Tata Steel Limited (500470) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Tata Steel Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Samita Shah. Thank you, and over to you, Ms. Shah.

Yes. Thank you. Good evening, good afternoon and good morning to all of you joining us from India and other parts of the world. On behalf of Tata Steel, welcome to this call today to discuss our results for third quarter FY '21, which were announced yesterday. We have uploaded another version of the facts with some additional details, which you may find useful. And as always, the discussion today will be covered by the safe harbor clause on Page 2 of the presentation on the website. The call is being led by Mr. T.V. Narendran, CEO and Managing Director of Tata Steel; and Mr. Koushik Chatterjee, Executive Director and CFO, Tata Steel. As before, in addition to Tata Steel, we will also take questions on Tata Steel BSL and Tata Steel Long Products. So please feel free to ask questions on them as well. The call is also open to our retail shareholders. So if you have dialed in, please type in your questions, and we will try and answer as many as we can. With that, thank you, and I will hand it over to you, Naren.

Thanks, Samita. Good afternoon, everyone. I'll give you a bit of a commentary on the macroeconomic and industry situation. The global economy continues to recover from COVID-19, driven by the policy support and also the improving sentiment amidst the progress on the vaccination. During the last quarter, Chinese economic growth was stronger-than-expected and is expected to be much better in 2021. Regional steel prices rose consistent with the demand recovery across the world, amidst restocking, tight supply and cost push, and this led to a sharp improvement in regional gross spot spreads last quarter. Recently, there's been some softening in Chinese demand and regional steel prices. However, we believe this is due to winter seasonality and the Chinese New Year holidays. Indian steel demand also improved 18% quarter-on-quarter and 11% year-on-year, and the recovery was supported by the economic recovery, government spending and the festive push initiated by easy liquidity. This coupled with strong regional steel prices, supply tightness and cost push, drove an increase in domestic steel prices. After the recently announced reduction in duties in the union budget, the domestic steel prices are now at a marginal premium compared to the import price parity, based on Chinese offers, considering a seasonal drop in the Chinese steel prices. However, the Chinese steel prices remain at a discount compared to the import parity based on the FTA countries. The budget is focused on infrastructure in both rural and urban areas, which augurs well for steel demand going forward. Moving on to our performance during the quarter. We are running our operations safely and efficiently to service our customers. The health and safety of our employees and the communities in which we operate remain our foremost priority. In India, our crude steel production was 4.6 million tonnes. This is a growth of about 3% on year-on-year basis. We saw strong sales momentum in the quarter, and our sales volume was constrained by lower opening inventory, which was due to the strong sales in the September quarter. As a result, deliveries were lower by 8% quarter-on-quarter and 4% year-on-year at 4.65 million tonnes. However, we successfully pivoted towards the domestic markets, which we ramped to 4.16 million tonnes, an increase of 8% quarter-on-quarter and 4% year-on-year, while reducing exports to below 11%. During the December '20 quarter, we also improved our product mix. We increased deliveries to the automotive and Special Products segment by 48% quarter-on-quarter on the back of an increase in market share from existing customers as well as new product approvals. The recently announced scrappage policy should drive the segment further. Branded Products and retail and industrial products and project segment also did well. Our downstream portfolio of tubes and wires achieved the highest ever quarterly deliveries. We continue to make good progress on our various initiatives to derisk the business, address services and solutions, scrap recycling business and the new materials business. We are particularly pleased with our performance on our digital platform, Aashiyana, for retail customers, across India, which is scaling up sharply as more Indians shop online. In this quarter, our sales through Aashiyana surged 134% year-on-year to INR 223 crores, and we see this as a key enabler to our future growth. Given the improvement in cash flows and strong market conditions, we have restarted work on the pellet plant and the cold rolling mill complex in Kalinganagar, which will help us in reducing cost and improving revenues. We should be able to commission both the plants towards the end of FY '22. In Europe, economic activities were affected by the announcement of further lockdowns. And while the overall steel demand has been recovering, it remains weak. We ramped up our steel production to replenish inventory ahead of improving market conditions and seasonally better fourth quarter '21 -- FY '21. Steel sales volume in December quarter declined due to lower opening inventories, impact of COVID-19 pandemic and seasonal weakness. However, the mix improved with higher sales to automotive and engineering sectors. The spot HRC gross spread improved during the quarter with higher steel prices due to the lag effect. It is expected to translate to the P&L from fourth quarter FY '21. In Europe, our underlying performance has improved quarter-on-quarter, while the reported EBITDA performance was negatively impacted by the reversal of government-based support in the Netherlands and higher provision for carbon emission rights, Koushik will explain this to you further. While we had a setback with the termination of the discussion on the sale of Tata Steel Netherlands, we remain committed to arriving at a strategic and sustainable solution for Tata Steel Europe. In the immediate term, we will focus upon business performance and cash flows. The process to separate Tata Steel Netherlands and Tata Steel U.K. is currently underway, and our IJmuiden plant is amongst the most environmentally efficient and cost competitive steel producers in Europe. Tata Steel is committed to running its operations in a sustainable manner and improving its disclosure on climate standards. We are taking multiple initiatives to adopt best available technologies for decarbonization and water neutrality. We are also increasing our efforts towards ensuring a responsible supply chain while fostering a circular economy and developing environmentally sustainable products. Our operations in India and Europe have been rated A- by CDP in their 2020 review. We are progressing in the reorganization of our Indian subsidiaries into 4 verticals to drive scale, synergies and simplification. TSBSL, which is Tata Steel Bhushan's merger into Tata Steel is ongoing and the merger process of Tata Metaliks and ISWP into Tata Steel Long Products is also progressing well. I will now hand it over to Koushik to comment on our financial performance.

Thank you, Naren, and good afternoon to all of you. I'm happy to say that this quarter, Tata Steel has delivered a very strong financial performance. We have delivered the highest ever consolidated EBITDA, supported by high stable EBITDA at Tata Steel Standalone, Tata Steel BSL and Tata Steel Long Products as well. I would like to remind you that our financial numbers do not include Southeast Asia operations as they continue to be held as assets held for sale. Our consolidated revenue increased during the quarter by about 7% quarter-on-quarter and 11% year-on-year to INR 39,594 crores. Our consolidated EBITDA grew by about 53% quarter-on-quarter and 161% year-on-year to INR 9,540 crores, with strong underlying performance in India. Our India operations, which includes the Tata Steel Standalone, Tata Steel BSL and Tata Steel LP generated revenues of INR 25,211 crores, which translates to a 9% year -- sorry, quarter-on-quarter growth and 18% year-on-year growth. We achieved an EBITDA of INR 8,811 crores this quarter, driven by higher prices, better product mix in the domestic market, lower exports and operating efficiency initiatives. This translated into an EBITDA per tonne of INR 18,931 and EBITDA margin of 34.9%. Tata Steel Standalone revenues improved 10% quarter-on-quarter and 18% year-on-year to INR 17,966 crores. EBITDA grew by 43% quarter-on-quarter and 78% year-on-year to INR 6,737 crores, which translates into an EBITDA margin of 37.5% and EBITDA per tonne of INR 20,175. Standalone operations generated free cash flow of about INR 11,381 crores in the third quarter. Our key subsidiaries, Tata Steel BSL and Tata Steel Long Products have also delivered strong operating performance. Tata Steel BSL generated an EBITDA of INR 1,634 crores, which translates into an EBITDA per tonne of about INR 14,223, while Tata Steel Long Products generated an EBITDA of INR 440 crore which translates into an EBITDA per tonne of INR 26,471. Both entities generated positive free cash flows of more than INR 1,750 crores and INR 600 crores, respectively. Our other Indian subsidiaries like Tata Metaliks and Tinplate Company of India and other downstream subsidiaries also reported strong results and combined EBITDA increasing by about 19% quarter-on-quarter to INR 307 crores. Moving to Europe. Our revenues increased by 3% quarter-on-quarter to about GBP 1.44 billion in the third quarter with higher steel prices, partly offset by lower deliveries. The reported EBITDA loss for the quarter stood at GBP 74 million. However, underlying performance was much stronger. It was impacted by one-off items, which I will explain now. As you know, the European governments have been running wage support scheme in the pandemic, but they are subject to certain conditions. In first quarter '21, Tata Steel Europe had recognized about GBP 49 million of wage support under the Netherlands government scheme NOW 1, which was received. In second quarter of the current financial year, Tata Steel Europe had similarly recognized GBP 45 million wage support including GBP 38 million from NOW 2. The support was subject to satisfying multiple criteria and conditions. With the increase in steel prices, Tata Steel Europe realized it may be difficult to hold back the revenues and actual revenues decline is lower than the qualifying threshold of 20% decline. Moreover, some of the conditions stipulated were onerous and restrictive. And hence, this has been reversed. We have also made a provision of GBP 110 million for the CO2 emission rights in the third quarter, with the increase in CO2 pricing. This includes GBP 74 million due to the reversal of one-off gains recognized in the first quarter FY '21. The strong operating performance, combined with aggressive liquidity management has generated free cash flow of more than INR 12,000 crores during the quarter and about INR 20,500 crores during the 9-month period. While we had a target of deleveraging by about $1 billion every year, we have used this improvement in operating performance to aggressively accelerate our deleveraging. This quarter, we reduced our gross debt by about INR 5,640 crores and our net debt by about INR 10,325 crores by prepaying across Tata Steel Standalone, Tata Steel BSL and TSLP and also our offshore entities. As you can see from -- as of December 31, 2020, we are sitting on a fairly large cash balance of INR 22,000 plus crores, this is because we have additional deleveraging planned in the fourth quarter. We will further reduce the gross debt by more than INR 12,000 in the fourth quarter. We repaid about INR 6,400 crores till date in this quarter. Our liquidity position will normalize by about March 21. We have also been very disciplined on CapEx spend this year. Our group-wide spend on CapEx this quarter was about INR 1,394 crores, which makes it to about INR 4,600 crores in the first 9 months of this financial year. Given the sharp deleveraging that has been achieved, we have decided to restart work on our pellet plant and cold rolling mill complex in Tata Steel Kalinganagar. And as Naren mentioned, we hope to complete it in the next 12 months or so. Our consolidated CapEx for this quarter would be in the zone of around INR 1,800 to INR 2,000 crores. I would like to emphasize that we are strongly committed to our deleveraging plan of $1 billion per annum and focus on the CapEx spend in financial year '22 and beyond. And this is something that it is now an enterprise plan and enterprise strategy. And we'll continue to pursue this to get the balance sheet debt much lower. With this, I will end here and open the floor to questions.

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

I have a couple of questions. Congratulations for a good set of numbers at the outset. I have 2 questions. The first one is on your CapEx plan, while you have illustrated the plan for pellet plant and CRM. So if you can give us the total CapEx that would be incurred in these 2 and what is the minimum debt-to-EBITDA or debt-to-equity you are looking before going ahead with KPO 2? That is the first question.

Yes. So I think when we slowed down the pellet plant and cold rolling mill, I think the pellet plant is about 40% complete. The cold rolling mill is much less. And we are factoring in the spend in the financial year '22. And we will also spend -- it's not that it is sequential that Kalinganagar will not start before the debt numbers are there. But we -- there are some enabling work that is required, and we will do that in financial year '22 but that will not be very significant in FY '22, but it will possibly be much more in '23 and '24. So that's broadly the direction at which we will go for KPO. So I think there's been a view that unless we come to a debt number, we will not start it. I think given the accelerated deleveraging that we have come to, and we will continue to do so in the future. I think one benchmark is that we will continue to deleverage by about $1 billion, which is about INR 7,500 crores. And if we can achieve what we have stated to achieve by 31st of March, which we are confident of, then subsequent, we will be looking at least the KPO completion to be accelerated. But we will take it in a calibrated manner within KPO, the pellet plant and CRM are margin expansionary and therefore, gets a higher priority. And thereafter, we will look at the upstream. As far as the leverage ratios are concerned, I think we have said in the past that we were looking at debt equity of 1:1. And as far as debt to -- net debt-to-EBITDA is concerned, we're always looking -- given the fact that we have a strong pipeline of growth, we were looking more around [ 2.75 ] as our comfort zone, and that's what something that we will certainly push for. But that doesn't preclude us from doing more deleveraging if the market holds and our operating cash flow continues to be strong, which is what we are looking at. And therefore, that $1 billion fits into that very well, that anything over $1 billion, we will look at optimizing between the capital structure and the CapEx.

Any ballpark number you would like to give for CapEx for FY '22?

Not yet because that's what we are working on currently. I think in the next few weeks or by the end of March, we will be in a better position when our annual plan gets finalized. So just hold for some time and we will be -- but it will certainly be much higher than what we have spent this year. There is some amount of catch-up that needs to be done and some of the critical CapEx and also the pellet plant and CRM.

Okay. The second question is on the Slide #11 of the revised debt, in which you have this consolidated cash flow movement bridge. So there is a working capital movement of INR 7,218 crores, which appears to be very significant. If you could throw some light on that, where did this release come from?

So let me first mention -- step back and mention that you would have seen that in the first 2 quarters, we have significantly taken out our working capital. If you look at the September quarter as well as in the June quarter. So that was fundamentally taking out on inventories and debtors and tightening on creditors and so on. As far as this is concerned, there has been an improvement in the working capital, but the substantial part is because we've also tied up export advance in -- ahead of our commitments for the next few years, and that's the liquidity that you see as far as that block of numbers that you see. That's almost plus INR 6,000 crores.

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

My first question is on Europe. So I remember a couple of quarters back, we were in discussion with the U.K. government for a long-term permanent resolution for the Port Talbot asset. Any update on that? Anything you have progressed since then?

So basically, the conversations are going on with the government. I don't think we've come to a conclusion yet. There are different options being explored. The government has also appointed some technical consultants to engage with us to look at different possibilities. So it's at that stage, the conversation is going on, and we are exploring what could be the possibilities.

As a follow-up to that, so in Europe, is it safe to say that now the -- for strategic partnerships, we have to look at for partners outside of Europe perse, maybe a Chinese partner or something because otherwise CSI or some other issue may actually hinder a strategic partnership with any European player?

No. I think just now, we're focused on transformation, which we were focused on even earlier. I think in the SSAB case, SSAB had reached out to us. So it was not that we went around looking for potential partners. And so our focus continues to be a bit more internal to drive transformation, to drive cash self-sufficiency, have discussions with the government to see what is it that they can do to support. And if everybody expresses interest, we'll deal with it as appropriate.

Sure. That's helpful. A couple of housekeeping questions. So the reversal of provisions are the provisions that you have seen in this quarter in Europe that is about GBP 94 million of wage reversal and the carbon credit of GBP 110 million. This is entirely of prior period? Or there is some amount in this period as well? So I'm just trying to understand what is the like-for-like EBITDA in that business, say if I compare with, say, 1Q or 2Q.

So as far as the carbon, see now provision is concerned, that is actually the reversal from the September quarter. But as far as the carbon is concerned, that's provision for purchase of carbon, which has not yet happened, but will happen towards the -- in the fourth quarter.

Okay. That's helpful. Lastly, on the capital advance on exports of INR 6,000 crores, is it interest bearing? Or it's just operating kind of range?

No, no, it is interest-bearing because it is -- but the question is [Technical Difficulty]

Sorry to interrupt you sir, your voice is breaking up.

Mr. Chatterjee, the answer was not clear actually. I think there was disturbance in the line. [Technical Difficulty]

Can you hear us?

Now we can hear you, sir, at the moment. [Technical Difficulty] We have the line for the management reconnected. Over to you, sir. We have Mr. Indrajit Agarwal in the question queue.

Yes. Indrajit, are you there?

Yes, I am.

Yes. So what I was saying is that, yes, this advance is interest-bearing at a very attractive cost because it's part of the trade finance. And it represents a very small part of our overall export portfolio. These are 2 things that I was mentioning.

Next question is from the line of Sumangal Nevatia from Kotak Securities.

The first question is with respect to the Europe demerger, which we are working on. Just want to understand better, what are the benefits from this demerger we are looking at. Is it something that the cash tangibility will stop in Netherlands as it's to Europe -- to U.K., sorry? And in case of a demerger and given the losses of U.K., how will the cash burn be funded post demerger?

Yes. So I think the whole focus on demerger and sums into the term was to see that the strategies for each of these companies is slightly different. While we started doing this when this transaction was being discussed, we saw the value in keeping it that way because we will have a sharper focus at each of the entities at a local level. We will also be able to drive performance better at a local level. That is one. Secondly, it allows us more strategic options going forward, particularly since we are talking to the governments in both places also to help us with the transition into a lower carbon footprint. So now these conversations where the government is also involved, it is easier to have a local entity which is separated out from a Tata Steel Europe kind of entity. So this was the second advantage. And the third thing is as we were going through disposals, we also saw that we can look at costs very differently and run these businesses more efficiently by taking out some of the costs, while at the same time not losing the benefit of being part of a larger family because the scale benefits come from being plugged into the Tata Steel group procurement system and things like that. So we saw the gains much more than the inconveniences that it may bring. And hence decided to go ahead with it. As far as the cash is concerned, basically, as we've said, even at Tata Steel Europe level and also at the local level, what we are working towards is to be both cash neutral and cash positive.

I understand. The second question is with respect to the merger of the 2 entities, 1 is Bhushan and the other 1 is Tata Steel Long and Metaliks. The press release says that both these mergers are underway. So is it possible to share any update as to especially with respect to Bhushan you've seen any movement in the last quarter and is there any update possibly to share sir?

Yes. So I think, Sumangal, the NCLT has given direction to hold the AGM. We're getting the formal orders. And after which, we will put it up to the Boards and ensure that the AGM is held as directed by the NCLT. So once that happens, then a big part of the prospects would get completed after which we go back to the NCLT with the outcome of the AGM and go through the rest of the process. So that's the Bhushan process, which will happen faster than the other 2, which is TSLP and TML, where we are approaching the -- we have done the scheme and approached for various approvals, it will go through the various regulatory approvals, which is what we are filing. But the Bhushan one is certainly -- has picked up momentum, and we are focusing on it to get it completed.

Understood. And one just last question, if I may. Upon the KPO time lines, having look like [Technical Difficulty] next year...

Sorry, to interrupt you, Mr. Nevatia, your voice is not very clear, sir. Can you please check.

Am I audible?

This is better.

So on the KPO time lines, I wanted to understand how long will we take to complete it, even if we start the CapEx next year, and also since now our pending equity would get completed given the partly paid up calls, are we open to raise further equity given the KPO project is a very high IRR kind of attractive value-accretive project for us?

So I think the KPO project would take the pellet plant in Kalinganagar, as I mentioned, and Naren also mentioned a little while back, we're looking at about a 12-month period by which we should be able to complete, 12 to 13 months, that kind of stuff. It's -- and it's a way in which the pellet plant will possibly come faster. The PLTCM will -- the cold rolling mill also has 2 stages, so the PLTCM will come first and the rest will come a little later. So by the time the entire CRM is completed, it will be between 12 to 18 months in phases. The pellet plant is a more one shot commissioning that will happen. As far as the equity EBIT, we are not looking at equity, we're just looking at closing. We partly pay now in the next couple of weeks as the process goes forward. So by end of March, we should be looking at that. And then I think based on our internal generations, as we see it currently, we are focused, as I said, that's why I think I was more nuanced that when I said anything above $1 billion, we will optimize between capital structure and CapEx. Effectively saying that if we have the opportunity to accelerate KPO, I'm sure, the company and the Board will look at doing that, and that would effectively take about -- roughly about 36 months to complete.

The next question is from the line of Sanjay Parekh from Nippon India AMC.

And commendable results and really very encouraging deleveraging and very clear road map for deleveraging. All my questions are answered. Only one question I had is, I mean if we were to come to support the European subsidiaries, Europe and U.K. I mean, what would be our stand? Or do you think that they would be -- I mean they can manage on their own, what would be your view because historically, that's been one concern. And the second question is...

Historically, Netherlands has always been cash neutral, cash positive. So that's certainly doable. I think we are working with the team in Netherlands to ensure that, that happens. I think that has been -- that has happened in the past, and hence no reason why it can't happen in the future. U.K. has been the challenge, but in U.K., also a lot of heavy lifting has been done over the last many years. We've shrunk the footprint, taken out a lot of costs and we will continue to take out costs as we run with the transformation project in the U.K. and we are also waiting to see what are the actions that are going to be taken in U.K. to keep the U.K. economy going post Brexit. And that could also help us because we are a very important part of the U.K. steel manufacturing value chain. So as the manufacturing activity in U.K. hopefully picks up, we will be in a better position to cater to that. So in U.K., there's a greater challenge in becoming cash neutral or cash positive. But we've -- over the years, shrunk the size of the problem very, very significantly. So I think we are getting towards where we want to be and some more work is required.

And just to add to what Naren mentioned, Netherlands actually has been free cash flow positive for many years, except for the last couple of years. And therefore, our focus is to bring it back in that. And somewhere the demerger actually helps in sharpening the cost focus on the local sites, both in the U.K. and we are effectively going to become very lean in -- as far as U.K. is concerned. So both these actions will help us in ensuring that the cash preservation in both these sites are optimized. And we can then look at cash neutrality for both these sites, especially in Netherlands with where it will be focused on being cash positive rather than just being neutral.

Another question I had is on the demand because the prices have moved up quite sharply because of also input prices going up in our case. So do you think there is an impact on demand in certain segments that you're seeing where it's not viable for the end use, both in flat and long?

So I think are you talking in India or generally, globally?

No, sir, India.

Yes. So steel prices go up and down. And what we've seen now is not at least in dollar terms is nowhere near the highest prices we've seen in the past. And if you look at prices in Europe and in U.S., in dollar terms, it's even higher than what it is in India. So I think across the world, consumers deal with this fluctuation, it is one of the challenges of this industry, both to be in the industry and to be a customer of this industry because it's driven by global factors. Having said that, I think for most customers, steel is maybe 5%, 10% of the total cost. So unless you are a reroller or somebody like that. If you're a final consumer of steel, if you're an auto company, if you're a construction company, et cetera, the percentage of steel as a percentage of the total cost is not very significant. So I wouldn't think a project should become unviable just because steel price is going up for a few months. I mean it's not even something which stays at very high levels for very long. It fluctuates within a band. So that way I look at it. But overall, steel demand, I do believe with a focus on infrastructure and the fixed asset led -- I mean, fixed investment led growth, the steel intensity of India's growth should improve, which is good for us. Because traditionally, in developing countries, the steel consumption has to grow at greater than GDP, whereas over the last 10 years, we've grown at less than GDP because it's been more consumption led growth and not so much infrastructure or investment led growth. So I hope that will change over the next 10 years and the demand growth will be better than the GDP growth rate.

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

Sir, my first question is on the balance sheet and net debt. So just to clarify, the INR 86,000 crores net debt number that we have as of December becomes the starting point. And going forward, over the next 2 to 3 quarters, we should not have a material working capital reversal because the press release mentions a gross debt reduction, but does not talk about net debt reduction in 4Q?

Yes. So I think the working capital, I think, reversal beyond where we are is going to be difficult. In fact, with the increase in prices, we've been able to make it very tight. And you see that the coal prices have also inched up and steel prices and finished goods inventory effect is also there. So the focus, obviously, is on the gross state reduction and our need to keep such high level of cash flow is not there given the strong generation. So we are -- and that's why we're focusing on gross debt, and we are going to bring that down substantially. And obviously, focus on keeping only the optimum liquidity required. So there will be a derived number for the net debt. Was that your question, Pinakin?

Yes, yes. And my second question is, sir, that over the next 2 years, is it fair to assume that from the operating cash flows, the first $1 billion would go towards further net debt reduction and then CapEx will pick up? Or from FY '22, both CapEx and net debt reduction would be optimized in terms of what is the priority?

So our first focus on deleveraging is rightly the $1 billion net debt reduction. I think if you are running an ongoing company, you can't say that we will first reduce and then do it. But so long, we have said with a fair line of sight. We are focused on ensuring that in priority of capital deployment, the net debt comes first, then comes the mandatory CapEx and the ongoing approved CapEx and then we need to -- if the momentum of the cash flows continues to be as strong as we are seeing, then we will have to balance between Delta Capital structure and only on the ongoing projects, which is the Kalinganagar, as all of you have written about is to accelerate and ensure that, that gets completed about. So I think the clear deployment is, first, from cash flows goes the net debt reduction, then goes to the critical and continue the ongoing CapEx schemes and the CapEx plans. And then comes the discretion. So if after doing the first 2, you still have enough of capital, I'm sure we will do a balance between accelerating some more of the net debt and also looking at critical growth CapEx.

Sure. Sir, and just lastly, to clarify, I mean, we have seen a lot of steel price movements between December and January in the spot market. There was news about steel companies going to the auto companies and getting an interim price hike. Can we get a sense of how realizations or NSRs of the company should move between December and March?

So I think on an overall basis, for multiple reasons, not just the specific product level prices, but also because of the improving mix as well as the better realizations from export orders which were booked towards the end of last quarter, which are at high prices. We expect the realizations this quarter to be about INR 6,000 to INR 7,000 higher than last quarter.

The next question is from the line of Gaurav Rateria from Morgan Stanley.

So firstly, just to be a little more clear on the export advances. These advances will stay after the commitment to deliver material is over in the next 2, 3 months? How should one think about these advances? This is something which is going to stay for a longer period?

Yes, this will stay. So that is a gradual phase up of this advances. Backed by a certain volume, which is actually about 0.5 million tonne volume every year, for the next couple of years. So this -- as we go forward, this will be able to be paid out as and when we dispatch the -- for exports. So this is part of our overall export. It's not an increased volume of export. This is well within our long-term average of about 10%, 15% export volume. And the way the formulation works is also that this is adjusted to the prices. So if the prices go up beyond our base prices, the volumes go down because you realize the same on lower volumes, and you have then the opportunity to put that volume into the domestic market. So -- and the overall basket for this is, as I said, is well within the export basket, we were any way doing it currently.

Got it, sir. Sir, secondly, data point on Europe, on a free cash flow basis, what would be that number for Europe in 3Q and for 9 months fiscal '21?

So you're seeing 3Q or 4Q?

Sir, 3Q, what was the free cash flow number for Europe in 3Q and for the 9 months?

So at the free cash flow level, after CapEx, dividend, interest, working capital was roughly about minus INR 900 crores.

Sir, this is for 3Q, you said?

Yes, correct.

For 9 months?

And for the 9-month was a positive INR 700 crores.

Got it. Sir, lastly, on the transformation initiatives, you have talked about it in the past. So where are we right now? Is there more to come with respect to cost savings in the near-term next 3 months to 6 months? Or these are something which will be realized over a longer period of time and large part of the transformational initiatives have already been realized in the P&L?

Yes. So this is ongoing. There are multiple initiatives under transformation. There are multiple streams, which are being worked, and some of the benefit has already come in. Obviously, the pandemic diluted some of those benefits. But even if you look at it on an underlying basis from Q1 to Q3, there has been a significant improvement to the extent of, I would say, about EUR 200 million between Q1 and Q3 from an underlying basis, there's been an improvement. But this is an ongoing activity. It will take at least another year for a lot more of these benefits to flow in. So this is linked to operation improvement, procurement improvement, market mix and product mix improvements as well as people-related actions, et cetera. So there are multiple work streams which are working on this.

The next question is from the line of Rakesh Jhunjhunwala from Rare Enterprises.

Congratulation on early time performance. So what I wanted to ask is that what is the one-offs in Europe this year, this quarter? Sir, from quantum?

So it's about INR 700 crores of the one-offs, which is essentially the reversal of the employment grant scheme in Netherlands. As I mentioned in the early part of my narrative. And that's been recognized because there was certain conditions to -- certain conditions to kind of take plan on board, which we didn't qualify for, and therefore, it got reversed.

Without the one-offs, you would have broken even then?

Without the one-off, we would have been in positive zone.

The other thing is you say net debt is INR 86,000 crores the end of the third quarter. And you hope to be [indiscernible] INR 20,000. So this INR 12,000 is without the rights money or with the rights money?

Without the rights money.

So that mean effectively your debt will be between [ INR 70,000 or INR 72,000 ] net at the end of the third quarter -- at the end of the fourth quarter?

No. No. So the end of the fourth quarter, we would be more around INR 80,000 plus.

INR 12,000 crores is gross debt reduction.

Yes, it's a gross debt reduction not the net debt reduction.

Right. And so prices, you said you had about INR 6000 -- INR 7,000 higher than last quarter? Sir, why you [indiscernible]?

Per tonne. Per tonne.

INR 28,000 crores.

No, we will be paying off. So that's why I said that we will be -- in fact, somebody -- I think Pinakin asked that question. So I said we are -- that's why we are focusing on gross debt reduction because our gross debt will come down fairly steeply by the end of this quarter.

And sir, I understand that you are to get some cash benefits with the merger of Tata Steel and Tata Bhushan. Am I right, that we'll be able to set off some carryforward losses?

Yes. Bhushan. Yes, can you hear me?

What is the expected date of the merger?

So the NCLT has given the order to hold it in March. So we are expecting the formal order after which we will hold it, and then we will put it back to NCLT with the outcomes and all the processes that happened with the RoC and the other regulators. Will certainly be...

Sir, the effective date can be other than the day of the merger or it can be prior to the date of the merger also?

So the effective date is April 1, 2019.

But sir, then, what is the quantum of the tax benefit?