Tata Steel Limited (TATLY) Q2 2024 Earnings Call Transcript

Start Time: 04:30 January 1, 0000 5:49 AM ET

Tata Steel Limited (OTC:TATLY)

Q2 2024 Earnings Conference Call

November 02, 2023, 04:30 AM ET

Company Participants

T.V. Narendran – CEO and Managing Director

Koushik Chatterjee – Executive Director and CFO

Samita Shah – VP, Corporate Finance, Treasury and Risk Management

Conference Call Participants

Sumangal Nevatia – Kotak Securities

Tarang Agarwal – Old Bridge Capital

Satyadeep Jain – AMBIT

Kirtan Mehta – BOB Capital

Ashish Jain – Macquarie

Amit Dixit – ICICI Securities

Operator

Ladies and gentlemen, good day, and welcome to the Tata Steel Analysts’ Call. Please note that this meeting is being recorded. All the attendees’ audio and video has been disabled from the back end and will be enabled subsequently.

I would now like to hand the conference over to Ms. Samita Shah. Thank you. And over to you, ma’am.

Samita Shah

Good afternoon, everybody, and welcome to this call to discuss our results for the Second Quarter of FY ’24. We published our results yesterday and there is a detailed presentation explaining the same as well uploaded on our Web site. I hope you had a chance to go through it. We had quite a few announcements also with the results and we would be happy to share the details and provide you any clarification as you may require.

We will be joined on the call by our CEO and Managing Director, Mr. T.V. Narendran; and our ED and CFO, Mr. Koushik Chatterjee. Before I hand it over to them, I would like to remind you that this entire conversation today will be covered by the Safe Harbor clause on Page 2 of our presentation.

Thank you. And over to you, Naren.

T.V. Narendran

Thanks, Samita. Good afternoon, good morning or good evening depending on where you are. Thank you for joining the call. I’m going to make a few comments and then hand over to Koushik. So Tata Steel, as you know, is focused on creating sustainable value and our strategic priorities embodies our commitment to responsible growth, while creating an equitable, shared and prosperous future for all. We continue to make steady progress on this value creation journey, leveraging digitization and an agile business model.

During the quarter, the steel prices across regions moderated on slowdown in economic activity, and in the U.S. and EU elevated interest rates to manage inflation has adversely affected the demand. While in China, the persistent weakness in the property market continued to have an overhang on the prices. In India, the steel prices were impacted by the global sentiment but given the resilient demand, it witnessed a lower drop in prices 3% quarter-on-quarter than the rest of the key markets. And as a result, our net realization in India declined by about INR2,400 per ton quarter-on-quarter. We had guided about INR3,000 per ton, so it’s slightly better than that.

Moving to our performance. India crude steel production was around 5 million tons. Production was broadly stable on a quarter-on-quarter basis, but up 5% on year-on-year basis. India deliveries grew by about 6% year-on-year having been close to 5 million tons in the last three quarters. Amongst the segments, the automotive segment had the best second quarter sales and was up 7% quarter-on-quarter. And we started producing full hard cold rolled coils in the Kalinganagar cold rolling mill and have started receiving approvals from the automotive OEMs for our cold rolled steel from Kalinganagar.

Our retail sales primarily to homebuilders have continued to grow and have crossed 3 million tons in the last 12 months. Our well established brands such as Tata Tiscon, Tata Steel, even Tata Astrum had the best ever second quarter sales and revenues from Tata Steel last year on our e-commerce platform for individual homebuilders witnessed an increase of more than 70% on quarter-on-quarter basis, and in the last 12 months the revenues have exceeded 1,700 crores.

In Europe, steel deliveries were around 1.8 million tons in the second quarter on subdued demand, and the revenue per ton was down about 50 to 60 pounds per ton in UK and Netherlands on a quarter-on-quarter basis. This has weighed on the performance in both geographies. The ongoing realign of one of the blast furnaces at IJmuiden in Netherlands, which accounts for 40% of our production there, has also impacted the Tata Steel Netherlands realizations because of the adverse product mix and other expenses. The realigning is expected to be completed in the third quarter of FY ’24, which is this quarter.

And in terms of growth, multiple projects are underway across India ranging from the 5 million ton per annum expansion at Kalinganagar as well as growth in the downstream portfolio. The downstream portfolio which consists of our tubes business, our wires business, our packaging, our template business, and the DI pipes business is expected to grow from over 2 million tons to 7 million tons which enables better product mix enrichment. And we recently had a groundbreaking ceremony for the 0.75 million ton per annum EF project at Ludhiana and are targeting to start the plant in 2026.

We are committed to achieve net zero by 2045 and are pursuing decarbonization of operations in a phased manner calibrated to the regulatory framework, resources, government support, and customers in each of the geographies that we are in. Accordingly, in September, we announced a proposed plan to invest in a state-of-the-art scrap-based EAF at Port Talbot, UK at a cost of £1.25 billion, with the government grant of over £500 million. This is subject to relevant regulatory approvals, information and consultation process, and finalization of detailed terms and conditions.

The transition to EAF-based steel making will result in the reduction of about 50 million tons of direct carbon emissions over a decade. This will also be — there will also be impairment and restructuring costs, which Koushik will explain in more detail. Tata Steel Netherlands has been working intensively with the government of Netherlands on the contours of decarbonization project covering emissions and health standards. Tata Steel Netherlands will shortly be submitting the detailed decarbonization proposal to the government of Netherlands seeking regulatory and financial support which is critical to build a long term and strong business case. The Board of Tata Steel will duly consider the project for approval at an appropriate time.

In India, we are entering into an agreement to source about 379 megawatts of renewable power for our operations, which will enable reduction of 50 million tons of carbon over the next 25 years, carbon emissions over the next 25 years. This will significantly reduce our dependence on coal-based power plants. Looking ahead, in India, net realizations are expected to improve by about INR2,200 per ton quarter-on-quarter, aided by domestic demand, which has showed great resilience and despite the renewed volatility in the global sentiment. The coking coal consumption cost is likely to increase by about $10 per ton quarter-on-quarter.

In United Kingdom and Netherlands, improvement in costs are likely to offset the drop in NRs and driving improvement in the performance on a quarter-on-quarter basis. I’m happy to share that Tata Steel has received the Safety and Health Excellence recognition for 2023 by World Steel. We were recognized for our innovative approach to real-time visualization of this movement that aims to provide real-time insights and alerts. These initiatives display our commitment to achieve zero harm.

Thank you. And with that, I’ll hand over to Koushik.

Koushik Chatterjee

Thank you, Naren. Good morning, good afternoon and good evening to all those who have joined in. I will begin the quarterly performance provided on Slide 25. Our consolidated revenues stood at 55,682 crores and the consolidated EBITDA was 4,315 crores, which translates to a consolidated EBITDA margin of about 8%. Stand-alone performance was broadly stable, but the UK and the Netherlands performance has been adversely impacted during this quarter.

Before we get into the numbers, I just want to also mention we have received sanction for the amalgamation of Tata Steel Long Products, TSLP, and Tata Steel Mining with Tata Steel Limited accordingly, the stand-alone financial statements that have been restated from April 1, 2022 to reflect the merger. With this, the merger process for the two entities has been largely completed and the other five are in progress as highlighted in Slide 20. This portfolio simplification process will drive efficiencies and prevent value leakages.

For the quarter, Tata Steel stand-alone EBITDA stood at about 6,917 crores which translates to an EBITDA per ton of about 14,365. Excluding the Forex gains of about 464 crores, the EBITDA margin was broadly stable at about 90% on quarter-on-quarter basis. As provided on Slide 31, the drop in steel realization was offset by lower cost. The stand-alone NRs declined by about INR2,400 per ton on quarter-on-quarter basis, due to market dynamics and seasonal factors. The coking coal consumption costs was down by about $59 per ton on a quarter-on-quarter basis and the conversion costs went down by about INR2,600 per ton on a quarter-on-quarter basis. Our conversion costs have been fairly stable over the last three years, despite the inflationary pressures in the economy.

At Tata Steel UK, the EBITDA loss was about £132 million compared to a loss of £41 million in quarter one. On a per ton basis, the EBITDA moved lower by about £127 per ton quarter-on-quarter. As shown in Slide 34, the steel production was lower due to the operational issues and the shutdown of the [indiscernible] plant. This has weighed on the cost profile of the operations and lead to elevated costs, which offset the decline in the coking coal consumption costs and natural gas spent, coupled with drop in realization. This has resulted in lower spreads on a quarter-on-quarter basis.

In Tata Steel Netherlands, the EBITDA loss stood at about 110 million compared to 114 million in the first quarter. As shown in Slide 33, the drop in realization was offset by improvement in costs. Revenue decreased by about £60 per ton on subdued demand, but was fully offset on lower raw material costs on decline of coking coal consumption costs and lower conversion costs primarily on decline in the natural gas spend, along with the repairs and maintenance reduction costs.

Looking ahead, with the completion of blast 1 and 6 in the third quarter, which is this quarter, it should drive the liquid steel production and further improvements in the product mix and cost. As previously explained, we have hedges in place for energy in both UK and Netherlands and the drop in spot natural gas prices have been reflected in the second quarter P&L with a lag.

I will also now like to brief you about the Tata Steel UK developments to supplement what Naren has said. Subsequent to the announcement of the agreement with the UK government for the decarbonization project in September, we are currently in discussion and consultation with the union and the employee representatives in the UK in relation to the restructuring of the business, its configuration within the transition time and the eventual investment towards decarbonization. The restructuring and the transition would commence after this consultation.

Given our proposed plan to change the business model and the root for steelmaking, the existing heavy end assets at Tata Steel UK can only be used for a defined period. Accordingly, we have taken an impairment charge against the investments in the stand-alone financial statements in relation to the UK business. We have also recorded an impairment of assets and provisions for potential restructuring closure and redundancy costs in the consolidated financial statements in relation to the UK business. The impairment charge in Tata Steel stand-alone is 12,961 and the charge in the consolidated books is about 3,255 crores. Let me explain the difference.

In stand-alone, the discounted cash flow value of every business is compared to the net carrying value of the investment made in that business. A deficit in that leads to impairment. Such impairment in stand-alone gets reversed in the consolidated statement. In the consolidated financial statement, the discounted cash flow of the individual businesses is compared to the carrying value of the PPE or the plant and equipment and the fixed assets. In the above case, the carrying value in stand-alone was higher than the consolidated business. And that’s why this difference.

Moving to taxes, there was a sharp drop this quarter. The current tax was about 1,105 crores and broadly in line with the tax on the profitability of the India operations. The deferred tax credit of 1,333 crores has been driven by the merger and the completion of the British Steel Pension Scheme. Taxes should get normalized post all these mergers. The tax includes credits on account of TSLP and the merger on mining. And there are other tax adjustments which we can explain to you offline.

Moving to the cash flows, the operating cash flow for the quarter stood at about 4,658 crores and in part was driven by the favorable working capital movement. In the second quarter, there was a working capital release driven by the fall in the coking coal inventory and in volumes, around 200,000 tons and in prices, a drop in steel prices and reduction in debtors. We spend about 4,553 crores in capital expenditure during the quarter and about 8,642 crores on the first half basis, as we keep prioritizing growth in India, including expansion of the downstream portfolio across wires, tubes, ductile iron pipe and template businesses.

Overall, the operating performance at Tata Steel Netherlands and Tata Steel UK, higher CapEx and dividend payout have led to a decline in the cash and cash equivalent by about 6,352 crores. As a result, the gross state has remained stable on quarter-on-quarter basis, but net debt has increased by about 5,600 crores. Our finance costs are broadly stable on a quarter-on-quarter basis. The group liquidity remains strong at about 27,637 crores, including about 12,621 crores of cash and cash equivalent. As you’re aware, Moody’s upgraded our credit rating to investment grade in the month of September ’23.

With that, I finish my comments. Thank you. And over to the floor for questions and answers.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin with the question-and-answer session. [Operator Instructions]. The first question is from Sumangal Nevatia of Kotak. Sumangal, please go ahead.

Sumangal Nevatia

Yes. Am I audible?

T.V. Narendran

Yes.

Sumangal Nevatia

Good afternoon, and thanks for the opportunity. The first question is with respect to the developments in UK. So one is, we’ve taken the restructuring provisions, but what’s the status of the discussion with employees and when is it likely to conclude? And also just want to understand over three years when the construction of the new plant will happen, in the previous discussions, we shared that we look to use the downstream assets of UK. So what sort of volume and EBITDA of just rolling do we expect over the interim period?

T.V. Narendran

Koushik?

Koushik Chatterjee

Yes. So, Sumangal, the first is, as we mentioned, pretty detailed in our release yesterday. The conversation and the consultation process has started ever since our announcement on September 15. There is a proper process that we have to follow, which is stipulated even legally. And we are doing that. And we will do that. And it is a meaningful consultation. So we will, obviously, as a responsible corporate continue to hear their point of view, or any other suggestions or advice or any point that they may have on our proposal. And once we have looked at it over the next couple of weeks, we will certainly progress this conversation. So I think — as I can see that this is progressing as per plan, it is dealing with a very sensitive subject, and we are mindful about that. But it is also about getting the investment process in place. So we continue to engage with the unions and we continue to do so until it gets formally completed. The formal process takes about 45 days at the minimum as per legal requirements. But that formal process starts after a certain period. Firstly, the informal process continues and gives opportunities to both sides to explain positions. We have also had detailed engagement with key advisors of the unions. And we have shown them the counterfactual positions and our issues in relating to sustaining the business in its current vulnerable form. And also the operational risk and the market risk that we face. So it’s a very intense and an exhaustive process, which we are currently in. And then we hope to complete as per the timelines that we have set for ourselves. As far as the transition period, yes, you’re right. As per the proposal that we have agreed with the government and the proposal that we’ve put forward to the unions, it is important for us to continue to ensure market protection and for which we will continue to focus on ensuring a stable supply chain to run the downstream unit. The volume should be in the ballpark region of 2.5 million tons to 2.6 million tons. But more details on this I would be in a better position to give once the consultation gets over and ensure that we have tied up all the ends as far as sourcing production, all of that is concerned. So I think this will be a — it will be a good time to talk about it in the next earnings call rather than now.

Sumangal Nevatia

Understood, that’s very helpful. Second question, continuing on the Europe division, we’ve seen Netherlands and UK both the losses are kind of increasing. So one is, if you could just share some outlook on margins maybe next quarter and also next two to three quarters, how should it shape up after the relining? And is this relining also getting a bit extended into 3Q? These are the two questions on Europe.

T.V. Narendran

Yes. So, Sumangal, I think on Netherlands, yes, the blast 1 that’s relining has extended to this quarter, as Koushik mentioned. We are expecting that by the end of November latest, by the first week of December we will have the blast furnace up and running. We expect the numbers of this quarter of Netherlands to be better than last quarter. But we expect it to be EBITDA positive only from next quarter, which is Q4. So there are a few things. Obviously, the blast 1, which is down accounts for 40% of our volume, so we’re carrying fixed costs with 60% of the volume. So that has an impact, which you’ve seen. Secondly, as we mentioned last time, we work on a forward hedge on gas prices, et cetera. So our energy costs, gas prices in the second half should be lower than what it was in the first half in Netherlands. So that should help. So these are — so volume should be better — the cost should also be better. And the spreads, of course, the spot spreads are a concern in Europe just now. But we expect that, given the current levels. As you know, in Europe, some of the producers have already put on blast furnaces, so there will be a better balance between demand and supply. So either coking coal prices have to come down, the steel prices have to go up. So that’s what we expect to happen in Q4.

Sumangal Nevatia

Understood. And the UK existing furnace, which quarter do we mothball it? Do we run it entirely in the second half?

T.V. Narendran

So, Sumangal, I think a safe thing to say is that we will run it fully in this quarter, which is the third quarter. And post consultation, I think we will be in a better position to tell you that when and how we are going to deal with the heavy end and that would be a better way to kind of stay on this. But I think that in the transition period, as I said, we will continue to operate our downstream facilities.

Sumangal Nevatia

Got it. Thank you so much. I’ll join the queue back. Thank you and all the best.

Operator

The next question is from Tarang Agarwal of Old Bridge Capital. Tarang, please go ahead.

Tarang Agarwal

Hi. Good afternoon. A couple of questions from me, one on Netherlands. What is the sustainability CapEx outlay that you’re looking at? And would do you expect a similar support that we’ve seen for some of the other European governments that have extended to your peers? So that’s on Netherland the value of CapEx. The second is on UK. If you could give us the net cash outflow and the timing of these cash flows, as the transition plan starts, how is it going to be staggered over the next three-year period? And what is the quantum of it? My sense is, there will be settlements. There will be CapEx, but you’ll have a reduced maintenance CapEx also. So submission of that could be helpful. Thank you.

T.V. Narendran

Thanks, Tarang. I’ll let Koushik answer the second one. On the first one, we don’t want to give you specific numbers now. But I’ll give you a few principles. I think in Europe, when any steel producer is making submissions to government, I think the ask is 40% to 60% of the CapEx that is required for the transition. That is one. Secondly, on OpEx, it depends on the country and the advantages or disadvantages that the country has. So it’s more a question of creating a level playing field because different countries are giving different supports to the company. So you don’t want to end up at the other end of the transition at an operational disadvantage compared to where your peers are. So these are the two principles on which the ask is curated. The specific amounts we will not want to discuss just now simply because there’s a conversation going on with the government. And once we have somewhere close to being able to share that, it’s more definite, we also need to go to our Board and discuss a proposal in its entirety, we will come back. But the principle is this.

Koushik Chatterjee

Yes. So, Tarang, on the second part of the question, which is on the cash outflows. So the project cash outflow which is about 1.25 billion, of which 750 million will be borne by Tata Steel and about 500 million will be run from the UK government. That spend will start more around the second half of FY ’25, because we are currently in the detail engineering phase. And this engineering work takes couple of months, about five months or so. And once that has got completed, then the grant agreement becomes effective and then we start spending the money. So the initial spend is obviously done by Tata Steel, but that money comes in areas of a quarter, et cetera, and it will go almost hand in hand. So that 750 million follows typically how a normal organic growth project is which is over a four-year period, even — last 20% is after commissioning, that is how the thumb rule is. So I think that is how we should take it. In the meanwhile, what would happen is the restructuring costs is obviously more frontloaded than the CapEx spend and the restructuring costs will be spent in the first half of the financial year ’24, ’25. And that is — the amount of that restructuring is something that will be negotiated or agreed upon, especially in relation to what relates to employee impact. During the consultation phase, we wouldn’t want to talk about it because it’s commercially sensitive at this point of time. And we will obviously have to discuss the specifics of it. We know the numbers in our head, but I think commercially it would be important to talk about it once the consultation is over.

Tarang Agarwal

I understand. So would this also entail reduction in your current capital outlay for the Port Talbot capacity, because essentially a part of the capacity will be mothballed, right? So to that extent, you should save some — you should see some savings on that maintenance CapEx.

Koushik Chatterjee

So the total CapEx in Port Talbot used to be typically around £80 million to £90 million a year. So with the heavy end in question, in future years or during transition, the investment in our mind is only on the downstream which is pretty small compared to the heavy end. The Category 1 and Category 2 CapEx, the heavy end currently, which is essentially for license to operate and safety and ensuring the quality or the condition of the assets can continue to operate as we are in consultation. Beyond that, big investments on the current assets are not in place.

T.V. Narendran

Also, I think there will be a saving on the maintenance OpEx, because there are significant maintenance OpEx also currently which goes in UK for the heavy end.

Tarang Agarwal

Okay. Thank you.

Operator

The next question is from Amit Dixit of ICICI Securities. Amit, please go ahead. Amit, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move on to our next question. The next question is from Satyadeep Jain of AMBIT. Satyadeep, please go ahead.

Satyadeep Jain

Hi. Am I audible?

T.V. Narendran

Yes.

Satyadeep Jain

Hi. Just switching gears to India for a bit, just want to see what’s the progress on KPO-2? Is it on time and budget?

T.V. Narendran

Yes. So I think what we mentioned, the pellet plant is already operating. One line is pulled out. The second line will start this month. So pellet plant is operational. Cold rolling mill is operational. These are the two that we prioritized. The [indiscernible] that we make out of the cold rolling mill is already getting approved by automotive customers after we’ve enabled it in Jamshedpur and sent it. The blast furnace should start in the next six months or so, in fact, earlier the better but we are basically targeting that in the next six months, we will start the blast furnace. We are also starting the second caster in the steel mill shop this quarter. So that will give us another few hundred — at least some additional volume because the blast furnace capacity with the existing blast furnace we can produce a little bit more. So I think one by one all the facilities are coming on stream. The coke oven’s blast furnace will start, then you’ll have the third caster in the steel mill shop coming on, et cetera, and the galvanizing lines and annealing lines in Kalinganagar are also coming on next year. So next financial year you will see all the — most of the critical facilities being commissioned at different stages of ramp up.

Satyadeep Jain

Okay. Secondly, and coming back to Europe, you mentioned that you will finalize the numbers and operating drivers during the transition period in the next quarter. And the volume guidance also, broadly you do expect to be cash breakeven at least during the entire transition period. And also you’ve taken write downs based on comparing DCF with the carrying value. Given the life of Netherlands is also another six, seven years and maybe your discounted value is higher right now, would you look at — if you have to take a look at impairment, have you taken full impairment of heavy end assets in UK, which means they’ve been driven down to zero? And what kind of potential could be there in the next couple of years or so in any other asset?

Koushik Chatterjee

So, Satyadeep, I think as far as UK is concerned, given the fact that this is our — it is a definitive play, as you know, that once you sign up with a term sheet with the government providers of capital and then it’s the procedures to move on, I think the upstream gets very much defined in terms of its operational longevity, certainly financial longevity. And that’s the basis on which we have taken the write down, entire write down of the upstream as part of this impairment that you see, which is both the asset side and obviously from the investment side in the stand-alone. In Netherlands, we are not in that state at this point of time. In fact, as Naren mentioned in the early part, we are relining the blast furnace. So therefore, it’s a renewal of life as far as blast furnace 6 is concerned. In Netherlands, the decarbonization project is in pace is high, but in terms of timeline is behind UK at this point of time. And therefore, once the transition plan is finalized and once the transition configuration is finalized, that is the time when we will keep doing the assessment. And hopefully, we will be able because Netherlands is fundamentally more profitable. So its ability to have a more stable, economically stable transition is much higher than in the UK, because these assets in the UK have actually, from a condition of the asset perspective and the ability to create or generate cash flows, have been lagging for some time as you would be aware. So I think Netherlands and UK are in different stages at this point of time. We will be looking at the feedback from the government. And as we continue to engage with them very intensely, understand the pace and the flow of the transition and come back to the [indiscernible] India board and then we will know that how the pacing of it will work. So I think that is — it’s slightly different in Netherlands compared to the UK. And Netherlands also has a very rich downstream asset portfolio, which is linked. And with the new blast furnace coming in, it is a slightly different story.

Satyadeep Jain

Just a clarification on that cash flow during transition period, just broadly do you expect it to be cash flow positive?

Koushik Chatterjee

Yes, sorry. You asked that question. So I think, yes, broadly based on our assumptions, whether it is — the way we’ve been planning is that this business has to sustain during the transition. So it would — our assumption is that we would be sourcing, converting, taking out costs in a manner such that it’s very lean during the transition, and hence be neutral on its cash flows other than the one-offs, which is the restructuring costs and the project costs.

Satyadeep Jain

Thank you.

Operator

The next question is from Kirtan Mehta of BOB Capital. Kirtan, please go ahead.

Kirtan Mehta

Thank you, sir, for the opportunity. One question as a follow up on the UK transition cost. Currently, we are running — with the shutdown of the blast furnace in the Netherlands, we are currently running in a slab two-ruling [ph] mode. What will be the gross spread that we are currently earning there? As of now, it’s not sufficient to cover the high associated sort of the fixed cost there. That’s the reason we are running into the losses. But how that gross spread compared with the UK when we operate only in the slab mode?

T.V. Narendran

Go ahead, Koushik.

Koushik Chatterjee

You go ahead.

T.V. Narendran

For the current spreads, there’s a spot spread and there’s a fell spread. The fell spread is around €240. The spot spreads are very much lower than that. That’s because the coking coal prices are high and the steel prices are low, but the spread at which we operate is around 240, 250. And we are making a loss in Netherlands because obviously when you run at 60% capacity, the fixed costs get distributed over smaller volumes and at €240, you can’t be making money. And that’s where we are making losses. As far as UK is concerned, I think the larger point which Koushik is making is obviously this is all subject to consultations and where we end with the unions. But broadly, the plan is whatever we do, how can we do the transition in a cash neutral or cash positive way? I think that’s primarily the objective, whether it is slabs or coils or whatever is it that we bring it because there are two three objectives of the transition. How can we be cash neutral or cash positive? Two is how can we keep the downstream units running? Because that also has an impact, 50% of the workforce in the UK works in the downstream units. And the third and most important is how do we make sure that our customers are serviced?

Kirtan Mehta

Thank you. Just one clarification. 240 spread when we are talking about, it’s an operation on the integrated spread. But if we are not sort of having a blast furnace and operating only on slab, then what would we be conversion spread that we earn from slab in the Netherlands currently? Would we have any idea around that number?

T.V. Narendran

I don’t know if Koushik wants to answer that. But broadly, the slabs that we used honestly are high cost slabs, which we produced last year and kept in stock in anticipation of the reline. So that’s part of the reason why we have a negative EBITDA, or we had NRV losses in the last two, three quarters because you had to produce slabs when you could, and that was last year and gas prices and everything else were at its highest level. We built slab stocks of about 700,000 tons before the blast 1 was relined. Now we’ve drowned out the stocks that translate into working capital release, but they were all high cost slabs and also contributed to the financial performance of Netherlands over the last few years. But typically, slab hot rolled coil gaps are not so great. And nobody would in Europe on an ongoing basis be looking at bringing slabs and making hot rolled coils. And a lot of our hot rolled coils are also sold to customers who seek approvals, et cetera. So that’s more of a temporary situation than something as a long-term solution. Koushik, I don’t know if you want to add more color to it.

Koushik Chatterjee

I just wanted to — I think I was just guessing the answer that you are trying to get is if in a European situation it purchased raw materials in an integrated basis, the average EBITDA percentage is about 8%, 6% to 8%. In case of a conversion model, that falls down to somewhere around 3%. So I think that is broadly the way in which it works.

Kirtan Mehta

Understood, sir. And just one more clarification. I think you mentioned in the opening remarks about the coking coal reduction that coking coal cost increase that we can see in quarter three. I missed that number. Would you be able to sort of indicate that number again?

Koushik Chatterjee

So it’s different in different operating units. In India, Q3 is going to be about $11 per ton, $10 to $11 per ton higher than Q2. In Netherlands, it’s going to be about $60, $65 per ton lower. I’m talking of consumption, because the Netherlands last quarter a lot of higher cost coal was used. And in UK, I think it’s going to be about $20 per ton lower in Q3 compared to Q2.

Kirtan Mehta

So against the $50, $60 increase — $100 increase that we are seeing in the coking coal reduction in India, we are only anticipating $10 to $11. So we are benefiting from sort of availability of the higher inventory in the coking coal in India to operations.

Koushik Chatterjee

No. Basically you’re using the coking coal that you bought last quarter, right? So last quarter, the prices were dropping till September, if I remember, right? Then it started going up from September. So what you bought in July and August, which comes typically, you will get the coking coal two to three months after you buy it or you contract it. So that’s what comes into the consumption. So you had a higher reduction. I think we had a $60 reduction in Q2 compared to Q1 and we have $11 increase in Q3 compared to Q2. And the reverse is true in Netherlands where we consumed some of the higher cost coal, so we had only a $7 reduction in Q2 compared to Q1, but we have a $60 reduction in Q3 compared to Q2. So it’s basically the inventory flowing through.

T.V. Narendran

It’s a lag effect.

Kirtan Mehta

Understood, sir. Thank you.

Operator

The next question from Amit Murarka of Axis Capital. Amit, please go ahead. Amit, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move on to the next question. The next question from Ashish Jain of Macquarie. Ashish, please go ahead.

Ashish Jain

Hello?

Operator

Yes, Ashish, we can hear you.

Ashish Jain

Hi. Good afternoon, everyone. So, sir, my first question is, in UK, one, this provision that we have taken off roughly 2,425 crores. That includes some provision towards the one-time cost that you might incur in UK related to employees. Is that the right way to understand?

Koushik Chatterjee

So there are two elements in the provisions that we have taken in the UK. The first one is in relation to the PPE, which is in relation to the way in which impairment is taken. The second is in relation to potential constructive obligations triggering out of the redundancies and closures and restructuring costs, both have been taken.

Ashish Jain

Right. So, sir, my focus is that 2,425 number that is our current assessment or best case judgment of what the one-time employee-related cost could be, is it the right way to think?

Koushik Chatterjee

It has got multiple elements in that. It’s a broad bracket of restructuring. So it has got closure — potentially if there is a closure or restructuring, if there is a contract termination, if there is people numbers, so all — it’s like a basket of provisions.

Ashish Jain

Got it. Sir, secondly, in terms of — so we spoke about where our cost might go down in the UK in terms of lower maintenance and all which is well understood. But let’s assume this employee negotiation gets over in 1Q, next calendar year. Shall we also assume that whatever is the redundancy, the cost related to that also goes out from 2Q itself, and hence our fixed cost will decline sharply in UK. Is that the way to think?

Koushik Chatterjee

So the — it’s a bit of a sensitive subject to talk about just now before we kind of complete the consultation, because it also involves the nature of people being impacted in the context of the fact that there is a phasing that may happen based on our proposal at this point of time with pre-consultation. And post consultation, it might stay. But normally, what happens is it’s not a switch off. It is a phasing and it is — these costs will be incurred over maybe two or three quarters in a proportionately sliding scale basis based on the numbers that we agree, et cetera. But I think in the provisions that has been taken is to take it on a gross basis. And as and when the restructuring is agreed upon or negotiated with the unions, it will be — the cash outgo will happen. So I sense that it will — the bulk of the cash outgo will be in the first half of the financial year ’24, ’25.

Ashish Jain

So, Koushik, sorry to harp on this, but just to clarify this. So I understand that maybe bulk of the one-time outgo happens in first half next year, or whatever be the timeframe. But whenever that happens, from that — sorry, since then shall we assume the fixed cost will decline? The reason I’m asking is, because if I let’s say take a 24-month, 36-month kind of a timeframe where we will be importing steel and servicing the UK market, should we assume that, because if the fixed cost doesn’t come down let’s say from day one or day two, could it be a continuous drag to the cash flows in the UK is where I’m coming from, just to get better clarity on that?

Koushik Chatterjee

So, Ashish, your understanding is absolutely correct that once that agreed timeframe of reduction is — the whole focus of this whole restructuring pre-investment or the transition period as both Naren and I mentioned is to run the business in transition, which does not drag on cash flows. So therefore, fixed cost is a very important part because once you don’t have the heavy end which is the bleed end of Port Talbot, then you would certainly reduce the fixed cost in one go, but effect of that takes two quarters. But whenever — as you said, since it happens, it will certainly come down very sharply across the organization and therefore, that is how it will sustain itself, as I mentioned a while back, because your fundamental EBITDA spreads also come down. And in that you have to make profits or cash flows, you have to ensure that your entire fixed cost overheads, everything runs very, very tightly.

Ashish Jain

Right. And just my second question, it’s a very small question. If I extend the current spreads in Netherlands to Q4, then we will be fully operational and our maintenance and all will be behind us, relining down, everything. On current spread basis, we would be making losses in Q4 also I guess, right?

Koushik Chatterjee

Not at the EBITDA level, maybe EBITDA —

Ashish Jain

In Netherlands? Okay, great, sir. I’ll come back in the queue for more questions. Thank you so much.

Koushik Chatterjee

Thank you.

Operator

The next question is from Amit Dixit of ICICI Securities. Amit, please go ahead.

Amit Dixit

Yes, hi. Good afternoon, everyone. Am I audible now?

T.V. Narendran

Yes.

Amit Dixit

So it’s after a long time that I got an opportunity to ask the question actually. Three or four calls, I’ve been missing on it. Anyways, I have a couple of questions. The first one is essentially if you could bridge the gap between EBITDA — TSE EBITDA actually for last quarter and this quarter in three buckets; realization, coking coal and realigning costs, that would be great? That is the first question I have.

Koushik Chatterjee

So when you EBITDA bridge, in what — you want the better bridge to what, cash flows or EBITDA bridge to –?

Amit Dixit

No. So EBITDA — what was there in last quarter and EBITDA loss in this quarter? So for $96, for example — from $96 to $170, so what is the bridge? How do we break it into three buckets; realization decline, coking coal increase and basically the realigning costs?

T.V. Narendran

So I’ll give you two of the three. We’ll think of the third one. On the realization Q2 over Q1 for Netherlands was minus £61 per ton, okay, Q2 over Q1. That’s the last quarter over the previous quarter. As far as coking coal is concerned, it was minus $7 a ton, okay. Realigning, basically the impact is volumes. So Q1, we didn’t have any — I think we had slightly more volume in Q2 because maybe we sold more or whatever, but production wise not so much difference between Q1 and Q2, but both Q1 and Q2 were bad because you were only operating one blast furnace. So the cost get distributed over lower volumes, but I don’t I don’t know if Samita or Koushik has a specific number to give.

Amit Dixit

Okay. Sorry, go ahead.

Koushik Chatterjee

No, I was just substantiating that. The volume impact between Q1 and Q2, we have sold about 100,000 tons lower in Q2 compared to Q1. The realization, as Naren mentioned, was about €60 per ton lower. And then there were the other costs. Coal, for example, was largely on the reduction level, and gas prices and energy prices were also lower, repair and maintenance prices were slightly lower. So that’s broadly the bridge that we have. There were no one-offs included in this.

Amit Dixit

Okay. The second question is essentially on net debt. So while we have seen net debt going up this quarter despite the operating cash flow being almost at par with CapEx. Now going ahead, the performance is going to improve in India as well as in Europe. So is this the peak net debt level that we are seeing for the current year and for next three, four quarters maybe?

Koushik Chatterjee

For the next two quarters, I would say that in the assumption that the Netherlands comes back in the way that we are planning, the net debt numbers should be around this. There could be plus, minuses, we will certainly want to reduce net debt from where we are. But given the market conditions, especially internationally, and also depending on where the restructuring expenses are when it is going out, I think it is broadly in this range it will be for the next two quarters. But our long-term goal of reducing net debt remains. We have been pushed back by certain events and circumstances in the market. But I think we will continue to focus on reducing the net debt from where we are.

Amit Dixit

But ex of restructuring and ex of CapEx, whatever we will incur at TSE UK, I think it is safe to assume that given the market conditions, net debt level should come down from here, ex of restructuring?

Koushik Chatterjee

That is correct. That’s what we are saying.

Amit Dixit

Sure. A last one, if I may, if you can explain the BSPS related provision in the notes and is there a cash outflow also associated with it? Because we thought that BSPS step is over now, but suddenly we saw this provision, again.

T.V. Narendran

No. So this is not a provision asset. So BSPS was sitting in our books. Can we close the buying in the first quarter? Was the buying getting completed? There was a certain amount of surplus which actually belongs to the members. So that surplus has to be as part of taking out of the balance sheet effectively, that surplus is the one which has gone in. So it’s not a provision. The surplus at some point in time was created to the balance sheet. So now it’s gone away from the balance sheet, and there was a deferred tax impact on account of that. So the BSPS, there is no cash outgo. The BSPS is a done story at this point of time. In Q1, it was completed. The buy-in was completed. Now the separation is complete in some ways.

Amit Dixit

Great. Thank you and all the best. That’s it.

Operator

Next question is from Ritesh Shah of Investec. Ritesh, please go ahead. Ritesh, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move on to our next question. The next question is from Ashish Kejriwal of Nuvama. Ashish, please go ahead. Ashish, we are unable to hear you. We request you to please send in your question via chat or rejoin the queue. We will now move on to the next question. The next question is from Ashish Jain of Macquarie. Ashish, we request you to please go ahead.

Ashish Jain

Hi. Am I audible?

T.V. Narendran

Yes.

Ashish Jain

Sir, my question is on India growth plans. I think you clarified that the Kalinganagar 5 million ton will come in the next six months or so.

T.V. Narendran

I said the blast furnace will start and it will ramp up. So you would see next year as the year of ramp up of Kalinganagar, next financial year.

Ashish Jain

Right. So, sir, what are we planning in terms of our next phase of growth, because we have a well laid out plan in terms of where we want to be in financial year ’30 in terms of domestic capacity? So what are the thought process in terms of when do we take up the next phase of expansion, because there’s a three, four-year timeframe for that?

T.V. Narendran

Sure. So one is the ongoing projects, like I said Kalinganagar and the Ludhiana EAF project which the groundbreaking has just been done and in the next two years, we should have that capacity up. That’s 0.75. So these are clear cut for the next two years. Over the next six months, we will be finalizing the plans for Neelachal expansion and also working on the Kalinganagar Phase III. So in terms of opportunity, we can grow Neelachal from 1 million to 5 million over the next few years and the plans are being developed. It will be taken to the Board in the next few months. We have an opportunity to take Kalinganagar from 8 to 13. As we finish this expansion, you can move seamlessly into the next phase. And the Bhushan plant in Meramandali, which can go from 5 to 6.5 as a first phase. The second phase moving it from 6.5 to 10 will need a little bit more land in the surrounding area. So if you look at Bhushan going to 6.5, Kalinganagar going to 13, Neelachal going to 5, you’re already at about 25, Jamshedpur is already at level. So you have 36. You have at least one EAF, which is at Ludhiana, so you’re pretty close to 37. And beyond that to 40, you have an option of scaling up other EAFs. We are already looking at South as the next location.

Ashish Jain

Naren, sorry, I understand the roadmap and all, because we’ve been talking about it. My point was more like why are we kind of delaying taking up the expansion? Are we kind of going slow because of our balance sheet focus? Because if I compare with what our peers are doing in terms of expansion, they at least at this moment seem to be a bit more aggressive or ahead of time, and especially given the India growth story and the volume expectation and all, do we think that we are running the risk of kind of losing market share at least from a capacity point of view?

T.V. Narendran

Not really. I think, of course, we will keep an eye on the balance sheet and we want to make sure that we drive that balance between our debt levels, balance sheet and the growth. But India is value accretive growth. So I think — India business is always cash positive and we can, in some sense, fund the growth. So to that extent, the India growth will always get priority. But we are also going through a process where a lot of detail engineering is done. So we are trying to reduce the cash cycle in our expansion project. So to that extent, we are doing a lot more engineering work before we start spending, taking it to higher FEL [ph] levels before we start the spend. So the work is going on continuously. There is no slowdown in the pace of work. But we will obviously time it appropriately. And we have said we will be 40 million or we can be 40 million tons by 2030. So that is very much on track.

Ashish Jain

And if you can comment on it, are we likely to kind of prioritize NL [ph] first just to optimize the cost there because the current scale is quite small, or we are open to everything at this moment?

T.V. Narendran

I think in terms of sequence, apart from the EAF projects which can operate independently, I think after Kalinganagar 5 million which is moving from 3 to 8, the next phase is most likely to be in Neelachal expansion. And then you have both Bhushan and Kalinganagar 8 to 13 happening parallel.

Ashish Jain

Okay, great. Thank you so much.

Operator

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

Samita Shah

Thanks, Vishnu. So let’s start with the questions. I think many questions on TSE UK. Is the restructuring now done and does it include employee separation costs? And what will be the CapEx guidance now for FY ’25?

Koushik Chatterjee

So the restructuring is not done. We have taken provisioning as both Naren and I mentioned that we are undergoing a consultation process that is the process laid by the law of the land in the UK. And that process involves both the informal consultation and then the formal consultation. We’ve, over the last one and a half months, been in informal consultation with the unions, their advisors, their reps at the ground level. And we will shortly commence the formal consultation when we finish the informal consultation of hearing them and them hearing us on our way forward. And the transition plan as well as the financial impact that the running of the business is causing. So the restructuring is planned, but it’s not in the execution phase. It will happen in the way that we are proposing and in agreement with the union. The unions obviously are very sensitive to the impact of the restructuring. And we recognize that. And as I said earlier, as a responsible corporate, we do all that we can do in a coordinated manner. So it’s not completed, but we have a constructive obligation arising out of the fact that any restructuring poses and that’s what’s been provided.

Samita Shah

Yes. Thank you. The other question was on the CapEx for FY ’25.

Koushik Chatterjee

Yes. So I think it would be best to talk about it in the next call and in the first quarter because that’s when the plan gets finalized. Obviously, priority wise Kalinganagar is the number one priority to get completed. We want to ensure that the facilities get started. So that’s the main priority. And we can see that FY ’25 that will rank the highest. This year, our spend has been higher on India CapEx and it will continue to be so in the next year too.

Samita Shah

Thank you. There is another question on TSE UK. I think you answered it, but maybe you could reiterate. Have you taken complete provision for impairment?

Koushik Chatterjee

In the UK, yes, we have taken — I think there was a question earlier that have you taken complete provision for the heavy end? The answer to that is yes. And we have both on the asset side as well as on the investment side. As far as UK is concerned, we’ve taken the provisions.

Samita Shah

Thank you. The next question is also on UK. It says the International Steel Traders Association have raised concerns about Tata Steel UK utilizing most of the safeguard quotas in the past few quarters. So how will Tata Steel UK continue to import steel? And how will that actually work?

T.V. Narendran

So I think there are safeguard quotas at this point of time and we are — we will look to engage formally with the trade regulatory authorities at the appropriate time. Because the quotas are also in the context of the fact that if the upstream in the UK does not operate, we are the only product producer. So from a trade perspective, that will be addressed in due course of time.

Samita Shah

Thank you. There is a question on Chinese steel imports, which I suppose is for India. It says, we have seen — no, it might not be for India. It says we have seen over 1 million tons of imports in the first half of the fiscal year. Do you think the government will start an anti-dumping investigation?

T.V. Narendran

So I think the government has recently also mentioned that they will be looking at the certifications that are required and whether the steel coming in has those appropriate certifications. So to me, yes, import is higher than it has been last year. We have seen worse in the past. The larger concern to me is less of Chinese imports into India, more of Chinese exports across the world, because that’s already 8 million tons for the last few months, which is not a good situation from an international price point of view. The Indian market has been strong and so domestic prices have been stable because everyone’s able to sell what they produce. But internationally, we are hoping and expecting that China will be exporting less over the next few months as they did in the last six months. If they go back to the 5 million tons, 6 million tons a month level, then you will have more stable steel prices. In the past, we’ve seen 10 million tons a month level. Now we are last four months, five months it’s been at 8 million tons a month. In India, yes, we are watching the imports. If it, of course, keeps going up then there is certainly a case for looking at it and we will talk to the government at that time.

Samita Shah

Thank you. Next two questions are on India. This is about the subsidiaries and the mergers. The first one is when do we plan to integrate NINL with stand-alone? And do we get any tax benefits because of the mergers of Tata Steel Long Products and other entities?

Koushik Chatterjee

So first question on NINL, as part of the divestment process, there was a cooling off period of three years before, and this is not [indiscernible] and therefore we will have to wait for that period before we consider that. But in the meanwhile, NINL, as Naren mentioned, the expansion, the stabilization and the sweating of the assets are continuing. So yes, there is a time period after which we can consider that. And the tax losses of TSLP, et cetera, are part of the integration planning in which you see some of it also reflected in the balance sheet.

Samita Shah

Thank you. The next question is on our ABJA bonds. What are your plans to refinance the 2024 bond maturities? And also another question, whether the CapEx and working capital trends will continue to reduce cash balance in the next quarter?

Koushik Chatterjee

So on the first one, the ABJA bonds, we are looking certainly — it falls part of our deleveraging. There are three elements of that bond. And we will certainly look at our cash flow planning for next year. And if we are confident about repaying some part of it and refinancing the balance, we would certainly want to reduce and get the ABJA bonds paid off in due course of time whenever they are due, mostly next year and then in 2028. And that’s how we are planning our financials on that basis. As far as CapEx is concerned and the cash levels are concerned, I think the CapEx will soon turn into the generation of CapEx as the Phase II expansion of Kalinganagar comes in. So we should start seeing that benefit from FY ’24, ’25, second half in particular. And then as the ramp up reaches ’25, ’26 should be the one where we will get the maximum benefit. So once those kinds of things happen, the debt levels will certainly start looking down.

Samita Shah

Thank you. The next question is back on Europe. What kind of sales volume do we expect from TSE UK and Netherlands in FY ’24 and FY ’25?

Koushik Chatterjee

So FY ’24 and ’25. I think FY ’24 numbers we had guided for earlier, I think the projection now is about 8.5 million.

T.V. Narendran

That is total PAC.

Koushik Chatterjee

Yes, that’s right. ’25, I think, hopefully, we will go back to the longer term level because this 8.5 factors in that. We had a blast furnace down for quite some time. So Samita can share with you the — between 9 and 10.

Samita Shah

The next question, again, is on volumes for FY ’25. And we don’t really give them solely, but I’ll just take this question. What is the timeline for KPO-2 blast furnace commissioning, which I think you answered. How much commercial volume is expected in FY ’25? So I think this is more related to TSK Phase II.

T.V. Narendran

Yes. So I think we’ll probably give better guidance in the next call. Blast furnaces ramp up fast. We have then the steel mill shops and the hot strip mills also too. In fact, we will probably have a bit of extra slabs for some time. But I think we will be in a better position to give guidance in the next analysts call for next year’s volumes.

Samita Shah

Thank you. Again, your question is on UK. I’ll just club a couple of them. What will be the cash outflow in one-time restructuring, excluding the staff-related cost? And what is the funding plan for the 750 million CapEx needs of UK transition? And will there be any further impairment charges expected?

Koushik Chatterjee

So the last one first, and I don’t expect — we don’t expect any further impairment charges in the UK. We’ve taken all of that. The funding plan for 750 will be a mix of firstly equity from India and part of it could be debt. That is something that we are working on. I think the cash flows are strong enough as projected to support that. So we will combine the two. But there will be a larger equity component from India to support it and then we can replace the same. What was the first question that you said, Samita?

Samita Shah

This was about the cash outflow in terms of the restructuring costs at UK, excluding employee costs?

Koushik Chatterjee

Well, that’s like trying to slice the cake. I think we just need to go through the consultation process first and then we will be able to firm that up. I can give you the elements of that restructuring, which will be elements like decommissioning or mothballing any of the facilities, especially as in our current context, the hot strip mill will have to be upgraded. The cluster has to be upgraded. So during the time these are upgraded, they will be decommissioned or mothballed to facilitate that one. So I think those are the ones I would say that the redundancy provisions or the restructuring costs largely relates to the people, but we don’t yet have a handle on the number till we complete the consultation process.

Samita Shah

Thank you. The next question is on India on the NRs and market conditions. I think you mentioned it in your speech, Naren, but maybe you can just elaborate about it, and the outlook for the rest of the quarters.

T.V. Narendran

I think what we’ve guided is Q3 will be about INR2,200 per ton higher than Q2 as far as realizations are concerned. Like I said, demand is strong. We’ve seen 10% growth in consumption year-on-year, because all engines are firing, automotive is strong, construction is good, rural markets are picking up. So I think the only kind of tap is a little bit more on what’s happening in the international markets and international prices, but domestic is quite strong.

Samita Shah

Thank you. We will move to Netherlands where there are questions about the potential decarbonization project. What will be the CapEx? What is the configuration they are looking at? Would there be a production loss in the interim? And how will we fund it. I’ve just clubbed three, four questions.

Koushik Chatterjee

Naren, do you want to –?

T.V. Narendran

No. Go ahead, Koushik.

Koushik Chatterjee

I think the — just now we are in conversation with the government on the configuration. And based on that configuration, the CapEx will be finalized. And it is — the intent is, as we’ve said earlier, that the last one is 6 will continue because the new furnace and then one of the other furnace will get replaced. So what is the configuration exactly is something that we will be looking at. But roughly from a volume terms it will be — the first phase will be a 3 million ton transition. But I think the funding, the CapEx, et cetera, is the matter of negotiation and discussion with the government. And we are deeply engaged in it. The submission of the broader plan is going to happen shortly. And then based on the feedback, as Naren mentioned, we will go through the phase during which the negotiation for the support is discussed. And the balance will be by the company largely out of Tata Steel Netherlands and that’s the funding plan that we will finally come about and disclose. So there’s some time to do that. It’s not happening imminently, but it will certainly happen in the near future.

Samita Shah

Thank you. There is a question on India now, which is more about our strategy vis-à-vis downstream assets. Is it about market share? Is it about profitable growth? Can you explain how you see this growth panning out in India?

T.V. Narendran

So I think downstream has always been an important part of our strategy, because we see that as you have more downstream businesses, you’re closer to the customers final consumers. You are also insulated to some extent from the cyclicality or at least there is a lag in the cycles and that helps us. So our biggest downstream presence is in the tubes business, the pipes business. We just today 1 million tons and we want to take it to about 4 million tons by the end of the decade and that will keep pace with our hot rolling capacity when we are at 40 million tons of steel, we will have about 27 million tons of flat products. So we think 4 million ton to 5 million ton tube business is a good footprint and downstream to support the upstream as well as add value to the upstream. The second big downstream businesses, we have the wires business which is modeling to long products where again we are a large player with more than 0.5 million tons and a strong market share in segments like the standard wires and tyre bead wires, et cetera. There again we want to double it in the next few years. And that will also be aligned with intellectual expansion. The third one is the packaging or the template business where again we are about 400,000 and we want to take it to about 1 million tons. That will also support the flat products business because it’s a downstream on the flat products business. I’m talking only of India because we have a big packaging business in Europe. The last one is, of course, linked to metallics which is a DRI business that is downstream for the [indiscernible] that we make through the mini blast furnaces that we have in metallics. There again, we are a big player and we aim to become, Koushik, about 1 million tons, I think, 1 million tons over the next year. So we think these businesses which have always traditionally added value, these may be — the EBITDA margins of downstream are lower than the typical steel business. But the ROIC tends to be higher because these businesses are unlike that. And I think that’s our ambition as far as downstream. There are many other smaller things that we do, but these are the four big ones.

Samita Shah

Thank you. We have some more questions on the bonds. I think we have either some bond investors or some banks on the call. So this is in terms of the bond maturities for next year. When do you come offshore or will you look to the onshore financings?

Koushik Chatterjee

So I think it’s premature to say that, but we would certainly first look at what we can do internally and then the balance outside. But typically, we’ll first look at — also look at options and the India balance sheet in reference to anything offshore.

Samita Shah

Thank you. And I think the last question is on TSN. This is about again the performance in this quarter. And I think we mentioned about slabs, et cetera. So there are a few questions on how do we manage really the slab inventory? Do we have a policy and what is our approach towards managing the price risk for TSN as well as TSE UK if they buy slab?

T.V. Narendran

So normally at TSN, we don’t buy slabs. It’s just that we stocked up on slabs because we knew the blast furnace was going down and we needed the slabs to take care of our customers and our orders. But otherwise, it’s a fairly balanced facility. We make as much slabs as we can consume. And if there are extra slabs, we can always look at selling it. But we don’t necessarily buy slabs in Netherlands. In UK, also we don’t buy slabs. But going forward depending on as Koushik said the outcome of the consultations and the way we planned the transition, we will decide what to do and when. But again, I repeat what Koushik and I have said. Whatever we do, we will try to make sure that the business is run in a cash neutral or cash positive way.

Samita Shah

Thank you. There’s one more question I think in terms of Tata template. So this essentially says that results have been poor at a time when the demand has been quite strong. Is there an excess supply of template in the Indian market? And can you comment on the market position?

T.V. Narendran

So I think there are fundamentally two points. One is that the value addition, which is the gap between the hot coil and the template has shrunk compared to the previous quarter significantly. And there is an issue on, not on supply of prime templates because that’s not the point there. The issue has been there has been a lot of import of non-prime template into India. And that has created a supply and demand imbalance, which has also from a health point of view and product quality point of view has been taken up. And hopefully, this will get reversed in the future. But we also see a certain amount of firming up of the value addition and improvement from the value addition that was there in the second quarter. The second quarter was really difficult because it suddenly shrunk. But as I said, it’s not because of supply of prime template from us and our peers but it was more on the non-prime imports that came in.

Samita Shah

Thank you. I think that ends the questions we have. So we will end the call now. Thank you very much everybody for joining us today and I hope we were able to provide you all the clarifications you sought until the next call. Thank you.

T.V. Narendran

Thank you.

Koushik Chatterjee

Thanks, everyone.