Tata Metaliks Ltd. (TATAMETALI) Q4 FY22 Earnings Concall Transcript

Tata Metaliks Ltd. (NSE: TATAMETALI) Q4 FY22 Earnings Concall dated Apr. 25, 2022

Corporate Participants:

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Sandeep Kumar — Managing Director

Subhra Sengupta — Chief Financial Officer

Analysts:

Dhaval Joshi — Sundaram Mutual Fund — Analyst

Vikas Singh — PhillipCapital — Analyst

Ashok Patel — Molecule BMS — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Shubham Agarwal — Equitas — Analyst

Kartik Arya — Individual Investor — Analyst

Akhil Hazari — Robocapital — Analyst

Kritika Tiwari — Individual Investor — Analyst

Sunil Jain — Nirmal Bang — Analyst

Anil Jain — Unknown — Analyst 

Presentation:

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

So good evening, everyone, and welcome to the Tata Metaliks Q4 FY ’22 Earnings Conference Call hosted by Monarch Networth Capital. Just a reminder that all participant lines are listen-only mode right now and muted, and request you to keep it on mute for a proper conference call to happen. And after the initial remarks from MD sir, we’ll will open the floor for questions. The manner that we follow is that, you shall have to raise your hand, and I’ll unmute you and you can go ahead with the question. A request to limit the questions to three, so that everyone gets a chance.

Over to you Sandeep sir for the introductory remarks. Thank you.

Sandeep Kumar — Managing Director

Yeah, thanks. Thanks, Sahil. Thanks Monarch for organizing this. Welcome to all the investors and the analysts. Thank you very much for joining the call. I think the quarter three — quarter four results of Tata Metaliks has been a bit of a mixed bag. While we have achieved, I would say, a higher profitability compared to quarter three, but that would have been — we could have done much better, and I’ll explain to you the reasons for that.

Essentially, I think if you look at also the overall numbers for the year, we have reached a revenue of INR2,746 crores and with the profit before tax of INR339 crores, which is the highest ever profits for the company, the second highest or the previous best was last year at INR307 crores. But this also includes sale of land from our Maharashtra asset, which was lying with us for quite some time and which we had discontinued almost about nine to 10 years back. So there was a windfall gain of almost INR30 crores, INR31 crores coming in from there. So overall, if you look at the profit before tax, is more or less similar to what we had last year, which is — it comes to about slightly better than last year by INR1 crores or INR1.5 crores.

If you look at the sectoral performance, and just the highlights, we have the highest ever operational performance. The blast furnaces have produced a maximum hot metal at 5,65,000 tons, which was the highest ever. The DI pipe production has also been the highest ever at 2,36,000 tons. Coke plant has also been the highest ever. Power plant is also the highest ever. And of course, the sales of both pig iron and DIP have also been the highest ever, with the lowest ever inventory of pig iron and DI pipes. Our collections have been the best. Cash position is also very, very robust. So all in all, it’s been a good performance, but it’s been a mixed bag in some sense, and I will tell you why.

So our profitability got impacted in quarter four due to, let’s say, three or four reasons. Number one, there was a huge surge in the raw material prices, particularly, coal. You must be aware that the prime hard coking coal reached a level of almost $670 in quarter four before coming down. So let me say, if we were to convert that into rupees per ton today or rather in the month of March, the prices of coal, average prices were upwards of INR50,000 per ton compared to, let’s say, less than INR40,000 in the previous quarter. Coke prices crossed INR60,000 per ton. So both coal and coke had a huge impact.

Then though the pig iron prices also moved up, and particularly in the month of March and we were able to cover our costs in pig iron quite well, but it took a little bit of time in January and February before the cost could move — before the prices of pig iron could move up. So this was one reason. So the huge jump in raw material prices is one.

Second is — second reason for the profit being impacted is that our ductile iron prices are still, I would say, not gone up to the same level as what we would have expected, primarily because we are carrying the old contracts of FY ’21. And even though we have executed a very large part of it, but it came to haunt us in quarter four. So the old prices — the drag of the old prices continues to haunt us and our profitability. So that was the second reason.

And of course, the third reason is that even though we had an all-round operational performance which was the best ever, the blast furnace in particular got impacted because of the time taken to, let’s say, stabilize one of the blast furnaces, the bigger one, after the shutdown, and we had been facing this problem with this blast furnace for some time. And the second blast furnace is due for major overhauling and repair. So we can’t ramp it up. So on the blast furnace front, we have had a problem, while coke oven, center plant, power, DIP all have been very, very good.

And the final reason for the impact on profitability in the four key reasons as I was telling you is the royalty that we have paid, the additional royalty which Tata Metaliks had to pay because of the government regulation which came in for increasing the royalty on iron ore from 15% to 37.5% for fines. And for lumps, it went up from 15% to 52.5%. So if you buy from a captive mine owner, like Tata Steel, you have to pay that much extra. So this also impacted our profitability. And the overall impact of this for the year is — has been huge, has been upwards of INR150 crores.

So if you actually look at our profit before tax number compared to the last year, we should have been higher by that number, but because of this impact, we have been lower. So despite the brilliant operational performance all over other than the blast furnace, we still got impacted. On the positive side, the profitability has been helped by, as I said, surge in pig iron prices, excellent operational performance and of the plants.

So this is the summary. And I will close at this. And I look forward to the questions and any queries that you might have. I’ll close. And I’ll just ask, Subhra, if you want to add anything. Subhra Sengupta is our CFO.

Subhra Sengupta — Chief Financial Officer

You have covered everything. But the price of other commodities like zinc, magnesium that has also got like haywire in last six months, and that DIP conversion cost. All raw material cost has spotted a huge push, and the coal maybe the highest impact, but others also got a substantial impact of another say INR10 crores, INR15 crores, kind of. Other things you have covered.

Sandeep Kumar — Managing Director

Right. Thanks, Subhra. So we are through, Sahil. You can start with the questions.

Questions and Answers:

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Right. Thank you, sir. Thank you, Sandeep sir and Subhra sir. So now investors whoever want to ask a question, they can just press the raise hand button and I will unmute them and they can go ahead one after the other. So just we’ll wait for a minute. I’ll wait for the question queue to assemble and then we’ll go ahead. Yeah. Dhaval Joshi, you may go ahead and please ask your question.

Dhaval Joshi — Sundaram Mutual Fund — Analyst

Yeah. Hi, sir. Good evening. Just a couple of questions from my side. First, can you give us the trajectory of how the DI pipe sales would it be for FY ’23? And then from when or which quarter we could see better relations in terms of the higher price contract to flow in for to inject the profitability?

Sandeep Kumar — Managing Director

Yeah. Thanks, Dhaval. So I missed one important point is that the expansion project, the first phase which we were supposed to commission by March-April, is actually under commissioning and we should start commercial production by next month. Despite the fact that the overseas engineers are not able to come into India because of the COVID-related visa restrictions, and these are primarily from China, so they face the maximum problem. Currently they are undergoing — they are also facing this wave of COVID.

So — but we hope to — we are actually using augmented reality, a digital technology, to commission the plant and different equipments have already been commissioned, rest are in the process. So let’s say, some time next month, if we start production, then if we did, let’s say, about 230,000 to 240,000 tons of DI pipes this year then in FY ’22 — then in FY ’23, we should be able to do, let’s say, anywhere between 280,000 to 300,000 tons or even more depending on how fast we commission and stabilize the plant. And the second phase would then get commissioned by, let’s say, early next year. That’s the plan. So that’s on the quantity.

As far as the prices are concerned, just to give you a sense, the prices of DI pipes, let’s say, in last year, if let’s assume the numbers would vary, but let’s say if they were INR50,000 per ton, then today, those prices have moved up by at least 50% to 60%. And we have been booking orders, I would say, right throughout the year, but more, let’s say, more of these orders we have booked in the last three to four months. And let’s say, almost 60%, 70% of our total order book in FY ’23 would it be of these new orders. So the old orders, which come in at older prices, would still comprise, let’s say, at least a third, if not more. If that gives you some sense, Dhaval.

Dhaval Joshi — Sundaram Mutual Fund — Analyst

Okay. Thanks for that. So can we fairly assume roughly around 20% kind of increase in DI pipe sales from FY ’22 with the new commissioning of the plant?

Sandeep Kumar — Managing Director

I think that’s a fair guess. It could be even more. See, because what’s happened is that since the commissioning has not been done physically by the technicians, so there are some doubts as to how effective they have been. So we may take a little bit more time to stabilize. That’s the only concern. Otherwise, your guess is actually conservative. We should actually — we would like to do much more than that. But I would like to keep that a little bit open and see how things go.

Dhaval Joshi — Sundaram Mutual Fund — Analyst

Thanks. And sir, full ramp up and full benefit of as of now our WHR capacities and coke oven has been already built-in in the — already came in, in the numbers right in Q4. Is that assumption is right now?

Sandeep Kumar — Managing Director

Yes, yes. So both power as well as coke plant. We had expansion of coke plant, we had put up a new power plant. The full — I would not say the power plant has given us full benefits, but whatever was our plan, it has given us more than that. Even in the coke plant, whatever was our planned capacity, we’ve actually produced more than that. So we are right now at you can say close to 100% of the capacity, theoretical capacity. Practically, in the power plant, we can even go higher, but that’s dependent on lot of things. So to answer your question in a nutshell, yes, quarter four has given us the full benefits.

Subhra, you want to add anything here?

Subhra Sengupta — Chief Financial Officer

No. So coke oven and power plant are running in full sweep. So that is already spoken. But in subsequent years, we have also got other cost projects which come up mainly on the [Indecipherable] [18:18] and also further oxygen enrichment. So that may come in FY ’23 second quarter or in FY ’24.

Dhaval Joshi — Sundaram Mutual Fund — Analyst

Okay, sir. And sir, last question from my side. I mean, what is status of Tata long and metalik smelter? I mean, if you can make us clear that?

Sandeep Kumar — Managing Director

So I would like to say that you will get to hear from — I’m sure you’ll get to hear from Tata Steel sooner than later about the exact status. Because of various things that have happened, we had — we have been telling you that the procedural delays happening, and there are lots — in between, there have been lots of challenges which have come up. So I’m sure — I would not like to attempt to answer this question to get you confused. But you will — I’m sure, you will get an answer sooner from Tata Steel — soon from Tata Steel on this to give you the current status of what’s happening and where do we go from here.

Dhaval Joshi — Sundaram Mutual Fund — Analyst

Okay, okay. Thanks.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Vikas Singh, you can go ahead and ask your question.

Vikas Singh — PhillipCapital — Analyst

Good evening, everyone.

Sandeep Kumar — Managing Director

Good evening.

Vikas Singh — PhillipCapital — Analyst

Am I audible?

Sandeep Kumar — Managing Director

Yes, yes.

Vikas Singh — PhillipCapital — Analyst

Hi, sir. Thank you for the opportunity. Sir, I want to understand our strategy with respect to our iron ore procurement, since we are giving almost 150% higher royalty than what we were previously. So why we have kept purchasing from Tata Steel? Is it a logistical problem or the pricing is still lower even after giving the premium to Tata Steel?

Sandeep Kumar — Managing Director

So very apt question. So we don’t buy only from Tata Steel. That’s number one. Number two is that Tata Steel iron ore has advantages, which from a and use, gives us that benefit, right? So this is number two. Number three is the logistics. It has its own sliding. So it’s easier to get it, okay? And number four, which is the most important is that on a like-to-like basis on the market, if it is not making sense for us then we would not buy, because we also buy from the marketplace. So it does make sense. And therefore, we continue to buy. We get long-term discounts. So keeping that into account, we — its still makes sense, but the percentage of buy from the market has increased.

Subhra, you want to add anything?

Subhra Sengupta — Chief Financial Officer

No, you have covered. See, Vikas, there are two parts. One is the fines. The fines — the market royalty is also 150%, be it OMC, be it NMDC. So Tata Steel is very much competitive. On lumps, the royalty is compared to the market in OMC, NMDC, but Tata Steel quality is much, much superior than the normal market availability on silica, alumina and [Indecipherable] [21:28] or whatever there is. And what [Indecipherable] logistics and availability and consistently. So be rest assured that we’ll continue to buy till the time it is lower than the market or competitive in the market.

Vikas Singh — PhillipCapital — Analyst

So sir, what is the mix right now, third-party mix?

Subhra Sengupta — Chief Financial Officer

See, for lumps, we try to get 100% from Tata Steel because it is much higher better quality. In case of fines, we try to get low cost variants from market, and that varies in today’s market 25% to 35% to 40%.

Sandeep Kumar — Managing Director

Overall, from the fines perspective, I think you tell them what percentage is bought from the market. That’s what he wants to know.

Subhra Sengupta — Chief Financial Officer

Yeah. So 25% to 40% average. Average 25% to 35%.

Vikas Singh — PhillipCapital — Analyst

Understood sir.

Sandeep Kumar — Managing Director

One-third is bought from the market in the case of fines, Vikas.

Vikas Singh — PhillipCapital — Analyst

Okay, sir. Sir, my second question pertains to our price escalation. So you said that the current orders which were coming are coming at almost 50% to 60% higher than what it was last year. I just wanted to untwist, are they still a fixed price contracts? And in case raw material prices goes down, we stands to benefit or these are the — these contracts have a price escalation clause linked to pig iron? So in case, tomorrow if raw material prices goes off, we tend to lose the additional order swings which we could have got otherwise?

Sandeep Kumar — Managing Director

No. So most of the orders are fixed price contracts because the contracts are taken by the EPC contractor. And the orders that we have with the EPC, like L&T, Voltas, Tata Projects, Megha. So all these guys, then they have a supply contract from us for the DI pipes. These are typically, I would say, fixed price. Wherever we supply to the government and in some other cases, it is linked to the WPI of pig iron. So if the pig iron prices move, we get an advantage. But the percentage of that order in our books is pretty low. For us, most of the order book would be fixed price. And therefore, anything that we book, we are booking now for the last six months, would be certainly advantageous as and when the raw material prices come down.

Vikas Singh — PhillipCapital — Analyst

Understood, sir. Understood. Sir, just one last question if I may squeeze in. Sir, out of our total capex plan, how much we have already spent and how much is pending and how would be the spread over FY ’23, ’24 in terms of capex spending?

Sandeep Kumar — Managing Director

I will request, Subhra to answer.

Subhra Sengupta — Chief Financial Officer

So the total capex, we are still left with to spend around INR95 crores, INR100 crores on the growth capex that we’ll spend in FY ’23. Whenever we have, as MD has earlier explained that blast furnace two will be rebuild, the capital repair, there also we’ll spend money and also on the sustenance capex. So these three case predominantly, all put together, we’ll try to spend [Indecipherable]

Vikas Singh — PhillipCapital — Analyst

Understood, sir. Thank you for answering my questions, sir. Thank you, and all the best.

Subhra Sengupta — Chief Financial Officer

Thank you.

Sandeep Kumar — Managing Director

Thank you. I would only request whoever is asking the question to introduce himself and the organization he or she represents, that would be useful for us to relate them.

Vikas Singh — PhillipCapital — Analyst

Sir, I was — I am Vikash Singh from PhillipCapital.

Sandeep Kumar — Managing Director

Okay, okay. Thanks, Vikas.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. So Ashok Patel, you may go ahead and ask your question.

Ashok Patel — Molecule BMS — Analyst

Hello, sir. I’m Ashok Patel from Molecule BMS.

Sandeep Kumar — Managing Director

Yeah, hi.

Ashok Patel — Molecule BMS — Analyst

Sir, my question was regarding given that pig iron prices have seen a sharp up move since February, meanwhile, coking coal and iron ore prices have softened. So how are we placed in terms of currently the spreads compared to Q4?

Sandeep Kumar — Managing Director

See, right now, pig iron is actually booming. And why, I’ll give you the reason. This has now become more of a structural reason. The Ukraine-Russia war or the conflict has actually disrupted the supply chain from Eastern Europe, from Ukraine-Russia, who the very large suppliers of pig iron. And therefore, there is a shortfall of pig iron in the international market. With the result, the pig iron players have started exporting. We don’t export much, but our other peers and competitors are exporting in large quantities.

Now again, to give you a sense, in the last two months, the order booking of pig iron is upwards of 300,000 tons or 3 lakh tons from India. When in a quarter, on an average, the exports are never more than 50,000 to 70,000 tons. So you can imagine. So there is a major shortfall of pig iron suppliers in the domestic market, which you will see and which you’ll continue to see. So lot of people asked me that raw material price has come down, the pig iron will come down, I said, no. Why it will not come down immediately is because of the supply demand mismatch. Raw material will indeed put some — will ease off the pressure as and when they come down, and you rightly said, there has been some softening, but pig iron prices have not come, pig iron prices are booming.

So — in fact, it’s only started booming in March after the impact of Ukraine-Russia conflict was visible. And because the sanctions are likely to continue on Russia and Ukraine’s industry is destroyed, this phenomena is going to continue for a year or two is how we read it. The rest of course we have to wait and see how things go.

Ashok Patel — Molecule BMS — Analyst

So sir, can we expect — in the case, which you mentioned, can we expect the pig iron segment margins to return back to the level it were like few quarter back?

Sandeep Kumar — Managing Director

Yeah, yeah. So pig iron margins will be absolutely robust, there is no doubt in that, okay? It all depends on whether raw material prices come down to more reasonable levels, in which case our spreads go up and we have a fantastic margin, while in the case of DI pipes, you will see a more stable margin and more long-term benefits.

Ashok Patel — Molecule BMS — Analyst

Sure. Got it. And sir, once your second plant of DI is online, then we can say that we will be having only capacity to merchant sale around 1 lakh metric ton of pig iron?

Sandeep Kumar — Managing Director

No, no. Let’s say, about 2 lakh tons. 2 lakhs plus.

Ashok Patel — Molecule BMS — Analyst

Okay, sure.

Sandeep Kumar — Managing Director

See, our production of pig iron — of hot metal is theoretically we can produce about 6 lakh tons, because both the blast furnaces have been misfiring for the last six months, one is up for major repair which is used, it’s reached its campaign life, end of campaign life, and therefore, we don’t expect much. We are not able to push it. And in the other one, there have been some other issues. Once these get fixed, I think we should be able to cross 6 lakhs easily. And if we can do, let’s say, 4 lakhs plus from DI pipes, balance will come from pig iron.

Ashok Patel — Molecule BMS — Analyst

And sir, we are seeing — as you mentioned, we are seeing strong traction in pig iron exports. Is that understanding right?

Sandeep Kumar — Managing Director

Absolutely. I just mentioned the figure of 300,000 tons booking.

Ashok Patel — Molecule BMS — Analyst

Sure, yeah. Okay, sir. That’s all from my side. Thank you.

Sandeep Kumar — Managing Director

Thanks.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. Saket Kapoor, you can go ahead and ask your question.

Saket Kapoor — Kapoor & Company — Analyst

Yeah. [Foreign Speech]

Sandeep Kumar — Managing Director

[Foreign Speech] Saket, at least turn your video, let me see you.

Saket Kapoor — Kapoor & Company — Analyst

Yes, sir. Sahil Bhai, please enable my video.

Sandeep Kumar — Managing Director

Is that done by…

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Sir, you can do it yourself. I don’t have the control here.

Saket Kapoor — Kapoor & Company — Analyst

[Foreign Speech] Anyways, sir. I’ll just check it out. Firstly sir, a clarification on the capex part. Subhra Da, you mentioned that we are going to spend around INR95 crores to INR100 crores for FY ’23.

Subhra Sengupta — Chief Financial Officer

Saket, what I have said, for the growth capex, it will be INR95 crores to INR100 crores, which is pending and which would be done in 2023. Whenever we have bought, we have to rebuilding.

Saket Kapoor — Kapoor & Company — Analyst

Right.

Subhra Sengupta — Chief Financial Officer

And there also we’ll spend another, say, INR90 crores to INR100 crores. And also the sustenance capex, what we are spending on the digital, automation and also another cost-related project, yet another say INR80 crores to INR90 crores. So all put together, we’ll be spending in the region of INR250 crores to INR300 crores.

Saket Kapoor — Kapoor & Company — Analyst

INR250 crores to INR300 crores. And currently, our capital work in progress has gone up by INR100 crores, if we take the March ’21 numbers and March ’22?

Subhra Sengupta — Chief Financial Officer

Yeah, because we have spent this year around INR325 crores. Out of that, on the DIP side we have capitalized approximate INR200 crores, mainly those things which has got already commissioned, like on the melting to casting and energy.

Saket Kapoor — Kapoor & Company — Analyst

Capitalization will happen, sir, in the first quarter I think so?

Subhra Sengupta — Chief Financial Officer

No, no, Saket. Total is say, DIP is INR450 crores. INR200 crores we have approximately — INR200 crores we had capitalized in March. Say INR150 crores kind of things we’ll be doing in the first quarter. And balance INR100 crores maybe in the last quarter or first quarter of next year.

Saket Kapoor — Kapoor & Company — Analyst

Okay. Right, sir. Sir, as you mentioned about the higher royalty charges for iron ore, on an absolute number, what is the impact for this full year with the implementation of higher royalties?

Subhra Sengupta — Chief Financial Officer

For whole year, the impact is INR151 crores 1-5-1.

Saket Kapoor — Kapoor & Company — Analyst

INR151 crores only on account of iron ore?

Subhra Sengupta — Chief Financial Officer

Yeah, yeah. It is applicable on iron ore only. And also coal, but we do not buy coal from Tata Steel.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. Sir, and on the DIP order booking part, as mentioned by MD sir, that we have done a lot of order booking for the last quarter. So taking into account the surge in raw material prices that have remained unabated, so are the margins protected as of now or there also there is a compression in margin, the last six months’ order booking?

Subhra Sengupta — Chief Financial Officer

So last six months we have taken on an elevated number. And compared to last six months, you can see — if you see the coal graph, it was surged only in the — mainly surged in the month of March, but again, in the April it has soften, and it did not have much exposure on March index. Coal — iron ore has little bit softened compared to two months back. And therefore, the orders which we have taken in last four to six months, our margins are still protected, but there are issues under those, what MD was explaining, those were for the FY ’21.

Saket Kapoor — Kapoor & Company — Analyst

Last point I didn’t get, sir.

Subhra Sengupta — Chief Financial Officer

Okay. To make it simple, those orders which you have taken in last six months is at higher price and the margins are protected.

Saket Kapoor — Kapoor & Company — Analyst

The margins are protected. Sir, I would also like to thank the board for this time the higher dividend payout, at INR8 per share 10% of the profit being distributed. Earlier, we were always looking for a better dividend payout from Tata Metaliks. So thank you for improving on that front also.

Subhra Sengupta — Chief Financial Officer

Thank you. But just to note that this is highest ever. Tata Metaliks maybe in 27 years just paid dividend maybe for 18 to 19 years. This 80% is the highest ever. Last highest was 70% in 2008.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. Just two book-keeping questions, and I’ll come in the queue. Sir, in the investment part, under current asset, there has been an investment of INR60.30 crores. What will be this attributed to, sir?

Subhra Sengupta — Chief Financial Officer

So there are two types. One is that we have got INR150 crores intercompany deposit with TSDPL, okay? That is one set of investments we have got. Second set of investments we have got that which are on the mutual funds, on the Overnight mutual funds.

Saket Kapoor — Kapoor & Company — Analyst

I’m not able to hear you, sir.

Subhra Sengupta — Chief Financial Officer

So one set of INR150 crores we have got intercompany loans and investments that we have given to Tata Steel Downstream Products Limited. Another INR60 crores you will find in the — mainly in the mutual funds, Overnight mutual funds. So you’ll find that our total cash and cash equivalent on a 31 March is INR397 crores…

Saket Kapoor — Kapoor & Company — Analyst

Sir, I will come in the…

Sandeep Kumar — Managing Director

So Saket, what Subhra is saying, he is now very rich. He started disbursing money into others, other corporates. And that’s where the money is, you’re seeing that.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. Sir, I’ll come in the queue for my follow-up, sir, and thank you. I’ll just try to set the camera.

Sandeep Kumar — Managing Director

Yeah, that will be nice if you get your camera also. We get to see people when they ask question is always useful.

Saket Kapoor — Kapoor & Company — Analyst

Thank you, sir. Thank you, Sahilji.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay. Thank you. So the next question we have from Shubham Agarwal. You can go ahead.

Shubham Agarwal — Equitas — Analyst

Thank you. You hear me, sir?

Sandeep Kumar — Managing Director

Yeah, we can hear you. As I requested a little back earlier, as we are on video, whoever ask the question, if you can also be on video as long as you’re asking the question, it will be useful to get some connect.

Shubham Agarwal — Equitas — Analyst

Fair enough. But I don’t think that we have that option with us. I think there is some — only the organizer can do it. I’m not sure, but we don’t have the option.

Sandeep Kumar — Managing Director

Okay, okay. No problem. We’ll try and see that next time it is there. If it is not there, just go ahead, please, Shubham.

Shubham Agarwal — Equitas — Analyst

Perfect, perfect. So my question is largely on the industry side of DI pipes. So as we have seen recently, there has been few announcements as far as new capacities are concerned. So almost in the next two to three years, we are expecting 1.5 million ton to come as new capacity. So in this scenario, how do you see the demand scenarios — demand-supply situation for the next two years, if you can throw some light there?

Sandeep Kumar — Managing Director

Yeah, yeah. Shubham, so the projections and the announcements by the Government of India on water infrastructure projects is just too fantastic, okay, and I’ll give you some numbers. Today, rather let’s say in FY ’22, Government of India released only INR20,000 crores for the water infrastructure projects as against — or rather they allocated INR40,000 crores, but actual release was INR20,000 crores and the budget was, let’s say, upwards of INR90,000 crores. Because of two waves of COVID last year and because of the surge in prices, people could not use the pipes, they could not complete the projects, and therefore, there was a hit.

What we have calculated that considering the budget of FY ’23, which is about INR60,000 crores and this spillover of FY ’22, the total money available on water infrastructure projects only by the center is INR1,32,000 crores for FY ’23, an equivalent amount will come from states. If you take this and calculate and say, let’s say, only 15% to 20% gets spent on DI pipes out of this, you can imagine what number we are talking about. But the problem is that the government is willing to spend that much money, allocates, but in reality is not able to spend because of various reasons.

So let’s keep our, let’s say, numbers much more conservative, because as I said, in FY ’22 they spent only INR20,000. So this is just to give you a sense where the numbers can go. From INR20,000 crores it can go up to INR1,32,000 crores if the government has the wherewithal and the capacity to actually complete projects. This is one aspect.

Now let’s come to hard numbers on DI pipes. The industry order book today is roughly about 1.4 million tons, that’s about seven months’ of order. There are about 1 million tons of inquiries in the market. So that makes it 2.4. Then there is tender of about roughly 0.9 million tons, which is already floated for the EPC contractors, not for the pipes. So the EPC contractors get it and then they inturn give it to the pipe suppliers. And projects approved and tenders being prepared for to be invited is about 2.5 million tons.

So if you look at the total number, it comes to roughly 5.8 million tons, let’s say, 6 million tons. The industry capacity is, let’s say, 2.5 million tons. If you are saying 1.5 million tons more comes up, which I doubt very much, then the industry capacity becomes 4. And we are saying, we have theoretically in order visibility, either visibility or projects, visibility of about 6 million tons. So that’s the kind of numbers you have. But more realistically, I don’t know from where you got 1.5 million tons, but the number that looks — that’s more practical is that we will achieve — we’ll go up to maybe closer to 3 million tons by end of this year, and that also is not easy. So DI pipes will continue to be in short supply, in my opinion. And I think the industry is going to have a remain in a positive supply demand situation.

Does that help or was it too complicated?

Shubham Agarwal — Equitas — Analyst

Yeah. Thank you for that elaborate answer. Secondly, I would like to understand how difficult it is for a new player to come in this particular industry, because I believe two new players have already announced their venture into DI?

Sandeep Kumar — Managing Director

Yeah. So one is Welspun. I don’t know who is the other one. But…

Subhra Sengupta — Chief Financial Officer

Sandur Manganese.

Sandeep Kumar — Managing Director

They have announced. So this is going to be a long drawn affair. You know how long it takes. You can announce a lot of things. In reality to come in, will take time, plus the entry barriers are extremely high in DI pipes, both operationally and on the market side. So many of the projects they require you to have supplied materials for last five years, three years. So many of these new players are likely to struggle for the next three to five years, because many of the orders will not come to them because they do not have the credentials. But it is possible because the demand is so much that they might have a slight — easier run than what players in the past have faced. So let’s see how it goes. But on the whole, setting up a DI pipe industry is extremely difficult and long drawn, even if you’re a smart efficient player, you will still need at least two years to complete it. And I’m not even taking the environment clearance, etc., which is anywhere between one and two years. So things will get added up to the industry, but they will take time.

Shubham Agarwal — Equitas — Analyst

Okay. And secondly, in few of the recent orders, I think we have observed that they have mentioned HDEP pipe. So is this a substitute for DI or how does it work?

Sandeep Kumar — Managing Director

So HDPE pipes is a substitute for DI pipes, absolutely right, but they are more competitive in the smaller sections.

Shubham Agarwal — Equitas — Analyst

Okay.

Sandeep Kumar — Managing Director

So broadly the industry wide, characteristics is like this. Up to 300 mm it is DI pipes and HDPE. Between 300 to let’s say 800 or 1,000, it’s primarily DI pipes. And beyond 1,000 is primarily steel. This is a very broad, I would say, characterization of the industry product usage rather the material usage.

Shubham Agarwal — Equitas — Analyst

Okay.

Sandeep Kumar — Managing Director

Our sizes are — Tata Metaliks’ sizes are we like to play in the 300 to 800 mm, although our expansion takes it up to 1,200 also. In China they make DI pipes up to even 3,000, but in India the maximum is 1,200.

Shubham Agarwal — Equitas — Analyst

Got it. Got it. And lastly, my question would be on the coke side. So currently basis our capacity, what is our total coke requirement?

Sandeep Kumar — Managing Director

Subhra?

Subhra Sengupta — Chief Financial Officer

Yeah. It would be approximate 15%. And…

Sandeep Kumar — Managing Director

Subhra, your volume is not good enough. Can you increase your volume? Come closer to the mic?

Subhra Sengupta — Chief Financial Officer

Sorry. So it is the total requirement only 80%, 85% is backward integrated and 15% is we are exposed to market. If you go by the absolute terms, it is 4,000 kind of monthly which annually 50,000 ton.

Shubham Agarwal — Equitas — Analyst

And for that entire 85%, how much coking coal are we procuring? What is the total volume?

Subhra Sengupta — Chief Financial Officer

See, we have got a capacity of approximate 240,000 tons of coke coal and that requires approximate 3.5 lakh tons of coal. Over and above, you also need coal for coal injection — PCI coal injection.

Shubham Agarwal — Equitas — Analyst

Got it. Got it. Yeah. Thank you. That’s it from my side.

Subhra Sengupta — Chief Financial Officer

Thank you.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. Kartik Arya, you may go ahead and ask your question.

Kartik Arya — Individual Investor — Analyst

Hi, sir. My question is regarding…

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Can you please introduce yourself first and then go ahead. Sorry, to interrupt.

Kartik Arya — Individual Investor — Analyst

Kartik Arya. I’m an individual investor. Right. So first query is regarding pig iron. So as we see, the exports are running — shooting up like anything. So in the previous quarter, in Q3, what percentage of export and domestic would be the bifurcation? And second would be, what is the trajectory that we’re looking at for PML considering we had a shutdown? And like what is the current position on that and what is the future going forward? Also — I think first we can go with that.

Sandeep Kumar — Managing Director

So what was the first question. I sorry missed it, Kartik.

Kartik Arya — Individual Investor — Analyst

Since the pig iron export prices have been running like anything and domestic maybe the prices might not be shooting up that much. So what is the future trajectory regarding this? And also in Q4, what has been the, let’s say, bifurcation of an export in domestic?

Sandeep Kumar — Managing Director

Yeah. So we have traditionally concentrated on the domestic market, but we have exported also. I think quarter two or quarter three, we did a very large quantity, I think 15,000, 20,000 tons to China or somewhere, like big bulk shipment. But otherwise, traditionally, you can say we hardly sell. I think we sell less than 10% to 15%, something like that in export market. So 10% to 15% of our pig iron sales is in the exports market. It’s an opportunistic play. If prices are good, more attractive, we’ll certainly look at that. But we have some regular customers we like to service, more like to not starve them of pig iron. And therefore, our concentration is more on the domestic market. Plus, we supply mainly the foundry grade of pig iron, which is used by the castings players, whether it’s for auto or for engineering or for whatever. Most of the exports that’s happening is the steel grade, which — where we don’t concentrate making that grade, although we do make, but not much. So that’s the difference. But depending on the margins, we can easily make that and supply and export. So that’s not a problem.

Quarter one, as far as your blast furnace question is concerned, I think we continue to face some challenges on the blast furnace end. As I’ve said, blast furnace number two is going for major overhauling and repair towards the end of this year. So it will continue to struggle or let’s say work under suboptimal conditions. So we will be having a little bit of a challenge there. And blast furnace one also we have been facing some trouble, although we got back the blast furnace one in March. So we need to make sure that the rest of the year we are able to operate efficiently. And actually the blast furnace one is also under some kind of augmentation as part of the expansion project. So there will be some ups and downs. But I believe that after we have expanded that in quarter one, we should have a small churning in the larger blast furnace, which is the blast furnace number one.

Have I answered your question? What else was your question?

Kartik Arya — Individual Investor — Analyst

Yes, yes. Just one more thing on this. Regarding shortfall, any particular number that we are looking at for Q1?

Sandeep Kumar — Managing Director

No. So not really shortfall, but I’m saying that it will not operate at its peak efficiency. That’s the point I would say.

Kartik Arya — Individual Investor — Analyst

But all our partners will be operational?

Sandeep Kumar — Managing Director

Yeah, yeah. And we will be taking some regular shutdowns, etc. See what happens is, when your blast furnace has reached its campaign — end of campaign life, its efficiency level comes down, it starts creating some problems, you need to take frequent shutdowns to repair it as and when things happen. So that’s a little bit of uncertainty. We’ve actually stretched the furnace over last two, three years, because we were able to run with it, and we took the capital shutdown program and the budget in this year.

So once we repair it, we go in for a major overhauling, it will be a far better furnace because you can imagine, we had this one is I think in 2012. Subhra, when did we — blast furnace two, the last one we did?

Subhra Sengupta — Chief Financial Officer

Yeah, 2012.

Sandeep Kumar — Managing Director

So it’s almost 10 years. So that’s the problem. Typically, it will last to for about seven years or so. We our three years above it. So that was just the — I was just flagging that. Don’t get surprised if you hear from time to time issues on blast furnace. Otherwise, all other — DIP continues to be operating at best ever numbers, coke oven power plant, center plant, I think rest everything is doing well, but except for the blast furnaces.

Kartik Arya — Individual Investor — Analyst

Right. That answers my question. Thank you, sir.

Sandeep Kumar — Managing Director

Yeah.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Anurag Patil, you may go ahead. Introduce yourself and ask your question. Anurag Patil? Anurag Patil, please go ahead and ask your question. Okay. Until that, we move to Akhil Hazari. You may go ahead and ask your question.

Akhil Hazari — Robocapital — Analyst

Hello. My name is Akhil Hazari from Robocapital. Am I audible?

Sandeep Kumar — Managing Director

Yes, we can hear you.

Akhil Hazari — Robocapital — Analyst

Sir, I just wanted to know what are the volume — the total volumes the company did in the previous years, FY ’20, FY ’19 around, which should be DI pipes plus pig iron?

Sandeep Kumar — Managing Director

Subhra, we would like to take that?

Subhra Sengupta — Chief Financial Officer

Yeah. Say that DIP, this year we have done 237, last year 290, year before that, FY ’20 we did also the 230 plus. And FY ’19, 2 lakh plus, but the exact number I cannot say. I don’t recollect, but I can share you separately. Similarly, so that 237 is the highest ever, keeping in mind that our nameplate capacity is 2 lakh tons.

Same thing for the hospital side. Last year, we did 466 kt hot metal. This year, we have done 565 kt. And FY ’20 approximately 550. And based on the DI pipe, the balance goes to hot metal, balance goes for pig iron. The pig iron this year, we did 344 kt, and last year it was 283 kt. Is it given some trend or giving some understanding?

Akhil Hazari — Robocapital — Analyst

Yes, yes, definitely. And coming here, are the company is planning on doing 6 lakhs in total, right?

Subhra Sengupta — Chief Financial Officer

So yeah, so we expect that 6 lakhs at minimum. And we definitely will try to sweat our assets more and we can try to reach the 6 — in between 6 lakh to 6.20 lakh. Our DIP capacity, nameplate would be same, 4 lakh, and we should try to do 4,20,000, 425 kind of number. And the balance 2 lakhs will be on the pig iron side.

Akhil Hazari — Robocapital — Analyst

Right, right. And regarding margins, so the margins purely depend on whether the raw material prices come down or not going forward?

Subhra Sengupta — Chief Financial Officer

That’s true. But as MD sir was earlier also — earlier calls also, we have time and again said, that DIP margin will be always higher in a steady state manner or in normal circumstances. And if we see in the long run, if you consider iron ore to DIP, the margin will be — EBITDA margin will be 20% on average, if you take average of two, three years, three, four years. And we our objective is to take it to north of 20.

Akhil Hazari — Robocapital — Analyst

This would be only for pig iron margins, right?

Subhra Sengupta — Chief Financial Officer

No, no. I’m saying the DIP. DIP margin, on a three to five years’ horizon, it should be always approximate 20% of EBITDA margin. And our objective is to do north of 20% through the cost measures and all.

Akhil Hazari — Robocapital — Analyst

And the pig iron margins would be? What — any guidance that you could give…

Subhra Sengupta — Chief Financial Officer

Pig iron, that depends. And that is — and pig iron, it is always that we can pass on a large portion of the cost to the customer. So we can have it — if we take it longer term, you can have a 15% to 18% margin definitely on the pig iron. Last year, the scenario was different. We couldn’t get much higher margin of DIP. But the numbers I have talked is more of a three to five years kind of origin.

Akhil Hazari — Robocapital — Analyst

Right, right. Okay, fine. Good. Thank you. That’s it from my end.

Subhra Sengupta — Chief Financial Officer

Thank you.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Kritika Tiwari, you may go ahead and ask your question.

Kritika Tiwari — Individual Investor — Analyst

Hello. I’m an individual investor. My first question is that, we have seen a hike in the prices of steel grade…

Sandeep Kumar — Managing Director

Kritika, we can’t hear you properly. Your voice is I think breaking. I think there is some echo as well. Can you fix your mic closer to it.

Kritika Tiwari — Individual Investor — Analyst

Hello, sir now am I audible?

Sandeep Kumar — Managing Director

Still there is an echo. I would suggest, you logoff and login back.

Kritika Tiwari — Individual Investor — Analyst

Just one minute sir.

Sandeep Kumar — Managing Director

Yeah, this is better.

Kritika Tiwari — Individual Investor — Analyst

Yes, sir. So my first question was that, since the prices of pig iron have shot up in the last quarter as well, and I think they are continuing now also. So is there any traction? What kind of traction do you find in the demand on the domestic front for foundry grade? Like, is the demand stagnant or people are still continuing to raise their demand, which is the material availability?

Sandeep Kumar — Managing Director

Typically the castings players have a, you know, contract for about a quarter [Phonetic], while they buy it on a spot basis from us and from others. So it takes time for them to pass on the prices to their customers. And obviously, there has been resistance and people think we have reached the, you know the highest point and therefore it may come down and therefore there is a lot of resistance. The capacity utilization of the foundries has come down, from let’s say 70% to let’s say more like 50%. But I think the foundries will very soon realize that there is no point in holding on. They need to pass on the prices, because it’s a structural issue, it’s not that the — it’s a temporary issue, even if the raw material prices come down, the price of pig iron should remain high as I explained a little while back, because of the Ukraine-Russia conflict, and Ukraine and Russia are large suppliers of pig iron to Europe and U.S. That’s got completely stopped, and therefore Indian pig iron is now going to U.S. on a large scale.

And therefore there is going to be a shortfall in the domestic market which is going to continue. My sense is it will continue for longer and longer, could be even one year, two years. So therefore I think we are in a very robust position on the pig iron side. The raw material prices has its own dynamics, and that should not influence the pig iron prices, and the big iron prices should remain strong. That’s my sense. We’ll see how it goes.

Kritika Tiwari — Individual Investor — Analyst

Okay, thank you sir. On the other end, on the raw material side, since we must be having some high cost inventory on the coal front of the last month, maybe in March, it reached its peak. So will it have its impact on quarter one also, or have we lower cost inventory booked also — shipments booked for quarter one?

Sandeep Kumar — Managing Director

So you’ve already seen the impact of high cost inventory in quarter four. March was the highest, but we didn’t buy much in March. We did buy, but not much. April, it started coming down and then you know, so prices are better, but not the same as in March. But we’ll have to wait and see how things go in May and June, as far as the raw material cost is concerned. But in general definitely the costs are on the higher side, though not as high as in March.

Kritika Tiwari — Individual Investor — Analyst

Thank you sir. And Sir, just one more thing you said that — you have ended up at a very low inventory on pig iron side. So can you assign it a number, on the basis of number of days, inventory days [Speech Overlap] see how much inventory is left?

Subhra Sengupta — Chief Financial Officer

I can tell I can tell you the number. We squeezed out every ton of pig iron, so it’s virtually close to zero. So you can say less than 1,000 tonnes, never — the lowest ever. Even on the ductile iron pipe side, less than 2,000 to 3,000 tonnes. You see there will be some hot pig, there will be some hot pipes coming out which you can’t dispatch. Leaving aside that, every single tonne has been moved out. The highest level sales of both pig iron and DIP we did in FY ’22. Despite all that, our profitability is still not the best ever.

Kritika Tiwari — Individual Investor — Analyst

So for pig iron, there was no challenge for lower demand in the domestic front, because of the material availability thing?

Subhra Sengupta — Chief Financial Officer

No, no, no. There’s no issue. In fact, you will start seeing a shortfall more and more. I think in this quarter of pig iron, because people have booked — see the Ukraine crisis started when, in February, second half of February? The impact was felt in March, okay, and then people realized, oh there’s no big iron, so they started booking. Now the orders will get executed, and therefore you will start seeing the impact of that. So whatever price rise you saw in March was more sentiment. Now you will start seeing the real one, which we have started seeing in April. So April, May, June is going to remain pretty strong for us. The only problem that we are facing as I mentioned, is the strong resistance by the foundries, because they are not able to pass on those prices. But I think it’s a matter of time, because I don’t see any other option.

Kritika Tiwari — Individual Investor — Analyst

Right, right. Thank you so much, sir.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah sure. I just have two questions before we move on to repeat questions. Sir, what would be our order book right now on the…?

Subhra Sengupta — Chief Financial Officer

Our order book would be, let’s say more like seven to eight months at the moment.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay, Okay, and so this was the capex that you’ve said about — the sustenance capex and — for the rebuild of blast furnace too, that will be all spend on — in FY ’23, or would be spread it over to FY ’24 also? So the whole total capex, all will be spent in FY ’23.

Subhra Sengupta — Chief Financial Officer

Rebuild of furnace, 90% will be in FY ’23 and sustenance, digital automation, robotics, it is a continuous one. What I was trying to give the guidance was that, total capex one on DIP, to blast furnace, to sustenance, robotics all put together, it will be in the region of INR250 crores to INR300 crores. And this number will vary based on the amount you are generating from the operations.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay, okay. Got it. Thank you Sir. We just have few more questions. So Sunil Jain, you may go ahead and ask a question. Mr. Sunil Jain?

Sunil Jain — Nirmal Bang — Analyst

Yeah, yeah, thank you very much for this opportunity. I’m Sunil Jain from Nirmal Bang. Most of the questions answered, only one question regarding coking coal. What was our average cost of coking coal in Q4, and how it is likely to move in Q1?

Subhra Sengupta — Chief Financial Officer

I’ll try to answer. What I can tell you about the Q1 of FY ’23, because, you know, as the coking coal prices are going up, we are trying to look for a newer, newer blend to keep the cost contained. But nevertheless, we’ll be having in Q1, average cost of blended cost in between. INR36,000 to INR38,000 on a dry basis, which if you convert back, it will be in the region in the region of INR400 to INR420 kind of CIF India, so this is on a blended basis and various types of coals together. So that if you talk about one quarter back, it will be approximate INR8000 rupees lower, so INR36,000 to INR38,000 would be INR28,000 to INR30,000. Could I answer your…?

Sunil Jain — Nirmal Bang — Analyst

Yeah, yeah, 100% sir, yeah. Thank you very much. That was my question.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Mr. Anil Jain, you may go ahead and ask your question. Mr. Jain, you may go ahead and ask your question.

Anil Jain — Unknown — Analyst

Yeah, am I audible now?

Sandeep Kumar — Managing Director

Yeah, yeah.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yes.

Anil Jain — Unknown — Analyst

Yeah. Pardon me if I have missed the question. I just wanted to know about the timeline of merger with the Tata Long Steel Products?

Sandeep Kumar — Managing Director

Yeah. I already answered that, saying that you may get to hear — get to know something from Tata Steel, since this is a long pending question and it keeps coming up, I don’t want to repeat the same answer. So the procedural delays have been there, and I don’t want to keep, you know, appearing and giving you all kinds of reasons. I think you’ll get to hear, I think from — because there are three four companies involved, so I’m sure Tata Steel will give you an answer, sooner than later.

Anil Jain — Unknown — Analyst

Okay, thank you. Thank you sir.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. We had a repeat question from Ashok Patel. You may go ahead and ask.

Ashok Patel — Molecule BMS — Analyst

So my question is regarding the fact that you mentioned that we are facing sort of resistance from domestic foundry, manufacturing foundry players, that they are not able to accept the current higher prices. So just to understand, theoretically we have the process and infrastructure in place to export pig iron, in case the domestic foundry doesn’t show the direction, the way we expect it. Can we export their entire supply?

Sandeep Kumar — Managing Director

So obviously, you’re not serious when you’re saying export the entire supplies. What do you mean is, and if I’ve got you right is that, can you ramp up your exports? Of course, yes. We prefer to sell it in the domestic market, primarily because the realizations are better. We have old customers, long term customers, and we like to continue the relationship and not starve them. That’s number one. And as you would have seen that we are continuing to honor the DI pipe contracts, which was, let’s say at 50% to 70% lower prices than what you have today. And we are one of the very few companies which is doing so, in the industry and you can ask the customers. So we don’t want to deprive or, let’s say, go away, make our customers lose faith in us.

So we’ll continue to supply. But obviously the mix, the skew will go more towards exports, as we go forward, because the export prices are booming and we will take a call depending on how much the industry is willing to accept the prices. I just mentioned that the industry is still having difficulty passing on the prices to its customers, and therefore there is capacity utilization the industry has come down from, let’s say 70%, 75% to let’s say about 50%. But it will, I think go back, as they are able to pass on the prices. It’s still early days, if you realize the prices have started moving up significantly in March. And so it’s been a month, month and a half, so you have to give them some time. They have more longer term contracts, so they are struggling to do that, but they will do it, because there’s no option, otherwise they will have to close down. But to answer your original question, yes, we can ramp up exports, if required, and we will be doing — we will be seeing more exports, as we go forward.

Ashok Patel — Molecule BMS — Analyst

So broadly, saying Sir, always the domestic pig iron prices of quantity grade are in line with the global prices, or can we see a discrepancy there?

Sandeep Kumar — Managing Director

See what happens is, the foundry grade is not a bulk commodity. Foundry grade, typical foundries, they take small-small quantities. So we have distribution model, and we supply it to them and we get good prices, because of these distribution models. Imagine a bulk buyer versus a retail buyer, plus making foundry grade is more difficult, maintaining quality etc. So our competition is also limited. So that’s why we concentrate on the foundry grade.

The steel grade everybody makes — you can make it in bulk and ship. Right now, the steel grade is booming, so is the foundry grade. But foundry grade, the supplies quantity can be only limited. So what normally we do is we — then make the steel grade or the basic grade pig iron, and sell that, whether in the domestic market or export market. That is the logical thing to do. And we will do that, if we don’t find enough tickers at our desired prices, we will do that.

Ashok Patel — Molecule BMS — Analyst

Sure, got it. So sir, broadly saying, if all the monitorables, in terms of current pig iron realization and input prices and everything remains stable as it is right now, can we say we can expect Q1, which is starkly different from Q4, which we just witnessed when it comes to pig iron?

Sandeep Kumar — Managing Director

No pig iron, actually in March, we got a lot of benefit. And I think that same benefit will continue into Q1, maybe somewhat more. Maybe the spreads will improve, if the raw material prices continue to soften. That is, you know [Indecipherable], as we don’t know what will happen. Raw material prices has its own, you know, let’s say trajectory. At the moment it has softened, but let’s see how long and what?

So all in all, Q1 for me, the pig iron looks to be good at the moment. Whether it will continue to remain good, is a challenging question. But from today’s point of view, it looks better than last quarter.

Ashok Patel — Molecule BMS — Analyst

Sure. Sure, that’s all from my side sir. Thank you for the detailed explanation. Really appreciate it.

Sandeep Kumar — Managing Director

Thank you.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Just we have two more repeat questions? I mean two more questions. Shubham Aggarwal, you have a question. Please go ahead.

Shubham Agarwal — Equitas — Analyst

No. So my question has already been answered. Thank you so much.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Okay, and I think Saket, you have repeat question.

Saket Kapoor — Kapoor & Company — Analyst

Yes. Thank you. Sir, if you could give us some color, what were the exit prices for pig iron for March, and what are the current prices trending sir, to get an idea of the trajectory?

Sandeep Kumar — Managing Director

So the last prices in March, and the prices that you are getting in April, there has been an increase of let’s say INR4,000 to INR5,000 over March. Now I will not be able to say exactly if you say exit prices. But overall compared to March, there has been an increase of INR4,000 to INR5000 per ton in April.

Saket Kapoor — Kapoor & Company — Analyst

Okay. And as Subhra sir has mentioned that, the impact of coke was from INR30,000 to INR38,000, so that is an explanation of INR8000, am I correct on that sir? From Q4 to Q1?

Sandeep Kumar — Managing Director

Subhra, please answer.

Subhra Sengupta — Chief Financial Officer

You know, NRE is on the 100%. Coke is based on the usage, so the impact will be half.

Saket Kapoor — Kapoor & Company — Analyst

Impact would be half, but sir, the trend is from average of INR30,000, it has gone up to INR38,000 is what you mean?

Subhra Sengupta — Chief Financial Officer

Yeah, yeah. But that I have mentioned based on the, quarter-on-quarter, but what MD sir has explained, based on the month-on-month. So there will be little here and there.

Sandeep Kumar — Managing Director

Plus even the number that Subhra has said, is a very approximate very — it’s more of a thumb rule kind of. Today you were to use that as a thumb rule, so he said INR6,000 to INR8,000. So in actual, depends on the blend. What kind of coal you have used? How much of PCI you have used? So all that.

Saket Kapoor — Kapoor & Company — Analyst

Right. Sir, in the similar way, have the scrap prices also moved up somewhat, I mean, the players who are doing casting work? Or do they have any arbitrage play in in that sense, just to understand the pig iron prices shooting up, will they have a direct impact for this scrap market also?

Sandeep Kumar — Managing Director

So interestingly, the scrap prices hasn’t moved up so much, okay? So obviously, you know the players will like to use more scrap and less pig iron. But then, scrap has its own availability issues, and beyond a point, depending on the kind of furnace you use, you can’t use crap. You need to use pig iron. So [Speech Overlap], they will need to use at least 50%, 60% pig iron. If it is induction furnace, they can do with maybe 20%. 25% pig iron. There’s a whole lot of you know, variation here — variance, so you will not be able to accurately assess what is going to happen where.

But to answer your question, scrap prices haven’t increased the way pig iron has increased, is right.

Saket Kapoor — Kapoor & Company — Analyst

Right sir. And small point on the depreciation front, Subhra, that as you have mentioned that we have capitalized the project, 150 for this year? The depreciation for the year, year-on-year has gone down from INR67 crore to INR61.70 crore, so if you could explain the reason for the lower depreciation, although we have capitalized the projects?

Subhra Sengupta — Chief Financial Officer

So the capitalization to place on, say 28th, 29th March, so it do not have any impact in FY ’22, that will have impact in FY ’23. That’s the first thing. Second thing you know that, now Tata Metaliks has crossed almost 25 years of the presence. So a lot of assets which we have bought in ’94 to 2000, now got fully depreciated. So that’s why one of the reasons it is falling here, it is coming down. So the impact of the DIP2 will be felt in the next year. So on a FY ’22 as the base, depreciation may go up by approximate INR10 crore kind of number.

Saket Kapoor — Kapoor & Company — Analyst

INR10 crore kind of number. And on the last part on the profit, on disposable of land, sir, what was the total sale value sir? This is the profit, INR31 crore we booked.

Subhra Sengupta — Chief Financial Officer

Share value was approximate INR42 crore, INR43 crore.

Saket Kapoor — Kapoor & Company — Analyst

INR42 crore, INR43 crore. Right sir. Just to sum it up, Sandeep sir, taking into account the impact of the hardening of raw material prices and consequent the jump in the pig iron, there is a better realization on the pig iron front. However, with the legacy order book still not fully — fully not executed, we will be having an impact on the DI pipes margins for the first quarter. This will get mitigated by the first quarter itself, the old legacy, or will it percolate to the second quarter also sir, second half?

Sandeep Kumar — Managing Director

So I gave you an idea, that roughly one-third of the orders in FY ’23 will be the old legacy orders. That doesn’t mean we will execute everything in quarter one.

Saket Kapoor — Kapoor & Company — Analyst

Right sir. They will be blended with basically.

Sandeep Kumar — Managing Director

So you’ll get a, you know — so we will play it along. And also the fact that pig iron is more profitable, we will also like to maximize pig iron. It’s a logical thing to do, isn’t it? So I think we are seeing. [Technical Issues]

Saket Kapoor — Kapoor & Company — Analyst

Yes sir, please continue. I didn’t get the last point, because of tomato and coriander.

Sandeep Kumar — Managing Director

So basically we will play this, you know margin maximization game, by balancing out customer needs every quarter in FY ’23. It will not be only quarter one, as we go on, I think quarter-on-quarter you will see this.

Saket Kapoor — Kapoor & Company — Analyst

Right. But here also we have a disadvantage because of the blast furnace not working at optimum level? Had that been the case, the pig iron volumes would have been more robust. This is what one could sum up.

Sandeep Kumar — Managing Director

Yeah, yeah, no, so you’re right, you’re right. So there will be some impact of that, which we have also already seen in quarter four also. Otherwise, we could have done even more, and I think that will continue at least till quarter one, and I hope that we can get over it, at least part of the problem by quarter one, because we will be taking those annual shutdowns, etc. So you will have some of those things.

Saket Kapoor — Kapoor & Company — Analyst

Right. And lastly, we will be hearing something on — finally, we will be hearing affirmative thing from Tata Steel on the merger story once for all. This should happen in one quarter time, or it will take longer than that?

Sandeep Kumar — Managing Director

No, what I said was, that you will get to know and get a better picture from Tata Steel, because Tata Steel is our parent. So you will get to hear from them sooner than later, as to where do we stand. I know this is an oft repeated question, I’m sorry I don’t want to answer this question, because I think it’s better to — we’ll get a complete picture, because I can only give you one side of the picture. You will get a complete picture from Tata Steel and I’m sure they will answer, sooner than later.

Saket Kapoor — Kapoor & Company — Analyst

Thank you. That’s all from my side sir and all the best to the team sir for a good [Speech Overlap].

Sandeep Kumar — Managing Director

Thank you. Thank you, Saket.

Saket Kapoor — Kapoor & Company — Analyst

Thank you. Thank you Sahil bhai. For giving the opportunity. Thank you, Subhra da. Thank you.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

So I think that’s all for now. Thank you so much Sandeep sir and Subhra sir for elaborately answering all the questions. We will definitely improve on this video call experience in the next call. And would you like to give any closing comments sir, Sandeep sir or Subhra sir.

Sandeep Kumar — Managing Director

Yeah, I will like to just make a couple of points. So overall I think the investor community must understand, that let’s say if our profit was — this year was let’s say INR338 crores, INR339 crores whatever, and we have lost out let’s say about INR150 crores — and I’m comparing to FY ’21 on account of iron ore royalty. So our profits were let’s say closer to INR500 crores, if you had not taken that into account. So on a like-to-like basis, because I’m talking about a lot of improvement in the operational performance, but the results are not there. It’s only marginally up compared to last year. But we must see it in the proper perspective. So about INR150 crores if you add, we’re closer to INR500 crores, and also if the DIP old legacy contracts if we had — let’s say it had not happened, and let’s say as we go forward, things will get evened out, we are in a much better position in terms of profitability in the coming, I would say, years. So and this is considering the fact that the DIP 2, the expansion project, first phase is nearing completion, and therefore we would also have volumes coming in from there this year, and the DIP Phase 2 will get completed by — let’s say end of this year or early next year.

So we are then from a robustness point of view, financial health point of view, we are great. But in terms of profitability, I think there may be some disappointment. But I just wanted to clarify, it’s temporary and the future looks pretty good, to us at least, from a really resilient Tata Metaliks perspective. That’s all. Thank you, Sahil. Thank you for organizing. Thank you to everybody for taking the time off and asking us these questions. Thanks.

Sahil Sanghvi — Monarch Networth Capital Limited — Analyst

Yeah. On behalf of Monarch Networth, we thank all the participants. This concludes the call. Thank you, sir. Bye sir.

Sandeep Kumar — Managing Director

Bye, bye.