JSW Steel Limited (500228) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of JSW Steel hosted by Prabhudas Lilladhar Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kamlesh Bagmar from Prabhudas Subrata Private Limited. Thank you, and over to you, sir.

Yes. Thank you, Rituja. Good evening, everyone, and thanks for logging in for luteal 2Q FY '22 earnings call. Firstly, I want to thank the management for giving Prabhudas Lilladher Limited an opportunity to host the call. Now 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.

Yes. Thank you, Kamlesh, and thanks 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 Q2 FY '22. We have with us today the management team represented by Mr. Seshagiri Rao, Joint Managing Director and Group CFO; Dr. Vinod Nowal, Deputy Managing Director; Mr. Jayant Acharya, Director, Commercial and Marketing; and Mr. Rajeev Pai, Chief Financial Officer. 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 everybody. I welcome you to the briefing of our quarter -- second quarter performance for the financial year 2021-22. The second quarter generally is a little subdued due to monsoon in India. So at the beginning of the quarter, we thought we had to tackle about subdued demand in India, and we need to do more exports. But the way the kind of surprises and challenges that have come in, the energy crisis. So that shortage of energy across the world has brought a lot of volatility. Coking coal prices have shot up to unsustainable levels of $400 per tonne. That is in a very, very short span of time. Over and above that, the Chinese policies which are leading around the 2 themes of widespread or common prosperity and also the decarbonization, those policies which have been finalized by China, that lead to visible slowdown in the overall economy. That also led to lower investments in the residential property sector. So we have seen a contract in steel demand in China month after month. In the month of July, we observed that the steel demand has fallen by 13%, which went down in the month of August by 18%. In the month of September, it went down by 24%. So the steel demand in China in the first 9 months of the calendar year has fallen to 731 million tonne as against 736 million tonne in the previous 9 months, so 0.7% low-year demand in China, majorly due to the reasons which I just explained. The rest of the world is not exactly the way Chinese steel demand has fallen. Notwithstanding the resurgence of infections in some regions and the resultant lockdowns and LNG crisis in some of the regions, we have seen a good steel demand as far as the rest of the world is concerned, majorly due to strong manufacturing activity, lower interest rates and government focus on the infrastructure, energy transition, so the reasons which we could see why the steel demand in the rest of the world was stronger. Taking these factors into account, WSA they've given short-range outlook in the month of October, they're exactly on the dot. They said the steel demand in the current calendar year will grew by 4.5%. Whereas if you look at region-wise breakup of this demand, China's demand will come down by 1%, which you already mentioned that it has come down by 0.7% in the first 9 months, is more or less similar to what WSA has been saying. In the rest of the world, the steel demand will grow by 11.5%. So what I would like to share with you is that at one side when Chinese steel demand is falling, rest of the world steel demand is reasonably okay. In this context, if I look at, as far as India is concerned, we have consumed 49 million tonnes of steel in the first 6 months of this financial year, which is almost 13 million, 14 million tonnes lower than the corresponding period of last year. Generally, the second half will be much better. Already, we are seeing signs of improvement in the construction infrastructure project following the monsoon. So we expect, as we guided in the beginning that the demand in the second half will be strong, and we'll be close to 110 million tonne as we have mentioned. In addition to this, there are some more developments which I would like to share with you. I'm really happy to say that our respected Chairman and Managing Director, Mr. Sajjan Jindal has been elected as the Chairman of Whole Steel Association for the year '21/'22. It's the first time in Indian representing to occupy this position and to serve this position. You also must have noticed in our communications to stock exchanges and press releases, we have issued a world's first dollar-denominated sustainability-linked bonds from the steel sector globally first time. I am also happy to share that JSW Steel secured about steel award from WSA for Excellence in the Life Cycle Assessment for Development and Promotion of New Product, New Steel TMT Bar. In addition to that, one historic and notable event that has happened is the commissioning of the first time 5 million tonne brownfield expansion commissioning at once in India. We have commissioned the largest blast furnace, along with the Melt Shop 350-tonne converters. This is a very, very important event in the history of JSW Steel. As we have guided that there will be a production of 1.5 million tonnes incrementally from our expansion project, and we'll be able to sell 1.4 million tonnes from this expansion. Now it will be a reality. I'm also happy to share that it is a very, very smooth startup, and we are reasonably confident that we'll be able to ramp up the capacity quickly. In this context, if you see our results, it is highest ever consolidated quarterly revenue, highest operating EBITDA and highest net profit. The volume numbers, as we already shared, there's a 4.1 million tonnes of crude steel production, 91% capacity utilization. If there were no shutdowns at Vijayanagar plant for converters and also Salem plant in blast furnace, the capacity utilization could have been higher. That is why you will see sequentially a flat capacity utilization and production. The sales on a stand-alone basis is 3.787 million tonnes on a consolidated basis, it is 3.83 million tonnes. But what is interesting in the sales profile is that our exports have gone up, as I mentioned, that the domestic demand in this quarter is a bit subdued. We have supplemented with higher exports in this quarter. It is 38% of the total sales, a growth of 22% quarter-on-quarter in the overall export mix. Our value-added steel product mix has been at 60% as against 51% in the previous year. So we have maintained, like in the quarter 1, quarter 1 is around 61%, we are more or less at the same level as regards to sale of our value-added steel products. Our retail sales have gone up quarter-on-quarter by 25%. Our branded sales have gone up. Our sales in the solar and appliances segment have gone up quite substantially, either on quarter-on-quarter or year-on-year. There are some of the highlights of our sales mix. But in spite of that, if we look at the sales consolidated number is 3.83 million tonnes, and year-on-year basis, it was slightly lower. Due to mainly accumulation of inventories, which has happened in the first half of this financial year. It is almost 0.5 million tonne accumulation of inventory when I compare with as on 31st March '21. If we compare 30th June, it is 1 lakh tonne more inventory. As we have been explaining the kind of constraints in the port logistics, the availability of containers and very high shipping freights, there are some of the reasons where the port stock remained at a elevated levels even during this quarter. So our effort is going forward that to reduce these inventories that are accumulated almost 0.5 million tonnes in the first half of this year. If I look at the blended MSR cost and EBITDA per tonne on a stand-alone basis, the blended MSR quarter-on-quarter went up by 5%. But the cost pressures are severe, there are 2 points. One is coking coal prices have gone up globally. We have been guiding that in this quarter, there will be a $30 per tonne incremental cost we need to absorb on the coking coal that got reflected in the consumption. But what has happened in the iron ore prices because of the lower demand by China, the prices crashed from $230-plus globally to $120 per tonne, which is almost 50% reduction globally. With Indian iron ore prices have not moved the way global prices have moved. That is why we have to bear the brunt of very high unsustainable coking coal prices that have gone up because of various reasons globally. Over and above that, the benefit of lower iron ore prices internationally has not come to the Indian steel industry because the prices are still at elevated levels in India. Because of this reason, the cost sequentially went up by 19%, and the blended MSR went up by only 5%. The net impact of this, EBITDA per tonne on a stand-alone basis was INR 22,900 per tonne, sequentially lower by INR 3,374. So the EBITDA on stand-alone is INR 8,673 crores but only other income, just I would like to highlight one point, is that Bhushan Power & Steel at the time when we made the investments through an FGD. We have mentioned that we hold 49% in the company, and we also hold optionally fully convertible debentures, balanced instrument where we have the right to convert into equity as and when it gets converted, then our holding will go up to 83.28%. So we exercised that option as of 1st of October 2021. So from 1st October 2021, now we have control through SPV and BPSL, we hold 83.28%. So from third quarter onwards, there will be a consolidation of BPSL results and the debt while we announced the Q3 results onwards. Then at the time when were to be converted, there is a remeasurement of the fair value of FGDs. So when we did that, there is an additional income, which has come as other income, which is approximately INR 702 crores net of tax impact, the net profit has gone up due to this INR 559 crores. After considering that, the profit after tax on a stand-alone basis is INR 5,383 crores. Our iron ore captive has gone up from 42% to 50% in this quarter. Coming back to the overseas operations. As we have been guiding, there will be a continuous improvement in the overall operations. The EBITDA from U.S. operations both Baytown and Mingo together, it went up to $61.4 million as against $43 million in the last quarter -- sequential quarter. So there is a good improvement as far as the contribution from U.S. is concerned. At the same time, the Italian operations also recorded a positive EBITDA in the last quarter, which is EUR 6.1 million as against a loss of EUR 5 million sequentially in the quarter 1. So from overseas, I think it is a good turnaround. The EBITDA contribution was INR 485 crores compared to a sequential number of INR 282 crores in the Q1. Indian subsidiaries also have done quite well, either Kotak, ARCL, VTPL, other subsidiaries altogether contributed INR 1,194 crores, sequentially, it is higher than compared to 1,145 number in the Q1. So the net addition after registering consolidated adjustments, this has given under consolidation, INR 1,745 crores EBITDA incrementally, both Indian and overseas operations together. So with that, the operating EBITDA on a consolidated basis, this is INR 10,417 crores. So here, what is important here, as we have been guiding, in the Q1, the EBITDA was INR 10,274 crores. In the Q2, notwithstanding the EBITDA margin per tonne has come down, still we could show a higher EBITDA in the Q2 over Q1 is INR 10,417 crores which is 32%. EBITDA per tonne was INR 26,172 per tonne in the quarter 2. Over and above contribution from overseas operations and also Indian subsidiaries, the joint venture companies under control, particularly BPSL, have done extremely well. So in the last quarter, they have posted a net profit of INR 1,448 crores. So taking into account the proportionate profit pertaining to JSW Steel and also proportionate from Monnet. Additionally, the share of joint venture contribution was INR 603 crores in the last quarter, as against INR 323 crores in the quarter 1. So with all this, I think the highest ever profit after tax of INR 7,179 crores for the quarter. Here, what is important is that in the entire financial year, FY '21, when JSW Steel posted an EBITDA of INR 20,141 crores, in the first half itself, the EBITDA posted by the company is INR 20,691 crores. So it is higher than the entire year of last year, the first half EBITDA. Similarly, the profit after tax number, it is INR 13,079 crores is the net profit for first 6 months as against INR 7,873 crores of last year for full year. One more thing here is generally when we announce the results, we don't add the production and sales numbers of the companies under joint control and also overseas operations. So if I look at the standalone production number was 4.1. If we add the Mingo Junction production and also the part, the JSPL. JSW's Ispat specialty steel products and also BPSL goes together 5.07 million tonnes of crude steel production in 1 quarter we have done. If we look at first half, this number is 10.14 million tonnes. So in the Q2, there is a growth of 29% in the crude steel production. Similarly, in the sales side, the similar number on a comparable basis is 4.83 million tonnes, which is a 14% growth. These are all very sizable numbers in terms of both production and sales if I consolidate the company's under joint control also. The overall debt of the company has gone up slightly in this quarter compared to Q1 is INR 55,394 crores as against INR 54,900 crores. So there is a final growth of approximately the increase in the net debt, because there is an increase in inventory and overall working capital investments happened in the first 6 months. Total INR 8,200 crores is the total investments which we have made in the working capital, either in terms of increase in inventories or increase in iron ore inventories or the stocks built -- raw material built for commissioning our commencement of production at our Dolvi unit. Altogether, the incremental INR 8,200 crores. We expect part of this INR 8,200 crores will get released in the second half. The debt-to-equity, debt-to-EBITDA everything has improved substantially either compared to 30th June or 31st March. I'm also happy to say that the projects which we have taken up at Vijayanagar brownfield expansion of 5 million tonnes is progressing quite well. What is not commissioned at Vijayanagar is only CCL2 that we will be commissioning in Q3 '22 and on color-coated line, that is in Q3, we will commission that also. The Kotak plant, we will do in phases, partly in this financial year, partly in the next financial year. So these are what is going on at Vijayanagar other than brownfield expansions. Advancing and [ paraphrasing ] more or less everything has been completed, except in one galvanizing line, which we are commissioning in this quarter. And the line and line that we will do in March and June 2022. With that, these projects which we have taken up in the last 3 years more or less, get completed. Then the outlook, just I would like to spend 1 or 2 minutes here. As regards to the overall demand, as I mentioned, we expect Indian steel demand will pick up in the second half. As far as global steel demand, particularly is really encouraging when we hear WSA short-range outlook. So we expect this demand will remain strong going forward, and it will accelerate as far as India is concerned. Then the iron ore side, the kind of demand which is falling from China. So we expect iron ore prices to fall further from the current levels. Coking coal prices are at really elevated levels. So we anticipate that there will be some correction downwards in the coking coal prices. But as long as these costs remain at this level, we expect steel prices also to pick up. They won't fall down because of very high and elevated cost pressures which are there right now. In view of this volatility which we have seen in the coking coal price, which is very difficult for any company to manage. We're also observing what is happening globally. The companies when such exceptional situations arise, they contemplate looking at additional surcharges to pass it on those unsustainable increases. So as and when the prices come down, the benefit will pass it on to the customer. If it goes up, it will be increased. We are also looking at very seriously the kind of volatility we are seeing in the coking coal prices and our Indian company's dependency, the Indian steel companies, the dependency on import of coking coal. We're also looking at whether we should introduce the energy surcharge compensating for the increase in the coking coal prices. Then the Dolvi operations are concerned, as I mentioned, the expansion project, the cost will be lower. When compared to the existing operations, which is gas-based and the DRI is used in the mix, whereas in the expansion project, it is completely hot-metal. Therefore, the costs are expected to be significantly lower in our expansion of Dolvi unit and almost 1.5 million tonne production and 1.4 million tonne sales from Dolvi expansion, we expect the benefit of lower costs will come to us. With that, I open the floor for any clarifications or questions. Thank you.

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

I have a couple of questions. The first one is on the pro forma debt, including And what would be the EBITDA of BPSL in this quarter? And what is the sales volume or that you are contributing for the year?

The EBITDA for BPSL in the quarter 2, the net profit was INR 1,448 crores and the EBITDA was INR 2,022 crores.

And sir, pro forma debt number, including BPSL?

In the BPSL, the debt outstanding as on 30th June was INR 9,000 crores. We have prepaid part of the debt in October. So we have prepaid INR 1,400 crores -- 1,800 in this quarter. So the debt will come down INR 9,000 minus INR 1,800 crores. So the pro forma will have as on date is INR 7,200 crores.

So it will be like if I add INR 55,000 plus INR 7,200 whatever it is. So that is the pro forma debt of the company as of now?

Right.

The second question is on -- we have seen that in this quarter, it has come down significantly compared to last quarter. Any specific reason for the same?

Can you repeat the question, please?

Sir, are iron ore royalty cost that we report on in the stand-alone number, it has come down significantly. So just wanted to know the reason for this same?

So in the last quarter, our 1-year commitment we had to meet in June. So and the differences were significantly higher in the last quarter. whereas in this quarter, it is lower by 3 million tonnes, whatever we have commitment corresponding to this year, to that extent, we have done. If you have seen in the previous year, in the quarter 1 -- quarter 1 and quarter 2, the dispute is per lower. That was made up in the Q3 and Q4 and also partly in the Q1. That is why the premium paid in the Q1 quarter was higher relative to the Q2 despite this for lower by 3 million tonnes.

Got it. So this is more the respective of sustaining royalty label, I mean, going ahead?

Sorry.

So this is more a resection of the sustainable royalty level that we can consider, the premium level actually, if your dispatches and all remain the same.

Approximately at that level. But the premium will depend upon market price. So we have to look at what would be the market price. It can go up or down, but the volumes will be in the similar range.

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

My first question, I'm sorry, but I did not get the number. You mentioned BPSL EBITDA in the second quarter was how much, sir?

2022, EBITDA per tonne was INR 23,000.

Sir, just trying to understand that EBITDA per tonne at BPSL was INR 23,000. And for JSW stand-alone operations was also a similar number. So should we -- do you expect this convergence to stay because the expectation of BPSL assets as a relatively higher cost asset, and it will take some time for the margins to recover?

But your voice is breaking sir. Can you please check?

Sure. So sir, I mean, the expectation was that the BPSL asset was higher cost, but the margins are similar. So should we expect this convergence of margins to sustain?

So number one, when you compare with JSW Steel on a blended basis, you have to look at -- we have multiple locations and the cost structure in each location was different. If you look at Dolvi, it is completely gas-based -- natural gas-based plant. So the cost structure was different. And the iron ore cost for getting from Orissa is different. Similarly, Vijayanagar cost structure is different. So EBITDA margins per tonne on a location basis is different. So as far as BPSL is concerned, there are a lot of things which are happening, as I mentioned to you, cost reduction with CCI is getting commissioned and we have recently commissioned the coke coal plant. So there are a lot of things which we have done to reduce the cost further. So assuming that steel prices will remain at the same level then BPSL should do well, going forward.

Understood, sir. This is very helpful. Second question, just trying to understand the steel price of coking coal cost movement now -- correct me if I'm wrong, but what you understand is that flat coke prices have seen a price hike in the month of October. It is to assume that JSW is more in the second half domestically with a higher premium. And there's also the tailwind of price contracts to reset. So there will be fatigue in NSR increase. Against that, sir, there will be a coking coal and gas price increase also both in retail price. So how should we look at the up at this point of time? Will it contract materially or then they hold out versus what the second quarter level is there?

So on the coking coal side, the coking coal side numbers, which we had guided last time, for quarter 2 was $30 to $35 more than the previous quarter. And that has played out. We were in the range of $158 for quarter 2. We expect that the coking coal price impact for quarter 3 will be higher by about $95 to $100 per tonne. As you said rightly, the impact of the cost increase is getting reflected gradually in the market. The prices of steel products in India, which was lagging the international price cycle is now going up. October, we have seen some price increases. And going forward in November and December, we see price adjustments going upwards to balance cost increase. There would be some play out on the iron ore side, which the cost reductions which we are expecting on the iron ore side could neutralize some of the cost impact.

And sir, what about the gas cost increase at Dolvi, I mean, what is the -- I mean, JSW source gas for the Dolvi operation?

So natural gas, whatever we are buying both at Dolvi and Salav is at the market price because there's nothing available under APM. So we are buying whatever market price is there. That's why the costs have gone up as far as Dolvi is concerned. But here, what is important, as I mentioned, is the expansion project is not gas based. So the cost there is, as I mentioned, close to 15%, 20% lower than the existing operations in Dolvi. One more important information is the total debt of BPSL when we took over was INR 10,800 crores. And at the same time, we also had under SPV, additional debt of INR 2,500 crores. So total debt, which we raised is INR 13,300 crores, including the debt in the SPV. Out of that, total paid, including payments made in October, is INR 3,300 crores was prepaid. So the balance debt that is there today is INR 10,000 crores. That is one correction to the numbers which I mentioned.

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

Just continuing on the previous question, I just want to understand the coking coal cost a little bit better. So one is so $95 to $100 is on a per tonne of coking coal are we talking or on the steel front? And second, what would be our inventory in terms of number of months? And for the fourth quarter, are we, I mean, already buying at the current $350, $400 per tonne prices?

So the costs, which we indicated $95 to $100 is per tonne of coking coal. As far as the inventory is concerned, we usually have inventories of about 2 months in the system.

Understood. And I mean, with respect to -- I mean, is there any hedging or any long-term or medium-term contracts available in the market, which you might benefit from onwards or it's entirely on market based?

So the liquidity in the coking coal market, as you may be aware, is limited from a future perspective. So I think we have contractual pricing and index-linked mechanisms for coking coal, which would be the way of calculating the cost for coking coal arrivals into India. However, stops in the system, which are there will be about 45 to 60 days here.

Understood.

In regards to the cost is concerned, as Jayant mentioned, around $95, $100 per tonne per tonne of coking coal is the increase which we have to absorb in the quarter 3. But at the same time, iron ore prices where correction has happened from INR 6,560 peak we have seen in June to INR 4,760 current price, INR 1,800 per tonne, where NMDC has reduced the prices. So this reduction in the iron ore price that also will get reflected by lower iron ore prices, if not more reductions that may happen in iron ore. That will compensate to some extent to the increase in the coking coal cost. The third point is the Dolvi expansion, which I already highlighted, that it is significantly lower, 15% to 20% lower than the existing operations. That benefit will also come in the Q3. Over and above that, the turnaround of overseas operations, which also I touched upon with the capacity utilization at Mingo Junction and breakdown is in the range of around 50%, 55% that is expected to go up. So some more upside in terms of overall improvement in EBITDA from overseas. Similarly, downstream where the contribution by JSW coated was in the last quarter, significantly higher than either Q1 or corresponding quarter of last year. So we expect more volumes from coated and better margins there. So all this together, these are the additional benefits, which would flow was a volume growth in India, which can happen. In addition to all these factors, we are all leading, as I mentioned about, energy surcharge, is it possible to pass it on if the current unsustainable coking coal prices continue.

Next question is from the line of Indrajit Agarwal from CLSA.

My first question is on the royalty that is stable on iron ore from JSW. So what is the rate of royalty we are paying on that iron ore? And once BPSL comes in as a subsidiary, will it have a lower rate of royalty? Or because of the subsidiary, we will continue with a higher rate even after the company comes in.

As for my understanding, as far as royalty payment is concerned, any mines which are secured in the auction, those companies can supply to subsidiaries for captive purposes up to 25% of the total production without any implication of additional royalty. So anything that is to be supplied in excess of 25% from the captive mine, then there extra royalty is applicable. Similarly, other than captive mines, for instance, today, we have 4 mines. Out of 4 mines in Orissa, Narayanposhi is the captive mine. Balance mines, I think we'll be able to supply without any problem. That we can supply to anybody. There is no restriction in the auction lines other than captive. Captive, 25% local supply.

Sure. My second question is on the surcharge that you referred to on higher coal cost. So what would be the difference between like taking it as a surcharge and outside increasing the prices? I mean, we can also change prices as and when the costs go down. So is there any other implication? Or is it more like having a separate line item for that?

No, the coking coal prices, the way it moved up every day $15, $20 per tonne, this is very difficult for any company to manage this type of volatility. And at the same time, the rate went up, it may come down also. Actually, we don't want to have any extra from this increase in coking coal or a reduction in coking coal. So whatever to the base, the prices have gone up, we wanted to put separate line item. If it comes down, the benefit will be pass it down is what we are contemplating. We are not taking the call yet.

And lastly, again, on BPSL, any kind of run rate that we should be looking at for the second half and next year in terms of production and sales What's the kind of ramp-up we can expect?

No, they're operating right now at a level of annualized basis, 2.7 million, 2.8 million tonnes. They're already spending money to complete the expansion to 3.5 million tonnes, and 3.5 million to 5 million tonnes. So at least -- and also the reduction in the cost of production by setting up the coke oven plant, the PCA system, the lime plant plus other improvements, which they're doing, they're spending almost close to [indiscernible]. So this will get completed partly by end of this financial year and also partly in the next year. So these benefits also will come higher volumes, lower costs that can come in from BPSL.

[Operator Instructions] The next question is from the line of Abhishek Poddar from HDFC Mutual Fund.

In terms of steel realization compared to our 2Q average, how has the spot rebar and HRC prices moved, any color on that?

You're asking your question is regarding movement of current prices vis-a-vis the average?

Yes, -- Just trying to see how much increase we have taken?

Okay. In the increases in the month of October, we have been able to begin. The month of July to September in India from a demand perspective was weak on a seasonally weak quarter, and we mentioned that in the earlier deliberations. So the price improvements have started taking place from October. So we have increased between 1,250 to 1,500 in flat as on 1st of October, for the month of October. And we have increased long products in the range of INR 3,500 per tonne beginning of October. There have been some intermittent increases in the -- during the course of the month for some retail markets, but I think that is for a smaller portion of the volumes. The -- we are looking at how the overall demand and the price absorption plays out. And we are hoping to increase prices and correct it upwards from 1st November. How to do the surcharge mechanism as a factor of the price is something, as we said, we are contemplating, and we'll look into and accordingly permit.

Understood. And compared to export realization, how does the HRC price in domestic market faring for us?

So as we had mentioned earlier, also the international markets over the last, let's say, 6 months have been very robust. International prices have been higher. As we know, in U.S. and Europe, the prices are much higher than what is prevalent in Asia. India has been among the lower-priced markets globally in the past few months. So we are now seeing the Indian prices picking up. And if you were to look at the value-added space, I think the international markets and Indian markets will probably be very similar in nature with respect to realizations going forward. As far as hot rolled is concerned, I think there are certain markets which are restricted right now because of certain quotas and certain safeguard measures. So hot rolled prices vary from region to region. But by and large, I would say that the domestic price pickup post November may make the domestic prices slightly higher than the export prices.

Understood. And -- Just one last question regarding the tax losses at BPSL and how much there and how we'll be utilizing it?

So it remains as a separate independent entity until Supreme Court judgment comes in, final outcome comes in. So here only our holding has increased to 83%. It has become subsidiary today to SPV.

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

Congratulations on a very good set of numbers, sir. My first question is with respect to thermal coal prices, and how is that going to impact our cost of production in the third quarter given the strong rise in the initial coal price?

So thermal coal prices are going up because we have 600 megawatts captive unit at Vijayanagar, and also PPAs with JSW Energy for another 600 megawatts. So on these 1,200 megawatts, whatever cost increase that will happen in the variable cost due to increase in the thermal coal prices, so that would come in. The point here is we are setting up or we already commissioned part of it. Our 175 plus 60, 235-megawatt power plant using the gases that would come out of blast furnace and at Dolvi. So there, the cost increases won't be there due to power. So. In fact, power becomes cheaper, that's why I have been repeatedly highlighting that the cost of operation of the expansion project is much cheaper compared to the existing operation of 5 million tonnes at Dolvi. This power cost will be much lower than the expansion project.

Sir, would it be safer to assume that the overall cost -- thermal cost impact would be close to about INR 2,000 to INR 2,500 on a blended basis at the company-wide level in Q3, because still -- as far as coal is imported.

Generally, an average 600 units per tonne of steel is the consumption. So then I'll leave it to you how much will take based on thermal coal price every it goes on changing, very difficult to say this is the price. So whatever price you take for the per unit and add to that 70%, 80% towards fixed cost. So that is the cost of power.

Sure, sure, sir. And sir, my second question was again with respect to BPSL. Now we are increasing the capacity of BPSL from 2.6 million to 3.5 million tonnes to balance of plant. So by when can we expect the BPSL to reach 3.5 million tonnes capacity?

Today it is operating...

To 5 million tonnes.

Sure. As on date, it is operating at 100% of existing capacity. So we are spending INR 1,500 crores for cost reduction plus expansion to 3.5 million tonnes. This is expected to be completed in the first half of next financial year. So the expansion from 3.5 million to 5 million tonnes, we are spending another INR 2,000 crores. So that is expected to be completed by end of FY '23. or in the early '24 financial year.

So if everything falls in place by end of FY '23, BPSL itself would be 5 million tonnes.

Correct.

And on top of it, we have Vijayanagar coming in by second half of FY '23 with another 5 million tonnes.

No, Vijayanagar 5 million tonnes will come by FY '24 end.

So in 3 years' time frame, sir, about 50 million tonnes, now 12.5 million tonnes of incremental capacity. Are we looking at exports market again? Or we believe that Indian market would be a wide enough will absorb this kind of volume?

Is which I mentioned in my opening remarks that the demand will be 110 million tonnes in this year as a is 94 million tonne last year. So 16 million tonne incremental demand, which we are expecting. And the exports last year is 17 million tonnes. In the first 6 months, we have already done 11 million tonnes in the country. So exports are quite strong from India. So taking these 2 factors into account, in my view, there is enough demand that would be available in India to absorb the capacity. If capacities don't come, there could be shortages.

Mr. Vishal and, may we request you to please rejoin the queue. We have participants waiting for the [Operator Instructions] The next question is from the line of Bhavin Chheda from Enam Holding.

Yes, sir. Congratulations on turning around overseas subsidies and good performance at Bhushan Power also, positive supply. So first question on Bhushan Power, there was no exceptional in this 23,000 EBITDA per tonne, and if the things remain constant, assuming steel price hike and coking coal increases the EBITDA will be in line with whatever JSW steel is doing right now?

I think, the way you have to look at the EBITDA per tonne number is JSW steel, you are comparing with stand-alone numbers with BPSL integrated operation, including downstream. So if you really want to compare apples-to-apples, then you have to add JSW coated EBITDA also to JSW Steel stand-alone and then compare, then it will definitely, on a blended basis, it is higher. So BPSL out of the 2.8 million tonnes, a significant portion of that is downstream. That is why the margins are quite healthy.

Sure. And sir, what was the figure of revenue and capital acceptances in the quarter?

Raw material acceptances slightly have gone up because coking coal prices have gone up globally. It is $1,014 million is the raw material acceptances. But the capital acceptances will continue to pay. It is outstanding at 369 million. So it is 1,383 both raw material and capital acceptances together, which has come down from [ 15 20 ] in the 30th June. So there is a reduction in the overall acceptances, majorly in the capital side.

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

Sir, 2 questions. One is, how should one understand or make of the residual 17% stake in BPSL? Any time lines or targets that you are looking at over here?

After conversion now, it is 83.28 and balances held by the group company, that is the amount they have contributed. That is why they're holding around 17% as on date. In addition to that, there is a INR 2,500 crore of debt outstanding, along with accrued interest in that company in the SPV, what I mean to say. The INR 2,500 crores, there are warrants that are available both to the shareholders. At the relevant time, we will contribute how much they we'll contribute to the INR 2,500 crore payment. Based on that, the holding can undergo a change. But as on date, INR 2,500 crores, is a debt, then it is 83 and 17.

Right. Sir, I was trying to understand, basically, you indicated that Supreme Court verdict, which is also there and there is a facing also which is the -- I was just trying to understand when will we see the entity entirely emerge so that there could be a tax benefit at a level as well?

If we see the ratios today, they're comparable what the JSW Steel ratios are there. But because of the Supreme Court litigation is pending, it will be very difficult to hazard a guess when it will be decided when we can take a call on this issue, then we can decide on this issue. So therefore, we have to wait eventually for the Supreme Court litigation outcome. Pending that now consolidation will happen as a subsidiary.

The next question is from the line of Raashi Chopra from Citi Group.

Just trying to understand if you're saying that coking coal prices will go up by about $100 in this quarter. That's obviously not capturing peak prices. And while we are anticipating price -- steel price increases to come through in the next couple of months, would they be enough to offset that inflation? And second is, how much -- what is the advantage that you're likely to see in the iron ore prices in this quarter?

So iron ore prices, as I mentioned to you, there is an INR 1,800 reduction in India, which is not reflected to a major extent, the benefit in the accounts in Q2. So that benefit will come, any further reductions. But if I look at the drop in international prices versus local aero prices, there is a big gap. So we expect some more corrections will happen in iron ore prices that benefit will come. So that will utilize to some extent the increase in the coking coal price.

Okay. And the other thing is that the sources that you were referring to now, it's obviously price increases in India have been -- steel price increases have been slower. given that they'll be more or less constant in the last few months and now also with a gradual up mode. So it will it be easy for the -- even if you bring in surcharges in as from the management eventually a reversal. But will you find it easier to kind of pass it on is implemented?

This is a new concept, new concept to India. As far as overseas is concerned, not only in steel sector, in other sectors, it is prevalent. So concept is known. So that's why we are not saying we've already taken a call to do this. We are contemplating because the markets are so uncertain, so volatile. Every day, if it goes up by $50 and come down by $50, it is very difficult to make that type of volatility. So this concept, which is internationally accepted principle, we are also looking at, we discuss it to our customers and then take a call.

Just 1 last question on Bhushan Power, next year's CapEx will be about INR 2,000 crores, right? And how much do we build in for this year?

Total CapEx is INR 3,500 crores, including INR 1,500 crores for capacity expansion to 3.5 million tonnes and cost reduction, both together is INR 3,500 crores. This amount will be spent over a period of 2 years -- 2.5 years.

The next question is from the line of Sudheer [Sykov] from [indiscernible] Management.

Sir, just to understand -- first of all, congratulations for a good set of numbers. Bhushan Power this debt, you told our total debt is around INR 13,300 crores, which is 10,000 or INR 3,300 in the -- excuse me. So the first of this INR 3,300 or is it included the intake that you are seeing in INR 55,000 crores? And second, we said that out of this INR 3,300 crore has been repaid, so if it's in the SPV only this entire INR 10,000 will now only [indiscernible].

No, I think I have to correct you. The numbers which I gave it to you at the time when we took over Bhushan Power & Steel, the debt was INR 10,800 crores. And there was another INR 2,500 crores in the SPV. So the total debt at the time of takeover was INR 13,300 crores. Out of that, we have prepaid INR 3,300 crores. That means BPSL plus SPV together, the debt outstanding is INR 10,000 crores. So this INR 10,000 crores is not included in JSW Steel, INR 55,400 crores number, which we have given it to you. So as and when we consolidate in this quarter, next -- this quarter, then it get along with the EBITDA.

Okay. So currently, it is out of this INR 55,000 crores?

Correct.

Ladies and gentlemen, this will be the last question for today, which is from the line of Rahul Jain from Systematix.

I just wanted to check on your volumes. So are we maintaining guidance for this year of 18.5 and 17.5 of production?

Yes. If you see Rahul, the first 6 months, we have posted a production of 8.2 million tonnes from existing operations. We have given the guidance of 17 million tonnes from existing operations. So if we can make adjustments of shutdowns, which has happened in the Q2, and oxygen shortage in the Q1, which will not be there in the Q3 and Q4. So 17 million tonnes, we'll be able to achieve from existing operations. Similarly, the way we have -- now we have smooth commissioning of our expansion project, that 1.5 million tonnes from expansion, we are confident that we'll be able to get from there. So 18.5 million tonnes is within reach.

Right, right. And sir, what about the downstream? Are we fully equipped now on the expanded operations for -- in the other in JSW coated?

Yes, we are fully equipped, except for all the lines have started except for 1 line in -- for galvanized and GL in Basin, which should start up in the next few months. Other than that, all the units are operating now fully in a stabilized manner.

Ladies and gentlemen, as this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Thank you, ladies and gentlemen, for joining us today. If you have further questions, please feel free to our customer relations.

Thank you.

Thank you. On behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.