Tata Steel Ltd Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Satyadeep Jain - Ambit Private Limited - Analyst : And I would yes, I am eligible.

Question: Satyadeep Jain - Ambit Private Limited - Analyst : On the clarification. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 01, 2024 / 6:30AM, TISC.NS - Q1 2025 Tata Steel Ltd Earnings Call

Question: Sumangal Nevatia - Kotak Securities - Analyst : Yes, Ron, if we can share some details as to how are we looking at NSRs and cost movement both across India and Netherlands? And then with respect to UK is are we looking at the last quarter as far as these losses are concerned? And do we still maintain that maybe from second half onwards, we will have some sort of a break-even as far as EBITDA is concerned? Yes, that's my first question.

Question: Sumangal Nevatia - Kotak Securities - Analyst : Okay. So to give you the last coordinate, I mean, Q3 is where we expect. Understood. And just a clarification on the on on Netherlands. So given given the softness in prices and which is only partly getting offset by iron ore and coal. So do we expect spreads to be under pressure at these levels? And then does the 1Q margin would be reported, does it have any loss or sorry, any cost of relining or everything kind of concluded in Q4 reported results?

Question: Sumangal Nevatia - Kotak Securities - Analyst : Okay. And then just one clarification. You said CapEx. So there's no at the operating result is it's there's no cost side and OpEx of relining in 1Q results?

Question: Sumangal Nevatia - Kotak Securities - Analyst : Understood. That's very clear. My second question is with respect to the expansion plans. Now we are on the verge of commissioning Kalinganagar. And we've been seeing this slide of 40, but 40 million kind of potential since long. I mean, looks like even if we start today, there would be a period and maybe 18 odd months where we will not we will run out of capacity and maybe start losing market share in India. So I want to know what time lines are we looking at for the finalizing the CapEx plan, number one and yes, I think yes, that's the only question, I guess.

Question: Sumangal Nevatia - Kotak Securities - Analyst : Understood. I'll join back the queue. Thank you so much for the answers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 01, 2024 / 6:30AM, TISC.NS - Q1 2025 Tata Steel Ltd Earnings Call

Question: Kirtan Mehta - BOB Capital Markets Ltd - Analyst : Thank you, sir, for this opportunity. Wanted to understand sort of needs new round of the UK discussions with the Labour Party. What are the additional demands that you are seeing from the Labour Party Vale sort of finalizing on the grant agreement.

Question: Kirtan Mehta - BOB Capital Markets Ltd - Analyst : Just a follow-up here. So if it goes, the way you mentioned about is there is a possibility of increasing the scope of the expansion. So we go through that discussion. Is there a sort of a possibility that this could elongate the time before we give a go-ahead for the next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 01, 2024 / 6:30AM, TISC.NS - Q1 2025 Tata Steel Ltd Earnings Call

Question: Kirtan Mehta - BOB Capital Markets Ltd - Analyst : Thanks for this detailed clarification. Second question was about the contingent liability that we have disclosed regarding Odisha and do we have similar demands across any other states, which could have an impact from the Supreme Court judgment, triangulation of Odessa is now listed, which has delayed such demands in the past notice.

Question: Kirtan Mehta - BOB Capital Markets Ltd - Analyst : Great. And what was the underlying royalty rate under this particular contingent liability when what was the state demand, actually, again, there is no straight demand.

Question: Kirtan Mehta - BOB Capital Markets Ltd - Analyst : Thanks for this clear. Kind of clarification, if I may squeeze in one more, could you update us on the cold rolled and the rolling mill in terms of the operation levels, profitability levels at what stage ramp-up we are in? What's remaining we understand about the continuous annealing line that you just disclosed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 01, 2024 / 6:30AM, TISC.NS - Q1 2025 Tata Steel Ltd Earnings Call

Question: Kirtan Mehta - BOB Capital Markets Ltd - Analyst : The quality is also just about wrapping up production on that, if possible.

Question: Kirtan Mehta - BOB Capital Markets Ltd - Analyst : Thank you for commenting.

Question: Amit Dixit - ICICI Securities - Analyst : Yes, good afternoon, everybody. So I have a couple of questions on a very broad macro sense. If you look at it, while domestic consumption is growing, in our instance, as all of you know, in board, focusing on the other hand, there is the now after the Supreme Court judgment, technically state governments can levy any sort of if they want. So I just wanted to understand from an industry perspective, which is growing. You know, there is nothing being done to curbing both at the same time, states are coming up and it's still technically have got freedom to levy. Any kind of are you what we are thinking about and how you're looking at it being combined with like a quality, I would say, integrated R&D at a technical disadvantage here. What are the thought process of how what are you working with the government? Just wanted to get a get your thought process around that drop?

Question: Amit Dixit - ICICI Securities - Analyst : And on the similar lines, you know, just one clarification, what Koushik mentioned that there are no demand from state as such. Now the retrospective or prospect of application of this new judgment doesn't really matter the thing is that is there a possibility at this point in time working that, you know, Steve might just, you know, go ahead and maybe something. Is there something in the pipeline. So is there something that they have been making demand in the recent past that we might see our costs getting escalated? Retrospective OPhone doesn't matter. I'm not talking about that 17,000 odd crore liability all I'm talking about going ahead, how will our cost increase in the present regime?

Question: Amit Dixit - ICICI Securities - Analyst : Okay. The second question is, I mean a bookkeeping question. Just wanted to understand the bridge between EBITDA and cash flow from operations for this quarter. And the veterans big that increase that we have seen was majorly due to the working capital buildup, if you will, so there are two parts to this.

Question: Ritesh Shah - Investec - Analyst : Yes, I'm audible at Logan, Kip. Thank you so much, sir. Couple of questions. First of all, thank you for the explanation on contingent liabilities. I just wanted to understand hypothetically, if the Supreme Court does impose that judgment on a prospective basis, what is the probability of this contingent liability actually translating to Oshman. So that's not really had to say this because I think if in the unfortunate event and it does become retrospective, we have to see what what is the period on at which it will be paid. Secondly, I think it will also be dependent on see once this the Supreme Court has actually explain the point of law, not individual case. So once the point of law has been explained, and the operating part of the judgment is clarified later on whether it's perspective and our perspective. In the worst case scenario, as you just said, if it is retrospective and each of these individual cases will go to the regulator in the typical manner. So is it because these cases, like in entry tax was at and was kind of aggregated at Supreme Court and is in the dimension of the constitutional rights will consider this. So each of this should ideally get back to the High Court, the Supreme Court, regular branches, et cetera, and then the determination will happen on those individual cases, Quantum period, e-payment demand happening, not because in many cases, demands have REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 01, 2024 / 6:30AM, TISC.NS - Q1 2025 Tata Steel Ltd Earnings Call not been reached, as I said, may not be. There's no demand. It's actually a contingent liability which we approved it disclosed. So that operating bit has to flow. And I think it will take some time to get to that position to understand in case, as I said, in the unfortunate case, it goes to a retrospective. Sir, that's quite useful. So my second question, if I may, I'll put it very straight answer, what is the net debt number for Tata Steel U.K. and Tata Steel Netherlands as at 31 March basis or end Q1? If you could please help on that and I just wanted to understand how should one look at the debt profile for both this regions separately are taking into account the incremental cash flow so that we have. So I think you can you can consider if I were to look at it from a broad perspective, Tata Steel, UK in general, U.K. and Netherlands, each of them have about 600 to GBP800 million of debt and mostly working capital. And these are these are essentially used for securitization as well as working capital needs. I see that the Netherlands was actually debt-free till about Wellman's back 15 months back, and I see them going back into a debt-free status in the next 18 months. And so I think that is something that we are working on because Netherlands never actually had any debt requirement because there were always positive cash flows. It's only in the last the 12 months post the plasma or during the blast furnace relining that they have got affected. So I don't see that to be an issue that we have about GBP200 million of or two, maybe GBP300 million of the old acquisition that sitting also in addition to this. So that's broadly the frame between Netherlands, U.K. and U.S. and the acquisition that that we have in overseas apart from the Tata Steel bonds, et cetera, which are there in Singapore. So I think that's that's the profile. On your second question on cash flows, as I said, Netherlands should have their own cash flows to bring down their debt to zero in the next 12, 18 months' time, because that's simply an important and they will not have any material CapEx on the on the on the legacy business, the decarbonization CapEx is a separate CapEx trend that will happen. And as far as the UK is concerned, we need and as we've mentioned in the earlier part of your question that I would like to see it to be a profitable EBITDA profitable. And so pare some parts of it step back and fundamentally that you can get is if it sticks to the India business because we will have to clean the business and make it ready for further decarbonization or post decarbonization as we said the GBP500 million of grants from the U.K. government such as well. Just sort of related question, sir, you gave you have indicated 1.2 billion of CapEx or the government grant is around 500. Are we looking to infuse any incremental capital from India to Singapore to Europe? The reason to ask because I think the Board took an approval in May. And with respect to 2.1 billion, I think we have transferred around age 75. So I wanted to understand the end use of this 2.1 billion, partly I understand it was a refinancing. So wanted a breakup order and wanted to understand, is there a further cash flow out from U.K., which will have to be funded, so the India operation. So as far as the there are a couple of parts to this stage. One is that there is a lost funding that is happening, which is what we said that till September, this this will continue as only when we wind down the second blast furnace, we expect to get into positive territory, which is also a transition from on the working capital side, buying iron ore, buying coal and then winding it down and instead buying slabs and coils. And so that's a transition point that will happen post that if you are viewed and by the fourth quarter of this financial year, it gets to a stable working capital position despite Central and hopefully get into a more stable situation. The last funding also would get off, but there would be a there is a restructuring that is going to happen and that restructuring, including the redundancies, et cetera, are funded by India. Secondly, if you look at the project, EUR1.25 billion, of which EUR500 million will be from the government, and this 50 million will be from Tata Steel and we don't intend having more debt on Tata Steel U.K. We will be it will be spent over four years, but it will be spent from a Tata Steel point of view. So this is broadly be the floor in which the capital will go over the next couple of years as far as U.K. is concerned and sort of breakup of $2.1 billion, I think eight 75 has already moved the balance. So is it up, Joe, or is it UK? How should we look at it based on the geometry, mostly a Joe was about eight to see see is in two parts. The there was a 1.5 billion and then there is another element which is on debt effectively about EUR700 million. The total assets that we talked about is a 2.1 billion, which is the breakup. If REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 01, 2024 / 6:30AM, TISC.NS - Q1 2025 Tata Steel Ltd Earnings Call you look at it about 600 million will be for UK loss funding over a period of time and the restructuring that is going to happen. And then there is the UK loan repayment of about EUR200 million, which is also going to reduce the debt in the UK and the consolidated debt. And there is the element that as far as upside is concerned and there are some debt in Singapore, which is also going to be repaid of about EUR750 million.

Question: Indrajit Agarwal - CLSA - Analyst : Hey, good afternoon. Can you hear me? Yes, I have a couple of questions. First on Netherlands, given that it has like fully ramped up on productions can we see any further conversion cost reduction from here on on have you picked on that? So I think of the volumes are close to peak. We were about 50,000 tonnes short, what we're chasing is 7 million tonnes of annual production. We are not been at that level for the last four or five years. So we are at 6.8 million rate for Q1. So if you get to that, that will certainly lead to conversion cost reduction clearly compared to the last two years because the last two years, one is we had lower volumes as you saw higher costs because of the cold rolling mill upgrade and the BS6 upgrade. We were using a lot of high cost slabs, which we have produced earlier when coal prices were high and you had record high prices of electricity and gas, thanks to the Ukraine situation. So many of those things have corrected. Some of it you're seeing, but you'll see that happening. So I think we have now reached the lower levels of electricity and gas prices and CO2 prices also, which had gone to about 80, EUR85 and now around 60 EUR65. So you will see all that. So I would think by Q3 or Q4, you will see a more stable cost I mean it will trend up. There are also many initiatives that we are taking over the next two, three years to further bring down costs. So I would expect that on an ongoing basis at these production levels, we will start seeing costs reflecting some of these initiatives and the stability of operations. Of course, the bottom line will also depend on the spreads. And that's where the spread compression is also there, which hence sometimes negates some of the cost takeouts that we've been doing. But yes, to answer your question, yes, conversion costs will should keep trending down as you run through some of these initiatives. Sure. Thank you know, on the second question, given that we have better visibility on KPO two commissioning, any kind of volume expectation that we can see in FY 26 from your book or does not become a further 26, should we are close to a full year? I think that's what we hear in terms of once the blast furnace stabilizes, the steel mill shop also the, as you know, would have done its expansion. So we'll be we'll give you a guidance closer to the end of this financial year. But yes, the expectation is that we will see as close to maximum as possible. There are some logistics issues, which are sorting out. Those are some of the constraints that we want to deal with over the next six months. Just not that's not a bottleneck, but as we ramp up that could be a bottleneck and those are the problems we have to solve in the next six months. Sir, lastly, can you give me the lower CapEx and working capital buildup number for the quarter. Capex was, as I mentioned, CapEx was about 3,700 crore, three seven seven zero growth. Think that the CapEx number that I had mentioned during my comments as far as working capital is concerned, I think it was about the net working capital number. If you give me a second, but 5,000 crore has to be indifferent to the 600 crore, 5,400 crore, which had a large proportion basically in India and in the UK. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 01, 2024 / 6:30AM, TISC.NS - Q1 2025 Tata Steel Ltd Earnings Call So that's not connected. Thank you. The next question is from Saturday, 10 of Ambit Capital Saturday. Please go ahead and audible.