioned, there will be -- whatever production that comes out of that is in excess of 35 million. So that is approximately 10 million tonnes. So 35 million plus 10 million, it is 45 million tonnes of total available iron ore. So considering this availability of iron ore, over and above that, there is -- there are some more auctions of either category C or some virgin mines are expected. For the meantime, applications have been made, which are pending in the Supreme Court to renew this cap and also to take out the auctions. These auctions were introduced in the year [ 2000 ], where there was no automated infrastructure or Internet facilities. That is why the problems came in. Now they have been set up. There are different presentations that have been made to the Supreme Court. Hopefully, something would happen, even assuming that, that will take some more time. So there is a 45 million tonne total availability of iron ore, including the Donimalai which we recently started.

Understood, sir. Sir, my second question relates to the P&L going forward. So there is a line item known as mining premium and royalties, and that broadly is flat on the stand-alone basis of roughly INR 3,100 crores. Now benchmark iron ore prices in India have surged over the next -- over the last 2 months or so. So is it fair to assume that this cost will increase materially for JSW over the coming months? And are the steel price increases that have been taken by the company enough to offset this cost, essentially trying to understand that should spreads move higher in the June quarter versus March quarter? Or will the cost heat up the price increases?

So first, let us focus on iron ore. Iron ore prices go up, yes, you're right, absolutely, that this cost goes up, whether it is a captive or a noncaptive. Then whether this cost can be passed on by an increase in the steel price, it depends upon the market dynamics, the demand robustness in India and also global steel prices. So in this particular quarter, whether it is possible or not, Jayant will clarify.

Yes. So we -- the global growth story continues to be strong. So international prices, as you are aware, are quite -- are much higher. India currently is operating at a discount of 15% to 20% to the import prices. So 15% in case of duty paid and 20% in case of Chinese duty -- the other way around. 15% without duty and 20% with duty. That's the discounted rate in India as of now. So we have a potential to increase the prices going forward, but we look at the market and take a view accordingly.

The next question is from the line of Amit Dixit from Edelweiss.

It's Amit Dixit. So there are 2 questions that I have. The first one is essentially on CapEx intensity. If I look at it, I mean, almost INR 47,000 crores of CapEx is being planned over next 3 years with reduced net debt-to-EBITDA threshold. So I mean, is this a little bit increased to understand what kind of margin assumptions we are building in for like a couple of years maybe? Because as we look at it, the steel prices, particularly with what is happening in China, look to have taken apart. So any color on the drivers for this kind of high CapEx intensity would be very helpful.

The way I think this INR 47,000 crore CapEx one has to analyze is that INR 22,400 crores, INR 350 crores, which is here as on 31st March '21 on the ongoing projects. That also includes creditors, that also include acceptances. So if I delete the -- if we exclude the acceptances and the creditors, the actual amount of capital expenditures, cash outflow on the existing ongoing projects is only around INR 13,000 crores. So that shows that we are in a very, very advanced stage of commissioning all the projects, which we have taken up as a part of earlier CapEx program of INR 48,000 crores. So here, the important point which one has to note is that the downstream, the EBITDA has gone up -- has doubled in the year FY '20, FY '21. Similarly, the kind of cost reduction, which will come from power plants, coke oven plants and pellet plants, is also quite substantial, which can come into the company. In the 5 million tonne expansion at Dolvi, there, the costs are much lower than the earlier 5 million tonnes. If we take this into account, even assuming that there'll be a correction in the steel prices, whether we will see the margin that JSW Steel has posted in the past, in the downturn, is it the same, it will be higher or not. Structurally, it will be better than last downturn. Considering that into account, we are saying we'll be able to incur this capital expenditure, look at the expedited program. And then try to keep the debt-to-EBITDA as an internal target of 2.20:1 into a rating at 3.75. So that is how we are planning. So we are taking into account the correction in steel prices that may happen, that as normal for any cyclical industry, taking into account and structural changes that have happened in the company. That is very important to notice and factor them while projecting the company's future.

Okay. That's helpful, sir. The second question is a question on your sales guidance or production guidance that you have given. I mean given the -- what we have seen in FY '21, even if I take your old guidance of 16 million tonnes, and in the current guidance is quite high. And particularly, with the demand being disrupted in this quarter because of COVID possibly the domestic demand. Do you see any threat to the sales guidance for production guidance? And what will be the proportion of exports that you would expect in Q1 and for the whole year?

Production, I will cover. Sales, Jayant will cover. As far as production is concerned, one important change from last year to this year is that this quarter 1, in terms of overall drop in sales or production, as similar as that of last Q1. That's where we are better than last quarter, the previous quarter. The second point is the PP-3, that is pellet plant 3 of 8 million tonne capacity has been commissioned at Vijayanagar. So by using pellets, replacing the lumps, productivity goes up. There is additional benefit which will come in this year over last year. So 1 million tonnes or 1.26 million tonnes of -- 1 million tonnes of production loss, which has happened in the Q1 of 2021, FY '21, will not be there in this year to that extent. Number two is the productivity gain on account of PP-3, that benefit will come. With that, we'll be able to achieve this guidance of 17 million tonnes, which we are giving here. With 17 million tonne production, sales number of 16 million tonnes is very achievable relative to almost close to 15 million, which we did in FY '21. Jayant, do you want to add?

Yes. On the global side, just to step back a bit, if you look back at the year 2020, China imported 23 million tonnes of steel more than what they did in 2019. And they exported 10 million tonnes less. So 33 million tonnes of trade was vacated by China for rest of the world. Additionally, the rest of the world within itself, the regional trades resulted in a supply gap of about 11 million to 12 million tonnes. So we are looking at a 40 million to 45 million tonnes of gap in terms of inventory over the last year by virtue of supply-demand dynamics. If you look at India, last year, the demand -- supply-demand, especially the pickup in the second half, the inventory was reduced by 5 million tonnes. So today, when we are having a slightly slower demand in quarter 1, in spite of that, we see the global demand will continue to remain strong. So any disturbances, which would come in India because of localized restrictions, lockdowns. We will be able to make up through exports. So the export quantum in this quarter may go up. We expect quarter 2, things to gradually stabilize in the domestic market. It should pick up then strongly thereafter from H2.

Sir, any number, ballpark percentage you would like to peg for export percent in Q1 FY '22?

I think we would look at it from a perspective of the market at that point and take a view. But we will -- this quarter, I can give you an indication that the export is going to be -- quarter 1 is going to be more because one, of localized restriction, and second, because of export opportunities. But I won't be able to give you a percentage number right now.

The next question is from the line of Indrajit from CLSA.

Okay. After the current expansion at Vijayanagar, where else do we have the opportunities for further expansion, including the Bhushan Power asset?

As of today, we have 12 million tones at Vijayanagar. Now another 1 million tonnes is possible by increasing the hot metal production at Corex 1, 2, VF-1, VF-2 and also SMS1, for which, we have committed INR 380 crores CapEx. That is being done during the year itself. So then it becomes 13 million, 12 million to 13 million. After that, there is a 5 million tonnes, which is planned as a part of expansion for INR 15,000 crores. There are 2 important things here. The pellet plant already commissioned 8 million tonnes. This 8 million tonnes, there are surplus pallets after replacing the lumps that are being used today for existing operations. So when we set up 5 million tonne expansion at Vijayanagar, we don't need additional center plant or additional pellet plant. The second is I also mentioned in my opening remarks, that the coke oven plant capacity is getting increased from 1.5 million to 3 million tonnes. When we are increasing, we are spending only INR 800 crores, but this will get commissioned in the next year. So this extra coke that is available will free, in fact, the 5 million tonne expansion that would come in at Vijayanagar. So there are part of the projects which are already commissioned and then 5 million tonnes, the cost per tonne will be much lower relative to any other brownfield or greenfield project. So then with this 5 million tonne expansion, which will get commissioned by 2024, then this 13 million tonnes will go up to 18 million tonnes. After that VF-3, where we have not taken the shutdown, here, another 1.5 million tonnes can go. So it becomes 19.5 million. So after 19.5 million tonnes, is there any possibility of further increase or not? It is a single location, largest steel plant that we have to take a call after evaluating the logistics, availability of iron ore at the relevant time. But today, 19.5 million tonne expansion at Vijayanagar is visible.

And in Dolvi and BPSL, any further expansion possible?

BPSL, as I mentioned to you, the expansion up to 3.5 million tonnes is already committed. 3.5 million to 5 million tonnes is possible. So that is -- that, we will evaluate over a period of time and take a call. But this plant can go up to 10 million tonnes, that is possible. Dolvi is concerned, we have now -- we will be completing in this year 5 million tonnes. Dolvi, the major issues relating to Dolvi plant is logistics. So we have to augment the logistics capacity. Thereafter, it is possible to increase. But at this time, logistics is a constraint, we are working on that.

Sure. And a follow-up question on Vijayanagar. So the announcement that we have made is only till the hot metal? Or do we have any downstream included in this? The CapEx of INR 15,000 crores?

Yes. This includes melt shop modernization, SMS shop is INR 380 crores. It includes melt shop and also in the hot metal. But we already have wire rod mill commissioned already, 1.2 million tonnes. So that capacity is available. So rolling is possible.

The next question is from the line of Vishal Chandak from DAM Capital.

Congratulations, sir, on a very good set of results. Sir, my first question is with respect to the EBITDA per tonne sustainability. We've seen that currently, INR 20,000 plus EBITDA per tonne definitely is not sustainable, and we have done a lot of cost-saving projects plus downstream projects. So would it actually push up our baseline EBITDA from INR 8,500 that we discussed a couple of quarters ago to maybe INR 12,000 or so? Is that a sustainable EBITDA assumption is correct?

Vishal, we don't give the guidance how much it would be in the future. But what I have explained already is that in the past downturns, we have seen the lowest EBITDA for JSW Steel. There are structural changes that have happened in the company. One is product mix, a big change in the product mix. The second is lower cost of production, maybe on pellet power plants and coke oven plants, which are getting commissioned replaces the bottom items, and also the integration of iron ore. All this together, there is a significant reduction in the cost. All this will definitely improve the EBITDA, but we don't want to guide how much it would be over what we have seen in the past, but it will be better than what we have seen in the past in the downturn.

Got it, sir. The second question was with respect to the logistics arrangement at Orissa iron ore mines. Now we understand that the long-term plan is to set up a slurry pipeline, have a pelletization plant at somewhere in Paradip, [indiscernible]? And then from there through the barges, shift it to Dolvi and other locations. So would it be fair to assume that the entire CapEx for the mining expansion would be done within the end of JSW Steel or it would be through a third party or a group company as well?

All options are available. As far as setting up the slurry pipeline is topmost priority. But what we are -- what we are really earmarking the CapEx is to improve the quality at the mine. That is the most important, how to reduce the cost of mining, how we can do the mining very efficiently. For that, the cost has been earmarked, capital cost has been -- capital is earmarked for that. The second step, which we will do, is how to transport it more efficiently and reduce the cost that is required. But in this year, we are not committing any CapEx on that.

So until that point in time, we will continue to engage with the railways and shift the material through rigs only?

Correct.

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

My question is again on the CapEx side and the volume road map that's creating. So just to understand, if I sort of look only at Vijayanagar and Dolvi for the time being, your capacity is moving to 30 million tonnes over the course of next 5 years. Is that the understanding?

At Vijayanagar, it is -- it will go up to 19.5 million tonnes from existing 12 million tonnes.

And Dolvi is almost at 10 million. So it's 29.5 million. And this should be -- yes, and this should be -- I mean this entire 29.5 million would be commissioned by what time frame? I mean, by FY '24, '25?

Yes.

Okay. Okay. And the CapEx for the same would be close to this INR 50,000 crores that you have mentioned? Or it would be -- I mean, what would be the ballpark CapEx if I'm to sort of look at this capacity from here on?

CapEx, so everything is committed today. Everything is mentioned here. It is part of this INR 47,500 crores.

Okay. Got it. Got it. And then we have additional 10 million tonnes in Bhushan and then what is the sort of capacity possible in Monnet, if I may ask?

In the Monnet today, it has the capacity of 0.9 million. That's why we have guided in this year 0.64 million production and 0.63 million. This capacity can go up to 1.2 million tonnes that we are working on that. Whereas in the case of Bhushan, I already covered that point. In the case of BPSL today, it is 2.7 million expanding to 3.5 million. That is what is committed as far as CapEx is concerned. Beyond 3.5 million, again, there are 2 phases, 3.5 million to 5 million, 5 million to 10 million. So that we have not done any work as on date.

[Operator Instructions] The next question is from the line of Bhavin Chheda from Enam Holdings.

So this INR 47,500 crores CapEx doesn't include overseas CapEx, which would happen, right? How much would be that?

Overseas CapEx, what is left out is only the Phase 2 modernization of the pellet mill. That is approximately INR 700 crores to INR 800 crores that we still we have not taken the call to commit that expenditure. So we will take a call during the course of the year.

You said FY '20 to INR 18 crores to INR 40 crores. So that includes maintenance CapEx or maintenance will be over and above the INR 700 crores?

INR 47,500 crore includes maintenance CapEx. Similarly INR 18 crores to INR 40 crores includes maintenance.

Okay. And sir, my last question, on the overseas subsidiaries numbers, which have been given in the presentation. What would be the guidance for FY '22, when will the U.S. and Italy as well as the plate mill turnaround? What's the current run rate like in guidance for '22?

We have provided the guidance for Mingo integrated operation, a 1 million tonne production and 1 million tonne sales. So we will be able to deliver that.

And is it EBITDA positive?

EBITDA positive, which I mentioned already that BS operations, they were positive in the month of March. So it will be positive for the entire financial year '22.

And similarly, for plate mill and Italy operations as well, right?

Italy operation also we are working on. Even today, still, it has to turn around because of certain orders, which we are waiting for in May.

Right. And sir, Asian Colour Coated EBITDA, which is given in the slide, since it's 100% subsidiary of JSW Coated, that INR 519 crores quarterly EBITDA includes INR 130 crores or it excludes INR 130 crores?

It excludes.

[Operator Instructions] The next question is from the line of Ashish Jain from Macquarie.

Sir, I have 2 questions. Firstly, what are the plans for iron ore mine ramp-up in Orissa? And does the CapEx you have included, does it include anything towards that as well?

Yes. The INR 3,450 crores, once we spend it, it automatically facilities to increase the production. Once we do the utilization of entire operation of mining, that will definitely increase the overall production capacity.

Sir, my -- sir, when you say increase production, is it like based upon the benchmarking production that the earlier mine holders were doing? Or this is beyond that? Because in the past, you've indicated that some of these mines production can be ramped up for too much higher levels in the medium term.

It is possible to do it. We have applied for increasing the overall limit, environmental limit. So once that limit comes in, it is possible to increase. But as on date, it will be a category requirement of 80% of the average production that has been done by earlier mining companies.

Right. And sir, secondly, are these cost-saving initiatives which you initiated like pellet plant, coke oven and the cost reduction to iron ore, is it possible to quantify what it could mean from an EBITDA per tonne point of view? Or any other way you can indicate that number?

It will be definitely a reduction in the cost and the improvement in productivity, but is not possible to quantify how much it would be on each of the initiatives.

Our next question is from Ritesh Shah from Investec.

I have 3 questions. One is on macro for Jayant Acharya. Sir, can you help us understand what are lead times in U.S. and Europe? And what is it that can go wrong if Section 232 regulatory Europe safeguards aren't expanded? What is it that can go wrong from a macro perspective? That's the first question, sir.

The -- this is with respect to the current prices in Europe and U.S.?

Yes, sir. But India in context, specifically the exports.

Okay. No. From a U.S. perspective, you are aware that U.S. -- India has antidumping trade barriers in various products. So U.S. from India is restricted for most of the products. So as far as Europe is concerned, Europe quotas are due for revision and the quota revisions are expected in July. We would be waiting for that to look at the outlook. But if you really see the pricing trend in Europe and if you see the inventory reduction, which has taken place and the manufacturing activity is quite strong. We expect a more positive improvement on the quota going forward, but we need to watch the results. As far as the general world market is concerned, I think I would focus on the Chinese side because the China control on carbon emissions, which has been announced and consequent production moderation in various regions of China is expected to play out in the second half of this year. While in the first half, because of withdrawal of rebates, people have exported more. We expect a gradual reduction going forward. And their intent has been also indicated by the recent changes, by reduction of export duty, putting export taxes on certain products, which are less energy efficient and also trying to import some products where they have relaxed certain duties to basically improve energy efficiency within the system. So a much more disciplined approach from China, I think, will be a key factor going forward to stabilize the world price.

That's quite helpful. I have 2 questions for Seshagiri Rao, sir. Sir, first is, I think on BPSL, on Bhushan, you indicated INR 10,000 crores of debt reduction. That's a phenomenal number. Just wanted to understand the cash flow behind it, if that's possible. And secondly, sir, you have indicated in the past that eventually subject to the profitability of the acquired assets, we will consolidate it. But would you like to give some number on net debt-to-EBITDA or net gearing, specifically for those assets, when we can say that profitability is good enough and that is when we look to consolidate into JSW Steel? Those are the 2 questions.

No, I never said we have reduced by INR 10,000 crores. What I said in the case of BPSL, the outstanding debt in the company is INR 10,800 crores. We are prepaying INR 1,800 crores, thereby, the debt comes down to INR 9,000 crores. That is what I said. The second point which you asked about, equity method of consolidation, only this results includes the proportionate net profit of Monnet Ispat, but not BPSL. BPSL will be just 5, 6 days. Those accounts are not yet ready or not ready on the date. That will be done in the June quarter onwards. The next point which you asked is that what is the profitability of these companies. So we already guided about volumes. This is what we do generally, and we don't guide about EBITDA and of those companies, our EBITDA per tonne. So similarly, in the case of BPSL or JSW specialty steel products, I don't think we'll be able to guide about EBITDA number or any ratios.

Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

What we expect going forward is the second wave impact will get diluted this year, more and more vaccinations will be done. And the recovery, we are very sure that, that will happen very quickly in India. So JSW Steel has not only completed good acquisitions in the last year and the expansion project also will get completed in this half year. So the kind of growth that would come in, in terms of volumes, production and sales are quite good from JSW Steel, more so that a lot of efforts are going on to reduce the cost. The two major important themes for this financial year. One is ESG, environment, safety and the governance side -- social and governance side. On the environment side, we have put a clear road map. What is that we need to set a target for all the 7 parameters that are required to be done on social and environment side, we are working very, very closely and monitoring them to ensure that these norms are achieved. And at the same time, on the governance side, there is a complete automation of all the processes which we have here. That work is going on in a big way in the company. Digitization side, we have done wave 1, wave 2 last year. Wave 3 is going on in a big way in this year. There are 3 important projects which we have taken up by the entire logistics automation, both indoors, outdoors and also intra movement within the plant, complete digitization and automation we are doing in the process. The second project which we identified is the mining. Entire mining operation at Orissa is completely digitized. That is the second area. The third is advanced planning and control systems. So this project, we have taken up. This may not get completed in this year, but we are on it and in the next 18 months' time. These are 3 very important projects that give a lot of benefits to the company. So this ESG and digitization of the teams, which we are trying to pick up and work very hard on these 2 themes over and above improving operational efficiency and completing the projects and turning around overseas operations and also the acquired assets and look for more and more growth opportunities in India. That is how we are seeing this year. As I mentioned to you, we expect a growth of steel demand in India to the extent of around 15% in this year. Thank you.

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