“Jindal Steel & Power Limited Q4-FY13 Earnings Results … · 2014-03-28 · Jindal Steel & Power...

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“Jindal Steel & Power Limited

Q4-FY13 Earnings Results

Conference Call

hosted by

Deutsche Equities India”

April 26, 2013

MODERATORS: MR SUSHIL MAROO - DEPUTY MANAGING DIRECTOR, JSPL

MR RAJEEV JAIN - HEAD INVESTOR RELATIONS, JSPL

MR MANISH SAXENA – ANALYST, DEUTSCHE EQUITIES

Jindal Steel & Power Limited

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Moderator: Ladies and gentlemen, good day and welcome to the Jindal Steel & Power Limited Q4 and

Annual Results conference Call, hosted by Deutsche Equities. As a reminder, for the duration of

the conference, all participants' lines will be in the listen-only mode and there will be an

opportunity for you to ask questions at the end of today's presentation. Should you need

assistance during the conference call, you may signal for an operator by pressing “*” and then

“0” on your touchtone telephone. Please note this conference is being recorded. I would now like

to hand the conference over to Mr. Manish Saxena. Thank you and over to you, sir.

Manish Saxena: Good afternoon ladies and gentlemen. Welcome to this conference call to JSPL, hosted by

Duetsche Bank. My name is Manish Saxena, the lead Infrastructure Analyst at the Deutsche

Bank. We have with us Mr. Sushil Maroo, the Deputy Managing Director at JSPL and with him

they have Mr. Rajeev Jain, the Head IR. Format of the call would be the same, a short opening

remark by Mr. Maroo Ji followed by Q&A. Over to you Mr. Maroo for your opening remarks

and just a request to all the participants’ we have a huge attendance list out here so we would

request each participant to ask only two questions to begin with. Thanks a lot Sir, please.

Sushil Maroo: Thank you Manish and good morning and good afternoon to all of you who has joined this

conference call today. In fact you all must have seen the result every quarter we do this

conference call and you are seeing the result every quarter and we are talking about the results

every quarter, but this quarter result is slightly different from what we talked all the quarters we

are talking from last year about twenty, thirty quarters. Every time we have talked all positive

things. This time also there are many positives and some negatives also. So we have to

understand everything what is gone right, what is gone wrong and where they will be right again

going forward.

Let me just briefly tell you few things before I get into details. You must have seen the press

release. You must have seen the results and you must have already analyzed the whole thing in

detail. But let me tell you some good things what we have achieved. One, we have achieved

100% liquid steel capacity, which is a pretty big thing first time for us and this is again another

good thing that we have sold almost close to 3 million tonne steel this time. This is also a very

big achievement. Considering that we are preparing the organization for a complete shift from

this size to a much, much bigger size as right now we have a 3 million tonne capacity, we are

moving onto 7 million tonne capacity next year. So it is a quantum jump at big leap for the

organization and we are preparing the organization for that purpose and for that purpose we are

doing many, many things and as I tell you as we go along. So that is one big thing.

Second big thing that has happened that the export this time has gone up very high, in fact for the

whole year this for the whole year export is 1927 Crores, last year we did 1500 Crores. This is

one major change. Till now we were selling more in domestic markets. Now we are making

afford to move into export market. So, this is one shift and why this we are doing as I mentioned


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that from 3 million tonne to 7 million tonne company needs a lot of preparatory work to do and 3

million tonne sale was one preparatory work getting into export market and understanding the

export market and creating a pipeline understanding and creating a brand image is second step.

So this is second step we have increased our exports to almost with the runrate of the last quarter

we are in can say at close to 2500 Crores.

Now third thing that happened is that Oman plant HBI has done pretty well this time. It has

almost achieved 100% capacity. Pellet production pallet plants have achieved 100% capacity this

time and this is all in the steel. Coming to the power; power has done better this time and power

capacity also is going up and they are doubling up in fact in the next year, let us say in the current

financial year itself from 2400 megawatt to close to 5000 megawatt. That is again another big

leap in power industry also in our business. So you will see a lot of changes taking place as we

go along in quarter. Major changes will come in third quarter and fourth quarter where you will

see the impact of these capacity jumps coming in.

Now let us get into sector wise about steel and power, let me take the power and them I will

come to steel specifically in Jindal Power. You all know that the last two quarters, we have

witnessed a major problem in transmission. So, we had a problem in the second quarter. We had

a PLF of 85% and we had a fall in the average tariff. Third quarter we had a further fall on PLF

to 81% and fall in the tariff both and let me give you a good news that in this quarter the fourth

quarter we have increased the PLF to 99.5%. So this is a major raise in fact this fourth quarter

PLF 99.5% is higher than the last year the same quarter PLF where it was 97%. So this is pretty

good, but when we look at the tariff the last year fourth quarter we had a tariff of Rs.4 which was

very high, but when we look at the second quarter and third quarter, third quarter tariff was close

to Rs.2.98. This quarter fourth quarter tariff along with the PLF going up the tariff went up and

we achieved Rs.3.17. Now transmission problem has been partially resolved and that is the

reason why we achieved 99.5% PLF. I do not see this transmission problem, which has been

partially resolved. I do not see a problem on this account. This partial resolution of the

transmission problem will continue so we will see a better tariff going forward.

Now the second question comes about the tariff. Tariff will also rise as we go along going

forward again, but it will rise slowly because we still have some problem. The problem is that

part of the power 30% of the power we are selling on power expenses where we get about

Rs.2.50, average tariff and 70% power we are selling under the quantity what we secured through

bidding and tender process there we have do we have a large quantity of power to be supplied

then there is the tender but we are not able to supply right now we are supplying only 70% of our

total generation, probably we have more then double the contract with us. So that is the problem

we are facing right now, but I feel that problem is also as we go along this was the transmission

system is easing out now it should also be resolved so we will be able to supply more to power

under contract and less under power expenses.


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So, that will give us another shift to higher tariff and we have medium-term tariff also where we

will start supplying power under mid-term contracts from June this year itself. So I see going

forward good for the power. Looking at the result of the power, profit which was 255 Crores has

gone up to 282 Crores. So that is a good rise in the profit.

Power plant commissioning is going on well in Jindal Power and we are expecting three units,

we are trying hard to commission four units in this financial year, but at least three units will get

commissioned. Fourth unit is touch and go. We are working hard to this in fact all the units,

which will be commissioned will create record in India for various activities for commissioning,

for drum lifting, for boiler light up and all these they will have new record setup in India and

probably going forward power companies setting up new power plants will look forward to these

record setup fresh by Jindal Power Limited and we will try and break those records. So that is

quite a heartening achievement in Jindal Power and we expect to do well.

Another question that comes up is about 1200 megawatt what we have for linkage coal? What

happens to that scenario? We have a linkage for 1200 megawatt. No PPA available right now.

We have participated in bids Rajasthan, UP, Tamil Nadu, three places for almost 1100 megawatt.

We are waiting for the outcome and we will participate in some more long-term bids that come in

but we will have to wait and watch. Till that happens probably we will have to ensure the running

of the power plant based on the e-auction coal and import coal and once we have PPA in place

linkage will be come effective and we will sign the assets and we will get the coal but we are

preparing for that eventuality also.

We have already started building up our own coal at plant site. So by the time the power plant

becomes operational will have enough coal to linkup. In any case we have coal mines outside. So

even if you import coal from outside, we have twin advantages. One is the continued supply of

coal and two that the profit what we earn by the sale of that coal from coal mine also remains

with us and it becomes a part of consolidated result.

We have Mozambique operational and South Africa is operational and Indonesia will become

operational. So we have three places from where we can source coal. So that is the way and today

import coal based power plants on standalone basis is viable and doing well in the county and we

also have access to e-auction coal from the coal mines, which are located within 40 kilometers of

the plant site so getting coal brining it to our own power plant is quite easy and quite

comfortable. So we do not see any problem on that account also.

So I see a great going forward from Jindal Power. I feel the lowest performance of the company

in terms of the profit and all that is now behind. What we have seen in the last two quarters and

going forward I feel that going is good and with the commissioning of the new units, we will see

major upswing coming in the performance of the company.


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Coming to international operations, international operation Oman is doing pretty good. We are

setting up the 2 million tonne steel plant, rolling mill connecting it to our HBI plants. So that also

should be ready in the current financial year and that will aid to our capacity of 7 million tonne

what I am talking. In fact this plant the rolling mill it is going to be the less cost producer of the

steel in the Gulf countries the market exist over there and it will provide a good profit in fact

Oman as it is also adding a lot of profit to our bottomline. South Africa is doing good.

Mozambique mine has started working they are the coal beneficiation in plant washery all are

operational now and we are expecting the first shipment of 50000 semi-soft coking coal in the

current financial year. We are hoping to get almost a ship a month kind of target that what we

keeping for this current financial year. So Mozambique mine is quite operational and so do well

in the current financial year. We expect a good scene from international operation. International

operation has done pretty good in the current financial year, current means 2012-13 financial

year also they have done good, and I expect them to do even better next year, next year means

2013-14.

Now coming to the steel sector steel sites in JSPL in India, Oman I have already talked about.

Steel site in steel this time if you look at the total year-to-year almost they are meeting the criteria

we had a 1% fall in the EBITDA margin in the year-to-year basis but for this quarter specifically

we have seen a little larger fall in the EBITDA margins and the profit but profits could have been

better, but there are one-off transactions, which have taken place, one of means one of

transactions, some events which are related to a particular quarter largely. Lastly let me tell you

all those events so you will understand it. As I mentioned that we are preparing the company to

move on from 3 million tonne to 7 million tonne, we are trying to produce more steel to prepare

our logistics for that purpose and to prepare the marketing department and to gear up the

company to face when the higher production is there. So we imported lot of HBI this time almost

a lakh of tonne of the HBI in the current financial year. We have used in our steel making and in

HBI what we are importing from our Oman is largely when we convert them into steel we do not

see any kind of profit coming in. They are very, very minimal margins so you can see the topline

and costing virtually both are the same and they are far higher. In fact Q4 HBI consumption is

50% higher than Q3 roughly so 45% to 50% higher. So because of that reason when we do the

calculation of our EBITDA percentages they have fallen, but we look at the bottomline there is

not much of difference and the difference can very easily be understood as I go along and tell

you.

So this is HBI that is come in and we are now preparing whether to bring in HBI or not to bring

in HBI and because we will not be able to bring in more HBI for Oman going forward because

our own rolling mill is getting ready in Oman and that rolling mill will need HBI from Oman

itself. They will consume almost 100% of HBI so I do not think in the current financial year

2013-14 we are planning to bring in more HBI. So that step has close it is almost a year itself.


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Second thing is that we have commissioned the plate mill and we have put all its depreciation,

interest, operating cost, everything in the current financial year and it takes time for the plate mill

to stabilize, a lot of rejections initially that go along production is low and it takes time to

stabilize which has already happened now, now in fact we are talking of API grade plate also.

We are in discussion with some companies where they use a special grade plate at a far, far

higher prices and we have put our team for that purpose to produce that special grade. So what

happened that we have put a higher turnover coming in from plate and operating costs, and

turnover prices, price almost coming to the same and that is largely the reason why. When you

look at the EBITDA margin percentages that will comedown but not much impact on account of

this on the bottomline but bottomline gets impacted because of the higher depreciation and higher

interest and lower production so per tonne the impact will be better, the impact will be a littler

different type and that is the reason something about 120 – 125 Crores on account of the plate

mill is that what is visible in our bottomline which in any cases the production go up in the next

quarter will not be visible.

So two reasons I have mentioned and I also told you about the impact on the EBIDTA margins

and the bottomline. Third thing is the inventory liquidation. We have done a very massive

inventory liquidation in the last quarter and very massive affords have been made to test the

system and liquidate the inventory it is more specifically in February, March. So what happened

that every company did this inventory liquidation at the highest order in February, and March,

and combined in fact of all these companies crashed down the prices, so in this quarter

effectively the steel prices were lower at 3% to 7% compared to the last quarter. That has also

affected to some extent. Topline and bottomline that is where all the calculations have gone little

different.

Now what we have done in this case, we have buildup the inventory all through the year in fact

from the last year quarter and virtually this year quarter, this year end we are holding up the same

inventory but what we did during the quarter during the whole quarter, we have buildup

inventory starting from April 2012, onwards hoping that RBI reduces interest rate, hoping that

economic cycle moves up, hoping that the liquidity comes in when people should be in a position

to buy hoping and hoping and hoping, but it happened to some extent but not to the extent that

we were thinking so we are building up inventory and towards the end of the year we did the

complete liquidation of inventory. So that liquidation is over and the moment the March 31, the

liquidation under pressure is over we have started seeing the prices going up again. In fact from

April that because of under tremendous pressure the steel prices, which have fallen have started

inching up because the pressure on the sale has been removed. So, that is the one big sigh of

relief.

Another major learning that is what we have had that never to buildup the inventory and sell it in

the last quarter and last two months and come under unnecessary and tremendous pressure, also

in the last six, seven, eight years we have seen the inventory buildup has always been profitable


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never a loss making proposition for us, but probably time has changed and we have to change

with the time and we have to learn with the time. So this was quite a major learning and now we

have all decided that inventory liquidation should take place from month-to-month and not build

them up and go on till the last moment. So that is the major learning and that is how the

marketing and department is now gearing up to ensure that production of every month gets sold

of every month, and do not come under unnecessary places, and not to have that kind of scenario

again.

Now if I compare the bottomline number from Q3 to the Q4 the difference largely can be

understood the plate mill, which has not produced. It is 25 Crore on account of that and the

foreign exchange difference, differential of something about 70 Crores so roughly 200 Crores

goes on that account itself. We have this 200 Crores and we are back to the again in the same

leap what we were earlier. But the reasons I have given you they are only one time reasons and I

am quite hopeful that going forward scenario is quite good and also considering that company is

getting into a different orbit with from 3 million tonne to 7 million tonne major quantum jump in

the topline and bottomline and EBITDA levels and the cash profit levels, a massive quantum

jump. In the power again the power plant getting commissioned, a big jump. International

operations, a massive jump with 2 million tonne Oman plant getting ready with the Mozambique

mine getting operational and scenario improving there I mean the more coal being exported from

there. So from all the three fronts things are better and from Mozambique in fact once ship is

already on the way, 1 lakh tonne ship, I just got the news. In fact while talking to you I got the

information that 100000 tonne ship is already on the way from Mozambique to India. So it is a

semi-soft coking coal. This is damn good news for us. Going forward, I hope that this will help

us to reduce our dependence on import of coking coal from Australia. It will reduce the cost of

steel making in India. It will help us to increase the coal production in Mozambique and on

profitable there and hit it over bottomline on a consolidated number basis. So that is all about

good signs. Going forward and let us not be worried about what happens one-off all the reasons

coming together in one particular quarter and getting accumulated has no impact on the structural

strength of the company. Going forward we see all the better scenario.

Another great thing that we could export more preparing the company for the future when the

higher production comes in we are, we get ready. Another point I want to tell you that Angul, our

2 million tonne steel plant, plate mill is operational and now it has started doing well. Steel

melting shop is getting ready in the first quarter itself and it will again reduce our cost of plate

making because then we will be able to use sponge iron, we will be able to use scrap, we do not

have to put the blooms and slabs. DRI plant is getting ready. It should be operational in the third

quarter of this year. Utkal B1 mine we all ready. We are waiting for the government to sign the

mine lease agreement and all explanations have been. There is no legal issue, which is pending.

We are hoping the government to move on this quickly but just because you may ask questions

what happens in Utkal B1 mine is not there or it takes time and how we handle the scenario for

our DRI plant.


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Let me tell you that DRI plant 2 million tonne when it becomes operational, it will take little time

in the third quarter to stabilize. We have already started building up coal at our Angul plant. We

are presently holding about 0.6 million tonne coal and we are planning to increase it to 1 million

tonne coal. There are enough mines available around the Angul plant from where we are buying

under e-auction and holding it over there. So we are preparing to build coal, use that coal going

forward for up to October 2014. So the operation does not get disrupted because of any reason.

In terms of the cost if we talk about what happens, since those mines are close by, close to our

plant, our landed cost of the coal is not very high and differential cost on a short-term basis

maybe a year or two. Our own coal mine and e-auction coal the differential is something about

Rs.600 per tonne of sponge iron. Sponge iron is sold at about Rs.22000. So let me say 3% price

of the sponge iron is the difference so let say another $10 per tonne of sponge iron is the

differential or in terms of the steel, it is about you can say something about $15 per tonne of steel

is the differential cost of coal mine not getting ready in time and may resorting and are resorting

to e-auction coal and holding it over there and then running our DRI plants. So I do not see any

major worry on this account. We can ride in comfortably for sometime and we have enough time

by the time to get the mine lease agreement signed, open the mine and start our own operation.

I think I have covered almost, all the issues on this account. I've explained it. The going is good.

There is no problem. Power is better. International operation has done better. Steel has done

better in many ways in terms of production, in terms of export, in terms of many, many

parameters, steel also has done better. It has not done better in terms of the price and the lower

price combined with our steel production coming at the same time has given the impression of

low working and lower margins that is not the case going forward otherwise the company has

done pretty good. Manish, I leave it to investors for Q&A to all of you now. Thank you.

Moderator: We have our first question from the line of Mr. Saumil Mehta from IDFC Securities. Please go

ahead.

Saumil Mehta: Yes, thanks for the opportunity. Sir, can you throw a bit more light on why raw material costs

have increased? I agree Oman, Angul plays in, but even if when I look on a per tonne basis, there

is about 10% to 11% sequential increase. So just wanted to understand, given the fact that even

domestic sponge iron prices were lower and so were the international HBI prices. So is there

anything else, which we are missing in raw material cost escalation?

Sushil Maroo: As I mentioned to you that the reason is three fold. One is I mentioned that the prices have gone

down. So when you compare it in terms of the percentages the percentage will always be higher

that is number one. Number two as I mentioned that we did almost 50% more as we had in the

earlier times, so when we take this kind of HBI, we will see the higher raw material cost because

raw material cost and the steel price will remain the same virtually both side only we are adding

the same effects. So that is another reason. Third reason is the plate mill because of the plate mill


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also we have a higher reduction initially and smaller production. We produced and sold about

45000 tonnes of plate so 60000 tonnes of plate so that is the reason why the higher cost of

production higher reduction and that is the reason the whole cost is getting loaded on and that is

why you are seeing the higher raw material cost, which will be ironed out going forward.

Saumil Mehta: Sir, is it fair to assume that going forward because that there will be no transfer of HBI from

Oman, raw material cost have more or less peaked out and they will continue to fall in FY14. Is

that a fair assumption?

Sushil Maroo: See, yes you are right in a way. The raw material prices will fall down but in any case it is not

going, but in our case in any case they will fall faster because now we are not going to import

HBI from Oman more. The reason is Oman will have its own rolling mill so it will not have any

HBI to be sold to us going forward. That is reason one. The reason two higher production of plate

mill lower reduction and production of a special grade that what we are very seriously working

on the production of special grade plates to be used in all oil and gas sector, as you are very well

aware that we have within the group company, which can utilize that kind of special grade plate

for oil & gas industry, so we are working very seriously for that and it can give us a major boost

in our higher sale of plate, better price and better margin and that gives us very robust bottomline

so yes you are right you will see it going forward. That is what I am saying.

Saumil Mehta: Sure. Sir, my second question was basically on average selling prices. Now this particular quarter

we saw a sharp fall. We understand it was more of inventory liquidation, but is that a case that

the product mix was also not very superior so there was higher selling of slabs and bloom, billets

and other low value-added products?

Sushil Maroo: See what happened, there were two reasons for that. See what happened, if we go further into

detailing what actually happened in inventory liquidation. There are two major things happened.

One thing is that we have accumulated inventories, which we sold off in a very, very high order

liquidation pressure under that. Second thing what happened that since when you buildup the

inventory over a period of time then that inventory over a period of time also go down in the

market in terms of the price now the inventory what we have buildup over a period of last nine

months reduces its own steel price and with some of the inventory which were there of the

subprime and all those kind of level lower quality also, which got buildup over a period of time

and not sold at the right time and they were all were sold at lower than the prime rates and that

also in turn affected the lower realization.

Saumil Mehta: Sure. Sir, but correct me if I am wrong, the reason why we are building inventory was to convert

them into plates, so as to achieve higher realization. So are we saying that plate demand is

weakening or the process of conversion is not…?


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Sushil Maroo: No that is not the case, we never sales semis, only the semis which are not of the prime quality

we sell, but we never sell slab, we never sell semis, we all use because in fact we are running

short of liquid steel, we are running sort of semis also that is one of the reasons also why we are

importing HBI and using in the system. So that is not the reason that we are selling semis in the

market.

Saumil Mehta: Sure, thanks. I have further question, I will just join in the queue.

Moderator: Our next question is from the line of Mr. Vineet Maloo from Birla Sun Life. Please go ahead.

Vineet Maloo: Good afternoon, Sir. Sir, just on dwelling on this raw material cost only, there is a slight

confusion because I understand because of HBI importing your standalone raw material cost will

go up significantly. But we are looking at absolute raw material cost going up in consolidated

accounts also. So I mean, did we have, I mean, any purchases for conversion of steel material or

something?

Sushil Maroo: No, not that in fact you are right. In consolidated HBI will be knocked off but the plate will not

be knocked off. Plate any higher raw material cost coming in because of the plate production will

remain there so it will not go off completely. You will see that going off from the next quarter

from the first quarter onwards when the plate stabilizes and the production go up and the

reduction is less. So you will see it happening.

Vineet Maloo: But, Sir, our liquid I mean steel or crude steel production is not substantially different from Q3

level, right? Our crude steel production is not substantially different from Q3 level?

Sushil Maroo: Q3 production is not substantially different but my HBI consumption has gone up and the plate

mill production has increased my cost that is the reason.

Vineet Maloo: Okay, Sir. You are saying the incremental raw material expenditure because of plate production?

Sushil Maroo: That is right. That is what I am just trying to convey it, which is now getting over.

Vineet Maloo: Sir, I just understand. And, sir, our plate mill, can you just clarify what is the amount we have

capitalized for plate mill?

Sushil Maroo: Almost 1600 Crores we have capitalized.

Vineet Maloo: Capitalized for the plate mill?

Sushil Maroo: Yes.

Vineet Maloo: But, sir, our depreciation has gone up by roughly Rs.50 Crores quarter-on-quarter?


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Sushil Maroo: Partially it is from plate mill and partially from many other smaller facilities, which we

capitalized and many other.

Vineet Maloo: Okay, and what was it?

Sushil Maroo: There are some minor equipment in power plant. Four units of power plant we already

capitalized some small sections, which were not capitalized they got capitalized in the current

quarter.

Vineet Maloo: Sir, because just I was just trying to simply understand a Rs.50 Crores increase means, Rs.200

Crores on an annualized basis, which and I do not know, if you assume a 5% to 6% depreciation

rate it means a Rs.4,000 Crores capitalization?

Sushil Maroo: Roughly we have done 3000 Crores capitalization. May be there are different rates of

capitalization depreciation rate in the power plant and other places but 3000 Crores we have

capitalized in the current quarter.

Vineet Maloo: Okay, Rs.3000 Crores. And, sir, we did not have project debt corresponding to these facilities,

right, because our interest cost is not up much?

Sushil Maroo: Interest cost there was some calculations, which probably want to understand in detail we can

give you, but let me tell you because of some adjustment, which we have done now we have

rationalized the interest what we are charging from our Mauritius loan whatever we have given to

a Mauritius company. So earlier we were charging a higher rate of interest now we have reduced

to lower rate of reduce to bring it in line with dollar, some loans which have been repaid also. So

based on this combined effect the interest absolute number has gone down.

Vineet Maloo: But, sir, this is gross interest expense, right, or net?

Sushil Maroo: It is net.

Vineet Maloo: It is net. And, sir, one last question on this consol basis, our other expenses also up significantly.

So this is also related to plate start-up and etc.?

Sushil Maroo: What happened you see my export has gone up dramatically. So it is largely coming in on

account of export. You see my last quarter export is closed to 650 Crores and more the exports

more the other expenses because we are selling FOB and all transportation cost and everything

gets loaded to the other site.

Vineet Maloo: So, sir, export realization would be better than domestic currently?


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Sushil Maroo: Exports is currently, yes you are right. Export realization is better it has reversed the scenario. It

used to be different in the past where the domestic prices were higher than the export price but

the scenario has reversed but now what we are trying we are not looking at whether it is 2%, 3%,

and 4% plus minus, we are not looking at that. We are now consciously making effort to develop

our export market because as I mentioned that we are going for 7 million tonne from 3 million

tonne in the current financial year. So 2%, 3%, 4% price differential we are not worried. We are

developing the markets so we are continuously increasing our export.

Vineet Maloo: Right. Thank you very much, sir.

Moderator: Thank you. We will take our next question from the line of Atul Tiwari from Citigroup. Please

go ahead.

Atul Tiwari: Sir, if you could just give some update on the status of Indonesian coalmines and when can we

possibly see some kind of coal coming from Indonesia that will be really helpful?

Sushil Maroo: Indonesia mine is absolutely ready and we are just waiting some last minute clearance from the

government. So the moment that is available to us we will open the mine and will start. It is

absolutely in a ready position and as you know that going forward in our power plant, we are

thinking to import coal from Indonesia, bring it from Indonesia mines may be starting from July,

August, September because what we are planning that in a power plant will mix coal one e-

auction coal, Indonesia coal, Mozambique coal, South Africa coal will mix all these coal and

come to the least cost the must productive mix scenario I think you can have a power plant.

Atul Tiwari: Sir, how much I mean, assuming that we get the final approval in a couple of months, how much

production could we see say in the first year of operation. Any thoughts on that?

Sushil Maroo: Atul we will able to put the number once we start the production but right now I will not like to

put any number. Let we start the production and then we can do the ramping up very fast as we

have done in Mozambique, where in the last quarter, we have mentioned that our beneficiation

plant is getting ready and washery is getting ready and now I now mentioned that 100,000 tonnes

ship is one the way to India. So ramping up is easy for us since we do mining operations in so

many countries and India also. So let it open up and probably that is the right time and we tell

you how much we are going to ramp up.

Atul Tiwari: Thank you, Sir.

Moderator: Thank you. We have our next question from the line of Giriraj Daga from Nirmal Bang. Please

go ahead.


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Giriraj Daga: Sir, my first question related to the iron ore sourcing for our new the DRI, so have you made any

arrangement and looking down which floor what we are getting from Orissa, which is difficult

for the iron ore. And so what is your take?

Sushil Maroo: For DRI let me give you pretty good news on this account. For DRI we are setting up a second

pellet plant, which will use fines. Our first pellet plant as I mentioned in the beginning as

achieved 100% capacity utilization. Second plant will be ready around December Q3 end of the

Q3 of this financial year, 4.5 million tonne capacity, which will use fines, 4 million tonne

capacity which will use fines and it is great news. The cost of pellet is very low, highly profitable

and so much of fines are available there. I will tell you the large number of fines are setting down

their operation or using their operations because they do not know what to do with fines. Export

is a big problem. Local consumption is not happening. They do not have a place to keep their

fines. As I mentioned what happened to our inventory we had to sell it by force so much of

inventory of plant of finished steel that we could not produce more there is no place. The same

thing is happening with many mines in Orissa. There are so much of fines loaded on to their

leased area. They cannot go out. Outside land is not available. So they are cutting down the lump

production. So fines are available at very good competitive price and by the grace of god our

second plant is coming up at the right time and absolutely at the right time to give us good.

Giriraj Daga: Do not you think the pellet realization also crashed like that what we are seeing in the steel,

because pellet has already corrected almost 20% now?

Sushil Maroo: It is something like you are telling me that power prices are Rs.7 and now it is gone down to Rs.4

and Rs.5. Though pellet prices are right in the beginning of the pellet revolution in the country

they cannot sustain those kinds of pellet prices but present pellet prices are pretty good and they

have very decent profit margins there also. In fact let me tell you present pellet prices are good

enough to address massive investment in the pellet. So they are pretty good.

Giriraj Daga: My next question is related to coal prices, you said if I use e-auction coal, my cost difference will

be Rs.600 per tonne on the sponge iron. So I am just a bit confused because then you are talking

cost difference of only Rs.400 per tonne on your coal, if you import and if you mine, is your

mining cost that high or your e-auction cost is that low?

Sushil Maroo: No, e-auction cost is not very low. My mining cost is not very high. Both are correct scenario.

See the reason today if I am e-auctioning and getting it and the prices is about say 1800. My

mining cost will be about 1100 so the difference is about 600 to 700. Now what is happening

since we are building up e-auction coal inventory in my plant, I will build it up over a period of

time to take care of my need for next one year? But I cannot continue operating my full

utilization of my plant on year-to-year basis without my mine. Then this e-auction will run short.

I have a time on my side to build up my inventory but once this inventory disappears and I need

to save roughly the 3 million tonne coal every year to run my plant and 100% capacity I cannot


April 26, 2013

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have that kind of coal available. At that point of time I will have to import. The moment I import

my cost of production will go up. So this is a temporary relief available to us maybe say one to

two year and when you use it to and make sure that nothing go wrong and we keep the cost of

production low and still have the good market.

Giriraj Daga: That is it from my side.

Moderator: Thank you. Our next question is from the line of Bhavin Chheda from Enam Holdings. Please go

ahead.

Bhavin Chheda: Good afternoon, sir. Sir, what would be the closing inventory of steel plate and pellets as on

March 31?

Sushil Maroo: Closing inventory of pellet and what else you want?

Bhavin Chheda: Plate and steel products?

Sushil Maroo: Let me tell you my closing inventory is about 4.2 lakh tonnes of steel products.

Bhavin Chheda: Okay. 4.2 lakh tonnes of steel product, is it including plates?

Sushil Maroo: It is all plant. Sorry I think my steel inventory at the end of this year is 3.59, not 4.27 as

mentioned; it is 3.6 lakh tonnes, 360,000 tonnes. Okay and pellet is about 140,000 tonnes.

Bhavin Chheda: 140,000 tonnes?

Sushil Maroo: That is right.

Bhavin Chheda: Other questions, what would be the CWIP figure in Steel standalone and Jindal Power Limited?

Sushil Maroo: CWIP in Jindal Power will be about 4000 Crores and in Steel it will be roughly about 13,000

Crores.

Bhavin Chheda: Rs.13000 crores? Sir, which means in Jindal Power Limited, you would be spending Rs.9000

Crores this year because the project cost is Rs.13000 Crores?

Sushil Maroo: This year or next year you right.

Bhavin Chheda: Your total capex is Rs.10000 Crores this year?

Sushil Maroo: This year we are targeting about 10,000 Crores yes.


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Bhavin Chheda: So out of that RS. 9,000 Crores would be in Jindal Power itself?

Sushil Maroo: No, in Jindal Power if it 9000 will be spend over a period next two year. As I mentioned that my

last unit is touch and go this financial year March. We are trying hard for touch and go. We do

not know what happens. We depend on BHEL to get all the equipments and we do it. But even if

it come the payment large number of payment takes place much later after getting all the

equipments and commissioning it. So it will be in next two years.

Bhavin Chheda: Thanks a lot, Sir.

Moderator: Thank you. Our next question is from the line of Pinakin Parekh from JP Morgan. Please go

ahead.

Pinakin Parekh: Sir, many thanks for this opportunity. Sir, two questions. First on the balance sheet. On a

consolidated basis the net debt has gone up by roughly Rs.7900 Crores to1 Rs.23500 Crores.

Now given the capex plans for FY14 and FY15, how should one look at this net debt number,

how much should it increase by? Related to the balance sheet, on a consol basis, there is a very

significant jump in current assets, receivables, inventories and short-term loans and advances. So

what would have driven this current asset buildup?

Sushil Maroo: All the products, which have been sold the inventory, which has liquidated for my inventory,

level plus the profit, have been subject to receivables. Part of that money has coming and part of

the money has subject to receivables. So the money will come in little later. The inventory has

been sold. So that is the reason of these little higher current receivables. In terms of the loan all

the loan has been tied up for the total company at the consolidated level. We have about close to

25000 Crores loan; out of this 5000 is for overseas and the rest if for just a loan is about 18000

Crores and for the balance plant completion the loan will be utilized and taken for the next two

years time roughly about you can say another closed to 15000 Crores.

Pinakin Parekh: So over the next two years, we should expect this net debt number to go up by Rs. 15000 Crores?

Sushil Maroo: No, there will be lot of loan repayments will also take place. So you can say that a 15000 Crores

loan is going up roughly about you can say 4000 Crores loan will be repaid so net about 11

Crores you can say will be right net.

Pinakin Parekh: And, sir, my second question is on the iron ore cost in this quarter. Is there any sequential change

in the iron ore cost in India in Q4 over Q3?

Sushil Maroo: Very marginal change is there yes, but I think marginal changes takes place, plus minus takes

place on a quarter-to-quarter basis. So very, very marginal effect versus plus or minuses.


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Pinakin Parekh: Thank you very much.

Moderator: Thank you. Our next question is from the line of Vineet Maloo from Birla Sun Life. Please go

ahead.

Vineet Maloo: My question has been answered. Thank you.

Moderator: Thank you. We have a next question is from the line of Subhadip Mitra from JM Financial.

Please go ahead.

Subhadip Mitra: Good afternoon, Sir. This is Subhadip Mitra from JM Financial. I had two questions. To begin

with, firstly, if one looks at the exchange-related realizations that we have had this quarter at

around Rs. 2.50, as you mentioned, they seem to be on the lower side as compared to the average

realizations when one looks at the exchange data. So just wanted to get some colour as to, is it

primarily because of the transmission congestion in that region that we are looking at lower

realizations and it may continue to be at a discount to the average number?

Sushil Maroo: See if you look at the average realizations in W3 area, you will find it Rs.3 plus. If you look at

the average realizations in the southern region they will be Rs.4 plus kind of scenario. But what

has happened what the government has done it within the W3 they have created a new region that

is called W3. In W3 they have put a part of Orissa, Chhattisgarh area and they have redesigned

the W3 and power, which can flow out of that place that area. So within this W3 area the demand

is high in the WR itself but since there is a transition cost trend in W3 so the rates are lower. In

fact I feel they are pretty lower as compared to many other areas in India and now the transition

constant is slowly easing out some new lines got commissioned and some more two more new

lines are getting commissioned. So I feel that this will be over in future.

Subhadip Mitra: I see. So sir, we have got medium or long-term open access from these new lines that are

expected to commission?

Sushil Maroo: We have got medium-term open access after one year. In fact we applied last year and after

almost nine months we got a medium term open access to supply power to southern region and

for that our 200 megawatt will start flowing some June 2013 itself. So, we have got this and we

also applied for one more medium-term and we are hoping to get it normally in the present

scenario (inaudible) 52.51. You may have a contract running today but considering the

connection between the southern region, northern region and western region one gets

commissioned only after one year that is because southern region is not very well connected.

These are the reasons but after one year new line is getting operational so we are expecting the

scenarios to be better.


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Moderator: Thank you. We have a next question from the line of Sathyamurthy from Sundaram Mutual

Fund. Please go ahead.

Sathyamurthy: This question is regarding the raw material increase. There has been around Rs.600 Crores of

increase sequentially this quarter. So you had also given some reasons for that, if you could break

up the Rs.600 Crores among these regions, it would be helpful, sir?

Sushil Maroo: I think what I suggest for the detailed breakup, will it be possible for you to mail Rajeev’s mail.

He will send you the details.

Sathyamurthy: Thanks.

Moderator: Thank you. Our next question is from the line of Rahul Modi from Antique Stock Broking.

Please go ahead.

Rahul Modi: Sir, my question was regarding your strategy, in terms of bidding for the state power

procurements. Now what I understand is we are not qualified for the Rajasthan bid for the 1000

megawatt. And also we are not in the top 5000 in the UP bid, because we had bid at more than

Rs. 6, so just wanted to know the whole strategy and how competitive our power will be given

the fact that we have not been able to qualify till now?

Sushil Maroo: See we are quite qualified in UP. UP needs 6000 megawatts and we are qualified within 6000

megawatt in UP. The second bid, which has been opened in Rajasthan we have not been qualified

the reason is in 1000 megawatt see we have to compare apple-to-apple and we have bid from our

new 600 units they are coal linkage based. So if you take out the information from the coal

linkage base to coal linkage base if you compare we are very well we get qualified but the people

who have been qualified the people who are either holding their mine either partially or fully. So

they all have gone in 1000 megawatt and since we have applied from our 600 megawatt because

today is our dire need is to have a PPA so we can have SSA, so we have participate in the bid

some 6000 megawatt. So coal linkage club or the two local linkage bidders we comfortably get

qualified but who will get the preference. Preference will be the first, of course on the price and

the prices will certainly be lower for the people who are using their partially or fully thereon

exiting coal mine. Otherwise we are comfortably in sync with the market.

Moderator: Thank you. We have our next question is from the line of Rahul Jain from CIMB. Please go

ahead.

Rahul Jain: Thanks for giving opportunity for the question. Sir, I just wanted to check now can you give

more color on your pellet expansions as to what size and what is the amount of quantum and by

when do you expect to start it?


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Sushil Maroo: As I mentioned that we are setting up a 4 million tonne pellet plant, which is getting operational

in the Q3 of this financial year and this pellet will be using in our DRI and a lot of work has

already been done. I think it is going to be about 600 to 700 Crores.

Rahul Jain: Coming to the results also, now if I eliminate your profits from your pellet business from your

steel business EBITDA, it appears that you have made about $120 per tonne EBITDA for the

quarter. So I just wanted to check, is that a fair assessment or could you provide how much

margins you will make in your pellet business?

Sushil Maroo: Pellet business margin a huge. It depends on it as good as power business today.

Rahul Jain: Sir, I mean, just coming to conclusion that $120 per tonne for steel is that where we are today

and likely to improve because of lower use of pellet for plates and other things?

Sushil Maroo: Margins are going to improve from here further as we go along because of the various reasons as

I mentioned. They are going to be better that is one off thing and that is all clubbing of many

reasons.

Rahul Jain: Right. Thanks, Sir.

Moderator: Thank you. Our next question is from the line of Dhawal Doshi from Phillip Capital. Please go

ahead.

Dhawal Doshi: Thank you, sir. My question is answered.

Moderator: Thank you. We have our next question is from the line of Avinash Ranjan from Kotak Securities.

Please go ahead.

Avinash Ranjan: Hi, good afternoon, Sir. I would like to understand what exactly do you mean when you say

transmission constraints have only been partially resolved? To be more specific, are we likely to

see losses in generation coming in due to grid restriction in subsequent quarters too?

Sushil Maroo: See because of the transition loss we had we generation losses constant but those are the part of

the two quarters and I do not say any reason to have them now.

Avinash Ranjan: Thank you very much, Sir.

Moderator: Thank you. Our next question is from the line of Saumil Mehta from IDFC Securities. Please go

ahead.

Saumil Mehta: Sir, what was the total capex we have spent in FY’13, and if you can break that in terms of steel

and power business?


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Sushil Maroo: FY’13 we have spent about 8000 Crores.

Saumil Mehta: Sir, is it possible to give the breakup

Sushil Maroo: About 5000 Crores in steel and rest 3000 Crores in power.

Saumil Mehta: Sir, what would be the requirement in FY14 and FY15?

Sushil Maroo: FY’14 we are planning to spent about 10,000 Crores because my lower more money will spend. I

feel more money will spend as my plant gets operational now.

Saumil Mehta: Sir, my other question is coming back to the Angul or the Utkal coal block, I mean, I am just a bit

confused about mining costs being so high Rs.1100 because that will be high only for the initial

part of the commencement or we expect higher mining costs going forward also?

Sushil Maroo: See Rs.1100 is the general cost of mine now we expect and when we open a mine you spend

more also. It takes also two years to reduce the mine cost when the lot of overburden has to be

removed and the scheme has been opened up then only it goes down. It is the matter of policy we

never carry forward our mining expenses is even when we incur in the year we write them off.

There is a policy available that we can accumulate and write them over 10 years but we do not do

that.

Saumil Mehta: Sir, my last question, are we expecting any other medium-term bids from SEBs over the period?

Sushil Maroo: Yes medium and long term quite many bids are coming up. Long term bids are expected from

Andhra Pradesh, from Tamil Nadu, from Kerala and medium term bids are also expected.

Saumil Mehta: Thank you so much.

Moderator: Thank you. We will take our next question from the line of Hitesh Ajmera from Care Ratings.

Please go ahead.

Hitesh Ajmera: Hello, sir. Thanks for the opportunity. Sir, I would like to know that you have just said, you have

just sourced coking coal from Mozambique. I would like to know what is the roughly advantage

the cost advantage, which applies to coking coal sourcing from Mozambique. And also I would

like to know in terms of the infrastructure facility in the Mozambique area, whether you are able

to source the required quantity of raw materials on the infrastructure availability in terms of rigs

and ports availability. Thank you.

Sushil Maroo: You are talking from Mozambique?

Hitesh Ajmera: Yes.


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Sushil Maroo: Mozambique, there are infrastructure issues right now. We are trying to sort it out. Of course it

will take little time that is why we cannot increase the coal supply from that say 5 million tonne

and 10 million tonne but it will happen over a period of time. So we are targeting about a million

tonne now and let us see from there where we go based on small, small modification we do on

the infrastructure, we will slowly increase but it is very difficult to give any concreted plan at this

case because improving it all of a sudden needs a massive investment infrastructure we do not

want to do that.

Hitesh Ajmera: Sir, roughly what could be the cost advantage if we are sourcing raw material from

Mozambique?

Sushil Maroo: What we are doing is we are importing a semi-soft coking coal. So we have advantage from our

own mine and you can say roughly 15% to 20% advantage what we have over other competitor.

Hitesh Ajmera: Thank you, sir. Thanks.

Moderator: Thank you. We will take the last question from the line of Tanuj Rastogi from Marwadi Shares &

Finance. Please go ahead.

Tanuj Rastogi: Thank you very much for the opportunity. Sir, one question is that in your Oman plant, your

rolling mill is expected to commission by this year-end. Your rolling mill is expected to

commission by FY’14 end, so till then your import from Oman will continue or it will be stopped

immediately?

Sushil Maroo: Our rolling mill will be our steel melting shop and all that will start in September and October

and after that will be holding up the inventory over there itself. So import is already slowdown

now and may be one quarter we import and then we stop completely.

Tanuj Rastogi: Another question is on 125-megawatt power plant. Sir, it seemed that in this quarter the power

generation has gone down. Can you tell us why and what should be the outlook for next two

quarters?

Sushil Maroo: In this quarter, the power generation has gone down because some problems in Angul and we

expect Angul problem to be taken care of from the end of June so from there after that only the

power generation going up from this 135 megawatt.

Tanuj Rastogi: Sir, my last question. Sir, it has been heard that Orissa is accepted to allow the open access. Any

update on that, sir?

Sushil Maroo: Pardon. What did you say?


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Tanuj Rastogi: It has been heard that Orissa is expected to allow the open access of power?

Sushil Maroo: It is a great sigh of relief. Let me tell you. It is great news. After three years of continuous effort

finally Orissa government has agreed to allow the companies to take out power and sell

anywhere in India they were not allowing it otherwise and the power was required to be sold

within the state itself. It is a great relief. We have already submitted our applications to get the

approvals from them and from the current year we are planning to start selling outside the state. It

is a great thing. It is a great opening up.

Tanuj Rastogi: That is it from my side. Thank you very much, sir.

Moderator: Thank you Sir. Participants I would now to hand the conference over to Mr. Manish Saxena for

closing comments.

Manish Saxena: We thank you all. We thank you Mr. Maroo Ji also for taking all the questions and Sir if you

have any last closing comments, Sir.

Sushil Maroo: Thanks Manish. Good thing is the good time is coming up. In fact 2013-2014, 2014-2015 the

best time for the company, dramatic rise in the turnover, dramatic price in the bottomline,

dramatic rise in the cash profit and massive jump, which orbital shift in the Company's

positioning, in terms of topline, capacities rising almost doubling in steel, doubling in power,

international operations, jumping up their sales, geographical derisking of the Company's

business, as the international business is coming up. Industry business derisking is taking place

because the Company is going into steel; Company is going in to power and has taken a baby

step towards becoming a mining company, becoming a mining giant as Company will slowly

step up its operation in mining activities internationally. So it is a new third, new line of business,

which is emerging, so it is derisking at every level and growing pretty fast at every level. So I

hope that we will do well going forward and you will see good things coming in.

Moderator: Thank you. On behalf of Deutsche Equities that concludes this conference. Thank you for joining

us and you may now disconnect your lines.

“Jindal Steel & Power Limited Q4-FY13 Earnings Results … · 2014-03-28 · Jindal Steel & Power...

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