Tata Steel Ltd 144A

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

Thank you, Benchuk. Good afternoon, good evening, and good morning to all our participants joining us on this call today. On behalf of Tata Steel, I'm delighted to welcome you to this call where we will discuss our results for the third quarter of FY25. We have with us our CEO and Managing Director, Mr. Tini Narendra, and our Executive Director and CFO, Mr. Kaushik Chatterjee. And we will walk you through our results and answer any questions you may have over the next hour, hour and a half. I hope you had a chance to go through our results, which were declared yesterday. And there's a detailed presentation which has been uploaded on our website. Page two of that presentation has a disclaimer clause, which will cover the entire proceedings today. Thank you again. And I would request Naren to make a few opening comments. Thank you.

Good morning. Good afternoon to everyone. Good evening as well. During October, December quarter, the global steel prices were subdued across key regions. And in China, the steel prices stayed close to around $480 despite the stimulus measures. The construction market in China continued to be soft, leading to an export of more than 100 million tons during the calendar year. In fact, 111 million tons to be precise. And that was amongst the highest that China has ever exported in the past. The Indian steel demand continued to grow, but the momentum has eased and domestic prices remain under pressure due to cheap imports. The DGTR, the Director General of Trade Remedies, has initiated investigation to consider safeguard duty. And in 2024, several nations relied on trade measures such as anti-dumping duty to combat the impact of steel imports, particularly from China. This, along with the new US administration's inclination towards imposing tariffs, has a potential to regionalize steel trade flows with implications on prices. Moving to tariff steel, our performance has been aided by the progress on our strategic initiatives. And in India, we commissioned the 5 million ton blast furnace at Kalinga Nagar, and this has aided the volume growth. In UK, the closure of the heavy end assets has begun to generate improvement in fixed costs and in emissions. India's crude steel production rose 6% year-on-year to 5.69 million tonnes for tarra steel. And the new blast furnace at Kalinga Nagar produced around 0.56 million tonnes during the quarter. And presently, the phase 2, TSK2, the blast furnace, the second blast furnace, is operating at around 8,500 tonnes per day. And the ramp-up to rated capacity is progressing well. India's deliveries increased 8% year-on-year to 5.29 million tons, and amongst the business verticals, the automotive and special products volumes were aided by the growth in high-end products. Our retail brand, Tata Tiscon, achieved their best-ever quarterly sales and grew 20%, over 20% year-on-year, while our cold-rolled brands, or SMEs, Tata Stelium was about 10% higher here on here. Customer centricity and value creation is paramount to us as we progress on achieving market leader leadership across chosen segments. And 75% of our steam sales to automotive is processed or ready to use. We have service centers and stockyards close to most of the major auto hubs, enabling close partnerships with key OEMs that drives technical support and product development. e-commerce platform asiana is designed for individual house builders home builders and we have more than 30 construction service centers across india to offer customized reinforcement products and solutions to the construction industry at kalinga nagar we have also commissioned the continuous annealing line of the controlling mill complex and in ludhiana we've started receiving the equipment delivery for the 0.85 ton electric car furnace based operation and i've also commenced on the civil works Moving on to UK, we reconfigured the supply chain upon closure of the heavy end assets in September, and we are now servicing our customers by processing and purchase substrate. This has led to significant reduction in our Port Talbot emission footprint as well as the overall fixed cost base. Our fixed cost per tonne of deliveries has decreased by around 80 pounds per tonne quarter on quarter, which has helped in improving the performance. In Netherlands, the drop in prices weighed on the performance despite declining costs, and as a result, the overall profitability was affected. Kaushik will elaborate on this. At the same time, in Netherlands, we have produced about 1.75 million tons of hot metal, which means we are running at a 7 million ton hot metal production rate. We are committed to responsible growth and multiple initiatives underway across geographies to reduce emissions. Tata Steel became the first steel maker to introduce biochar in the blast furnace as a partial replacement for carbon intensive fossil fuel like coal. ESG coals underpin broader focus areas and we are committing to foster equality, diversity and an inclusive workplace. We recently operationalized an all women shift in one of our mines in India. And I'm happy to share that we've been recognized as a bold employer by the India World Workplace Equality Index for the fourth consecutive year. With that, I hand over to Kaushik for his comments. Thank you.

Thank you, Naren, and good afternoon, good evening to all who have joined in. Let me begin with the consolidated performance provided in slide 24. of the presentation. The market conditions across geographies are similar to the condition that existed in the year 2015-16, when exports from China were at an elevated level of above 110 million tons, as you would have heard from Narain also. And these excessive exports obviously hurt the market structure of any of the other countries which import steel. For instance, in the last 12 months, the U.S. and the EU steel prices have declined between 25% to 37%, and China's steel prices have been hovering around $450 to $500 per ton. All of this meant that there was a sustained pressure on spot spread, which declined to multi-year lows. However, our progress on internally focused strategic initiatives has been evident in our performance. The consolidated revenue stood at 53,648 crores, and the EBITDA was at 5,994 crores. There was an FX revaluation impact due to the sharp depreciation of the euro of around 1,100 crores on intercompany loans which have been provided over time. Excluding the above, the EBITDA stood at about 7,155 crores, which translates to an EBITDA per ton of 9,263 and an increase of 30% over the last quarter. As the markets continue to be subdued, we have renewed our focus on cost reduction and efficiency measures across all geographies. Some benefits have started being visible and we hope to continue to demonstrate more of it in the coming quarters. Tata Steel's standalone revenues for the quarter stood at Rs 32,760 crores and the EBITDA was Rs 7,624 crores. which translates to an EBITDA margin of about 23% on a reported basis. As provided on slide 30, the EBITDA on absolute basis improved by 13% or 1227 rupees per ton on quarter on quarter basis. Higher volumes and optimization of costs more than offset the drop in the realization. I would like to elaborate a little bit more on the cost. The material cost declined by about 1300 rupees per ton due to decline in the cooking coal consumption cost and also the inventory build of 156 KT during the quarter. The fourth quarter is typically a seasonally strong quarter and hence there is usually a slight uptick in inventory at the end of the third quarter. And we also had a higher production upon commissioning of the second blast furnace in Kalinga Nagar. Conversion costs excluding the royalty declined by about 1678 rupees per ton, primarily on account of lower employee benefit, freight, handling and other costs. Total costs have improved by about 2,700 rupees per ton, helping to more than offset the drop in realization to the tune of about 1,500 rupees per ton. I would like to now mention a few comments on our subsidiary, the Nilachal Ispatnikam Limited. As you are aware, we had acquired NINL about two and a half years ago in 2022. The plant was closed for two years at the time of the acquisition with some imbalance in the asset configuration. As part of our long product portfolio, NINL's operating performance has met all the operating targets in terms of costs and efficiencies. It is operating at rated capacity and in October to December quarter, the EBITDA margin improved from 13% in second quarter to 20% in the third quarter on account of a rise in volumes of about 17%. And an outcome of cost efficiency through reduction in conversion costs which is reduced by about rupees 3000 rupees per ton quarter and quarter. The process of seeking the environment clearance for the expansion of NINL is currently underway. Coming to The European operations in the EU, as you are aware, the steel consuming sectors have been adversely impacted by subdued demand and high level of imports. In Netherlands, the raw material to steel price spreads have dipped to multi-year lows with spreads including energy and carbon costs currently in the region of about 170 euros per ton. These spreads were last witnessed in 2016. The EBITDA for the quarter was neutral in third quarter. compared to a 22 million positive in the second quarter. The EBITDA per ton declined by about 15 pounds per ton on a quarter and quarter basis. The EU steel demand has contracted in 2024, and this has led to a sharp drop in revenue per ton of around 30 pounds per ton. And the NRV lost to the tune of about 13 pounds per ton on a quarter and quarter basis. We had also higher emission rights costs of about 15 pounds per ton on account of decline in the yearly allowances due to lower production in the previous years. While this was partly offset by the decline in the power and fuel expenses by around 43 pounds per ton, the drop was less than the impact of realization, which has affected the margins. As mentioned during the quarter two earnings call, the transformation of the UK operations has begun. We have safely closed the heavy-earned assets while maintaining our footprint in the domestic market. Sourcing network has been established to successfully support our customers. Our fixed cost takeout programs are yielding results with large part of the stated 100 pounds per ton improvement achieved in quarter three. On an absolute basis, there has been improvement in fixed costs by about 70 million in quarter three compared to quarter two. And for the nine-month period, the same was about £140 million on a year-on-year basis. The improvement was majorly in relation to the maintenance costs, the employment costs and the operating charges. In quarter three, the Tata Steel UK EBITDA loss improved from a negative 147 in Q2 to about 67 million pounds in Q3. While the market dynamics meant the revenue per ton declined by 31 pounds per ton, this was more than offset by improvement in cost by about 146 pounds per ton, especially on the fixed cost side. There was also a drop of about 63 pounds per tonne in emission rate costs and freight handling charges. We expect to continue the optimisation of fixed costs not only in the next quarter but in the year ahead too. There has been total redundancies or the people who have left the company since March 24 was about 1,900 people and we expect that more to live in the next quarters. I would like to now spend some time on our working capital management that has led to cash flows generation. We have taken a calibrated measure such as better inventory management, improved credit terms, looking at the blends and so on. For example, in India and in Netherlands, the raw material inventory has been reduced by about three to five days. All of this has resulted in cash flows released across all geographies and the net working capital of more than 4,000 crores in this quarter alone. Looking ahead, the ramp-up of Kalinga Nagar, as Naren mentioned, will help to improve the India cost profile, driven by fixed cost absorption and efficiencies of a newer plant. In the UK, we have placed equipment orders for about 3 million ton arc furnace, and are targeting to commence civil construction in the month of July. In Netherlands, we are engaged with the government on potential support for the decarbonization project. With this, I'll end my comments and open the floor for questions.

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. Currently 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 satyadeep jain of ambit satyadeep request you to please go ahead yes hi um so narin first question on um europe one of the largest players in the region um has talked about delaying decarbonization investments. There's a laundry list of reasons, the onslaught of Chinese imports, CBAM not making sense in its current form, which is what Mario Draghi had also mentioned in his document. So in that context, given where margins are, given where imports are in the current form of CBAM, And given the strategies adopted by some of the other players where they're waiting for allocation for decarbonization investments, how are you evaluating your allocation in both UK and Netherlands? Are you going to go ahead with all this capex till you get more clarity on any support from the government?

Yeah, so Satyadeep, on UK, as you're aware, the journey is already on. And one of the reasons why we are on this journey is also that we believe that our cost position will improve once we switch from iron ore and coal to scrap. So there are advantages of lower CO2, CBAM, Plus, given that you're going to use local scrap available in the UK, what we had said is we're expecting our cost position to improve by about 150 pounds per ton. And a lot of it is to also do with the, one is input cost, but also to do with the fixed cost takeout, which Kaushik referred to, which is happening with the restructuring. So I think as far as UK is concerned, the business case is clear and we are sticking to the plan. As far as Netherlands is concerned, the conversation is currently going on with the government. to see what is the support that we can get, what are the costs going forward. How is the policy going to evolve? And I think what you refer to is basically appears in Europe who have signed up with governments in the past and in some cases committed to the use of hydrogen are also concerned about the availability of hydrogen, the cost of hydrogen and things like that. Whereas our plan was more gas-based production in Netherlands. So I think the conversations are going on with the government. We will wait for where we conclude on that and take forward. Of course, we are also waiting to see the reaction of Europe to reactions that may be taken in the US. Kaushik, you want to add to what I've said?

Yeah, just to reinforce that point that many of the reactions that has come to people from companies who have got the grant or financial support from the respective governments are deeply interconnected to the hydrogen. and not as a choice, but as a core part of the transition plan. And given where the availability costs and the feasibility of hydrogen is concerned, they are obviously in a difficult position because hydrogen is not available at the assumptions that were made for granting the funds. So, whereas in our case, we were very clear that hydrogen is an add-on at a much later point, And we are not working on that same premise. And our focus is the very fact that we are putting up a DRP and EAF is because we have a pellet plant. And therefore, we said we will be focused on a gas-based solution at this point of time. And any funding support will be based on a gas-based solution. Hydrogen can be an add-on at a later point in time. So this is the premise. We have some distance to go because We will have to go through the entire approval process. We are in deep discussion and we're getting to the stage where we will get more clarity over the next four or five months. And at that point of time, the final investment decision will be taken. So I think it is some distance to get the full clarity. I know what you're saying in terms of what our peers have indicated, but it's not one reason. There are multiple reasons for doing that.

I want to follow up on that final investment decision. It's only five, six months from now. Let's say if the demand and pricing doesn't change, would that decision be contingent on how the demand is around that time, demand and pricing?

Would you wait for... So I think the... Whenever we take that FID call, obviously there has to be a business case for it, right? Not only from our side, the government before they put in taxpayers money will also want to make sure that there's a business case for the money that they're putting in. So I think it will boil down to that. And obviously we will look at how things are going to be going forward. We should also keep in mind that in Europe, there is likely to be some supply side changes as well, right? Because it's not everyone who can transition. uh it depends on your ability to fund the support that you get from the governments uh so it's not necessary that all the capacity that in europe will make it to the other side so we also need to look at uh you know what's going to happen on the supply side as much as what's going to happen on the demand side okay just last question um what is the expectation for um

break-even in uk by when do you expect to reach break-even and also what's your the clean industry deal is going to be announced sometime soon in february what is your expectation is it more or less in line with what you've seen in uk in terms of concessions um

So as far as the breakeven is concerned, if you recall in the last quarter, we said we should be close to the breakeven number in the next few quarters. And I still think that given the pace of acceleration of our cost takeout that we are doing, obviously our understanding of the market and say three months back was slightly different from where we stand today but nonetheless the breakeven is the target for the next couple of quarters and we should be in that zone in the first two quarters of FI26 certainly focusing on getting it by June. So there is a lot of market volatility at this point of time But we are certainly focusing on the internal measures, which includes essentially cost takeout, as I mentioned. A significant part of the labor redundancies are on the way and which has been approved in the past. And we are also looking at consolidation of sites, product mix, sourcing strategies in a more efficient manner. So a lot of activities are currently underway and We expect that, as I mentioned, a significant cost takeout that has already happened, but will continue to happen over the next three quarters. Your second question, Satyadeep, was on clean deal.

That is a special question. You must be in mute. Thank you.

The next question that we have is from Amit Dixit of ICICI Securities. Amit, I request you to please go ahead. Amit, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move on to the next question. The next question is from Sumangal Nevathia of Kotak Securities. Sumangal, I request you to please go ahead and ask your question.

my first question is with respect to the notes of notes of account note number six uh there are a lot of details with respect to some environment related non-compliance notices we've received for our netherland facility and also some penalties is it possible to share exactly what is this what is the nature of penalties and when do we expect to kind of get back on the right side

Yeah, so the note number 6 that you see obviously elaborates on an ongoing situation as far as the coke ovens in Netherlands is concerned. It's primarily related to the coke and gas plant 2 but also has now included coke and gas plant 1. The whole issue started, this is at the provincial level and the provincial authorities and this initially started as a green push from the co-governance beyond a certain permitted numbers. Green push technically exists in all co-governance across all geographies, all facilities. We have taken very significant steps in mitigating those green push. In fact, the last push was somewhere in October 23. But the provincial government has now come back and is basically talking about stack emission standards and levels. and also treatment of benzene, etc. And they have actually come about and talked about some kind of maybe opinions on maintenance, etc., which has been significantly high in Tata Steel Netherlands for years together. So we have some time to respond and what we are doing. We've also gone in litigation on the green push and the court has given orders to the provincial authorities to rework the basis. This is also something which may go into litigation. Our basic point is the coke and gas plant too, as part of the decarbonization, would be voluntarily be closed sometimes more towards 2029. And anything which happens before that, will have its impact on the decarbonization projects. That's been our conversation. So as Narendra mentioned, we are in deep conversations with the government at all levels, be it provincial or at the central level at the Hague. And we expect that we will resolve this in one way or the other, either through the dialogues and explaining the technical basis of the performance of the coke and gas plants one and two, or on the basis of the appeals and objections that we have already filed and we soon to be filed at the appropriate legal recourse. So it's a comprehensive approach because this is part of the solution for the decarbonization also. And the standards that were expected are higher than the regulatory standards. And therefore, these are beyond the regulatory norms that exist. And therefore, but even then, in the interest of the inclusive way of managing the business along with the community, we have set standards to improve them. And these require the investments that we are planning for decarbonization.

Got it. Got it. Kaushik, in case we don't reach to these levels, I mean, what sort of financial impact are we looking at for next three, four years on an annual basis?

So I think it is a... It's still early days to talk about it. So, Mangal, I think there are many recourses, so it can't be switched off on the fly. There has to be an appropriate notice period, and I think that notice period will stretch out the period that we are ourselves talking about up to 2029. But there are other recourses, including the legal recourse that we will opt for in case we don't have a bilateral solution to this. And we are improving our own standards beyond, as I said, these are all beyond the minimum regulatory standards that are set. So this is additional to that. Some of it is also technically infeasible and some of it which we are exploring options and ways in which we can manage.

Understood. Understood. My second question is on overall prices and cost movement guidance, which we usually give. So if maybe Naren can help us with that with respect to India, Netherlands, UK, all three on the realization NSR and then on cost. Sure.

So, Swamangal, on the realizations, we are saying in India, quarter on quarter should be flat. You know, unless there's something very significant in the budget or on safeguards which comes immediately, then there should be an upside. But otherwise, at the minimum, we see it should be flat. In terms of costs, as far as India is concerned, the cooking coal costs are expected to be over $10 per tonne lower in Q4 compared to Q3. in terms of uk the realizations in uk netherlands there will be a drop simply because there are annual contracts which come up for renewal at the end of the calendar year so we've got a increase in packaging steel supplies to packaging and there's a reduction in steel supplies to automotive So the net impact in UK quarter on quarter is expected to be about 60 pounds less per ton and in Netherlands also similar level Q4 lower than Q3. While at the same time in terms of costs, we expect cooking coal costs in Netherlands to be about $20 per ton lower in Q4 compared to Q3. In UK, that's not relevant because we've stopped the coke ovens and using the blast furnaces. In Netherlands, iron ore consumption costs is expected to be about $3-$4 lower Q4 compared to Q3.

Understood. Just one follow up on Netherlands. I mean, over the next, say, one year, is there any specific cost reduction, self-help measure should we expect to reflect in results? Or from year on, the profitability margins, etc. will be largely a matter of market factors?

No, there are huge cost takeout plans in Netherlands. There's a lot of restructuring which is being planned along with the teams there because obviously the spreads have been pretty low. In fact, last quarter it was around 160, 170 euros per tonne, which is lower than we've seen in a very, very long time. So we are not relying on the market to demonstrate improvements. I think we're going to focus on cost takeouts, both in terms of people costs as well as maintenance costs. There are opportunities there to improve. We've also done quite a bit of work on the blends that we use there in terms of co-coverns, etc. So there are lots of opportunities which there's a team working on. There's a transformation team in place in Netherlands to do a lot of this. So you will start seeing the impact of that going forward. I think some of it has already happened, but you will see impact of that going forward. So we are assuming, even if we assume fixed spreads. We are trying to see what is it that we can do to improve the performance and we are expecting next year to have a better performance than this year for sure. Kaushik, you want to add to that?

Yeah, no, just to say that the transformation program is focused on the productivity, on cost takeouts, both fixed and variable, efficiency, including availability of the mills in terms of benchmarks and also optimizing the product mix. So it's not one magic bullet, but there are multiple of them. And I think it is also not a one-year cost takeout program. It will be multi-year. But we will want to take as much advantage of that in the next year. And it will run into a couple of hundred million euros for sure.

I think I want to add here that our first focus this year was to get the operations back on track. We had been around 6 million tons for the last few years. Of course, last year was even lower because of the blast furnace shutdown, whereas 7 million is what we think is the optimal level. So last quarter, we were at 1.75 million tons, which means we are at 7 million rate. So that's one lever which is in our control, which is the operating performance. And then as Kaushik said, managing the availability of the mills and things like that in addition to all the other things that he talked about. So there's a lot of work going on there and hopefully you'll start seeing the impact of that from next year or rather from this quarter.

Got it. Thank you so much and all the best. Thanks.

The next question is from Amit Murarka of Access Capital. Amit, I request you to please go ahead.

Hi, good afternoon. Thanks for the opportunity. So the first question I had was on India. So in the last call you had guided for a 2000 drop and actually after that prices slid even further. I was just wondering like in the reported numbers, at least the fall was looking much lower. So like was the NSR decline lower than what you had thought or what was the reason for a better realization than guided?

I think at the hot roll coil level, it dropped by about 2,400 rupees compared to the 2,000 rupee guidance. But I think based on various other pluses and minuses, I think we've ended up where we are. Samita or Kaushik, you want to?

Yeah. So, you know, the revenue is actually a combination of steel revenues. We have FMB revenues, other revenues, etc. So what we actually give a guidance on is the steel NRs. And that's typically what we share with all of you. So we had set around 2,000. It's been a little steeper than that around 2400. But the overall number changes based on other revenues as well.

Understood. And also on the TS UK, I thought you just mentioned a 60 pound drop that you're expecting on the NSRs for Q4. So are you guiding for a break even in TS UK, including this decline or how is it?

No, I think what Kaushik said is we will start reaching the break-even in the next couple of quarters. We had originally thought we will reach the break-even sooner, but steel prices ended up much lower than we thought in the second half of the year. So that's why we are taking longer to hit the breakeven. But if you see the fixed cost takeouts quarter on quarter, there's a significant takeout on fixed costs. So hence the EBITDA loss in Q3 was much less than the EBITDA loss in Q2. And we are expecting things to improve in Q4. But we will not reach breakeven levels yet unless steel prices improve. But we are working on the assumption that steel prices stay where they are and looking at cost takeouts to come to the EBITDA, come to the breakeven. So, as Kaushik guided, it will be closer to the July quarter than this quarter.

Sure. And I had a slightly longer-term question as well, like iron ore leases come for expiry in 2030. When you're evaluating growing the India capacities to 35 to 40 million ton, how are you kind of looking at the IRRs for these projects? Like, do you include the iron ore cash flows in your assessments? How do you kind of look at it?

So there are a few things here. One is, of course, we do have roughly about 500 to 600 million tons of iron ore available to us beyond 2030, based on the leases that we've got from the acquisitions of Nilachal, Bhushan, Usha, Martin, plus the Gandhalpara lease that we bid for. And the costs are different depending on the premiums that we paid for each of those or the value at which we've got it when we acquired those companies. So that's one part of it. The second part of it is how can we participate in any more auctions between now and 2030, whether it's in Jharkhand or Odisha, which are going to be our two focus states. And we also evaluate Chhattisgarh as in when it comes up because it's geographically closer to our production sites. The third is to really look at how much of I&O do we want to have as captive and how much can we buy from the market, you know, because If the bidding premiums are very high, then it really doesn't make sense to have 100% captive because you can get it cheaper from the market. You have OMC, you have NMDC and the others also producing iron ore for sale. So it's going to be a multi-pronged approach. We have gone through it in the coal similarly. 20 years back, 65-70% of Tata Steel's coal was captive. Today, only 15-16% of Tata Steel's coal is captive. So we made the transition in coal and we are planning the transition in iron ore so that we mitigate the cost impact as much as possible. That is on the input cost of iron ore. The other part is a conversion cost. So there's a lot of work going on across our sites in India to reduce the conversion costs. And also as we expand in Kalinga Nagar, which is actually going to be our lowest cost production site in India, that also helps mitigate the cost. Because in Jamshedpur, we have some legacy costs. In Kalinga Nagar, we don't have those legacy costs. So when you look at Kalinga Nagar site being expanded, when you look at the Nilachal site being expanded, And when you look at the Miramundli site being expanded, all of them may not have some of the costs that we have in Jamshedpur because of the way the plant is structured, some of the legacy costs that we have because it's an older plant. Also, as we expand more capacities in Kalinganagar, Nilachal, etc., we are coming closer to the ports. So the cost of getting coal to our sites becomes less. So there are a number of advantages also that we are working on. There is a structured program within Tata Steel to see how can we protect our margins at 2030 through the various initiatives that we take, not only in iron ore sourcing, but also in managing our costs, the conversion costs, etc. So that's our plan. And I think we will manage the transition well.

Thanks for that.

If I can just add to that, Naren, since the specific question was on project IRRs. So just to help you understand, Amit, we obviously don't take the price of our captive iron ore in post-2030. So in all our IRR calculations, we take it at market price. And obviously, projects with IRR are higher than our cost of capital. That is what we clear. So just for you to understand, we do consider post-2030 that it will be market price of iron ore.

thank you ma'am the next question is from vikash singh of philip capital vikash request you to please go ahead hello am i audible yes please

Thank you for the opportunity. So just wanted to understand our capital allocation policy. We are already spending in UK. We have big plans in India and at some time in between, needle and wood come into play also. Given our current high debt levels, so what would be our priorities and can we delay the needle and capex considering we have some carbon credit left and how does it affect the needle and cost of production?

Yeah. Kaushik, you want to go for it?

Yeah. So the capital allocation policy, Vikas, is primarily based on the attractiveness of the projects. So as far as the UK is concerned, the level of bleed that we were having, plus the support of the government, made the case for a post, if you take the grant along with it, the project itself has a very significantly higher error. So therefore, we have gone ahead with that and this will get completed in the next three years, well before 2030. As far as the India CapEx is concerned, which is also a very high IRR and interactive, not only just volume, but also in downstream. And we are in the currently, as we are speaking, apart from Kaliganagar, there are certain downstream projects which are also getting completed, like in long products, the combi mill project and so on. We will continue to focus on higher projects, both from a volume perspective, as well as from a product mix perspective. If we take all of that into account, As we have said in the past, and I think both Narayan and I have said that the decarbonization project does not move forward without significant support from the government. And that is the basic premise which we have worked in the UK and we are working with the Netherlands. There is also an issue in relation to the permitting times that comes for any of these projects, which takes some time. So we are going to, as I said, the FID is still some time away the negotiations with the government are currently on, on multiple things. So the exact time of actual cash outflow will depend based on the timings that we have to do. But it will be something we will take into account in our overall capital policy. And our debt levels, which are debt to EBITDA, if you, net debt to EBITDA, if you see it, this quarter is about 3.3. It did increase and with more and more volumes coming in out of India and UK going towards breakeven and as Dharin mentioned, a huge structural program being taken out of Netherlands. Our intent is certainly to bring the debt level below 3. The range at which we should be comfortable with is somewhere around 2.75 for the growth, including the growth that we are talking about. So, but we live in a very cyclical world. So therefore in great times, it looks to be almost like under two, but in stress time when the EBITDA gets affected because of the prices or spreads, it tips over three. So we are more focused around between around 2.75 levels and on a steady state basis. And that has been our focus. So our capital allocation is very clear that we will not want to have the growth at the cost of debt. The growth will be in the balance between our own internal capital as well as deleveraging as soon as we can start doing that. Given the prices at this point of time and the cash flows that comes in, it becomes very difficult to do that, especially since we are finishing up Kalinganagar. We have another couple of thousand crores to be spent in completing it in the next year. And by September of 2026, we would have completed Kalinga Nagar and then the full benefit will start coming in. And these capex, whether it is the UK capex or Netherlands capex, does have its own time frame to consume, especially Netherlands, I think is clearly about a year and a half behind because the permitting time will also be built in before any capex is spent. So I think we calibrate the movements of growth and capex between India, Netherlands, UK in a manner where we can keep the priority on the balance sheet appropriately, correct? And of course, the internal measures on cost takeout or working capital efficiencies only supplement these limits.

Understood, sir. And sir, are carbon-traded benefits pending within the Netherlands? Because if we get delayed, then how should we look at the cost of production post CBAM implementation in the Netherlands?

So you see the carbon credit continues, the free allowances will keep coming down over the years, but we had an issue of a blasphemous six delay in startup and therefore loss of production in 23, 24, which is the reason there is a pickup time which will happen over the next year or so when the carbon credit will, the allowances will start coming back. But there is also a cost implication that we have to factor in. So I think it is balanced and we typically have to buy a certain amount of credit, a certain amount of UATS. And I think the cost of production, once we get the allowances back, will come down except for the net of effect on the free allowances. So there's an arithmetic behind it. Happy to do that offline with you, but effectively there is a arithmetic based on which the free allowances keep coming. and the offsetting impact that is happening. On CBAM, CBAM is very simple. CBAM is the cost that the local players in Europe pay for the carbon is levelized or actualized for any imports that come in. So if for example, the carbon cost is say 70 euros per ton, I'm just taking an example of a company which produces two tons of carbon per ton of crude steel. So the impact is about 140 euros. So anybody who's coming in from outside, there is a differential of the two, two tons in Europe versus whatever is the importing carbon coming in. So somebody who comes in, let's say 2.5. So there is a 0.5 into the carbon cost at that time. So that's the level at which the prices are expected to improve, to be neutral to the higher carbon steel that is coming in. So that's the mechanism that will happen from 2026 onwards. We've already started the reporting process of any imported steel, but the tax will come in from 2026. So the general understanding or the view is that to the extent of people who pay the carbon tax, the domestic prices will decrease. improve or increase by that. It's an arithmetic, but that arithmetic shows that there is an increase in steel prices in EU that will happen.

Understood sir. And sir, is the full benefit of pellet and CRM has been realized in the EBITDA and 3K or some is pending which should come in the 4K onwards?

The pellet benefit should have come through. The cold rolling mill, while the cold rolling mill itself was commissioned, the continuous annealing line has just got commissioned in December. So the product mix will improve going forward. And in the next few months, the galvanizing line will also get commissioned, which is an auto-galvanized, one of the very high-end lines in India. And that will also help the product mix. So the CRM product mix will keep improving. It has improved from HR to CR, but now from CR, it will go to Enheal and Galvanize. So you'll see the product mix impact flowing in over the next few months in here.

Thank you, sir. The next question is from Ritesh Shah of Investec. Ritesh, request you to please go ahead.

Thank you for the opportunity. A couple of questions. First, what we pulled out from the last DGTR application surprisingly didn't mention Tata Steel in it. So I don't know what's the underlying reason. So I wanted your take on that because the application went from India Steel Alliance and we are a part of it. So was it something a mess in the press release or something else to read from it? And secondly, what are the expectations on tariff, non-tariff measures? We do hear about tweaks on import duty, safeguards. How should we look into this and timelines?

Yeah, so I think on the DGTR, we had submitted the data that they required. So I'm not really clear. Maybe we can address it offline if why we were mentioned or not mentioned. But we were one of the companies as part of ISA who had submitted the data for them to consider. What will the actions they will take? We don't know. I think let's see what happens. The larger point we are making is that we as a country need to have a strategy to deal with products being sold in our country at prices at which the supplier is losing money. Today it's for steel, tomorrow it can be for anything else. In fact, it's already started happening in other goods. So while other countries are able to deal with it, have safeguard duties, anti-dumping duties, we also need to move fast because otherwise the damage is already done. So I think we've had a good patient listening from the government. They've initiated the process and we are expecting anytime soon it should come through. We were expecting it to happen in Jan. Let's see, maybe something will happen in the budget. But let's see what happens. But the larger point is if the private sector investment needs to be protected in India, particularly in manufacturing and particularly in steel, then it's not just demand growth, but it needs to be profitable demand growth for the steel industry to invest the cash flows that are required. So I think that's been our submission. And I think in the next few weeks, we'll get more guidance from the government.

Sure, that's helpful. Two questions for Kaushik. Sir, how much is the quantum of capitalized cost as a percentage of EBITDA for Q3 and nine months, if you can help us with that number? The reason to ask this question is if you look at on last year's balance sheet, capitalized cost was nearly 20% of EBITDA. It was quite a significant number. If you can help with the Q3 and nine month number, or probably I can take it later, whatever works.

Yeah, I'll give it to you offline because I don't have it off just now.

Sure. And the second one was, how should we look at the debt and cash flow profile into Q4 and next fiscal, specifically factoring working capital release potentially into Q4? And are we still looking at one consolidated balance sheet? Or basically, are we okay to give out numbers on the debt on books currently at UK and Netherlands, which I think the last time what you had given was around 500, 600 million at both the regions?

Yeah, so that is... So end of the day it is one balance sheet effectively and we are progressing more and more and ensuring that whatever debt we will have it will be more reflected on Tata Steel India because that's the strongest end of the balance sheet for many reasons including economic reasons. The working capital debt will be more focused in the future on UK and in the Netherlands. And if there are any project related debts, for example, in future, if the decarbonization project has debt coming on for the project, that will be reflected more on Netherlands balance sheet, which will be serviced by the Netherlands cash flows. So we have a method of looking at the allocation of the debt. And as you saw that this quarter, because of the way in which we could tightly manage the working capital, we have been able to release a significant part and therefore the dentate has decreased by about 3,000 crores. Our intention is to ensure that we keep holding it and decrease it as and when we move forward. But there are some times, apart from market issues, for example, this quarter, we have a blast furnace relining starting in Jamshedpur, the G blast furnace. which will run its campaign for about 160 days or so, and it will come back in July. So during that time, the working capital does need to be adhered to the loss of production out of G-Furnace. There is a lot more of scrap and DRI being used to maintain the production level on the other furnaces, for example. As you heard from Narin, the ramping up of the Kalinganagar is happening. So some of these are kind of competing pressures that happens on working capital. So whenever we get the opportunity, we push for taking out not only working capital, but also costs. We're also looking at a significant amount of commercial levers in terms of the contracts, et cetera. So our sense is that we'll be hovering around that region. We'll continue to strive to move it down. But at least in the next quarter, once the G furnace comes up, Kalinganagar by that time, by end of first quarter, would have been even more ramped up. And therefore, we would be good to go to drive cost and the working capital down as far as India is concerned. The situation in Netherlands is different. There it is running at full capacity. So we are looking at taking down working capital even more. There has been a pricing impact of that in terms of NRVs in this quarter, which if prices continue to improve or does improve in the fourth quarter, there will be a certain amount of reversal on that and also which will have its impact. Similarly, in UK, we are trying to drive working capital down because the one step up that has happened is once we close the blast furnaces, we are now buying a higher value of working capital, which is the slabs and coils than before, which was iron ore and coal. But that step up has happened. Now we are moving to drive the supply chain effectiveness to ensure that our working capital is lower. So a lot of efforts around all the sites and all the businesses in all geographies. So our intention is to keep it tight and keep it going on this basis.

Is it possible to quantify the net debt number for Netherlands and UK on December end phases?

I don't again have it, but I can certainly send it to you. But it is effectively, the Netherlands is around, the gross state is around 500 million euros and the UK gross state will be slightly higher than that, maybe around 700, 800 million pounds.

Sure. That's helpful. Can I squeeze in one? Go ahead. Yeah. So specifically for Netherlands, in the last call, you had indicated that we've already started for the preparatory capex. And I think our last four to five quarters, we have been engaging with the government, but nothing firm as yet. So how are we looking at it specifically say hypothetically there is a capex of three to four billion dollars and we have to take potentially one furnace down which will be three and a half million tons. Then how are we looking at the managing the cash flows for Netherlands and is there a sort of assurance that you can give to investors that there won't be fungibility of cash from India to say Singapore to Netherlands?

So let me articulate this a little bit differently. First is we don't shut down the blast furnace like in the UK. So UK blast furnaces had come to end of life. We had to, it was bleeding and therefore had increased our costs and therefore we shut down and that's a kind of clean slate project that is going on. In Netherlands, both the blast furnaces will run as we will be building the project. So the cash flows are not going to be impacted from that point of view. Secondly, While you mentioned that we've been talking to the government, the government conversations do take a long period of time because it's a multi-stakeholder conversation even within the government. And in this case, there is a European Commission angle which has to agree and approve on the mandate to the Dutch government before they approve. So we are at a very high-intensity conversation at this point of time and it is just not a conversation. They also see our model They see our viability because mind you, no government will give money for a failing business. All governments will give money. Whenever they give money, they want a successful business on the other side of the project. So I think there's a huge amount of due diligence that goes on. It happened in the UK. It is happening in the Netherlands. And that happens for any company which has got it. So therefore, as somebody questioned earlier that people are going slow, The people are going slow because some of the assumptions are not fructifying or in the line of sight, like hydrogen, for example, which is why we said we are slightly different because we've not gone by the hydrogen route. We are on the natural gas path. So there's a lot of conversation, diligence, legalese, vetting that goes on as part of this conversation before a government says that, yes, we can give you and what quantum we can give you and what is your project delivery timelines. what it will mean, what will be the outcome, and how the company will perform post the project. All this is part of one. And therefore, it will not be that one certain morning, either Naren or I will stand up and say, one billion will go from next month onwards. That's not how it works. And then when the project is done, there is a permitting process, a certain approval process on the ground. There's a preparatory time, and then the spend starts. And typically the spend starts in a tandem manner. One gives one rupee, the other person will also give his share of their spend. So it is a calibrated spend that is happening even in the UK, just started to happen because our spend was not there till about the start of this month. As we are going to spend, this will be the first quarter where the spend will be net of the grant. So the grants will typically come in the UK at one quarter lag. So it is as you build, you will get the money as it comes. So these are elements which will happen and I can assure you that that cash flow certainty comes up along with the ground and we will have time and position and decision making to decide on when that capex will happen.

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

the opportunity most of my questions are answered i just want to understand uh can you quantify what would be the conversion cost differential between uh it be uh calling another phase two versus what we have currently over there what kind of cost savings we can be looking forward when phase two is fully ramped up i think last time we had given some numbers i'm not remembering exactly what yeah basically uh when you look at three million going to eight million there is uh

Certainly cost take out because you're not adding, you're not doubling the number of people. You know, I think the number of people will be maybe 10-15% more in Phase 2 than it was in Phase 1 and you're getting 5 million additional facilities. Secondly, you're making better use of assets which are already built. Like you have one steel melt shop which is to produce 4 million, it will produce 8 million. Yeah, you know, so things like that. One hot strip mill, which is to produce 3 million will produce 6 million. So you have that kind of scaling up. I'm not remembering the number we gave last time, but we had, Samita, do you remember?

Yeah, so, you know, Indrajit, as you know, we're really looking at it, this as a company, really wouldn't want to give site-wise, but I think broadly, you can sort of see the benefits which are coming and sort of, you know, factor that or adjust that, but we'd rather not actually give specific site-wise details.

Even the co-creates will be better because you have two big blast furnaces as compared to Jamshedpur, which has some smaller blast furnaces and bigger blast furnaces. So there are lots of operating advantages. And of course, like I said, no legacy costs, which we carry in Jamshedpur. So in terms of the conversion rate in Kalinga Nagar will be the lowest amongst all our sites. That's for sure. But as Samhita said, we normally are not giving site-wise numbers.

Sure. Thank you. That's all from my side. Thank you, sir. The next question is from Ashish Kejriwal of Novama. Ashish, request you to go ahead.

Good evening, everyone. Good evening. Sir, a couple of questions. Just a bookie. Question one, in our notes to accounts, it was mentioned around 1410 crore of excess liability, which we have written back. So what was that liability? And I assume it is included in your adjusted EBITDA of 7500 crore in standalone also.

That liability was related to past claims, those are no longer required. We continue to have a process whereby we continue to assess based on independent judicial basis. And once we no longer require it, we do an accounting release or the reverse, we top it up. So that's part of the ongoing process, given the size and complexity of a company like Tata Steel.

And if I can just clarify to answer your question, adjusted is just adjusted for FX, the FX impact, not for any other items. So it is actually included or, you know, it includes the impact of the reversal. We can't hear you very well, Ashish.

I think Ashish was saying you are not audible. I think probably the connection is an issue. Oh, okay.

Ashish, if you can hear me, I said when we talk about adjusted EBITDA, it is adjusted for the FX impact which we have on intercompany borrowings. So that's the only adjustment which is made in the EBITDA, not for any other items.

Sure, sure. That means this 1400 crore is a net cash item which reduced our other expenditure in this quarter.

Non-cash. Non-cash item which reduced our other expenses.

And second question is, we are looking at the depreciation also. You know, we have commissioned or capitalized our 5 million ton steel plant, but depreciation for, I don't know what happens, but for last four, five quarters remains almost same. So how to look into it?

So the capitalization, you will see it more in March because initial period when you ramp up till you reach a certain stage, you don't capitalize. So, therefore, you do not see that kicker in the depreciation. From the first quarter of next year, you will see the impact of that depreciation.

Okay, okay. So, second question is on post-completion of our KPU expansion. When can we go ahead with an INL expansion and will CapEx be much lower in FY26 compared to FY25?

So, I think for Nilachal, go ahead Kaushik.

So, Nilachal, as I mentioned in my commentary that we are going through a process on the environment and regulatory clearances. Once that is done, we will also, we normally do the FEL study, which is the front-end loading study for determining the CAPEX. And these two getting done, then we go towards an investment case or investment decision for this. So that's something that we will bring to the board for the consideration in a few months from now. Once the first stage gate is actually the EC, because the EC is the longest lead item in this particular case. As far as CapEx for next year is concerned, The elements that will be there is certainly some part of the KPU expenses, the Kaliganagar expansion, which will about 3000 crores of that will be there along with the ancillary spends on that expansion. There is the last one is the line that is currently going on. So you will see that in the Q1 in particular, both Q4 and Q1, Q4 of this year and Q1 of next year. There is another relining that will happen towards the end of quarter four. And then there are more on the improvement sustainance capex that will be there and the European spend on UK, which will also start kicking in. Not in its peak form, but at least start kicking in because one has to start giving the advances and start getting the mobilization on site, etc. So a nine month spend on the UK will also be there. On the other hand, there will be a lot more rationalized cost on Netherlands to the sustenance level that is currently there.

Kaushik also Ludhiana.

Yes, sorry, my point. And Ludhiana project which is actually peaking up quite fast and we will be spending, the bulk of the spend will be in FY26. So, from today to December of 2025, we will see a big part of the spend. It is something that we are optimizing, not the Luniano, but the rest of the profile on the CapEx is optimizing. And we hope to ensure that whatever we do, we will be looking at putting towards the asset growth in the portfolio that we have.

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

Yeah, thank you Kichur. So the first few questions I think are for you Naren. Now there is a broad question on how do we see steel prices while you've shared the guidance, I think just to get a flavor of what's happening in the steel markets.

Yeah. So I think a couple of things here. One is if I look at domestic markets, The long product prices have been kind of what we had forecasted because it's less dependent on what happens in the international markets. In fact, if at all, the impact on coking coal imports will have an impact, will add to the pressure on some long product prices because the secondary sector is getting impacted by that. Flat product prices in India will depend largely on safeguard duties or any other action taken by the government, which you'll know in the next few weeks. When I look at international prices, I'm not expecting too much of a pickup because nothing is changing very significantly in China from an economic point of view. Though the last two weeks we've seen iron ore prices and steel futures go above about $10-$20. But I don't have as yet a feeling that it's going to spike up. But let's see what happens. China is able to turn the tap off on exports. I don't see international prices improving very significantly, at least in the next one or two quarters. But if something happens in China and they're able to reduce the exports to the 60 million level, which they've been doing for most of the last few years, then you will see steel prices going to the 550 to 600 dollar levels compared to the 480, 500 dollar levels now. But I don't see that action just yet. So that's why most of our actions are assuming that steel prices stay around the levels that they are. And hence, any improvements that we show will be more from additional volume or cost takeouts. And if there's a steep prices move up, that's an upside to whatever we say. So not broadly stable. Maybe we've reached the bottom. That's what I would say.

Thank you. The second question, I think, comes from some of the comments I think we made earlier on the Kalinga Rangar ramp up. I think you had mentioned in the second quarter call that there were some issues to be resolved in the oxygen supply. So there are many questions about whether that has got resolved and whether that constraint is still there or Kalinga Rangar is ramping up or post that.

Yeah. So oxygen was an issue. The oxygen plant which was to get commissioned in October, November, there were issues and it has now got commissioned. So in the first week of January, we pretty much come to the levels that we wanted to. So the oxygen issue is behind us. I think now we are waiting for the steel melt shop facilities to get commissioned. So that will happen in March. One of it will happen in March and the other in September. So normally when you do commissioning activities in a large steel plant, there's a moving bottleneck, you know, and so we need to deal with these bottlenecks because it could be logistics, it could be oxygen, it could be, you know, the downstream facilities, what have you. So that's where we are. But I think the blast furnace is doing fine. It's producing very stable at 8,500 tons a day. And we will ramp it up now to 10,000, 11,000 and then take it to 13,000, which is the level at which we want to be. So I think we are going okay there. The oxygen issue is behind us.

Thank you. The next question is on Sukhanda. And this is saying that with the surrender of the mines, what do we plan to do with the furnaces? And what is our thinking actually about Sukhanda as a business or FEMD as a business?

Yeah, so the work is going on on the surrender of the mine. We've got some of the permissions that we needed from the state government, but we are still going through the procedures. once we surrender the mines at least we won't have the MDPA pressures that we had and there will be a better balance between our ability to produce grow more and the ability to convert them. So that brings the business to a better level of stability than we've had and we won't have the pressures of MDPA and the penalty if you don't produce more that is required. So that's where it is and we will continue to revisit this business and further optimize it going forward. But basically we are trying to make sure that we don't have the losses that we had because of high MDPA production.

Thank you. There is a question or a few questions actually on our Capex growth in India. I think we've talked about it earlier as well, various projects, but just to have a sense of what is our thinking on that and are we still on the same lines? Yeah.

So as Kaushik said, the focus in the next 12 months will be more to complete Kalinga Nagar in all that. And when I say Kalinga Nagar, it's not just Kalinga Nagar. There is money being spent on the raw materials. We have now increased iron ore production to 45 million tons. So all that is there. In addition to that, we will complete the Ludhiana project. I mean, at least a lot of the capex to the Ludhiana project will go on. So that will be the focus in India. We will, in the next few months, go to the board with an Elachel proposal. We've just had the public hearing a couple of months back. We are progressing on the EC. Similarly, we will do the Kalinganagar expansion plants also from 8 to 13 and the Bhushan plants, which is a Mirapandi plant expansion from 5 to 6.5. So these are the three things we're working on, of which the first one. So in terms of adding capacity, Kalinganagar, which is getting completed now, Ludhiana, Then Nilachal, then Kalinganagar and the Miramundi plants. It will be in that order. So Nilachal is what will be ahead of the others after Ludhiana.

Thank you. The next few questions are on Europe. So I think we answered about outlook on steel prices. But there is a question on what is the cash burn currently going on at Netherlands and UK and when do we see the break even. So I think we've answered a bit of it. But maybe if you want to give some color and

I think at this point of time, this quarter in particular, Netherlands generated positive cash flow that in spite of the negative or neutral EBITDA that it had, the cash flows were positive on account of a very stringent working capital management. Next quarter also we want to continue to the same. I think the impact of the transformation program will start flowing in from the first quarter of next year. And we are, for the full year next year, we will certainly try to ensure that we are cash flow positive. So the burn is, in this particular, the question is about quarter three, the burn is actually not there.

Thank you. The next question is on CAPEX and debt reduction plans. What is our CAPEX for FY26 and 27? I think it's a bit early to give guidance on that. But in light of all of this, what is our CAPEX thinking and debt reduction plans?

I thought I explained fairly on that as far as the CAPEX priorities for next 12 months is concerned. The exact phasing in number, we can do so in our May meeting. Yeah. As far as debt is also concerned, I think we've given the framework within which we are working on.

I think that is really covering most of the questions. There are some questions in terms of additional breakup, etc. So we'll see what we can do about that in terms of broad disclosures. But I think that ends. There were a lot of questions on the reversal, which I think we've addressed, so we will not take them. With that, I think we end the Q&A. And thank you again for all your questions. And we hope the clarifications help you understand our numbers better. Thank you. And we will connect again next time.

Thank you. Thank you. Thank you, everyone. Thanks.