Tata Steel Ltd 144A

Ladies 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 thank you all for your patience and now would like to hand the conference over to Ms. Samita Shah. Thank you and over to you, ma'am.

Good afternoon, good morning and good evening to all of you joining us today. Welcome to this call and thank you for dialing in. We have with us our CEO and MD, Mr. T.V. Narayanjan, and we have with us our EDNC.

This meeting is being recorded.

Mr. Chatterjee, who will discuss the results and walk you through any questions you may have. Our presentation, which describes the results, has been uploaded on our website. Do go through it if you haven't already. And we will take questions in audio mode as well as chat mode. Before I hand it over to them, I would just like to draw your attention to the clause on page two of the presentation, which is the Safe Harbor Clause, which essentially will cover the entire discussion today. Thank you and over to you, Narendra.

Thanks, Amita. Good day, everyone. A bit of a narrative on the way we see the situation. The global operating environment has continued to be volatile during the quarter amidst inflationary pressures, tightening financial conditions and the COVID overhang. And among the key economies, the US and EU witnessed a quarter-on-quarter decline in industrial output, while the Chinese GDP grew at its lowest pace since 1976. Given this backdrop, global steel prices continued to remain under pressure for most of the quarter and resulted in subdued steel spreads. In the EU, the steel spot spread, including energy and emission-related cost, went close to $200. And in India, the economic activity remained resilient. However, depressed international prices weighed in on the sentiment. Moving to our performance, Tata Steel India delivery stood at 4.74 million tons and were up 7% year on year, primarily driven by the 11% growth in domestic deliveries. Our domestic deliveries grew at a faster pace than the Indian Steel apparent consumption, which was about 8% year on year. And it reflects a strong market presence across segments and agile business model. Some of the highlights were a value added segments like the oil and gas infrastructure, solar and retail housing grew by about 17% on a year on year basis, in part due to the expanding product range and innovative solutions. Tata Tiscon, which is largely sold to retail customers, registered a best-ever quarterly sales, and we continue to expand our physical reach via new dealers and a virtual reach through Tata Steel Asiana, our e-commerce platform for individual home builders. And sales through Tata Steel Asiana have consistently grown over 50% in the last two years. Our sales to the MSME sector has grown by 25 to 30% year on year in the last two quarters. And we have moved from tracking six segments to 80 micro segments, which has helped us understand customers better and enhanced ability to move material across micro segments based on demand. Looking ahead, we expect Indian steel prices to move higher based on improved expectations about the Chinese demand and the sustained government spending on infrastructure in India. The raw material costs are likely to remain range bound And fourth quarter is also seasonally the stronger quarter in terms of deliveries and we're looking to leverage the momentum. We continue to progress on expanding our capacity across multiple sites in India as we look to grow to 40 million tons in India. And viewed in terms of deliveries, FY24 should fully reflect the 1 million tonne per annum Nilachal volumes, while subsequent years, FY25 and 26, will reflect the 5 million tonne expansion in Kalinga Nagar Phase 2 and the 0.75 million tonne setting up of the electric arc furnace mill in Ludhiana. We are parallelly expanding our downstream operations at tin plate, wires and tubes, The ongoing expansion in tin plate is from 0.38 million tons per annum to 0.68 million tons per annum. The wire capacity is being expanded from 0.47 to 0.55 million tons per annum and the tubes capacity from 1.2 million tons per annum to 1.5 million tons per annum. Separately, phase commissioning of the 6 million ton pellet plant at Kaliganagar has begun and we should stop buying pellets from the second quarter of FY24 which will help reduce our costs. We are also looking to commission the PLTCM, which is a pickling line in the Tandem Coal Mill, which is part of the 2.2 million tonne per annum CRM complex during this quarter. On slide 19, we have provided some details of domestic deliveries across sectors. And over the years, while we have sold more volumes in automotive, its share has also moved to around 15% of our total sales. And this is set to rise with the commissioning of the CRM complex and the incremental capacity at Kalinga Nagar. Similarly, the growth in long products will drive an increase in the high-margin retail housing business for us. Moving to Europe, the steel delivery stood at around 2 million tonnes in the third quarter. Though the volumes were higher by 6% quarter-on-quarter basis, the sharp drop in realizations on subdued demand and elevated costs, including energy, have weighed in on the steel spreads. Looking ahead, uncertainty persists about supply-demand fundamentals, despite the recent pickup in the EU prices, driven by the hopes of a milder and shorter down cycle. Our steel realizations will remain subdued in the fourth quarter, given the lag effects of some of the contracts. We continue to make progress on our sustainability journey to achieve net zero by 2045 via multiple pathways. We've already started initiatives such as charging more scrap into our furnaces. Our products like Tisco build green construction blocks and Dhruvi Gold has slag as one of the inputs to help us achieve solid-based globalization as well as address customer needs for eco-friendly solutions. Before I hand over to Kaushik, I'm also happy to share that Tata Steel is the only company in India to be recognized by the World Economic Forum as a global diversity, equity, and inclusion lighthouse. And we've also been awarded a Great Place to Work certification for the sixth time in a row. Over to you, Kaushik.

Thank you, Naren. Good morning, good afternoon, and good evening to all those who have joined in. Let me give you a deeper sense of the financial performance. Our consolidated revenues for the quarter stood at about 57,084 crores. while EBITDA stood at 4,154 crores, which translates to a margin of about 7%. The standalone EBITDA margin was higher at about 18%. Overall, the profitability was affected by a sharp drop in the realizations and spreads in Europe during the quarter. So first, the standalone at Tata Steel, standalone India, the EBITDA stood at 5,334 crores, which translates to an EBITDA per ton of about 11,623. Excluding the forex impact, the EBITDA stood at about 4,763 crores and was up by about 15% quarter-in-quarter. India steel prices remain subdued for most part of the quarter. The fall in long products prices were higher than in the flat products due to extended monsoon and the stoppage of construction in Delhi in the NCR region as per the ruling of the National Green Tribunal. However, the raw material prices were also lower as cooking coal prices declined by around $82 per ton on a consumption basis. The royalties also declined by about 14% quarter and quarter to 775 crores. Overall, the drop in cost more than offset the greater than expected decline in net realization and that's led to the margin expansion. At Tata Steel Europe, the EBITDA loss stood at about 166 million pounds. As Naren mentions, deliveries were up 6% quarter on quarter, but there was a sharp drop in realization within the quarter with revenue per ton being down by about 159 pounds per ton. The sharp drop in realizations were part due to the higher spot sales and subdued demand given the macro conditions in Europe and high stock of inventories with the customers. The costs were higher by about 31 pounds per ton. While the cooking coal consumption costs were down by about $95 per ton quarter-on-quarter, there was a NRV markdown loss of about 55 million on the slab stocks being carried due to the forthcoming relining in Tata Steel Netherlands. Energy costs remain broadly stable on a quarter-on-quarter basis. The currency markets have also been very volatile, and there has been sharp movement between the USD INR and the Euro INR, to name a few. This has led to an FX impact on the intercompany loans provided over time, and this resulted in a forex gain of around 1427 crores at the consolidated level. Taxes for the quarter stood at about 2,905 crores and are fundamentally made up of two parts. A, the current tax in line with the profitability in India, largely. And B, the non-cash deferred tax charge primarily due to the reduction in the surplus in British steel pension scheme as a part of the de-risking, and I'm coming to that point soon. We made further progress during the quarter on de-risking the British steel pension scheme and expanded the insurance coverage from 30% to 60% now. This buy-in transaction and the actual movement during the quarter have led to the reduction of the surplus, but it still continues to be materially in surplus. As mentioned in the previous quarter, the surplus reduction results in a reduction in the deferred tax liabilities in the OCI, but given the large amount of accumulated losses and the deferred tax assets in Tarsteel UK, we have to limit the movements by recording and offsetting deferred tax expense in the profit and loss account. which is why you see a non-tax deferred charge in the profit and loss. Depending on market conditions, the residual insurance or what 40% liabilities will be completed in the first half of the calendar year 2023. And there will be commensurate non-cash deferred tax expenses depending on the size of the de-risking that we do. Moving to cash flows, the operating cash flow for the quarter stood at about 5,000 crores was at 1700 crores in the previous quarter and primarily was driven by favorable working capital movement. The working capital release was due to reduction in inventory at Tata Steel UK and Tata Steel India on account of low commodity prices or lower inventory levels. But this was partly offset by increase in the slab stocks in Tata Steel Netherlands, as I mentioned earlier. As the slab stocks gets consumed over the next two quarters, We expect working capital release at Tata Steel Netherlands also over the next, over the relining period, which will be starting in April. We continue to invest in growth in Kalinga Nagar and in NINL, taking our capital expenditure through about 3,632 crores for the quarter. The nine months CapEx has been about 9,746 crores, and we will be targeting to spend around 3,000 crores in quarter four, to ensure that we accelerate the completion of the Tata Steel Kalinga Nagar expansion project. Our net debt has remained broadly stable at about 71,706 crores and the liquidity remains strong at over 15,000 crores. We are not able to deleverage in this particular year due to very high volatility in the earnings and working capital. Our focus on completing the Tata Steel Kalinga Nagar project acquisition of Nilachal, which was about 10,000 crores this year, and the best ever dividends that we paid over 6,000 crores. Even after this, our net debt to EBITDA is within the long-term target levels of about two. Our long-term target for deleveraging continues to be the same. We will continue to restart the deleveraging in financial year 23, 24. and we'll continue to ensure that our target of a billion is fulfilled and met during the next forecast year and going forward. Looking ahead, the next few quarters are likely to be weaker for Tata Steel in Europe as markets continue to be subdued. The realization for the fourth quarter, our forecast to be weaker and drop will be higher than the drop expected in the coal and iron ore prices. Furthermore, Tata Steel Netherlands is undertaking a blast furnace realign in quarter four of 524. We are working on minimizing the impact on all of these aspects, including the working capital and margins. Moreover, there are a few specific asset challenges which we are addressing. Some of the heavy end assets in Tata Steel UK are reaching the end of their useful life. Any long-term solution in the UK also has to address the rising cost of carbon and the local emission reduction goals. The UK government has provided us a framework of support for the proposed transition of Tata Steel UK to a low carbon configuration. This framework consists of potential partial capital expenditure grant, policy on electricity pricing, and regulatory intent to ensure a level playing field for green steel manufacturers. We are currently evaluating this offer of support. We are developing the options, investment options, which has to be capital efficient, economically viable, bankable, and value accretive, which will be reviewed internally over the next couple of months and determine the way forward. In the meantime, we will continue to run Tata Steel UK optimally for cash with minimal support from Tata Steel in India. With that, I conclude my comments and we open the floor for question and answers. Thank you.

We will now begin with the question and answer session. We will be taking questions on audio and chat. To join the audio questions 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. The first question is from of JP Morgan.

Please go ahead. where the company had effectively guided to a certain set of numbers for the India operations and for the Europe operations. Clearly, the earnings are far weaker than that. But it seems that the profitability is lower than peers as well. Can you walk us through as to what happened in the India business in particular, if the cost reduction is lower than what we have seen in peers and how this will trend over the coming quarters?

So Pinakin, in terms of cost reduction, I don't know if you can be more specific, but generally one area where we had a slightly different issue in India is we were ramping up Nilachal. So if you look at it on a consolidated basis, you had the Nilachal business which was incurring costs but not yet earning much revenue. That will get settled during this quarter because the production is coming up to peak and we'll be selling that certainly one area. But otherwise, I don't know of any specific area where our costs have trended differently. I don't know if you can be more specific, maybe I can try and answer.

Sure. I mean, we were just, you know, given that the December quarter, the coking coal cost benefit that was supposed to be there, the margin expansion was probably, you know, markets thought that it could be higher than what we have seen. So just trying to understand, was there any particular realization of contract sales volume issue or where other than coking coal costs, some of the other expenditure did end up being higher than what was earlier thought in November?

No, when we had met in November, I think the guidance on the realizations were not as pessimistic as it turned out to be, right? I mean, if you really look at it, we went into that quarter, we thought that the prices had reached its bottom and will start moving up. Or if not moving up, it will stay stable. But the Q3 in India has been about 2000 rupees less than Q2, right? Certainly so. The margin expansion in Q3 was largely supposed to come from the drop in coal cost, consumption cost. The coal consumption cost was $90 a ton, which is what we had guided in November. We had said $90, I think we ended up close to that. But in terms of margins, we didn't expect the prices to drop as much as it did. And by the time it was already towards the end of December. And secondly, we were hoping to get the relief on export duty earlier than when it came. You know, it came only in the middle of November, whereas we had been hoping that it would have come earlier because the steel prices in the domestic markets were still quite low. We actually had a pretty good quarter as far as production is concerned. And I think at least in India, we didn't have any issues.

Sure. Fair enough. My second question is, you know, just going back to Nilanjal and you said that it has been ramping up during this quarter. Now, if you look at the medium term ROIC target of 15% on a 12,000 crore investment, it effectively implies a steady state through cycle EBITDA of 2,000 crores from that acquisition. So when can we see that kind of earnings come through from Nilanjal? Because clearly at this point of time, it is a material drag on consolidated earnings.

Yeah. So, Pinakin, basically in Nilachal, we were EBITDA negative in the last quarter. And that changed obviously because one is we are today producing at least 50-60,000 tons a month and we hope to take it to 80,000 tons a month of steel. I'm not talking of hot metal, the blast furnace is already at 80-90,000 tons a month. So, we are seeing the work go up, the billet production is there and we are selling the product at a strata discount. So, next year, for instance, you will see a million tons of production out of Nilachal. So, the return on investment on Nilachal was also based on the expansion of Nilachal beyond the 1 million, then the 12,000 crore valuation was not for a 1 million ton capacity, but was for the opportunity for us to increase the size. Because if you look at a 1 million capacity, you know, we would have been closer to what we paid for Nusha Martin or something like that, right? Because they're 5,000 crores. What we paid extra was for the iron ore, which has come at a premium. And we paid for the land, which is 2,500 acres of land. that's what we paid the premium for. So that, to monetize that, we obviously need to expand Nilachal to about 4 to 5 million at least, which we will do. We'll go to a board in the next months, 1 to 1 million tons. We were waiting for this 1 million ton operating rate to be reached before we go and have more capital to expand Nilachal.

Understood. This is very helpful. Thank you very much.

The next question is from Amit Dixit of ICICI Securities. Please go ahead.

everyone and thanks for the opportunity. I have two questions. The first one is essentially on the non-cash deferred tax payment or provision in the consolidated numbers. So is it possible that theoretically if there is profit in Tata Steel Europe, then this can be offset at a later date. So theoretically we can get a lower tax rate. Or is it that the profit has to be in Tata Steel UK for the offset to take place?

Yeah, I mean, the offset has to be in the entity which is carrying this, which is Tata Steel UK.

Okay, okay. The second question relates to the spreads in TSE. Now, while in the prepared remarks, you have mentioned that, you know, the drop in realization would be higher than the benefits of cooking coal and stroke, iron ore escalation, whatever is there. Now, will there be any NRV provisions in this quarter as well, given that prices have moved up in Europe? 55 million was what was recorded in last quarter. Will there be something in this quarter also? And will we have more EBITDA compression or will we end up with a number lower than what we have in this quarter on a pertinent basis?

So I think to answer that question, first is we've kind of taking all the NRVs that we could estimate. As you know, the NRV is point to point. It is at the end of the quarter. So we had stocked up slabs in Imouden, in Netherlands, in anticipation of the Blast Furnace Relaying. And as the Blast Furnace Relaying will take about 120 days, you had to have enough stock to run the business and service the customers. So this stock, which has been accumulated over the last six months almost, was on account of the fact that at that point of time, the coal prices were at about 450, north of 450. I know prices were also high, which is why this NRV testing happened. And that's the clean, the write down on the NRV mark to market is what we have taken in this quarter. If the prices don't fall very sharply or significantly from here, I don't see any material NRVs. I can't rule out small changes in NRVs, but nothing material in that nature. And we are just now, actually, the other thing is, as I mentioned in my remark, both in UK and Netherlands, we're going to go run flat out for cash. And therefore, if that is the case, then we are also targeting significant stock level reductions from... as far as practical to run the business. And therefore the end March inventory numbers should also look much lower. Hence the risk of the NRP comes down.

Great. Now, you know, the one associated question with it is that the annual contracts that are going to be negotiated, maybe from CY23, the expectation is that they would be negotiated at a significantly lower level, given that what we had in CY22 and the quarterly contract that possibly you will enter with in March and on. you know, would again be at a significantly lower level because at that time, Russia-Ukraine war was there last time and prices simply went over the moon. So do you expect that contracts, monthly contracts or quarterly contracts will be negotiated lower and therefore we can have this overhang of lower realization extending right into the first six months, let us say, of FY24 as well?

so amit uh let me put it this way the annual contracts that we had for last year uh most of them were in excess of thousand euros a ton okay uh so this year uh while the annual contracts are at a lower level depending on which sector which industry from maybe 100 to 150 or maximum of 200 but they're still higher than the spot prices that's one point i wanted to make secondly uh the You know, the spot prices are what is going up now. If you've seen it in Europe also, it's gone up by about 50 euros a ton. If you look at last quarter, and this is an extension of Kaushik's answer, the cost of Q3 is higher than the cost of Q2 because of these NRV provisions. So despite the coal being $90 per ton cheaper and iron ore being $20 per ton cheaper, our cost is £31 per ton higher in Q3 compared to Q2 only because of this NRV provision. So when you look at Q4, We expect that the realizations in Europe will be about 70 pounds per ton lower than Q3. But we expect cost to be at least 100 pounds per ton lower on a Q3 to Q4 basis. So we see a margin expansion per ton this quarter. Of course, we are still looking at gas prices and many other moving parts just now. But you know, at least from a margin pattern or EBITDA pattern point of view, hopefully the worst is behind us for as far as Q3 is concerned. Now going forward, The stocks that Kaushik said, basically we had to build about 700,000 tons of stock. That will start getting converted into cash. While the blast furnace will be down, the sales will not be down to the extent of what production is down. And that's what these slab stocks are going to do. And since that NRV correction has been done for the slab stocks, if the spot prices and the steel prices keep going up, we shouldn't have a problem.

Before we take the next question, I would like to remind the participants to please limit your audio questions to two per participant. Should you have a follow-up question, you are requested to post it the same in the chat box. The next question is from Indrajit Agarwal of CLSA. Please go ahead.

Hi, can you hear me? Yes, yes. Okay. Hi, thank you. I have two questions. First, if you can give us some indication as to what would be the relining capex and how long would the shutdown be? And in lieu of that, what is our cash fixed cost per ton in Europe? So at what EBITDA levels will not need support from India? That is my first question.

So I think the blasphemous shutdown is planned at about 120 days and the gas part of it is already. It's not the new cash will also come in, but it's a question of also ordering has also been done over the last one year. So some part of the cash has already gone out and there will be some spend obviously as the relining happens because that's the period. and uh it is uh in the ballpark of about 250 to 275 million euros and that is the of which some of it has already been spent and some will be spent and i think if i can put it the reverse way the darcy netherlands actually sitting on 600 million euros of cash so they don't require any money from india

And UK would still need the cash infusion.

That's why I said that in my comments that we would look at running it on for cash and we will minimize as much as we can. We're looking at driving it and including in this quarter there's almost about thousand crores of lucky capital release. So we will continue to push that very hard.

Sure. Thank you. My second question is on coking coal. While we understand your fourth quarter guidance, but given the news flows around Australia-China trade opening up, how do you see coking coal prices trending on a more like six, nine month basis from here?

So I think coking coal is obviously not as liquid a market as one would like it to be. And hence, it's very vulnerable to these fluctuations. But generally, we do see, you know, unless there's a what do you call it, an odd event like the Russia-Ukraine situation, are these easy coking coal prices between $250 and $350? You know, it will fluctuate in that range. There would be some weather event in Australia for which it may spike up or something else. But we are not seeing coking coal prices drop much below $250 in the short term or medium term, because honestly, there are not so many investments being made in coking coal, because generally coal is seen as a bandit. basket to invest in. So this is where the challenge is, but I think this is the range at which we see coking coal prices. Today, it's gone up closer to 350. You know, your question on China buying coking coal, well, I think one thing which China has done well is they managed for the last few years without buying Australian coking coal. So You know, they managed to get the quality they wanted out of the facilities that they have. They've also been buying out of Russia. So I'm not sure it will make such a material difference as it would have done three, four years back because they've developed alternate sources over the last few years.

Sure. Thank you.

The next question is from Satyadeep Jain of Ambit Capital. Please go ahead.

Thank you. A couple of questions on Europe. First on the profitability, I believe a couple of years ago, the company was embarking on transformation program. that time he thought was that at these spreads of about 240 euro per ton the company was looking at being cash breakeven given the current spreads are also about 200 euro per ton not too far from there at these levels the company should have been possibly be at least EBITDA breakeven is there something maybe is the plants reaching end of life or is there anything else going on that is leading to that deviation from the targeted transformation plan savings? That's the first question.

So, Satyadeep, I think two things. One is, of course, our traditional view of spreads now needs to get corrected for energy costs and gas costs, because traditionally energy and gas was hardly, and carbon together was less than 10% of the raw material costs, whereas it went up last year to almost 40%. So it played a very material role. Now it is coming back to around 10 to 20%. So it's at a more reasonable level. So that is one thing. That's why what we had traditionally seen as 225 and 250 euro spreads were assuming that gas and energy prices won't be as high as it is today. So that is one change. Second point is if you really split the UK and Netherlands, the Netherlands business has traditionally been a bit more positive. Cash positive for sure every year and pretty much all quarters. So last quarter is one of those quarters where it was a bit negative, but largely because of the NRB provisions that we had to make on the slab stock, which itself was an unusual situation as a build up to the blasphemer shutdown. UK is where we have a challenge because energy costs have always been high and it's become even higher. We have some challenges on end of life. So what happens in an end of life situation is the production levels are also not as stable as we would like it to be. And that leads to unplanned outages. So that's something that we are dealing with. So a lot of the underperformance has been in UK for the last quarter. The Netherlands also has not had as good a quarter as they would normally have. So we expect in Netherlands, at least, you know, obviously operationally this quarter is fine, but next quarter we have this last one is relining after that thing should come back to a stable state in Netherlands. The UK situation is slightly different. Cost situation is improving in both these places because energy prices have come back close to pre-Ukraine levels. So that's the way we see it. I think Netherlands should continue to be cash positive and EBITDA positive and should not need support from India. UK is what, as Kaushik said, we will take a call going forward, what best to do. Sorry, to come back to that, yes, it has given us the numbers that we were chasing. You should also keep in mind that Europe is today in a high inflation environment. So the inflation is much higher than what we had thought two, three years back. And that also has an impact on cost. So even if we have taken out a lot of costs. Some of the costs because of inflationary pressures have gone up more than we had planned three years back.

Understood. So the second question is on capex. So the $275 million for relining I was under the impression that this is going to be a partial relining given the eventual transition to DRI sometime in future. Is this capex for partial relining seems somewhat high. And secondly, the media reports indicate possibly a $1 billion plus requirement for conversion for UK plant. If I understand it correctly, the idea is to convert into a standalone EF given the scrap supplies there. the capex required for a standalone ef should be i believe much lower than those media headlines is there a thought behind maybe not just looking at standalone ea for possibly exploring other options there that's the questions on capex

Yeah, so on the relining, depends on if you're comparing to a relining cost in India or something, obviously, 275 million looks high. But if you compare to what relining costs in Europe, it's comparable. Having said that, this blast furnace is expected to run at least in 2035, even in a transition plan. So that's why this is being relined for that kind of a life. The blast furnace which will go down first will be the blast furnace which is coming up for relining in 2026 or 2027. So we have two blast furnaces in Netherlands. So this is being planned to be run till 2035 even in our transition plan. That is one point. As far as UK is concerned, the media reports on the numbers are speculative. So I don't want to comment on that. But having said that, The proposal to the government was not just about an EF, but it was also about the hot strip mill, which was also coming to end of life and some of the other assets which were important to keep the site sustainable. So that's why the amount was more than what you would spend typically on an EF. But given what we got from the government, we are looking at what then could be the next best thing. What is the best that we can do with the kind of money that may be made available to us and the policy support that we will get from the government. So I think this is what we are working on based on the recent inputs that we've had from the government. Thank you.

Next question is from Ashish Jain of Macquarie. Please go ahead. Ashish, we are unable to hear you. We request you to please send in your question via chat. We will take it up in the chat question section. We will now move on to the next question. The next question is from Ritesh Shah of Investec. Please go ahead.

Yes, please.

Hi, sir. A couple of questions. Sir, first, can you broadly give us some color on The assets that we have in Europe, I think in the prior question you indicated there are two furnaces in Netherlands. One, what is due for relining, it will be till 2035. The other blast furnace, it has its relining due by 2026. Is that right?

Yeah, that's right. 2027, around that time.

Correct. Sir, how should we understand the same aspect for the UK operations wherein you indicate there are many assets relining reaching end of useful life. And if you could please put in perspective what you indicated that the framework that you are engaging with the UK government on practical grant level playing field, I don't know whether it refers to CBAM or something else. If you could marry both those verticals together, it would be great, sir.

So in UK, if you look at, so one of the blast furnaces in the UK got relined about five, six years back. okay or maybe 10 years back 2012 i think it was uh so typically a blast furnace once it's relined will run for anything from 15 years to 20 years so there is one blast furnace which can go on for slightly longer the other is due sooner. But more than the blast furnaces in UK, it's the co-coverns, it's the steel milk shops. There are many parts of the UK business where the assets are a bit old and needs support. And that's where our proposal to the government was to say that instead of spending capital on which anyway don't have a very long-term future, you know, why don't we use that opportunity to transition into a greener process route, particularly given that the UK has a lot of scrap, which it is exporting. But the challenge there was the energy costs in UK, even before Ukraine, was twice the energy costs in Europe. So our ask of the government was 50%, at least 50% of the capex that we need to spend should be supported and there should be policy support on energy costs so that we are not disadvantaged compared to Europe. And thirdly, of course, the policy support that European steel companies are getting in terms of carbon border adjustment mechanism, etc. The ask in general in Europe by steel companies of governments is typically on these principles that at least 50% of the capex that is required should be supported as grants because the industry through its cash flows cannot justify spending all the capex that it needs for this transition and secondly opex support because when you transition from coal to gas and hydrogen your input costs are less dependent on steel prices when you're looking at metallurgical coal there's a correlation between the metallurgical coal price and the steel price but when you're starting to use gas and hydrogen the correlation is not there because gas and hydrogen are used for other applications as well So the ask of the government is to also say that how do you protect the industry if it's changing from one consumable to another, which is more vulnerable to other industries. The third point, of course, in Europe is about the carbon border adjustment mechanism. But the last point is that we are also saying that there should be a level playing field, not only in terms of carbon border adjustment mechanism, but if there are some countries in Europe supporting their steel industry with, let's say, 50% of capex, Then the other countries also need to consider that because otherwise, at the end of the transition, some of the steel companies in Europe will be disadvantaged compared to somebody else who's got more support from the government. So that has also been an ask on the principle of support. And this is what is actually being discussed by us and appears to the multiple governments in the countries that we operate in.

Right. So thanks. Thanks for the details. So if I had to conclude on that point, what is the aspirational ROI in the presentation? We indicate 15 percent. So for standalone, whatever we do for UK operations, even factoring 15, 50 percent hypothetically, hypothetically, the government does contribute to the capex. What is the ROI that we are looking at at corresponding cost of capital? That's just trying to make sense of the incremental ROC.

So on that, it's more linked to the cost of capital. So what works for in India, for example, our back hurdles are more on 12 percent. But in Europe, it will be around 10 percent, 9, 10 percent. That's the IRR hurdle for approval of CapEx. But the ROIC that we are looking for is always at about 15 percent.

Sure, that's very useful. And I had a couple of questions for India operations. First is, do we see leeway to increase local steel prices? I'm more referring to from an import parity math standpoint. Second is volume guidance, if it's possible on FY25 basis, given I think the street will start to look at the company on 25 basis. And third is basically iron ore merchant sales. Is there an optionality that the company has over here? If at all, if you could detail any plans on this particular aspect. Thank you so much.

Yeah. So I think steel prices in India is also reflecting the trends in international prices. If you look at prices in Southeast Asia, they've gone up $100 in the last four weeks. And steel prices in India, you know, we expected to go up by that amount over January, February and certainly by March. So that's something which is mirroring what's happening in the international markets. The demand in India has been strong. There was in between a few shipments of imports which came in from Russia, etc. But I don't see imports as a big threat just yet. In between, Japan was exporting a lot because the yen had gone to 145. The yen is also strengthened. So I think we are in a much better situation today as far as import threats are concerned than we were two, three months back. And I also think in any case, the steel prices in India need to find a better balance than we've seen in the last three, four months. I think that's reflected in the financials. of the steel companies over the last two quarters. And particularly if the industry needs to invest for growth, we need better cash flows than we've got in the last two quarters. So that's as far as steel prices are concerned. Sorry, what was he?

So I think there was a question on volumes. Yeah, 25. As you know, we don't give annual volumes at this time. We will do that once we finalized our annual plans. But maybe you can just walk in through the broad sense of how we expect.

So in terms of volumes next year, you will see Nilachal at full 1 million. You've not seen much of Nilachal this year because we started the plant within three months of acquiring it. But pretty much the steel making started in November. And, you know, we are today. In fact, yesterday was the highest ever production that Nilachal has ever had. We produced 3,200 tons of steel yesterday in Nilachal. So that means the going rate is already at the rated capacity. So that is the incremental volume which will surely come for next year. We will also get some incremental volume out of the Kalinga Nagar. We have a new caster coming in that should be up And Kalinga Nagar also today is actually producing at over 300,000 tons a month, which is like 3.6 million rate. So we'll get some additional volumes from the caster. We'll give guidance when we do the annual results. And through some de-bottlenecking, we'll get some volumes out. But how much more, we will guide you in the next call. In two years, we will have the Ludhiana plant also up, which is 0.75 million. and by which time the Kalinga Nagar blast furnace should have also started.

The next question is from Kirtan Mehta of VOB Capital. Please go ahead.

Just continuing on the previous question, you've given some color on FY24 numbers. To get some more color on FY25, which is likely to be the valuation base for the street, could you walk us through the ramp-up sequence of Kalinga Nagar post-expansion? How long would it take to ramp up to a full capacity?

So next year, what you will see is, firstly, the pellet plant would have ramped up by the end of the first quarter, which means we don't need to buy any more pellets, which means there's a cost saving for Tata Steel. Secondly, the coal rolling mill, not the galvanizing line, but the coal rolling mill will be ready. So we will have what we call full hard CR, which can be sold. So basically, the hot roll coil gets converted into coal roll. So there's no incremental volume, but there's incremental value which comes from that. Like I said, if we have the new caster in by the middle of next year, we will get some additional volumes from steel make because today we make more hot metal than the steel mill shops can consume. So these are the areas where you will see the ramp up. The blast furnace of Kalinga Nagar should come up only in FY25. and that's when you will see the ramp up typically blast furnaces ramp up fast unless you have a problem uh the hot ship mill and the steel melt shops would also be ready and once you have the steel once you have the blast furnace making hot metal ramping up the steel melt shop and the hot strip mill is not an issue if you remember the Kalinga Nagar phase one ramp up was one of the fastest for any greenfield site i think we did it in about 16 months the full ramp up so that's typically what it would take you know we should keep in mind that there's going to be one of the biggest blast furnaces in india so we will obviously ramp up keeping the complexity of large blast furnaces in mind

Thanks for this details. One more question from my side. If we look at the Tata Steel and its subsidiaries, there is a spread which has opened up to around 12 to 15% if we take the conversion ratios in account. So in effect, if it will be back look at from this perspective, it would be market is pricing something like one to one and a half years for a merger to consume it from this angle. Do you think that that's a fair estimate by the market or do you see the merger progressing bit faster than that?

So, Ketan, I think we are at a stage where we have done the filing to the SEBI and the regulators, and we will be looking at getting their clearances. And since some of them are listed companies, I think a year is the ordinary course of business of the NCLT. We should be able to do that. I don't see it one and a half years. In Bhushan, we got delayed because of multiple reasons. But these are subsidiaries which have been in our fold for long. So we are hoping that we can close it before one year.

I would now like to hand over the conference to Ms. Samita Shah for the chat questions. Over to you, ma'am.

Thank you, Kanchu. I'll start with the questions on India. So we have a question on auto. We have said that auto sector is about 15% of our volumes. What would be the growth trajectory going forward for the company as an average? And what is our targeted mix from the auto sector for FY24?

so obviously our growth in auto will depend largely on the pace at which auto grows because we already have a 50 market share and normally auto companies like to buy from at least two suppliers if not more so we are not looking at a much higher market share than we have today so our growth in volumes will largely depend on the growth in auto sector having said that uh once a cold rolling mill with its galvanizing line and the annealing lines comes in in full you know what is coming up just now is the what we call the uh pltcm which is basically the cold rolling mill but the annealing and galvanizing facilities will be commissioned uh over the next 12 to 14 months once that comes in then you will have a lot more to add to your product mix. So while we have a very high market share, let's say in hot roll coils, which is over 55, 60% in some cases, in cold rolled and galvanized, we are in the 30 to 40% range. So there is a room for us to increase our market share in the galvanized, high end galvanized and cold rolled annealed products, which we will do over the next three, four years. But overall, if you look at it, auto will always account for 15 to 20 percent of our overall volumes the other sector which is quality conscious approval based which we are pursuing in a big way is oil and gas and i think the Kalinga Nagar plant is ideally suited for the oil and gas segment and we are making a lot of headway there so we expect that also to account for a big chunk of our value added sales going forward

There are some questions on the volume guidance, but I think we answered it earlier, so I won't go through that. There's a question on INR merchant sales. Why do we not do some merchant sales and the optionality is available?

yeah that optionality is available with the requisite permissions that we need to take which we've taken we are doing some minor sales but largely our i know is meant for captive use because uh what we are producing we are consuming uh once the pellet plant is starting we will be using more iron ore for the pellets so because we don't have to then buy pellets but having said that whenever there is an opportunity to auction iron ore that we can't use because of the grades or because of the whether it's fines or whatever then we do that and we I think I think one of the challenges today is not so much about auctioning it but about the logistics of it and I think we have done quite a few rakes of iron ore in the last two three months

not yet so material but yes it has started there is then a question on rinl this investment uh given our deleveraging target for 24 uh year 24 and ahead uh can we confirm that we are not going to bid for these assets so i think what we've always said is our existing sites allow us

the runway to grow to 40 million tons, right? So I think our growth ambitions can be fulfilled from our existing sites, but it will be premature for us to emphatically say yes or no, because this is a competitive environment and why should we announce what we want to do or won't do ahead of when we need to do it.

And there's another question on India, which says, can we assume a 16,000 tonne, 16,000 EBITDA per tonne for Q4? So as you all know, we don't give a quarterly guidance, so we'll not comment on that. Just moving to Europe, there's a question that do we expect steel prices in Europe to benefit if the KABAM proposals are implemented?

Yes, certainly, because, you know, we should keep in mind that in Europe today we pay 80 euros per ton for CO2. I mean, obviously, we get free allowances. So even despite that, I think we pay something like 100 million euros a year. So because the free allowances we get doesn't cover our needs fully, right? So that's a cost we are paying and everyone else in Europe is paying today. And as those free allowances go down, you will pay more. So that's why there is a kabam, because if somebody can make steel which is more carbon inefficient and shipped to Europe without that cost, that's very unfair on the European steel industry. If you look at Tata Steel in Netherlands, it is the second most carbon efficient blast furnace in the world. it emits about 1.8 tons of carbon per ton of steel. So for a blast furnace emitting that kind of carbon to pay 80 euros per ton carbon cost and somebody who's let's say 2.5, not paying that cost is certainly unfair. So we expect that KABAM will come in. We expect that steel prices in Europe will reflect the costs in Europe, you know, because some of those costs are unique to Europe and the industry will need that support.

There is a question around the energy costs. So given that spreads have been, or margins have been affected by coal costs and gas costs, could the company please report that line separately under expenses for both Europe and India? So I will request you to comment, but I would just say all of you know that we give a lot more information than any other skilled company in the world, actually, or any company in terms of the profit and loss details. But that is a question.

It will get covered in the MD&A when you look at the annual numbers.

The next question is a comment, I think. Are we regretting not considering divesting our international business when the situation was favorable? Will we revisit this in the next up cycle? It's a hypothetical question. Yeah, it's more of a comment. I think there is a question around debt reduction. Do you expect a debt reduction in Q4 FY23?

So we've actually in this third quarter itself, we've prepaid about 1300 crores, but it got offset by the currency valuation. So my principle that I can articulate as a company is we will look for all opportunities to reduce our debt. As I said in my comments, that completion of Kalinga Nagar is a priority, but deleveraging is also a very important priority. And therefore, whenever we get opportunities, we'll do so. We do have some scheduled repayments ahead in 2024 coming up. So there will be a natural deleveraging itself. And then whatever we get from a surplus cash generation, we would look to prepaid leverage.

There's a question of profitability of Europe for 4Q. It says your commentary suggested that BIDA per ton will further weaken over third quarter. Can you please clarify?

No, I think we said it will improve compared to third quarter because while our current estimate is the realizations on an average for Europe will be 70 pounds per tonne lower in Q4 compared to Q3, but the cost will be about 102 pounds per tonne lower. But we are watching all the costs very closely, including gas prices, energy costs, which have dropped significantly over the last few weeks.

The next question on Europe is on Ukraine. What is the way forward on Ukraine, given the package is inadequate? When can we see some concrete steps that you will take?

So I think we are, as I mentioned in my comment, that we are looking at an optimal model which is investable, bankable and fits the need of the company. This is not an Excel model analysis. It's an engineering analysis and it's a technical analysis which is underway. We've been doing it in the past when we looked at what Naren mentioned as the broader configuration given the current offer of the UK government. We're going to look at it. We've already started looking at it and we will come back to our board and take guidance from that. So, it will take a little bit of time, but not indefinitely.

What is the kind of annual contract negotiation in Europe? Can you give us a sense of how different it is?

Compared to previous? Yeah. Yeah. So, like I said, it's depending on the industry. It's, I think, in the range of 50 to 150 to 200 in that range, lower than last year's annual contract prices. But most of last year's annual contract prices were higher than 1,000 euros per ton. So I think it's in the 850 to 1,000 euros range is what we see most of the contracts for this year, which is lower than last year, but higher than today's pot prices.

The next question is on Europe in terms of the investigations around environmental issues. Can you please give us an update?

yeah so i think largely it is to do with our operations in netherlands you know obviously we you know responding to the various notices that we get etc there are issues related to the coke plant there and the emissions out of the coke plant you know and a few other instances of the past what we have done over the last few years is one is of course we have a roadmap uh to continue to improve the situation uh having said that i must also say like i said before that our dutch plant is certainly one of the cleaner steel plants in the world but we are conscious about the feedback from the community and from the regulators and constantly trying to improve the facilities that we have there So that work goes on. There are obviously investigations going on. There are questions being asked, which we are responding to. We are cooperating with the authorities and doing the best that we can. But having said that, I think we are a responsible corporate and we will do whatever is the right thing to do.

Okay. And one question before we go back to audio is on the forex gain this quarter. It's quite a large amount. Can you please explain that? this and provide some details.

So this is something which happens every quarter. Actually, there are gains and there are losses. So there is a Tata Steel investment in Tata Steel Holding, which is the holding company in Singapore, and it is done through a debt mechanism. So whenever there is an FX movement every quarter, it is adjusted. Sometimes it is negative, sometimes it's positive. And this quarter, as I mentioned, Euro-dollar and Euro-INR movements have been quite volatile, resulted in an FX gain, and that's been accounted for in the others.

Thank you. We'll go back. I think we have a few analysts for the audio questions, so we'll go back to you in the future.

Thank you. Thank you, ma'am. Moving back to the audio questions, the next question is from Sumangal Nevathia of Kotak Securities. Please go ahead. Sumangal, we are unable to hear you. We request you to please send in your question via chat. We will take it up in the chat question section. We move on to our next question. The next question is from Tarang Agarwal of Old Bridge Capital. Please go ahead.

Hello, am I audible? Yes, please. Hi, three questions from me, two on Europe and one on India. Europe given that your current contracts have been priced at anywhere between south of thousand euros per ton but if I look at you know the total cost even if I eliminate the NRV of 55 million euros the total cost at least for the last four or five quarters has been trending north of you know thousand euros per ton so is there something that I'm missing here or, um, uh, from the point of view of how, uh, it's going to play out on a pertinent basis.

I mean, I think we'll have to get, yeah, maybe we can connect, uh, because I think the question is not actually very clear.

The numbers, we're not able to, I mean, I don't see the cost in Europe at more than a thousand euros.

Okay.

I'll, I'll take it offline. Um,

The second question is how fungible... Sorry, the only thing I can think of is we have a lot of downstream as well in Europe. So I don't know if there's any confusion on those costs versus those realizations. Anyway, you can look at it. But maybe Samita can clarify more specifically.

I will. The second is how fungible is the cash between Netherlands and UK?

So in the past, when we used to run in the Star Steel Europe, uh we used to use it in a very fungible manner given the fact that tata steel netherlands has a decarbonization project ahead of them we are kind of uh escrowing and ensuring that we have that capital because that will be a very material uh investment that has to be done in tsn but otherwise cash moves freely across all entities

Okay. And my third question that's on the India business. Between BPR, downstream, IPP and automotive, if you could give us a flavor in terms of how the realizations are different.

So, you know, in terms of realizations, automotive contracts, the tenures are different of these contracts, right? So if you look at it, the automotive contracts are typically three months to six months, depending on the customers. now uh so if you have a rising market the auto contracts will look less attractive because the spot prices have gone up above the auto contracts in a falling market the auto prices will look better so that always happens particularly when there's a lot of volatility but fundamentally the reason why we pursue auto customers is that they are not price buyers you know they look for buying from suppliers who are approved Right. So that means your competition is limited to whoever has the approval for supplies. And that's why segments like automotive oil and gas are attractive because you're not reacting to spot prices moving up and down. IPP is where the volumes go because you have a large number of large customers, maybe tubers, earlier cold rollers. Now there are not too many cold rollers who buy hot rod coils. They are all integrated. But these are the volume plays, plus you have a value added play in that. Downstream business for Tata Steel is very big. There, our policy is more on transfer pricing, which is based on arm's length basis. But there is obviously a lag. So if you look at some of the price increases that we take this quarter, by the time it passes on to our tubes division or The tin plate company on our arm's length policy, transfer pricing policies, it may be a month or two into the quarter or at the end of the quarter. So there is a lag between that. But again, we see downstream, like auto, gives us stability in the business. IPP is more the one which you will leverage when the stable businesses are picking up less volumes than we would like to send them. The next question... To answer your question, I would say on a long-term basis, auto and downstream should rank over IPP.

Thank you, sir. The next question is from Subangal Nevathia of Kotak Securities. Please go ahead, Subangal.

This time?

Yes, we can hear you.

Okay, thanks. Okay, first question is just some clarification on the UK topic. The entire transformation from BAF to EAF, what is the estimated capex we are looking at and what is the plan to fund the remaining 50% assuming we get a 50% grant from the government?

So, I think if you have heard Naren a little while back, our original ask was for a configuration which had an EF and also the downstream TSC or things lab caster. So and the rolling mill. So that all was the. Was the configuration that we were discussing with the government and we said for that we need to get 50% support. I think what the government has given is partial of what our ass was. And therefore we are re-looking at what should be the resizing of the configuration to make it investable and bankable and value creative. So I think these three are the foundations of what we are looking at. And I don't think what we had asked for has happened. And therefore the original configuration has to be rethought.

Understood. Kaushik, is it possible to get what is the ask in terms of billion dollars or something?

No. So at that point of time, it was multiples of the 300, which we had got. But I think let us not look at that because it's no longer relevant. What is relevant is what we will now work on and are working on and which matches up to the partial grant that the government is willing to give and then go back to the government saying that this is what we can do at best.

Okay, got it. But given that the UK doesn't earn any free cash flow, I mean, how will it, how will the remaining part be funded? Will, will they raise debt or will there be some support from India entity?

No, it, so that's why I'm saying that when you do the capital allocation, when we say, for example, say that this year's capital expenditure is say 12, 13,000 crores, et cetera, we take every entity into account. It's not an India alone. So I think we and this is going to be almost like a new investment. It's not putting money into any current assets. So so this will be, as I said, the financial closure of it will have elements of. government support. We will have elements of Tata Steel support. Something if the existing business can give or cannot give, then it will be externally funded. So it will be a combination, but I yet don't know what will be that configuration. Let's work towards it and then we will certainly come out and talk about it.

Got it. That's very clear. And I mean, just hypothetically, if it's possible to discuss, what could be plan B here? I mean, we've been in discussions with the government since more than two years now. Is there a fixed timeline we are looking to close this? And what is plan B? Is divestment or shutting down the plan an option for us?

So there is a plan B, there's a plan C. But I think unless we cross the hurdle on the plan A, now that the government has given us a formal proposal or a formal support structure. Let's work on this and see whether we get to that. Otherwise, there are consequent plan V's and plan C's that can go past.

And I think to be honest, whatever we do, we also need to discuss with the other stakeholders there, the unions and everybody else. So it'll only be fair for us to internally discuss before we announce whatever we want to do.

Okay, sir. Before we take the next question, I would like to remind the participants to please limit your audio questions to two per participant. Should you have a follow-up question, you are requested to please post it in the chat box. The next question is from Anupam Gupta of IIFL. Please go ahead.

What is the outlook for NSR and coal cost for India operations for the next quarter? For this quarter, that is, fourth quarter?

So, it must be the realisation, yeah.

Realisation, yeah.

Yeah, so the net realizations for this quarter in India, we are expecting it to be about 1400, 1500 rupees per ton higher than last quarter. I say this because while from December, the prices have been going up, I'm looking at average of last quarter, because October prices were quite high, average of this quarter that this one. In terms of coal, the coal costs are expected to be about $10 on a consumption basis, about $10 per tonne lower this quarter compared to last quarter. The other point I want to make is this quarter between Europe and India, we'll also have about half a million tonnes of additional volumes compared to last quarter.

okay um and just one more question um so i understand that profitability in uk will improve in this quarter versus last quarter what you highlighted but let's say over the next one year before your any transformation capex happens um do you think it it can go back to let's say a cash neutral situation or you'll um continue to have some support coming from india or let's say a local level debt coming in uh tata steel europe so yeah no so i think uh

We didn't say it will improve. I think what Naren's comment was, it will not worsen, is the point. And as he mentioned, and I mentioned earlier also, that we're coming to the end of life of some of the critical facilities, which will mean that there will be challenges and costs. And we are trying to run it in a most optimal manner, which will require the minimal support from India. That is what our target is till we come to a decision, which is relating to what we have discussed fairly at length in this call on How do we look at the future as far as UK is concerned?

Just to clarify Kaushik's point, I said we'll improve but we'll not be out of the woods.

Yeah, I understand that.

That's absolutely clear. Thank you. Thank you, sir. The next question is from Sumangal Nevathia of Kotak Securities. Please go ahead.

Hello.

Yeah.

So, just one pending question. I mean, when do we expect the commercial volumes from KPO2? Is it 1H25 or more like second half of FY25?

Firstly, from next year, you will have the full RCR, which is also part of the commercial volumes of KPO. But we should keep in mind that this is value added to existing hot run coils. It's not incremental volume. Let me put it that way. Incremental volume will come from the next, from FI25. I mean, some of the incremental volume will also come from the second half of this year, simply because we'll have an additional caster in the steel mill shop. We are still working out the volumes that will come out of it and we will give you that guidance in the next analyst call. But, so starting from this year, but most of it will start coming from FI25. Whether first half or second half, I think we'll give you guidance when we meet, when we talk the next time.

Got it. And just one last question. The Europe, I mean, in the past, we've said that $50, $60 per ton at the entire Europe level is very cash break even considering the capex, maintenance capex and interest obligations. I mean, when do we see we reaching to that level? Is it more towards the end of FY24 or more like an FY25 as we see today?

When you say Europe, I think Netherlands is what you just mentioned. And as far as UK is concerned, the levels are somewhere a little higher than that.

So, Netherlands has always been EBITDA positive, cash positive. So, I think last quarter was an exception of being EBITDA negative. But otherwise, on an annual basis, even last year and next year, they will be EBITDA positive for sure. In terms of cash positive, of course, next year we have the... Post relining, it will come back. Yeah. So, Netherlands is not the challenge. The challenge is obviously in the UK.

Got it. Thanks and all the best.

Thank you. The next question is from Prashant Kota of MK Global. Prashant, please go ahead.

stable QOQ despite the challenges. So my question is more on the coking coal side and the structural issue over there. You have been used to buying this coking coal and for very high prices. And in fact, sorry for that word, but I'm twisting to an extent by the other side. So if we take a step back and just look at it from an outsider, three steps back actually as an outsider, this is supposed to be a mutually mutual long-term relationship in which both parties need each other so but here it is com this this thing is completely one-sided and uh and also i believe the ninety percent of the volumes are sold on a link to the uh index where the index is decided by just ten percent of the spot volumes So this seems to be some sort of an anomaly. So what can we do to take a step back and say collectively, we as in Tata Steel as a leader, not only in India, also in Asia, because we are also a poor region, that collectively take a step back and say, okay, we need coal. Coal guys need us. And there's coal we buy after making some profit on the steel. So can we have a new dialogue or new system of pricing this as in, Okay, we can pay you this much based on what we have made in the last quarter last couple of quarters and something like that. The way we have negotiated auto guys. You know, so what is the thinking on this direction?

So I think it's obviously in any commercial free markets, the power will shift from the customer to the supplier or supplier to the customer. So when steel prices go up, we get a lot of noise from our customers saying that it shouldn't go up. And I think in some sense, if you look at the coal companies, they will tell you the same thing. The issue is that cooking coal is not a very liquid market, unlike thermal coal. It's a very consolidated market. What is also happening is you have the big miners and you have the smaller miners. The smaller miners are not getting the funds that they used to get earlier, the financing or the insurances that they used to get earlier, because coal in general is seen as a bad word without drawing a distinction between thermal coal and coking coal. You can theoretically do without thermal coal, you can't do without coking coal for at least the next 30 years. So there is this situation. For India, we are very dependent on Australia as a source. uh we are vulnerable to weather or climate events and that makes the liquidity even worse or two years back we had a problem in the railways there so these events happen which swing the uh cooking coal prices the part that you made a point you made about the index is a point with the steel industry globally has taken up both in europe and in india saying that the index or most of our contracts are indexed and that index we believe is not truly reflective of all the transactions in the market. This is something which is being discussed with the people who issue the index as well as between suppliers and customers. But I think, yes, we have a good long relationship with many of uh the suppliers uh but they are doing they seem to be doing what is right for their shareholders and we are doing what we think is right for our shareholders so i think we obviously have to find that balance but i the challenge is going forward uh this is not a sector which is getting a lot of investment for growth because of the uh fact that it's cold But India is already the largest importer of coking coal and Indian steel capacity is going to double over the next 10 years and will double again over the 10 years after that. So till such time we have enough gas or hydrogen as an alternative to coking coal, we will be vulnerable to the volatility in the coking coal market.

Okay, sir, understood, sir. Sir, even now, without any weather event or extra, they are gunning for like 60% of that Asian benchmark steel price. They've always won like 50 to 60%. Ideally, it should have been 25 to 30%, you know, for everybody to, you know, let them make more margin. There's no problem. Let them make more ROC. There is no problem. Then it should not be that they are making very, very handsome and we are making suboptimal. So that is the only concern, sir. Being a mutually, you know, mutual relationship long term. That's the only point I wanted to raise. So apart from that, the net NRV losses in the inventory losses across India and Europe, if you could quantify that, please, this quarter, how much was that?

There was no NRV as far as India is concerned. There was NRV to the extent of about 55 million as far as Europe is concerned.

Understood, sir. Thanks, sir. Thanks and wish you all the best. Thank you.

The next question is from Anupam Gupta of IIFL. Please go ahead.

Yeah, so I had one question on iron ore sourcing for you. So you have that iron ore mine at NINL. So including that and the other mines which you have, can you just lay out what the iron ore sourcing will change like over the next 5-6 years and also include let's say once the existing mining lease gets over in 2030?

So basically our desire is not to buy any iron ore and we've not been buying iron ore, we've been buying pellets because we have enough iron ore to take care of our iron ore needs but we didn't have enough pellets to take care of our pellet needs. But with the pellet plant coming up in Kalinga Nagar which has already come up and over the next few years we'll build another pellet plant in the Angul facility which is a Bhushan facility, we will be self-sufficient in pellets. So hopefully from the second quarter of the next financial year we shouldn't be required to buy any pellets and we want to keep it that way. The Ainur expansion is being planned to keep pace with our steel expansion and so that will continue. As far as post 2030 is concerned, as of now we have about 550 million tons of Ainur reserves for post 2050, I mean 2030 because we have the Gandhalpara mine which is a greenfield mine which we uh bid for and got uh which we will develop at a pace at which we need it and then we have the kalamang mine which came to us from bushan the nilachel mine which has come to us with the nilachel acquisition there's also vr2 mine in jharkhand which has come to us with the usha martin acquisition so all this put together we have at this moment about 500 550 million tons for Post 2030, we will continue to participate in auctions as they come up going forward. We will also have options on our existing mines when they go up for auctions in 2030.

Okay, that's helpful.

Thanks a lot. Thank you very much. That was the last question for today. I would now like to hand the conference back to Ms. Samita Shah for closing comment. Over to you, ma'am.

Thank you, Kinshuk. Thank you, everybody, for joining us for this call. I hope a lot of your questions were answered and you found it useful. Look forward to connecting again at the next call. Thank you and bye bye.

Thank you.