TRANSCRIPT JSPL 4QFY15 & FY15 Conference Call

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TRANSCRIPT – JSPL 4QFY15 & FY15 Conference Call

[00:00:00]

Speaker A:

Welcome to conference call to discuss JSPL's fiscal year 15 financial results. We will have initial remarks by JSPL's management followed by Q&A session. Today's call is being recorded. JSPL management, please go ahead.

[00:00:20]

Speaker B:

Good afternoon ladies and gentlemen, on behalf of JSPL, this is Bala Subramaniam, welcoming all of you for this conference call to discuss Q4 and 5 financial results. With us today, we have Mr Ravi Uppal, MD and Group CEO of JSPL, along with him Mr Rajesh Bhatia, CEO Global Venture, and Mr Harish Dua , CFO. One small request – please refrain yourself from asking quantitative questions, data questions, because IR team, led by me and Nishan, are always available for you to answer that. So the second request is – please restrict your questions to one or two, so that everybody in the line gets a chance to speak. Without wasting further time, I request our MD and Group COO, CEO, Mr Ravi first to, give his opening remarks, post which, we will have the question and answer. So over to you Sir.

[00:01:16]

Speaker C:

Okay. morning, good morning ladies and gentlemen, it's great pleasure to be speaking to you this morning. As you're aware that we have announced our Q4, at the, at the, that final year results yesterday. I'm sure that some of you might have been surprised because all of you are very accustomed to getting, very excellent numbers from JSPL. I must tell you all that JSPL in the fourth quarter once again performed, extremely well. During the year, JSPL had commissioned several projects, both steel power and mining side, which were in progress.

And, we also achieved, much higher production in steel. In the fourth quarter, our steel output had gone up by nearly 45%. And I'm happy to tell you that for the first time in a quarter, we achieved a total production which was one million ton. And, we also achieved a total capacity of steel which was 8 million tons, And now we have all the plants fully operational.

I'm also happy to report that during the year, and particularly in the fourth quarter we put lot of our newly commissioned plants to the performance test, and they all have come out with flying colours. We achieved our ever-highest production in Angul, from the coal gasification plant with all the seven gasifiers commissioned. Our DRI plant reached nearly 90, 95% of the rated capacity, and the steel also achieved all-time higher output. And likewise, our Oman plant as well as the plant, steel plants, both of them performed remarkably then.

In 15-16, I'm happy to report the plant is all geared up to generate much higher in the year. During the year 14-15, we encountered unprecedented challenges. These challenges continue to ride through up to the end of the last quarter. The the wide-level internal performance [inaudible], but our results were adversely affected because of the external challenges. Let me recount for you some of the challenges which had an adverse impact on the performance of the company.

One of them was the market. Both the domestic as well as international market. There was a recession and a steel demand. And on one side the demand was subdued, on the other hand, China's, domestic demand went down, as a result of which they started dumping a lot of steel in the international market and the Indian market in particular. And similarly, the Russians and the Koreans and the Ukrainians, they also started dumping the steel, in the market. As a result of which, the net sales realization came down dramatically. You know compared to the second quarter when the net sales realization were high in the fourth quarter the realizations came down by nearly 15%. And compared to the previous year, same quarter, the realizations came down by more than 7%.

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EBITDA that we got from the steel business. And parallel to this, the international market, you know there was, a drop in prices of both gold and iron ore, but we could not get this benefit in the domestic market. Because when we import the iron ore from outside, in addition to the freight, we have to pay additional charges like port handling clearance, hinterland freight et cetera. Which substantially enhances the cost, and doesn't, render the imported iron ore as a viable option.

So, we necessarily have to depend on the domestic availability of the iron ore, which in the months starting from November till about March, was quite scarce, and as a result of which, the price of iron ore also picked up. You know, in the month of January February, the iron ore prices, landed prices of iron ore at our works were almost touching 37 to 39 hundred rupees per ton. But since then, the good news is that from April onwards, the availability of iron ore is getting better, because a lot of mines in Odisha have been reopened, and the prices of iron ore have started to soften and they've come down quite considerably.

So things going forward of course are looking better in regard to availability of iron ore. So, the fourth quarter results were also impacted due to high cost of the iron ore, which is a major component, and both for our production of pellets as well as the steel that we produce, they were impacted. So on one hand, you know the prices came down, and on the other hand the iron ore prices went up for the domestic producers, so net result was adverse impact on the profitability which you, which you have seen in the result that you have declared.

Apparently our global operations also went through challenge, my colleague here, Rajesh Bhatia, will join you shortly, and he will, I have requested him to give you a short description as to what, how the global operations have fared, what have been challenges. But apart from others, one component that affected us very severely in the last quarter, was the mark to market. You know we lost as much as, close to hundred million dollars on the mark to market, the Australian dollar, plummeted, against US dollar, by nearly 42%, and that cost us a net loss of close to 550 crores.

We, in the domestic market, the freight rates have also gone up, subsequent to the budget that was announced, and, we also had, the pellet sales, which was one of the major source of income in the years gone by, but this year, because we had limited availability of the iron ore, we could not run the pellet plants, both the pellet plants that we had run to the capacity, we actually ran it only about 35 to 40% of the total capacity.

But now things are looking better, and when I talk to you about the outlook for the year, which I just said it, I will tell you how, what it is we intend to do in the times to come.

So there have been therefore basically a lot of external factors which impinged on our performance. In addition to the, the market trends, both for, the prices of steel, as well as the import material factors which you're all aware, which hit us very hard, is the Supreme Court decision, that we should pay additional duty. The total duty claim that they levied against us, up to March, is in the range of 3,250 crores. you know had to go out of our PBT, you know when we had to register for this item, so this was an extraordinary item, and this is what led to a negative PBT performance, as you have seen.

You know, it was a strange coincidence, that the time when we commissioned our enhanced capacity or power project as well as steel project, just at that time the market went into recession, and we had these kind of claim which were launched against us, consequent to the Supreme Court's decision. So all these things sort of came together, otherwise, and at the same time, due to the increased debt, our total liability on all account of financing cost, as well as depreciation also went up.

Just to tell you the impact of this, for the year as a whole, our total liability on account of interest financing costs and depreciation, went up by nearly 2,000 crores plus, compared to the previous year. So if you simply add this back, you will see that our PBT for the year as a whole, would have been the same level as we had in the previous years notwithstanding the

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adverse impact of the other factors.

So, the point I want to get across to you, my dear friends from the financial industry, is that

internal performance amidst the, we have lost multiple initiators for Operations, whose

benefits you will see in the times to come. We are doing thinking out of the box – not continue to follow the traditional line of working, we have taken multiple initiators to bring down our cost, operational cost, we are introducing new technologies which are less power intensive, we are trying to improve the labour productivity, we're focusing a lot on capital efficiency to see how we can bring down the capital cost that we have.

So basic idea is to focus on improvement of EBITDA as well as the PBT. You know the one-time cost which have been sort of imposed on us by the external decisions, once they are taken off I'm sure our company will bounce back to the original level of performance.

Let me say a few words on power. You know, during the previous year, three of our units have already got COD certified, the fourth is fully synchronized and that will get COD rated certified any minute. So our total capacity under JSPL is 3,400 megawatts ready to go, beautiful plant, certified for the performance, with the medals, so, in addition to this JSPL, we have another 1900 megawatt of JSPL capacity, part of which also is catering to the requirements of the grid, when it comes to power we can supply up to 49% power.

So all in all – 5,300 megawatt of power capacity has been done, and this plant in the previous year has operated very well according to same trends that you have witnessed in the past, PLF factor has been very high, and even our, captive plants, have operated at efficiency which is more than any percent.

But again, in case of JPL the revenue has increased substantially last year, but we could not utilize all the machines, out of all the new capacity that has been stored, because we did not have the PPA, we didn't have all the load that is required for running these new four machines. So for the time we were running between one to two machines, depending on the availability of load, as well as the availability of the load.

So right now, our main endeavor is to see how we can sign up more PPA, so the plant can be utilised to a level. Here again, all the revenue went up, EBITDA levels for year as a whole, remained above 50%, but due to extra load of depreciation and financial cost, you know the PAT and the PBT, both were adversely affected. And then of course, we also had the share of, you know the additional levy to Govt. which when adjusted, it affected the PBT performance of JPL as well.

I will also ask my colleague Rajesh Bhatia to give you an overview of the global operations, but I just wanted to tell you that JSPL as a group still remains on top of the operations, we believe that the challenges that we've got are externally imposed, as the Indian economy picks up, you know expected to grow more than 7.5 to 8% this year, I do see that the demand for steel will pick up this year, that is the kind of common assessment from all the industry experts, that from the end of second quarter demand will go up, and for the year as a whole, steel demand may go up by about 6%.

Government of India is very much aware of the reckless dumping done in India by the foreign suppliers, the industry has been in contact with them, the government is very sensitive to what is happening, they definitely want the Indian steel industry to grow, and to take its rightful place under the sun, which is being the world's second largest industry, so I'm sure the government will take necessary measures, qualitative and quantitative, to see the dumping of steel in India is brought to an end.

When that happens, I do see that the prices will somewhat firm up, the realisations will get it better. We already see some green tubes in the environment when it comes to demand, there has been some movement in the domestic market from the infrastructure segment, the road segment as well is picking up, the government is going for concrete roads, a lot of steel is going to be used, and a lot of other institutional constructions that are also on the way based on the demand that we are getting from the external stakeholders.

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So all in all, I'm positive that in the year 15-16, with the Indian economy getting more buoyant Indian steel industry, Indian domestic producers getting the rightful protection against reckless dumping, and the demand of power growing along with a growth of industry, I'm sure all these trends are going auger well for us.

And as I mentioned earlier, you know the shortage of iron ore, which had affected us in the fourth quarter, that is gradually subsiding, and the availability has become much easier now, production has gone up, the prices have dropped quite substantially, so all these things put together they should see JSPL perform better in the year 15-16.

So that's all I wanted to say as a broad comment from me, I want to thank you for your continued confidence and trust in JSPL. We have delivered in the past the best performance industry, and I would like to say also that even now, EBITDA that we are delivering from JSPL is better than the rest of the industry, compared to our peers, and this will certainly be improved, once we overcome some of these temporary obstacles that we have encountered. And I would now request my colleague Rajesh Bhatia to give you a brief overview of our global operations. Over to Mr Rajesh Bhatia.

[00:17:42]

Speaker D:

Thank you Sir. Thanks for giving very clear picture about operations of the group and where are we. I think we have over the years increased set up sizeable businesses in the overseas, so I think it's imperative for us to give you a perspective of as to apart from Indian operations, as to what are we doing overseas.

And, as you know, there are four operating entities in overseas business, Oman being the largest with the largest investment. And during the year, we commissioned a two million ton SMS in Oman. And Oman continues to perform despite the fall in the realizations, because even the raw materials iron ore in particularly, in the overseas market, have come down substantially.

So, on the whole, better margins are up to 23% this year as compared to about 17% in the last year, and, we continue to perform capacity utilization in HBI 100%. And we've also refinanced our entire debt to make it elongate to about 12 years long for door-to-door maturity. And we are, by the end of this year, by the end of this calendar, we would have also commissioned a Rebar Mill which will actually give us increased margin in the Middle East market, and should give us an additional margin of about 120 dollars per ton.

So Oman continues to have a robust raw material availability at internationally comparable prices. The gas availability from government of Oman being there 100%. So the unit continues to perform robust, and you know the efforts are on to increase the utilization of SMS and do the value addition by completing the Rebar Mill project by the end of the year. South Africa, we operate a, a small size coal mine and I don't know many of you would not have an idea that you know we have a 40% market, more than 40% market share in that market, and this coal is in a short supply. But during the year, because of the general labour unrest in South Africa, and also some of our, internal switching over from a contract-based mining to own self mining.

So we are also being very proactive to ensure that you know we also bring the cost down. And that's been the endeavour in all our overseas business, so we moved over from a contractor based mining to own mining, which reduced the cost substantially. And right from the day one, it has been continuously profit-making entity. And today, the effort it takes to do about over a million ton of coal output from there, and given that there's very strong demand in South Africa itself for the product, there's much better realization as compared to the global prices for that coal, I think efforts are on to increase the production from those mines, so that we can, we make more margins over there.

Mozambique, is a coking coal asset with a 20, 25% coking coal output and rest in thermal. I think they have also risen to the occasion during the year and have ensured that despite the

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coking coal markets in a deep distraught, you know today as we speak, the coking coal, hard coking coal prices are in the range of 85 to 90 US dollars part time. But we have ensured through the cost cutting mechanism, again a combination of the various initiatives that we put together we reduce our cost by more than 55%, by resorting, by change, switching over from a contractor base mining to the owner driven mining operations. We have our own infrastructure there. we have our own wagons and engines and we transport the coal on our own.

And we've started cabbing the return load for some of the other companies who are up there, and, which has given us a substantial savings in the interest cost. And as we speak, currently despite the coking coal prices remaining quite low, we've been able to, more or less arrest the cash losses in our, in our business there, and, so even at that level, when you stop bleeding you are, close to cash break even, I think at the moment there is an increase in the prices of the coking coal, I think we will do quite well over there. It's a very efficient operation, and I can tell you the cost there what we have, are quite, despite being in a territory which is Africa, the costs there, our costs are quite comparable to what are our mining costs in India, it's also an open cast mine. So I think we're well poised to take advantage of any upside in the coking coal market over there.

Australia, there are good news, and one of the mines for which we have, approval have expired, we got the partial approval from the government to commence the mining, and we commence the mining from 4th of May. We've also got the government approval to do some development in the meanwhile, which will ensure that there's no discontinuity in the operations as we go along, otherwise once you finish a particular panel, and you don't have the approval to develop the next one there would have been discontinuity.

The previous management was not able to react to the situations where we needed to cut cost and all that – I think we've done that vigorously. From 466 people when we acquired this asset, we are down to 180 people as of now. And, by the end of another two months, I think we'll be down to 100, and yet ensuring that we are at the same level of productivity, and with the same level of people we can produce about two to two and a half million tons of coal.

As Mr. Uppal said that, you know this year is largely impacted because of the impact of overseas businesses. But I can tell you that a large amount of that, about 86 million dollars in Australia is because of the foreign exchange, the AUD depreciated heavily against USD. But the total unrealized losses, they're just mark to mark, they're not realized losses.

And then in Mozambique and one or two other countries also, there's impact of about 10 million dollars of the exchange fluctuation, which is again unrealized losses. Overall, I can say that Australia, we should be able to address the by the middle of this year, by end of September, when we will start operating the mine on a consistent basis. We've reduced the manpower, we've terminated some of the old contracts with the unions successfully which were done at a time when the things were really going great for the mining industry and that's why they were only one-sided in the favour of labour.

So technically what we can now do in Australia, while other place we've shifted from a contract based mining to the self owner, the owner driven mining, but in Australia we've saved the cost by switching over from self driven mining to the contract based mining, which in our estimate should lower the cost by about 30- 35% as we engage with them.

So overall, I think the assets are quite robust, the markets were bad, but despite that, in Oman, better margins have improved; Mozambique, we've been able to despite the fall in the coking coal prices from 125 dollars to 90 dollars, we've been able to maintain and ensure that it is, our losses do not increase over there, and as we speak, we're close to a cash break in the situation, in Mozambique, with a lot of initiatives being taken.

And Australia, I think by the middle of the year, by end of September, we would be going in a full blast basis in Australia. Thank you.

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[00:27:34]

Speaker B:

We now open the floor for question and answers.

[00:27:39]

Speaker A:

Thank you Sir. The question and answer session will conducted electronically. In the interests of time, please limit your questions to two for each time. If you will like to ask question, please do so by pressing a star key, followed by digit one on your telephone. We will proceed in the order in which it's signaled, and we'll take as many questions as time permits. If using a speaker phone please ensure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one on your touchtone telephone to ask question. We'll now pause for a moment to assemble queue.

Your first question comes from the line of Saumil Mentar, from IDFC Securities. Please go ahead.

[00:28:27]

Speaker E:

Yah thanks for the opportunity. First, two questions on my side – one is on the balance sheet. Now if I look at the net date has gone up significantly. Where do we feel depict that coming, and probably what kind of guidance and what kind of issue, steps do we take to correct this leverage? My second question is on, the JPL, how do we plan to mitigate the coal issue, and when do we feel positive signs for both the two mines, which have commanded this [inaudible]?

[00:29:04]

Speaker C:

Okay, let me, let me answer the second question first, about JPL. You know the, as you know that, we had the coal mine which was deallocated from March 31st. Following that we have coal sources established, whereby we are running two units of 250 megawatts at this moment we are running one unit, of 600 megawatt, we might run one more 600 megawatt unit, depending upon availability of coal from the e-auction. We do have a coal linkage for 200 megawatt, but you know the PPA that we have, are basically right now, it's about 900 megawatt.

So right now we will run minimum 1,100 megawatt, two units of 250, and one unit of 600, which makes 1100 megawatt, and as the coal situation improves, you know that, we will put into service more and more units. And if the practice is going to be, two units of 250, one 600, next we will add one more 250, and then we'll add one more 600.

So this is the sequence in which we'll kick more machines into action. The whole thing depends on the availability of coal, the coal planning that we have done covers us about 1,100 megawatt right now, and the rest of it we, the headroom on top of that, as and when we get the coal. Now as for the debt is concerned, I'll ask my colleague to answer you.

[00:30:40]

Speaker D:

I just supplement what Mr Uppal said on the coal availability, we know that that remains a concern, and you know we are taking proactive steps to ensure that we have right now coal availability, but we must also realise that it's not only the stumbling block. You know, there are issues on the raw material, there are issues on the evacuation of power also. So everything has to be addressed even despite having more coal, if you can't evacuate power, so then you don't stand any advantage on that. I think by the end of second quarter we'll have more clarity, as to where are we, where do we stand on that.

And as more coal mines come in to play in the next round of auctions, I think there is already a semblance of sanity in the markets today, and people are realizing that what mistake they did in the last round of auctions by falling over each other to get those coal mines and those prices are simply not sustainable. So I believe we will not do any insane auction, and we'll ensure that we get the coal mines and make the whole business viable rather than just run the business despite, anything.

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On the debt number, I think 15 we ended with a net debt of about 42,000 crores, and as you said the debt, peaking is, I think we almost feel that the debt has peaked out. All that we need to do, see, a lot of debt as we have been explaining was created, was taken to do expansion projects on steel and power, which have all got commissioned this year, but due to various factors which have impeded the capacity utilization from these plants, so as the capacity utilization from these plants go up, you know these numbers will look much better in relation to the, earnings that are proposed to be generate from these, the new businesses that we are taking, sort of any expansion and all that, so we currently feel that at this level we should peak out on the debt.

[00:33:08]

Speaker E:

Sure and just to follow up, just to you know make it clear – assuming the coal situation do not improve or remain as it is, we would be looking at about 1,100 megawatts of generation for till the time situation improves.

[00:33:22]

Speaker D:

Yah that's the minimum. but I must tell you that, with the coal India producing more coal, last year they increased the production by 8%, this year, you know I heard the coal Secretary this morning that they will increase it by another 11% - there's more and more coal which is coming for auction, and government has lifted the ceiling on coal auctions that they imposed earlier.

So I think that will also see that more coal is available, I just want you to remember one thing, that JPL power plants are located right in the middle of the, the coal mines, so the accessibility of coal is easier for us, most of the coal which is auctioned, the locations are very nearby, and therefore our lifting in coal is much easier compared to anyone else. And we are still positive that government will take in this season, and you know, our favourite, when it comes to the [inaudible] two or three mines.

[00:34:20]

Speaker E:

Sure and so the [inaudible] sixteen and seventeen?

[00:34:24]

Speaker D:

We don't have a number anything but we're trying to ensure that this is within the 5,000 range

[00:34:38]

[00:35:38]

Speaker F:

Yah thank you very much Sir. My question is to Mr Bhatia. Sir on the Australian side, I mean, we currently have a debt of 430-450 million dollars, if I'm right. And, we're planning to take another 200 million dollars of debt. Now, my question is assuming you're in a best case situation and things go right, how much debt can Australian business kind of service on its own, and, then, what are the plans to support Australian business on the debt side?

And, secondly, just to follow up to the earlier question, can you just elaborate a little bit more on the consolidated debt levels, what are the repayments which are expected next year or so, Thank you.

[00:36:30]

Speaker D:

I think, on our Australian side, what we have spoken to the banks is that we've been supporting this company for the last year and a half, and you must also focus by reducing the debt cost. So existing debt of 430 million dollars the interest cost today is about plus 5 and a half percent on the average, and which we, all the banks I can say about 95% banks have agreed to [inaudible]. Also, a longer time maturity in line with the worst case business projections, so, there's a moratorium for the next week, to set our house in order, we increase the capacity of the mines gradually, and of this 200 million dollars a lot of [inaudible] company has already incurred since the takeover, so there's a part of that coming back, it could be which they have already invested.

And, the rest is, we also thinking of coal the cost optimisation measures, other than any capacity increase measures, which could bring the cost down over the period. And a lot of this, also, in an underground mine, there's a lot of development activity which goes on simultaneously, it ensures that there's no discontinuity in the operation. That's what we continue to do, and I think, Australia, there are independent consultants we've approached, the banks have been approached, appointed, even at the current level of this thing they have found out that, this entire debt can be taken over a ten year period.

[00:38:30]

Speaker F:

Uh, sure. And, the debt repayment part?

[00:38:35]

Speaker D:

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[00:38:41]

Speaker F:

Sure, okay, sure. My second question is Mr Uppal also mentioned, that 1,100 megawatts is the minimum that we can generate from JPL, given all the issues that we have. So if we were to look at things a little differently, so if I were to look at the least common denominator among all the three things which are critical for the ramp up of this plant you need PPA you need distribution infrastructure and you also need the coal.

Now, assuming you know, more coal is available, what is the increase that you can really have in terms of the transmission infrastructure also in place?

[00:39:23]

Speaker D:

Well coming in progressively, by October this year a lot of additional capacity's coming up on the Southern corridor, that is from the Western corridor to the Southern corridor. So, I think that is a positive development, and likewise, you know the link between WR and NR is also going to add another 3,000 megawatt of the transmission capacity.

So I do foresee that in the, in the run up to the end of this year, transmission capacity will enhance, and it will open more corridors through which we can cater to short term and medium term power requirements.

So that is one, and then, your second question was about coal. You know that, you basically need all the three things – you mentioned PPA, you mentioned coal availability and transmission. For power to be delivered to the end users, you need all three of them. You know, we cannot be selling all the power only through exchange or selling it on a merchant basis. You know, we already covered, as I mentioned, about 950 megawatts, we have PPAs, which are there, but we need more PPAs, the government is quite mindful of it, that PPAs have to be there because a lot of capacity has come up, and now you need a supply mechanism, and PPA is one of them. So I think you need all of the, three for us to achieve higher capacity utilization.

[00:40:55]

Speaker F:

Uh, okay sure. I have some follow up questions but I, I'll join the queue. Thank you.

[00:40:59]

Speaker D:

All right, thank you.

[00:41:03]

Speaker A:

Your next question comes from the line of Navin Sahdeo from Edelweiss. Your line is open, please go ahead.

[00:41:13]

Speaker G:

Hello? Hello?

[00:41:16]

Speaker D:

Yes please. Yes, please go on?

[00:41:18]

Speaker G:

Great, good afternoon Sir, thank you for the opportunity. My question was again with respect to power. Of course, the coal challenge is there, but if I recollect, last time in these mines, like you know, the coal [inaudible] which was regarding the issue of these mines being taken back, we were saying that, there is an actual real bottleneck with respect to transportation of coal, because the, adjusting the road, which takes, like which can be used to transport the coal, and also the railway line is quite far off.

Now, I believe the same challenges will exist not just for evacuation, for bringing the materials inwards as well. So, from that perspective, like you know we're just trying to understand when you say that we can have, like you know going there, we can ramp up the

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coal, you know power production with more coal from the auction, so how sustainable or what are the challenges to that?

And also, if you can give us some sense in terms of margins, because lower PLF, higher coal cost, and a bit of pressure on the data feeds. So, what can of margin outlook can we expect till the entire issue gets resolved amicably?

[00:42:29]

Speaker D:

Okay you asked several questions, let me take the first first. I mentioned that our power plant is located right in the middle of a mining area. You know, there are several mines there. So plant is right in the middle for us, even if we buy the coal in e-auction from nearby mines, or we would take it under the linkage scheme, you know that distance that we would travel is anywhere in between 25 to 40 kilometers. So that is something that we can easily do, because our plant has better road connectivity with the major mines.

And in the recent years, we have invested money to improve this connectivity still further. So, therefore for us to transport the coal, from the mine to the plant is somewhat easier. What I mentioned to you in our earlier discussion about the difficulties of moving coal out, I was talking about the destinations which are far away from the, the, the coal pits. You know, because you, when you have to pack over millions of tons of coal, then obviously you do it by rail you can't do by trucks. And the nearest rail is about 60 to 70 kilometer away. So you first have to move by coal, move the coal by trucks, and later on load it into the rigs. So that becomes more challenging compared to our ability to bring coal from nearby mines. That is number one.

You asked the second question with regard to margins et cetera. You know, it is true, that when we sort of buy the coal in the auction, you know the cost of coal is higher, compared to when, we were mining our own coal, so it will have some kind of impact on the EBITDA level compared to what we have done in the past. So, we'll still be taking a whole host of measures, to see how we can reduce the operating cost whereby we can bridge the gap to maintain the high EBITDA levels.

[00:44:42]

Speaker G:

Sure, so, if I may just like you know, just to follow up on this, like, since the international coal prices are broadly stable I believe, the auction prices may also not see a very sharp liability. At the current levels, what could be roughly extra? If is possible for you to quantify what is the extra coal cost, which we would incur in the interim, till we get our own mines?

[00:45:05]

Speaker D:

All the situation is in state of transition. You know there was situation when there was acute shortage of coal and the coal production was not good enough. See last year the total mine the coal production has been fire under 15 million tons. And the, according to government's own targets, they will hike up the production of Coal India by 11 to 12%. Which means they will add another 50 to 60 million tons. So as more coal production takes place, you know then more coal will come into the market and my personal take is, that the coal prices will suffer or in the worst case they will stabilize at around the present level. But I do see a trend that they will suffer.

[00:45:51]

Speaker G:

Fair point Sir. Thank you very much, I will come back in queue for more questions, thanks.

[00:45:57]

Speaker A:

Your next question comes from the line of Bharat Prakah from JP Morgan. Your line is open please go ahead.

[00:46:05]

Speaker H:

Yah thank you very much. My question is on the Indian standalone steel business. If I look at the EBITDA level, now on a quarter on quarter basis, the steel business has fallen by 65% on a Q on Q basis but revenues down only 2%. Now just trying to understand Sir, what explains this very sharp drop on a Q on Q basis – are there are write offs, are there any one time hits?

(11)

And my second question is also on steel business, that if I look at the annual steel business at the standalone level, it has gone from 37 million rupees in FY 12 to as low as 15 million. Now, is there, can the large drop around 2000 [inaudible] most of which would be from the loss of the parent business?

[00:46:56]

Speaker D:

First thing that you asked about the EBITDA margins, I mentioned earlier that the two factors which affected the EBITDA margins, one of them was a drop in the NSR, which was pretty substantial, and the second was the hiking prices of the iron ore and some of the alloying materials. Now the iron ore prices NSR have corrected, you know they have come round quite sharply in the last two months. So that's a major input cost to us when it comes to producing the steel.

[00:51:13]

Unknown

speaker:

No no it's different……

[00:51:18]

Speaker D:

[00:51:19]

Unknown

speaker:

[00:51:20]

Speaker D:

(13)

[00:51:24]

Unknown

speaker:

[00:51:30]

Speaker I:

Okay, so they are reported in line item called other expenditure. Is that correct?

[00:51:36]

Unknown

speaker:

No, foreign exchange, fluctuation, gain, loss. H.

[00:51:43]

Speaker I:

Okay. Okay. Thank you.

[00:55:37]

Speaker C:

Just to add what Rajesh has said, you know the data that we will sell off, but in addition, we will also look for an appropriate time to see how we can do an IPO for our assets, or JPL or our Oman plant. At an appropriate time. The only thing I want to assure you here, that the company is very much aware, that we are not going to increase the debt any further. So we'll resort to any and every option to see that we keep the same debt level.

[00:56:16]

Speaker K:

Ah, okay, would it be possible to quantify the amount of capital that we've employed at the, each of the projects, so basically you mentioned Botswana, shipping, one of the two projects?

[00:56:27]

Speaker D:

[00:56:29]

Speaker D:

[00:59:34]

Speaker K:

[inaudible]

[01:03:06]

Speaker L:

[inaudible] I would also like to know, in a previous comms call, we were told that [inaudible] mines had [inaudible] of around year or so. So [inaudible] status of that [inaudible] write down given the fallen value, I don't know [inaudible]?

[01:03:29]

Speaker D:

Okay, I think there's a [inaudible], let me put in some perspective. You know that as of now, we have the iron ore requirement at three sources. Number one is the Raigarh plant, number two is our Angul plant, and the third one is Barbil. Angul plant at the moment only require pellets, it doesn't require any Iron ore because there's no central plant there. And of course Raigarh requires largely refined in more, and some lumps and some pellets. So you know Raigarh plant basically requires about 5 million tons, of iron ore and iron ore limps and pellets put together, the Angul plant or its production of nearly 2 million tons, it requires about 4 million tons of pellets and lumps, which are there.

So our total requirement right now, it's about you know shall we say about 40 to 50 million tons, you know when we're running the operation. You know we are, there are a lot of iron ore mines which have become functional in our neighbourhood, and you know we are getting all our requirements, met all of them, and we have our own [inaudible] mine, from there we get about 3 million tons plus.

You mentioned about the results that we have, about 14 million tons, yes, the results are there, we have paid up everything, we've sought the permission to move those reserves, and we'll bring this case was, all these at High Court, the hearing is complete, we're waiting for the judgment to be read out, which will be made public very soon.

(17)

it, and we should get that one. So as and when we get that.

And the third thing you said was about SMPL, SMPL has been one of our suppliers in the past, they have a valid lease, up to 2021, they were waiting for the environment clearance, which they have secured a couple of months back, which is now with the Supreme Court for ratification, and once the ratification is done, they will be able to resume their mining. And they're allowed to do mining up to 4 million tons of iron ore, per year. So that is how the things stack up. Am I making myself clear, are you clear?

[01:06:15]

Speaker L:

Yes, great. Thank you. Just one more follow up on this, see around you, you said around 14 to 15 MT you have around 3 odd million production at Raigarh, what would be the cost of production between your [inaudible] at [inaudible], and vis a vis what you procure from the merchants and the domestic market otherwise?

[01:06:36]

Speaker D:

Again I want to clarify, [inaudible] is not iron ore producing, [inaudible] is where we have the pellet plants. So [inaudible] is the mine where we produce the iron ore, iron ore. So, that is how it is. [inaudible] we do only pellets. So 9 million ton of pellet capacity is there.

[01:07:03]

Speaker L:

Thank you.

[01:07:11]

Speaker A:

That's all for today's questions. Now we'll hand the call back over to JSPL management for any additional or closing remarks.

[01:07:21]

Speaker B:

On behalf of JSPL, we would like to thank each and every participant. We know that more than 200 participants have logged in today to hear to our conference call. We urge you to keep conferencing JSPL and as the management has illustrated the plans for action for FY 16 and 17, things will definitely be better than what it is in FY 15. With this we once again thank you, our investor relation team is available, please do not hesitate to call us for any [inaudible] data that you require. Thank you very much.

[01:07:53]

Speaker A:

That concludes today's conference now, thank you all for participation. You may disconnect now.