Tata Steel Ltd 144A

and gentlemen. Good day and welcome to the Tata Steel analyst call. Please note that this meeting is being recorded. All the attendees' audio and video has been disabled from the backend and will be enabled subsequently. I would now like to hand the conference over to Ms. Samitha Shah. Thank you and over to you, ma'am.

I can't hear you, Samitha.

Yeah, thanks for that. So good morning, good afternoon and good evening to all our viewers joining us from the West, from India as well as the Far East. I'm Samita and I'm delighted on behalf of Tata Steel to welcome you to this call to discuss our results for the first quarter of FY23. We have with us our CEO and Managing Director, Mr. T.V. Narendran, who's on the screen beside me. Unfortunately, our ED and CFO, Mr. Kaushik's strategy is down with COVID and I'm unable to join this call today. But we will attempt over this one hour or so to walk you through our results and explain our performance and obviously answer any questions you may have. We will take questions in audio mode as well as in chat mode. Before I hand it over to Naren, just want to remind you that our presentation explaining our performance is on our website. You can refer to it for your convenience. There is a safe harbor clause on page two of the presentation, which will cover the entire discussion. Thank you and over to you, Naren.

Thanks, Amita. Good morning, good afternoon and good evening to all of you. As you know, the global economy is facing several macroeconomic headwinds, both from inflation and from interest rate hikes. and to the COVID situation as well, and the conflict between Russia and Ukraine. Commodity and steel prices have naturally been affected. There's been a sharp correction in prices of both steel and input prices. Indian steel industry also faced similar challenges, which were compounded by the imposition of the 15% export duty midway through the quarter. And all this had weighed down on steel spot spreads, and they have dropped sharply. Despite these multiple headwinds, Tata Steel has delivered a strong performance with improvement in margins, which validates our strategy and business model. And I'll explain some of the reasons to you. One is our India business, which has always been focused on the domestic market with exports typically accounting for about 10 to 15% of a volume. We've been able to pivot quite successfully into the domestic market, stay focused on the domestic market where we build strong relationships. And what I would also like to highlight is even if you look at the last few years, we've been selling more in the domestic market than anybody else in India. And that has put us in a good position to scale up in India. And, you know, despite the challenges. So while the export duty did have an impact, we were able to increase the domestic deliveries by about 5% year on year basis. and also achieving an increase of about 5,000 rupees, which is slightly lower than what we predicted. But of course, a lot changed since our guidance after last year's results. In Europe too, we delivered a strong performance, enabled by long-term contracts and a product mix. So quarter on quarter, we continue to improve our performance. And EBITDA was upwards of 600 million pounds, with net realizations higher by about 154 pounds per ton on a platform for the week. Looking ahead, the rest of the year will continue to be challenging. Our performance in the second quarter will be impacted by lower net realizations, which will not be fully compensated by the drop in input prices because most of the benefits of the lower coal prices today will flow through towards the end of next quarter and certainly it will flow through in Q3. We are working on mitigating this mismatch, but the heightened volatility makes it difficult to assess the exact impact. However, we do see a few green shoots which can improve performance, certainly in the second half of the year. For one, the COVID restrictions in China have begun to ease and we expect that some of the pent-up demand will come back. We're already seeing that in the auto sector in China and the government stimulus, including what they've announced a couple of days back, to help the property markets are expected to drive more stability in the Chinese market. The second point I want to make is at today's prices, most Chinese steel companies are losing money. So because the cooking coal prices for China in China are quite high and not comparable to the Australian cooking coal prices as China doesn't buy cooking coal from Australia. And hence, there's tremendous pressure on Chinese steel companies either to cut production or to increase prices. In India, steel prices have now stabilized and are at lower levels, and the pent-up demand, or the demand which was postponed because steel prices were dropping, is slowly coming back. Sectors like automotive continue to do well, and the underlying demand from end-users remains strong. And as demand picks up post the monsoon period and with an early onset of the festive season, we expect inventory restocking to resume, helping prices move up, and hence While we do expect margin compression in Q2, we see volume expansion start to happen in Q2. We will start seeing the liquidity improve with inventory translating into sales. We continue to drive value-accurative growth in India and remain well-positioned to benefit from the expected shift in demand dynamics towards the later half of the year. And our 6 million ton per annum pellet plant of Kalinga Nagar, already the power has been charged, the equipment is being tested, and it will be commissioned in the next three months or so. And that will help us drive for the cost savings. The coal rolling mill, also the power has been charged and the equipment has been tested, and the what we call the main coal rolling mill itself will get started in the next few months. And, you know, by the end of the year, we would have commissioned the coal rolling part of it, and then we'll commission the galvanizing lines and the annealing lines. The Nilachal is part acquisition was completed on 4th of July. And again, the plant which has been shut down for more than two years, we expect to start the blast furnaces at least in the next three months. We continue to progress on our sustainability journey and are committed to be net zero by 2045. And multiple initiatives are underway across multiple geographies aligned with the respective regulatory and operating environment. We are steadily increasing the use of scrap in our steelmaking process in India, including in our integrated sites, as charging more scrap helps us bring down the carbon footprint. We've also started using solar energy for some of our mining activity. We are deploying EV trucks for short distance, repetitive kind of movement of material. in Kalinga Nagar phase two, as we expand, we will again, you know, reduce the carbon footprint of the Kalinga Nagar operation, because the utilities, etc, and all other, you know, areas will have a larger denominator to deal with in terms of larger production. Tata Steel Europe is working on a transition to green steel, both in different strategies in both Netherlands and in the UK. Before I hand over to Samita to take us through the financials. I also want to comment a bit on talent, which is sometimes an underappreciated part of Tata Steel. I think we're very proud of the talent that we have. And some of the quality of talent is reflected in the results that we deliver. Tata Steel is always invested in nurturing talent. In fact, in many ways, we've also been a sort of feeder for manufacturing industry, metals and mining and manufacturing industry in India with many of our alumni occupying leadership positions in many companies. In recent times, we've also tried to broad base our talent. We made several concerted efforts to structurally also make Tata Steel more agile, diverse and inclusive, and a more engaging place for the talent of the future. And we've adopted an agile way of working to fast pace some of our long term projects, and also brought in a lot of flexibility on work from home policies, for instance, which continues even beyond COVID. We were the first mine in India to deploy a fully women in all shifts. Till recently, legislation in India did not allow that. And we have also deployed women employees across the value chain. We've also onboarded more than 100 people from the transgender community. And we are working on integrating them with Tata Steel into Tata Steel and society at large. With that, I hand over to Savita for her comments before we deal with the questions.

Thank you. Thank you, Nareen. Tata Steel has continued to perform across geographies despite the complex global operating environment. Consolidated revenues for the quarter stood at 63,430 crores and were up 19% on a YOY basis, with higher per-term realizations in both India and Europe. Consolidated EBITDA stood at 15,047 crores, translating to an EBITDA margin of 24%. Our adjusted EBITDA, which excludes the FX impact, stood at 14,348 crores and increased to 21,661 per tonne on a Q&Q basis. This was despite the increase in raw material costs, both in Europe and India. Just coming to Tata Steel standalone, our raw material costs for the quarter increased to 17,336 crores, primarily due to an increase in coking coal consumption costs by $112 per tonne of coal. Royalty increased by 2005 crores as there is a lag in the IPM declared prices on which royalty is computed. And the decline in spot prices of iron ore since B is yet to reflect in those prices. Forex gains for the quarter stood at 1312 crores. This is for Tata Steel standalone again. And excluding this, the adjusted EBITDA stood at 8304 crores, which translates to a per ton EBITDA of 21,326. At Tata Steel Europe, raw material costs for the quarter also increased to 1.148 million due to an increase in cooking coal consumption costs by around 84 pounds per ton. Energy expenses declined due to a moderation in gas prices, and we also received a government rebate in UK for payments made for power expenses in the previous month. This was partly offset by slightly higher costs related to freight and handling. Overall total costs were up by 43 pounds per ton, while steel realization was higher by 154 pounds per ton, leading to a significant uptick of 111 pounds in EBITDA per ton, which translated to a best-ever quarterly performance of 621 million pounds. Taxes for the quarter, this is for the consolidated entity, was 4,192 crores, and were up on a quarter-on-quarter basis, mainly due to deferred tax component in Europe. Excluding the non-cash deferred tax component, taxes are in line with profitability. Moving on, the volatility in commodity prices and the immediate impact of export duty has led to an increase in working capital on a queue-on-queue basis, primarily due to an increase in both raw material and finished and semi-finished goods inventory. As the fourth quarter is a seasonally strong one, there is a drawdown of stocks, and the subsequent quarter usually witnesses some buildup. In Q1, this trend coincided with the imposition of the export duty and the higher cooking coal consumption cost, which has led to an increase in overall inventory position over the normalized levels. Of late, cooking coal prices have moderated to below 250 per ton levels, and this should begin to fully reflect in the P&L or a working capital from the later part of the second quarter in India and more like Q3 in Europe. This, coupled with our cost improvement and other initiatives, should result in a normalization of working capital in the second half of FY23. Despite this working capital stress, we were able to keep our net debt at Rs. 54,504 crores, and our financial metrics continue to be well within investment grade levels. Our net debt to EBITDA is 0.87, while our net debt to equity is below 0.5. We remain committed to our annual deleveraging target of $1 billion per year, in line with our capital allocation policy of prioritizing reduction in debt. Capital expenditure for the quarter stood at 2,725 crores, and we maintain our annual guidance of 12,000 crores for the year. Our group liquidity is strong. We entered the quarter with a cash balance of over 28,000 crores. Part of this cash built up was to fund the acquisition of NINL, which we have completed early July, and we are now back to our normalized cash levels. With this, we will end here and open the call for questions. Over to you, Kintra.

Thank you, ma'am. We will now begin with the question and answer session. We will be taking questions on audio and chat. To join the audio queue, please mention your full name and email ID in the chat box. Kindly stick to a maximum of two questions per participant and rejoin the queue should you have a follow-up question. We will unmute your mic so that you can ask your question. To ask questions on chat, please type in your question along with your full name and email ID in the chat box. We will now wait for a moment as the queue assembles. We have our first question. The first question is from Satyadeep Jain from Ambit Capital. Please go ahead.

Hi, thank you. First question is on energy. What kind of rebate did you get in UK in this quarter and what kind of you also have the hedge position for energy? How do we look at energy cost inflation for you possibly in both Netherlands and and UK over the next few quarters. That's the first question.

Yeah. So, Satyajit, on the specific, what is the benefit we got out of from the government on energy? I'll let Samita come back to you with a specific number. But overall, yes, energy inflation is a concern. If I look at what we are going to spend this year compared to what we were spending maybe two years back, it's about three times. Okay. Simply because of gas prices going up. We've been insulated quite a bit from the volatility because we typically hedge 75% of our exposure and that's why we've not had the, we are a bit insulated from the volatility that you see. Going forward, we do expect things to settle a bit because as you know, Europe is taking a number of actions to reduce its dependence on Russian gas, including starting up some of the coal plants, you know, coal plants, also investing significantly in LNG. So there are multiple actions being taken. And more specifically, if I look at Netherlands, they have already fulfilled the requirement of EU for the countries to consume 15% less gas than they normally do. So there is no business risk to us from lower gas availability. But, you know, the inflationary pressures are something which we are watching. That also is reflected in the higher spreads than you normally see because everyone is facing the same challenge. So costs in Europe are certainly higher than what we've seen in the past. Samitha, you want to add anything?

I think we've lost Samitha. Just while we're waiting for one follow-up on that, so you are basically saying that the entire energy exposure is hedged 75% for the rest of the year. Are you somewhat hedged for FY for the next year also?

No. I mean, typically it's for the next couple of quarters that we are fully hedged. So we continue to work that hedge and that's about 75%. So we're not hedged for the next year.

Okay. So second question was on, so Data Steel has also been embarking on the entire transformation program. I'm talking about the European business. Given the European, the UK entity has grant from the UK government on energy compensation, the transformation program, where does Data Steel Europe stand on the European cost curve now versus where it was a few years ago? And structurally, the challenge with Tata Steel Europe historically was in a significant downturn, there was an EBITDA loss at the beginning level. Structurally, what has changed for the European steel industry that could provide us some confidence that there has been a margin uplift compared to historical levels. And related to that would be, given the gas prices where they are, Could there be delay in the entire push to DRI? I believe that the transition to hydrogen-based DRI for many of the companies is not a straightforward transition to DRI, hydrogen-based DRI. It's partly starting with natural gas and then moving to hydrogen. But given where gas prices are, could we be looking at a delayed entire transition to DRI EF? Yeah.

So Satyadeep, in terms of the cost position of the European business, I would separate out the Netherlands and the UK. Netherlands has always been well positioned as far as the European steel producers are concerned. It's always been on the left end of the cost curve, which means it's been one of the lowest cost producers in Europe and continues to occupy that position. But having said that, we continue to take out costs and drive more efficiency. That is one part because We are also conscious that there's inflationary pressures, not just on gas prices, but also on labor costs. So that's something that we will continue to work on. Second thing which we are doing in Europe is, apart from costs, we continuously invest to improve our product mix. So Netherlands, the STAR program, which we've been running with for the last few years, is about... enriching the product mix, serving the more high-end customers, etc. We probably have one of the best steel making shops in Europe now with the investments that we've made. So there's a product mix enrichment also going on to supplement our competitive cost position. As far as UK is concerned, it is somewhere in the middle of the cost curve for the European steel industry, because there are some structural issues. The UK plant balanced plant like the Netherlands plant. It doesn't have a pellet plant. It needs to buy some coke. The gas balance is not perfect. So there are some challenges because of which the UK business will obviously be about 20 to 30 euros per ton or 40 euros per ton in a worse cost position than Netherlands on a comparable basis. And one of the issues there is also the energy cost in the UK is twice the energy cost I'm talking about electricity in the continent. So these are issues we are talking to the government. As far as the transition is concerned, yes, in Netherlands, the plan is to move from blast furnace coal-based to gas-based DRI to hydrogen. What you're saying, yes, is something which has been in discussion across Europe and in Netherlands. But the general view is that in the next year or two, Europe will have options beyond Russia as far as gas supply is concerned. So gas availability is not expected to be a concern. Gas prices are also expected to settle over the next two, three years by the time we shift to gas-based production. So it's something which we watch very carefully. But as of now, it has not impacted our transition plans.

Thank you. One of the questions was also on the structure.

Yeah, so the cost takeouts continue. Typically, we target about 100 to 150 million euros of cost takeouts, both in Netherlands and in UK based on our, you know, the cost takeout programs that we run every year, like in India as well. So that continues, that continues. And to some extent that is helping us offset some of the inflationary pressures.

Thank you, sir. The next question is from Amit Dixit of Edelweiss. Please go ahead. Amit, we are unable to hear you. We request you to please send in your... Yeah, Amit, please go ahead.

Yes, sorry, I was unable to kind of hear you too. So yeah, I have a couple of questions. The first one is on, again, continuing from Satyadeep's question. So given the significant trust on sustainability in Europe, in particular, both mainland as well as UK, and it has been highlighted umpteen number of times in our annual report as well, that we are looking for, you know, to meet the elevated sustainability standards of Europe we would be investing over there. Now, in the past, we have heard that, you know, most of this capex would be funded out of the cash flow that Netherlands operations generate. And in UK, possibly you will be dependent on government support. So is it possible to split both the aspects and how much capex we are spending over, I mean, we are targeting to spend over next few years in Europe on sustainability? and how much of it would be funded from, you know, the cash flow generated from the business and how much of it is likely to be funded from Tata Steel's standalone business.

Yeah. So, Amit, I'll answer part of the question because on the exact topics, we are still doing some detailing. So let me, so a few things first, right? Firstly, strategy and approach is different for Netherlands and for UK. So when you look at Netherlands, like I said, Transition plan is when the blast furnace is not the one which is due for relining in February next year, but the next one which comes for relining after that. When the blast furnace come up for relining, we will close them down and start building the gas-based ERI facilities. That's the plan, but we are working out the details of the business case, etc. The expectation is that we should build a corpus from the Tata Steel Netherlands cash flows to try and ensure that the transition is done by the cash flows generated from Netherlands and with some support from the government in Netherlands. So that's a plan so that it is not dependent on support from India. That's as far as Netherlands is concerned. As far as UK is concerned, the cash flows in UK will never be able to support the capex that is required for the transition. In UK, the transition is different because UK, the transition is more towards uh leveraging the scrap which is available in uk because uk is an exporter of scrap so there is an opportunity to leverage that scrap which is available in uk and convert it into steel as long as there is support from the government to help with this transition the capex required for the transition as well as some policy support because energy costs in uk are twice the energy costs in So the UK transition is very dependent on the kind of support we can get from the government because, again, the philosophy is we want to minimize the impact on the standalone or the parent.

Okay. Okay. Thanks. And the second question is essentially that we have split Tata Steel Netherlands and Tata Steel UK business in October. Is it a thought process that we will get separate financial statements of these entities? I mean, going forward in quarterly, I mean, as you mentioned this Tata Steel Europe, is there a possibility of the same?

Amit, maybe I can answer that. Yeah. So I understand where you're coming from, that you're looking for more clarity between the two entities. I think for us, it's actually trying to strike a balance between the amount of sort of complexity of the data we put forth in the public domain and with the need for making sure you understand the performance. So we are already doing know us dollars we're doing pounds and we're doing inr so it's it's a little bit of that uh we do track the businesses separately and we do comment a lot on the business uh businesses for your you know understanding separately uh we will evaluate this but frankly from our perspective it's more in terms of just trying to reduce um you know the noise in the system it's really about that but we will we hear what you're saying and we will come back and see uh you know if that is possible

Thank you, ma'am. The next question is from Vishal Chandak of Motilal Oswal. Please go ahead.

Yeah, hi. So, sir, just a couple of questions. I don't know if I missed out on your opening comments. My first question was with regard to your steel contracts that are getting repriced in Europe. So can you please help us how much of the proportion of these contracts are getting reset and typically at what prices you are looking at?

So Vishal, about 30% of our contracts in Europe are annual contracts. So there's no reset there. It continues till December. The balance, some of it has already been reset which are quarterly and monthly, etc. And there's 30% which are half yearly, which is the ones which will get reset during this quarter. So that's a conversation which is going on. Obviously, we expect to finish somewhere between the spot prices and the long term contract prices because when we reset these contracts, you're going to hold these prices for the next six months. So obviously, you know, the price that we settle on will factor the way we see the next six months and the way our customers see the next six months. So So that's as specific as I can get without being more specific.

That is useful. So just following up on this contract repricing, we have seen Tata Steel Europe reporting phenomenal numbers. No one ever expected Tata Steel Europe to really beat India standalone or parent at any numbers. That's something which I think we never expected. But the question remains, you know, what is the sustainable number? We have seen Tata Steel Europe reporting as low as in triple digit negative EBITDA numbers also in terms of less than $100 per ton of EBITDA and we have seen $370 also. So how do we look at, you know, strike a balance and what is a sustainable number?

Yeah. Vishal, let me put it this way. I think the Netherlands business has always been EBITDA positive, has always been cash positive. It may not be so visible because we've always reported it as TSE. So the Netherlands business has always been a strong business, slipped in between a bit here and there. But I think fundamentally it's a strong business. The UK business was the one which was fragile. And in the past, the UK business was three times the size of today. It was 10 million tons. Today it is 3 million tons, right? So today the UK business, which is the most fragile part of our business is only 10% of Tata Steel's operations. Whereas at one point in time, it was 40%, right? So that's a big structural change in Tata Steel, right? So that is one point. Second point is traditionally the spreads you would look at was about 225 euros per ton, right? That used to be the spread, average spread. That has changed. That has changed because costs in Europe have changed for everyone, not just for Tata Steel, but for everyone, whether it's gas prices, inflationary pressures on kind of employee costs, etc. So today the spreads are, if you see the spreads, it went up to over 600 euros. Today it's maybe in the 500 to 600 euro range. We don't see it coming down to the 225 euros that we've seen in the past. So it will be somewhere in between. So we do expect spreads in Europe to be higher than what we've seen traditionally, because everyone's costs have gone up. In addition, everyone is investing or at least planning to invest in the transition to green. And on top of that, Europe is going to have a carbon border adjustment mechanism. Exports from Russia, which was a big threat, is no longer such a big issue. So for multiple, and there are quotas for imports coming in from all other countries. So I think we do see spreads and prices in Europe to be higher than what we've traditionally seen, which will help all the businesses, including us. So our job is to continue to be one of the most efficient in Europe, so that Tata Steel Netherlands at least can deliver industry-leading numbers. UK is a slightly different problem. Again, in UK, we are seeing that the government, as part of its efforts, or the government which will come, or the government which was there in the past, is trying to revive the British economy and is taking a number of steps to ensure that manufacturing activity in the UK continues to be strong post-Brexit. As you saw, there were some actions taken more recently on restricting imports into UK. But there in UK, as we said before, we do need some support from the government to sustain this business over the long term. So I do expect going forward certainly better performances than we've seen in the past. May not be what you saw in the last quarter, but certainly better than what you've seen in the past.

So my second question was with respect to again, transitioning to the green steel, Now, it's already in the public domain and you've mentioned that the cost of transitioning in UK is about 3 billion pounds and it will not be possible for Tara Steel UK to do it all on its own. That's a known fact. But in terms of Netherlands, how are we looking at it? And if UK government doesn't support or the Netherlands government does not support, are we looking at closing these furnaces for good? Or these are good times. Are we still looking at some buyers and selling out in good times for tourist Europe at least?

Yeah. So, Vishal, the £3 billion number was put out by media. So, I don't think we have commented on that. So... it's less than that. Let me put it that way. But the point is, yes, the transition cannot happen in UK without policy support and some capital support from the government. And our pitch is that we have supported the business enough over the last 10-15 years and we are an important part of the British manufacturing value chain. So while we've done a bit, we have submitted to the government that we need some support there. So that's that part of it. In terms of Netherlands, it's different. Netherlands, the transition is going to be different. The CAPEX is still, the detailed engineering work is being done. Once we do that, we'll have a better sense of the CAPEX. In the meanwhile, the team there is focused on generating the cash flows and the surplus and creating a corpus to help us in the transition. The government is engaged with us and is willing to support us what is the kind of support is what is being worked out. It will also depend on what our ask is. But I think the business there is in a far better position to manage its transition by itself and with some support from the I mean, and with some support from the government, if in policy, if not in cash. And we think we can build a long-term sustainable business there. So that is what is being detailed now. Because everyone else in Europe is going through the transition, right? And is getting support from the government, as you can see in Spain, in Germany, etc. And we expect that in Netherlands also we will get similar support.

The next question is from Anuj Singla of Bank of America. Please go ahead.

Thank you very much for the opportunity, Mr. Narendran. So firstly, on the energy security in Europe, gas, like you mentioned, we have 75% hedged. But I'm more concerned about the availability of gas in the second half of the year. And there are some reports that our house has published where we see shutdowns in the European industrial activity and slowing down and also curtailment of power to industries in Europe. Just like to get your thoughts how we are positioned on energy security in the second half and do we have visibility that we will be able to operate Tata Steel UK and Netherlands at optimal utilization levels?

Sure. So Anuj, in UK the issue is not so much because UK is better prepared than the continent as far as LNG terminals and everything else is concerned. So I think UK doesn't have that much of an issue as the continent has. In the continent, basically EU has advised all the countries to cut down their requirement by about 15% for the second half of the year. Netherlands has already cut down to 20%. Tata Steel Netherlands has also done its planning. There's no disruption or impact on operations because we have options internally, you know, to better use our gases that we generate internally. So we are not exposed to this. We are not at risk. The business is not at risk. Gas prices, of course, is an issue. Like I said, 75% is hedged. but the rest of it has had an impact, which has already been factored in. So we don't expect any business risk because of this situation. And I think Netherlands is already at 60% of the storage that it wants to have, and it's rapidly building up its storage of gas to prepare for the winter. Got it, sir. Second question. Sorry, just to extend the answer. Of course, we are watching to see whether it impacts any of our customers and would that have an impact. That's something we are watching because our customers are spread all over Europe.

Yeah, I think that's, thanks for covering that as well. So the second question is with regards to the Indian steel pricing outlook. Obviously, a lot of volatility and weakness after the export duty imposition. Now, as for my analysis, we are still at a significant premium versus imposed from China, significant inventory buildup in the last quarter across players. So how, and this is a seasonally weak period because of monsoons, and we are yet to see domestic demand pick up in a big way. You talked about auto, but I think when I talk about the broader economy, still I think a lot of hope is there in the second half we should see some recovery. So how should we see the Indian steel prices coming in from here? I mean, there is one thought that it's bottom out here, given the sharp decline. Do you subscribe to that view, or you think that there is some more time before you see stability in the Indian domestic steel prices?

So, Anuj, I think we are certainly close to the bottom and I do see things changing for multiple reasons. One is if you look at the fundamentals of demand, forget the speculative demand. You know, in a volatile market, people will buy more than they need when prices go up and buy less than they need when prices go down. But if you leave that out of the equation and you really look at the fundamental demand, the biggest gain of the last three months has been auto. you know, which has come back finally to the commercial vehicles has come back to levels that we last saw in 2018, right? Passengers, very strong passenger sales and all this as a multiplier. Second area is construction. Construction, apparently a lot of projects were on hold because when steel prices went up, 80% of the contracts were on fixed prices and contractors threw up their arms and said that they can't execute contracts. That problem is solved. Now steel prices are 15,000 rupees less than what it was at that point in time. And so the expectation is that the government is going to push the execution of these contracts soon after the monsoon. And so we're expecting the demand to continue to be strong. And all other sectors, if I look at oil and gas, if I look at the water for all kind of mission, all this, there's a lot of activity which is coming in. And generally, consumer demand has also been reasonably strong to the extent that In long products, actually, there was a price increase in the last few weeks. There is another reason for that. In long products, if you look at it, a lot of competition, which is about 50% of the industry, is dependent on thermal coal because they use DRI. Thermal coal prices are today higher than cooking coal prices. We have not seen that in 10 years. And it's going to continue to face that pressure because Europe is buying coal to run their power plants. So if you see the gap between what we call the secondary producers and primary producers, which used to be about ten thousand rupees, eight thousand rupees, today it is two, three thousand rupees. And the secondary producers have very little room to drop prices because the DRI costs are quite high. It doesn't make sense to sell DRI below these prices. Right. So there is cost pressure continuing on the secondary producers. And I do expect the demand, which has not been as bad as one has seen, because what one has seen is a response to rapidly dropping steel prices than a fundamental compression of demand. So that's why we are expecting that second half will certainly be better. Q3 also, while there will be a margin compression, we expect a volume expansion. We expect to sell more volumes in Q2 than in Q1. You asked about China. You know, the Chinese companies are losing money at these prices because coking coal prices in China are still over $500. So something has to give. the Chinese companies are already cutting production. If you see weekly data, last three weeks, production has been reducing or they have to increase prices because they're losing money. And it's only the small players in China who are still exporting at prices at which they're losing money. So there is an issue there in China. And I think over the last two, three days, also with this property fund and various other initiatives, the Chinese government is trying to revive the construction sector. Passenger cars are back to two and a half million a month. So I think that, you know, Things are much more balanced today than they were two months back or three months back.

Thank you, sir. The next question is from Prashant K.P. of Dollard Capital. Please go ahead.

Sir, am I audible?

Yeah. Yeah, Prashant.

Congratulations for a very good set of numbers and not so high spike in the net debt as we saw with others. So that is another thing. My question generally might seem a bit innocent and naive, but the more we think about it, the more it lingers. But if you see in any cycle, from peak to the bottom, steel prices sometimes fall by as much as 60, 70% also. But then generally, the general reason attributed is demand, demand is it. But generally, since the last 50 years, be it crude, steel, demand has never fallen by a while, more than 5% ever, barring the COVID crisis. So what in your view explains this huge volatility, sir, apart from the, of course, relative price movement?

Yeah. So Prashant, that's like a, I'll have to give you a lecture on the steel industry. But I think, let me put it this way, right? So one is what you alluded to. A lot of the cost depends on the input cost. See, even when steel prices went up 15,000 rupees in March, April, it went up because coking coal moved from 400 to 630 dollars, 640 dollars. So if we were buying coal, which we were at $600 at that time, it would have hit us in cost in June. And if we didn't get steel prices at that level, it would have been difficult to sustain, right? So there is a volatility which comes in because of input costs being volatile. And that is one of the drivers of volatility. Second thing is it's a high fixed cost industry for those who have integrated steel plants. So when it's a high fixed cost industry, if people are covering variable costs, they will continue to produce. And particularly if they have government support, which is what has been happening in China. So even if they were losing money, people were expanding and exporting, which has changed, which was a problem for most of the last decade. But if it is more private sector driven, you will see people cutting production at some point in time. So these are factors beyond demand which exaggerate the impact. Third is what I mentioned earlier. In a volatile environment, demand gets exaggerated when steel prices are moving up and demand gets compressed more than real when steel prices are going down because there's always a speculative element. There are traders, even customers take positions. If they think steel prices are going up and 70% of the cost is steel, then they'll buy more steel than they need and vice versa the other way around. So that is what adds to the volatility and it's a globally traded product. So geopolitical issues have a big impact like we've seen in the last three months. So these are the factors which makes it very volatile. But I think the biggest contributor to the volatility over the last 20 years has been the growth of China as both a consumer of steel and a producer of steel. Because that has a huge impact on everything else. And that has been the change. Earlier the cycle used to be steel prices going up for two three years and coming down for two three years now it is you've seen what has happened in the last six months so it's far the cyclicality is in shorter cycles understood sir thanks for the detailed and elaborate answer if you give an opportunity in future we definitely be glad to meet you and understand the nuances more

The second question is that the cooking coal prices in China, probably from the Mongolian and that kind of sources, more of internal is very high at 500 or something. But then what they're importing from other sources other than Australia, is it closer to like 280, 290 versus 250 CFR for us? Is the understanding correct?

No, no, because so there was a time maybe three months back when Australian prices had gone to 600 plus. China was buying coking coal at 400, right? Because they were getting a lot of the Russian coal, etc. That has changed now. Russian, Mongolian, and they also buy from the US. From the US, freight rates are very high. So today, if you look at local prices in China for coking coal, it is upwards of, it's in the $500 to $600 range. You know, so they still have, that's why I'm saying the steel companies in China at today's prices are losing money. And so it doesn't make sense. And we are seeing that happen Since early June, they've started losing money. So we'll see the impact of that. So they don't have the advantage that we have today of buying Australian coal at $230, $240 or even lower.

Thank you, sir. The next question is from Pinakin Parekh of JP Morgan. Please go ahead.

Hello. Am I audible? Yeah, yeah, yeah. Yeah, thank you, sir. So my first question is, can you give us a sense of the expected steel price and coking coal changes in the second quarter in India and Europe?

So on steel price, I want to, you know, just say that, yes, it will be lower, but without being more specific, because things are still pretty dynamic. But yes. it will certainly be lower both in Europe and in India. I don't want to give you a number just yet because I think there are too many moving parts just now. As far as coal is concerned, in India, I think we'll see a $40 reduction in consumption cost. We are buying maybe at $150, $160 lower than what we bought in Q1 on an average, but the consumption will be about $40 lower because the the impact of lower coal price will start flowing through in September for us. In Europe, actually, we will not see a reduction in coal cost simply because we have a bit more inventory there in the system. So the lower coal price, which is again $150, $160 lower than Q1, will start flowing through in Q3. So in Europe, actually, we may see a small increase in coal cost, maybe 20, 30 euros per ton increase in the coal consumption cost for Q2 over Q1. So, like I said, there will be margin compression in Q2. I'm not able to give you a number yet, but there will be volume expansion. We expect to sell at least half a million tons more in Q2 than we did in Q1.

Sure. Thank you. My second question is just moving on to Europe, right? So, while you mentioned that Tata Steel does not have energy availability issues, a large part of it, at least in both the steel plants, would be met by the cocoa and gases issues. But there is a very substantial amount of steel production in Europe, which is electric arc furnace based. In your view, what happens to that part of the industry in the next two to three quarters if the gas supply or the gas availability goes from bad to worse?

No, so they will be, like I said, one is it depends on whether that country is generating electricity using gas or not. So if you look at in Europe, the most vulnerable economies are more Italy and Germany. Because I think 40 percent of the gas they import is coming from Russia. If you look at France, it's got a lot of nuclear. Spain has many other options as well. So Netherlands, again, is maybe 20 percent dependent on Russian gas. So I think the big economies which are going to be impacted are more Germany and Italy. And one needs to see what happens there. Yes. One is gas availability and two is the energy costs. If you look at an electric arc furnace operation, they don't need so much of gas, but if the grid is dependent on gas for energy, for electricity, then those prices will go up and if there's a shortage of gas, then there could be a shortage of electricity. The other part, what I mentioned earlier, is also we are watchful of our customers to see if any of our customers are significantly impacted by it. But like I said, we are not directly impacted. We'll be watchful to see indirectly whether we will benefit because supply, as you suggested, may get disrupted or if there is an impact on demand.

Thank you. Just my second question and last question on Europe is that while you did mention that the company is in talks with both UK and Netherland on the sustainability CapEx, given that Europe has gone back to restarting thermal power plants and energy security will become the dominant theme for them for the next few years, Do you see the sustainability capex finalization in both the sites to happen over the next six to 12 months? Or do you see that given the evolving geopolitics and the energy security dynamics, any final capex decision gets pushed out further?

So that depends on the pace that Europe has sent itself to transition to green. There is a point of view which says that that pace may accelerate because they want to move faster into hydrogen production. and have less dependent on gas. So that's one way to look at it, in which case you may jump from coal to hydrogen if, for instance, hydrogen is available in cheap and plenty. But our technology choice is about converting to gas, which can be substituted with hydrogen. You know, so so to that extent, once we are clear that we have gas and or hydrogen, we can take that call. But I think for now we are not seeing any slowing of the pace. but obviously it depends on how long the conflict continues and what is the larger impact because there is another view that Russia also doesn't want to be seen as totally undependable as far as gas supply in Europe is concerned. So I think there are multiple angles to it which we are watching. Understood. Thank you very much.

Thank you, sir. The next question is from Anupam Gupta of IIFL. Please go ahead. Anupam, we are unable to hear you. We request you to please send in your question via chat. We will now move on to the next question. The next question we have is from Aishwarya Agarwal of Rippon, India. I'm so sorry. Please go ahead. Aishwarya, we are unable to hear you very clearly. If you can speak a little louder.

So, Aishwarya, I think we are unable to hear you.

We request you to please send in your question via chat. We will now move on to the next question. The next question is from Ashish Kejriwal of Syndrome. Please go ahead.

Hi, is it audible? Yeah, yeah, Ashish. Hi, good afternoon. So my question is, in this quarter, we have seen a relation increase of roughly around 8,500 rupees per ton. So does this relation include our auto contracts also, which we were negotiating earlier?

Not, are you talking of India?

Yeah, India.

Yeah, not all the benefit has come through because the contracts took a long time to kind of... I would say that it's still not fully concluded because we are discussing Q1 and Q2. So not all the benefits of increase in Q1 has come through.

Any benefits are included because the last time when you got 8,500 rupees increase, that was in mid-May. And in June, we have seen a sharp decline in steel prices. Despite that fact, we are recording this kind of increase. So that's what I'm asking.

Yeah, no. So there was a benefit of that, certainly. But you know, last quarter, the increase you're seeing is we got a lot of increases in April, you know, and then in May, it started from first May, even before the export duty, steel markets, steel prices were softening a bit. But because coal prices were still quite high, we were projecting that the steel prices will remain high. But, you know, since then, export duty came, coal prices started softening, etc. So, yeah, I think there is a little bit of that which will come back. But like I said, I don't want to suggest that Q2 prices will be better than Q1. Q2 prices will be lower than Q1.

Sure. So, sir, is it possible to guide us what could be the June exit price as compared to the Q1 average for India?

I will say June exit price is about 15,000 rupees below the 1st April price or the early April price. That's been the swing in the domestic market during the quarter. Let me put it that way.

Sure. Thanks. Thanks a lot, sir.

Thank you, sir. The next question is from Kirtan Mehta of BOB Capital. Please go ahead.

Hello. Kirtan Mehta here from BOB Capital Markets. Thanks for this opportunity. We are starting operations at NINL, aiming to start operations at NINL over the next three months. Would you be able to sort of give us a guidance about how do you see the operations ramping up and how do you see the cost basically being taken out there and what are the sort of near-term capex plan to take the plant to their initial operating rate?

Yeah. So, Kirtan, basically what we are saying is, you know, you completed the transaction on the 4th of July. Our teams have moved in. The plant was not operational for more than two years. We expect to start the blast furnace in the next three months. Okay, that will allow us to produce pig iron, which we can sell or use or whatever, right? The toughest part of the operation that we need to revive is the coke ovens, which had been damaged because it was shut down without, you know, taking the precautions that you need to take. So that will take about six months in our view. And we expect that in six months, we should start the coke ovens. But till such time, we can always supply coke from our other facilities to Nilachal. We've already started the dispatch of iron ore from the Nilachal mines. So the raw material has also started moving to Nilachal. What we are chasing is the rated capacity is 100,000 tons a month. We expect to hit that by March. That's what we are aiming for. So next year, we can have a know full year in some sense of production the challenge is uh uh you know to get the um you know plant in good shape uh i think there's about four five hundred crores of capex planned uh which will help us in the startup but more importantly over the next three four months we will develop the plans to expand nilachal from the one one and a half million that we think we can run the existing assets for to about five million tons so that will be an expansion plan which uh we will focus on the next six months, develop the plan, get it cleared with our board, and then try to execute it over the next three years or so. So that's primarily going to be the way we will look at Nalachal. Our teams are already in place. And like we've done in the last few years with the Bush and Steele or Rusha Martin Steele business, I think we have a playbook in place for quickly integrating these facilities into our operations and ramping it up to get the full value of the assets. So that work is going on.

Thank you for the elaborate answer. One more question. Going back to the Euro, would it be possible to sort of indicate the break-even spread that you need at UK and Netherlands operations separately?

So, Kirtan, the issue is this break-even spread is also changing for multiple reasons. You know, spread is normally looking at raw material price and finished product price, right? And we had traditionally thought the break-even spread, I mean, if we get about 225 euros per ton, you'll be better than break-even, right? And you will, that's what we had looked at. But now what is happening is beyond the spread, the other important elements of cost are, for instance, gas price. It's not reflected in the spread. So today we are spending maybe 100 million euros a year on gas where earlier we may have been spending 30 million or something like that. I may not be the exact number, but we are spending three times as we were spending earlier, right? So all this also has an impact on what is the breakeven spread. That's why today the spreads are at around, you know, I think in UK it is in the 400 to 450 pounds range at today's prices. And in Netherlands, it's in the 500 to 550 or 550 euro range, 550 to 600 euro range. So that's a spread now. And the numbers that you see are, you know, at those spread levels, if not 50 euros higher than that. So that's where it is. We expect spreads in Europe to be higher than what it has been in the past for the reasons that I've just described.

Sure. Thanks for this clarification. Just one suggestion. Would it be possible to sort of give us a sensitivity to some of these indicators like gas price or in terms of the profit that the Europe has in future? It could help us understand this magnitudes or impact on the profitability from the external environment.

Swamita can maybe engage with.

Yeah. So maybe we can discuss offline. It's a little hard because some of these variables actually, you know, as Naren is explaining, were not major earlier. They are becoming major now. And with the evolving situation, actually, one needs to see how it plays out. So it's a little harder, but maybe we can try and give you a better sense.

Sure. Thank you.

Thank you, ma'am. Our next question is from Ritesh Shah of Investec. Please go ahead.

Hello, I'm audible? Yeah, Ritesh. Yeah, hi. Thanks for the opportunity. A couple of questions. First is pertaining to the BSPS scheme. We had a first bind transaction over there. If you could provide some rationale for that and the impact it will have on the cash flows. That's the first question. Sabita?

Yeah. Yeah, so, Ritesh, you know, as we have said all along, I think our attempt is really to, you know, mitigate the risk of owning such a large pension fund, because in some sense, you know, when you sort of compare it to the scale of the UK operations, it is really large. And the idea of doing this was really diversifying the risk and, you know, mitigating the risk. So we have, you know, sold a share of the fund. There's really no cash impact because they've taken over the assets as well as the liabilities, that portion of the assets and the liabilities. So there's really no cash impact to us. It's more of, you know, managing the fund and, you know, managing the risk of the fund. Really, that's what it is about.

Any specific content you can actually indicate over here on what has been bought in by the insurer?

So we are looking, I think we have sold about 20 or 25 percent. I can confirm the number to you exactly, but we have sold about 20 to 25 percent of the fund as of now.

That's correct. That's quite great. Second question was to Narendra and sir. If you look at last year's balance sheet, there is a significant quantum of cash flow, which has actually directly or indirectly moved from India into Tata Seal Global PTE and eventually into Europe. The number is despite record profitability, what we saw in Europe last year. What I'm trying to understand is to what extent will India directly or indirectly continue to help the European operations?

So, Ritesh, it's actually, you know, we have not actually transferred any money to Tarasteel Europe for their operations yet. What we have always said is that, you know, the debt which was there at Aristille Europe, which was, you know, which was there, which has been there for a long time since the acquisition, that we are behind that debt and we will service that debt. And what we did during the last year when we were. you know, when the cash flows were very strong and as a part of the deleveraging strategy, we have very consciously tried to reduce our foreign currency debt to align it with our asset side of the balance sheet. So as India has been increasing, you know, the size in India has been increasing, the asset size in India has been increasing. We wanted to rebalance our liability side and reduce the foreign currency component. So money was sent to repay some of the debt in Europe. And that's what is the flow which you are, So it's gone for reducing debt. It is not for the operations of Tennessee.

Right. Let me rephrase the question. So if we have to put it between operational cash flows and financing cash flows, I think what you detailed was very categorically on the operational cash flows. If we had to understand the math from a cash flow from financing standpoint, how should one look at it? Because the way in which I look at it as an external guy can solve less standalone debt. is still upwards of 30,000 crores. And there is no source, credible source of funds, which is there, which can actually take care of this quantum of debt. So should we assume that India cash flows will eventually take care of this 30,000 crores of debt, say over the next three years, five years, 10 years, as we pursue our deleveraging story?

Yeah. So, you know, what you are referring to is we, as you probably know, we have, you know, tap the capital markets previously as well through our subsidiary, Abja, which is, again, a part of our strategy to, you know, widen our investor base and to tap multiple sources of capital so that we are not, you know, limited to sources of capital in India or Europe or whatever. The idea was really to build a credit profile and a credit curve for Tata Steel, which, you know, which has been very successfully done. So a large part of the funds which you're referring to, 30,000, about 20,000 of that is in Abja or is the capital market bond, which we did. And that has always been a part of our strategy that we will, you know, we will be responsible for, you know, paying that. Now, whether we pay it from Europe, whether we pay it from India, I think that's more of a tactical call as the situation, you know, emerges. But it is, you know, it is debt on our consolidated balance sheet and we are firmly behind it. I think that we have been very categorical when we raise the funds, when we have been talking to all of you. So that position doesn't change. Now, which entity services it, whether it is Europe, whether it is India, that's more of quarterly cash flow kind of a decision, which we will take as it evolves.

Thank you, ma'am. I would now like to hand over the conference to Mr. Hriday Nair, Chief Corporate Finance and Investor Relations for the chat questions. Over to you, sir.

Can't hear you today if you're there.

The first question is on the pellet plant. What kind of cost savings can be anticipated when the pellet plant becomes operational?

Yeah, so that depends on the pellet price because the fundamental cost saving is because When we buy pellets from the market, we are pretty much buying from somebody who's buying iron ore in the market and converting it into pellet. Whereas when we have our own pellet plant, we can use our own iron ore where the cost is much lower than the market price of iron ore. So I think that is the arbitrage. At one point in time when pellet prices were, you know, 12,000 rupees or 14,000 rupees, I think the cost saving was almost 50 to 100 crores a month. But today the pellet prices are much lower. That is the clear direct saving that we will get. That is one. Second thing is when you have more pellets, you can improve what we call the agglomerate mix in the blast furnace and bring down our coke rates, which means you can use less coal, which has a big impact on cost as well. So it's a very significant, there is a significant cost impact, anything from 50 to 100 crores a month.

Thank you, sir. The next question is on the cold rolling mill. Can the commissioning of the cold rolling mill drive incremental revenues of 1100 to 1500 crores per annum?

So typically, the normal thumb rule for difference between cold roll and hot roll price is about $100 a ton. Okay, so you can do the math on that. That is typically what you would look at in the long term. It fluctuates depending on the dynamics of the hot-roll market and the cold-roll market. But more importantly, I think what the cold-rolling mill in Kalinganagar is going to bring to our mix is, first is the fact that the hot-rolling mill in Kalinganagar makes up to 2-meter-wide coils, and the cold-rolling mill will make up to 1.85-meter-wide cold-roll coils, which is 200 mm wider than what we get out of Jamshipur. So it opens up new markets for us, particularly in the auto sector. Secondly, the galvanizing line there is really going to be a state of the art galvanizing line. And that again allows us to really open up new segments beyond what we are already catering to. The first galvanizing line that we built in Jhanshinpur 20 years back was also a state of the art at that point in time. Third is the continuous annealing line that we are setting up in Kalinga Nagar will also help us service the higher tensile grades. In Jamshedpur with a joint venture Nippon Steel, we are limited to 590 and 780 MPa. This will help us cover that and more. So it gives us a much better product mix. We need to sell less HR in the market. And with the passenger car industry doing quite well, I think our commissioning of the mill will be timed well. So while $100 is more Commodity HR to commodity CR, when you look at value-added high-end CR, then the margins or the gaps can be much higher. And it's a 2 million ton plant. So that's a math that you need to do.

The next question is on capacity expansions. While we've already discussed a little bit, could you please throw some light on future capacity expansions and when they are expected to come on stage?

Yeah, so the immediate focus is on expanding Kalinga Nagar, completing the expansion of Kalinga Nagar from 3 to 8 and over the next few months developing the plan to take Nilachal from 1 to 5. I think this is the immediate priority, etc. After this, there are multiple options. We have an option to expand Bhushan plant from 5 to 10 and we can take Kalinga Nagar from 8 to 13. So we are evaluating both these choices. Because the advantage with continuing a Kalinga Nagar expansion beyond eight is that you already have the contractors in place, the crews in place. So without decommissioning them, the market is strong, balance sheet is good. You can continue phase three of Kalinga Nagar even as you finish phase two. So that's an advantage of that. With the Bhushan plant, if not to 10, we can also take it interim to 6.5, 7. That's more to do with the balancing of the plant. So we are looking at what is the most economic growth option that we have. The good news is we have multiple options between these three sites. So we can exercise whichever option is the most economically suitable option.

Just to add to that, you know, we also have NINL.

So that's another option for us to... So that along with Kalinganagar, Nilachal 1 to 5 and Kalinganagar 3 to 8 is the immediate next, I mean, immediate focus.

Thank you, sir. The next question is on inventory build-up during the quarter. Inventory build-up of 8,000 crores in this quarter, is it high-cost inventory of finished steel, which will be liquidated in the coming quarters at lower realizations? Can you please throw some light on this inventory build-up?

So, there are two components to it. Okay, Samita, you want to be more specific in the response? Yeah, go ahead. Sure.

So, you know, of the total increase which we've had in working capital this quarter, about two thirds was in India and one third was in Europe. And if you see the price and quantum impact, more than 50, almost 60 percent has been actually on account of price and the balance has been account of quantity. It's actually more in terms of raw material and less in terms of finished goods. But we will see some of that raw material, as we said, will flow through in terms of our Q2 costs in terms of as it gets converted into finished goods. And obviously, some of the finished goods inventory we will sell in Q2. As we mentioned, we are expecting volumes to be higher in Q2. So you should see a lot of the finished goods inventory clear out. and the bulk of the raw material inventory clear out in Q2 in India, though in Europe, it will be more in Q3.

The next question is on coking coal. There were a couple of media reports suggesting that China is looking to lift the ban on Australian coking coal. Could the differential between China and Australian coking coal come down if the ban is lifted?

Certainly it will have an impact. We've also been hearing this. But, you know, two or three months back, the domestic price in China was lower than what was the Australian cooking coal prices in the export market. So at that time, the lift of the ban would have worked in our favor because Australian coal prices, you know, could have stabilized or come close to the Chinese prices. But now it's the other way around. We'll wait and see, but we've only just heard media reports. I don't think we've seen anything on the ground yet.

The next question is on the management's view on steel export duty and connected to it is the guidance on EBITDA per ton in India and Europe for Q2.

So, the second part, first, we are not wanting to give a specific guidance. I will just say that you know, there will be a margin compression. Prices will be lower in Q2 than in Q1. Some of that we will recover because of the costs coming down, particularly in India, by about $40 in terms of cold consumption cost. Some of that on an absolute basis will recover because of volumes in Q2 will be higher than Q1. But overall, yes, there will be margin compression and which will obviously impact the results. I'm not giving a more specific guidance because things are quite volatile and our job is to see how much of that we can recover in the next two months or so. So that is one part of it. The second part is, sorry, what was the... An export duty. Yeah. So, you know, that's why we fully understand the compulsions or bringing that in to kind of put a cap on steel prices and to manage inflation in some sense. But in the medium to long term, our submission to the government has been India, rightfully so, should be a big exporter of steel. India has the iron ore. Today, there are countries who are importing iron ore and exporting steel, whereas India has the iron ore. Steel investments happen in some of the poorest states in the country, creates jobs far away from urban centers. And there is no reason why India should not export 50 million tons or 100 million tons of steel, because Japan, Korea, all of them export 30, 40 million tons of steel. China has in the past exported more than 100 million tons of steel. So why shouldn't India aspire to be a big exporter of steel when it has got the raw materials that it has and it needs to create the jobs that it needs to create? So I think that's been a submission to the government and steel capacity should be created keeping export markets in mind in addition to domestic markets. I think government is kind of supportive of our view. The question is when will they remove the export duty and we hope it will happen sooner than later.

Thank you, sir. The next question is on the auto demand. IHS Global has predicted auto demand for H2 calendar year 22 to be higher than H1. How is that expected to play out for our company?

So that's very positive for us. As you may know, today we have, along with the Bhushan facilities, we have almost a 55% market share in the auto industry. So when the auto industry does well, it's good for Tata Steel. In auto industry, the steel intensity is highest for commercial vehicles, which did well in Q1, has slowed down a bit just now, the heavy commercial vehicles, medium and heavy commercial vehicles, but we expect that to pick up once the construction activity picks up post-monsoon. The light commercial vehicle business is very strong because of the e-commerce companies and warehousing and supply chain investments happening. Passenger is very strong. It's getting over the challenge of semiconductors. Demand has always been strong. And two wheelers is also recovering. Tractors has been strong. So overall, auto seems to be on a good path to recovery. And we also expect H2 to be better than H1. And that has a positive impact on Tata Steel.

The next question is on the European business. Request if you can please help in clarifying if you are open to selling the Netherlands and UK businesses if buyers are available, irrespective of the price.

I think what we said so far is we are focused on making those business self-sustaining and value-accurative. The Netherlands businesses already demonstrated that in a big way. UK business, like I said, is a bit fragile. What we are more focused on is our conversations with the governments in the respective countries to see how can we transition into a greener future. So we leave it at that.

The next question is on Tata Steel Long Products. How do you see margins and growth for Tata Steel Long Products? Will it also get merged into Tata Steel eventually?

So Tata Steel Long Products had a tough quarter for multiple reasons. One is the auto contracts, which were supposed to have been settled, were not settled. So they did not get the benefit in the quarter as they had expected on the auto prices, which has since been sorted out. So you will see some of that benefit accruing in Q2. The second part is Tata Steel Long Products also sells sponge iron. So they were impacted by the high thermal coal prices, which started going up. And the third part is, of course, the fact that once the export duty was levied on iron ore and pellets, etc., the DRI prices were also impacted. So there were multiple things which happened, which impacted Tata Steel Long Products Q1 performance. And there is a royalty that they also paid to Tata Steel because of the changes in the MMDR Act last year. On your question on merger, we will of course keep looking at various options. That's something which will be discussed and decided at the right time at the board. But fundamentally, we are bullish about the long products business because as India moves into infrastructure-led growth, long products has a great future. And our product mix today is skewed more in favor of flat products. But I think long products, we believe, has a greater role to play and hence the investments in Tata Sea Long Products and in Rela Jetty.

Thank you. The next question is on the domestic markets. We have invested significant amount in downstream capacity and developing markets for branded retail sales. What percentage of domestic... to assume that our domestic profitability will not be as cyclical as in the past due to these initiatives.

Yeah, that's the intent. Basically, how can we be less vulnerable to the cycles? The more downstream you go, the more insulated you are. There are products that we sell per piece. There are solutions that we sell per square meter or square feet or whatever. So all this takes away the conversation from a per-tonne And what is the price in China and what is the price somewhere else? So that's the kind of direction. Today, about 20% of our revenues come from what we call B2C businesses, where we enjoy a significant premium to our competitors as well as, you know, even the same product being sold to the other segment, right? So Tata Discon sold to a house builder, which is a very different price from Tata Discon sold to a construction company, which is a B2B business. So I think that's been the focus and we'll continue to develop that. The downstream services and solutions and the B2C business, I mean, we are always looking at, it should be at least 25, 30% of our revenues and our revenues are also growing because the base is increasing. So we'll continue to pursue that and we believe that That is one part of the thing. The other part is our exposure to the auto sector and to the oil and gas sector also helps us insulate ourselves from the volatility because those are more approval-based businesses, quality and technology-intensive businesses, where there's a lot more stability in terms of prices than in the commodity side.

The next question is on Tata Steel Long Products. Interest cost is higher in Q1 at 341 crores. Is it a one-off or will this continue every quarter? This is to do with Nilanjal.

Yeah. So, you know, we, as you know, the acquisition of Nilanjal has been done through Tata Steel Long Products. And as a part of that, to, you know, finance the acquisition, Tata Steel has actually infused capital into TSLP. As you know, we have, you know, our shareholding in TSLP is already 75%. So we are unable to actually put equity into the company. So it has gone through a very long dated debt instrument, which is carrying an interest cost. And that is what you are seeing on the, on the books of TSLP. We had to, we infused the funds actually in the previous quarter, just towards the end of Q4. And that is why you're seeing the P&L impact of the, in Q1, though the acquisition of Niranjal has happened on the 4th of July. So that is reflecting that. It's a charge, actually, not a cash impact. The cash impact is actually much lower because that's the way the instrument is structured. But there will be a P&L impact.

The last chat question. Congratulations on a good set of numbers. Considering that we are so attractively valued, can you please consider a payout through buyback rather than dividends within the overall payout plan.

You know, we've noted the suggestion. We'll take it up to our board at the appropriate time.

So, thank you so much, sir, for taking the chat questions. We will now move on back to the audio questions. The next audio question is from Sumangal Nevathia of Kotak. Please go ahead. So, Sumangal, we are unable to hear you. We will now be moving on. I would now like to hand the conference back to Ms. Samita Shah for closing comments. Over to you, ma'am.

Yeah, thanks. Thanks, Kinshuk. So thank you, everybody, for joining us on the call today. I hope you could answer most of your questions and look forward to connecting with you again next quarter. Take care and goodbye.

Thank you. Thank you all.

Thank you very much.