Steel Authority of India Limited (SAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 earnings call for SAIL, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Chandak from DAM Capital Advisors Ltd. Thank you, and over to you, sir.

Thank you very much, Mallika. Good morning, ladies and gentlemen, and thank you very much for joining us the Q4 FY '21 earnings call for Steel Authority of India Limited. A strong set of results, sir. Congratulations. I have with me the Director of Finance, Mr. Amit Sen, and his entire finance team, including Mr. Tulsiani, Mr. Amit Agarwal, Mr. Ravindra Mahansaria. So without much ado, I hand over the floor to you, sir, for your opening remarks before we take up the Q&A. Over to you, sir.

Thank you, and good morning to everybody. First of all, I thank Mr. Vishal Chandak from DAM Capital for arranging this investor con call, and I welcome all the investors to the con call on the financial results of SAIL for the fourth quarter and FY 2021. So we uploaded the results last night. It was slightly late because our Board meeting finished pretty late. I believe all of you would have gone through that. So I'll just give a brief roundup, even though you already know, but still for the sake of record, I'll give a brief roundup of how FY '20/'21 first went, then I'll come to Q4. And after that, we can have the questions. So in terms of production numbers, we fell slightly short of what we had actually done in the previous year, '19/'20, and that was mainly because of the first quarter getting lost due to the pandemic. Our hot metal production in 2021 was 16.58 million tonnes as against 17.4 million tonnes in the previous year. Our crude steel production was 15.2 million tonnes in 2021, which is 6% lower than what it was last year. And our salable steel production was 14.6 million tonnes, which was 3% lower than last year. This is on a year-to-year basis, but if you see on a quarter-to-quarter basis, we have done much better than what it was last year. So for example, in the fourth quarter, we produced 5 million tonnes of hot metal, 4.6 million tonnes of crude steel and 4.4 million tonnes of saleable steel. And these are all [indiscernible]. So coming to the financials. The turnover in financial year 2021 was INR 68,452 crores, which is 12% higher than what it was last year. Our EBITDA after exceptional items is INR 13,798 crores. PBT INR 6,879 crores, which is 117% higher than last year. Our PAT is INR 3,850 crores, which is 90% higher than last year. And this is in spite of a onetime charge-off of INR 1,289 crores of MAT asset because, as you know, in Q3, we had opted for the new tax regime under Section 115BAA, for which we had -- our MAT asset got impaired, and we had to charge-off -- of course, this we had done in Q3 itself. So the final PAT is INR 3,850 crores, which is 90% higher than what it was last year. Coming to the major ratios. Our debt to equity now is 0.81 as compared to 1.29 in March '20. And our EBITDA per tonne of saleable steel for the full year is INR 9,200 per tonne. EBITDA margin for the full year was 20%. And our net debt to EBITDA has now come down to 2.54. You are aware that in the last couple of years, our net debt to EBITDA was in excess of 4, and in '17/'18, it has gone up as high as 8. So today, we are at 2.54. That is mainly because of the massive deleveraging which we had done during this year. So we started the year with a borrowing of INR 51,480 crores -- we started the year with INR 51,481 crores. And during the lockdown period, our borrowing kept on increasing because our cash collection had fallen, and we reached a peak borrowing of INR 53,750 crores on 12th May. And after that, as the economy picked up, our cash collections improved, our borrowings kept on coming down. And finally, on 31st March, backed by massive collections in the month of March, our borrowing has come down to INR 35,350 crores on 31st March, which is basically given all the good ratios. We have also changed the composition of long and short because as we have finished the modernization, our dependence on long-term loan has reduced. Long-term loans are more costly. So we have reduced our exposure to long-term loans and increased in the mix -- in this reduced bucket, we have increased the mix of short-term loans, which has given us a benefit in the interest cost. Also throughout the year, we have continuously swapped high-cost loans with low-cost loans, taking advantage of the falling interest rates. So our average rate of interest in the year 2021 was 6.34% as compared to 7.7% in '19/'20. And our -- the quarterly interest expenditure, which used to be around INR 900 crores per quarter, came down steadily throughout this year quarter-by-quarter, and in the last quarter of 2021, in Q4, our interest expenditure was only about INR 600 crores. So our imported coal price also, thanks to some geological factors, has remained low. The full year average price was INR 11,200 crores -- INR 11,200 per tonne as compared to INR 14,200 per tonne in '19/'20. That is a saving of INR 3,000 per tonne, which has given us a profit of -- or rather saving of INR 4,300 crores during the year. It has also reduced our cost roughly by about INR 2,700 crores. So our technical parameters were not very good. It was slightly better. Coke rate has come down from 480 -- from 457 kg per tonne of hot metal in '19/'20, it came down to 448 kg in 2021. BF productivity increased from 1.8 to 1.81, but labor productivity reduced to 396 tonnes per crude steel -- tonnes of crude steel per man per year. So our NSR during the year improved quarter-by-quarter. In the fourth quarter, average NSR was INR 46,500 per tonne and average annual NSR was INR 40,595. Coming to Q4 now. In Q4, our sales turnover was INR 23,166 crores, which is 44% higher than Q4 of the previous year. Our EBITDA after exceptional items is INR 6,300 crores. PBT INR 4,608 crores and PAT INR 3,444 crores, which is 26% higher than Q4 of the previous year. In terms of ratios, our EBITDA per tonne of saleable steel in Q4 was INR 14,900 per tonne, and the EBITDA margin in Q4 was about 28%. So during this year, we've also taken a major hit in the expenses, the major -- the biggest of all being the provision for wage revision. As I have already said in my previous con calls that wage revisions for the executives and the nonexecutives were due, and we have created a provision of INR 1,156 crores in the financials. And because of higher profit, our provisioning for PRP, which is another thing that we pay to the employees, that also increased. We had a VRS scheme during the year. So INR 104 crores on account of VRS expenditure has been booked to exceptional items. And another exceptional item, which we have booked, is on account of entry tax. So we had some old entry tax cases, disputed cases, which we were litigating. And in the state of West Bengal, the government announced an amnesty scheme that if anybody opts to pay the principal, then the interest is waived. So we took the opening of our advocates, what -- whether we should opt for the amnesty scheme or not. And then they went through our case and said, it's a fine point of law. It's a 50-50 chance we may win, we may lose, but it's advisable to take the amnesty scheme and at least save the interest in case we happen to lose. So we paid the principal, which was about INR 161 crores, and it has been booked as an exceptional item. And in the process, we have saved about INR 130 crores of accrued interest till date, which could have fructified in case we had lost the case. So these are some of the major highlights of the last year. And coming to the current year, '21/'22, last year, even though we lost the first quarter because of the pandemic, this year we're expecting a full year of good performance. We are hoping that the market will stay as it is. The price level is quite good. It may hold, it may come down slightly, but we are more concerned with the volumes, whether the market will absorb the proper volume that we can produce. So we have targeted a hot metal production of 20.9 million tonnes in this year, crude steel production of 19.6 million tonnes and saleable steel production of 18.35 million tonnes. The first -- in fact the month of April was not very good in some of the plants because of the tremendous COVID -- the second wave which hit them. Many of our employees died. Nearly 300 employees have died. So that actually put a bit of a dampener on the production in the month of April, especially in Bhilai, which is the biggest plant. But now we've came out of that. The new cases, which are testing positive, have drastically reduced. Very few death cases are being reported. And we have taken some repairs during this time. So all those repairs will now be over, and soon, we'll be starting production. So now the employees have started coming back because many of them, they were in quarantine, somebody in their family had tested positive, so they also had to stay away. So we had a much depleted workforce in the first 2 months, especially in the month of April. All that is over now, thank God, and people are coming back. Our repairs are over. All of our assets, almost all, except a couple of sinter plants are now ready for full operation. Our employees are back in the plant. And we are expecting robust performance from the month of June onwards. And we are hopeful that this target that we have taken, 18.3 million tonnes of saleable steel, we'll be able to achieve. So yesterday, we declared a final dividend of 18%, which, along with the interim dividend, which we had announced in January of 10%, works up to an annual dividend of 28%, which roughly translates to 30% of our PAT. So that is all from my side. I now hand it back to Mr. Chandak for opening the Q&A session.

Yes. Thank you, sir. So Mallika, can you please start with the Q&A?

[Operator Instructions] The first question is from the line of Saumil Mehta from BNP Paribas.

A great set of numbers. Two questions from my side. One is, can you touch upon how is the long product market in April and May? I know we are approaching a seasonably weak quarter because of monsoon. But from end of March, how are the long product prices now? And what we also hear from some of the dealers, there seems to be some positive traction building up in early June. I mean, if yes, can we have some update on the long product side?

So the long product market was a bit done as compared to the flat products. It's not that we had any inventory pileup as such, but there was some pressure on the prices. In fact, in May -- not May, sorry, in this month, we had to reduce the prices a bit to keep parity with some of our competitors. I have been discussing with our sales team. We expect that the demand for TMT might start picking up gradually. But of course, we are coming to the start of monsoon. In the past, in the monsoon season, the construction activity would have come to a slowdown, and there would have been some reduction in offtake. But I'm not sure this time because now that we've just come out of a lockdown, what the marketing team says and our sales team says is that this slowdown probably is not expected this time. And maybe from July onwards, there could be an increase in the demand of TMT and structural. So that is the feedback I get from my marketing team.

Sure. Sir, to follow up on that, versus June -- early June prices and when I compare to end March, what would be the increase in long product, if at all? And how is that versus the secondary market? Because I think in the past, that gap used to be INR 7,000, INR 8,000, which had narrowed to INR 4,000. So what is that gap as of now versus secondary players?

Yes. So if I take the average of longs, all longs put together, not only TMT, all longs put together, then our average NSR in the month of March was INR 45,000. And in June, it is now -- as per the estimate, it's about INR 50,000, INR 50,400.

Got it. And my second and last question, sorry, I joined the call a bit late, but what is the total receivables now with the railways? And have they repaid some money as on -- in the last 1 quarter?

Outstanding from railways?

Yes.

So it is -- as of today? You want today or 31st March?

Both the numbers can help, sir.

So on 31st March, it was INR 3,800 crores. And today, it is around INR 4,500 crores -- around INR 4,500 crores. Yes.

Okay. Okay. And when do we plan to receive that amount?

See, this INR 4,500 crores now, in the month of March, actually, railway released a lot of payment. Actually, they released a massive amount in the month of March. What we now have is basically the normal billing, which is usually always outstanding. And we have some old price escalation claims, which are pending with them. So the price escalation claim is the only thing which is really old. Otherwise, we have, I think, maybe 2 months or 3 months of billing, which is pending. The average so far usually has been 2 months pending with them. Now it is about 3 months of average billing and some old price escalation claims. So that is the amount which is pending. I think it will be cleared sooner.

The next question is from the line of Dhimant Kothari from Invesco India Mutual Fund.

Sir, my question is relating to the provisional sales or the provisional prices being taken for the sales to the government agency. So what -- can you elaborate on that? And at what prices do these sales happen? And what are the chances of material upside or downside revision to that prices?

Okay. So actually, this is a standard practice with all government customers, for example, railways and defense. This basically applies to railways and defense. So for railways and defense, the price is always fixed post the supply period. Many of these are cost-based pricing. So we end the year -- the cost statements are given to the, say, the FA, cost -- financial adviser, cost. And based on that, they propose the pricing, and they'll be negotiated. So there's always a time lag of maybe from the end of the year, another 6 to 8 months, sometimes even 1 year before the price. And this has been this way for decades actually. Nothing new is there. So we invoice -- during actual supplies, we invoice at the provisional price, which is either the last price or an agreed price. And then when the prices are finalized, then the differential is placed. Always, the agreed prices get lower than the possible final price so that we don't end up with a negative. So the possibility of a price increase is always on the upside. And if that is -- we keep the provisional price in such a way that we don't finally have to raise a negative [ income ]. So whatever provisional price that we had for supplies of rails to railways, wheels and axles to railways and all the DMR plates and other things to the defense sector, they've all been provisionally slightly underpriced. When the final price is finalized, then we will issue an invoice for the differential, which will always be on the upside. And it has always been like that for the last maybe 25, 30, 40 years.

Sure. So since -- just to clarify in the sense of cost plus kind of thing. So the realizations over here would be lower than the current going realizations because current steel prices are way above?

Not exactly. See, the NSR of rails has always been higher than the NSR of any product. So it varies marginally. The only thing about these cost base prices are, it's not that price is bad. The price is very good actually. The only thing is, it doesn't rise when the normal market rises. And similarly, it doesn't fall when the other markets fall. So it acts as -- something as a sort of a buffer, as a cushion. So when the market falls, these prices, they help us. When the market rises -- in the sense that it doesn't rise anymore, but the price itself is quite good. So it's not that we get into some problems because of it.

Sure. Got it, sir. And second question was on the CapEx. Could you help us on the next 2 years of CapEx? And if you could elaborate on what specific projects they would be?

It's a very tricky question. So our initial plan -- I think I said this in Q3 also. Our initial CapEx plan for this year, '21/'22 was initially INR 4,000 crores. Then there is a directive from the government that because the economy needs to restart, so all the PSUs need to increase their CapEx. The target, which has been given to us, is INR 8,000 crores. Now one thing is that INR 8,000 crores is the money that we need to spend. For that, we should have projects which have already been awarded. The job has started. Only then the -- what is CapEx? There is a project going on. The contractor submits a bill. We pay the bill. We call it CapEx. So there has to be projects which have already been awarded, the contractor has mobilized, the contractor has started the job, and he is in a position to submit the bill. Overnight, we cannot double the project activity on the ground. So we are tendering out. I don't -- what can I say? I mean I don't suppose this INR 8,000 crores is something we'll be able to achieve. But our CapEx will definitely be more than INR 4,000 crores. What it finally will be like -- will end up with will depend on how many projects we can actually tender out and put on the ground. And even when we tender out the project and the contract is awarded, it typically takes about 1, 1.5 months for the contractor to mobilize and only then the CapEx will start. So the real CapEx, the cash payout in the year '21/'22 because today already, I'm in June. So in the remaining 9 months, how many projects will we be able to roll out, how many contractors will mobilize and then I have -- I'm not sure. I can't give a number on that. But I'm only saying, it will be more than INR 4,000 crores, but I don't think we'll be anywhere close to that INR 8,000 crores target.

The next question is from the line of Nitesh Jain from Birla Mutual Fund.

Basically, I have a couple of questions. So the way you shared the long product realization in June of about INR 50,000 versus INR 45,000 average, can you also share the same for the flat product?

So for flat product, the average in the month of March was INR 48,355 and the average -- the likely NSR in the month of June is INR 63,750.

INR 63,750?

Yes.

Okay. And secondly, sir, a lot of steel mills in the month of April and May, when there was domestic localized lockdown, so they exported a lot of material, a lot of steel, particularly the flat products of varied kinds and grades like HRC, CRC, galvanized and other stock. So -- to the European and even to the U.S. markets. So my question is, did SAIL also do the same thing? I mean in April and May months, our export proportion has gone up significantly versus what is the usual rate for us?

We have exported a good amount in March and also in April and May, but our export -- because we are not actually so much into exports, we are more of a domestic player, the export price is good. But we have our long-term customer tie-ups through these long-term arrangements and the MoUs. So we have mostly been into domestic sales. We have been exporting. We've exported semis to Southeast Asia, to Nepal. We've exported some quantities to Europe also. We've exported HRC to some of the countries. So we have done a lot of export, but I don't think to the extent that our competitors have done.

Sure, sir. And lastly, I want to ask you something on the working capital side. So at the March '21, I mean, this balance sheet, we can see significant improvement in both inventory as well as debtor receivables. So question here is, what is the -- at what level these 2 figures, I mean, the receivable and the inventory should stabilize? Is it going to be at the same level? Or do you expect them to increase from here or go down further?

You're talking of inventory?

Yes. I mean inventory figures. It was INR 24,000 crores as at last March '20 balance sheet. It is INR 15,000 crores only as at March '21 balance sheet. Similarly, trade receivable has also gone down. So are -- these numbers are sustainable? I mean will they go up further significantly from here?

No, they will not go up. So when we say inventory, there are different kinds of inventories. We have inventory of finished goods, we have inventory of raw materials, we have inventory of stores and spares. So all put together, it is INR 15,000 crores. Inventory of raw material and stores and spares will remain as it is because we maintain a certain minimum level of inventory. But the inventory of finished goods, so on 31st March, our finished goods inventory was at 0.68 million tonne, which is roughly equal to about 16 days of sales. And now we are roughly selling whatever we are producing. So the inventory level will not go down anymore. That is for sure. It may not go up much because that is roughly -- 16 days of sales is roughly the minimum level of inventory that we need to maintain at any point of time. Below that, our stockyards become empty. Because we have 43 stockyards spread across the country, so 0.68 million tonne is almost like having an empty yard. So the inventory level will not go up because the demand is almost equal to what is -- matching what we can produce. But the other inventory, raw materials and the stores and spares inventory, which is a part of INR 15,000 crores, they will remain as it is. So...

Wonderful. Wonderful. So broadly, they will remain the same.

There is very little chance of inventory going either up or down, at least in the next couple of quarters. Excuse me, actually, I'll have to leave now, like I said in the beginning. So my team is there, Mr. Tulsiani, ED, Finance, is there. We will continue. I think that meeting is slightly late.

The next question is from the line of Abul Fateh from Baroda Mutual Fund.

You said that you will be spending INR 4,000 crores of CapEx initial plan and [indiscernible] INR 8,000 crores. So initial plan of INR 4,000 crores of CapEx, what kind of CapEx is it? Is it the maintenance CapEx? Or will it add anything to the capacity in terms of finished steel or anything?

It has both. It has both. It has, basically, the tail-end payments of our current MEP. So the projects, which have already been awarded long back, their final payment, their commissioning payment, PG payment, the final acceptance payments. So those were also there in that INR 4,000 crores as well as the word you used, maintenance CapEx, what we say, AMR, addition, modification, replacement. Those schemes are also there. So they were a part of this INR 4,000 crores. I think it was INR 2,000 crores, if I'm not wrong, for the MEP project payment and another INR 2,000 crores on account of the other CapEx, which were not part of MEP. That was the breakup of the original INR 4,000 crores.

Right. So that means on the current capacity that you have, the INR 2,000 crores is a maintenance CapEx run rate that we can take every year.

Which we had initially planned, but now we'll have to increase that.

So when I say maintenance, is that the minimum that you need for your current plants to keep running? Or -- I'm just talking about the maintenance of the current plants? INR 2,000 crores is the number?

I'm not getting this question actually. See, there's nothing like -- actually, we don't call it maintenance CapEx. We say that we are putting up new mills also. For example, the hot strip mill at Rourkela is not maintenance. It's a new mill that we have put up. But it was not a part of the original MEP. So we have new plants which we are putting up, which will add to the capacity or add to the value addition. We also have some replacement of the old and aged equipments, which we are phasing out. So we have all kinds of things in this balance INR 2,000 crores. It is not purely maintenance.

And also another question on your volume. How much of the total volumes is that you sell to the government customers?

How much do we sell to government customers?

Where you have those cost -plus basis arrangements of pricing of products?

Actually, all put together, it's mostly railways, of course. Our supply to defense is not very much. It may be around 10% to 11%. When you say government, you're not meaning PSUs. You mean the actual government, like railways and defense?

Yes.

That is about 10% to 11%.

Okay. And also, another question related to that. How much of your total volumes are sold on a long-term contract basis? The total volume of, say, 17 million, 18 million tonnes, what would be the long-term contracts? What is the percentage of that?

How much volume? Okay. So 40% of our domestic sales is to our MoU customers through long-term agreements.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Overall, good set of numbers. Sir, what will be the wage cost in FY '22? I think you have made some provision in quarter 4 with effect from April '20. So what will be the quarterly or annual run rate of wage cost if you can give for '22?

Actually, in '20/'21, if you see, our wage cost is about INR 10,445 crores. This includes the provision for wage revision that we are going to announce. The wage cost of '21/'22 would be on similar lines in the sense that in the normal course, there would be an increase because of the DA increase or because of the normal increment, but that will be offset through separation. So the wage cost of '21/'22 would be something similar to this, maybe around INR 10,500 crores.

INR 10,500 crores. Okay. And the other thing I missed out if it was mentioned, what would be the quarter 1 export mix, since quarter 1 most of the companies have been exporting volume? Domestic demand is a bit slow. So how much SAIL would have exported in quarter 1?

See, I don't have the figure just now. So maybe I can...

It would be less than 20%, right, of the overall volumes?

It will be less than 20%, definitely, but if you want a better figure, then I'll have to ask my [indiscernible] and come back.

Sure. And sir, what was the iron ore fines sales volume number in quarter 4? And what was the value you sold it for?

I don't have quarter 4 with me just now. I have the full year figures. In case you have the quarter 3, you can minus it. Our full year figure was 3.2 million tonnes.

Annual, sir?

3.2 million tonnes was the full year figure. Our turnover was INR 1,203 crores.

INR 1,203 crores. And what you plan for FY '22, sir?

FY '22, we are planning a 13.5 million tonnes, which includes fresh fines as well as tailings.

13.5 million?

Yes, 13.5 million.

So that's a very big target. So are we on a monthly million already target? Because I think last year also, we set up a target of 5 million plus, we ended 3 million. So it looks a very big target for FY '22. So what are the plans there?

Actually, it's not a very big target. The only problem that we're having is, we have a huge quantity in the Jharkhand group of mines, right? We have 4 mines in Jharkhand: Kiriburu, Meghahatuburu, Gua and Chiria. So these mines, we are -- we have a difficulty in selling because of some issues with the state government. We are trying to get those issues resolved. I mean it is being taken up at various levels, including our Steel Ministry has taken up with the Chief Minister and also the Chief Secretary. So we're discussing. Hopefully, that issue will get resolved. If the Jharkhand issue is resolved, we have tremendous quantity in Jharkhand. That is where actually the quantity will come from. So we are already selling from the Orissa group of mines whatever we have sold last year. This 3.2 million tonnes, what we have sold last year, was from the Orissa group of mines. This year, we are planning more from the Orissa group of mines and also large quantities from the Jharkhand. The only caveat here or the only thing to -- thing of concern here is, it is subject to getting clearance from the Jharkhand government. There has been some development very recently, and we are hopeful of getting the clearance soon. If that is in place, then 13 million should not be a problem.

Sure. We've been reading that articles also, sir. And there, you think it is stuck for what issue, sir, in Jharkhand? One is that. And the other I was reading is that Orissa also had stopped dispatches in quarter 4. So your quarter 4 volume, if I'm trying to arrive by minus-ing 9 months volume, probably it is 0.6, whereas you did over 2 million tonne in quarter 3. So I think Orissa had issues of additional royalty on these iron ore mines. So all that issues have been sorted out now?

Yes, I'll tell you. So the Jharkhand issue is something I have no idea about. Why it is on hold, I really don't know. I don't want to comment. But regarding the Orissa issue, actually, after that MMDR amendment came on 28th March, so there was some confusion about the amount that we have to pay -- that extra amount that we have to pay on sale, whether the Schedule 5 and Schedule 6 would both apply or whether it is only Schedule 6 or whether we have to pay royalty at the rate of lumps on fines. There were a number of things that were not clear from that amendment. So this was taken up with the Ministry of Mines and with the state government. Those issues have all been resolved. We've got the clarification, and the dispatches have started.

Okay. And my last question. What would be your coking coal inventory, since there has been a sharp increase in prices? So when would that start impacting on our cost structure?

The imported coal prices has gone up by about $50 in 1 month, right? The Platts index has gone up by about $50 in 1 month. But if you remember, a similar thing has happened in February also, February '21. It shot up from $106 to $155. But it immediately fell. In the month of March, it fell again. See, the whole reason why the imported coal price is low is because of that trade conflict between China and Australia. That trade conflict still continues. China is still not taking from Australia. So there is no reason why the imported coal price should suddenly spike like this, just like there was no reason why it spiked in the month of February. Nobody was able to understand what is happening. In any case, whatever the reason was, maybe a couple of shipments, which went at a high price, that sort of distorted the index. Whatever the reason was, it immediately fell in the month of March. We are expecting that this spike, which has happened now, this $160 FOB, will probably come down again because there is no reason why the imported coal price should suddenly go up by 50% in 1 month. Nothing has happened between China and Australia in 1 month. So -- but if it really stays up, for whatever reason, then yes, our costs will be impacted.

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

I have a couple of questions. The first one is on your disputed amount under this entry tax. The disputed amount is still quite high, and you have recognized it as contingent liability. So out of this INR 1,370-odd crores, how much is the interest? And do you expect a similar settlement what you have in West Bengal this year for other states also?

Okay. So because the liability is against a court order, this is a firm liability, contingent liability, we have not built up any interest on that. And regarding your amnesty scheme, actually, the major liability is in Bhilai. And in Bhilai, we actually have a very strong case, and that is the reason why we have not made any provision for that. It was basically the disparity in the rate of entry tax within the state. So maybe probably you already know about this. So the entry tax rate was, if coal is coming to Bhilai, it is charged at, say, 6%. Same coal going to our competitors in the same state, just few miles away, it is being charged at 1%. So this is not tenable. This kind of a disparity within the state, that too with a public sector company, this is where we have appealed to the court. And we are very positive of -- in fact, there was a talk of even dropping that qualification. But anyway, it is continuing. But there is no amnesty scheme in Chhattisgarh or in Jharkhand. And even if it does come, we are not going to apply because we are very sure of this case. Our cases in West Bengal were slightly in doubt because they were basically not on the issue of disparity because on a very fine point of law. So a point of law could go either way. So that is why, we opted for the amnesty. And that too, we took the opening of a number of advocates whether we should opt or not. But in the case of Chhattisgarh, where the bulk of our liability is there, we are not going to opt for amnesty even if the government comes up with the scheme.

So just for the clarity in West Bengal, it is full and final settlement?

Yes, it is full and final settlement. We have cleared the entire principal. And in the process, the entire accrued interest, which could have become a liability in case we had lost the case subsequently, that is not there anymore. That set is not there. But the situation in Bhilai is completely different.

Sure, sir. That's very comforting. The second question is on the larger issue of cash allocation. Now since, as you have mentioned, the volume targets and, of course, the profitability we all know now -- so what will you do with the cash you generate? I mean you mentioned about CapEx, but clearly, because of the orders -- I mean, the tender not being done, this number is going to be lower. What kind of debt reduction you are looking at? And what kind of dividend payout? So if you can put in these 2 buckets? I mean CapEx we already know, but debt reduction and dividend, if you can address these 2 buckets, that would be helpful, sir.

I cannot comment on the dividend. But our target to deleverage, we want to come down to about maybe INR 25,000 crores or maybe even lower by the end of this year. So our entire surplus, the free cash flow that we have after meeting our CapEx requirement will be for reducing our debt. Our target is actually even lower, but to say today, I will say INR 25,000 crores.

[Operator Instructions] The next question is from the line of Vikash Singh from PhillipCapital.

Sir, you've given a guidance of almost 18.6 million tonnes of saleable steel sales. Considering that first 2 months has been pretty bad, so this means that we have to have a run rate of 1.6 million to 1.7 million tonne per month. That is very close to your full capacity utilization. So just wanted to understand, are we already at the full capacity utilization, including IISCO plant, which was having some problems, or the guidance is a bit on the higher side?

No. We are still committed to 18.35 million tonnes of saleable steel. It is true we have produced less in April and May. See, when you say capacity, capacity is not something which is like stepping stone. Capacity is a nameplate capacity. So it depends on the health of the machine. It depends on operating practices. One of our plants, Rourkela steel plant, is actually operating in excess of capacity, right? So capacity is not something -- that nameplate capacity is not something with which a company needs to be constrained. You can go beyond that. We have gone beyond that in the past. The other thing is regarding the ISP, that repair, so that blast furnace -- of course, last year, they had done some [indiscernible], some temporary repairs; this year, they have done the full repairs, and the blast furnace has come back. And today, it is producing at full capacity. So that repair...

14th of May.

So the repair was completed on 14th May. It took maybe about 4, 5 -- about a week for the production to ramp up and that high silicon hot metal to be discarded. But after that, the furnace of 1 foot is now producing at full capacity.

So is it safe to assume that your crude steel production run rate has gone back to 1.6 million, 1.7 million tonne per month of run rate right now at present?

That's what we have planned from the month of June onwards.

From month of June onwards. Okay. Okay. Sir, my second question pertains to the EBITDA coming from the iron ore sales for the full year. If you could give us that.

I cannot comment on a product-wise EBITDA. I told you the turnover and the tonnage, but I cannot comment on the -- I don't want to mention the EBITDA of a particular product.

The next question is from the line of Anand Shah from ICICI Prudential Asset Management Company.

Firstly, congratulations for great set of numbers. Sir, my question was on the segmental results, and we can clearly see that flat products in Rourkela and Bokaro are doing extremely well. Is there now opportunity to do more value addition and can improve the profitability of the flat products? Because if you see the other flat product manufacturers, their profitability is still higher per tonne.

There are 2 things. One is, in Bokaro, there was a problem with the new cold rolling mill. So Bokaro actually has 3 cold rolling mills. CRM 1 and 2 are the old mills, and CRM 3 is a new mill, which produces the special product. There were some products -- problem with the hydrogen supply in CRM 3. So that hydrogen plant has now been installed, and we are able to do the annealing of the cold-rolled product in the CRM 3 of Bokaro. So with that, the output from CRM 3 of Bokaro as well as the quality of -- from CRM 3 will increase. So that alone will add a lot to our NSR. And also, the new hot strip mill of Rourkela, which is now under commissioning. In fact, the Japanese people that -- Mitsubishi, who are the project contractors, they were not able to come because of COVID. Finally, they came. They stayed for some time. Again, they've gone back. But they'll be coming back again. When the hot strip mill of Rourkela is finally commissioned -- it is already in operation, but it is yet to be commissioned. When that is commissioned, then we'll be able to produce high-quality HR coils from Rourkela. API grades and all kinds of special steel grades we can make from that new hot strip mill. The present hot strip mill of Rourkela is not of that quality. We cannot make superior quality products from the old mill. This new mill, which will be commissioned very soon, will be capable of producing all the special grades of HR that we can make. So the new hot strip mill of RSP and the enhanced production from CRM 3 of Bokaro, along with annealing, these are the 2 major developments which are almost already in place, which should add a lot of value to the flat products in '21/'22.

One more question was on Bhilai and IISCO. I think IISCO has actually surprised positively on profitability, but Bhilai is still lagging. Bhilai used to be our most profitable plant. So just an update where the expansion modernization of Bhilai is there and why IISCO's results were so good?

IISCO's results were good in the sense that -- of course, the market helped. That is the first thing. And IISCO had a small problem in their blast furnace in September, but they quickly came out of that, and they were producing almost -- if not full capacity. After that September incident, by December, they had come back to their pre-breakdown levels. Of course, it was below capacity. So they produced and the IISCO product mix actually is good. The SAIL SeQR TMT is made mostly in Burnpur, which fetches a much higher price than the normal TMT. So that is about IISCO. But IISCO was profitable last year, mainly thanks to the market. This year, IISCO should do well on its own. Coming to Bhilai, Bhilai had a different kind of problem. Bhilai's problem has something to do with maintenance. So they had some problems with their sintering plant last year. So they could not reduce much sinter, which in turn reduced the blast furnace production, which in turn reduced crude steel and -- down below. Now they have taken up the repairs of the sinter -- there are 6 sinter machines. They have taken up the phased repair of sinter machines. One repair is already over. Second repair will be over very soon. These are the 2 big machines. Then there are 4 small machines, which they will be taking up at some point of time. Bhilai was suffering for 2 reasons: one is the problem in their sintering plant, which has mostly been resolved. The 2 big machines are now fairly okay. And they had some problems with their caster. We have a very old caster that also has been repaired. One caster is still giving problems that needs to be resolved. The other thing about Bhilai is, they are still short of 1 caster in the new steel melting shop, SMS 3. That was a plan designed for 3 converters and 4 casters. We now have in place 3 converters and 3 casters. The 4th cluster needs to be redesigned. It was made for a different product, which we are not going to make now. It is to be redesigned as a bloom caster. So that project is going to be awarded very soon. So today, they're working on 3 casters. And the last problem with Bhilai is that the bar and rod mill from where the high-quality long products are going to be produced, especially the TMT and other bars and also wire rods of very superior quality. That mill has still not reached its full potential. The capacity is 75,000 tonnes per month, and Bhilai is still doing at 50,000, 55,000. That is something which, I think, needs to be resolved. So if the bar mill is -- can run to full capacity, the sinter plant issue is going to be resolved very soon in any case. And out of the 6 casters, the 1 caster, which is a flat caster, which is still giving some problem, that will be taken down for repair. But 5 casters are still working. So hopefully, this year, after Q1, till Q1 the repairs will go on. But from Q2 onwards, should be able to produce to its maximum capacity because the thing, which was concerning them, that basically has been removed, more or less.

My last question, sir, Bhilai expanded capacity will be 7 million tonnes, right?

Of crude steel, yes. 7.5 million tonnes hot metal, 7 million tonne crude steel, but that is after the fourth caster. Today, they [indiscernible].

The next question is from the line of Vineet Maloo from Birla Sun Life.

Question is related to the wage cost. So apart from the wage revision provision, were there any actuarial impact or anything, et cetera within the base cost in P&L?

Yes. The discounting factor actually has increased because the rate of interest was -- it has increased to 6.8%. The discounting factor in '20/'21 for the actuarial valuation is higher than what it was in '19/'20. So that has impacted the actuarial liability of gratuity and leave. All the final payments, which are valued by actuary, the actuarial valuation is done, that's where the liability is created, that inflation -- that liability has been slightly inflated because of the higher discounting. So that is one. And the PRP liability that we have created because of higher profit. That is another reason.

Okay. Sir, my second question is, again on the disputed entry tax issue. Sir, until a quarter back, we used to write in our note to accounts that management is confident that the base is bona fide and genuine and very strong [ case ] and, that's why no provision is required. Sir, suddenly, I understand, amnesty scheme was introduced. But on the case side, what development happened that our assessment also changed. Because, sir, I mean, what I'm surprised about is, when there is no provision already in the account, that means the management believes that the case is likely to strongly go in the favor of the company. Yet, we chose to reduce the risk. So I'm just surprised that either it should have been provided for earlier, if the case was likely weaker or we shouldn't have gone for amnesty scheme. I'm really confused on this side.

See, our assessment at that time was based on the strength of the case, the merit of the case. For example, in Bhilai and Bokaro, as I said, the disparity issue is there, where we don't have any case -- even if the government comes up with amnesty, we're not going to opt for it. But in the case of the West Bengal plants, yes, the call that we had taken was that it's a point of law because it was not a point of disparity. Disparity is easy to defend. Point of law would depend on the arguments being put forward by the 2 lawyers and what kind of view the judge takes. So point of law actually has a fair chance of going either way. Even though we may feel that we have a strong case on a point of law, but you don't know which way the judge will decide when he hears all the arguments on that. The point of law is something which is a little dicey, which could go either way. We felt we had a strong case. But when the amnesty scheme came, then we had to take a call that this is an opportunity given to us, whether we go on fighting the case on this point of law, which we probably still feel that there was a case. But as I said, the difference between a point of law and a point of disparity, point of law is where the amount of uncertainty is a bit more. So we had to take a call on what to do. And therefore, we decided that it is better to probably play safe and avail [ this amnesty ]. It is something like Vivad se Vishwas kind of a scheme. So there also, we had these tax liabilities. But we opted for the amnesty. Here also, we did that. You are right actually that if we said we have a strong case, then why did we apply for amnesty. The thing is that in the point of law, you don't really know which way the thing will go. We felt we had a strong case, but when the amnesty scheme came, we thought probably it's more prudent to apply than to fight it out and have the possibility in case the judge takes a different view. So that was a view we took.

No, sir, I appreciate your point. My limited [ point ] submission is that wherever such cases are there, where it could go either way, ideally, they should have been provided in the books of accounts already so we get a better picture of the things going on, right? Because today profitability is good, that's why this amount was easily absorbed by the P&L. So it [indiscernible] but there are so many other cases also they're spending where amounts are quite large, right? So that's one limited point, sir. And sir, my last question is regarding realization. So I understand from the government contract, we don't get -- price movement doesn't happen as per the steel market. But even if we account for [indiscernible] supply to the government [indiscernible] look at the realization excluding that, it seems your realization is slightly subdued relative to what the peers have seen in terms of the change. So what is the reason for that? I mean, is it that our mix has changed? Is it that our -- we had more iron ore sales in December quarter and less in this quarter, et cetera? What is causing that?

Actually, I didn't get your question. You said the government prices are fixed separately. After that, what did you say?

The government entities like railways and defense, prices don't move as per steel markets, right?

Yes, yes, correct.

That's about 10% of the volume.

Right.

Right. So if I look at on the 90% of volume, if I look at your realization, right, from December quarter average to March quarter average, the delta is not in as -- or [ on similar lines ] with your other peers in the industry.

That -- are you talking of long or flat?

Sir, I am talking of blended. I understand there is a mix impact. See, I understand there is a mix impact. Even if I adjust for that, blended also doesn't look [ similar ] -- even adjusting for that also doesn't look [ similar in lines ].

See, one thing is that we have a slightly higher proportion of semis, which our competitors don't have, which actually has always kept our NSR less than our competitors. So that impact of semis is still there. So we have about 21% of our...

Sir, I'm looking at the change in NSR. I'm not looking at the absolute level.

You're looking at the delta?

Yes, I'm looking at delta. In rupees per tonne, if I look at the delta, it is lower than what our peers have shown.

That means what you're saying is, the increase in average NSR in Q3 over Q2 and increase in Q4 over Q3, that delta is not as much as, say, Tata Steel or JSW. Is that what you're saying?

My question is about Q4 over Q3.

Sorry?

So my question is specifically about Q4 over Q3.

Okay. So you're saying the average NSR of Q4 over Q3, that increase is not commensurate with what our competitors have achieved in Q4 over Q3. That is the thing, no?

Exactly. Exactly.

So I don't know the reason for that, why -- how their NSR should be higher than us. But one thing could be that I know that some of our competitors have gone largely into export. And the -- first thing is, see, if you take JSW, which is basically a flat product company, the increase in flat prices has been much more than long. And we are a long and flat company, almost 50% long, 50% flat. So the increase in long has not been to that extent. Therefore, if I compare with JSW, their increase will always be more than us because ours is moderated by the long. So that is one reason if you compare JSW versus us. Tata Steel also, of course, has a mix of long and flat. But another thing which I know, I'm not very sure, but -- is that the other companies have gone largely into export. They have been exporting a lot because the gap between the domestic and the export prices was very high. We were slightly constrained in that because we had to supply more in the domestic market because if everybody exports, it creates a scarcity in the domestic market, prices go up. There were certain restrictions which were placed, because of which we supplied more in the domestic and less in the export. Maybe the higher proportion of export sales by our competitors would have increased their NSR better than us. But JSW and -- but the product mix also matters. If you are simply taking a blended NSR, then you are ignoring the change in -- because the delta in flat is more than the data in long. So our average delta will always be less than JSW or even Tata Steel, for that matter.

Okay. No, I understand, sir. Maybe I can connect with your team later on to understand it a little better because to us, it seems like even adjusting for the product mix, it is looking slightly better. So one related clarification is, is it that our list price [ might be ] same as the peers, et cetera, but there could be slightly higher discounting towards the year-end?

No, no, no. See, the -- in the month of March, we had no problem with sales. I told you our inventory had reached rock bottom. So we did have to push sales. There was no reason to push sales by giving discount. The market was simply absorbing anything that we were putting to the market. So the price or the discount was not [ the fact ]. In fact, we are going on increasing the price every month. Everybody did. We also did. But if our increase in price, if the delta in our price is less than the delta in the price of our competitors for the quarter as a whole, my understanding of this is that, as I said, 2 reasons, they are majority flat, and we are long and flat. So that definitely pulls down our delta. And maybe they have done more export than we did. Export prices were better. We consciously did not export. So yes, it had an impact on us. I think this could be the reason. I'm not sure.

The next question is from the line of Gopal Nawandhar from SBI Life Insurance.

Just a moment, let this be the last question. I have to go now. And [ DF ] has got his meeting, so maybe we can answer this as the last question.

The question which I had in my mind is that, do you see any impact of this MMDR amendment on our royalty payments on the iron ore?

Yes, definitely, there would be an impact. Our ED, Finance is there.

Yes, it will have an impact. The royalty rate has been increased by 150%. So that is surely going to have an impact on our cost of production also to some extent. And also, when we sell to -- sell in the market, it will surely have an impact because we are selling it inclusive of royalty. So of course, because the royalty is going up, we expect a higher sales realization also, but it may or may not be commensurate with the increase in royalty.

And how much it will be in terms of our volume? The entire volume will be impacted or part of the volumes will be impacted?

It has come into effect from March, March 28. So basically, it will have the impact on the entire current financial year.

Got it. So all the mines or only few mines will be impacted?

No, no, it's in all the iron ore mines, Jharkhand and Orissa.

So captive also or only for external sales?

Only in Jharkhand.

For the captive mines. Regarding the transfer to these plants, it is going to affect Jharkhand. So far as sales is concerned, it's going to affect in both the places.

Okay. Okay. Okay. And so we have set a target of 13.5 million tonne iron ore external sales. If you can break in terms of fresh mining in the dump? And are logistically these volumes are possible? Or are there any logistical challenges which can hamper these offtakes?

It may not be a major logistical challenge because, see, basically, we are expecting our offtake from Jharkhand mines as well as the Orissa mines, and Chhattisgarh also to some extent. So if you see -- if you break it up, so I think a dispatch of roundabout, say, 2 lakh tonnes to 2.5 lakh tonnes per mine should -- in a month is not a very big target.

Okay. Okay. And what will be the current run rate, say, in April and May?

April and May, we have currently done close to 432,000.

Every month, 452, 0.45?

No. This is the cumulative for both the months, but April because of this issue in the MMDR act, there was some clarity lacking as to how the royalty would be charged. So April, practically, our dispatches were quite low. April-May consolidated is 432,000, but we will push it from here once the things have been cleared now.

Okay. Okay. And lastly, sir, I think we had a few plants which were put on sale. Any update on that? Or looking at the improvement in the profitability, any changes in the those plans?

Those were the special steel plants, which were under strategic disinvestment. The process is being carried on by DIPAM. We have given them the draft BTA agreements and all. And now they have to submit their financial bids. So once that process gets renewed, because in between, it got held up due to this COVID situation. And due diligence is also going on by the prospective bidders. So once that process gets completed, they'll submit their bids and maybe thereon these things can move forward. Of course, out of those 3, as far as our understanding goes, ASP is one plant where we are not seeing any bids or anything from the bidders. The other 2 plants are definitely having something because for those plants, we have shared these draft business transfer agreements.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Vishal Chandak from DAM Capital Advisors Ltd. for closing comments.

Yes. Thank you very much, everyone, for joining in. And my apologies, we just ran out of time and the list of participants waiting in the queue is just too big. I would request the IR team at SAIL to kindly answer all the unanswered questions for the call. And I thank you very much, Amit sir, for taking time out for this call and the entire team of Steel Authority of India. And I hand over the floor to Amit sir for his closing remarks.

This is Tulsiani. Amit sir has just left for another conference. I would like to thank all the -- all my valued investors and -- to join the con call. And it was really a pleasure talking to you all, and we look forward to talking to you all again in the near future. Thank you very much.

Thank you. On behalf of DAM Capital Advisors Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.