JSW Steel Limited (500228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 JSW Steel Earnings Call hosted by Centrum Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Kejriwal from Centrum Broking Limited. Thank you, and over to you, sir.

Thank you, Malika. Good evening, everyone. On behalf of Centrum Broking, we welcome you all for JSW Steel Q1 FY '22 Conference Call. We are delighted to host the senior management over there. Now I hand over the conference to Mr. Ashwin Bajaj, Head of Investor Relation, to take it forward. Over to you, Ashwin.

Thanks, Ashish, and thank you very much for hosting the call today. Good evening, ladies and gentlemen. This is Ashwin Bajaj, and it's my pleasure to welcome you to JSW Steel's earnings call for Q1 FY 2022. 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. 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 to everybody. The first quarter of this financial year was very challenging. The second COVID wave started in the latter part of March 2021. It's spread across India. It affected many of the business. It affected health and consumer sentiment, which led to localized lockdowns in several places in India. So that had a severe impact on the overall economic activity. Responding to that, JSW Steel, even at the cost of sacrificing part of the production in this quarter -- the last quarter, we have supplied over 65,000 tonnes of liquid medical oxygen to hospitals, at almost 1,200 tonnes a day we have peaked during that period. Whatever we could do during the time, either in terms of supporting the patients or oxygenated beds, which we have created over 1,500, and supplying concentrators, supplying masks, sanitizers, grocery kits, there are a series of things which we could do as a part of our CSR activities. Over and above that, some of the employees were severely impacted. So we have announced a scheme to help the families of employees who lost their lives. That an employee who died due to COVID, either in the first or second wave, their families will get 100% of the last drawn basic salary until their notional retirement. And that scheme was introduced by us to help the families of employees because of this unfortunate demise of some of the employees. Even in the month of July, we are still supplying some oxygen, which is around 278 to 300 tonnes a day. Even during July, the supplies are happening. On the ESG front, we have taken a lot of steps in the company, which we have listed out in our presentation. A major area is plastic waste management, where we are injecting plastic, which will replace coke fines that will reduce the carbon emission. Similarly, gas cleaning plant, which we have set up in Dolvi, it will reduce the dust emissions. Like that series of steps we have taken as per the plan we have announced -- the company's target to achieve in 2030. Now this second COVID wave the economic activity impact, the RBI has estimated recently, it could be to an extent of around INR 2 lakh crores of loss in output in this current fiscal year. This time, the wave is more in the rural areas. The first wave was more of urban and the manufacturing, but this time it is more in the rural and agri area. So that we have to see how the recovery will happen this time, even though we all hope and wish that the recovery post first COVID wave, the V-shaped recovery, we will see again this time. As far as the overall steel demand globally, as you must have observed, there is a huge amount of supply of steel in the first 6 months as per WSA release of the production numbers, 1 billion tonnes of steel was produced, which was 126 million tonnes more than the 6 months of the last year. What is also interesting is that out of 126 million tonnes, 67 million tonne is from the rest of the world, excluding China. That means the supplies have picked up in line with the surge in demand for steel, mainly caused by infrastructure spend or energy transition related to CapEx that led to the steel demand. But in spite of the huge supply of steel by ways of higher production, not only from China, even from rest of the world, the steel prices in the U.S.A. in the first half year went up by 73% and the Europe it went up by 72%. Even in China, it went up by 31%. Even on quarter-on-quarter, we were seeing increase from point to point the price increase. So that clearly establishes that globally, notwithstanding increase in supply, notwithstanding the Russia putting 15% tax on exports and China withdrawing 13% VAT incentive on exports and European Union extending this PQR or TRQ, tariff rate quota, for another 3 years from July 1, 2021. In spite of all these measures which have been taken by various countries, increase in production we have seen very strong demand that is absorbing the incremental supply in the market. That is quite positive for the steel industry outlook. If you look at as far as India is concerned, we have seen a drop in the steel demand by almost 15.7% in the quarter just ended. In these circumstances, if we see as far as JSW Steel is concerned, we have produced 4.1 million tonnes of steel. So the year-on-year has no meaning because the base was so low. All the numbers look very, very good, but I will try to explain quarter-on-quarter. So the minus 2% lower production in this quarter, due to lack of oxygen, because this oxygen we supplied for LMO purposes, so the production has suffered. The capacity utilization was 91% in the last quarter as against 93% in the fourth quarter of last year. The consolidated sales were 3.475 million tonnes, which is lower by 14%. Where Indian steel demand went down by 15.7%, our steel volumes have fallen by 14%. The inventories were at 10.59 lakh tonnes. There was an increase of 4,28,000 tonne inventories because many of the companies, not only from steel sector, even others, have attempted to increase the exports from India, considering a very good demand overseas. The domestic demand is bit sluggish in the last quarter. That's why almost all the ports were completely congested. So almost 1,20,000 tonnes of stocks, which were ready for shipment at the ports, could not be done in the last quarter. Otherwise, our almost sold stocks, if that 1,20,000 tonne is added, our sales could have been higher in the last quarter. The exports were 1.2 million tonnes on a consolidated basis, which is 35% of the total sales. There is a growth of 16% quarter-on-quarter. The way the realizations have moved, the sales realizations on a blended basis have gone up by 19%. As I gave the numbers quarter-on-quarter in U.S.A, it went up by 30%. In the Europe, it went up by 40%. Whereas in India, it went up only by 19%. So still, the domestic prices are at a discount either compared to the international prices or compared to the landed cost of imports. The cost of production in the last quarter went up by 10%. These are all the percentages I'm giving quarter-on-quarter. The 10% increase in the cost of production is majorly on account of iron ore and coking coal. So iron ore prices in India, as you know, 52% has been increased by NMDC from 1st April to 30th June. Similarly, ferroalloys, the power cost, refractories, all these costs had pressure on the overall cost of production. It went up by 10%. EBITDA for the stand-alone basis is INR 26,274 per tonne. Quarter-on-quarter, there is improvement of INR 6,500. It is 36.6% margin percentage. So stand alone turnover went up by 6%. The EBITDA was INR 9,491 crores in absolute number, which is a growth of 18%. The net profit was INR 5,258 crores, a growth of 31%. So the major highlights in this quarter is the turnaround in the overseas operations. The U.S. plate mill and Ohio together contributed $44 million of EBITDA last quarter as against $31 million negative loss in the Q4 of last year. Italy remained in the negative with EUR 4.8 million as we were expecting a big order for our rail mill. It got delayed. That's why we could not operate the rail mill fully. The EBITDA operating -- operations side, there was a negative EBITDA of EUR 4.8 million from Italian operations. So from overseas, what is encouraging is INR 282 crores in rupee terms is a positive EBITDA contribution from our -- from overseas operations against INR 322 crores of loss in the previous quarter. Previous quarter, I mean, is Q4 '21. Similarly, Indian subsidiaries have done extremely well. They contributed overall INR 1,145 crores, either if we look at Coated, ARCL, ACCIL have done extremely well in the last quarter. After adjusting consolidation adjustments, the subsidiaries, both overseas and India together, there is a INR 782 crores, incrementally they contributed to the EBITDA. Over and above the Indian subsidiaries, the joint ventures and the joint control, they've also done well. Bhushan Power & Steel has produced 6,90,000 tonnes of production, 4,80,000 tonnes of sales. They reported a profit of INR 745 crores. The JSW Ispat specialty steel products -- they also did well. They made positive EBITDA of over INR 170 crores and a net profit of INR 63.32 crores. So these 2 joint ventures -- the proportionate profit to the shareholding held by JSW Steel, INR 323 crores has been contributed by the joint ventures. All this translated in the overall consolidated EBITDA of INR 10,274 crores, which is 35.55%. It is a growth of 22% sequentially. The EBITDA per tonne on a consolidated basis is INR 28,706 per tonne. The profit after tax is INR 5,900. Debt has marginally gone up in the last quarter. It is INR 54,989 crores. There is INR 2,374 crores increase in the debt compared to 31st March '21. In the last quarter, majorly, we have invested in the working capital side. The inventories, as I mentioned to you, finished good inventories have gone up by 428,000 tonnes. Over and above, we also started stocking of iron ore and the coking coal for our Dolvi operations. We also invested in inventories of raw materials. So total together, we have invested in the last quarter INR 6,200 crores incrementally in the working capital. We have spent a CapEx of INR 2,688 crores. So due to this large amount of investment in the working capital, there was a marginal increase in the debt in the last quarter. But overall ratios are quite healthy, debt-to-equity 1.04, debt-to-EBITDA 1.89. If I look at the overall performance, including the Ohio crude steel production and also the Bhushan Power & Steel and JSW Ispat Steel products, we have a total production of 5.07 million tonnes and a total sales of 4.33 million tonnes. Two more things, which I would like to share with you, is the investments we are planning to make to get the captive renewable power in the SPV, special purpose vehicles, being set up by JSW Energy for 958 total megawatts of power. This will help the company in 2 ways. One is our strategy of reducing our dependency on the fossil fuel-based power replacing with the renewable power that would help in the direction. Cost of power -- renewable power cost relative to what we are spending today is lower. The third is any fossil fuel we consume will have an obligation, RPO obligation, renewable purchase obligation, of 21% in the state of Karnataka and also in Salem, whereas in the case of Maharashtra, it is around 10.6%. So there is RPO obligations here. If we are not able to procure renewable power directly, then we have to buy the certificates in the market. So there is an additional cost involved over and above the cost of power. So by investing in this JSW Energy SPVs to procure this power in a long-term basis is helping the company to procure power at a cheaper rate and also beat RPO obligations. So we'll be investing total INR 445 crores. These plants will get commissioned in the next 18 months' time. The second investment that has been approved is in JSW Paints Limited. Generally, it is unrelated business. That is how the perception is, but it is very, very strategic for JSW Steel. When we had our customer meet a few years back, at that time, one customer has asked us the steel -- painted coated steel, which we supply, can we give warranty for more than 10 years? Then we were not able to give at that time because the back-to-back we were not getting that type of warranties from our paint suppliers. But after started getting paint from JSW Paint, not only we improved the quality of the steel which we supply after painting -- because we have 1,600 shades because we need different types of grades of steel. They set up an R&D center in Vasind, JSW Paints. They are working along with our teams to develop new grades and innovative products. And also they are giving warranties to enable us to give similar warranties to our customers. The second area where we are seeing it will benefit the JSW Steel strategically is that, as you know, 2 years back, our coated capacity was 0.7 million tonnes. Whereas if I look at today, if we commission all the plants of prepainted at all locations, this capacity will go up to 2.5 million. If we add Bhushan Power & Steel, it will go up further. So there is almost 4x increase in the overall coated capacity. So if we have to secure our paints, today, many of the paint companies in India, they are not expanding their capacity in the industrial paint segment. They are doing more in the decorative paints. So if somebody has to set up the facilities for us to meet our requirements, it is very much essential that we develop that source, thereby reliability of the supply of paints, whatever we need, not only to meet this additional requirements. In case if we want to expand, there should be a commitment that they will be able to expand the capacities in the industrial paint space. Considering these 2 factors, availability of paint on a consistent basis, good quality, developing new products, adjacent to us and working along with our teams, considering these benefits, we felt it is strategically important for us. That's why we committed this INR 750 crore investment over a period of time. The first investment of INR 300 crores will happen in this quarter. This has been valuation methodology that is prevalent in the industry that has been followed by one of the big accounting firms whom we appointed. They arrived at the valuation. Based on that valuation, this investment is happening. It will be 6.88%, the first tranche, which we are investing of the capital of JSW Paints that we would get out of this INR 300 crore investment. There are the 2 investments coming back to the projects. They're on track. We've already commissioned the CDQ unit at Dolvi. They are in advanced stage. The workers have come back to the sites. The work is going on in full swing. So we will be able to commission the Dolvi expansion in this quarter. With this, I'll stop here. And if any queries are there, we are here to answer. Thank you.

[Operator Instructions] The first question is from the line of Vineet Maloo from Birla Sun Life.

Sir, I just wanted to understand the raw material side. You mentioned there's a bit of a cost increase there because of coking coal and iron ore. So just wanted to know what would be our iron ore cost in Q1 on average? And what would it have been in Q4, the previous quarter?

As far as coking coal is concerned, last quarter, the C&F cost of coking coal, which has gone into production, was around $128. We expect that would go up over $30, $35 in this quarter. That is what we anticipate. That also will not fully reflect the current increase over $200. So that will come in the following quarter. As regards to iron ore, we have secured 42% of the total consumption in the last quarter from our captive sources of iron ore. The iron ore prices in India have gone up by 52%, as I mentioned to you. And there is a small correction, which was done in the month of July. Now more supplies are coming in the market in Orissa. So we expect the iron ore prices in India may not go up. So the higher cost of iron ore, which was there in the last quarter, that gets fully reflected in this quarter. Further increases we are not anticipating in India. But coking coal, as I mentioned to you, this cost pressure will be there.

Okay. So sir, what was the increase, let's say, for the iron ore for you, let's say, in Q1 over Q4? Can you share that? The overall blended cost. I'm not asking for captive or third party. I mean just the blended cost of iron ore.

I can't give the exact number. But generally, it is in the range of per tonne -- INR 5,000 to INR 6,000 per tonne.

That is for the iron ore, that was the increase.

That is a weighted average cost for the entire iron ore because it is costly for OE. It is slightly lower in P&L.

Okay. Understood. And you're saying, sir, that this is the highest cost that has been factored in. There will be no further impact based on at least the prevailing prices on iron ore side?

Iron ore side, the higher iron ore cost maybe partially will come in this quarter because of inventories which we have used in the last quarter -- low-cost inventories. Now entire high cost will get fully reflected in this quarter. No further increases I'm saying over and above...

Okay. Okay. Beyond Q2, you don't expect anything? Understood.

Yes.

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

Sir, can you give us a sense of the steel prices in the market at this point of time? What we had heard was that there was a small domestic price correction. But so far, we have not heard of big price corrections when Chinese steel prices have started going up. So do you think there is an appetite or the market can absorb price hikes in August or September? Or will prices remain muted because exports have come off?

Yes. So prices in India is reflective of the weak demand in the quarter one because of accumulation of inventory when the shops were shut or manufacturing activities came to a standstill. There are -- there is an inventory buildup in the system. So I think because of that, sentimentally, the prices in the Indian market have corrected both for flats and longs. We are seeing that the situation will stabilize probably post-July, where the inventories will come down substantially since the export from the major ISPs continue to remain stably upwards. So therefore, we expect that the inventories will stabilize. Having said that, yes, the international prices in China have gone up. The futures have been going up over the last 1 or 2 weeks, which is positive. Imports versus India, I think we are at a discount level, anywhere between 15% to 20% depending on which country it comes from. So we'll watch the market and see the affordability and then take a decision.

Understood. Sir, my second question is on the investments in JSW Paints and the SPVs for JSW Energy. Now can this investment be further scaled up over the next 2 to 3 years, if the requirements for the company go higher? Or these investments at this point of time are final and we will not see further increase from here?

As far as JSW Energy renewable sourcing of power is concerned, our intention is to replace the fossil fuel power gradually over a period of time. So those investment will continue to be there in future. But it gives a huge amount of advantage, which I just mentioned to you. If we don't qualify as a captive unit by investing this 26% in the SPV, which is setting up this renewable power, there is a cross subsidy applicable. Cross subsidy varies from state to state. It is -- some states even as INR 1.30 to INR 1.50. So in order to avoid that, this investment is essential to avoid that cross subsidy. Over and above that, the cost of procuring renewable power is lower. So these are the benefits and to meet the RPO obligation. So these investments will continue to happen in future based on how it progresses as regards to setting up this renewable plants. So JSW Paints is concerned, this is the maximum what we have committed. There is no further investments in JSW Paints.

Sir, your question is answered?

Just to clarify one question on further on the renewable. What percentage of the company's current power consumption will be met by this initial renewable investment, sir?

So it is approximately 300 megawatts, with 83% capacity utilization in these units, which is generally there in the case of either solar or wind power. So if we take at -- total at 18 million tonne stage, so we need close to 1,800 megawatts total requirement. So that way we are meeting maybe 15% to 20% of our requirement.

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

Yes. I have a couple of questions. The first 1 is on your guidance that you gave for sales volume and production at the beginning of the year. Post Q1 results and post sales volume taking ahead due to COVID-related disruption, would you like to change this guidance?

No, we are not changing the guidance because there is an incremental volumes that would come in from our expansion project in Dolvi. So that would be fully available in the second half. Even assuming some shortfall because of the oxygen supply in the quarter 1, we are confident that we'll be able to make it up in the second half.

Okay. And the second question is, is it possible to let us know the iron ore external sales volume and revenue?

One more thing I wanted to add on the inventory side. The inventory, also in addition to the inventory, which Mr. Rao pointed out, has got built up at the port, 120,000-odd tonnes which could not be shipped because of congestions and vessel delays, we have consciously built up inventory in the pipeline because of a very low level of inventory as on 1st of April to enable better servicing as the demand again picks up because, as usual, in the end of March, we bring the inventories down. So some part of that inventory buildup is conscious in nature and some part, which is basically limited to the port, which would go. The other thing is that new lines have started, and some of that would require raw material feed to be kept with the lines. So therefore, some inventory buildups have taken place consciously on that side. But having said that, I think during the course of the year, we expect this inventory to moderate to the levels and, therefore, the guidance doesn't change.

Yes. There was a second question on the iron ore external sales volume and revenue.

Mr. Dixit, sir, I would request you to rejoin the queue for follow-up questions, sir.

No. No. That was the second question. That's what I'm saying. This was the second question...

Your question is answered, Mr. Dixit?

Yes. You can move on, please.

The next question is from the line of Saumil Mehta from BNP Paribas.

Yes. [Technical Difficulty] question from my side. First is in terms of the export market now, what we hear is most of the Indian players are close to exhausting their limits for the export market in the European region, which typically will shift us back to a traditional market, right, maybe Southeast Asia or Middle East where I think Chinese competition is going to be a lot more fierce. So a view on the export market for the balance part of the year. Will we cut down on our export quota for the year? And is actually basically the net profitability in those markets a bit deeper than Europe? That's my first question. And second is on basically our captive iron ore. What has been the experience of mining of our captive iron ore in terms of seeing the logistical challenges or any mining challenges? Because there have been various reports about being planning to surrender a few of our mines. I'm sure there is no subscale to it, but how has been the overall iron ore mining experience for us? Those are my 2 questions.

On the first question of quotas, which you mentioned, I think you may be referring to Europe. European quotas for some of the products have got exhausted. But for certain other products, they are still available. We will be accordingly calibrating our exports to that market. We are developing alternate markets in -- around the European regions other than EU, in particular. Some of them we were already present, where we are increasing our supplies. We are increasing our supplies into Latin America, Mexico, apart from the Middle East and Asia, which you mentioned. So one is the development of markets is a continued exercise and I think we will do that. The other shift, I think, which is structural in nature, which you have to keep in mind, is that our hot-rolled more and more fit is getting consumed into our downstream operations. And downstream operations coated, even in this times export, our value-added component was 61%. Even in export, it was 59%. So those go out in small in containers across the world, and we touch almost 100 countries around the world. As we increase our value-added exports, our reach for those countries, the base is already there. We will be able to increase some more volumes in those countries as well. So the diversification of markets is what we are already on.

In regard to captive iron ore issues, which you pointed out, last time also we shared with you majorly the quality. Quality, we hope to improve to enable our steel plants are more efficient and less fuel consumption. That is why we committed investments in the beneficiation plants near the mines. The second is problems, which are there in regard to comprehensive and also safety and security, we wanted to digitize the entire operation. Thereby these comprehensive will be digitally on. There won't be any problem. This is the second area. The third area is logistics related, either at the ports or not very -- rigs not being available or complete routes are congested. These are the problems with regard to evacuation of iron ore produced at the mines. So to address this long term, we have to set up a slurry pipeline. So pending that we have to revisit. I think certain steps are taken with regard to other 2 problems. As far logistics are concerned, working continuously in this have to improve how we are working on the captive iron ore side.

Sure. Sir, any comments on some of the news reports about we planning to surrender 2 of our mines, maybe because of cost issues or in terms of the economic sense?

These are all speculations because as we mentioned earlier, we survived in the entire year last year. We have these mines. If these mines are not there, then there was no supply of iron ore, no availability. Therefore, having a reliable supply of iron ore is essential to feed our plants consistently. So these are all speculations that we are surrendering the mines. In fact, there are 10 more mines which are announced for auction in the state of Orissa. So we are participating even in those mines.

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

Sir, 2 questions. First for Acharya sir. Sir, what are the lead times in U.S. and Europe? That's one. Also, in the earlier comment, you indicated that coated or downstream is a major chunk of exports. And you also said that it goes in containers. Now the concern over here is, if container issue is a problem for us, which can actually hinder the way in which we would want our export trends to move going forward? And lastly, do we have visibility on export booking into next calendar year or October to December this year?

So your first question was the view on U.S. and European prices, is it?

Lead times. Lead times.

Okay. So the lead times in both these markets actually have increased. And if you look at the supplies also in the United States, while they have sequentially improved, the lead time still continues to be reasonably high. Similar is the case in Europe. The demand has picked up better. While the supplies have improved, the demand continues to overtake the supply side. So therefore the lead times are still high. Most of the mills are all booked out till October and some of them for the contractuals even up to October, December quarter. So having said that, your second question was with respect to containers and the export reach. So downstream products, which constitute array of products, one is cold rolled, hot rolled pickled and oiled, galvanized, color coated, Galvalume, et cetera. The smaller countries we reach out by containers by virtue of the fact that it is smaller quantities. And while there have been congestion in the container market, we expect that to ease as the supply side of the -- on the shipping side is improving. We have also shifted some of our volumes where we are able to combine ports to bring bulk and from there supply onwards to the smaller market. That -- with that combination, I think we are able to reach the markets in downstream. And that's why you see a 59% component in exports. Our overall is 61%. 62% is in the domestic, value added as a percentage of the total and 59% is exports. So we should be able to manage this. No doubt, the freights have gone high, that I think everybody is aware. But that's something which we will have to play out and wait for the supply side to stabilize and the price pressures to ease on the freight side.

Right. And sir, the third thing, basically export booking visibility for October to December. The reason I'm asking is we have cost inflation and the Indian exports have been at lower pricing as compared to other regions. Given the cost inflation that we have, are we confident that we could probably increase the prices and cover up for cost inflation and look at stable or to better spreads going forward? So basically a related comment on pricing and spread would be very useful.

So the -- on the order side, I think what we need to keep in mind now is that post-COVID, the government's infrastructure initiatives, which had been announced in the budget are, I think, coming to play. Highways -- national highways has been some -- a project which has been continuing across and is doing very well. In addition to that, we are seeing the oil and gas and water pipeline projects across various states coming up with sizable volume of tenders. We are seeing some export opportunities for larger volumes of, let's say, slurry pipelines, which are being now taken up in countries where iron ore movement is there. So people are becoming much more environmentally conscious as we discussed earlier also. The carbon footprint everybody wants to reduce. So the slurry pipeline concept is increasing, and we see opportunities to export both the plates, coils and products to those kind of initiatives. So these are longer lead time orders, which we are in the process of booking. We are also booking longer lead time orders in wind and solar, which is again a part of the renewable mission. We see that part increasing. So yes, there is some visibility of orders on the longer side. The other contractual orders, which will be automotive and the quarterly contracts, will continue in its normal course. We see the pre-engineered building segment doing quite well. Data centers, warehousing doing quite well. So these areas, again, are quarterly bound contracts. So quarterly volume indications are available.

Sure. That's helpful. Can I take my second question, if I may.

Yes.

Yes. This question is for Mr. Rao. Sir, I just wanted to understand. You did indicate the coated steel capacity has increased nearly three, fourfold. Just wanted to understand how much is the total requirement for industrial paints putting in context the total CapEx plans, what JSW Paint had highlighted. If I remember it right, it was around INR 600 crores. So just trying to understand from a mass balance perspective, how much is it that JSW Steel will require for captive consumption versus the total capacity, decorative plus industrial paints, what JSW Paints has?

Yes. Decorative, we are not present in. We don't need decorative paints. We need only industrial paint. Industrial paints are concerned, if you see the total consumption of industrial paints in India, the share of JSW is sizable considering the increase in the overall capacity. The exact amount of requirement as a percentage of the total industrial paints that are consumed in India, we will come back to you on that.

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

First question is with respect to subsidiaries, international businesses, which has seen a very remarkable turnaround. So just want to understand a little bit better. Is the U.S. turnaround more sustainable in terms of how we have visibility over the coming quarters? And then with respect to our Italy business, do we expect breakeven in the coming quarter? The opening remarks you shared that because of the delay in the rail mill, the turnaround was a bit delayed. So can we expect a breakeven and then profitable quarters coming ahead?

So on the Italian side, as you are aware, we have 3 product lines there. The main stay is the rail mill, which basically supplies rail to the national railway network in Italy and surrounding countries. Italy recently issued a tender and in which we have won certain volumes. The contract issuance -- the awarding of that has been a little delayed. So that should be coming in the first contract -- part should be coming in to us in this quarter and therefore, that would be -- that would make the rail mill run at much better capacity. The other thing which the Italian rail is doing is that they are now in the process of tendering or in the process of coming out with contracts for rail requirement over the next 5 years because they are overhauling the entire railway system and changing maybe certain sections of the rail, which are overhauled already. So that is also expected soon. Once the railway contracts are finalized by the Italian rail, we expect that the Italian operations will automatically start doing much better. We are also seeing -- we have lined up the supply of semis from various sources, including India, to our wire rod operations. And we have started building on the wire rod mill customers, and we are seeing good traction on that. So on the wire rod mill side, we are seeing the order position improving. So that also will help us to basically add to the EBITDA as we go forward. So yes, I think July-September is a seasonally weak quarter at times in the West, especially Europe, because of holiday. So we'll see certainly an improvement in the quarter, July-September. And going forward in H2, I think we are looking for a breakeven and beyond.

As far as U.S. is concerned, the capacity utilization was low in the quarter 1. It is ramping up. Therefore, things should look better going forward. The local demand was okay and the prices are quite good in the U.S. So with that, we'll find there will be improvement from here on in the quarter 1.

Understood. My second question is I would like your thoughts on the inorganic opportunities. There are a couple of assets talked about, NINL, RINL, NMDC. So just want to know your thoughts, which are the probable assets to get divested? And how does this fit our portfolio strategically?

As on date, if we look at the government actions, 2 plants are ready for auction. One is NINL. Second is Nagarnar plant of NMDC. Whereas RINL we have not seen any road shows or any progress from the government. If we look at these 2, both are sizable. Sizable in the sense NINL has iron ore mine. The Nagarnar plant is a 3 million tonne plant, expected to be commissioned by end of this calendar year or early next year. So considering that both are interesting, therefore, we are evaluating both the options. So we will take a call once the data -- full data is available. Then we will take a call.

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

Congratulations on good set of numbers. I have 2 questions. First, in this quarter, how much of auto realization increased on a quarter-over-quarter basis when the revisions had happened in the month of April? And my second question is for Mr. Acharya. Ex of China, globally where are we seeing some of the capacity expansions coming or some of the mothball capacities getting restarted? Which regions are you seeing that or if you are seeing it at all?

So on the first question on the automotive contracts, for the April-June quarter, we have been able to get the increase for hot-rolled products, long products and cold-rolled and galvanized products. The ranges -- it ranges between -- for flat products between INR 7,500 to about INR 9,500 per tonne. In long products, it is in the range of about INR 6,000 per tonne. That is for the quarter gone by, April-June. As you know, automotive operates with a lag. So whatever increases have happened during April-June would become due basically from July-September. So therefore, that discussion with the automotive companies are in the process. As far as capacities are concerned, I think, I would say different regions will probably behave differently. Some of the older capacities, which have been mothballed, now are being looked at with the lens of what is required to achieve environmental compliance. And with that level of compliance requirements and investments, some of the capacities may not like to come back because the cost of compliance and the cost of operation becomes high. With the current level of coking coal and the current level of iron ore, I think in many areas, it is not making sense, especially outside U.S. and Europe, to restart some of the mothball capacities. But in Europe and U.S., I think some of the capacities may restart and some have just started. So -- but while the capacities have come up, they are still behind from a supply perspective vis-a-vis what their earlier rates were. So we expect that to catch up probably by the end of this year, and they would stabilize to a level of where they were earlier with respect to the volumes. I don't see that going up too much because some of the capacities would also go for some shutdowns because of certain compliance requirements to be met.

Operator, we can take the next question, please.

Sir, as you wait, if I can ask one more question. On the power asset -- energy assets, have we done some kind of IRR calculation in terms of what kind of IRR it may generate through the course of investment?

Yes. Yes. That has been done. It is above our threshold as regards to the investment in the renewable power. One is return. Second is the entire world is moving towards decarbonization. So it is one of the essential elements that we should do this. That is why we are moving towards going for renewables, but it is above our threshold.

Ladies and gentlemen, please hold on. We are just checking. It seems to be some technical difficulty. [Technical Difficulty] Okay. Sorry about that, ladies and gentlemen. There seems to be some technical problem at the operator's end. I have got a question by messaging. We can't unmute your lines, but I have a question by message from Abhijit Mitra of ICICI Securities. The question is, last year the HRC sales were 9 million tonnes. How much was export? And after Dolvi ramps up, how much HRC sales are we looking at?

So as far as hot-rolled coil sales are concerned, our current supplies of hot-rolled have been diverted to the downstream. We were expecting the Dolvi operations to start a little earlier. We are aware the COVID impact has taken the project out into July-September quarter. So it should start soon. Post Dolvi startup -- actually, our sales have currently to -- for the hot-rolled coils have gone down into the market because of lesser availability. Post Dolvi startup, it should gradually stabilize to normal levels and improve thereafter during the course of the year. I will not be able to give you an exact number as to how much of the hot-rolled coil sales exactly will come about. That we can share -- Vishesh or Ashwin can share that later.

Thanks. The next question is from Ashish Kejriwal of Centrum. He's asking about this issue of iron ore and duplication of royalty. Is there any resolution around that?

This royalty -- and royalty is an issue, which is being educated by the industry, both mining and also steel industry. What we understood is that government has appointed a committee to examine this point and make the recommendations to take a call. So the committee has been constantly in touch with the industry, and they are taking presentations from the industry. So we are in that process. Hopefully, in the next few months, they will take a view on this, and then government will take a call.

Thank you. Then we have a question asking on capital acceptances and revenue acceptances from [ Shaurin Shah ].

Raw material acceptances are $955 million as on 30th June 2021. The capital acceptances were $565 million.

Thank you. Then the next question is from Bhavin Chheda. Iron ore mining premium and royalties are paid on the IBM Index. So what is the lag effect here, please?

Generally, it is 2 months. That is what we have been seeing. But it gets adjusted, whatever premiums we are paying. If it is extra, that will get adjusted. If it is a shortfall, we have to make the payment as and when the announcement is done.

Right. And the next question from him is mining run rate at Orissa and Karnataka is higher, but captive usage was only 42%, which means merchant sales of iron ore was much higher in Q1. So any color around that, please.

These mines are also supplying to Bhushan Power & Steel and Monnet Ispat. They won't qualify as the capital. So that's why overall, whatever we are supplying other than companies under joint management, joint control and also captive, if we exclude that, what is sold in the market is not very high quantity.

Thank you. Next question is from Sumangal of Kotak. PLI and specialty steels, how does this benefit us and the sector?

The PLI scheme, which has just been announced yesterday, is very welcome. I think it is going to encourage investment in India, will create opportunities for expansion and self reliance within India, as envisioned by Prime Minister under the Athmanirbhar Bharat Scheme. It is also a very good step to substitute imports, produce these specialty steel within the country and leverage our base for exports of specialty products from India. As far as JSW is concerned, we have already initiated certain measures to look at some investments in some of the specialty products, which is in the process. And I think we'll be able to give you more color as we go along.

Just to add what Jayant has mentioned. They said 25 million tonne is the incremental capacity that is expected as an outcome from the PLI scheme involving INR 40,000 crore investment. But what is very, very encouraging is it is -- melted and poured is the requirement for this 25 million tonne incremental capacity. So PLI scheme will enable more investments in the downstream. That will create demand for upstream to the extent of 25 million because of this one condition of melted and poured. So that is very encouraging in the PLI scheme.

Thank you. And we'll take the last question from Pallav Agarwal of Antique. Any guidance on net debt and where the working capital levels have stabilized or will increase for the year?

Working capital, more we are not looking. We are not envisaging further investment in the working capital. As regards to net debt, we can only talk about the overall ratio of 2.75:1. We have enough headroom from the current level, which is there today. So we will be managing our entire growth plans within this ratio of 2.75.

Thank you, sir. And any closing remarks from you?

We have commissioned, as I mentioned to you, the pellet plant at Vijayanagar, the CRM plant at Vijayanagar, coke coal plant at Dolvi and PP power -- the pellet plant at Dolvi, the CDQ plant in Dolvi, I'm very happy to say that they're all stabilized. The workers came back in Dolvi and the hot strip mill is almost ready now. So we're also planning to send some slabs from Vijayanagar to Dolvi and roll those slabs into coils. Over and above that, Dolvi unit is melt shop. Their work is in full swing. It will be -- it will get completed before end of this quarter. So we are very confident that we will be able to commission this 5 million tonne. So the trigger here for JSW is the volume growth that would come in from Dolvi expansion. Over and above that, the downstream capacities more or less got commissioned, accepting the CRCA 0.5 million tonnes and the Tin 2. More or less balance all completed. So downstream is a good contributor for value addition and increasing our value-added products proportion in the overall product mix. Plus the backward integration through iron ore mines. I think these are the 3 very important things that would contribute in future the performance of JSW. Over and above that, we have given the guidance about ESG, what is the target for the year 2030. So we have been very actively evaluating to raise the sustainability-linked bond based on this commitments, which we have to achieve by 2030. This is one thing which we are evaluating to fund our capital expenditure program for increasing by another 5 million tonnes at Vijayanagar, plus other requirements of the company. So with that, we expect -- the demand scenario in India is concerned, we are seeing good demand from solar appliances and also the packaging industry, plus signs of revival in the auto sector. And also residential construction side we are seeing some uptick. So we are optimistic that the demand will pick up in the months to come, if not, in this quarter because of the general subdued demand due to seasonal factors. So the demand will pick up. Why we are very confident is that even after second wave impact, where economic activity came down, the total steel consumption in the last quarter was 24.7 million tonne as against 12 million tonne in the quarter 1 of last year. So the impact was moderate compared to last year. Similarly, the way it picked up in the last financial year, the second quarter, it was around 24 million tonne last year. It went up as high as 30 million tonnes. So even assuming that the same amount of demand will come back into India, we will be close to 110 million tonne total demand for the year -- total consumption for the year in this financial year. So we are quite optimistic as regards the revival in steel demand in the Indian markets. Thank you.

Thanks, Mr. Rao. And thanks, everyone, for joining us and bearing with the technical glitch. Have a great evening and a good weekend. Thank you. Bye.