Tata Steel Ltd 144A

Ladies and gentlemen, welcome to the Tata Steel analyst call. The meeting will begin shortly. We thank you for your patience. Thank you, everyone. 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 would now like to hand the conference over to Ms. Samita Shah. Thank you and over to you, ma'am.

Good afternoon, good afternoon everybody and welcome to this call to discuss our results for the third quarter of FI24. We have with us Mr. T.V. Narendran, CEO and Managing Director Tata's team and Mr. Kaushik Chatterjee, Executive Director and CFO Tata's team. I hope you had a chance to go through our results which were published yesterday as well as the presentation which is on our website. As usual, the entire discussion today will be covered by the Safe Harbor Clause, which is on page two of the presentation. We will make a few opening comments before opening the floor for questions, both audio as well as chat. With that, I will hand it over to Naren. Thank you.

Thanks, Kamita. Good morning, good afternoon to all of you. I'm going to make a few comments and then pass on to Kaushik for his comments, and then we'll open it up for the questions. During the quarter, the steel prices were mixed across key regions, driven by different factors. So in the US and EU, the tightness in the steel supply and elevated raw material prices led to a rebound in steel spot prices towards the end of the quarter, while in Asia, sustained weakness in the Chinese domestic demand has led to elevated exports weighing on the prices in general. In India, the steel prices had held up given the strong domestic demand until October twenty three, but steady exports from China had driven the build up in the traders inventory. And this has resulted in a four to five percent drop in steel prices in November, December. Despite this context, Tata Steel has improved on its margins in the third quarter, aided by higher deliveries as well as net realizations in India. Moving on to our performance, our India crude steel production was around five point three million tons. driven by close to 100% capacity utilization on an overall basis and production increased by 6% quarter on quarter and year on year basis. India deliveries were close to 4.9 million tons and were up quarter on quarter as well as year on year. And this has been driven by a rise in domestic deliveries by about 10% year on year, which is broadly in line with the increase in the apparent steel demand in India. Among the segments, automotive segment had the best ever third quarter sales and was up 8% quarter-on-quarter and 22% year-on-year. This was despite a 4% QR quarter-on-quarter drop in vehicle production. Our efforts to enrich the product mix has led to an increase in high-end sales to the automotive customers. Our retail sales continue to be driven by well-established brands such as Tata Tiscon, Tata Stelium and Tata Astral. And during the quarter, Tata Tiscon volumes grew by 10% quarter-on-quarter and 18% year-on-year. And this has been enabled by increased reach and initiatives to enhance customer consumer experience. We continue to deliver various grades of steel to key projects across India, including the recently inaugurated Atal Setu in Mumbai, India's longest sea bridge where we supplied over 42,600 tons of Tata Tiscon rebars, as well as Tata Tiscon, I mean Tiscon ready built solutions and structural plates. In Netherlands, our steel deliveries were around 1.3 million tons in the quarter, up 5% quarter on quarter basis. Revenue per ton was down between 50 and 60 pounds per ton on a quarter on quarter basis. And the demand dynamics and the realign of one of our blast furnaces obviously had an impact on the realizations and our performance there. In UK, the steel deliveries were around 0.64 million tons and were lower on quarter on quarter basis in part due to the operational issues relating to the stuff given the aging assets. Moving to strategic initiatives, we remain committed to responsible growth and are focused on sustainable value creation. We are focused on an agile business model and our strategy is calibrated to the operating geography. So in India, we are scaling up our steelmaking capacity to capitalize on the growth opportunity. We will commence the phase commissioning of our 5 million tonne per annum capacity expansion at Kalinga Nagar. We have charged power into the new blast furnace and expect to make it physically ready by next quarter and start production soon thereafter. We target to produce about 0.7 million tons of crude steel in FY25 in addition and ramp up further in FY26. And as part of a multi-pronged approach to progress on sustainability journey, we have undertaken pilot projects to achieve carbon avoidance in the blast furnaces by injecting biochar, hydrogen or steel scrap and are waiting with technology partners on process improvements. It gives me immense pleasure to share that now we have three sites which have received the responsible steel certification. Jamshedpur was the first site in India to achieve the certification. And now both Miramontli and Kalinganagar have also achieved the same. In the UK, we will come in statutory consultations with the relevant stakeholders on the proposed restructuring as we transition to EFB steelmaking, which will save 50 million tons of CO2 emissions over a decade. It's a difficult situation for our employees. We fully empathize with that. And it is for this reason that we've tried very hard for the last 15 years to support this business. But I think we have reached a stage where continuing as we did is no longer an option. And we would be closing the first blast furnace by the middle of 2024 and the second last one is the second half of 2024. Thank you and over to Kaushik.

Thank you Naren. Good morning, good afternoon or good evening to all those who have joined in. I will begin my presentation with the quarterly performance provided on slide number 29. Our consolidated revenues stood at about 55,312 crores and consolidated EBITDA for the quarter was 6,334 crores. So the EBITDA margin for the quarter improved by about 300 basis points from 8% in the previous quarter to about 11% in the December quarter, despite the challenging operating environment across geographies and the operating challenges in Netherlands and in the UK. In India, the margins improved by about 400 basis points to 24% from 20% in the previous quarter. Before moving to the standalone performance, I would like to mention that we have received the sanction for amalgamation of Tata Metallics Limited and Tinplate Company of India Limited with Tata Steel. Accordingly, the standalone financial statements have been restated from 1st of April 22 to reflect the merger. With this, the merger process for the five entities have been completed. Another two are in the process as highlighted in slide 24. For the quarter, Tata Steel standalone EBITDA stood at about 8,257 crores, which translates to an EBITDA per ton of 16,923. If I exclude the FX gain of 9 crores, the EBITDA stood at about 8,247 crores, and therefore the corresponding margin has improved from 19% in the previous quarter to 24% in the current quarter. As provided on slide 35, higher realizations as well as improved costs have led to margin expansion. The standalone NRs increased by around 1100 rupees quarter on quarter, while costs have been primarily aided by change in inventories. Within costs, the total raw material costs include slight increase in cooking coal consumption, cost by about $4 per ton, which was offset by lower purchase, including pellets. Further, within material cost for our Federal Alloys Division business, there was a non-cash credit of 1,000 crores on account of higher valuation of chrome ore inventory arising on account of increased accrual of royalty charges payable on closing stock as of 31st of December. due to a significant increase in the government notified rates by around 8,000 to 9,000 rupees per ton, which based on the norms for the inventory valuation gets loaded as part of the closing inventory, even though the payout or the cash payout for such royalty happens only on the actual dispatch. Correspondingly, this leads to an increased accrual of royalty expenses forming part of the other expense, which you may have noticed, In effect, the above treatment is therefore profit neutral. The P&L is actually neutral on this because it's a classification adjustment in line with the norms of inventory valuation as per the applicable accounting standards and disclosure requirements for financial statements. At Tata Steel Netherlands, the EBITDA loss stood at about 117 million compared to 110 million in the second quarter. The delay in startup of the Blast 1S6 in Imorden has resulted in lower production, which had a significant impact on the recovery of cost and on the product mix. We now expect the Blast 1S6 to start by the end of this month or early next month. As shown on slide 37, the drop in revenue per tonne of £57 per tonne was offset by improvement in cost. Material cost improved by £59 per tonne, driven by drop in raw material consumption cost, especially coking coal, and decline in purchase of slabs. The conversion cost there was broadly stable as decline in natural gas spend of £17 per tonne was offset by higher employee benefit expenses due to labor agreement. At RCL UK, the EBITDA loss was 115 million pounds compared to a loss of 132 million pounds in the second quarter. On per ton basis, the loss was lower by about 69 pounds per ton quarter and quarter. The UK production was lower than the previous quarter as a result of the production shortfalls arising from the end of life conditions of several of its heavy-end assets has continued to weigh in on the UK business. As shown in slide 38, the revenue per tonne was lower by about £15 per tonne, given the subdued market dynamics during a seasonally slower quarter, which is the December quarter. The material cost improved by about £48 per tonne, primarily on account of lower consumption of coke and iron ore. The conversion cost increased by about £100 hundred pounds per ton on account of fixed cost due to lower production. Moving to the cash flows, the consolidated operating cash flows for the quarter stood at about 7,879 crores and were primarily driven by cash flow generation in the India business. As Naren mentioned, we are committed to responsible growth in India and have spent about 4,715 crores on capital expenditure during the quarter and about 13,357 crores for the first nine months of this financial year. The gross debt has decreased by about 1,500 crores to 88,230 crores, while the net debt has broadly remained stable at about 77,405 crores. The group liquidity remains strong at about 23,349 crores. Let me now make a few comments on Tata Steel UK announcement that we made last Friday in extension of what Naren just mentioned. Over the last few months, we had detailed discussion with the UK Multi-Trade Union representative body, which is called the UK Steel Committee and its advisors, in which we carefully considered their endorsed proposal for maintaining a single blast furnace till the EAF transition. The company analysis was aligned on all assumption with the union advisors and we found that it could progress on the union. It could not progress on the union plan as it is neither feasible nor affordable to continue the blast furnace production longer. Further, the company undertook engineering studies that found that the execution of the electric arc furnace in an already operating steel man shop would be fraught with risk and would result in a suboptimal plant layout delaying implementation of the EAF plan, and in a way jeopardizing the proposed business transformation program. As a result, we have now proposed to close both the high-emission glass furnaces and coke ovens in a phased manner in 2024, as articulated by Narey, and will commence the statutory consultation process about restructuring as we transition to an EAF-based steelmaking at a cost of about £1.25 billion, with £500 million support from the UK government. Tata Steel is acutely aware of the impact of its proposal to wind down the heavy end of the Port Talbot on the individuals and the local community associated with our steelworks, and we will meaningfully consult with our employees and work to provide them with a fair, dignified, and considerate outcome. Tata Steel proposes to commit in excess of $130 million to a comprehensive support package for the affected employees. This is in addition to the 100 million funding for the transition board set up by the company in which the company has contributed 20 million, along with the UK and the Welsh government. Tata Steel is committed to ensure sustainability of steelmaking for the long term in Port Talbot and targets to commission the electric arc furnace in four years. It has already begun engineering design work and planning discussions with National Grid for the required infrastructure. We also have a detailed plan to continue to serve our customers through the transition period from our mills by utilizing imported semi-finished steel. With that, I complete my presentation. Thank you for listening and I now hand it over to the Q&A moderator.

We will now begin 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 wait for a moment as the queue assembles. The first question is from Ritesh Shah of Investec. Ritesh, please go ahead.

This question is pertaining to Tata Steel UK. A couple of quarters back, you had indicated that the difference in cost curve between blast furnace and electric arc furnace will be 150 to 175 GBP per ton. Just wanted to have your thoughts on the number, whether it is the same number. Does it also include the carbon cost? That's A. secondly we have indicated that we will procure slab either netherlands india or strategic suppliers somewhere else so the question over here is how do we look at the inventory and price risk management given what we have seen in the prior quarters the steel prices go down and we had to take a substantial inventory hit that's that's a related question and third during this transition period What we understand, the downstream assets will continue to operate. So what is a normalized spread that we can look at over here, like is it $70, $80? How should we understand that? So that's the first question. And second question, again, with respect to UK, there is a statement which says wider restructuring of other locations, including CAPL. and need a bit of clarification because there are two numbers pertaining to employee costs, $130 million and $100 million. Is there some sort of escalation over here? If at all, it would be great if you could clarify it. I have a couple more. Probably I'll join back the queue. Let's just stop over here.

So can we take the second part first and then we can, so because it's much more specific. So what we talked about the wider restructuring Ritesh is that 2,800 people and the 2,800 people includes functions and other sites. So it's not just Fort Talbot, it is a wider restructuring means it's not site related only, it's the wider across the organization. Your point on capital is also the point that this will run for this year and potentially will be closed next year. As far as the 130 and 100 is concerned, there are two different parts. The 130, what we have said is we are, you know, it's important to communicate properly to the people who are more affected. And therefore we said, and we have not yet concluded the consultation. In fact, it's just formally starting. So our point is that we have a corpus because there were a lot of misperceptions going around that we have a corpus in excess of 130 million pounds as part of the compensation for the people who would be affected. And the 100 million is actually a transition board set up by the Welsh government, by the UK government in conjunction with the Welsh government and us, where the UK government has contributed 80 million and we have contributed 20 million. And that is to look at a much wider ambit for the people, community who are affected in terms of retraining, rescaling, how to help them transit in this process. So those are two different things related in some ways, but it is addressed differently. So I think just wanted to clarify this. And as far as the cost curve differential is concerned, I think our assumptions remain the same because the business case has not changed. And we continue to believe that. Procurement of slabs, I think it will be a mix of, as you know, that we have said that we will continue to operate the hot strip mill. So it will be a combination of slabs and coils. And this combination will come primarily from our sister mills, whether it's in India or Netherlands, and other strategic supplies that we are stitching in. and the downstream spreads when we procure solar. No, just to clarify further, so long it is within the system, so long it is supplied from India or Netherlands or any part of India, that the price risk is anyway factored in and will get nullified in the consolidated metric. So that wouldn't be the impact. For the supply that we bring in from outside, Yes, that will have the price risk element. Right. And the downstream spreads? So the downstream spreads are actually, their downstreams are different. For example, we have a Zodiac line, which is automotive line. We have a packaging line, which is template. We have got the color-coded lines. So the spreads are different based on the products, but we will, as we get into that transition, we'll explain that because we'll give you a product-wise spreads applicable for those facilities. Sure.

Thank you so much. I'll join back the queue. I have a few more. Thank you.

The next question is from Indrajit Agarwal of CLSA. Indrajit, please go ahead.

Yeah.

Indrajit, we can't hear you.

Hi, can you hear me now? Yeah, go ahead. Hi, so my first question is on the India business standalone. So can you help us run through the EBITDA bridge from 2Q to 3Q? Existed EBITDA per ton in 2Q was about 15,400. From there, we have moved to 16,900. So what was the NSR, raw material and other expenses that contributed to it?

Right, so And what is the outlook for 4Q in terms of all these items? Although Indians have done better because Indians have gained market share from Chinese.

Can you hear me better now?

No, we can hear you Indrajit, but there's a disturbance behind. So we'll request you to go on mute. Yeah.

Thanks. Yeah. So you wanted the reconciliation between the EBITDA pattern from last quarter to this quarter, right?

Yeah, that was his question.

Yeah, okay. So I think if I were to look at it from an NR perspective, the steel NRs, while it has increased by about 1,100 rupees per ton, If you look at the net effect, it is more around 90 rupees per ton from an EBITDA perspective. The cooking coal consumption, which has increased by about $4 per ton on a Q-on-Q basis, this has resulted in about 390 crores negative, which works out to be about 800 rupees per ton on the impact on the EBITDA negative. But if I look at the purchase of finished goods and the semi-finished goods, which decreased by about almost about 400 crores on account of lower purchase of scrap pellets, other materials, that has resulted in a uplift of about 800 rupees per ton. The big one was obviously the release in Q2. There was a release in the finished goods and semi-finished goods steel inventory, which was about 570 crores, while in Q3 there is a build-up of about 900 crores of inventory, which works out to a quarter-and-quarter swing of about 1,500 crores, which results in the cost reduction of about 3,000 rupees per tonne. And finally, in the quarter two, there was an FX gain of 464 crores on account of the loans that we had to Tata Steel Holding in Singapore of about 4 billion. That has now mostly got converted to equity. So that gets nullified in a manner. Therefore, you have impacts the cost by about 945 crores. So, if you add up, add and minus all the numbers that I talked about, you will find there is a 2200 rupees per ton improvement in the EBITDA per ton.

An outlook for next quarter, in the sense, how are you seeing the NR and COKE volumes?

Harin, you want to address that? Yeah. So, the NRs we expect to be about 1000 rupees lower in India for Q4 compared to Q3. And the cooking coal cost to be over ten dollars higher on a consumption basis. Q4 to Q3.

Sure. Thank you. One last question. Can you help us again reconcile the net debt movement from 2Q to 3Q? What was the working capital build up both for 3Q and for 9N?

So net debt number was flat, right? So it is almost about seven thousand crores and we had If you look at it, we had release in working capital on a consolidated basis. And some parts of that was absorbed because of the Netherlands cash utilization because of the losses. So the net of net was the same. There was no major movement.

The next question is from Amit Dixit of ICICI Securities.

Amit, I request you to please go ahead. Hi, good morning, everyone. Sorry, good afternoon, everyone. Am I audible? Yeah. Yes. Great. So I have two questions. The first one is on the restructuring provisions that we took, particularly for redundancies last quarter, which was to the extent of 2600 crores. So this amount that we have committed so far, hundred and thirty million on the account of Corpus and twenty million further in that Irish Welsh fund. So is there at this point in time, is there any clarity that the total amount that you would be giving out could be higher than that two thousand six hundred crores?

So the redundancy proposal, sorry, the restructuring amount that we took last time had three components. One first component was provision for the redundancy. There was also mothballing or proposed mothballing of the hot strip mill and other facilities like the caster, etc. So it was not one number, it was three numbers. And I think we are at this point of time, even if before we have started consulting, I think we are within that zone. So I don't see on those two fronts to see. And there are contract termination expenses, which is all the long-term contracts which will get terminated. That was also included in that. So I think on a net basis, we still think we will be within that. There may be minor plus minus that may happen, but it also depends on where that conversation ends up finally with the unions. It's a little premature, but I think We will not be too off the mark is what are at this point of time the judgment is.

Okay. The second question is on Tata Steel Netherlands. Now that relining would be complete by end of this month and possibly the production should start from February. So what kind of production stroke sales volume we can expect in Q4 and whether after this relining, there is some efficiency improvement, et cetera, that we see productivity improvement. So any cost benefits that you see going ahead. And also if you could highlight the similar thing as you highlighted for Tata Steel India, that what would be the cooking coal cost and realization like in that geography.

Sure. So I think the BF6 relining, as Kaushik mentioned, is pretty much complete. I think the filling of the furnace is starting today and the furnace should be in production next week. So that's the plan. For this quarter, I mean, for Q4, we are basically saying that the volumes will be about 0.5 million tons higher than Q3. of which 0.4 million tons actually will be in, I'm talking of sales, will be higher in India and 0.1 will be roughly in Europe, which is going to be largely in the Netherlands. Because we only have two months of production and it needs to be converted into finished products, which can be sold. But the plan for next year, traditionally, Netherlands has produced around 6.1 million tons over the last few years. We want to take it up. to at least six and a half to seven million. I think that is what we hope to do once the furnace stabilises, which we expect it to happen in the next couple of months. So we will give you a guidance separately for next year and there you will see the improvements that we expect because of this work. Because over the last few years, this furnace has struggled a bit and now that it is real life, we hope that we'll have a more stable production going forward. As far as the guidance on cooking coal is concerned, in Netherlands, the consumption cost is expected to increase by about $18 on consumption basis and in UK by about $11.

And what about on NR, sir, net realisation?

So net realisations for Netherlands, I think it is, yeah. UK is expected to increase by about 40 pounds per ton because the UK business is a little bit more dependent on spot prices. So as the spot prices go up in Europe, UK will see a bit more of the benefit. Netherlands is expected to see a reduction of 14 pounds per ton. Lastly, because Netherlands has a larger share of annual contracts, long term contracts and the long term contracts which were finalized in November, December, were lower than the long-term contracts of the previous year. So you will see a bit of that impact, which will be offset by spot prices. We are actually watching spot prices closely because as you know, the spot prices in Europe are going up because of the tensions in Red Sea and Suez Canal, and that is limiting the flow of material from Asia to Europe. So let's see where that goes. I think some price increases have been announced. So this is the guidance as of now, but we'll wait and see on spot prices. Wonderful.

Thanks and all the best. Thanks. The next question is from Ashish Kejriwal of Nuwama. Ashish, please go ahead.

Good afternoon, everyone. My question is on the profitability of the Netherlands operation as well as UK operation. Because UK, our blast furnaces, we are going to close in phases next year, which means that we will continue to bleed before we go into the transition mode. So is there a possibility of giving some sense on the profitability of UK operation? And as far as Netherlands also, even after relining, when can we expect it to be a bit neutral or profitable?

Yeah, so I'll address some of it and hand over to Kaushik. So Netherlands, obviously, we expect next year to be profitable, at least it will should be EBITDA plus and we'll give you some more guidance you know, as we come with the next quarter's results. But clearly this most of this year or pretty much 10 months of this year, we've operated with one blast furnace. We should also keep in mind that a lot of sales this year was of material rolled out of high cost slabs, which were produced the year before to keep in stock for the blast furnace relining. And that was produced when coal prices and gas prices were at its highest. So we saw all that flow through. in Netherlands over the last 10 months. So this year we are starting with lower gas prices, lower energy costs and coal prices lower than what it was when we made those slabs. So we expect next year clearly to be better than this year. This year overall is not been a good year at all in Netherlands. So it will be positive EBITDA. How much positive and where will we end up? We'll give you a bit more color at the next quarter's results. As far as UK is concerned, as also for Netherlands, we should keep in mind that the Q3 spreads, spot spreads, were the lowest in a very, very long time. You know, so it was in that 100 to 130 euros per ton range, you know, whereas a long term average, we always look at 225. So certainly in UK, while we will have operational challenges, even as we start winding down the operations, We also expect the situation to improve as far as the spreads are concerned and as far as gas and electricity prices are concerned. So we do expect things to improve a bit in UK from that perspective, but they will be restructuring costs, etc. So I'll let Kaushik comment on that.

Yeah. Yeah. So Ashish, I think just to add to what Naren just mentioned, In Netherlands, I think certainly as the production ramps up in blast furnaces in Netherlands, as you mentioned that we will be targeting a volume of about 6.5 to 6.8, maybe 9. I think that is important for us and I think we will, if the spreads improve with the currently, at least on the short term, we see because of the Red Sea crisis, then we should certainly have an uplift. We are also undertaking a deep transformation program in terms of improvement in our cost position, not just by the volume, but multiple areas. And I think that will also start flowing in if I look at a full year basis next year. So I think that is the I think the most important bit is compared to this year, next year from a cash flow point of view, we should see Netherlands business of ours in the operating cash flow positive. That's going to be critical with very much lower capex because it will be more on sustenance capex, not these heavy capex that we have seen this year. As far as the UK is concerned, I think the way to look at it would be, yes, you are right that it is a phased closure. And therefore we would, our focus is to actually at least half the losses of next year, of this year into next year. And I think that would be a zone that we will be working on. There will be redundancy costs, etc. But as I think Amit asked the question, we have provided for it from a profitability point of view. And also in our own plan, the people will move out in a phased manner. And with that phased manner, the cash flows will also happen in a phased way. So I think that is something that is being worked out When we come in with our March numbers with our final results, we should give you a very specific range of flows out of cash, cash outflows next year. But fundamentally, next year will look to be significantly better from our international operations, both in terms of reducing our losses in the UK significantly, as well as improving significantly as far as Netherlands is concerned. There will be an impact of CO2, which will impact Netherlands, and that's what we are working on because there is a tail-end effect on the CO2 that comes in because of lower production. But that is being worked on, and how we mitigate that with other measures is the one that we can talk about when we speak about the final results. Interesting.

So, sir, just to clarify, the cash outflow of the restructuring cost is yet to happen, which we have not taken into account in our cash flows yet.

No, and that will happen. That cannot happen till we close the furnaces. And that will happen post we close the furnace in a phased manner as people move out, the affected people move out. And that's the part of the consultation that we will have.

And secondly, you have mentioned or guided about a $10 increase in cooking coal for quarter four. And even in third quarter, we saw just $4 increase in cooking coal. Whereas when we look at the spot prices, it is much higher, maybe $50, $60 higher. So are we, you know, is there any change in blend which led to the lower cost for us as compared to industry? Or are we buying from Russia at lower cost? Or how we are managing it?

Yeah, so I think firstly, we are not buying from Russia. Secondly, you know, we use a lot of leaner blends. Apart from the PCI, we also use a lot of leaner blends. If you look at the last few quarters, the gap which is there between the leaner blends and the prime coking coal had come close to zero. You know, it went up because of the disturbance of the Ukraine war and multiple impacts of that. So the advantage that we had of using leaner blends, which I think we use quite a bit, we lost for some time. Now we're getting that benefit because that gap is increasing. So that's why, while the prime cooking coal prices may have gone up, as you said, the consumption cost of Tata Steel, even last quarter, while we had guided $10, $15, it went up only $3. And we are able to manage that cost increase much better because obviously we have the advantage of using a lot of leaner blends. And the gap between those leaner blends and the prime coking coal has gone up.

Thank you so much. And I hope this will continue.

Yes, surely it will. I mean, at least the gaps are not in my control. But use of leaner blends, yes. But whether the gap increases or not is a matter for the markets to decide.

The next question is from Amit Muradka of Axis Capital. Amit, please go ahead.

Hi, good afternoon. I hope I'm audible. Just on the entry that has happened on the Cromore valuation, I'm just not still not clear on that. And could you just help explain what has happened there?

Yeah. So let me explain basic from a basic accounting point of view. So when you have so there is a royalty and that royalty actually rates have increased, as I mentioned, by about eight, nine thousand. That volume is not sold. That is still in our stock. So what happens is by the accounting standards, you load the inventory with that royalty. So it's inventory debit to change in stock. And that change in stock is actually the credit to the P&L, as you see in part of the materials cost. Now, simultaneously, the royalty expenses are debited because that's the reflection. That is why the other expenses have gone up. and a liability is created. When we actually dispatch the material, then that is when you pay the royalty and therefore that is the time when you do a liability debit to cash. So that's the sequence. So that's why I said it is neutral to the P&L because the credit has gone into the material cost and the debit has gone to the royalty expenses.

Got it. And besides this, there was no other inventory related change in the quarter, right?

No, not materially. I gave the full reconciliation a little while back, I think, to one of the questions.

Yeah, that's it. Thanks for that. And also, like, on KPO2, what kind of volume can we expect in FY25 to come through?

I think as of now, we've guided 0.7 million, but we will... you know, in the next quarter's discussion, we can probably be more precise because many of the, from a volume point of view, for instance, the Caster 2 has started, which just started two days back, which gives us an additional volume opportunity. But the Blast 1 is close to completion. The physical completion will happen in the next quarter. And, you know, we will start the commissioning soon after that. So I think by the time we do the next analyst call, we'll have a more specific guidance, but just now we're guiding 0.7 million tons.

0.7 for FI25, right?

That's right. That's right.

Okay, thanks. And also lastly, any progress or update on the climate transition plan at TSN and any discussions that have happened with the government?

So there is a lot of discussions going on with the government, but as you know, Netherlands has recently had an election. So we're waiting for the new government to form. Netherlands normally has a coalition government, so it takes a few months after the election for the government to form. But the conversation is going on with the bureaucrats in the government. And we hope to at least agree with the bureaucrats on the way forward and then wait for the political leadership to, you know, then come on board. So we expect over the next six months to take it to some sort of conclusion.

Okay, thanks a lot. I'll come back.

The next question is from Kirtan Mehta of BoB Caps. Kirtan, please go ahead.

Thank you, sir, for this opportunity. In terms of the UK transition, we are showing a slightly slower path than what we had last year, what we were discussing. So what would be the impact on the net debt for the company? in terms of the by the FY 20 and particularly from the European cash outflow that we will be seeing and how would that get offset from the Indian cash flow? Any color on that?

Yeah, so I think if I look at it, it's a timing issue and the timing honestly given the way the process works in the uk where if you were to live to the spirit of meaningful consultation you have to give time to the unions to come back with a plan which they did we spend time along with them in terms of reviewing it and then coming to a point where we could where we had to say that we couldn't progress with it because they said that continue the sorry, if you continue the last one is four till the transition, which is another three or four years, which is not feasible, as I said, not affordable. So that's the time that we have spent with them, but it gives substance to what we are doing. We didn't do lip service and we are now wanting to progress more formally that this consultation takes legally a minimum of 45 days. We've been deeply engaged with the unions over the last four months. And therefore we want to ensure that we give certainty to this situation. So I think it's a water change from where we originally envisaged. And we are also ensuring that our sourcing and supply chain systems are robust. And honestly, we cannot talk about it or we couldn't talk about it very significantly the market till we actually launch consultation because our intent becomes more formal as we announce the consultation so i think there will be as i said but taking all things together we should be looking at us substantially or as i said halving the losses in the uk next year compared to this year and moving into positive territory towards the second half of the financial year So that is the way we are organizing ourselves. I think from a net debt point of view, we will, we always focused on ensuring that the net debt remains within the target. So we'll see as to the pace at which the phasing finally of the people goes out because that is so the, the physical shutting down of the furnaces, we have already announced the next phase is in this consultation to look at the phasing of the people. The corpus of what we want to provide to the people has also been kind of put on the table. So the only thing that will remain after this is the phasing and the restructuring cost and therefore the contract termination and other operational bids which we will be working on. So I think when we sit in the next meeting, we'll be able to give you a more certain view of the phasing and the consequence impact on the cash flows on a consolidated basis.

Thanks for this color Kaushik. One more question was on the India operations, where we are seeing again a bit of delay in terms of bringing up the TSK2 blast furnace from our initial envisage of February, March. Now, probably we are looking at a sort of a September quarter where we think that the blast furnace will come up. Would you talk us through the moving parts, which is sort of resulting into some of the delays from our earlier expectations?

So I think, you know, the physical completion, like I said, is expected to happen next quarter. there was a bit of delay because some of the parts that were coming in for the assembly into the blast furnaces were damaged and we had to get it repaired that cost us a few months so that is one of the reasons that we had otherwise beyond that it was more smaller reasons you know of different you know different elements of the blast furnaces coming together so there's no very big reason apart from this specific membrane that got damaged, which we had to use in the blast furnace. So that's what has pushed it, but we are still trying to see how much we can pull back. And that's why I said we'll give you better guidance, you know, by the end of the year when we do the next Angeles call.

Sure. In terms of your guidance on the 0.7 million ton steel production envisaged from the TSK2, typically we look at sort of blast furnace ramping up to 80% utilization within a year of startup. So are we envisaging a bit slower startup in case of TSK2 than the normal industry now?

No. So that's why I said let's wait for another three months, we'll give you a better guidance. This is, as you know, one of the largest blast furnaces in the world. It's a 5,800 cubic meter blast furnace. So we just want to be a bit careful as we start it and make sure that we do manage the ramp up well because it's bigger than anything we've handled in the past. So we just want to be a bit careful. That's all.

Sure. Thank you. I'll come back to the queue.

The next question is from Alok Debra of Mordilal Oswal. Alok, please go ahead.

Yeah. Hi. Am I audible?

Yeah.

Yeah. Yeah. So most of the questions were answered. Just one question I had, if you could comment on the demand scenario in the domestic market and how are we looking at Q4 because we are getting sort of mixed signs on the demand side. If you could just comment on that and any price hikes which we are looking to take. Thank you.

Sure. So I think the demand has been quite strong, actually, as you saw year to date. the steel consumption in India has grown at about 10, 12 percent. So demand has been strong. Pricing has not reflected that robustness of demand so far. So sometimes when you say there's a mixed view on demand, I think it's driven more by the traders and the distributors, because oftentimes if they have confidence that prices are trending up, they stock up. And if they feel that prices are not so great, they tend to stock down. So that's what drives the demand in some sense at the point of sale level. I mean, from the steel company to the trade, but the consumption wise, which is going to be a reflection of how the end use industries are doing is quite strong as auto is doing strong, railways continues to invest, infrastructure investments are strong. So when we look at different elements of consuming segments, It's quite strong. The fact that the demand is strong is the reason why even during last quarter, the steel prices in India dropped by maybe 3-4% compared to the 7-8% that it dropped internationally. So the price drop in India has been less than what it has been in international markets. What has happened is every time the steel prices start going up and international prices are low, there's always a threat of imports and that acts as a cap. And that is what has happened. What we are waiting to see is, of course, what is the situation in China? Even over the last two, three days, there's been a fair amount of discussion on what they're going to do to revive the economy. Second is, what is their exports going to be? Because last year, you had a lot of exports in China because most people expected the Chinese demand to pick up strongly after the COVID restrictions were removed in the early part of last year. That did not happen. But production ramp-ups had happened. And hence, all of that found its way to the export markets. But as you will see from the numbers, the Chinese steel industry is not really making money. Their profitability is not great. And hence, you've also seen Chinese steel prices go up over $30 in the last, during December. So either the prices have to start moving up or they have to start cutting production at some point in time. So we expect a better balance on Chinese production versus demand this year. than we saw last year. So the international prices will have an impact on the prices in the domestic market. That's why we've guided 1000 rupees less on a Q3 average versus Q4 average basis in India. In Europe, spot prices are going up, as I said, for reasons, for different reasons. But in India, let's wait and see how the Chinese market moves. And maybe we will have a clarity only after the Chinese New Year. So it will take another two, three weeks to have greater clarity.

That's all from my side. Thank you so much, sir.

Next question is from Satyadeep Jain of Tundi. Satyadeep, please go ahead.

Yeah. Hi, thank you. First question on India, on growth beyond KPO2. Tata Steel obviously has a long-term target of 40 million ton capacity in India. As you look at maybe FI27, where can the incremental growth after KPO2 come? What kind of ballpark capacity? Is it going to be NINL or something else? And would we look at somewhat similar capital costs as we've seen for KPO2? That's the first question.

Yeah. So I think the most ready part of our plan is actually Nilachal, because that's what we've been working on. We need to do some more work on that. And that's about taking Nilachal from one million to about five million tons. We have an option, Kalinga Nagar also, we want to develop a plan so that as we complete the phase two, we can start looking at phase three, because that means you need not decommission the vendors and things like that. And that there are some advantages of that. So we'll explore that. That is about Kalinganagar moving from 8 to 13. And we are also parallelly looking at the Angul plant, the Miramandli plant, the Bhushan plant to go from 5 to 6.5 as step one, because to go to 10, you need to acquire some land, etc. So all these three are options available with us over the next six months. we will come closer to finalizing them because we've also changed the way we are doing capital projects. We are following an FEL approach, which means we go to a much higher level of, we do the engineering first, the detailing first, so that we have a far more precise understanding of cost before we take the board approval. So we are doing that FEL 3 work for Nilachal. We will be starting that soon for the Kalinga Lagar Phase 3. and work is also going on on the Miramonti plant. So I think the next six months will be able to give you a bit more clarity of that. These are the big ones. Of course, there are the smaller ones, you know, going on. So in the next two years, you will of course see the ramp up of Kalinga Nagar and that will give us the additional 5 million tons and there'll be a bit of increase in volumes in Tata Steel. What was Tata Steel Long Products in the Long Products business, because we're adding a rolling mill in Jamshedpur and making some

small investments in the steel melt shop in gamaria which is usha martin plant they'll give us another half a million tons so uh these capacity expansions in mira monthly in inl would be somewhat similar kpex cost as kpo2 or could there be cost inflation versus yeah so i think uh uh

KPO2, you know, we had a slightly different kind of thing. Nilachal should be lower simply because it's a long products plant and so we just need to see how to work out the optimal capex there. That's the work you're doing just now. The Miramandli also should be lower because it is, you're not adding a full-fledged plant. And Kalinganagar also, we should take out the coal rolling mill. You know, that's a significant part of the capex. You know, so we have to, that's about 6,000 crores out of the Kalinganagar expansion phase 2. you're not adding cold rolling mills in any of these plants. So you will not have that. So if you look at it at the hot, at the rolling stage, I think it should be at Kalingan levels or lower. Okay. Second question on Europe.

on you did mention industry supercharger scheme any update on what's happening is it set in stone is it going to come online in 25 and also scrap given you'll require higher quality scrap for producing flat steel how are you looking at sourcing strategy for for that prime scrap

So in Europe, the supercharger scheme is already legislated. So the, it's a network cost reduction of about 60%. It was, and that's something that the UK government has already notified and is going through the subsidy control process. The use stated process, not subsidy control process stated process. and that should be applicable when our EAF is up. The CBAM is also being notified and the consultation process is underway. So we expect that to be enforced by the time the EAF is commissioned in 27. As far as CRAAP is concerned, we are now working on the UK scrap system, understanding the supply chain, looking at some of the opportunities that exist in different forms. So I think we have two years or so to work and set it in place, which also includes infrastructure, which includes also processing facilities. Now, whether those entities can do it or we have to do it is the conversation that we will start what kind of partnerships, alliances or opportunities that we look at is what we are scanning just now. So it's multiple work streams at this point of time. As we proceed over 2024, in particular, I think a lot of these will become clearer. We also don't want to go ahead of time, but in time, but it's always good to ensure that that supply chain is secure. So there is some work going on, especially in the infrastructure and logistics side for scrap and for processing of high quality scrap, which will be required.

Thank you so much and all the best. The next question is from Anupam Gupta of IIFL. Anupam, please go ahead.

Hello, can you hear me? Yeah. Yeah. So firstly, if you can give some more clarity on the volume. So you said 0.7 million tons. We lost you. Yeah. So on volumes, you said that Kalinga Nagar will contribute 0.7 million tons at this point of time. But overall, what is the volume guidance which you are looking at for India business for next year, apart from the Kalinga Nagar facility?

Samita, do you want to give a number now or we can do this in the next quarter?

Yeah, so Anupam, as you know, we share annual guidance on volumes, etc. in our fourth quarter discussions because that's when the plan for the year is finalized. So I think that didn't give you a broad sense, but More specifically, we'll be able to discuss it next quarter.

Sure, okay. And secondly, you said that in terms of coal, the benefits is because of the mix which you have been able to manage better. So what is, if you were to quantify, what is the absolute, let's say, consumption cost which you are seeing in fourth quarter when you say that you'll have $11 higher? What is the absolute number which you are looking at? I'll just tell you.

It's around 250 levels.

Yeah. Okay, so broadly around 50-60 dollars lower than what you have for the prime mix. Yeah.

That's good.

So, okay. That's all from my side.

Thank you. Because this includes this 250-255 which Samitha is talking about includes everything from PCI to the prime. So, it's a full range of goods. Yeah. Okay.

Yeah.

That's all from my side.

Thank you. The next question is from Tarang Agarwal of Old Bridge Asset Management. Tarang, please go ahead.

Hello. Hi, am I audible? Yeah. Good afternoon. A couple of questions from my side. One on India. You know, if you could give us your Metco mix between, you know, whatever you procure domestically versus pulverized versus you know, premium low value versus leaner blends. I mean, a broad split in terms of what percentage of your overall procurement would be in either of these baskets.

Naren, if I could answer that.

Yeah.

So Dharam, you know, I think the mix actually changes quarter by quarter and it's very dynamic based on the value in use principles that we follow. So we would really not get into the specific details. I don't think that's something that you'd like to share. But it's a very dynamic number which just changes quarter by quarter.

The only thing I'll add to that is domestic, our own coal is about 20% and what we buy is 80%.

And how does that fall in terms of pricing? The domestic coal, is it at par with the international coal that we see or is it captively from our mines?

Domestic largely is from our mines. But we also participate in some of the options that there are because we have extra washing capacity. So if we get some coal from, let's say, one of the coal companies or public sector companies, then we buy that, wash it and use it.

But a large part of it would be through our own mines. Absolutely. Yeah. Okay. Second, you know, how far is the 2.2 million ton CRM and the 6 million ton pellet utilized?

So the pellet plant is two lines. One line is already fully commissioned. The second line started two, three months back. So basically, we don't really need both the lines to now operate at full capacity just yet because once the blast furnace starts, we will need both the lines to operate at full capacity. So our objective is not to buy pellets. So we are not buying pellets. We are hardly buying any pellets. So as the blast furnace ramps up, we will use both the lines available in the pellet plant. As far as the cold rolling mill is concerned, the cold rolling mill we had scheduled to reach about 50-55,000 tons a month by this time and we are already at that stage as far as the cold rolling mill is concerned.

Okay, last question. You know, there's a newsflare around, you know, UK likely to levy carbon tax on imported steel from 2027 onwards. I think there was something that came out on 18 Jan. How does this development impact transition for Port Talbot?

That's actually the one that I mentioned that the CBAN, the carbon border adjustment tax, if you are talking about that, which is going to come in 2026. 26, 27, because they've been doing the consultation just now, most likely 27. That actually helps Port Talbot because end of the day, any import into UK will have to pay the carbon tax. Whereas we being the only flat product producer will then on an EF will be on a significantly low carbon emissions. So therefore, the delta between an imported coil and what we produce from a carbon point of view, potentially, especially from a blasphemous route, will be significant. So that CBAM, as you know, in the EU has already started from a recording perspective. 26, it will start from a taxation perspective. UK will be more around in 26, 27. So which will be just in time as we commission our facilities.

Yeah, so calendar year 27 sometime first half is how we are probably looking at our commissioning for our EAFs.

We are in 27. I can't say first half or second half at this point of time, but there's also concurrent stuff which is required, which is the grid line, the electricity line, which is what I mentioned. the national grid we are in conversation with and they have agreed to a 27 earlier it was sometime later so we have now kind of confirmed and we are working through the process to get the required electricity line uh into port albert so that is 27 so i think some sometimes in the calendar 27 certainly we will be there okay thank you thank you

The next question is from Ashish Chan of Macquarie.

Ashish, please go ahead. Hello. Hi. Good afternoon, everyone. So my first question is, you know, for UK, just to understand the one time cost better. Is it fair to say that today it is 130 plus 20 million GBP is the potential one time cost if everything pans out the way we are thinking?

Yeah. So I think we gave that number of 200 with the provisions of around 200 plus. So 130 plus 20 is the number. 20 is the number. And 130 is the number which we said we are willing to go beyond 130 depending on the negotiations that happened or the discussion that happened. But 130 is certainly to be factored in. So it could be delta to 130. And depending on the, you know, so you have to look at it holistically. and ensure that there is a balance between what we want to derive in terms of timing and the smoothness of this transition. And that's the consideration we'll help to help our colleagues or employees who are affected.

But we want to give a precise number now, since that's part of the discussion. Yeah.

Yeah. No, I understand that. But just a continuation of that. So when we say that, you know, whatever is the number of employees who will get impacted, the countdown in the count will happen in the next 18 months. So for that period they remain, we will continue to incur the existing compensation as well for those employees, right?

So it is not that it is starting zero and the end is 18 months later.

It's phased out.

So as the phase out happens, we expect the people to move on. And give so the key area of that is in the reason why we mentioned that 18 months. The reason why we mentioned 130. is to bring some certainty to the conversation and the certainty to the process. So people don't assume differently. After all, it's their work, their lives also. So I think it is that which required us as a responsible company to give certainty to the way we want to approach this. As you can see, there's a lot of news flow around it, but we want to approach it in a manner which is dignified, which cares for people and yet gets to the business objective, which has been hurting Tata Steel for some time.

Kaushik, I understand that, you know, I've just tried to understand that, you know, given we will be importing steel and serving the UK market in this transition period, and we will also, you know, not see a massive reduction in our fixed cost. Is there a chance that UK will continue to bleed from cash flow point of view at least for the next 12-18 months?

So that's why I said it is not that fixed cost will not get reduced. Fixed cost will be reduced and that is one of the bigger play that will unfold in the next 12 months. in 24-25, I think the biggest part will be taking out of fixed cost. Because, for example, I'll tell you, when you don't have a line of sight or when you have a definitive line of sight, you don't take heavy costs to invest, heavy costs to undertake other than other than to carry it on till the time it needs to be on a safe basis. So there are many cost takeouts and cash. There was a program, Drive to Save UK, which is being launched, I think about eight months back. And that has got every little piece of cost saving embedded into it. So we are very focused in taking out the cost and we should see the cost takeouts happen, not only just employees, but also in the context of other overhead costs, other discretionary costs and so on. So that cost takeout will happen. 2024 calendar and 2024-25 financial year will be the transition year. And as we move into 2025-26, I think we will have a clear transition model and in parallel the investment model. And then 2027, we get into the end state.

Also, I'd like to add here, see, we should also keep it by the last 12 months or some of the highest energy costs and, you know, lowest spreads. So we expect energy costs to be lower and the spreads to be higher. That will also help.

Right. And so just one last question. The volume commitment in the UK, is that like a hard commitment from our side or? we have an optionality of, you know, based upon market conditions, we have any flexibility on that front? I mean, it's like a binding thing for us, right?

No, there's nothing binding. It's the downstream that you want to operate and you want to operate profitably. So it is effectively the entire volume is based on what the downstream facilities will take and profitably serve the customers that we have already. So

Are you talking of the transition or are you talking of the EF?

No, no, the transition.

Then what question? Yeah, got it. Because EF size is committed. That is committed as per our agreement with the government and everyone else.

Engineering wise, that is the most kind of optimal size that we wanted to build.

Yes, got it, sir. Thank you so much.

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

Thanks, Kinshuk. So there are questions on UK, I think, which we've answered in detail. So I will shift the questions which we have. They're largely on India. So the first question is with regard to TSK2, what sort of incremental employee cost are we looking at once it's commissioned?

incremental, in fact, the employee cost per tonne will come down actually.

So I don't... Yeah, so I think they haven't sort of understood, but maybe we can clarify that we already have employees.

So I think, you know, Kalinga Nagar, when you look at it, the plant was originally designed for 6 million tonnes, which as we were planning phase two, we decided to take it to 8 million tonnes. So a lot of our, while Kalinga Nagar today is, as it is one of our most cost efficient plants because of the way it is configured, the way it is manned, etc. It will only get better as you expand because a lot of the utilities have been designed for more than 3 million capacity at which we are operating today. So when we are at 8 million, we will be more optimal in terms of a lot of utility costs, labor costs, because it's not that from 3 to 8, you're going to double the workforce. The workforce in most areas is pretty much in place. So our manpower productivity will improve. our labour cost per tonne will reduce, our conversion costs will reduce as we come to Phase 2. But Swamita can separately give you guidance which may be more specific.

Yeah, I think that's just conceptually for you to understand. And I think that will really address the problem. The next question is actually on I-node self-sufficiency. So what is the level of I-node self-sufficiency in India that's 100%? But the question is actually on the pellet plant. Before commissioning of the pellet plant, how much pellet were you buying from outside? Was it a direct purchase or were we providing iron ore for conversion and paying only conversion charges? Because I think the idea is to understand the amount of savings from the new pellet plant.

Yeah. No, I think, I mean, firstly, most of it was at market prices. There were some that we were, the only conversion we were doing is in our own plant in the Usha Martin plant, what was erstwhile Lucia Martin plant. But otherwise, pretty much, I would say all the pellets were bought at market prices. So that's why there's a significant saving. I don't remember the number, but clearly we have bought about 2 million tons, 1.5 to 2 million tons, if I remember right. I don't remember the exact number. Yeah.

Thank you. The next question is on M&A plants in India. So it says there are ESL steel assets, I presume this is electro steel, which they are referring to, that seem to be available and Tata Steel has been interested in those assets in the past. Would you consider buying this asset?

So we were interested in that asset at a point in time and we did not have Nilachal. Now that we have Nilachal, I think we have enough opportunity to grow in long products through Nilachal. We bid for Nilachal partly because there's 2,500 acres of land available for us to expand. So we would focus on growing Nilachal and unlocking the value from Nilachal.

Thank you. Then there is a question on Chinese prices. Do you think Chinese prices will go up significantly given that they are importing cheaper coking coal from Russia compared to Indian manufacturers who are importing Australian coking coal?

So that has always been there. And China also has domestic coal available, not of great quality, but they have to import iron ore. Iron ore, as you know, is today in that $130 range. It had gone up to $140. And if you look at the profitability of the industry, they are, you know, struggling. So I think, you know, that's why the hot rod coil prices domestic, which had gone down to $530, has gone up to around $570 levels. We do, I mean, I think that's why I'll wait for another month or two to see what happens. Because more recently we've had the stimulus announcements, how will that impact the industry, etc., something which you need to wait and watch. But I do believe, I don't see China exporting 90 million tons this year as they did last year. I think, hope that will start coming down because China has stated in the past that they don't want to export so much of steel. and leave behind such a big carbon footprint because they also have a lot of work going on in China to reduce the carbon footprint, whether it is a steel industry trying to make greener steels, auto industry shifting to EVs. So I do expect that China will really look at 90 million tons into two. That's 180 million tons of carbon left behind just for export so that they will discourage that, I'm sure, at some point in time. But of course, what they are encouraging is exports of cars, exports of capital goods. you know, which is more value addition rather than exporting basic steel. So let's wait and see. I think this year we'll have a better sense.

Thank you. With that, we will end the call, answer the chat questions and we'll end the call. So thank you everyone for your participation. We look forward to connect with you again next quarter. Thank you.

Thank you. Thank you.