Tata Metaliks Ltd. (TATAMETALI) Q1 FY23 Earnings Concall Transcript

Tata Metaliks Ltd. (NSE: TATAMETALI) Q1 FY23 Earnings Conference Call dated Jul. 14, 2022

Corporate Participants:

Sandeep Kumar — Managing Director

Analysts:

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Rohan — — Analyst

Saket Kapoor — Kapoor & Company — Analyst

Vikash Singh — PhillipCapital India Pvt. Ltd. — Analyst

Aashay Patel — — Analyst

Abhishek Ghosh — — Analyst

Manish Goyal — — Analyst

Deepayan Ghosh — ICRA — Analyst

Falguni Dutta — Jet Age Securities — Analyst

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Sanjay Mallik — — Analyst

Presentation:

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Good evening, everyone, and welcome to the Tata Metaliks Q1 FY ’23 Earnings Conference Call hosted by Monarch Networth Capital. Just a reminder that all participant lines are in listen-only mode right now and muted and request you to keep on mute for a proper conference call to happen. After the initial remarks from MD sir and CFO sir, we’ll open the floor for questions. And the manner we’ll follow is that, you shall have to raise your hand, and I will unmute you and you can go ahead and ask the question. I request you to limit the question to three so that everyone gets a chance.

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

Sandeep Kumar — Managing Director

Yeah, hi. Good evening, everybody. Can you guys hear me clearly?

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Yes, sir.

Sandeep Kumar — Managing Director

Okay. So, Sahil, we will start. I think I’ll keep my statement brief. If you have read the press release, I think it captures the Q1 performance very succinctly. But just for the benefit of those who might not have read, I’ll just briefly talk about it. Quarter one performance has been terrible in one sentence. Even though the revenues have been up by about 11% compared to, let’s say, year-on-year quarter one of FY ’22, but sales volumes have dipped by 24% in case of pig iron and about 8% in the case of ductile iron pipes. The profit before tax has come down from INR134 crores in Q1 FY ’22 to just over INR1 crore, INR1.73 crores to be precise. Now, the question is, why this terrible performance, and we will explain that, and we will also like to give you the confidence that this is a one-off quarter. We have actually — the three major factors for this terrible performance: one is on the account of government, which is outside our scope; second is market; and third is operational. So all these factors have conspired in a sense to work against us.

So let me start with government. As you all know, Government of India imposed an export duty of 15% on pig iron and other steel products on 22nd of May. So 15% export duty on the price of pig iron which was running between INR60,000 and INR65,000 per ton meant almost INR10,000 of immediate drop. And pig iron is a daily market. It’s a daily market, it’s a weekly market, so almost INR10,000 of realizations down, which if I multiply with the volumes between 22nd, 23rd of May and end of June, we lost almost INR40 crores in EBITDA over that period. So that was one.

Secondly, if we look at the spreads, the spreads of pig iron that is between the prices of pig iron and coke, which typically in the past — last five years have averaged at the level of, let’s say, about INR5,000, INR6,000 per ton, actually became negative or breakeven and actually negative. And this was the lowest ever spread in the last 10 years. Why? Because coke prices — coal and coke prices went through the roof. There is still no explanation — very clear and cogent explanation to why the coal prices went up by so much. Just to give you some figures, in the month of March, the coal prices — that is March this year, the coal prices touched a high of $670 FOB from Australia. And if you look at the prices a year back, that’s in quarter four of FY ’22, let’s say, January to March last year, the prices were at about $100, $100 to $110. So it’s a 6 times to 7 times multiple jump in prices over the last one year. And that really, in a sense, crushed us. This kind of a movement in raw material prices have never happened. This was the highest ever and the spreads were the lowest ever. So that was the second factor.

The third factor was the operational. We took shutdown of both the blast furnaces and the ductile iron pipe, all of this in one quarter. Normally, we phase it out so that the impact averages out. Unfortunately, we put all of them together, and there were reasons for that. One of the furnace was not operating at its most efficient manner, so we thought it’s better to take the shutdown and repair the refractories now. And in any case, once a year we have to do it. And therefore, that impact was also significant, both in terms of volume, the shutdown costs, and of course, fuel rate. So all of this has actually hit our bottom line tremendously, and that is why this performance.

Now, if I look at how is Q2? Well, the pig iron prices have stabilized. In fact, they are looking up now. The coal prices have dropped. Let’s say, if you take the figure of May, in the month of May, the coal prices — average price was $508 plus average of prime hard coking coal. That’s now come down to almost $275 in the first 15 days or first 14 days of July, the average of July. The spot price is actually $240. So within two months or within one and half months, the prices have actually halved. Therefore, the coke prices are accordingly coming down and have come down. So what does it mean in terms of spread? The spreads from negative have now moved to positive territory. So, therefore, this is looking good, positive now, still not recovered to the same level of INR5,000 to INR6,000, but coming close to it. So that’s the positive.

Ductile iron pipe business, coming to that, it’s been a weak quarter. Why? Firstly, because the prices have been so volatile, the buyers have been holding on. They have not been picking up because in anticipation of price drops, they have just held on to the orders. So they were releasing orders on a monthly basis rather than on a yearly basis or on a six-monthly or nine-monthly basis. But with prices stabilizing, I think order release will also begin to happen. On a positive note, the Government of India’s investments on Jal Jeevan Mission, which is the flagship project of the Jal Shakti Ministry of Government of India, is now estimated to be over INR1,25,000 crores in FY ’23 from the central government alone. There is an equal participation of 40% to 50% from the state as well. So we’re looking at INR2-lakh-plus crore of investment, which is likely. In reality, this may be much lower.

Just to give you a sense, in FY ’22, that is last year, total investment by the central government was only about INR20,000 crores under Jal Jeevan Mission. As against INR20,000, the announcement or the budget total, including unspent amount is now INR1,20,000 crores. Overall, it gives a positive impact. There are some other numbers on DI pipes orders. The visibility of DI pipe orders on projects together is roughly about 5 million to 6 million tons. The installed capacity is, let’s say, 2.6 million tons, so we are looking at order visibility or project visibility of two, two and a half years. This is tremendous, considering today’s industry order load of hardly about seven months.

I’ll close at this and start on with the question-answers. Sahil, so I’m through with my opening statement, which is pretty long, but I thought it’s important to explain. Thank you.

Questions and Answers:

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Thank you. Thank you, Sandeep sir. So, we’ll just wait for a couple minutes for the questions to come [Phonetic].

Yeah. Rohan [Phonetic], you have raised your hand. Please unmute yourself and ask your question.

Rohan — — Analyst

Sure. Thank you, Sahil. Am I audible?

Sandeep Kumar — Managing Director

Yeah, yeah.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Yes.

Sandeep Kumar — Managing Director

Very much.

Rohan — — Analyst

Good afternoon, Sahil, Sandeep sir. Good afternoon.

Sandeep Kumar — Managing Director

Good afternoon.

Rohan — — Analyst

I just wanted to understand that bulk of the impact in the cost which we have seen is from the coking coal side. So how are we managing that? Because in the note also it was written that our coke costs have gone up by 15%. So are we doing any change in our strategy in procurement of coking coal? Or — and what is our current inventory? At what quotation period or what blend cost it is?

Sandeep Kumar — Managing Director

You’re talking about coke costs?

Rohan — — Analyst

Yes. Coke or coking coal. Do you procure coke or coking coal, sir?

Sandeep Kumar — Managing Director

Yeah, we do both. Actually, we have our own coke ovens. That serves about 80% of the total coke consumption. So about 20% we buy from the market, 15% to 20%.

Rohan — — Analyst

Okay. Understood, sir. And how are we placed in the price terms, sir? What is our blended coal cost [indecipherable], inventory I’m asking here?

Sandeep Kumar — Managing Director

Yeah. So while I’ll give Subhra to answer in detail. But just to give you a sense, the coke prices, which were ruling at almost close to INR60,000 or above INR60,000 per ton, let’s say, a month or two months back, have now come to slightly above INR40,000. So we’re already down by 50%, okay? But the impact of that will start getting visible in our stocks only, let’s say, from the second half of July or August, okay? So the cost is already down, number one.

Number two is, since 80% of our coke is in-house, which means we import coal for that, we have fortunately not bought coal at high prices, too much of coal. So we’ve actually held onto very minimal inventory in the last few months. Therefore, the impact of the high-cost inventory on our, let’s say, overall cost will be much limited, I would say.

But I’ll give it to Subhra, our CFO, who will respond to that in more details.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Yeah. So, Sandeep sir has answered. So your first question was the inventory level, where we are — in the normal circumstances inventory level is at three months to four months. But as we have bought less in the last four, five months and we continue to buy less, we are having an inventory level of one or one and a half month [Phonetic]. So fortunately, we’ll be able to take the benefit of the lower price faster.

Your second part of the question was that what about the strategy. Now on the strategies, earlier also we had talked that the coal cost is one of the major cost in our cost structure, and one of the ways we can keep our margin intact is to have some creativity about the coal. So we are seriously now working on the hedging of coal based on the firm order of the DIP because the DIP order book is normally eight to 10 months, as the coal is averaging two to three months. So to match both the asset and liability, we’ll try to do some [indecipherable].

Rohan — — Analyst

So, Subhra sir, just to — if I’m understanding it correctly, you are saying that whenever we’ll book long-term like at six to 10 months DIP contract, we will correspondingly buy coal for that contract. So based on spot price for that particular order.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Yeah. You are partly correct, because the cooking coal market is not that liquid. It is illiquid market. So we may not be able to do nine months kind of long position on the coal. But presently, our normal inventory is three months, we will try to do three plus three, at least six months is the way that we should be doing.

Rohan — — Analyst

Right, sir, right. Understood, Subhra sir. And in one of the earlier conference calls, this was mentioned that Tata Metaliks does some coking coal hedging. Is this the hedging you were talking about, sir?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Yeah, we were talking about this.

Sandeep Kumar — Managing Director

So, Rohan, just to comment here, two points what Subhra was saying. One is, of course, the hedging of coal. So that’s one. Secondly, what you do is, you tend to order more coal, which we had done last year actually. We ordered for almost six months. So there is a working capital cost, but then you hedge up. So especially when you’re buying at $100 and the prices move up, that helps. But, of course, you need to take those calls. Second one is the hedging on the exchange, let’s say, Singapore Commodity Exchange.

And number three is which the Ministry has now introduced in a much wider way is the WPI of pig iron. So the DI pipe prices are being linked to WPI of pig iron. It was always linked, but very few state governments were actually including that in the contracts. Now, the Central Government, Jal Shakti Ministry has had a couple of meetings with us in the last two, three months, and there is an agreement that we should link it up, because what is happening is that the contractors — EPC contractors also can’t handle such a massive increase in prices. So with the result, the DI pipe projects were getting delayed. And that is also the reason why only INR20,000 crore got spent last year. But as this thing, WPI of pig iron gets adjusted to the DI pipe prices, it, to some extent, cushions the cost impact. Okay? So that’s the — so those are the three ways.

Rohan — — Analyst

Understood, Sandeep sir. So we are saying we will be doing hedging in all the three ways. On exchange also we will be doing, apart from the…

Sandeep Kumar — Managing Director

Yeah, correct. The third way will be common for everybody, so it’s not only for us. But that’s also getting operationalized now in a much wider — larger way. That’s at least the intent of the Central Government, and that’s the advisory that’s going to the states.

Rohan — — Analyst

Understood, Sandeep sir. Thank you, Sandeep sir, Subhra sir. Thank you, Sahil, for the opportunity.

Sandeep Kumar — Managing Director

Thank you.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Mr. Saket Kapoor, you may go ahead and ask the questions.

Saket Kapoor — Kapoor & Company — Analyst

[Foreign Speech] Good afternoon.

Sandeep Kumar — Managing Director

Good afternoon, Saket.

Saket Kapoor — Kapoor & Company — Analyst

Sir, coming to where you just were explaining to us, sir, about this WIP of pig iron prices if you could elaborate the abbreviation WIP stands for?

Sandeep Kumar — Managing Director

No, no, WPI.

Saket Kapoor — Kapoor & Company — Analyst

The inflation index you are speaking?

Sandeep Kumar — Managing Director

Yeah, yeah. Wholesale Price Index of pig iron is declared by the government every year — every month, so just like the other WPIs. So…

Saket Kapoor — Kapoor & Company — Analyst

Okay. So it will be indexed to that.

Sandeep Kumar — Managing Director

Yeah, yeah. It will be indexed to that.

Saket Kapoor — Kapoor & Company — Analyst

Okay. So, sir, have we seen this implementation or only the circular is there? Taking into account the order booking, have that been implemented into it, enforced also?

Sandeep Kumar — Managing Director

No. So some state governments were already implementing it — had already implemented it, so now the Central Government has realized that its projects are not moving, and one of the main reasons is the volatility in prices. So they constituted a committee, and in that committee we had also sent our recommendations and we had interacted with them. So that committee has concluded that WPI needs to be included in every contract and that advisory is going to the state governments or it has gone, whatever. So I’m saying, going forward, that will get taken care of to some extent, okay? Not fully, but to some extent.

Saket Kapoor — Kapoor & Company — Analyst

May I continue, Sahil ji? Hello?

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Yes, yes. Please, please. There was some disturbance from your side, so that’s why I muted you. Yeah.

Saket Kapoor — Kapoor & Company — Analyst

[Foreign Speech]

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Go ahead. Go ahead.

Saket Kapoor — Kapoor & Company — Analyst

Yeah. Sir, about this inventory part, sir, if you could explain this INR73 crores of inventory, Subhra sir, which we are seeing in the — for this quarter?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Saket, you’re talking about the change in inventory in the P&L?

Saket Kapoor — Kapoor & Company — Analyst

Yeah. Change in inventory.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Yeah. So there are two reasons. If you see that through March ’22 our both PI and DIP inventory was all-time low. Maybe one is below 1,000 and second one is below 2,000. Both has gone up. PI is more intentional. As the price was in a free fall mode, we have intentionally kept — we have not sold and kept inventory. And as MD sir was saying that in the month of July there is a upside on that inventory what we have hold.

In DIP, normal inventory is 5,000, 6,000, but March was very abysmally low, but also as the end of the June, there was a lot of issues on the sites and to some extent with the customers. Maybe 2,000, 3,000 more we could have sold, but doesn’t matter. We will be able to make it up in the Q. So pig iron is intentional. DIP is okay type. Is it clear?

Saket Kapoor — Kapoor & Company — Analyst

So this one will get evened out in this quarter only, sir?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Yeah, definitely.

Sandeep Kumar — Managing Director

So, Saket, I think the way to understand is that the inventory of finished goods has gone up in this quarter compared to previous quarter. But that is natural. In March end, you will always find we try — because it’s the year end, we make all the efforts because the projects also need to complete in terms of their financial capital. So everybody wants to buy up and use up that capital. So usually, the inventory is one of the lowest. And this year, in particular, that is FY ’22 March, we have one of the lowest-ever inventory in the recent past. So from a very low base, in quarter one it has gone up, which is nominal. I think it hasn’t gone up so significantly, but because the prices have also — had also moved up, pig iron and DI pipes, therefore, the value of inventory looks much higher.

Saket Kapoor — Kapoor & Company — Analyst

Correct, sir. Sir, we spoke about this plant shutdown and also the performance of the blast furnace not at optimum level. So today where are we in terms of optimum production? And also, how are the blast furnaces refurbished and how are they performing?

Sandeep Kumar — Managing Director

Yeah. So both the blast furnaces we took shutdowns, the annual maintenance shutdown, typically, it is for refractory repair and it’s once in a year that we do. So one of the furnaces was having operational issues, and so we thought we rather combine it with the shutdown instead of doing it later. And that is what happened in April and May, but it took a lot of time to do that because to order the equipment, the contractor, all of that takes time. So that is why I explained to you the poor performance is also on account of that. Now, June onwards, especially second half of June onwards, the furnaces are performing well, and they are in a same way as what they used to do, let’s say, six months back or whatever or, let’s say, what they did in the month of March. So we are now back to the normal levels. And I hope that quarter two will be much, much better from an operational perspective as well.

Saket Kapoor — Kapoor & Company — Analyst

Sir, on the pig iron front, you quantify that INR40 crores was the EBITDA loss we incurred, if I’m correct, sir, for the June quarter. For this shutdown and the upkeep and the additional cost, can you quantify on an — ballpark number what has been the hit for us on account of this maintenance and shutdown?

Sandeep Kumar — Managing Director

So on account of the export duty and on account of shutdowns, the total impact on EBITDA would be anywhere between INR70 crores, INR75 crores.

Saket Kapoor — Kapoor & Company — Analyst

Sir, you articulated about these for four factors, I think so, which you explained earlier. So out of those factors, just putting aside this export tax part issue, which is also on the relook if you take into account the current steel prices. So, how are the other factors currently aligned for our business, if you could give some further understanding? And also on the order booking currently and how are the DIP prices currently, in what vicinity, sir, if you could answer?

Sandeep Kumar — Managing Director

Yeah. So I mentioned about three factors, export duty, and I said INR40 crores on account of that. Then I said there was spreads which have been negative. Now, I don’t want to account any factor because spreads keep varying and that’s a market-related thing. The third one was operational, which is maintenance shutdowns and we lost because of the operational issues. So I said number one and number three together was about, let’s say, INR70 crores, INR75 crores. So if INR40 crores is on account of first factor, the second factor is roughly about INR30 crores, INR35 crores, okay? So does that explain? So that’s the first question.

As far as DI pipe order book is concerned, we have roughly about seven months of order books and the DI pipe prices they have — from a level of, let’s say, INR50,000 per ton a year, year and a half back, they have moved up to INR80,000, INR85,000 in the month of June. And now with the softening of raw materials, they have come down by almost 10%, let’s say, in the last two to three weeks. So, obviously, the drop in DI pipe or the increase in DI pipe is much slower because pig iron moved up, let’s say, from INR30,000 to INR60,000, INR65,000, but DI pipes moved up from INR50,000 to, say, INR80,000 or INR85,000. And the increase also was not so much, similarly the drop also is unlikely to be so much. In any case, the order books for next to six to seven months we already have, and with the greatly increased demand, if the government outlay of FY ’23 actually plays out, then we’ll keep the prices at a reasonably high level. May not be at the same level, but — at the current level, but at a reasonably high level. So to me, the H2 of this year is going to be crucial, and they are going to be much, much better than what we would have seen in the recent past.

Saket Kapoor — Kapoor & Company — Analyst

Right, sir. Sir, I’ll come in the queue for the follow-up.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Saket, I would request you to come in queue, please.

Saket Kapoor — Kapoor & Company — Analyst

Yeah. Definitely, Sahil ji. Thank you for this opportunity. I’ll come in the queue.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Mr. Faruk Jain [Phonetic], you may unmute yourself and ask your question. Mr. Faruk Jain [Phonetic], you may unmute yourself and ask your question.

We’ll –. Yeah. We’ll take –. Mr. Vikash Singh, you may unmute yourself and ask your question.

Vikash Singh — PhillipCapital India Pvt. Ltd. — Analyst

Good evening, sir. Thank you for the opportunity.

Sandeep Kumar — Managing Director

Good evening, Vikash.

Vikash Singh — PhillipCapital India Pvt. Ltd. — Analyst

Sir, I just want to understand, you talked about INR2,00,000 crore-plus kind of the investment from the government, but you also said that the realistic assumption is lower. So can I have the — what is Tata Metaliks’ realistic assumptions in terms of the government investment in the sector?

Sandeep Kumar — Managing Director

So, to give you a sense, last year the government spent, let’s say — the Central Government spent, let’s say, about INR20,000 crores on JJM, Jal Jeevan Mission. There is an equal amount from the state government which is expected to have come in. So, let’s just assume the Central Government investment. Now, Central Government allocation for this year, including the unspent amount of last year and the unallocated budget of last year together comes to about INR1,25,000 crores to INR1,30,000 crores. Out of which, if we assume that only 30% gets spent, I don’t know how much will get spent, but let’s say 30%, my own sense is maybe 30%, that would take the figure to about INR35,000 crores to INR40,000 crores, which is almost double of last year. But you can imagine that I’m hazarding a guess. The government expenditure will depend on various factors, including their own actual liquidity and their own cash flows.

But so far, the tax receipts have been robust, and there is a lot of pressure from the — I understand from Prime Minister’s Office on the Jal Shakti Ministry to complete the mission by — in the next two years. In my opinion, that’s just not possible, so it will go on. But my sense is that, it will go on till 2030, okay? Maybe 70%, 80% will get completed by 2027, but — in the next five years. But because of that we can see that the movement and pressure from the Jal Shakti Ministry on the players to supply material, there have been a number of meetings and interactions. I’ve had a meeting with the Secretary, Jal Shakti, on various issues, and I understand what their mind is. So they are very sincere about it, and they are pushing a lot, but how much of it will actually come through is a little difficult to say. I’m guessing maybe 30%.

Vikash Singh — PhillipCapital India Pvt. Ltd. — Analyst

Understood, sir. Sir, given the — if industry push best kind of the production and volume, so what kind of the basically portion or the volume together industry can execute in an year’s time, if everybody tried to push for 100% of the production? So I just wanted to get the maximum whatever the government desires, but there is a limit to industry in order to fulfill those desires. So what is the maximum industry can push in terms of volumes?

Sandeep Kumar — Managing Director

So the industry capacity is roughly about 2.6 million tons. There are some expansions happening and new ones coming like Welspun. Then our — Tata Metaliks expansion is going on, okay? So, let’s say, the capacity goes up to 3 million tons. Typically, the operating capacity is at about 80%. So, let’s say, 2.4 million tons. So if we have 2.4 million tons and if the total visibility of projects and actual orders, and I can give you some breakup of that later is coming to almost about 6 million tons. So I can see that for the next two, two and a half years, there is a clarity in terms of how much orders have either come in or will come in because the industry can only do, let’s say, 2.5 million tons.

Vikash Singh — PhillipCapital India Pvt. Ltd. — Analyst

Understood, sir. Yes, yes, sir. Sir, just one last question in terms of our capex. So can you just tell us where we are, how much we have spent, and by when our first batch of 1 lakh ton for DI pipe would come in?

Sandeep Kumar — Managing Director

So capex, our — typically, we are now spending INR250 crores to INR300 crores per annum on capex. Right, Subhra?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Yeah.

Sandeep Kumar — Managing Director

Yeah. Roughly, that is the expense, okay? And this year will be on similar lines.

Our — as far as the DI pipe new capacity is concerned, the new line, the Phase 1 has been commissioned, okay, more or less, and — because there are different machines and different lines. So there are some teething issues which are being sorted out, but production has already started. And we normally take about three months for everything to be stabilized. So from H2, the main production will come out, although production has already started, even last month there has been some production, July this month will be better. And obviously, as we go, we’ll start running three shifts, let’s say, from second half of this month. So I think we are on track. There have been delays on account of machinery coming in from China and also the technical engineers not being able to come. So I think I had mentioned that using digital technologies like augmented reality, we have been able to commission the plant. But obviously, that is slower than doing it in a physical way. So it has taken time, but the production has already started, and we should see additional volumes coming in particularly in H2 from the new plant.

Vikash Singh — PhillipCapital India Pvt. Ltd. — Analyst

Understood. And matching blast furnace capacity has also been increased?

Sandeep Kumar — Managing Director

Yeah. So blast furnace already has excess capacity, but we had also debottlenecked — rather there was a project to debottleneck it to increase the capacity. So roughly you can assume that a capacity of 6 lakh tons of blast furnace is there after this debottlenecking. This can go up a little bit. So, let’s say, it was 5 we produced — I think the highest we produced was 5.65 lakh tons, right? So from 5.65 lakh tons, we can go up to 6 lakh tons easily. But that would happen maybe — may not happen this year, may happen next year, 6 lakh tons. So we will tell you, because there are various things on the anvil. So capacity wise, we are good enough.

As far as DI pipes is concerned, the capacity of the plant — existing plant is 2.5 lakh tons and the new capacity is another 2 lakh tons, or 2 lakh tons, 2.5 lakh tons. So we’ll still be at 4.5 lakh tons to 5 lakh tons, so there will still be a surplus of 1 lakh tons to 1.5 lakh tons minimum on the hot metal side.

Vikash Singh — PhillipCapital India Pvt. Ltd. — Analyst

Understood, sir. Understood. Thank you for taking my question and all the best.

Sandeep Kumar — Managing Director

Thank you.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Mr. Aashay Patel [Phonetic], you can unmute your line and ask your question.

Aashay Patel — — Analyst

Good afternoon, sir.

Sandeep Kumar — Managing Director

Good afternoon.

Aashay Patel — — Analyst

My question is, are we expecting any further shutdowns in terms of — in any of our blast furnace in the near future?

Sandeep Kumar — Managing Director

No. There will be no planned shutdowns, the long one. Typically, every month there is a small shutdown, which is okay, which is already considered in the plan. But normally, the annual shutdowns are all over. So we expect the next three quarters to be much better in terms of operational performance.

Aashay Patel — — Analyst

So, over next one year — entire year, we won’t be seeing any volume loss in terms of — arising from the maintenance shutdowns as such?

Sandeep Kumar — Managing Director

No, maintenance shutdowns there would not be. But there is a — one of the furnaces has to go in for a major overhauling and repair, so that we will tell you once the time comes in. That’s more likely towards the end of the year or early next year.

Aashay Patel — — Analyst

Sure. And sir, you explained in a very detailed manner the procurement and entire protocol which you follow in terms of procuring coking coal. But can you explain me what would be our average inventory prices of coking coal right now?

Sandeep Kumar — Managing Director

May I ask Subhra to respond whatever he can give?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

If we see that in the initial comments what MD was saying, in the month of May that coal price was $500, in month of June $370, and in month of July so far average is $275. So we have got some June coal we still have got, hardly any May index coal we have got. So, as earlier I was saying that fortunately we are having only one or one and a half month, so majority of that coal is June index ones.

Aashay Patel — — Analyst

So can we expect it to be roughly around $350?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

How much?

Aashay Patel — — Analyst

Around $350?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

June index was $370.

Aashay Patel — — Analyst

Okay.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

And July index so far is $275. So for the month of — for the quarter itself you can take the number what you have stated.

Aashay Patel — — Analyst

Sure.

Sandeep Kumar — Managing Director

But it will also depend on what is the price going forward.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Yeah, true, true, true.

Aashay Patel — — Analyst

Yes, yes.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

If in August, it goes up to $350, we can’t tell [Phonetic].

Aashay Patel — — Analyst

And the next question to MD sir. Export duties of 15% were announced in May end. So…

Sandeep Kumar — Managing Director

Can you speak a little away from the mic? Your voice is…

Aashay Patel — — Analyst

Yeah. Is it better?

Sandeep Kumar — Managing Director

Yeah. Go ahead, please.

Aashay Patel — — Analyst

Yeah. So my question is that, export duties of 15% were announced towards May end, so we only effectively saw one month of lower pig iron prices in this quarter because of export duty. But next quarter, entire quarter would be — these duties would be applicable. So do you see the realizations holding up to the current level or do you expect them to slightly on a softer side?

Sandeep Kumar — Managing Director

See, the pig iron — if export duty was implemented or made effective on 22nd of May. So we lost almost about, let’s say, 30 days there and maybe nine days — eight, nine days there. Okay? But I think the — after that the raw materials have also come down. What’s more important is the spread between the finished goods and the raw material rather than the absolute value of price. So as I was mentioning, in the quarter gone by, the spreads were negative in the marketplace, okay? Or maybe just about breakeven. Those spreads have now come into positive territory. The average spread over the last five years is, let’s say, about 5,000. We have still not reached 5,000 in the first 15 days, but we are inching towards that and the pig iron prices have also started moving up. We have already revised prices in our markets. So I think we are now getting into positive territory and things should be much better.

Aashay Patel — — Analyst

Sure. And sir, what percentage of total DI pipe’s volume…

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Aashay, can you come back in the queue, please?

Aashay Patel — — Analyst

Yeah. Sure, sure.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Yeah. Mr. Abhishek Ghosh [Phonetic], you may unmute yourself and ask your question.

Abhishek Ghosh — — Analyst

Yeah. Thank you so much. Am I audible?

Sandeep Kumar — Managing Director

Yeah, yeah.

Abhishek Ghosh — — Analyst

Yeah. Hi, sir. Thanks for the opportunity. Sir, just in terms of the Jal Jeevan Mission, the entire number that you have given out, INR20,000 crores this year and possibly a higher number in FY ’23, what is the proportion of DI in that?

Sandeep Kumar — Managing Director

I didn’t get your question. Proportion of DI in what?

Abhishek Ghosh — — Analyst

Sir, is that number of INR20,000 crores that is entirely spent towards the DI or is it towards the entire Jal Jeevan Mission? That’s the number I want.

Sandeep Kumar — Managing Director

Okay, okay. So that’s the government’s investment on Jal Jeevan Mission. So the Central Government’s investment is, let’s say, about — in FY ’23, we estimate is going to be about INR1.30 lakh crores, INR1.25 lakh crores or INR1.30 lakh crores. And roughly 40% to 50% — so roughly half of that will come from the state government. So total is, let’s say, INR230,000 crores, INR240,000 crores is what is a theoretical number. In reality, it’s going to be, let’s say, 30% of that or 25% of that is my estimate and I can be wrong.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

He’s asking, out of the total spending, how much is for the DIP?

Sandeep Kumar — Managing Director

Oh. So DI pipes, out of that, typically you can take about 20% to 25%, depending on a lot of factors, it depends, but roughly, whatever is the investment, you can assume that 20% to 25% would go towards DI pipe supply.

Abhishek Ghosh — — Analyst

Okay. And that is what you are referring to as a two and a half years kind of order backlog.

Sandeep Kumar — Managing Director

No, no, no. I’m talking about the total, total investments. So if, let’s say, we talk about — let’s say, if expenditure is INR30,000 crores and, let’s say, 25% or 30% of that is on DI pipes, so it’s, say, INR10,000 crores. But that’s on Jal Jeevan Mission. There are other projects as well.

Abhishek Ghosh — — Analyst

Yeah. Okay, okay. Sir, given the opportunity space is so huge compared to what is the current capacity, are you seeing a lot of competitors putting up a lot of DI capacity out of that 2.5 million tons that you have got [Phonetic] there. Any sense around that? And how difficult is it to get the qualification and other things? Some thoughts there?

Sandeep Kumar — Managing Director

So DI pipes industry has a high market entry barrier, okay? Both in the marketplace, as well as on the operational front. It’s not like making a steel pipe wherein you get a hot rolled coil — you buy the hot rolled coil from any manufacturer, turn it around, weld it, and start supplying. This is a pretty complex process and it’s not easy. You don’t get manpower, you don’t get easily trained manpower. And then, of course, there is a lot of technical glitches to it. So anybody who comes in new, faces a lot of these issues, and we have faced that when we set it up in 2009. So we know that, number one.

Number two on the market side, typical of government projects, you — many of the contracts, the state governments contracts will ask you to show an experience of, let’s say, five years, three years, seven years, depends on. So they don’t get access to all the contracts. So there are restrictions. So the first few years are not so easy for a new player. The incumbents, obviously, have an advantage, and therefore, both on the operations side and on the market side, the incumbent players have a definite edge and will continue to command, let’s say, premiums and certainty from the customers.

Abhishek Ghosh — — Analyst

Sir, since there is also a lead time, fair amount of lead time in putting up a DI plant, from the current 2.5 million tons of capacity that India has, what is the broad sense that you have, how much capacity is now coming through?

Sandeep Kumar — Managing Director

From 2.5 million tons, as I was mentioning, we will go up to, let’s say, 3 million tons by, let’s say, next year.

Abhishek Ghosh — — Analyst

Okay. Got that. And sir, just one more thing. In terms of the pig iron part of it, how are you seeing the overall demand? While you spoke about the spread part of it, that it was kind of negative in this quarter and now it’s kind of improving, not yet back to the 5,000, 6,000 levels. But if you can just talk about the demand as well in terms of sectoral trends, it will be helpful? Thanks.

Sandeep Kumar — Managing Director

Yeah. So pig iron, roughly about 12 million tons to 13 million tons are traded internationally, out of which 50% comes from Russia and Ukraine. So pig iron, when the Ukraine-Russia conflict broke out in February, 50% of the trade was gone. So the prices in US, let’s say, if you look at — there’s a place called NOLA, New Orleans, okay? There the prices were — before the outbreak of the conflict were, let’s say, at the level of $550 to $600. Post the conflict — start of the conflict, the prices zoomed up to $900 plus. Okay? Those prices have now come back to a more realistic level at about $650, $670 since, let’s say, last couple of weeks. So prices have stabilized from that perspective. The demand in the US market and [Technical Issues] continues to be strong, but there’s a demand-supply mismatch because, obviously, a lot of material from Russia and Ukraine is still not coming in. But they are finding their own ways to go in, but obviously, it’s at a reduced level. So demand-supply mismatch in the international market is still there. The 15% export duty, what it does is, it reduces our realizations. But because there is a demand-supply mismatch, the overall price of pig iron is almost about $100 higher than what it was in, let’s say, early February in the international market. It was $550, now it’s $650. So it’s more or less now stabilized. So that’s the sense internationally.

Domestically, because the prices are very high, the consumers of pig iron or, let’s say, the customers of pig iron, put a hold on purchases because they were not — it was not making sense for them. But the domestic players, suppliers of pig iron, started exporting, so they could manage. But now, exports are not as remunerated, but the domestic demand is now picking up, and also because of labor going away to Bihar and UP and all that, they come back in July because of the sowing season. The season will now start in many of the foundry clusters like Ahmedabad and Punjab and Delhi. So the demand should pick up as we go forward.

So to give you a sense of number, the foundry clusters — different foundry clusters were operating at a capacity of 40% to 50% capacity utilization in the last quarter. They are moving up to, let’s say, 60%, 70% is what we have seen in the last two to three weeks. That’s the sense we are getting. So things are looking better from a demand perspective, price stabilization perspective, and international perspective.

Abhishek Ghosh — — Analyst

And this demand movement is because of auto or…

Sandeep Kumar — Managing Director

Auto is one, engineering is other one, agriculture is the third one, tractors and pumps and all that.

Abhishek Ghosh — — Analyst

Great. Okay, sir. Thank you so much for answering my questions and wish you all the best. Thanks.

Sandeep Kumar — Managing Director

Thank you, Abhishek.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Mr. Manish Goyal [Phonetic], you may unmute yourself and ask your question.

Manish Goyal — — Analyst

Yeah. Thank you so much. Hope you can hear me.

Sandeep Kumar — Managing Director

Yes, we can hear you.

Manish Goyal — — Analyst

Yeah. Thank you so much. Sir, on the segmental revenue, what do you report in pig iron the revenue which is reported is on a complete hot metal production, I believe, because when we try to arrive the number on the volumes, the realization looked pretty much higher. So just wanted to clarify that that we need — basically how should we look at it?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

If you see that segment report, the third line, it is the net inter-segment revenue is netted out. So if you reduce the pig iron sales, net it off with the inter-segment revenue, that gives the pig iron sold to outside parties to the end customers.

Manish Goyal — — Analyst

Okay. Okay. And so, sir, just to clarify, you mentioned that now the coking coal prices are down to $240, $250, so ideally it is INR20,000 per ton, right, sir? Because earlier you said it has come down from INR60,000 to INR40,000, so I just want to clarify.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Then — yeah, INR60,000 was coke and coke has come down to INR40,000 and $250 normally goes to INR20,000, but you may have to consider the freight which itself is $20 kind of [indecipherable] plus the customs — not customs, the port charges and the local freight. So we have to consider $20 for — $20, $25 for the sea freight, another $20 for local freight and the current port charges.

Manish Goyal — — Analyst

And sir, in DI pipes, the realization was around INR60,000 in the Q1. So when do we see the benefit of new order execution and what kind of average realization we can see going forward, say, in Q2 or Q3, if you can give us some perspective?

Sandeep Kumar — Managing Director

So the high-price orders have been at INR80,000, INR85,000 per ton, not at INR60,000. So that was DI pipes, so that’s landed prices. Now those prices have softened by about 10% to 12% in the last one month. But that’s okay because they’re still very high. But what’s more important is the spread. With coke prices having come down from, let’s say, INR60,000 to INR40,000 or INR42,000, the spreads are now much healthier. What had happened in between was that the DI pipe prices were now almost competing — or the pig iron prices were competing with DI pipe prices, so that was the problem. Typically, there is a gap between pig iron prices and DI pipes. How much can we take that on average, Subhra, on long-term basis between pig iron and DI pipes?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

INR7,000 to INR13,000.

Sandeep Kumar — Managing Director

Anywhere between INR7,000 to INR13,000 like that. And they were almost touching neck to neck. So despite the increase in price of DI pipes, because of the raw material push, we were not making margins on DI pipes. That’s why your margins on DI pipes have been affected. Your sales volumes have not come down drastically. Against 49,000 in quarter one of FY ’22, we have done 45,000. It’s only a 4,000 difference, but margins are not good at all because of the raw material push, which is a one-off — I would not say one-off, but I would say which is more like a very — an outlier. We haven’t seen this kind of raw material push in the last 10 years.

Manish Goyal — — Analyst

Okay. No. So I was just trying to understand that when do we see that benefit reflecting in which quarter…

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

I just want to clarify one thing, Manish. MD has said INR80,000 and the softening up by 10%, he meant landed price, including GST.

Sandeep Kumar — Managing Director

Yeah.

Manish Goyal — — Analyst

Right.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Okay. So that — and in accounts, it is net of GST. So when you see the top line of either segment report or the normal report, it is always net of GST, but inclusive of freight. So whenever INR80,000 or INR75,000, first of all, you need to get it divided by 1.18 and if you do INR80,000 divided by 1.18, it will almost — it is almost INR64,000 something like that. And we have already reached to that, say, INR60,000 level in the kind of one month. So I would be happy that if we can maintain that because what important is the spread. With these kind of pricing, with the coal price is like at 50%, the spread will be much healthier even with INR80,000 with the high price of coal.

Manish Goyal — — Analyst

Sure, sir. And last question just to clarify on the pig iron domestic demand. Sir, mentioned that the demand is improving now with the foundries utilization going up. So just want to get a sense like what was the decline in demand? And what are the current foundry-grade pig iron prices, sir?

Sandeep Kumar — Managing Director

Foundry-grade pig iron prices were ruling at above INR60,000 before the export duty announcement. They have come below INR50,000, so almost more than INR10,000 drop. What else was your question? I missed it.

Manish Goyal — — Analyst

No. So like in probably last four, five months, how has the demand trend changed? Like it had declined and now improved, so just want to get a sense on that.

Sandeep Kumar — Managing Director

Yeah. I just mentioned to the previous questioner that the foundry were operating at about 40%, 50% capacity utilization. Now that is moving up and some places we are finding it up to 70% also. So things are moving up. There is also the export demand because a lot of guys also export castings to US in particular. So that has now again moved up, and therefore, the demand for pig iron is also moving. So I think in some way or the other, the export market, the international market does influence our prices and our demand, either directly or through the end user. That’s now having a positive impact.

Manish Goyal — — Analyst

Right, sir. Thank you so much.

Sandeep Kumar — Managing Director

Yeah.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Deepayan Ghosh, you can unmute your line and ask your questions.

Deepayan Ghosh — ICRA — Analyst

Okay, sure. A very good afternoon, sir. Just have three questions from my side. My first question would be in one of your earlier investor calls you had mentioned that beyond 1,000 mm, DI pipes cannot be used. Sir, is that because the price point that steel pipes get more competitive, or is it like some technical aspect which does not allow DI pipe usage in application where it’s above 1,000 mm?

And my second question will also be, outside China, I believe India is one of the biggest — one of very cost competitive DI pipe player. But, sir, what is the reason behind it? Because while we are sufficient in terms of iron ore from the entire country perspective, but sir, I mean, India is still net importing country for coking coal. So what makes us competitive outside China? These two questions.

Sandeep Kumar — Managing Director

Okay. So the first question was…

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

1,000 mm.

Sandeep Kumar — Managing Director

Yeah. So up to 1,200 mm, DI pipes in India are manufactured. In China, they go up to 2,800 mm. Okay? But what we have found is that, in general, for the larger dia, the demand is very limited and mostly it is taken up by steel. So steel becomes more competitive. It has more flexibility. You can carry hot rolled coils to the sites and then have a mobile machine to weld them and manufacture steel pipes, which is not possible in the case of DI pipes. So both flexibility of handling and ability to handle big dia pipes at project sites becomes complicated, in addition to the costing. So these are the two reasons why steel is a more preferred material of construction for pipes for larger dia. So that is on your first question.

And second question was…

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Second question is that, India doesn’t have coking coal…

Sandeep Kumar — Managing Director

Yeah. Competitiveness. So India is the second largest producer of steel. Why? It doesn’t have coking coal, but it does have iron ore. It has a good ecosystem for the iron and steel industry. It has good manpower. And I think we are competitive — extremely competitive. And I think these factors — and a large market — domestic market. All of this helps in making us very, very competitive in the world market. And in fact, if you look at DI pipes, I would daresay that India now is perhaps the most competitive of the DI pipe players in the world market.

China was, China continues to be, but in many, many areas, we are finding that we are better off than them when going to the export markets. And the reason for that is that, Chinese government has put a strong restriction on emissions, on carbon, and they are going in for decarbonization in a big way, and also on emission norms, that is adding to their costs. By 2025, the iron and steel industry in China has been told to kind of comply to certain norms, and also the fact that the export duty rebate the Chinese government used to give, I think which was earlier 15%, has now come to 5% or 6%. So all these factors have made the Chinese industry less competitive compared to the Indian industry. But this is in general. Again player-to-player it will vary. And the advantage that the Chinese have is economies of scale. They have large plants. So that’s their advantage, but they are losing out on so many other factors. So all in all, India is becoming more and more competitive, and I would daresay that some of us are perhaps more competitive than most Chinese players, but not the entire industry necessarily.

Deepayan Ghosh — ICRA — Analyst

Sir, I just want one clarification on the point. Sir, below 1,000 mm, is DI cheaper than steel pipes?

Sandeep Kumar — Managing Director

In general, yes.

Deepayan Ghosh — ICRA — Analyst

And just last one question, sir. You spoke about PI and pig spreads. Sir, how relevant would that metric be? Rather than looking at PI minus coke spread, shouldn’t we look at PI minus coke cost per ton of PI? Because like you said, the way you’re sounding that it’s breakeven or, let’s say, spreads are negative, but it’s not like you’re loss-making, right? Even, let’s say, if pig iron prices are touching INR1,00,000 and your coke prices are, let’s say, INR5,000 less, you would make huge tons of money, right? I mean, just looking at absolute spreads or looking at the spreads per ton of pig iron, wouldn’t that be more relevant?

Sandeep Kumar — Managing Director

Yeah, yeah. So it is only for simplicity and to give you a sense that we tell you. Otherwise, you’re right.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

So you are technically correct, but all the plants we have got different efficiency. Some has got $620 coal rate — coke rate, some could have got $650, some could have got $550. So this number is purely for the simplicity purpose.

Sandeep Kumar — Managing Director

To give you a sense as to where we stand.

Deepayan Ghosh — ICRA — Analyst

Yeah. But, sir, it’s not like at negative spreads, you would be loss-making. That’s not correct, right, sir? I mean, because your fuel rate would be like 500 kilos of, let’s say, coke and another 150 of around PCI, right, sir, when it comes to hot metal production?

Sandeep Kumar — Managing Director

So that you are putting words into our mouth. But what we are saying is that, directionally you’re right. The spread being marginally negative doesn’t mean we lose money. What I’m saying is that, we’re not making money. It also depends on the other costs, etc. But you’re absolutely right, that we need to see the actual cost of coke going into it. Since coke is almost about 60% of the cost, 60%, 65% of the cost, that’s why for simplicity we talk about the spread of — between PI price and coke cost. Otherwise, you need to get into other factors as well, how much is iron ore, sinter, flux and all of that.

Deepayan Ghosh — ICRA — Analyst

Okay. Thanks for your insights, sir. Thank you so much.

Sandeep Kumar — Managing Director

Thank you.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Sir, one question that is commonly asked in the chat is regarding the merger with Tata Steel Long Products. So any kind of update or any kind of progress you can address on that?

Sandeep Kumar — Managing Director

Not really, Sahil. I think as I mentioned last time, you will get — yet to hear from Tata Steel on that.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Okay, sir. Got it. Falguni Dutta, you can unmute yourself and ask your question.

Falguni Dutta — Jet Age Securities — Analyst

Hello? Am I audible?

Sandeep Kumar — Managing Director

Yeah, go ahead.

Falguni Dutta — Jet Age Securities — Analyst

Yeah. Sir, just wanted to ask you what is the coke cost per ton of pig iron in Q1 for [Technical Issues] the absolute coke cost per ton of pig iron?

Sandeep Kumar — Managing Director

Absolute cost or — it’s absolute cost of coke.

Falguni Dutta — Jet Age Securities — Analyst

Yeah, per ton of pig iron.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Not per ton of pig iron.

Falguni Dutta — Jet Age Securities — Analyst

I mean, per ton of pig iron cost. I mean, let’s say, the cost of pig iron in Q1 per ton, what was the cost of coke?

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

Ma’am, that would have two factors. One is that, what is the coke price, and what is the [indecipherable]? So we’ve seen that what MD has said, the coke price was substantially up, and it was almost INR53,000, INR54,000 per ton of coke. He has also mentioned that in this quarter we have taken shutdown of — both the furnaces in one quarter, which just made through [indecipherable]. So in that, if we talk about one number, that will not give any indication about the general number. So, you need to see what is the normalized coke price and what is the standard fuel rate of an efficient furnace. We need to recalculate our coke cost per ton of hot metal or per ton of [indecipherable].

Sandeep Kumar — Managing Director

So let me just try and give you some — make you some numbers, give you some sense of what are the numbers. So, let’s say, if 600 kgs — if somebody is using coke of 600 kgs, let’s say, and the coke price today is, let’s say, INR40,000. Okay. Actually, it could be more like INR42,000, INR43,000 and just for simplicity, let’s give a round off number. INR40,000 into 600 kgs is INR24,000. So INR24,000 would be per ton of pig iron. That is the cost of coke, against the pig iron price which is slightly less than INR50,000.

Falguni Dutta — Jet Age Securities — Analyst

Okay, sir. Got it. So current price is about — round about that, the number you mentioned for pig iron?

Sandeep Kumar — Managing Director

Correct. Correct. That’s what I said. The foundry-grade pig iron prices are today, let’s say, less than INR50,000, okay, it could be INR48,000, INR49,000, INR50,000 depending on the market, while the coke cost per ton today, if I assume 600 kgs, it will depend. As the previous participant said, there’s also PCI and all that. So I’m just simplifying and saying if you’re only using coke and if your average number is 600 kgs, then you would spend, let’s say, INR24,000 per ton of pig iron.

Falguni Dutta — Jet Age Securities — Analyst

Okay, sir. That’s helpful. Thank you, sir. That’s helpful.

Sandeep Kumar — Managing Director

Thank you.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Yogansh Jeswani, you may go ahead and ask your question.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Thanks for the opportunity, sir. Sir, if we look at pig iron as a whole, it is typically very volatile in terms of margin, unless one has iron ore integration. So — and we also have DI pipe as an advantage, so we can use our pig iron production into DI pipe and continue to maintain stable margins. So with this expansion, why did the management go for a higher DI capacity and utilize the entire hot metal production and make our margins more stable as a company overall? And if you could also share, going forward, will you be doing that directionally, like putting in more DI pipe capacity and reducing the pig iron sale that we do to wholesale [Phonetic] market? Or do we want to continue making some sale of pig iron and DI pipes?

Sandeep Kumar — Managing Director

So theoretically, you’re right. DI pipes gives you a margin of, let’s say, 20% plus. Pig iron will give you more like 10% to 12%. Okay? But what happens is that, it’s a balancing figure as well. You can’t have absolutely one to one, number one. Number two, it also diversifies your business. And when the business is good for pig iron, let’s say, with last year, we had spreads of almost INR20,000 per ton we made hay. We made about INR135 crores profit. That was mainly because of pig iron. So I think in both these — for both these factors, keeping some amount of pig iron is always good, and specially because pig iron when we compare on a volume of, let’s say, 3,00,000 or 4,00,000 tons, then your margins are lower. But when the volumes come down to, let’s say, 1,00,000, 1,50,000, your margins are much higher because then you are serving geographically proximate markets. And where we command a much better premium, freights are much lower, so then the margins are much better, maybe between 15% and 20%. So it’s not so bad, unless volumes are very large.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Okay. That’s helpful, sir.

Sandeep Kumar — Managing Director

Did that make sense? Yeah.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Absolutely. One more question. On the overall strategy side, why didn’t we go out to get our own iron ore mine [Phonetic] when we had the understanding of how to run it because of Tata Steel and also the cash balances in the books are pretty good? And that would have been a very logical step for us.

Sandeep Kumar — Managing Director

So we get our iron ore from Tata Steel mines. Most of the iron ore that we get is from Tata Steel mines. And we are not into mining, so we’ll have to open up another, let’s say, vertical. It requires management bandwidth. You need to have scale. See, earlier what happened, the mines were only for captive purposes. You could not sell it. It’s only recently that the government has allowed it. Okay? So you would produce — have an iron ore mine but then not able to scale it up because your volume requirements are lower. So all these factors led us to, not invest in a new mine and stick to our basics, which is to produce pig iron and DI pipes.

Subhra Sengupta — Chief Financial Officer and Eithics Counsellor

I just want to add one more point that — it is good that we have so far not invested. If you see the last year or last to last year, the iron ore mines got auctioned at the rate of 90% to 130% royalty. And on those mines, one of the biggest kind of thing that the trader, who used to have 3 million ton to 5 million ton kind of iron ore. Now totally the mines got stopped. A lot of people because of the higher royalty they had committed to the government, they had to reduce their production or cut down their production. That is one point. In addition to that, the people those who have taken on that time, they are struggling a lot because the market price have crashed like anything.

Sandeep Kumar — Managing Director

So what you’re saying is there was too much of competition for the mines which resulted in obnoxious bidding. There was a bidding war, and people have bid all — extremely high numbers, and they have now landed themselves in trouble because that’s their commitment to run the mine and to pay the government. And — so this in hindsight, in a way, it was a good decision.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Understood, sir. Last question from my end, sir. After this pig iron — sorry, DI pipe capacity comes up on steel, do we have more land available at the current facility to go for the next level of expansion or will we need a greenfield land site for next level of expansions, two, three years, four years down the line whenever that happens?

Sandeep Kumar — Managing Director

So we don’t have too much of land. We think we can accommodate something more there in Kharagpur, which we have evaluated, but it’s going to be a little tight. In any case, if you want to build something of a scale, we will have to go outside. We have been looking for the expansion outside. We’ve been evaluating. And as and when we find something interesting, we will obviously let you guys know and let the market know. But as of now, we don’t have anything firm either in Kharagpur or outside. In any case, in Kharagpur, the expansion project is still on. The first phase is more or less completed. The second phase will completed — get completed next year.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Thank you, sir. That was really helpful, and best of luck.

Sandeep Kumar — Managing Director

Thank you.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Sir, do we have time for one more question?

Sandeep Kumar — Managing Director

Okay. Go ahead.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Okay. Okay. Sanjay Mallik [Phonetic], you may unmute yourself and ask the question.

Sanjay Mallik — — Analyst

Good evening, sirs. Can you hear me?

Sandeep Kumar — Managing Director

Yeah, yeah. We can hear you, Sanjay. Good evening.

Sanjay Mallik — — Analyst

Good evening. So I just wanted to come back to the earlier question of the merger, and I know you can’t sort of comment on timeline because it’s a complicated and long-drawn process. But what’s happened in the last 18 months is that, I mean, the world has become a very different place since you announced the merger, whether it’s political, economic, regulatory, everything seems to have changed. So, now looking back 18 months, all I wanted to understand is that, you would, obviously, have had a strategy and decided how complementary the two businesses are and what the synergies are and what the accretion to your overall earnings per share would be. So I just wanted a general feedback if that’s possible on, standing here today, do you feel that all the assumptions that were made are generally favorable today or haven’t changed much or are worse compared to what was the basis of the merger 18 months ago? Thank you.

Sandeep Kumar — Managing Director

So, Sanjay, thank you for the question. But I’m sorry, I’ll not be able to comment much on it. Okay? This is handled primarily by our parent, Tata Steel. So it’s best to put them this question and they will be able to respond to you, on the timeline or also on how they see it. So, please excuse me, but I’m really not in a position to respond to this question.

Sanjay Mallik — — Analyst

Okay. So the decision making for the merger is entirely driven by Tata Steel. I mean, the two merging companies, therefore, don’t really have a say in the matter. Is that right?

Sandeep Kumar — Managing Director

So the company is — we’re a listed company. Obviously, we have a say. I will not say that. But I’m saying the justification and the strategy is a group decision.

Sanjay Mallik — — Analyst

Yeah. I see.

Sandeep Kumar — Managing Director

Because you’re asking me about the group strategy and because the timelines have been getting extended, therefore, I don’t want to make any comment. Every time I say, it doesn’t get fulfilled. So I’ve actually got embarrassed too many times. So that’s the reason I’m saying you please excuse me. I think let it take its own course.

Sanjay Mallik — — Analyst

No, I understand.

Sandeep Kumar — Managing Director

In any case, whatever is there, Tata Steel will in any case announce it, communicate to you. So I don’t want multiple channels confusing the market. So it is from that perspective also, I’m just trying to say that we’d not like to comment. Don’t get me wrong, it’s just from that perspective.

Sanjay Mallik — — Analyst

No, no. I fully understand. The only point is that, unfortunately, there are two sets of shareholders, one of Tata Steel, of which I’m not a shareholder. So it’s difficult for me to sort of relate into the two companies. Is there some way that someone can sort of connect — can we connect to Tata Steel or can they put out something that confirms that the basis of the merger is still intact? Just some communication of any kind that can come out?

Sandeep Kumar — Managing Director

Yeah. I’m sure, Sanjay, they will come up with some communication shortly, and I appreciate your point that you are a Tata Metaliks shareholder. So, you will get to hear something sooner than later, that much I can tell you. Okay? And I just want — don’t want to — as I said, don’t want to have multiple communications and also because of the — a bit of ambiguity in terms of the timelines, there’s no point in my talking about it. So it’s for that reason that I’m not saying that. But my understanding is that, communication will come sooner than later. So just hold on for some more time. And if you don’t get to hear from us sooner than later, and that sooner than later could mean next few months, then please feel free to formally write, and we will try and see if we can get you a considered response.

Sanjay Mallik — — Analyst

Thank you very much, sir. Thank you. Thank you.

Sandeep Kumar — Managing Director

Thank you, Sanjay.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Thank you. That’s all, sir, for today. I just wanted to thank you for very patiently answering all the questions, you and Subhra sir, both. And also thank you all the participants for participating in the call.

Sandeep sir or Subhra sir, would you like to give any closing comments?

Sandeep Kumar — Managing Director

Thank you, Sahil. I think it was a good question-and-answer session. I hope we have been able to clarify a lot of points.

On the DI pipes business, we didn’t talk much but I just want to close saying that, in terms of the order books, they are currently at about seven months. But as I was mentioning that quarter three onwards, I see a big thrust. And in terms of industry order load, currently it’s about 1 million ton and there is about roughly 1.5 million tons of — or rather 2 million tons of orders being negotiated currently. So 1 million plus 2 million will make it 3 million tons. So this is a clearly visible order of the industry. So 1 million tons in hand, another 2 million tons under negotiation. There is another 1.5 million tons, which is out for tender but bidding has not yet happened, and another 1.5 million tons where projects have been announced, but bidding has not happened. So a total of 6 million tons of DIP is visible to us, whether ordered, whether tendered, or whether at project stage. Okay? So, therefore, the — from a demand perspective, the DIP is going to be pretty strong, and therefore, we from the industry feel very strongly about the bright, I would say, prospects of the DIP industry going forward.

With this, I would like to close. Thank you very much, Sahil and Monarch, for hosting it and for all the — to all the investors for hearing us patiently. Thank you. See you soon. Bye-bye.

Sahil Sanghvi — Monarch Networth Capital Ltd. — Analyst

Thank you. Thank you. Bye, sir.