Tata Steel Limited (500470) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Tata Steel Limited Q4 FY '21 Earnings Conference Call. [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, ma'am.

Thank you. Good evening, good afternoon and good morning to all of you. Firstly, I hope you and your loved ones are in good health. Thank you very much for joining us on the call today to discuss the Tata Steel results for the fourth quarter of FY '21. We will also answer any queries you may have on the performance of Tata Steel BSL and Tata Steel Long Products. 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 of Tata Steel. The call is also open to our retail shareholders. So please feel free to type in your questions, and we will try and answer as many questions as we can. As always, the entire discussion will be covered by the safe harbor clause on Page 2 of the results presentation, which has been uploaded on our website. Thank you, and over to you, Naren.

Thanks, Samita. And good afternoon, good evening, and good morning to all of you depending on where you've dialed in from. And again, echo Samita, and I hope all of you are safe and your families as well. So as far as the Tata Steel performance is concerned, the first half of the financial year 2021 was a challenging period with the uncertainties and complexities brought on by the COVID-19 pandemic. And since then the global economy has been recovering driven by the accommodated policies, followed by progressive vaccination. India has also seen a sharp recovery driven by government spending, accommodative policy and improving liquidity. However, currently, India is facing a severe second wave of COVID-19. And in these difficult times, we are working to minimize the impact on our employees, communities and customers. We have also been working towards supplying more oxygen to collectively fight against the pandemic, and we are currently supplying about 1,000 tons a month of -- 1,000 tons a day of liquid oxygen to different parts of the country, almost to about 8 states. And so far, we've supplied about 14,000 tons already since the first of April. As far as the industry is concerned, the Chinese steel demand remains robust driven by strong fundamental economic fundamentals on the back of policy support, while supply appears to be tighter on pollution control-led production curves. In the rest of the world also, supply improvement is lagging demand recovery. As a result, the steel prices continue to increase across regions and regional steel spot spreads have also seen upward improvement. China has recently announced removal of rebates from steel exports, which is likely to further support regional steel prices. During the fourth quarter FY '21, Indian steel demand improved about 0.6% quarter-on-quarter and 19.5% year-on-year with most of the steel consuming sectors witnessing a broad-based pickup. Domestic steel prices continue to improve amidst robust demand, supply tightness, iron ore cost pressures and higher international steel prices. Current prices are still at a large discount to import parity prices and the onset of the second wave of COVID-19 is, of course, a key risk for the ongoing demand recovery. Moving on to our performance during the quarter. During the quarter, we achieved best ever quarterly crude steel production of 4.75 million tons in India. So FY '21 production was lower due to the pandemic-driven disruptions in the first quarter. However, we achieved highest ever annual delivery volumes of 17.31 million tons in India and our quarterly deliveries improved 16% on a year-on-year basis to 4.67 million tons. All the segments have performed extremely well due to our continuous efforts and focus on building strong customer relationships, superior distribution network, brands and new product developments. During the quarter, we achieved highest ever quarterly delivery volumes in Automotive and Special Products segments, and our Branded Products & Retail segment also grew positively on both quarter-on-quarter and year-on-year basis. We are also making good progress on our various initiatives to derisk the business. Aashiyana, which is one of our digital marketing platforms, clocked over INR 726 crores of revenue this year and is helping us reach new markets and be future ready. In fact, we are at INR 80 crores to INR 100 crores a month now in terms of monthly revenues. We continue to work on our strategic priorities to maximize shareholder value. The business has generated very strong cash flows. And as committed, we have used it to deleverage sharply this year. This will continue to be a priority, though we will complement it by investing in future growth and profitability. Firstly, we are expecting to increase the India sales volume in FY '22 by over 1 million tons to around 18.3 million tons through debottlenecking and capacity ramp-up across our various sites. As mentioned earlier, we have already restarted work on the Pellet plant and the cold rolling mill complex, which is progressing well. And we are also restarting the other part of the Kalinganagar project, which is the balance of the 5 million ton expansion and this is expected to be commissioned in FY '24. While this will increase the CapEx, it will be phased out over the next few years. Return of economic activities and overall steel demand has been recovering gradually. We ramped up our steel production with the improving market conditions, and our steel sales volume increased by 17% quarter-on-quarter to 2.47 million tons in the March quarter. The spot hot-rolled coil cross spread improved during the quarter with higher steel prices, which has started translating into the profitability of our steel mills. Our reported EBITDA of Tata Steel Europe sharply improved in the March quarter, while underlying performance was much stronger. This should improve further in the coming quarters. In this March, we received shareholders' approval to go ahead with the merger of Tata Steel BSL with Tata Steel, and we filed a joint scheme petition with the NCLT to sanction the merger scheme with effect from April 1, 2019. We continue to move ahead with the reorganization of our Indian subsidiaries into 4 verticals to drive scale, synergies and simplification. We have transferred our investments, JCAPCPL joint venture with Nippon Steel and also Tata Blue Scope to Tata Steel Downstream Products Limited, the wholly-owned subsidiary of Tata Steel. The merger process of Tata Metaliks and ISWP 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, good evening, good morning to all of you. Let me talk about a few comments on the financial side. Despite the unprecedented challenges [indiscernible] subject of COVID-19 pandemic, Tata Steel has emerged financially much stronger. We have delivered strong financial performance during this quarter -- with the highest ever consolidated EBITDA, supported by higher ever EBITDA from the Indian operations. This quarter, you would have noticed that we have now included Southeast Asia back as continuing operations. Our consolidated revenue increased during the quarter by 19% Q-on-Q and 39% year-on-year to INR 49,977 crores. Our consolidated EBITDA grew by about 48% quarter-on-quarter and 196% year-on-year to INR 14,290 crores with strong underlying performance in both India and Europe. Our India operations, which includes standalone, Tata Steel BSL and Tata Steel Long Products, generated revenues of INR 30,070 crores, which translated to a 19% quarter-on-quarter and 54% year-on-year growth. We achieved EBITDA of INR 12,295 crores during this quarter driven by higher prices, better product mix in the domestic market. This translated into an EBITDA per ton of INR 26,309, and an EBITDA margin of 40.9%. The Tata Steel Standalone revenues improved 18% quarter-on-quarter and 49% year-on-year to about INR 21,203 crores. EBITDA grew by about 37% quarter-on-quarter and 151% year-on-year to INR 9,200 crores, which translates to an EBITDA margin of 43.4%, and an EBITDA per ton of INR 27,828. Standalone operations generated a free cash flow of about INR 6,700 crores during the 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 2,583 crores, which translates into an EBITDA per ton of INR 21,648, while Tata Steel Long Products generated an EBITDA of INR 506 crores, which translates into an EBITDA per ton of INR 29,439. Both entities generated free cash flows of more than INR 3,000 crores and INR 400 crores, respectively. Our other Indian subsidiaries like Tata Metaliks, tinplate and other downstream subsidiaries also reported strong results with combined EBITDA increasing by 38% quarter-on-quarter to INR 425 crores. Moving to Europe. The reported EBITDA for the quarter was GBP 125 million with improved steel prices and higher deliveries. In the quarter, we had also taken a GBP 47 million charge due to the sale of CO2 emission rights, which were sold earlier in the first quarter of 2021. This is more a one-off charge and will not have any impact in the coming financial year. During the quarter, we took a noncash impairment charge of INR 723 crores primarily with respect to our overseas operating entities. This is included in the exceptional item of consolidated accounts. You would have noticed that there is a gain on transfer of investments held in JCAPCPL and Tata Blue Scope in the standalone accounts, but as it is a subsidiary of Tata Steel, it gets eliminated at the consolidated level. With strong underlying operating performance in India and disciplined capital allocation, we were able to generate about -- free cash flows of about INR 8,800 crores during the quarter. The annual free cash flow generation was about INR 24,000 crores in financial year 2021. Driven by our enterprise strategy on debt management, we deleveraged our balance sheet extensively and aggressively prepaid debt across entities. Our gross debt was reduced by INR 27,827 crores, while our net debt was reduced by more than 28% to INR 75,389 crores in financial year 2021. Our credit metrics have improved significantly with net debt-to-equity improving to 2.4x as on 31st of March 2021. While net gearing stood at less than 1 at about 0.98. This will also reduce our interest costs going forward, and we continue to intend deleveraging the balance sheet as we move on in the next financial year. Our liquidity position was more than INR 20,000 crores at the end of March '21. We had further deleveraging scheduled in April, which has been done now. We remain very disciplined on CapEx spend during this year. We spent about INR 2,350 crores on consolidated CapEx during the March quarter, which takes the full year CapEx to about INR 7,000 crores in financial year 2021. As Naren mentioned, we have decided to restart our work on the upstream facilities in Kalinganagar. Our financial year '22 consolidated CapEx will be broadly around INR 11,000 crores including INR 7,500 crores in India. As you would have also noticed that the Board of Directors on the basis of the performance for the year has declared a dividend of INR 25 per share for the year 2021. With this, I will end here and open the floor to the questions. Thank you.

[Operator Instructions] The first question is from the line of Anuj Singla from Bank of America.

I was on mute. Mr. Chatterjee, the first question for you. The carbon credit expense in Europe in sort of one-off seems to be recurring on a quarter-on-quarter basis. There have been multiple quarters, we have seen that. What kind of provisioning should we be building into the next year? So is it -- I do understand that there is a declining trajectory of the carbon credit allocation in Europe as well. So based on your analysis, what you would have done for the next year? What kind of impact do you see it for the full year next year?

So Anuj, we -- what I mentioned as one-off is because we had monetized some of the carbon credits in the first quarter, which we have to -- we had to top-up or true-up during all the quarters during the year. So that is why I said it is one-off. It's not something that you would do in a normal course. And that part will not be the case in the coming year or the years ahead. What is there in -- to your second part of the question, in Europe, the fee allowances will keep coming down, and it depends on the production level actually and what is the level of production that companies will do. And it is on that basis, it could be -- it's going to be part of the operating cost. It's not going to stick out like this. And in the operating cost, you would see somewhere around GBP 20 million, GBP 22 million in a quarter. But that is part of already is, for example, in the 125 reported EBITDA, that includes about GBP 20 million on account of the normal operating true-up of the carbon cost.

Okay. And sir, there was news for that in Europe, we have started putting the carbon surcharge for the customers as well. This was basically towards passing on some of these costs to the end customer. How successful you have been of our efforts in there in that regard?

So currently -- yes, sorry. Go ahead, Naren.

No. Go ahead, sorry.

So the -- as the carbon differential is emanating in Europe, the Tata Steel Europe has put at GBP 12 per ton carbon surcharge on the price, and that is being recovered from the customers at this point of time.

Okay. So that's already been implemented, and the customers are paying that?

Yes. That's part of the overall price increase that's happening in Europe.

Okay. Understood, understood. So second question on capital allocation. You spoke about Kalinganagar being resumed the work there. But this is going to be, as Mr. Naren mentioned, 24 -- FY '24 story. And then we have probably FY '23 and '24 in terms of volume growth, it might be subdued. So are you looking for any inorganic growth opportunities as well while the organic growth opportunities take time to materialize?

Yes. So Anuj, basically, Kalinganagar, yes, as I said, FY '24 is when the blast furnace should be coming in. Over the next year or so, we will start getting the cost advantages of the Pellet plant as the Pellet plant is commissioned. And by -- during the next financial year, the cold rolling mill will get commissioned, and that should help us in the margin enhancement and revenue enhancement, even if the volume enhancement is not there. In terms of additional volumes, we've guided that this year, we will -- in India, have at least 1 million tons more than last year because that's the production that we lost in the beginning of the year. So a part of it is coming from that. The second opportunity for us, of course, just now the international prices are better than the domestic prices. But last year, we exported more than we normally do. So we exported about 3.5 million tons, whereas, normally we export about 1 million, 1.5 million tons. So that is additional volume available for us to divert from the international markets to the domestic market if the demand picks up and the prices are good. Inorganic, yes, we are certainly interested in the opportunities that come our way. We have said that we will focus more on long products assets because we have a good opportunity to grow flat products in Angul and in Kalinganagar. And so we will be looking for opportunities more in long products and flat products inorganic.

Understood. And lastly, Mr. Chatterjee, on the working...

So sorry to interrupt, but for any follow-up question, maybe request you to rejoin the queue, please. [Operator Instructions] The next question is from the line of Pinakin from JPMorgan.

Sir, my first question is that if you looked at this once-in-a-lifetime steel environment, the cash flows of the company are very, very strong. While Tata Steel has restarted the Kalinganagar Phase 2 project, can we get a better sense of how the company is looking at the various growth optionalities over the next 2 to 3 years and basically stack it up against the balance sheet? What I would like to understand is that what is the hierarchy of growth projects that the company would pursue or would like to pursue. There is Angul, there is Kalinganagar, there's Jamshedpur, there is Long Stream products. And what are the markers that the company will want to see before it goes ahead with those projects? Is it a certain amount of net debt? It is government approvals? Is it policy clarity? So how should we look at the growth pipeline and how the company progresses on it?

Thanks, Pinakin. So fundamentally, while you said this is a once in a lifetime, yes, steel price is just not very high, but there are some structural changes also which we should appreciate. So I think the next 10 years is going to be different from the last 10 years. Firstly, we are already seeing the impact of China discouraging it because China has committed to reduce its carbon footprint and one of the easier ways to do business to reduce the exports of steel, and that's what they started acting on. Secondly, because of geopolitical issues, the cost structure in China continues to be high because we're buying coal from other sources other than Australia. Thirdly, as we just discussed, in Europe as well because of carbon costs, there is less appetite to sell at prices lower than what has been there traditionally, I mean, so people are looking at building in these carbon costs into the pricing. Multiple reasons, we expect that cost structures and pricing structures to be at a very different level over the next years. Second point is with the significant investments happening in infrastructure across the world, whether it's the U.S. or India, multiple other geographies. We expect the steel intensity to be strong as far as demand is concerned. So that is one part of it. Coming specifically to the growth. For us, immediate focus is on completing Kalinganagar because that is work in progress already. The groundwork has started, I mean not groundwork, a lot of the equipment has already come in. We've already done all the ordering. We've configured the plant. So everything is ready to go, and we are already on the job. So that's the quickest way for us to get growth. And like I said, in the next 2 years or next 24 months, we should complete what is left of that project. It gives us additional 5 million tons. In terms of Angul and Jamshedpur, the opportunities are there, but we will take a call based on what are the other opportunities, which are coming away in terms of inorganic growth, particularly in Long Products. We are still committed to our goal of deleveraging by at least $1 billion a year, and all growth will be pursued after we are comfortable that we will be achieving those goals. And I think -- so [indiscernible] deleverage is there. We believe we can deleverage and grow at the same time because the steel cycle is at a better place than it was for most of the last 10 years.

Sure. Sir, my second question is that in base metals and energy, the companies have an option to book in realizations or hedge their volumes. Now steel is heterogeneous, and that option is not available. But is it possible for the company to, for example, lock in coking coal in $110 for a much longer time frame than it does? Or basically also book in steel realizations for [indiscernible] horizon. Basically, lock in some of the current profitability beyond the normal 2 to 3 months that we see, is that option available on the table?

Not so much in terms of using instruments that are available and maybe some of the other metals or energy space, but we have different kinds of contracts as well. We have different index contracts. And so we try to manage the risk to that. In Europe, we do have an option, particularly for iron ore because we get into a lot of long-term contracts on packaging and automotive. So there are -- for iron ore, more options available, I guess, than coal, and we exercised some of those options in Europe, particularly when we have long-term contracts for packaging steel and automotive. In India, to some extent, we are hedged because the contract tenures are typically, apart from auto, which is maybe 6 months, most of the others are 1 month to 3 months. So we can ride the market in a better way. And we have the advantage, of course, of having our own iron ore and some of our own coal.

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

I have a couple of questions. First, sir, you mentioned about deleveraging a little over $1 billion. But if you look at the current EBITDA run rate and the CapEx guidance that you have given, we may end up with a much higher cash balance than what we are guiding for. So of that remaining of over and above $1 billion, what would be the hierarchy and use of cash? Will we be looking to repay back to shareholders by way of giving higher dividends and buybacks? Or will we be actively [ scouting ] for the [ northern ] proportion?

Koushik, so...

Yes. So I think, Indrajit, the point that we have mentioned and Naren in his opening comments mentioned, that we will do at least $1 billion. And that has been our long-term plan. Irrespective of the market that $1 billion will be paid off. I think our long-term net debt-to-EBITDA target is about 2.5 across cycle. There will be times when that will be much lower because of, as you rightly said, the way in which cash generation is expected to happen over the next 12 months. We will continue to evaluate opportunities to both take out more debt as well as to look at building up the appetite for growth on an aggressive basis. But we will be very clear on our value judgment on those growth. So I think from a point of balance sheet, the opportunities for more deleveraging as it comes about, we will certainly take that. As I said, our net debt number that we are looking at always is about 2.5. And it will go down because if the cash comes in, then the net debt number will go down more. But our process of deleveraging has not stopped. And therefore, deleveraging for the moment will certainly be an important and the first priority before we take something very significant on CapEx. But we are focused on ensuring the completion of Kalinganagar Phase 2 and that's where most of our capital allocation will go apart from the raw material projects that are also underway. So I think it's important for us to first set the goal of ensuring that our balance sheet is in good shape. Second, to create the appetite in the balance sheet to go for growth. As you know, inorganic growths are normally lumpy. Organic growths are more linear across time. So we will be ready whenever there are opportunities in India on inorganic growth.

Sure. My second question is on the carbon cost, not on the exceptional part, but on a steady-state basis. On a quarterly run rate, how has carbon costs increased, say, from last year average because we see that carbon costs otherwise have doubled the benchmark prices. So do we have a like-for-like impact? Or it is much lower part?

So I think if I -- if we did not have to monetize last year because of COVID and liquidity issues and so on, then that cost would be 0. The one which will be there is there are 3 allocations under the scheme in both Mainland Europe as well as in the Europe, in U.K., which is just now forming its own scheme after Brexit. But that is only a topping up cost, and that's not a very large cost. As I mentioned in Anuj's reply, that last quarter is the topping up that is required. We did it by about $20 million. But that's not like every quarter. That is because we get the allowance on the basis of the average of the last couple of years, 3 years. And when we produce on that basis and if you are at that level, you don't have to buy anything from the market. So that could be -- potentially be 0. If it is -- if you are monetizing it and then buying it back, then there is a cost to it and you are open to the market movements. So that is how one should look at it. It's not that it will be a big cost in the short term. In Netherlands, the government has announced carbon tax 5 years from hence. And at that point of time, I guess, we will be looking at how the spreads pan out because it's not only a cost issue because EU is also looking at border adjustment tax. So there is an inherently neutralizing factor between these 2. But that's like 5 years from now, that's not going to hit us in the next few years.

Sir, just to clarify, if you have the 9 million to 9.5 million -- it's just a clarification to the earlier question only. So if you have 9 million to 9.5 million ton production run rate, there will be no incremental costs. Is that correct to understand?

It may be, but it will be small. It is just a topping up number. That is also mostly in Netherlands and not in U.K. In U.K., we are producing much less.

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

Congrats on a very great set of numbers. 2 questions from my side. One on Europe, first of all, apologies, I joined the call late where you might have answered. What we've seen is, if I look at the Q4, your utilization is at about $64, $65 improvement on a sequential basis. But when I see Europe prices from Q3 to Q4, they were much higher as even from March level, the prices have gone up by about another $80 to $100. So while I understand there is a new -- there is a lead impact lag, but -- at what point in time do we believe that at least a large part of the increase can be factored? Will it happen in Q1 or it will happen in Q1 or Q2? And subsequent to that, have the auto contracts for this calendar year '21 been finalized? And at what levels would you [indiscernible]?

Now are you asking -- to your second question, are you asking about auto contracts in Europe or auto contracts in India?

In Europe. I believe there are annual contracts in Europe, which are typically a time for -- what was the number ballpark we are looking at for this particular year versus CY '20?

Yes. So a couple of comments on that on your first question, and then on to your second question. Yes, so basically, in Europe, the contract tenures are very different. We have annual contracts, half yearly contracts, quarterly contracts and very few spot contracts. So the flow-through of price increases typically has a lag, depending on the time of the contract and the tenure of the contract because all the contracts are also not -- it's not contracted at the same time. There are different contracts in different quarter. So the way we see it, obviously, Q4 to Q3, there was a jump. Q1 to Q4, there will be a jump, and they will continue to be a jump going forward, and there will be a lag, which is what you've also seen from the numbers. So we expect a lot of the price levels to come in by the next quarter. That is Q1, we will get some of the benefits. In Q2, we will continue to see the rising prices. And if the prices continue to rise, then you will continue to see that in Q3 and Q4 as well. A lot of the auto contracts were due in January, packaging contracts were due around that time as well. Some of them are getting renegotiated, we're getting different prices. So it's an ongoing activity. So I think the market is conscious. The customers are also conscious that the prices are going up. And wherever possible, we are getting the benefit of that. So basically, we will start seeing improvements and realization continue at least for the next 2 quarters, if not [ both ].

Okay. Okay. But any ballpark, initial rough estimate that's working on? I'm sure there will be an ask from our side versus what the customer is [indiscernible]. Hopefully, we'll set it somewhere in between ballpark. What is the kind of data we are looking at on y-o-y basis?

Yes. So basically, there are -- if you look at Q1 versus Q4, in terms of -- I think it's better to top up spreads because there are also costs going up in some cases, like in iron ore, et cetera. So the spreads, we expect The Netherlands to improve by at least EUR 70 between this quarter and the previous quarter and at least GBP 40 in U.K., the spreads improvement. And then I don't want to give you a Q2 guidance now, but Q1, this is what we see.

Sure. And my second and last question, while you made about growth plans, so what we also read from the press report is, are interest to build for RINL and NINL. I mean any initial synergies, what we are looking at other than Long Products that maybe NINL being in the same state where we are?

Yes. So NINL for us is pretty much a neighbor. It's just across the road for us in Kalinganagar. And it's a Long Product facility, which is not fully completed as an asset...

I'll now hand the conference over to Ms. Samita Shah for retail questions. Over to you, ma'am.

Yes, thanks. So there are some retail -- there are questions from quite a few retail investors actually about the impact on domestic demand due to the second wave of COVID and whether exports is possible and how do we see that playing out.

Yes. So should I answer that, Samita? I mean...

Yes, please. Yes.

So as of now, we are seeing some sort of concern in the market simply because one is activity are a bit depressed given the severity of the crisis. So that is one. Secondly, the stoppage of liquid oxygen for industrial use is impacting some of the fabrication units, et cetera. So there is some concern, but are not yet very material. We'll wait to see what happens in the next 2 to 3 weeks to see if it is a significant impact or it is just something which will grow over from a demand point of view. But having said that, since the international markets are very strong, and we already have orders in hand, we don't expect any slowdown in the domestic market to have any material impact on our production or sales because actually, the international prices are even stronger than the domestic prices at this point in time. And the international market is readjusting to the fact that China is not going to be an aggressive player for some time to come. So that's the situation.

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

Congratulations on a strong quarter. I have 2 questions. First on the India business. If -- so you can share the [ MSR ] increase expected in 1Q over 4Q and also the cost movement. And then if you can share some sense again on domestic demand, how that was react -- before the second wave reacting to the strong prices? I mean are there any channels where we have seen some pushback? And also, do we see any risk of any government policy action against the current prices?

Yes. So Sumangal, in terms of Q1 versus quarter 4, we expect the realization should be about INR 6,000 to INR 7,000 higher. The cost will be about to INR 2,000 to INR 2,500 higher. That's what we expect largely because a lot of input costs have gone up. So this is roughly the guidance from Q1 versus fourth quarter. In terms of domestic demand, has it been impacted by the high prices? Not really, simply because everyone is seeing what's happening in the international markets. And as I said yesterday, India has probably the cheapest steel price in the world, even today, even after all these increases. You know the steel prices are -- in U.S.A. are $1,500; in Europe, it's heading towards EUR 1,000. So across -- and if you look at the prices in China or Southeast Asia, in Southeast Asia, it's $952, $1,000 range, hot rolled price. So if you look at steel prices across, it's quite high. So domestic customers are conscious of that. And if there are domestic customers who are buying steel in India and exporting their products out of India, they are in a very good position just now because they have much better margins than anybody else anywhere in the world. So the demand has been -- has not been impacted by the high prices. In terms of will the government take any action? Well, that's for the government to decide. But like I said, I think the Indian producers, despite very attractive steel prices internationally, have been selling most of the steel that they have in the domestic markets. And like I said, the domestic prices are still the lowest that they have available are in the world. So that's what I would like to respond.

Understand. Understand. Next question is on the CapEx. I just want to understand your confidence on this INR 7,000 crores, INR 7,500 crores CapEx this year because first half looks like will be gone in COVID and then in monsoon. So you just have 6 months to spend that. And earlier, our understanding was whenever we had KPO, it would take 36 months, but based on your opening remarks, you shared 24 months to commission. So if you can just elaborate that, that we will have a large part of FY '24 to benefit from the volumes of KPO 2.

So if you look at the KPO plan, basically, we had started work before things started going bad, right? I mean so last year, we took a pause. But when I say took a pause, there was some activity, which continued at a low level where we had minimum CapEx to go, but a lot of preparatory work, a lot of other work went on with this CapEx line. So that's why -- and even if I look at the Pellet plant and cold rolling mill, we had focused on that before we did a full pause. And so a lot of the work has been done. The equipment has been ordered, a lot of the equipment has already come in. So in the next 12 to 18 months, like I said, we should be able to get the Pellet plant and the cold rolling mill started, which is both cost -- benefits from cost side and margin side. The blast furnace, everything else has been ordered. And so if you look at the KPO Phase 2, the new thing, which has been added was a big blast furnace that was already ordered, and we had asked the suppliers to hold on to it over the last year, and now we've asked them to go ahead and ship it to us as soon as possible. In terms of steel melting shop, it is the same steel melting shop. We are just adding another vessel. So you're not having to build a steel melting shop. In terms of the hot strip mill, it's the same hot strip mill. We are just adding some facilities. So it's not so difficult for us to ramp up once we get the blast furnace in place, and that's what we're going to focus on over the next 24 months. In terms of will we get most of the benefit in FY '24? I think the commissioning will be more towards the second half of FY '24. So the full benefit in terms of volumes, assuming a certain ramp-up, which will happen maybe the year after, we will get some of the benefit. We'll get the cost and margin benefit in FY '24 because the Pellet plant and cold rolling mill will be in place. And we will start getting -- some of the volumes will benefit in FY '24, but most of the volume benefit in FY '25.

Sir, just a small clarification for Koushik. The tax expense this year has gone down significantly. So is there any adjustment or any [indiscernible] of one of the [indiscernible] Bhushan already used this year?

Yes. That's correct. Bhushan is at an advanced stage of getting more. And post the shareholders' approval in March, we have, as Naren in his comments mentioned that, we have also filed for the joint petition. So it's now at a very advanced position, which enabled us to take that as a part of our overall tax plan.

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

Congratulations for a very good set of numbers. I have a couple of questions. The first one is on your ESG initiatives, particularly in Europe. We find that most of your peers are basically moving towards reducing carbon content in the steel. What specific steps we are taking in Europe, particularly when most of our plants are like -- I mean, all the plants are basically blast furnace plants. So that is the first question. I'll ask the second one later.

Sure. So Amit, basically, if you look at what's happening in Europe is different countries are having different strategies to reduce the carbon footprint, okay? So if you look at Sweden, where SSAB has announced that they'll make green steel. Basically, they are using idle energy, which is green energy to make green hydrogen which they are using in a DRI gas-based, DRI plant where they will use hydrogen and hence reduce iron, which will be green and used it in an electric furnace scrap and melt it using green energy, right? So that is a process route. They said that it will cost in at least EUR 1 billion, I think, and will be ready by 2025 and will be 1 million tons, right? So I think one is whatever steps are being taken are still not enough [indiscernible] tons, which is the requirement of the European steel industry. Everyone is taking different steps. ArcelorMittal has announced, again, a number of steps, which includes, again, using hydrogen, et cetera. In France, the approach is more to use nuclear energy and heat energy to melt scrap. So that's also, in some sense, greener steel than a blast furnace. In Europe, our footprint at IJmuiden plant, firstly, is one of the most carbon efficient plants in the world, even as it stands. It's one of the top 5 in the world in terms of carbon efficiency. Secondly, the Dutch government is focused more on carbon capture and storage as a technology as a way forward because Netherlands is on the coast, and there is an opportunity to store the carbon in the North Sea oil wells that there are. So the government -- that conversation with the Dutch government is about how can we work together and the Dutch government is supportive of industries, which use carbon capture and storage technology to reduce the carbon footprint and they're willing to support that. And that is a conversation going on with the Dutch government. So a road map of Netherlands to reduce carbon from the current level by 40% to 50% involves use of hydrogen, hydrogen generated using the wind mills off the coast of Netherlands, use of carbon capture storage technology, also be working with some chemical companies for the carbon capture and use. And we also have a HIsarna process group, which is basically more carbon efficient and generates carbon, which is easier to store. So our approach is different. It's more on carbon capture and storage, more on use of hydrogen. And more on use of HIsarna. So we have our plans as well. We are working with the government, and we'll announce comprehensive road map once the conversations with government [ is done ]. In Europe -- I mean, in U.K., it's a little bit more of exploring what are the other possibilities of [indiscernible]. So all our peers are pursuing different options. And as Koushik said earlier, we are also waiting to see the carbon border additional mechanism, which was expected to put in place because all these new processes by all of us, including our peers, should not put the European steel industry at a disadvantage compared to others who are not investing in the technologies outside of Europe. And the governments are supportive of that. They don't want to deindustrialize as it [indiscernible].

Okay. Great. That's helpful. The second question is on the Southeast Asian operation. So they have been reclassified as continuing operations. So what is the change in stance there? Are we not willing to sell it now or we have parked it for a while?

So I think -- yes. So I think, Amit, I think the point is we've been looking at it for some time. We have had offers, multiple offers, actually. And the level of offers that came in at that point of time was also much lower than what we thought would be most appropriate from a long-term perspective because that business is a self-sufficient business. It produces mixed -- profit mix cash flows. But it was one of our levers to deleverage at that point of time. So at this point of time, we have discontinued that process because we have also been working on the business for some time, and there are opportunities that we are seeing. However, if there are opportunities for strategic calls with more appropriate valuation, we will certainly look at it. But at this point of time, there's nothing on the table that makes us believe that we will continue as a held for sale, which is why we do it.

The next question is from the line of [ Mish Kandi ] from [indiscernible] Mutual Fund.

I had just 2 questions. One on the KPO side, have we quantified how much CapEx will be required for the next 5 million tons?

Yes. We have -- yes, go ahead Koushik.

So our original capital expenditure, including infrastructure and raw material expansion to match up to that was INR 23,000 crores. So that we had -- in fact, a couple of years back when we announced the project, we had mentioned that.

And how much has already been spent on that, of the INR 23,000 crores?

Yes. So roughly about INR 7,000 crores, INR 8,000 crores have been spent and is being spent now. We will be spending a significant part of our next year's capital allocation primarily on the cold rolling mill project and the Pellet card, which were part of that INR 23,000 crores. And also on the upstream part that [indiscernible] a little while back.

Okay. Okay. And one last question. Do we share, so what is the spreads that we are making in Europe current -- I mean, at current prices or at current realizations? And can you also share what is the fixed cost per ton for the business?

Current spreads in Europe?

Yes. Yes. Because there's a lead and lag. So let's say, what we see on the P&L is different from what is there in the market. So we just thought maybe if you could help us understand at current realizations, what are there in the market? What kind of spreads do we make? And also, if you could help us understand what is the fixed cost per ton for that business?

So I will answer the second. Koushik will answer on the fixed cost. So the -- what we call -- what is called a felt spread. The felt spread is the spread that we experienced, which is based on the contracts that we are servicing both on the sales side as well as the contract we are servicing on the buy side, right? So just to give you a sense of felt spread, in Q4, it was about EUR 215 in Netherlands, and it's expected to be EUR 285 in Q1. And as far as U.K. is concerned, it's GBP 213 in Q4 and about GBP 257 in Q1. So that's the delta that I gave earlier when somebody asked a question about EUR 70 and GBP 40 roughly, which is [indiscernible] from this quarter having -- as compared to the previous quarter, and this will keep changing as the prices which are available in the market flows back to us.

Okay. And will it be possible to share what is the actual fixed cost for that business? I'm just trying to understand at what levels of realization or spread or EBITDA per ton that part of the business becomes self sufficient.

So the -- I don't have the exact number just now. I'll give it you outside. But broadly, the business mix is about EBITDA neutral at around EUR 210 per ton, EUR 210 to EUR 212 per ton.

The next question is from the line of Prateek Singh from Credit Suisse.

So my first question is on the EU emission. So from what I understand, every year, we have been getting around 3 million tons [ UP ] units over and above what we have needed and most of the surplus line in Netherlands. So is it fair to assume that we would still have some steel credits to sell this year without needing to buy them back? That's my first question.

I think the EU emission comes out of the -- sorry, the free allowances come on a basis of the last 3 years, as I mentioned a little while back. And Netherlands normally is -- goes full out as much as it can based on our market conditions. And that is why sometimes, as it is ramping up just now, for example, in the last 2 quarters, they needed more emission certificates to continue that. And therefore, they purchased. I don't think we have preallowances because preallowances [indiscernible] to sell are surplus to a requirement. And now with the U.K. and Netherlands being completely separate because of the Brexit, the 2 will be in a very different position. So the U.K. allowance regime is just now getting finalized, and we are waiting to see as to how it will be. But in general, the free allowances over the next few years will start coming down. So I don't think we will be in a position to have too many of the surplus credits to sell.

Great. My second question is on iron ore. So with the likely optionality to sell 50% of captive ore, are you looking to ramp up our mines beyond KPO 2 need, so that we can sell in the market? In that case, what's our approval limit? So we are doing 35 MnTPA now in iron ore, and I think the level of approvals are 65 million tons. So where do we see this production 5 years from now?

So I know, yes, we are currently expanding our load, but that's more to keep pace with our requirement because the original plan was to expand for Kalinganagar. But in the meanwhile, we also acquired Tata Steel BSL, right? So that was another 5 million tons, whereas the regional expansion plan was aligned only for 5 million tons of steel, whereas we are now planning iron ore for 10 million tons additional, which is Kalinganagar Phase 2 and Tata Steel BSL. So we are expanding our iron ore capacity, which is currently at 30 production levels at 30 million, 32 million. We'll take it to about 50 million over the next few years. But that will only help us cater to what we think we need to support our growth organically and inorganically. We are exploring opportunities to grow further depending on the recent announcements. We are also seeking some clarifications, some further clarifications. We do have some opportunities already from some of our existing mines because you also have fines, which you can sell, both in terms of the [indiscernible] mines, which we acquired along with Tata Steel Long Products, which is part of the Usha Martin steel business and Khondbond mines and some of the other mines. So there are opportunities. Even as we speak, we are waiting for some clarifications. In terms of expansion, yes, we will expand as much as we think we need to do. We are allowed to sell 50% of what we can consume. And I mean, we are only allowed to sell after we have fulfilled our own captive needs. So these are the conditions that are put in, but there are some more clarifications that we're seeking. So directionally, yes, that's an opportunity for us available for the future.

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

Sir, I had 2 questions. One, a couple of years back, you had given certain initiatives to in some of the revenues from steel cyclicity, you had indicated about the expansion of downstream products, and you had been a target of more than 30% of volumes from downstream. Second was service and solutions, so 20% revenue by 2025. And third was grow beyond steel, new materials as a segment and 10% revenues by 2025. Sir, the first question is, where are we on those 3 particular variables?

Yes. So I think some of them are interlinked, Ritesh. So if I look at downstream, a lot of the service solutions are also linked to downstream. So downstream, we continue to grow through different models. If you look at our pipes business, we are one of the largest in the country now and acquiring Tata Steel BSL has almost doubled that capacity and brought us into very high end segments. We are also the largest in the wires business, which is also a Downstream business. We are also one of the largest in terms of rebar fabrication or -- not one of the largest, we are the largest. So a lot of these efforts are very much on track. And so we continue to grow downstream. We are also looking at expanding our capacity in tinplate packaging steels. So there are multiple initiatives going on in all our downstream areas and Tata Steel BSL actually had a very strong downstream plan. That was one of the reasons why we acquired the [indiscernible] because in addition to pipes, it also has color-coated steels, galvanized steels, et cetera. So there are a number of downstream products that we've got in with that acquisition with [indiscernible]. In terms of services and solutions, yes, we are growing. We are -- it's a small base, but we are pretty much doubling every year, and we continue to grow in Pravesh those [ vesting ] solutions. The business is now about INR 300 crores, INR 400 crores and growing quite fast. Our new materials business, which is fiber reinforced polymer, graphene, et cetera, is also doubling every year, starting from a low base. Yes, over the last year, in some of these new businesses, we have faced challenges because of COVID and because of the fact that a lot of these businesses are capital-light for us. They are knowledge-intensive and relationship-intensive and capital-light. So we worked with a lot of vendor partners who -- and so some of those -- some of that activity got impacted because of COVID. But we are continuing to pursue those revenue streams, and it's growing quite well. We may -- you must also appreciate that our top line has also grown. So when we set that goal of 20%, 25% of our revenue, it should come from all these businesses, we are at a very different top line. And now our top line is very different. So it's a moving target. So we are still some distance away from that, but the direction and the intent is still very strong.

That's quite useful. My second question, again, goes back to the carbon thing. I think Koushik, you made a statement of GBP 20 million per quarter as a normal operating cost, and he also said is a function of production levels. Now this broadly equals, assuming 10 million tons, it's only $10 per ton. That looks like a pretty low number. If I have to compare this versus, say, carbon intensity for U.K., which is 2.22, in Netherlands 1.86 and the average value of the 10 most efficient installations is at only 1.3, so if one does a broad math and if you don't have any allowances, based on the current spot carbon prices, it could imply a deficit of nearly $400 million, if we don't have any allowances. So it would be great if you could provide some clarity on how much of the allowances that we have in stock. In the last call, you had indicated [ 6.45 million ] for U.K. So it would be great to have some color on those numbers.

So one query -- one clarification to the query that you had, Ritesh, as I mentioned, that this quarter, Netherlands had a provision of around GBP 20 million, GBP 22 million but that's not every quarter. Second, I think these preallowances are continuing and will continue in the new regime until about 2025 or even 2030 progressively. And we are still continuing to get it on the same basis. There's no change as of now. But with the production numbers, it comes on a certain actual production for the last 3 years. On that basis, the [indiscernible] allocated. So if somebody has to produce at a higher number, then that company or that entity or the site will have to buy that to comply with it. So this is the framework within which it works, and that will continue at least for the next few years. And therefore, it is not that it is stopping, and there is a $400 million gap. That's not happening. Third point is, as you saw that Tata Steel Europe has -- as part of its price increase is also put in a carbon surcharge in the price, which is a way in which the spread of the business across the industry is also expanding. Part of it is taking care of the carbon cost that is increasing.

Ritesh, you said something about 1.3? I missed that. What were you saying?

That was -- that was the average value of 10% of the most efficient installations in 2016, '17. That's the benchmark for the European Commission was talking about, and they have invited [ solution ] on that. So that is one point.

No. No, I think that's right. I wanted to clarify that. So there are 2 process routes, right? You make steel through an electric arc furnace route or you make steel through a blast furnace route. The blast furnace route is the most efficient either around 1.7, 1.8, and our plant in [indiscernible] is in that range, okay, and the top 5 in the world. So nobody is 1.3. This is the best for the blast furnace route. If you go through the electric arc furnace route, then you can produce -- depending on the source of energy between 0.4 to 0.8, okay? So when you take the average of blast furnace and the electric arc furnace, then you can say it's 1.3. But the process routes are different. The electric arc furnace group, typically, the cost is at least $100 per ton more than the blast furnace route. So till such time, in some sense that the carbon cost covers that gap from a cost point of view, you will always be more -- preferring the blast furnace route. So that amount is that [indiscernible] there because the 1.3 is not a number, which can be used as a reference, it will depend on the process route.

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

Am I audible?

Yes, sir, you are.

I just wanted to understand, you do hear about this EUR 1,000, $1,200 HRC price about Europe and $1,500 in U.S., but we also understand that there is very little material with the mills to sell. So I just wanted to get a sense of are we -- are the steel companies actually able to sell the steel at this price? Or as and when your contracts get over and you are -- you have a material to sell? So these prices will then settle down lower.

No. I think the way it happens is there are spot prices. And if you want to buy steel today from somebody who has steel available to sell, this is the price that you will have to take. So all this will have maybe some availability or something available, but most of the European mills would have already been contracted, right? So that's why the prices are quite high because there's hardly any availability. So this flow through, as we said, the flow through will take 3 to 6 months normally. If the steel price stays at this level, then over the next 2 quarters, you will start seeing what we call the felt spreads or the prices, which the steel companies get coming closer to this level. So this is one part of it. The second reason why in Europe, it is very high is because in U.S., the steel prices are so high that anybody who can export sales to the U.S. and who is not having any anti-dumping duty on them would prefer to export to the U.S. And so there is very little imports or there's not as much imports coming into Europe as it uses to be earlier at lower prices. So that is -- this is the price where we get to the margin. What percentage you're seeing invoiced at this price? I don't know. But certainly, there would be some quantities which would be invoiced at this price.

Yes. But we also understand that now the contracts for September and December quarters are also being sort of signed. So would that sort of realization be available for the September-December contract? I'm just getting a sense of whether actual buying is happening at this price by the consumers?

Yes. I mean there are obviously people contracting for later deliveries. And I think we are pretty comfortable until September in terms of prices at good prices, and that will start flowing through into our performance, both in this quarter and next quarter. But like I said, in Europe, more steel companies, particularly the high-end steel companies who make high-end products have quarterly, half early and annual contracts. So the flow through will come only through the spot orders, which may be 10%, 20% or 30% of the overall volumes.

Sure. And my last question was on the spreads. I think you said the spreads are around EUR 285. But if I understand EUR 1,000, if that were to be a spot price and that can be a realization into the future, can the spread of EUR 1,000 be far higher than EUR 285, right?

That's true. So that's the felt spread that we are getting today. And -- but yes, if the price stays at EUR 1,000, you'll start seeing the felt spread come closer and closer to much higher levels. Of course, it also depends on what is the raw material price at that point in time.

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

Yes, sir. Sir, regarding the Europe capacity, if I see the past presentations and all that, if I roughly remember between Netherland and U.K., the capacity is actually around 12 million tons. And if I annualize this quarter's run rate also, you can produce over 10 million tons, but we have been more doing around 9 million tons. So what kind of production ramp-up, if at all, can happen at European operations? [indiscernible].

So as we guided in India -- Yes, we -- as we guided in India, we'll be at least 1 million tons additional this year compared to last year. In Europe also, the guidance is we will be about 1 million tons higher this year compared to last year and that will take us closer to the capacity. At least in Netherlands we'll be running full up. U.K., we will optimize based on the margins and things like that.

Okay. And the second question was on the lower tax, which was paid. As Mr. Chatterjee also clarified, it was using the accumulated losses of Bhushan. So what's the pending number of accumulated losses of Bhushan, which will be available to offset in FY '22 also?

Materially not much or almost none.

So we will be almost on a full tax basis next year?

For 1 year, yes. Before the commissioning of the Pellet plant and CRM comes in, we will not have that cover.

And Pellet and CRM will kick in, in FY '23 first half?

Yes.

The next question is from the line of Satyadeep from AMBIT Capital.

A couple of questions. First on Europe. As I understand, I think there would have been shortage of almost 9 million to 10 million tons of carbon credit in the year. And if my -- I would believe that Tata Steel had to buy this back by March or April '21. First of all, did the cash flow include buying back those CO2 credits in March? Or have you bought them back in April? That's the first question.

Yes. So it was not a shortfall. It was, as I said, it was monetized to provide liquidity in Q1. It has been compliant for in the month of April.

In the month of April? Okay. Secondly, you mentioned brownfield optionality across different projects. So what is the kind of optionality of -- once you're done with KPO 2, what kind of optionality across operations, across Angul and Kalinganagar and even Long Products? Can we assume going forward? And is it fair to say that you would look at greenfield investment only after you exhaust all your brownfield optionality across options?

Yes, that's right. So in terms of -- I don't think we are looking at investing in any greenfield site because if you look at it, in Kalinganagar, we have the option to go up to 16 million tons in the land that we have there. In Jamshedpur, we have the optionality to take it from 11 million to about 14 million tons. And in Angul, we have optionality to take it from 5 million tons to 10 million tons. So between these 3 sites, we have an opportunity to go to about 40 million tons, right? So that means we don't really need to start any new greenfield site for some time. Inorganic growth opportunities, like I said, in Long Products, it's something that we would be interested in because both Kalinganagar and Angul will be flat product sites and we don't want to mix up Long Product and Flat Products in the same side. Jamshedpur already has longs and flat in the same site. So we have an optionality when we go from 11 to 14 to maybe add Long Products there if we want. But that's why inorganic opportunities in Long Products would interest us more.

I now hand the conference over to Mr. Samita Shah for retail questions. Over to you, ma'am.

Yes. So there are a lot of questions coming in about the impact of COVID on domestic demand. I would -- I think people have dialed in a little late. We have already answered this question and request you to go back and listen to the transcript being put up. There are lots of questions also in terms of our strategy over international assets. I think particularly comments that since Southeast Asia has -- is back and included in the numbers, does this mean we have changed our view in terms of international assets? Or will we still consider exiting from [indiscernible]?

So I think as far as that is concerned, as Koushik explained, at that point in time, let's put it this way. In Europe, we pursued 2 opportunities because we did believe and we do believe the consolidation helps the European steel industry. But in the current circumstances, given that we have exhausted 2 options to consolidate in Europe. And given the current market conditions and given the fact that we are already separating Netherlands and U.K. and believe that we can unlock more value that way, we will continue in this direction for now. The businesses even last year were pretty much cash neutral, that was our primary objective. And in the current conditions, we'll no longer depend on India for cash. And so that is a good space to be. We will continue to unlock value in Europe and then decide later if we want to pursue any other options. As far as Southeast Asia is concerned, again, as Koushik said, Southeast Asia was never a cash drain on India. It was always cash neutral or cash positive. But we did have interest and, hence, we pursue that. But given that -- and we were also at that time, looking at what is a quicker way to deleverage and we wanted to pursue all possibilities to deleverage. Now that a lot of our deleveraging ambitions are getting fulfilled by last year's performance and expected performance this year, we are not in a hurry to divest Southeast Asia. The business can stand on its own. So we will continue to run that and decide at a later date whether we need to pursue any other option there. So for now, it's not that we are looking at growing in the international markets, but existing assets can stand on their own. So we will continue to work with it and decide later if we want to do anything, which is strategically unlocking more value for us than we are unlocking today by assets.

Thank you. Back to the queue, and we'll take 2 or 3 questions, please.

The next question is from the line of Ashish Jain from Macquarie.

Sir, firstly, on Europe, again, like Koushik said that the carbon requirement there will become more stringent. Now this GBP 12 that we have levied, do we see that as a mechanism to offset that impact? How is the customer response on that? Or should we think that the carbon impact could intensify as we go ahead from a cash flow point of view?

No. I think the GBP 12 -- I mean EUR 12 has been arrived at using the current carbon price and using a formula, setting off allowances that we are getting. And the net [indiscernible] that will -- euros of which is being charged, it's a surcharge on the customer. And the customers obviously are paid for it, and we expect that this will become an industry practice. And people will charge for it. Because ultimately, the transition to green means whether it's a government, whether it's the customer, everyone has to be part of it because it's something which is impacting the whole industry. And I think, at least at a retail level, we believe customers, people who are buying cars or people who are buying products made out of steel will probably don't mind paying a bit more for what this carbon surcharge is. But anyway, let us see how it goes, but we do believe that the spreads in Europe will also change given this additional cost component coming into the cost.

The next question is from the line of Amit Murarka from Motilal Oswal Asset Management.

So my first question was on the asset divestment strategy. So like earlier, you're looking to divest Southeast Asia and even Netherland, U.K. [indiscernible] you mentioned that [indiscernible] motivation behind thinking of divestments only to reduce leverage. Or was it also because you see these as weaker assets, and we were looking to kind of move to a more core India strategy?

Yes. So I think there were 2, 3 drivers for it. Like I said, in Europe, the driver was a bit more that a consolidated European steel industry is in a better position to deal with Chinese exports and other exports, et cetera. But obviously, there are different views there. The Competition Commission had a different view, and hence, [ Tata Steel ] JV didn't go through, SSAB was a different story. So that -- so the driver in Europe was more to create a sustainable European business. But we believe that if that options, like I said, we've exhausted 2 options, there are not so many options in Europe, then we are better off splitting the business and running it differently, which is what we are doing, and we believe we can unlock more value and have a sharper focus there. And over the last few years, we've been doing a lot of good work on transformation. And some of that is splitting out. We have been, even last year, pretty much cash neutral for the European business. So at this spread, we do believe that these businesses can stand on their own and allow us more time to decide on what is best long-term strategic options and how we can unlock value either by running it ourselves or along with somebody else. As far as Southeast Asia is concerned, again, it was partly driven by the fact that it's a fragmented geography. We had been there for a long time, but did not have the scale that maybe was more important or more relevant. And since we wanted to focus on growth in India, we said that, okay, if there is somebody who's interested in that asset, we can divest of it. But we are not in any desperation to sell it. We will continue to run it and continue to unlock value and take a call at a later stage if there's an opportunity.

So is it fair to say you're no longer looking for a buyer, but if some good offer comes only, then maybe you will evaluate?

At this point of time. So I think it is important to clarify and supplement what Naren mentioned that at this point of time, we are not aggressively running a process. But as we go along, if there are offers which comes in, we will certainly consider them and look at whether it meets our expectations. As I mentioned, that the companies have been always been profitable and cash-generating companies. So we will take a call based on the offers that comes in. So these things are often part of it, but the core part of India growth is something that we are always focusing on.

Okay. And just another question on the global supply. So given that the spreads are now at a record high, like do you see risk of, like, say, high cost or idle capacity is coming back into the system as these become viable now?

So there are not -- so high-cost capacities, are you talking in Europe? Or where are you talking...

I mean, I don't know, in U.S., I mean, in these geographies where, I guess, generally, we have seen the data environmental reasons, the costs have been going up. So some of the capacities have been like titled or something like that. So could they come back now that the spreads are quite high?

So it depends. So actually, what's happening globally in the steel industry is the biggest -- the elephant in the room was always China, right? So a lot of the capacity overhang that we talked of in the industry was in China, right? And -- but what is happening is in China, there's a fundamental shift. They don't see any value in exporting steel, importing iron ore and coal, leading a big carbon footprint in China and exporting steel. So that's why they are discouraging exports, which they've been doing and consolidating the industry, driving greater carbon efficiency, pursuing more electric arc furnaces, et cetera. So if China is not such an active player in the global steel market, that's 50 million, 60 million tons of steel exports going away. The other big exporters are Japan and Korea. And Japan, again, has announced that they're going to shut blast furnace capacities in Japan, again, for the reasons of carbon footprint in Japan, right? So what we are seeing is more and more steel becoming a little bit more of domestic, geographic kind of place. So in Europe, you will find a lot of European suppliers and some imports. Europe at its peak has 30% imports. We are seeing now at 10%, 15%. U.S., most of the players in the U.S. are expanding and selling in U.S. U.S. players are not really exporting steel. So it's a little bit more regional play rather than a lot of flow across things happening. And honestly, if you look at high-cost capacities, it depends. Are there high variable cost capacity or high fixed cost capacity? If there are high fixed cost capacities, then they will come back. If there are high variable cost capacities, I'm not sure they will come back [indiscernible]. And a lot of steel capacities, even if you look at in India, there's a lot of steel capacity, which is a high variable cost capacity, which will not come back just because the steel prices are high or spreads are high for some time.

So we take the last question from the line of Sanjay Parekh from Nippon India Asset Management.

Congratulation on great sort of numbers. Just on the expansion, since we have a potential at Angul, Jamshedpur and Orissa, and clearly, we are short as a country, can we explore a preparatory CapEx to be done? So when you actually want to expand, the time to expand in those areas would be limited. Can we exclude that in the next -- is this fairly comfortable in terms of leverage, what would be your thoughts, sir?

So certainly, we are always -- in all these sites, we always have a master plan. So if you have to expand, some of the work is already done or ongoing in terms of the master planning, what is the configuration. What are the facilities you want, what will the layout look like. So that work is always ongoing. So it's not -- if we want to -- if the steel prices are strong and our balance sheet is good, and the cash flows are strong, and we can grow compromising on deleveraging opportunities, et cetera, we can always expand in any of these places quite fast. And finally as well, it will not happen sequentially. But the advantage of having multiple sites for most till about 10 years back when Kalinganagar really started, we were constrained by having just 1 site. And there, we can only expand sequentially. Now that we have 3 sites, we can expand parallelly if required.

Thank you. I now hand the conference over to Ms. Samita Shah for closing comments. Over to you, ma'am.

Yes. Thank you. Thank you, everyone, for joining us on this call. We hope you found clarifications in this call. I look forward to connecting with you in the next quarter. Stay safe and take care. Thank you.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Tata Steel Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.