JSW Steel Ltd (JSWSTEEL) Q4 FY22 Earnings Concall Transcript

JSW Steel Ltd (NSE: JSWSTEEL) Q4 FY22 Earnings Concall dated May 27, 2022

Corporate Participants:

Ashwin Bajaj — Group Head of Investor Relations

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Jayant Acharya — Deputy Managing Director

Analysts:

Amit Dixit — Edelweiss — Analyst

Pinakin Parekh — JPMorgan — Analyst

Sumangal Nevatia — Kotak Securities — Analyst

Indrajit Agarwal — CLSA — Analyst

Alexandra S — William Blair — Analyst

Ritesh Shah — Investec — Analyst

Satyadeep Jain — Ambit Capital — Analyst

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Vikash Singh — PhillipCapital — Analyst

Amit Murarka — Axis Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY22 Earnings Conference Call of JSW Steel Limited. [Operator Instructions] I now hand the conference over to Mr. Ashwin Bajaj, Group Head of Investor Relations. Thank you, and over to you, sir.

Ashwin Bajaj — Group Head of Investor Relations

Thank you, operator, and a very good evening, ladies and gentlemen. This is Ashwin Bajaj and it’s my pleasure to welcome you to JSW Steel earnings call for Q4 and financial year 2022. We have with us today the management team represented by Seshagiri Rao, Joint MD and Group CFO; Mr. Jayant Acharya who with now Deputy Managing Director; and Mr. Rajeev Pai, CFO. We will start with opening remarks by Mr. Rao, and then open the floor for Q&A. With that overview, Mr. Rao?

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Good evening. We welcome you to the briefing of our Q4 FY22 [Indecipherable]. In the beginning the calendar year 2022 we expected stability and recovering in the business — supply chain deflation caused by the COVID and others. It was — this assumption was based on very strong recovery that has been seen in the year 2021, but unfortunately the conflict between two large commodity exporting countries, Russia, Ukraine and also the slowdown in the second-largest economy is China, both together really exposed several [Indecipherable] that took the commodity supply of the global manufacturing industry and it has created a huge amount of issuance. This was not anticipated. So in this situation as far as India is concerned, quarter-on-quarter steel consumption picked up and we have seen over 7% growth in India’s steel consumption.

In spite of all these issues arose due to the conflict between Russia and Ukraine, [Indecipherable] has performed quite well, its highest ever volume of production and sales. On a standalone basis, we could achieve 5 million tons, 5.01 million tons of production, crude steel production, which is 13% improved [Indecipherable]. And the sales results of [Indecipherable] 5.13 million tons, which is 31% growth. We could reduce our inventories by almost 3,86,000 tons in the last quarter. If I see year as a whole we have achieved 17.6 million tons of production, almost 95% of the growth — 95% of the guidance which we have given.

Similarly, sales side for FY22 we achieved 16.35 million tons, again 95% of our guidance. In the last quarter because of the drop in global Indian steel prices also there was volatility, overall we have seen in our blended realizations coming down by 3% quarter-on-quarter. But at the same time coking coal prices surged globally, which had an impact on our costs. The costs went up, so they went up quarter-on-quarter by 3%. So the impact of lower blended NSR and higher blended cost had an impact on the EBITDA per ton on a standalone basis. It came down by INR3,475 per ton. It was INR13,505 per ton. But at the same time as far as the domestic subsidiaries and global subsidiaries have done reasonably well. We have made an EBITDA of $39 million in our US plate and [Indecipherable] operation. We have reduced the losses in our Italian operations to EUR1 million in the last quarter. So with this the EBITDA on a consolidated basis, including Bhushan Power and Steel was INR9,184 crores.

What is notable here is that in spite of drop in EBITDA per ton, the volumes which we have achieved has made us to maintain our show 1% growth on a consolidated EBITDA to INR9,184 crores as against INR9,132 crores in the previous quarter. There was an exceptional item of INR741 crores. So we have made — we have impaired our investments in West Virginia coal mines. When we acquired this coal mines in the year 2008 and 2009, and thereafter our minimum commitment in each year we have agreed could not be done because of not enough resources in some years as there were some difficulties in some years. So there was a dispute which was going on. We lost in the arbitration. So, due to which we had to make provision for — towards impairment of these investments. Plus a small impairment in the assets in India, the Jharkhand state where we had made some investments. So total together is INR741 crores in the consolidated accounts where we have made the exceptional impairments here. So after adjusting this INR741 crores, the profit after tax was INR3,343 crores.

Even though EBITDA was higher sequentially, the profit after tax came down quarter-on-quarter, majorly due to this exceptional item which I just explained, plus commissioning our capitalization of the expansion at Dolvi. So incremental interest and depreciation has also come in, in this quarter. That’s why you find profit after tax was lower compared to previous quarter. What is also important here is that our net debt was brought down to INR56,723 crores. We’ve repaid INR9,589 crores in the last quarter. So, debt to EBITDA or debt to equity, everything has improved quite substantially relative to the previous quarter. Debt to EBITDA was 1.46 and debt to equity was 0.86.

Our weighted average cost of debt also has come down to 5.67%. The acceptances on revenue account has gone up to $2.1 billion because as you are aware, the coking coal prices have gone up. So due to which even though the volume of imports have not gone up in relative terms, the acceptances have gone up on revenue account, but the capital account we have brought down our acceptance further down. Outstanding was only $27 million as on March 31, ’22. The capital expenditure program which we had undertaken, many of the projects got commissioned, including 5 million ton at Dolvi. It ramped up quite well in the last quarter. What is yet to be commissioned, if we look at it, Vijayanagar of 5 million ton expansion, which is going on. Similarly, cocoa plant 3 million ton where it is in advanced stage of implementation.

In the downstream — in Tarapur and Kalmeshwar, excepting CAL and tin line, balance all is commissioned. Bhushan Power and Steel expansion to 3.5 million ton will get completed by September of this year and the 3.5 to 5 million ton expansion is also underway that will get completed by FY 2024. Capital expenditure in the current year will be INR18,000 crores, we’ll be spending on these projects in JSW Steel, another INR2,000 crores in Bhushan Power and Steel. So total together INR20,000 crores. Considering the excellent performance for the year as a whole where we have made highest ever net profit for the year of INR20,938 crores and an EBITDA of INR39,007 crores, in line with the dividend policy that has already been communicated within 15% to 20% of our consolidated net profit we will declare dividend. So this year the Board of Directors have recommended for the approval of the shareholders a dividend of INR17.35 per share of INR1 in JSW Steel.

Ispat Specialty Steel is acquired by the Steel in the year 2018 September along with a private equity investor. So as you have seen our track record, as and when we acquire any distressed asset in India we park it as a separate company until turnaround is complete. Then we’ll bring into the parent company. So the Board of JSW Specialty Steel, Ispat Specialty Steel and also its holding company, which is called [Indecipherable] Steel and JSW Board of Directors has approved a scheme of amalgamation through merger of these two companies into JSW. The appointed date is 1st of April 2022. The SAP ratio has already been communicated to the market. For every 21 shares of JSW Ispat Specialty Steel, including the conversion of outstanding compulsorily convertible preference shares, you will get one share of JSW Steel, it is 21:1. Similarly, the holding company when it gets merged, so every two shares they are at holding in [Indecipherable], those shareholders will get three shares in JSW Steel.

So these two together, the number of shares that would be issued after cancellation of the holding held by JSW Steel will be 2.8 crores. So that is approximately 1.15% dilution. The guidance for next year, that is this financial year FY23, so 25 million ton of total steel production, crude steel production, which is a 16% growth over the previous year. And the sales 24 million tons, which is a growth of 20% over previous year. This is what we would like to achieve in this year. Then the issue which is currently being debated is the position of export duty on export of steel from India. In our view, it is a very temporary measure. But if we see last precedence in the year 2008, Government of India in similar circumstances where inflation was also going up at that time, imposed export duty on steel. But it was different percentages based on grades of steel, higher the value addition, lower the export duty, 5% to 15%. But what was important is they withdrew the export duty within a month on flat steel products and for long products it was there for few months.

Seeing that precedent we expect we kind of measure which is taken to contain inflation which is good for everyone of us. Therefore, we feel it is temporary. It will get lifted soon after the things come under control. But at the same time if I look at Indian steel demand growth in the current financial year, we expect it would be in the range of around 7.5% on a base of 106 million tons. So there will be incremental demand of 8 million tons in India. And also there is an impact of close to 5 million tons imports into India is happening. Therefore, it is possible to sell in the domestic market to meet the incremental demand and also to substitute imports. These are the two things which we will continue to focus and at the same time, it is our duty to service our customers with whom we have long-term relationships globally where we have been exporting steel for over three decades. So we’ll continue to do that in spite of the duty that is prevalent today. So with these comments, I’ll stop here and any clarifications you need, we are all here to clarify. Thank you.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss. Please go ahead.

Amit Dixit — Edelweiss — Analyst

— very testing time. I have two questions, the first one is essentially on coking coal. So what was our coking coal cost in dollar terms in Q4 FY22 and what do you expect it to be in the current quarter.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Last time we told you that there will be a $50 increase in the coking coal for Q3 and Q4. So it was $52. Other cost was — C&F cost was 308. Then we expect this quarter, current quarter as coking coal prices really have gone to the roof globally, we expect maybe another $125 impact will come in this quarter.

Amit Dixit — Edelweiss — Analyst

Great. The second question is on your sales mix. So we bought 28% of export in this year. Now, what have you budgeted for FY23 and what would be the likely split between semis and finished products this year in FY23?

Jayant Acharya — Deputy Managing Director

So we continue to you know budget 15% to 20% of our sales as export on an average. Depending on the market situation it fluctuates. The last quarter, you would have seen the results, the exports are about 21%. Depending on market dynamics, we continue to be flexible to look at exports. But for the next year, I would say it will be around 15% to 20%.

Amit Dixit — Edelweiss — Analyst

And will it be both of semis because duties on semis are not there, or you will continue with the same product?

Jayant Acharya — Deputy Managing Director

It will be a mix of products which we usually do. I don’t think it is going to materially change the mix because today there is a duty and tomorrow there is not.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Our customers with whom we have long-term relationships because duty has come, we can’t say I’ll give semis. What will we have to do, we continue to service those customers notwithstanding that the duty is there.

Amit Dixit — Edelweiss — Analyst

Okay, thanks a lot, sir. And all the best.

Operator

Thank you. The next question is from the line of Pinakin from JPMorgan. Please go ahead.

Pinakin Parekh — JPMorgan — Analyst

Thank you very much. Just looking at the volume guidance for FY23, basically it implies was 19.7 million tons of sales, around 23.3 million tons, around 3.5 million tons more and given the export duty, if the export duty is not removed in the near term and export realizations are not remunerative, should we then expect this volume guidance to be at risk, especially given that the Indian demand growth has been lackluster so far?

Jayant Acharya — Deputy Managing Director

So we — if you really look at the Indian growth in the last quarter, it has been quite strong and I think the way the projects which have been announced in the infrastructure space by the government, the announcements are very encouraging. According to us the announcements will consume about 20 million tons of steel over 2.5 to 3 years. So on a ballpark basis the infrastructure projects should add incremental volume of 7 million tons. So that is one lever which the domestic market will see.

The second lever as Mr. Rao was also saying is that the imports which are coming into the country in the range of 5 million tons is something which can be replaced through the domestic sales. And the third lever is as we said, we will continue to look at our export volume in a measured way by servicing customers who have been doing for years. So I think with this mix we are reasonably confident that the measure which looks to be temporary to control inflation, we’ll be able to sail through the guidance which we have given for the year.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Over and above, I wanted to add, one side when we export there will be lower net sales realizations because of the duty implication. Cost side also you have to look at it. When iron ore duties were imposed on export, already NMDC reduced the price by INR7.20 to INR7.50 per ton. We expect some more reductions considering [Indecipherable] prices and also the quantum of export duty involved. Similarly, if we look at the 2.5% duty on coking coal being not there in future, so that also will give some benefit in the cost. Even though overall coking coal price is going up, as we are guiding at $125, if we take into account the benefit of cost that would come in, it will neutralize to some extent the higher duties we have to pay and also the cost reductions also to be taken into account.

Pinakin Parekh — JPMorgan — Analyst

Understood. That is very detailed. Sir, just now moving on to the question which is on everybody’s mind on steel prices. How have steel prices in flat product in India trended in the month of May pre and post the export duty? Basically how much are prices down from the peak prices that you had in the month of May? And in the near term, what kind of price decline does JSW foresee?

Jayant Acharya — Deputy Managing Director

So if you look back, actually internationally, the prices started softening from middle of April onwards. And we saw some kind of wait and watch in the international markets as well. So prices have corrected internationally. We see a reflection of that in the domestic market as well and the export duty announcement in addition to that is also causing some sentimental impact as well. So we do see the prices correcting. And I think it’s difficult to give a number at this stage, but we see that the numbers are falling from what we started the month with. We corrected in the beginning of the month, 1st of May versus April month price, we corrected our prices by about INR2,000 plus already. We expect maybe some larger correction to come in between now and the 1st of June.

Pinakin Parekh — JPMorgan — Analyst

Understood, sir. That is very helpful, thank you very much.

Operator

Thank you. The next question is from the line of Sumangal Nevatia from Kotak Securities, please go ahead.

Sumangal Nevatia — Kotak Securities — Analyst

Yes, thank you for the opportunity. Just continuing on the pricing question first, is it possible to share what was the April prices versus fourth quarter? And secondly, since the duty, are we — have you begun to pay export duty on our exports or is it on a prospective basis only? And lastly, what would be the difference in prices of export versus domestic prices at this moment?

Jayant Acharya — Deputy Managing Director

So first on the export duty, whatever vessels which are under shipment we would be paying the export duty and shipping it out, whatever is not customs cleared. Whatever was at the port, which was custom cleared would not need any export duty payment. Whatever we have to clear with the export duty payment we will be doing under protest because under clause 1.05 of the foreign trade policy in the past precedents is there that the LCs which had been issued and contracts valid, those will be allowed to be exempted. So that is the assumption based on which we would be paying under protest.

As far as the pricing goes, I think as I said the clarification from a pricing we have given is April to May. As I said, INR2,000 correction has already taken place. In long products, the collection was a little higher. And we would be adjusting the prices between now and 1st of June to reflect the correct market trend. But on an average basis, if you recall January prices were — December and January prices were quite low entering into quarter four. So if you take on an average quarter four and if you were to compare with an average of quarter one, I would still feel that we will be better in terms of price realizations explant vis-a-vis, quarter four. I won’t give the number at this time.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. That’s really very helpful. And sir, what would be the price difference on exports after paying export duty today versus domestic realization?

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Generally if you see, earlier when export prices were higher, domestic prices have not gone up to the extent of export realization. The point which I would like to highlight is that domestic prices are dependent upon the landed cost of imports. It doesn’t depend upon export price. So today if you look at the landed cost of imports at the prevailing global prices, the Indian steel prices are not at premium, they’re almost equally. Therefore, I think that is the right comparison we have to make than looking at export realization due to implication of 15% duty.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. All right. Sir, second question is on the cost front. Given the overall inflationary environment, apart from the raw material cost, is there any other costs which could hit us in terms of be it power, other expenses, number one? And number two, what could be the impact of this recent approval of exports from Karnataka and also our captive mine is ramping up. So if you could just share your — topic.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Yeah. As you are seeing that the Honorable Supreme Court has lifted the ban on export of both pellets and iron ore from Karnataka, but that is now ineffective because of this export duty, which has come in both on pellets and iron ore. As regards to ramping up our capacity is concerned from captive iron ore sources, yes, we are ramping up further. The plan for achieving the guidance of 25 million ton of production whatever iron ore that is required, 53% will be sourced from captive sources next year. So we are ramping up both in Karnataka and also in Orissa.

Sumangal Nevatia — Kotak Securities — Analyst

Understood. All right, sir. Thank you and all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Indrajit from CLSA. Please go ahead.

Indrajit Agarwal — CLSA — Analyst

Hi, good evening, sir. Thank you for the opportunity. I have a few questions. First, have the auto contracts for the April to September half year been finalized already or those are still under negotiations and how are the prices versus the last half year, that is second half FY22?

Jayant Acharya — Deputy Managing Director

We have finalized the auto contracts with some automakers. I think that the others are in discussion stage and would be concluded in the next few weeks.

Indrajit Agarwal — CLSA — Analyst

And how are the pricing versus what we had in the last half-year, like say 2H ’22?

Jayant Acharya — Deputy Managing Director

Yes, so we have concluded between INR11,500 to INR12,000 per ton with some of the measures.

Indrajit Agarwal — CLSA — Analyst

Sure. Thank you. Secondly, I wanted to understand the coal sourcing, have you been sourcing anything from Russia and what is the kind of mix, what is the kind of discount we are getting, if we are doing any coking coal sourcing from Russia?

Jayant Acharya — Deputy Managing Director

Russia, we have been sourcing certain coals in the past as well, prior to this Russia-Ukraine conflict. So we continue to do the coal sourcing which we’ve been doing in the past. We haven’t really gone up much beyond that as of now because changing the coal blend overnight is also difficult. The logistics challenge also in Russia, because of the shipment from Baltic or from Black Sea has also become more difficult. So even if you want to do more, it may not be immediately possible.

Indrajit Agarwal — CLSA — Analyst

Any price or cost advantage we are getting from the existing portion? Is there a discount between say Australia versus Russia or the discount has expanded versus what it was historically, any color you can give over there?

Jayant Acharya — Deputy Managing Director

Yeah, Russian coals are cheaper than the Australian coals today as we see the prices have gone down, where prices into China, which you would see have been lower post the sanctions, which have been imposed on them.

Indrajit Agarwal — CLSA — Analyst

Sure. Third, and last question from my side — just one small clarification.

Operator

Sorry, sir. But we have other participants waiting for their turn in the queue. Thank you. The next question is from the line of Alexandra S from William Blair. Please go ahead.

Alexandra S — William Blair — Analyst

Hi, thank you for taking my question. I was wondering if you can give an indication as to where are iron ore prices locally and also when we look at steel prices locally right now, but also in general is there a spread to China FOB prices, can you give an indication as to where local steel prices are now in India? Thank you.

Jayant Acharya — Deputy Managing Director

So local steel prices in India, I think the current market sentiments which are prevailing, it will not be right to give that number as a local steel price today because people are on a wait and watch mode. I would say that the prices which will be announced beginning of June will reflect the right numbers. Between — somewhere in the range of whatever is the imported landed prices today as a number I think is what we would be reflecting around our June price announcements, but we’ll wait for a few days to let the market cool down and then announce our prices.

Alexandra S — William Blair — Analyst

Okay, thank you. And for iron ore?

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

For iron ore today the NMDC has reduced the prices in the last few days by INR750 [Indecipherable]. So we expect some more correction that could happen even in the normal course notwithstanding the current imposition of duty, but that demand for iron ore from China is reducing. So that’s the reason why the domestic prices are correcting. So we expect more correction in the prices in the days to come.

Alexandra S — William Blair — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Ritesh Shah from Investec. Please go ahead.

Ritesh Shah — Investec — Analyst

Hi, sir. Thanks for the opportunity, two questions. So first one is in the prior quarter we had a provisioning of INR1,050 crores. This was pertaining to IBM notified prices. And if I remember it right, we had provisioned till the month of March. I just wanted to have an update on the legal side and the financial impact on the numbers for the quarter and how should one look at this relatively going forward. That’s the first question.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

As mentioned last time, we have filed a case in the High Court of Orissa. Out of the three issues which we raised, two in our favor and one which lost, so what was in our favor was whether High Court of Orissa had the jurisdiction to decide that in our favor they have the jurisdiction. The second was when the [Indecipherable] was issued to JSW, when we clarified by way of a letter, before that letter even examined, they revised the price, IBM price. So natural justice was not given to us. Therefore, our reply was pretty examined afresh. That also has come in our favor, saying that IBM should look at that.

But the third whether IBM arbitrarily can decide the price or not without considering the bonafide sale made by JSW Steel, that has gone against us saying IBM has the right to decide the price. So now we have 90 days time to go for an appeal to the Supreme Court. So, we have time up to latter part of June. So we are examining to file an appeal in the Supreme Court in this regard. In the meantime, as far as the accounts are concerned, the case of deciding the IBM price is in the favor of IBM. We have made provisions fully even in this quarter.

Ritesh Shah — Investec — Analyst

Sir, would it be possible for you to quantify it, given it will give us a better sense of actual EBITDA per ton?

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Last quarter already we have given that number, over INR1,000 crores. So, in fact the IBM price in this quarter was higher than the previous quarter. So it is in the similar range, again, as far as the total quantum of the impact in this quarter.

Ritesh Shah — Investec — Analyst

Sure. Sir, my second question is for Jayant sir, you indicated INR11,500 to INR12,000 per ton lower pricing in the Q auto majors. I just wanted to understand the rationale behind the price decline, the underlying variable if you could provide some color over there, that would be [Indecipherable]. Thank you so much.

Jayant Acharya — Deputy Managing Director

Ritesh, sorry if I was not clear, this is the — we were negotiating for a price increase with the auto majors since they had a fixed contract till March. So the discussion was for the correction starting 1st April. So what we are discussing is the correction positive increase between INR11,500 to INR12,000. But let me also quantify that these are few which we have done now. The others are still under discussion.

Ritesh Shah — Investec — Analyst

We are looking at an increase of INR11,500 to INR12,000. That’s right?

Jayant Acharya — Deputy Managing Director

Yes. So there is a formula which works for the prices, how they have moved over the past period and that gets reflected in the pricing for the next half or the next quarter.

Ritesh Shah — Investec — Analyst

Okay. This is quite helpful. Thank you so much.

Operator

Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead.

Satyadeep Jain — Ambit Capital — Analyst

Hi, thank you. A couple of questions. Thank you for the historical context, going back to 2008. If I understand correctly at that time after the export duty was levied, both Tata Steel and JSW, steel makers in general agreed to lower the prices by 10% or INR4,000 per ton at that time and agreed to keep that prices similar. And then the entire GST happened, anyway prices started collapsing. If we look at the historical context and where we are, obviously government is also looking at some kind of direction or some kind of statement of intent on lowering prices, can the cost structure is different, is pointing to higher coking coal costs also offset partly by lower iron ore prices. Can we, looking at the historical context, what are the similarities and what could be somewhat different compared to what we saw in 2008. That’s the first question.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

So as far as similarities are concerned, one major similarities is temporary. At that time those withdrawn, even this time it will be withdrawn. Number two is whether steel companies reduce the prices in the domestic market because it was — there was a duty, export duty. To that point, I wanted to clarify once again that the domestic prices are based on landed cost of imports. Export prices are concerned, the realizations are concerned, sometimes export prices were higher than the domestic prices which was there for the last two years, sometimes export prices could be lower than domestic price.

So this is no relationship between the two, but the demand-supply dynamics will definitely play a role as far as the domestic prices are concerned. So we have to wait and watch how it will shape. 18.4 million tons of exports last year, which was done from India. If we just annualize how much exports can continue to be there in this year in spite of 15% duty, but also I think we have to wait and watch how it will shape up. But as on date the only thing which we can clarify is that the domestic prices majorly dependent on landed cost of imports. If international prices get corrected, domestic prices also will get corrected.

Satyadeep Jain — Ambit Capital — Analyst

Okay. Just to follow-up on that one would be, if, let’s say, the export duty is not lifted in the next few months, you are looking at a large capex in this year, at least in next year. Is there a possibility of repaying or recalibration of the capex just in case the market globally remain somewhat soft and the export taxes.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

As far as the capital expenditure program is concerned, whatever we have already undertaken, it is in advanced stage of implementation, like 5 million ton expansion at Vijayanagar or the cocoa plants or the downstream units. They are the projects which we have taken up earlier and they are under implementation and orders have already been placed and LCs are opened. I don’t think there’s any scope for revenue as far these projects are concerned. Then if the export duties continue to remain for a very, very long time, then we have to look at in future what we would like to do. And at the same time, it is definitely a loss for India to leverage the opportunity that is available right now to increase our exports from India and also to meet our domestic demand and creating capacities in India.

Satyadeep Jain — Ambit Capital — Analyst

Okay, thank you so much.

Operator

Thank you. The next question is from the line of Vishal Chandak from Motilal Oswal Financial Services. Please go ahead.

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Yes, thank you very much for the opportunity. Sir, my question was with regards to the export duty. Generally what we have seen is whenever such a move is taken by the government, there is a process of consultation either formal or informal. So was there any kind of an indication from the government on reduction of prices or in terms of providing some sort of an incentive to any of the sector consumption over there or it just came in without arbitrarily without any information, without any consultation?

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

No, there is no consultation as far as industry is concerned. I don’t think on export duties or import duty reductions, they will consult the industry. They will take the feedback from time to time about what is happening. The major driver for this decision is the very high inflation in India. So we all want inflation to be reduced in India. Therefore, whatever steps that are taken we support those steps. But in our view, it is quite temporary and transitory.

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Okay. Sir, just lastly one more point. After the announcement of this export duty, the trade market and the trade market, the prices have corrected very sharply. The indication that we understand is that the correction could be in the range of INR6,000 to INR7,000 crores and in some cases — INR6,000 to INR7,000 per ton and in some cases even higher. So in that scenario would the prices of steel mills actually adjust to the trade levels or it would be still higher inventory levels. How do you look at the scenario?

Jayant Acharya — Deputy Managing Director

Vishal, we will have to — that’s why I said that we’ll have to wait a little bit for the market reaction to cool down because I think the — right now the numbers which are floating around in the market may not be reflective of the real price. We should allow some time for the market to settle down, understand the scenario and then take a view. So I think it would not be right to estimate a price of how much it will go down by. There will be some correction, that is no doubt about that. But the amount I think we would like to wait for a week and just see how it goes and then announce the price.

Vishal Chandak — Motilal Oswal Financial Services — Analyst

Sure. Thank you.

Operator

Thank you. The next question is from the line of Vikash Singh from PhillipCapital. Please go ahead.

Vikash Singh — PhillipCapital — Analyst

Good evening, sir.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Good morning.

Vikash Singh — PhillipCapital — Analyst

Yeah. Sir, I just wanted to understand are EC limit for all of the mines are much higher, but we are still guiding for 53%, 54% of the capital consumption. So just wanted to understand, are there any constraints or the outside prices are — still look rapid that we don’t want to use our own resources.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

If you look at total production of 24 million, 25 million ton, the kind of iron ore will be 50 million tons. If we did 50 million tons and we say it is 53%, that means we are using full capacity of our captive mines.

Vikash Singh — PhillipCapital — Analyst

Okay, sir. Because I saw in your presentation only from that, that the total EC limit is 45 million ton, all mines combined. So it is lower 25 million tons you are saying now.

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

No, at Karnataka we have only 7 million tons of capital, it doesn’t make sense to bring all the iron ore that is required for Karnataka from Orissa. So therefore Karnataka will always get iron ore from captive and also buy in the local market in Karnataka. As far as Orissa is concerned, if you look at plant wise, as I mentioned in earlier calls, if it is Dolvi the captive is much more percentage. Similarly the Salem. Client wise, it’s higher but average basis if you look at, the percentage is 53%.

Vikash Singh — PhillipCapital — Analyst

Understood, sir. Sir, my second question is if we are talking about export parity prices but the government still one bullet which is to 7.5% import duty. So should we take this into account that in case if the domestic price doesn’t come down significantly, then probably that will be removed and we’ll be forced to sell at the [Indecipherable] prices which could be 7%, 8% more?

Seshagiri Rao — Joint Managing Director and Group Chief Financial Officer

Even today when we say imports into India are 5 million ton, 70% of this steel is at zero percent duty only. That is coming from FTA countries. Even the balance 30%, if somebody analyzes, they are coming under advanced cycles. There also duty is not there. So, therefore, a significant portion of the imports today are at zero percent duty. So therefore the 7.5% duty, which you’re talking about is ineffective.

Operator

Thank you. The next question is from the line of Amit Murarka from Axis Capital. Please go ahead.

Amit Murarka — Axis Capital — Analyst

Yeah, hi, good evening. First question is on the export duty exemption for semi. So I just wanted to understand like, is this intentionally exempted or is it more like a temporary oversight and this could be kind of included into the duty structure as well soon enough. How do we think about it?

Jayant Acharya — Deputy Managing Director

We will check with the government, but I think the semis if you look at world over, usually import barriers are not put and for that matter export barriers reflective of that is not put. So that is the way we see it today.

Amit Murarka — Axis Capital — Analyst

Okay, understood. And just on the auto contracts like while I understand some of them have been concluded, but just going ahead I was just thinking like given that export prices are going to be much lower, let’s say net realization will be much lower. Could there be more aggressive bargaining by the auto guys who would actually have a better bargaining power in this situation now to take, let’s say prices closer to export parity than to import parity, just for the auto contracts [Technical Issues].