Tata Steel Ltd (NSE: TATASTEEL) Q2 2025 Earnings Call dated Nov. 07, 2024
Corporate Participants:
Samita Shah — Vice President Corporate Finance, Treasury, & Risk Management
Thachat Viswanath Narendran — Chief Executive Officer and Managing Director
Koushik Chatterjee — Executive Director and Chief Financial Officer
Analysts:
Satyadeep Jain — Analyst
Sumangal Nevatia — Analyst
Amit Dixit — Analyst
Ritesh Shah — Analyst
Tarang Agrawal — Analyst
Kirtan Mehta — Analyst
Amit Murarka — Analyst
Indrajit Agarwal — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. All the attendees’ audio and video has been disabled from the backend and will be enabled subsequently. I would now like to hand the conference over to Ms. Samita Shah. Thank you and over to you, ma’am.
Samita Shah — Vice President Corporate Finance, Treasury, & Risk Management
Good morning, good afternoon, good evening to all our participants listening onto the call. On behalf of Tata Steel, I’m delighted to welcome you to this call to discuss our results for the second quarter of FY’25. I’m sure you’ve gone through the presentation, which has been uploaded on the website and have questions, which we’ll be happy to take. Before I hand it over and introduce our other participants, I would just like to remind you that the entire proceedings are governed by the Safe Harbor clause on Page 2 of the presentation.
We have with us of course, our CEO and MD, Mr. T. V. Narendran; and our Executive Director and CFO, Mr. Koushik Chatterjee, who will — both of them will make some opening comments and then we will take questions first in audio mode and then in chat mode. Thank you. And over to you, Naren. You are on mute, Naren.
Thachat Viswanath Narendran — Chief Executive Officer and Managing Director
Thanks, Samita. Sorry about that. Good afternoon and good morning to everyone. I’m going to make a few comments and then pass it on to Koushik for his comments and then we’ll open it up for Q&A.
The global operating environment has remained challenging due to the subdued economic activity, inflation, and sustained geopolitical tensions. The US and EU have initiated rate cuts and China has announced stimulus measures. However, elevated steel exports from China has distorted the dynamics of the global steel trade and has weighed on the regional prices across the world. Chinese steel exports for September were over 10 million tons, it’s at an eight-year high, and the year-to-date exports are about 100 million tons or rather on an annualized basis, it’s about 100 million tons. In response, various nations, including India have initiated anti-dumping investigations on selected steel products. And while Indian steel demand has continued to remain strong, steel prices have witnessed moderation.
Moving to our performance, Tata Steel India crude steel production rose 5% year-on-year to 5.3 million tons. For the quarter, deliveries stood at around 5.1 million tons and was aided by 6% year-on-year growth in domestic deliveries across business verticals. The automotive and special products volume for the quarter was aided by the increase in sales of high-end products and our well-established retail brand at discount witnessed a 20% year-on-year growth aided by enhanced reached and the scale-up of the consumer connect programs. During the quarter, our e-commerce portal, Aashiyana, expanded its service offerings and two new construction service centers have also been launched taking the total to 35 construction steel service centers across India. The in scaling up our ready-to-build solutions for the B2B customers. We remain focused on simplifying our customers’ journey and experience in construction.
The industrial products and projects business witnessed strong growth across value-accretive segments with engineering registering a 28% year-on-year growth. We’ve also executed a number of orders for railways, including one — the first one for the Amrut Bharat Express, which Indian Trade Base has launched. We made strategic progress during the quarter on the commissioning of the 5 million tons of blast furnace at Kalinganagar, the blast furnace is operating. It’s already producing about 7,500 tons a day. And Kalinganagar expansion is an important milestone in our journey to scale up in the high-margin business. The state-of-the-art cold-rolling mill is already running. Their kneeling lines are getting commissioned this month and the galvanizing lines will get commissioned in the next couple of quarters, one galvanizing line by March and the other by June next year.
The new blast furnace along with the cold-rolling mill complex will boost our production capabilities and aid in strengthening our position as a market leader in high-end value-added steel segments. And further with facilities such as a 6 million ton pellet plant, our cost profile also improves. In the UK, we have safely decommissioned both the blast furnaces at a Port Talbot port plant and this paves the way for the green steel making project that we are executing. Our planned investment of GBP1.25 billion will be partly supported by the GBP500 million grant from the UK government, which has been signed during the last quarter. And this investment relayed in preserving steel-making in the region as well as sustain more than 5,000 jobs in the UK. We remain committed to supporting affected employees and have offered the best of our package of support in Tata Steel UK and the restructuring as we speak is going on and you will see the benefits of it over the next few quarters.
In Netherlands, the subdued demand side has weighed on the prices and thereby performance. Koushik will elaborate about the same and we have initiated a number of cost-saving measures to offset the weakness in market conditions. The production is back on track after the blast furnace realigning. We are committed to sustainable value creation and are dynamically calibrating our decarbonization journey to the operating geography. In India, we are committed to responsible growth and a new blast furnace in Kalinganagar has an eco-friendly design and utilizes an evaporated cooling system. For the first time in India, something like this has been used. This is expected to lower specific water and power consumption by approximately 20% compared to conventional designs. We have set up satellite R&D centers to leverage national and global technology systems in strategic focus areas such as hydrogen and mining and many other areas. And in UK, upon transition to scrap-based EF, the direct CO2 emissions will reduce by 50 million tons over a decade. And similarly in Netherlands, we are working on the transition plan with the government in Netherlands.
So with that, I thank you and hand over to Koushik.
Koushik Chatterjee — Executive Director and Chief Financial Officer
Thank you, Naren. Good morning, good afternoon and good evening to all those who have joined in. I will begin with the half-yearly performance. Our consolidated revenues for the half year were about INR1,08,676 crores and the EBITDA was INR13,046 crores, which translates to an EBITDA margin of around 12%. The EBITDA margin actually improved by about 300 basis points year-on-year, aided by a steady performance in India and better profitability in Netherlands compared to the previous year. Compared to the — moving now to the quarter, our performance has been provided on Slide number 25 of the presentation circulated. Consolidated revenue stood at INR53,905 crores and an EBITDA of INR6,224 crores, which translates to an EBITDA margin of 12%. Before I dive into the numbers across geographies, I would like to mention that we have received approvals for the amalgamation of the Indian Steel and Wire Products Limited, ISWP and the standalone financial statements for the quarter reflect the merger and past periods have been restated as applicable.
Moving to Tata Steel standalone EBITDA for the quarter was about INR6,734 crores, which translates to an EBITDA margin of 21%. On a per-ton basis, the standalone EBITDA was around INR13,176 per ton. As provided in slide number 31, EBITDA on absolute basis was broadly similar to the previous quarter despite the seasonal factors and higher volumes, and improvement in total cost more than offset the drop in the realizations. I would like to elaborate a bit more on the cost. There has been a decrease in the valuation of Chrome or inventory as on 30th of September 2024 and this is primarily on account of lower accrual of the royalty charges. This has led to a non-cash charge in the raw materials and also a decrease in the other expenses, which is include — which includes the royalty-related expenses. So broadly, it is P&L neutral.
Excluding the [Indecipherable] effect, the material cost declined by around INR600 per ton due to the decline in the coking coal consumption cost and lower purchases. However, this has been partly offset by the inventory movement and the raw material buildup for starting the new blast furnace at Kalinganagar, as Naren just mentioned. The conversion cost excluding royalty declined by about INR2,000 per ton, primarily on account of lower employee benefit costs, consumables rates and taxes. Overall, this led to an improvement in the total cost structure. The NINL, the Neelachal Ispat Nigam Limited performance, which is part of the consolidated performance produced at its rated capacity of around on an annualized basis of around 1 million tons and its operating parameters have now stabilized and have resulted in an EBITDA margin of 13% and we are obviously looking forward to growing this part of the asset in the future.
In Netherlands, the EBITDA generated was about GBP22 million in quarter two compared to about GBP43 million in quarter one. The EBITDA on a per tons basis declined by about 14 pounds per ton on a quarter-on-quarter basis. The EU steel demand has been weighed by subdued economic activities, including the weakness in the industrial output. If you have seen, the PMI is now at about 42. At the same time, steel imports have remained steady and the China dynamics continues to weigh in on the global steel prices. Given this, the revenue per ton was down by about GBP43 per ton on a quarter-on-quarter basis. However, this was partly offset by the material cost, primarily driven by the lower coking coal consumption cost to the tune of $27 per ton and the iron-ore consumption cost to the extent of what $41 — sorry, $14 per ton. The other conversion costs were broadly stable.
Looking ahead, our liquid steel production numbers in Netherlands will be much higher than previous years because as Naren mentioned, the blast one is six is operating — which was not operating at capacity. The market conditions though remain challenging with spreads contracting in the near term and therefore, the efforts are on across the company on improvement of the cost. In the UK, the loss — EBITDA loss widened from about GBP91 million in the first quarter to about GBP147 million in the second quarter. EBITDA on per ton basis declined by about GBP100 per tons. One of the fundamental reasons is that this is a transition quarter for the UK and I’ll explain a little bit more. The revenue per ton was broadly stable, while total cost increased by about GBP100 per ton. Within cost, the raw-material cost consumed plus the purchases declined by about GBP59 pounds per ton given the shutdown of one of the blast furnace. But this was more than offset by the inventory movement that was led — that led to a quarter-on-quarter increase of about 151 pounds per tons.
Inventory movement was primarily due to the buildup of stock in Q2 versus Q1. Overall, the material cost increase was about GBP100 per ton. This, as I mentioned, has been a transition quarter where we operated one blast furnace and also purchased slabs and coils. So the fixed costs have not declined as yet because the ground funding agreement and the completion of the union consultation got extended by four months due to the elections. It’s been done now. And so far, we have been issuing letters post the formal consultation at the union level to the — at the individual level to the voluntary [Indecipherable] candidates. And in the coming quarters, we expect that about GBP100 per ton of reduction in fixed cost from the current levels that we see.
Moving to the cash flows, we’ve spent about INR4,800 crores on capital expenditure during the quarter and about INR8,585 crores for the half year, mostly in India. We have commissioned our second blast furnace in Kalinganagar as Naren mentioned, which cost about — the entire complex cost about INR3,900 crores. In the later part of the year, we will be commissioning associated facilities in Kalinganagar expansion amounting to almost about INR19,000 crores in this current financial year. So the work is in progress. It’s a completion part. It’s not that we spend INR19,000 crores. Associated facilities, including the continuous handling line, continuous galvanizing line and the air separation unit to name a few. Separately, we have placed equipment orders for the 0.85 million tons EAF plant in Ludhiana and have started receiving select orders also.
During the quarter, we have also had after pursuing for about three years income tax refund and a principal amount of the refund was about INR1,500 crores, which has been adjusted directly in the tax assets in the balance sheet. This pertains to the Bhushan merger of financial year 2020. And while in the — for the full half year, you would see a working capital negative for the quarter, we have actually released about INR850 crores of inventory and INR1,000 crores of debtors resulting to better cash flows from the gross working capital release.
So overall, the operating performance at standalone and Netherlands was offset by the UK performance and coupled with the working capital and dividend payout led to a marginal quarter-on-quarter decline in the cash-and-cash equivalent of about INR485 crores. Our net debt stands at about INR88,817 crores and our group liquidity remained strong at about INR26,000 crores. As Naren mentioned, we signed the grant funding agreement with the UK government for the 500 million grant support for building the year. And we are progressing on setting up the project. We have signed a contract with Tanova to deliver a state-of-the-art electric arc furnace and have completed the public consultation process and the planning application. We expect to commence our groundwork at the site around July 2025. In the interim, we will operate the UK downstream operation by utilizing substrates sourced from our own operation and external market. This will help us sustain our significant market presence across steel end-use segments in the UK and we are obviously committed to supporting the affected employees and are providing best-ever support package and reskilling. We are also focused on ensuring that we will continue to work on the cost side to take out fixed-cost, which is more appropriate to the operating model for the next — for the next three or four years till the EEF comes in. In Netherlands, as Naren mentioned, we are engaged with the government on potential support for the decarbonization project.
Moving on finally to the ORISED in India, it is the tax judgment that you would have seen. It is unclear at this point of time in the manner in which the ORISED 2004 Act will have to be reenacted once the decision of the Honorable High Court of Orissa is the verdict is considered by the regular bench of the Supreme Court, which is currently pending. We are also in the process of filing a curative petition with the Honorable Supreme Court and is in active discussion with the government in Orissa as well as in Delhi on the way forward. Given the above background, we would be able — we would not be able to assess any financial impact at this point of time and we’ll consider the same in due course. Presently, there is no legal obligation in respect of the levy related to the ORISED Act. And accordingly, we have not recognized any provision in the standalone or consolidated financial statements.
With this, I’ll end my comments and open the floor to questions. Thank you so much.
Questions and Answers:
Operator
Thank you, sir. We will now begin with the question-and-answer session. We will be taking questions on audio and chat. To join the audio questions queue, please mention your full name and email ID in the chat box. Kindly stick to a maximum of two questions per participant and rejoin the queue should you have a follow-up question. We will unmute your mic so that you can ask your question. To ask questions on chat, please type in your question along with your full name and email ID in the chat box. We will now wait for a moment as the queue assembles. The first question is from Satyadeep Jain of Ambit Capital. Satyadeep, request you to please go ahead.
Satyadeep Jain
Hi. Thank you. Am I audible?
Thachat Viswanath Narendran
Yeah.
Operator
Yes.
Satyadeep Jain
Yes. Naren, Koushik just want to start off with the UK. Koushik, you mentioned we’re looking at reduction in fixed cost of $1,000 per ton in the next — in the coming quarters. Can you maybe give some clarity or insight into when — by when can these fixed costs be taken out and by when are we just the trajectory of earnings in UK over the next two quarters by when can we expect breakeven EBITDA and cash-flow there in UK? That’s the first question.
Koushik Chatterjee
Yeah. Satyadeep, thanks. Can you hear me?
Satyadeep Jain
Yes.
Koushik Chatterjee
Okay. So what I mentioned is 100 pounds per ton of fixed-cost takeout over the next two quarters. It is in — it has broad components. So if I were to just take one minute to explain that now we are buying the substrate whether it’s supplied from India, Netherlands, external markets. And then taking out the conversion and doing the conversion and then selling into our customers. So the fixed-cost base has to come down because that’s the only way to beat the conversion cost value-added that we have from the market. So some of the natural outcome of closing the heavy end is that the maintenance cost comes down, the stores repairs comes down, the higher-end leasing comes down and of course, the people cost come down. So these are broadly the four levers. And these are the areas that we are working on.
And as I said that between Q3 and Q4, we will be looking at this. This may not be the end-of-the-cost takeout because we will have to continue to do the same. And our sense is that we are four month extended because of the delayed in the grant funding agreement. Of course, the market is a big impact, but our objective is during the three-year or 3.5 years of transition, we want to ensure that we achieve a neutral to positive breakeven. So our — and it’s not that at the end of three years, but it is more around the first-quarter or second quarter of next year that we should be able to do that. The cost takeout is the primary goal at this point of time in the UK so that — and there are enough levers to do that. So we are focusing on that. So to give a short answer, it’s essentially by June of 2025, we should be looking at it. Hopefully, the market should also support us in giving.
Satyadeep Jain
Okay. Second question would be on cash flows. So we’ve seen significant build-up in debt, working capital in the last six months. We — net debt has increased almost INR10,000 crore. Just wanted to understand when you look at working capital buildup in UK, I would assume that it’s the other entities within Tata Steel that are giving raw material. So why would — why is working capital at the consol level going up because of inventory buildup at UK? And also when you look at how much inventory has been built up in UK, now what kind of working capital lease can we see and also tied to debt and cash-flow would be, when do you start incurring capex on Netherlands decarbonization? So all of this is tied to basically what kind of net-debt levels are we looking at in the next 12 months or so?
Koushik Chatterjee
So if I were to again deconstruct that question, the first up is the working capital level increase that happened did not happen only in the UK. We were also building up inventory levels for India for coal. I’m talking about Q2. Q1, we were also — we had a significant amount of creditors to be paid off because of the BF6 payment for the Reline, which extended. So when your creditors go down, so you see a net working capital increase because your creditors are actually being paid off. So you see double impact of that. In the UK, the stock release has also happened in terms of the raw materials, the iron-ore coal that was there, we have released it. The slabs stock buildup was happening to be ready for the closure. Second is that during — we were also running blast furnace for as much as we could and building up the stock so that the supply-chain buffer is there for the next couple of months.
As if you look at it, 2 million, 2.5 million tons of slabs and coil imports or coming in are not small volumes. So the system takes time to normalize. That’s why I say this is a transition quarter and possibly another quarter of transition. I think the — once the Kalinganagar ramp-up happens, which is already on its path and we commissioned the more the downstream and allied and associated facilities, we will see stabilization of that working capital. So that is certainly going to happen. You would see — so the working capital buildup is not always because of the debtors and inventory or finished goods. It also happens because of the movement in the credtoris. So we just need to take that into account because the creditors have also got to be paid out. So it is a function of both. In fact, our number of days of gross working capital is being very tight as far as India is concerned and it is on a — it will continue to go down in Netherlands and the same stable at in the UK also.
So I think as you see this quarter, we have released about INR850 crores on account of inventory and about INR1,000 crores of debtor. So INR1,800 crores have come down in this quarter. You referred to the half-year number, which is what you would see in the semi-release. But for the quarter, there is about an INR1,800 crores of gross working capital release. And taking into account the creditors, it is still a positive about INR400 crores. So I think it is — that’s the trajectory we will move. The other thing which your second part of the question is you talked about the Netherlands capex. We don’t see Netherlands capex decarbonization capex coming in the next six, eight months or even one year from today because we are in negotiations with the Netherlands government, there is a process by which the grant numbers will be decided by the government based on our application where their negotiation is on — also with the European Commission on stated issues. So all this will take some months-to finalize. Once that get finalized, then the question will be on the ground the permitting process, the detailed engineering process, etcetera. So I don’t see a Netherlands capex coming into the play in the next 12 months. UK capex will start happening, but not — typically in this kind of project, the first 18 months or 24 months of spends or 20 months of spend are not very significant. It’s the last 12, 16 months of spend, which actually starts picking up.
So 2025, ’26 will be mostly completion of — completion payments of Kalinganagar, because as I mentioned that there is almost about INR19,000 crores of capex which will get completed over the next few months. And so those payments will come. And then it will be more sustained. So next year, it will be a much more capex-light year compared to the last two years. But sustenance capex has to be spent, bolt-on capex has to be spent improvement capex has to be spent, but the aggregate of all that will be much lower.
UK will start spending, but we will also get 40% a grant on a quarterly basis. So the net spending in the UK will also be not so significant.
Satyadeep Jain
Just wanted to some get summer, when we tie all of this together, Tata Steel historically had this $1 billion deleveraging target. Now it’s become deleveraging in the last 12 months or so more than that. So when we look at all the capex requirements and maybe working capital, would you say this is a peak debt or is there what could be potential deleveraging or is that something in the minds of — is for the deleveraging possible from here?
Koushik Chatterjee
No, it is certainly not possible. It’s also the target. So if you look at the debt — gross debt numbers in FY’22 when we took out almost about $4 billion of deleveraging, it was about INR75,000 crores. And for our growing company, I think that will be the level at which we would be comfortable from a gross debt perspective between INR75,000 crore and INR80,000 crores.
So we will certainly — that’s why I said the underlying indication of the next year being a capex slight year and a year in which we will have higher production numbers from India for sure and the benefits on cost takeouts, both in UK and Netherlands, we would — we would certainly want to resume the long-term targets that we have of $1 billion of repayments. That’s certainly on something that we are planning at this point of time.
Satyadeep Jain
Thank you so much and wish you all the best.
Koushik Chatterjee
Thank you.
Operator
Thank you. The next question is from Sumangal Nevatia of Kotak Securities. Sumangal, request you to please go ahead.
Sumangal Nevatia
Good afternoon, everyone, and thanks for this chance. Sir, my first question is on UK. Now we are saying that the cost takeout would be gradual over next three to four quarters. Just wanted to understand how will the P&L of UK will look like. I mean, should we expect these losses of INR1,000, INR50,00 odd crores to continue with a declining trend or maybe if you can add some more color for the next two or three quarters? That’s my first question.
Koushik Chatterjee
Yeah. So I think the — it would be fair to say that, see, if we were in a good market conditions, we would certainly have been in a much better position. But I think that we are somewhat peaking in terms of the losses in this quarter. And our target, as I said, is to take out more and more cost. Actually, it has got — other than the people cost, all the other fixed-cost takeouts are being pushed. But in people cost, it has a certain process and that process is essentially in terms of individual consolidation. So if A person is identified as redundant or will have to move towards or has volunteered to take redundancy, there is a process of engaging with that person over multiple rounds. So that takes time. And that’s why that four months I mentioned was important because four months is a lot of time to engage with those people.
So we see that the — a significant tranche of people will move down — move-out by end of March and there will be a stub left who would possibly go off in June of next year and some more maybe after that. So the people reduction, so we have signed up with the government that 5,000 people will continue. Our aim is to essentially come as close to that. Today, the number is much higher because we are coming down from a base level of 8,000 plus. So we have to give that time for over the next two quarters, but that’s not the — and given the pressure on the market, we are seeing the fact that you would possibly look at assuming that the level of losses will come down over the next three quarters. And as I mentioned a little bit back, our target is to ensure that we are neutral as far as EBITDA is concerned and also as neutral as possible in cash flows by June 2025.
Sumangal Nevatia
Okay. And, Koushik in that assumption, are we expecting market to improve or in the current state of the market also we are confident that we would be breaking even at the EBITDA level and cash level?
Koushik Chatterjee
At this point of time, I guess I can’t take a view on the market, but…
Sumangal Nevatia
No, at the current market situation.
Koushik Chatterjee
Yeah, my assumption is on the current market situation because only thing is I would assume that the market wouldn’t be worse off than where we are today. There is — that assumption gets even worse. But I’m basing the assumption that it is actually the internal levers on fixed cost, which is the most important issue.
Sumangal Nevatia
Okay. Understood. Understood. Next question is on Netherlands. So now that our plant is stabilized, how do we see the spreads or say EBITDA per ton shaping up in next few quarters? We used to say $80, $100 as through-cycle margins. How far are we from that level in the current market situation?
Koushik Chatterjee
So the through-cycle margins were not 800. I would say through-cycle margins were more around 60 to 80. Peak levels, 120, 140 through cycle at that level. What has happened in Netherlands is there are some structural regulatory costs, which has also started coming in, including — while carbon is still much higher than the historical level. So when that 60, 80 we used to talk, the carbon prices used to be more around $18, $20, $25. Just now think it’s more around EUR60, EUR65. So that’s one impact, but that’s not the only impact. So there also, we are looking at significant fixed-cost takeout and not just the next two quarters, but it will continue because we need to take out a lot more fixed-cost, improve the efficiencies, the operating efficiencies, there are certain areas, including the maintenance costs, etc.
So my point would be that the goalpost hasn’t shifted. We still want to get to that $60, $80 of — of course, the market conditions today, if you look at it, the spreads are really declining in this quarter compared to first quarter. And it is also showing up in the second — in the third quarter. The other thing which happens on the spreads is the fact that the contract prices gets settled in this quarter and next quarter for the next one year. And if the base levels are low, then the contract prices does get affected. So we certainly see that the next two quarters to be volatile as far as Europe is concerned. And we therefore are focusing more internally than externally. But the target of that EUR [Indecipherable] per tons continues to be the same.
Sumangal Nevatia
Got it. If I may just squeeze in one more on the India expansion. Now that we’ve commissioned KPO almost — we’ve still not started the next phase of expansion. So don’t we think we are slower than desired in taking up growth projects in India?
Koushik Chatterjee
Yeah. So maybe Naren can add to it and then I’ll come in late.
Thachat Viswanath Narendran
Yeah. So I think the work is already going on. Our approach to capital projects is now more about doing all the detailed engineering, get the environment clearances ahead of going to the Board for approvals because that gives us more certainty in the execution because oftentimes we take the Board approval and then take longer than planned on environment clearances, etc. So the work is already going on that. In fact, in November, we have the public hearing for the Neelachal expansion. I think it’s on November 29 and that’s for expanding Neelachal to 10 million tons. So once we have the EC on that, then obviously, we can progress as fast as we want. And a lot of the engineering work is already going on. So we have — while we have not announced the project because we will do that after the Board approval, but the work is already going on, the Board has already approved expenses to be incurred for all this preliminary work.
So basically immediately after this, the focus will be on Neelachal expansion, which will take it from 1 million to 5 million tons. After that, of course, we have the Kalinganagar option from 8 to 13 and the Bhushan option, the Angul plant option from 5 to 7. So again, the engineering work is — some of the work is already going on those two as well. Immediately after this Kalinganagar expansion, the next facility to come on stream, there are two facilities coming on stream. One is the Ludhiana steel plant, which is 0.8 million tons steel plant, which is — which should be ready by 2026. The work is going on full steam.
And in Jamshedpur, we are setting up 0.5 million tons mill to service which is going to be downstream of the Usha Martin steel business, which we had acquired, the Gamaria Steel plant. That is more to cater to the high-end forging quality requirements of the passenger car vehicles and the two-wheelers. We’re already servicing the commercial vehicles. So these projects are going on. So I think — we think the pace is just right for the current market conditions.
Sumangal Nevatia
Yeah. Got it. Got it. Thank you so much and all the best. Yeah.
Operator
Thank you. The next question is from Amit Dixit of ICICI Securities. Amit, request you to please go ahead.
Amit Dixit
Yeah. Hi, good afternoon and thanks for the opportunity. I have a couple of questions. The first one is on the Forex movement in this quarter. So if I look at the adjusted EBITDA versus the reported EBITDA, there is a significant gap, although the — I mean, the INR — USD-INR movement was not that stark. So just wanted to get your view on this, why there is so much gap in adjusted EBITDA versus reported EBITDA? And I know it’s very difficult to quantify how is it going to be, but some of the factors that led to that would be very helpful.
Koushik Chatterjee
So yes, there has been a — this is all the translation changes that we see in the Forex, which is why we adjust that. And it has happened because if you look at the September end, 30th September, 29th, 30th September movements, that’s where the translation impact is coming. It’s been fairly steady, but it is more at the end. I don’t know if Samita, you want to expand it.
Samita Shah
Yeah. So Amit, while the — it’s not the INR, USD actually, but the consol level impact is significantly driven by USD, Euro, and that has been volatile and that has actually reflected into such a large amount.
Amit Dixit
Okay, understood. The second point is on KPO2. How is the ramp-up going on? What were the incremental volumes in this quarter, if any? And how do we expect this to take place in Q3 and Q4 of this year?
Thachat Viswanath Narendran
So as far as Kalinganagar is concerned, the blast burnace, as we mentioned, is the largest one in India. A steady state production should be 15,000 tons a day. We are already at 7,500 tons a day. I mean there is a ramp-up that we have planned. It’s as per the plan. Next step is to take it to 10,000 and so on and so forth. By Q4 of this year, we will be running at 15,000 tons a day. So that’s the plan. It means I think this year, we will have about 1.1 million tons additional volume coming out of Kalinganagar. Next year, it will be closer to 4 million, 3.5 million to 4 million and the year after will be the full 5 million. The reason why 3.5 million to 4 million next year is because the third caster in the steel mill shop will be commissioned by September next year.
So it’s a step-by-step volume growth. The other facilities being commissioned this quarter, rather coal carvens are being commissioned this quarter. The cold-rolling mill was commissioned earlier, but the annealing line is being commissioned this quarter and the next two quarters, the two galvanizing lines will also be commissioned. So the volumes are as per the guidance I’ve just given you, but the ramp-up is going on well. Of course, in any big steel plant when you ramp up, you hit different bottlenecks at different points in time. Just now the bottleneck is oxygen supply, which we are sorting out and so on and so forth. So I think that’s where it is, largely on track as we had planned.
Amit Dixit
Okay. One more if I can squeeze in, you mentioned that in standalone statements, the operating cost benefit — sorry, other operating cost benefit was to the extent of INR2,000 rupees per ton. So just wanted to understand how much of it would be recurring because some of it is due to rate and taxes that might not recur in the next quarter.
Koushik Chatterjee
So on that, Amit, so we are actually beyond the rates and taxes, you are right, that may not — that will not have a — it’s — it will keep going up and down. But fundamentally, we are undertaking a significant cost takeout program, which focuses on the stores, repairs, maintenance. Now we have five sites. So we are optimizing across five sites. We are looking at our — not looking, but working on our purchase on stores, spares, consumption patterns, predictability on maintenance, what gets done within an external so and then there are rework on many of our additional processing cost, which is done externally, conversion costs, etc.
So there is a menu of cost takeouts that we are working on in India and fundamentally to look at a reduction in the cost. So I would say that this cost takeout is going to sustain after some time. So this trend will continue, but — and we are rebasing and structurally addressing the cost. So I think that is the only thing that you can do at this point of time when the markets are so challenging. So we will continue that direction of travel apart from the rates and rates and taxes, the other structural cost will continue to remain.
Amit Dixit
Great. Thank you so much and all the best.
Koushik Chatterjee
Thank you.
Operator
Thank you. The next question is from Ritesh Shah of Investec. Ritesh, request you to please go ahead. I should take a couple of questions. First, for Narendran sir. So you indicated we’ll go from 7,500 to 15,000. What is the sort of cost benefit that we can see on operating leverage for the India operations with KPO going full throttle?
Thachat Viswanath Narendran
I don’t know if Samita or Koushik has an exact number, but basically, at a broader level, you know, the Kalingalagar plant is going to be producing 8 million tons with 4,000 people, 4,000 people, 5,000 people. So that is one big leverage. So in terms of labor productivity will be comparable to the best in the world. Secondly, the coke rates for these large blast furnaces, two blast furnaces operating will be much better than many of our smaller blast furnaces, let’s say, in Jamshedpur, etc. So we have the advantage of that. Thirdly, Kalinganagar itself, the conversion cost will come down and Kalinganagar will now become the most competitive site for us as Tata Steel because today Kalinganagar carries a lot of costs at the 3 million ton level which will get distributed over 8 million tons because infrastructure was built for 8 million tons.
So I do see at least with this blast furnace coming in at least INR3,000 to INR4,000 per tons benefit for the steel coming out of Kalinganagar. On a consolidated basis, you’ll have to calculate to see what is that benefit at the Tata Steel India level, so we can come back to you on that.
Ritesh Shah
That’s quite useful. My second question was for Koushik. Sir, you indicated FY’26, the focus will be higher production and lower capex. And you also indicated that we will strive for a $1 billion target or probably to my understanding, it would be back in FY’27. Is it possible you give some guidance for FY’26 for UK and Netherlands separately. You already indicated for KPO. And when we say lower capex, is it possible to break it up for, say, India, Netherlands and UK what we are looking at for ’25 and ’26? I’m just trying to understand the debt profile and how we are looking at it.
Koushik Chatterjee
So I would be as every year when we get past the third quarter, when we are planning numbers are in place, we give that guidance and I think the direction of travel is what I mentioned. In specific, I would be able to give it to you more in January or February. Because fundamentally, there are some moving parts as far as Netherlands is concerned and UK is concerned. So we need to stabilize that, push that and ensure that we are doing that. As far as the capex light is concerned is because as Naren mentioned, we are doing the engineering workfor the NINL expansion. But fundamentally closing and completing the TSK Phase 2, there’s only one part that will remain, which will happen in August or so, which is the cast three in TSK. But other than that, most of the facilities would be commissioned. So we certainly get to — not to the full capacity in ’26 in — out of KPO, but a significant proportion of the capacity. So four out of the five million tons we should be able to get there.
Ritesh Shah
Sure. And the last question, you indicated for Tata Steel, Netherlands, we don’t see any capex coming from our — from for next 6 to 12 months. I’m just trying to understand.
Koushik Chatterjee
Decarbonization.
Ritesh Shah
Decarbonization capex, yes. So just trying to understand, I think what we had proposed the government based on the consultation was publicly available, we were looking to replace a blast furnace 7 as well as the coking as plant by 2030. So we had specifically indicated a timeline over here. And now when we say that we don’t see any capex coming for say next 12 months, what is it that has changed from a regulatory standpoint? How should we look at it?
Koushik Chatterjee
Yeah. So when I say — sorry, so when I say that the capex is not there, the spend — see the first 18 months is spent on the engineering work, the site preparation work, the permitting part, etc., which is happening even in the UK. If you look at the UK when we signed our — when we are saying July 26, we will start work on the ground. All this time before that is on permitting, etc. So I think that is the lead time that is required. What we call here as environment clearance is a permitting time there. It’s the same kind of stuff. So what I said is that it’s not that the work will not start, but the spend is not significant on that at this point of time for the next 12 months. But based on it, we are — we have to comply with the 2030 guidelines anyways. So — and the build period is typically 3.5 years. So if you factor that in, you would see that this is broadly in line that we will complete it around 2029, 2030.
Ritesh Shah
Sure.
Koushik Chatterjee
So if you could add something?
Ritesh Shah
Sure. If I can just squeeze one. I presume I think you will indicate that we have not finalized the configuration for Tata Steel Netherlands. But hypothetically, if we had to go for, say, only a EF or a hydrogen-based DRI, what are the broader parameters in the marketplace from a capex intensity standpoint, one can look at from an industry standpoint, not specific to Tata Steel Netherlands? I’m just trying to understand what can be the potential capex outgo pertaining to decarbonization over here.
Koushik Chatterjee
Yeah. So if I look at the — if I tell you that it’s not that we have not identified the configuration. We have actually submitted an application to the government. It is actually a DRI EAF combination. In UK, it was an EAF combination because we have a pellet plant in Netherlands and the mix of Netherlands is different. So we’ve submitted that. It’s not that we have not kind of done. And hydrogen is not a fuel which is available in either available in the price or quantity at this point. Europe is building up the hydrogen infrastructure at this point and they have themselves — the EU themselves want companies to commit to the tapping in or conversion from natural gas to hydrogen over the next 15 years. So all that we need — we are doing is in designing it, we have enabling the conversion to use hydrogen when it is available. But Naren, you want to add something?
Thachat Viswanath Narendran
So I think that the other reason why we are building a DRI or proposing to build a DRI plant in Netherlands is Netherlands has gas available. And the way it has been configured is the DRI plant that we built in Netherlands will use gas and as and when hydrogen is available in plenty and competitively, as Koushik said, you can always switch from gas to hydrogen. So that’s a call that will be taken based on the economics of it and that’s also part of the discussion with the government because the price at which hydrogen is available is important to make the choice. But the configuration is all fixed and that’s part of the proposal to the government.
Ritesh Shah
Capex intensity indicative if possible?
Koushik Chatterjee
We would do that surely. As you know, in UK, we have done a tenure contract. And when we get into that stage, it is much easier to give that intensity. But the — as far as the — the EF is concerned, it will be of the similar number as UK, which is about INR1.2 billion. And the DRI of the similar configuration is about INR1 billion, 1.2 billion. So that is known. But given the fact that it is — it is asset where is an existing plant, in UK, we shut down the heavy end and building, whereas here we are going to continue to run the blast furnace and build next to it. So the infrastructure requirement or the ability to actually build around a running plant will have its impact on the infra and the enabling facilities, which is what is being determined when the — as part of the retail engineering.
Operator
Thank you, sir. Before we take the next question, I would like to remind the participants to please limit your audio questions to two per participant. Should you have a follow-up question, you are requested to rejoin the queue or post the same in the chat box. The next question is from Tarang Agrawal of Old Bridge Asset Management. Tarang, over to you.
Tarang Agrawal
Sir, couple of questions on cash flows and one on India. So on cash flow, sir, how much of INR27,000 crores of KPO2 has been spent till 30th September ’24?
Koushik Chatterjee
So roughly about — so spend or you’re looking at the completion?
Tarang Agrawal
Cash outflow, how much of the cash has moved out of the business?
Koushik Chatterjee
So we would have spent almost about INR18,000 crores of cash on account of KPO and but…
Samita Shah
Little bit higher, closer to INR20,00 crores.
Koushik Chatterjee
INR20,000 crores, yeah. So INR18,000 crores to INR20,000crores, but it also includes the iron-ore circuit, etc. So there are — if you take all of that, we have another INR7,000 crores to spend, but a lot of it is also spent after the commissioning as part of performance guarantee retention money, etc.
Tarang Agrawal
Got it. Sir, the second question is on the cash burn in H1 in Europe and overall how should we look at cash flows for Europe in FY’25? And a subsequent one, when do we expect the cash payouts for the settlement with the Port Talbot employee union?
Koushik Chatterjee
So that will happen over the next three quarters. So some of them will be there in Q3, but mostly Q4 and Q1 of next year is what we will look at. And that cash will come in.
Tarang Agrawal
Okay. And Europe overall cash flow in H1 and overall for FY’25, current estimates?
Koushik Chatterjee
Yeah. So I think it would be more appropriate to talk about it when we finish the Q3 because there are certain transition cash flows that we are also building up, including the redundancies because when you do voluntary redundancies, you don’t — you can’t be precise because we want to push-out the — rather complete the redundancy process over the next two quarters. So it will depend if we can complete that with VR, otherwise, there will be a compulsory redundancy training program, etc. So that is a big thing as far as the UK is concerned. As far as Netherlands is concerned, I think it’s the operating cash flows are — in Q3 will be negative, but we’ll come back because the spreads are at about EUR200 at this point of time. So at EUR200, the fixed-cost numbers are — or the operating cost and fixed cost numbers are significantly higher. So we will have to look at Q3.
Q4, we expect the turnaround to happen. And in the meanwhile, we are tightening up the working capital and the — also one other thing which helps is the lower level of iron-ore and coal cost. So we see a — at best a neutral cash flow as far as Netherlands is concerned by the second half.
Operator
The next question is from Kirtan Mehta of BoB Capital. Kirtan, request you to please go ahead.
Kirtan Mehta
Thank you, sir for this opportunity. In terms of the India operations, we have started generating a very significant sort of the EBITDA margin in the range of INR12,000 to INR15,000 per ton. And this is coming because of our advantage of the iron-ore security, value-added products, retail presence, improving retail presence. Is it possible to bifurcate now our EBITDA margin into sort of the commodity component and additional uplift that we get from each component on a quarterly basis would be very helpful to understand how the volatility is getting reduced and what is our relative competitive advantage to our peers?
Koushik Chatterjee
We’ll do some work on that. I don’t think we can share that with you just yet. But yes, internally, we do track it very differently. I think we — like you said, there is an iron advantage, which is less visible when iron prices are low and more visible when iron prices are high. So if you look at iron prices at 100, the difference is not so much with iron prices 150 or 200, it’s more, right? So that is one part of it. But the other part is typically you look at Tata Steel sales typically 90%, 85%, 90%, 95% of our sales is in the domestic market largely because we have a very strong franchise, even though we have incremental volumes, everything is sold-in the domestic. Today, in fact, most of the exports that you see is what’s going to the UK. The third thing is our downstream, we have a significant presence in tubes, wires, etc, which gives us an advantage. In our retail presence now we sell almost 200,000 tons a month of steel tariff discount to the retail segment through our network of dealers and distributors. We have over 12,000 dealers now across the country.
So these are the advantages that we have and of course, our 50% market share with the auto segment, which will increase further with the cold rolling mill coming in because we are a bit short on cold rolled and galvanized products for the auto, but with our 2.2 million ton cold rolling mill in Kalinganagar, that will get enhanced the other approval-based business we sell to is oil and gas, which again is growing, thanks to Kalinganagar. So we’ll see what is the best way to, you know, capture this in a manner that is helpful to you. We’ll work on that. Yeah.
Kirtan Mehta
Sure, sir. The second question was about the CRM complex. You have now given a detailed guidance in terms of the ramp up of the KPO Phase 2. Would it also be possible to sort of give similar guidance on the CRM, both on volumes as well as sort of the margin potential that we can achieve and how do we ramp up to the full margin potential of this year end?
Koushik Chatterjee
Sure. So the cold rolling mill itself has been operating for the last few months. So that is going on as per plan. There is no issue there. But the annealing line is getting commissioned this month. So that means you can then have the anneal product. Otherwise you had what was called the full heart CR, which we were using in other facilities of Tata Steel or selling. We will have the galvanizing — one galvanizing line coming in March and the other one by June, that will help us in the mix as well. But obviously, one is a volume ramp up, which we can give you more specific guidance on each of these.
But the quality ramp-up is more a question of the approvals by customers. So typically with auto customers with the new facility, even if you are an approved supplier, you need to go through an approval process. So that will go on. So you will probably get the best product mix out of the plant maybe in another year and a half or two years because that’s when it takes to get all the approvals in place. But the fact that customers are waiting for us to ramp up these facilities suggests to us that we will get the approvals as fast as possible and we have the experience to make those kind of quality products. So — but we can come back more specifically on the ramp up of the cold rolling mill at a more specific level, right?
Kirtan Mehta
And what would be the full potential of CRM facility in terms of the EBITDA generation?
Koushik Chatterjee
Yeah. So again typically when you look at it in the long-term for base CR grades, you look at a $100 difference between CR and HR, right? But as you go up the product mix, you get a better value for two reasons. You will obviously get a better price when you make these very high-end products. And secondly, as you know, the auto contracts are typically six months. So you have stability and that — so that gap looks better in a falling market because the auto price is fixed and the commodity price drops. But in a rising market, that margin may get squeezed. So that’s why the true benefit will vary. But I would say $100 to $200 is typically the range that you would look at within which to play. Of course, there is a conversion cost in that. So you can take out 50% of that tastes [Phonetic] conversion cost, but these is just broad-level numbers.
Operator
Thank you, sir. The next question is from Amit Murarka of Axis Capital. Amit, request you to please go ahead.
Amit Murarka
Good afternoon and thanks for the opportunity. Actually, my first question is on the guidances that you usually provide for the next quarter. Maybe I missed it if you’ve already given like what’s the guidance on coking coal cost and also the realization?
Koushik Chatterjee
So I think basically, in India, we are saying that the net realizations would be about INR2,000 lower in Q3 compared to Q2, largely because in Q2, July prices were quite high and then it dropped till September. In October, steel prices started going up, but we don’t expect prices in December to be the same as what was in June. So on an average basis, it will be about INR2,000 lower also because of the fact that a lot of the auto contracts now are on the new terms. We — in the first half, we had the benefit of the first April prices. So these are the reasons why the guidance in India is INR2,000 lower. Coal prices are expected to be about $20 lower consumption-wise for Q3 compared to Q2.
As far as Europe is concerned, I think the guidance for Netherlands is I think about GBP45 pounds per ton lower — sorry, for UK is I think about Q3 is about GBP55 per ton lower at for Netherlands about GBP70 per ton lower. And again in terms of coking coal, Netherlands will be about $10 lower per ton. Iron-ore will be again about $10 lower per ton. And for UK, these numbers don’t matter because we are no longer using iron-ore and coal in UK, it’s more the substrate that goes out of Netherlands and India.
Amit Murarka
Yeah. Sure, I got it. That’s helpful. And also the reasons for the lower other expenses, sorry, I didn’t capture it too well. What did you really mention on that and how much of that is one-off?
Koushik Chatterjee
Lower other expenses, maybe I’ll have to get back to you, but there are not too many one-offs. But we’ll — I can get back to you separately.
Amit Murarka
Yeah. I mean, in Q2, I mean your other expenses seems to have dropped even the volume is similar. So just if you could just help understand that maybe even later is okay.
Koushik Chatterjee
Yeah.
Amit Murarka
Sure. And on the cash-flow — our cash outflow for the TSUK restructuring as of now like you are — I mean, any guidance that you can provide for H2?
Koushik Chatterjee
Yeah. So I think the restructuring cost, we had budgeted about GBP250 million as a total restructuring cost, of which some — of which about GBP150 million, GBP160 million was on account of the redundancies. And that spend has not happened. The contract termination, etc. has been spent. So I think it is more about that and the people component of it, which is due, which is what I just said that it will flow out slowly between Q3, Q4, and Q1 of next year as we get into the people numbers.
Amit Murarka
Hello. Hi, hello, am I audible?
Thachat Viswanath Narendran
Yeah.
Amit Murarka
So Koushik, just to first confirm this number. So the EUR150 million redundancy related is what we are currently factoring as a cash outlay in the next two to three in the UK?
Koushik Chatterjee
Yes.
Amit Murarka
Is that like high-visibility for that or we think there should be like meaningful upside risk to this number?
Koushik Chatterjee
No, it will be between 150 and 160. That’s the — that’s the number that we are looking at over the three quarter because that’s effectively determined on the number of people who will either take BR or take CR.
Amit Murarka
Right. Secondly, you know, based upon the numbers you spoke about in terms of KPO cash outlay for the capex, so let’s say, roughly $900 million is pending for KPO and we will have some capex for UK as well. Am I thinking right that next year the capex would decline quite substantially versus what we have been doing in the last two, three years and all or there could be new projects which will take up in that timeframe itself?
Koushik Chatterjee
So that’s what I mentioned that next year we compare to the last two years, we expect that the capex cycle to slow before we start again in the year after because honestly, once you complete in the Kalinganagar Phase 2, one, there is no big start as far as the capex is concerned, there are a lot of enabling work like the NINL engineering work is happening, etc., but it will not spend so much as in the next 12 months. So is Netherlands.
UK, even when the site work starts in June ’26, it will not be as significant pickup. And anyway, it is 60% of the capex, not 100% of the capex on us. So on a quarterly basis, it will be much, much lower.
Amit Murarka
Got it, got it. My last question, the comments which Narendran sir made earlier that KPO cost would come down by INR4,000 to INR5,000 once it is fully ramped up. And if I also factor the commissioning of pellet plant, the product mix, which will improve with everything ramp-up, but should we think that India business EBITDA per ton can improve easily by INR1,500 odd rupees purely on the back of this INR1,500 to INR2,000 in the next, say, 24 months or so? That’s very aggressive?
Samita Shah
So Ashish — sorry.
Koushik Chatterjee
No, I said, firstly, I said 3,000 to 4,000, but anyway, Samita, respond.
Samita Shah
So Ashish, as you know, we don’t really give a guidance in terms of overall number. I think was giving you directionally the kind of numbers. Obviously, it depends on a whole lot of other factors.
Amit Murarka
But I’m not looking for a guidance. I know the dynamic business nature, but I’m just saying INR3,000 to INR4,000 on, let’s say, 8 million ton capacity, which is 30% of India capacity that itself is like roughly INR1,200, INR1,300 just from that simple match, then pellet plant, product mix improvement. If I put all that together, INR1,500 looks a fair safe assumption. That’s the reason I just want to confirm this.
Koushik Chatterjee
Not far.
Amit Murarka
Okay. Okay, okay. Got it. That’s helpful. And, Koushik, that clarification on other expenses. Actually, even I was looking for that, I think you referred to some one-off in 1Q in India business, at least I thought so. So maybe that is possible.
Thachat Viswanath Narendran
So I think it’s at, the water tax project.
Koushik Chatterjee
Yeah, there is — there was — see there is a INR400 crore non-cash part which is there on account of settlement of water charges with the government of Jharkhand. So that is Jamshedpur is to draw water from the river for a century and there was a charge that kept on increasing for a long period of time by the government of Jharkhand and therefore there is an element which went to litigation because the rate at which it was increasing was significant and that got settled because of a high court order to ask us commercially settle it. And — but we have been providing it on the basis of the notified order price or the cost per gallon of water drawn.
So now that it’s got settled, that is in excess. So that will be rebasing itself. So that will not happen again because it’s one. But there are other administration — administrative and contract costs which are also there, which are more sustainable in the future.
Operator
The next question is from Indrajit Agarwal of CLSA. Indrajit, request you to please go ahead and ask your question. We are unable to hear you.
Indrajit Agarwal
Can you hear me now?
Operator
Yes, we can hear you now.
Indrajit Agarwal
Hi, thank you for the opprtunity. Good afternoon, sir. So two questions. First, can you talk a little bit more about the current market environment in India in terms of how are you seeing the demand post the festive season? Are we seeing pickup already? And as I understand, current domestic price is at a discount import parity. What kind of discussions you are having with the government or what kind of pricing outlook for the market do you see in the next 6, 12 months?
Thachat Viswanath Narendran
Yeah. So, the demand side is reasonably strong. First six months was weaker than we thought simply because construction activity was a bit slower than we thought. I think partly monsoons, partly because the government expenditure was a bit less maybe because of elections and things like that, right? So which you know we’ve been told that the second half will be much better and that’s good for construction, which is good for steel because 60% of the steel goes there. Automotive started the year well, has struggled a bit in the last couple of months. In automotive, motorcycles, we which has struggled for the last two, three years has started picking up well over the last few months, which that the rural demand is back. The urban demand is what has struggled a bit more.
In automotive, commercial vehicles will pick up once construction activity picks up, passenger vehicles, the expectation is it should start picking up. But these are areas where there’s a little bit of concern. Other government areas are railways, which is strong, spending is strong, oil and gas will also pick up. So we expect second half to be better and of course, India’s GDP growth at 7%, steel consumption in India should grow at 8%, 9%. So that’s our expectation. Our concern is more about unfairly priced imports. China is exporting 100 million tons of steel. Most of the countries have already taken action. So our submission to the government is to take action. I think government is looking at it because obviously, China is selling the steel at these prices and not making money at these prices. So they shouldn’t export that problem to us. So I think that’s where it is. That’s a conversation going on. But otherwise, I think demand we are quite optimistic about. And pricing, we’ll wait and see what happens. I also think that China is also taking actions. They’ve expected to cut production by about 4%, which is 40 million tons this year. And if that continues for another two, three years, then some of the surplus which is finding its way to global markets will come down because China has also stopped approving any new projects on steel, even if it is for replacing capacity, so that’s the other action they’ve taken.
So I think there are actions being taken in China. And now with the US presidential election, I think China will be even more concerned about its trade options and I’m sure we’ll take some action to reduce some of these excesses. So that’s the way we see it. So more positive on-demand, pricing, let’s wait and see. We have — I think we’ve hit the lowest that we did maybe in September, October since then prices have gone up, we see more — we are more optimistic about long product prices because that is less dependent on China — impacted by China exports because China’s exports is mainly flat products and launch consumption is more dependent on construction. So we are more positive about launch prices than flat prices, but flat prices also seem to be picking up now.
Indrajit Agarwal
So from the troughs of since August, September, have we taken any price increase so far?
Thachat Viswanath Narendran
Yes, we have in both long and flat, we’ve taken price increases in October. But like I said earlier, when you look quarter-on-quarter, the July prices were quite high. It dropped significantly in August, September. So even if you get some price increases in October, November, and December, I don’t think we will reach July prices by December. That’s why I’m saying that the guidance for this quarter is lower than last quarter. Second thing is the auto contracts, which are at a higher price in the last half year and some of the adjustments, etc., will play out in this quarter. So that’s the reason why the NR guidance is lower. But if you look at the international prices, this quarter is higher than last quarter, because it had hit 450 levels. Now it is in the 480 to 520 levels.
Operator
Thank you, Indrajit. I would now like to hand over the conference to Ms. Samita Shah for the chat question. Over to you, ma’am.
Samita Shah
So some of the questions on the chat have already been answered. So we’ll just take the ones which are yet to be answered. So Naren, this one is for you. I think there are some questions on our overall guidance on terms of volumes for the year. You did mention about Kalinganagar, but at a consol level of what the volumes look like for the year?
Thachat Viswanath Narendran
I think at the consol level, we are in that region of 1 million to 1.4 million for a couple of reasons. We have a blast furnace re-lining coming up in Jamshedpur and which was due to go down in Q4, we are trying to see how we can fine-tune those dates to make up for shortfalls elsewhere. This last quarter, we lost some volumes in Jamshedpur because there is a significant power outage in Jamshedpur not — I mean, steel was more the victim than the cause of it, but we had a problem there, we lost some production there. So overall, we are saying 1 million to 1.4 million on a consol basis.
Samita Shah
Thank you. There are some questions on broader markets, which also I will request you to answer. So one is, I think in terms of overall market conditions in India and the kind of pricing we are seeing and the margin regime, does this incentivize greenfield investments in India because the ROCE of integrated players is coming down? So some comments on what does this pricing regime to our future investments or broader investments in the sector?
Thachat Viswanath Narendran
Yeah. So I think this is a point we’ve been making with the government. I think the private sector investment in some sense in India, the recovery of it is actually being led by the steel industry and of course, electronics, etc., because of the electronics in PLI schemes, etc. But I think largely steel between Tata Steel and all the other steel makers have committed or announced significant capacity expansion plans. But if steel prices stay at $450, $500 levels, it will be difficult for any steel company to support very significant expansion. You can keep expanding, but it will not be as value-accretive as one would expect it to be. I think a good place for steel prices is between $550 and $600, $550 and $650 and which is where it will be when China’s exports come down to about 50 million, 60 million tons. So that’s where we are pushing hard to say that we need some sort of comfort there and which is what other countries are doing, right?
So, yes, to answer your question, if steel prices stay at today’s level, it will be very difficult to expand in the tens of millions of tons that everyone is talking about. It will be more muted for sure. The cash flows won’t support that kind of growth. But if it goes back to where it was even two years back, like I said, closer to $550, $600, then there’s a justification for those kind of investments. So we have the advantage of having all the options open, right? Like I described, Neelachal, of course, we need to take it forward simply because we are short on long products. We need more long products in our mix. And because we have three sites now, we can expand anywhere, which we didn’t have earlier. 10 years back, we had only Jamshedpur, so all expansions had to happen sequentially. Now that you have a Kalinganagar site and Neelachal site and Angul site, if the markets are good, the cash flows are great, we can start expansion in all three sites at the same time. So the growth need not be sequential and that’s a big difference for us. Yeah.
Samita Shah
Thank you. There are a few questions on the European market as well. So there are some comments that the European auto giants are going through a lot of turbulence. How does that affect our business in Netherlands? And in light of these changes, are we recalibrating our strategy for investing in Europe?
Thachat Viswanath Narendran
Yeah. So two, three things are happening in Europe. Yes, the largest economy in Europe, Germany is struggling and Germany has had the advantage of low-energy prices and strong export markets and a lot of workers from Poland and places like that, which all these things have changed. A lot of Polish workers have gone back to Poland, energy prices are high, export markets, particularly into China has not been so great, right? So we are seeing the impact of all that in Germany and also the closure which Volkswagen has announced. So there is that disruption going on. We are watching that space. We have a product mix which is rich in Netherlands. I mean, so hence, the quality of consumption in the European market is important for us. But you are also seeing supply-side restructuring in Europe, right? You are seeing that some of our peers are having their own challenges in Europe and not everyone in Europe will be able to make this transition because it depends on support of the government, the financial strength of the companies and the product mix and the markets they serve.
So it’s going to be a period of some disruption both on the market side and on the supply side. Structurally, we are well-positioned because we are on the coast. We are traditionally been a very competitive plant. And so we are watching this space. And of course, the investments in Netherlands will depend a lot on the support we get from the Dutch government, same as the investments in UK were dependent on the support we got from the UK government. So that’s a conversation we are having with the Dutch government and let’s see where that goes. And then while we have submitted our proposal, let’s see what the extent of support is and then we’ll take a call.
Samita Shah
Thank you. There is a question on capex guidance for FY’26 and FY’27. I think Koushik has already directionally mentioned it will be lower and we will give you specific guidance after our — in the first quarter of next year. There is a question on the tax rate. Koushik, maybe you’d like to take it. It says essentially that the PBT is around INR2,164 crores, whereas the current tax is INR1,142 crores, which is 53%. So why is it not the corporate tax rate of 25%?
Koushik Chatterjee
No. So if you — you shouldn’t see it from a quarter-to-quarter. On a yearly basis, we are at the effective tax rate is at the marginal tax of 25%. And during each quarter, there are deferred tax adjustments that comes in deferred tax assets. So fundamentally our tax rate remains the ETF — ETR is at 25%.
Samita Shah
Thank you. There is a broader question again on the markets in terms of competing with Chinese players in the export markets. What is our strategy and how do we actually do that?
Thachat Viswanath Narendran
Yeah. So firstly, traditionally, Tata Steel’s exports has typically been about 10% of its production. For the next couple of years, our exports — actually most of our volumes of exports will go to UK because UK needs — is taking at least 1 million tons of steel from Tata Steel in India and another, 700,000 tons from Netherlands. In the international markets, like I said, at these prices, the Chinese steel companies are not making money and we don’t want to export at prices at which we lose money. So that’s why when on the earlier question of expansion, there is no point expanding if you have to export a lot into markets which are priced like this, right? So it’s not just about the return on capital in the domestic markets, you have to look at how much are you exporting and what’s the return on capital on that. So hence, the next six months will be crucial to see what happens in China. Will they go back to that 50 million, 60 million ton export level and that’s where it is.
On a cost basis, we are more competitive than the Chinese, because even at today’s prices, Tata Steels domestic business is at 20% EBITDA margin. I don’t think there’s any Chinese company making even 5% EBITDA margin, right? So it’s not about cost, it’s about the price at which we are willing to sell at, which is why we look at it from that perspective. We are one of the lowest-cost producers of steel in the world. And so that allows us to make money even at these prices in India.
Samita Shah
Thank you.
Koushik Chatterjee
Samita, one clarification is, I think the numbers on tax, what I just saw is, I think the person who is asking the question has seen the consol profits, which is why he is saying 50%, because in consolidation, we don’t — the tax is actually being paid out of India. So in India, if you look at it, the PBT is INR4,700 and the tax is INR1,100. So I think because in Europe and UK, we don’t have any tax payability and they were in losses in any case.
Samita Shah
Thank you. There is a question on the sales mix between long and flat. And Naren, maybe you want to give it just at an annual basis because quarter-wise is less relevant?
Thachat Viswanath Narendran
Yeah. So I think if you look at Tata Steel today in India, we are producing about 21 million tons. I mean capacity-wise after the Kalinganagar expansion, we will be at 26 million tons. In that 26 million tons, we are about 5 million tons of long and the balance is flat, right, 5 million tons to 6 million tons long because you have about 3, 3.5 in Jamshedpur, another million in the Gamharia plant, which is [Indecipherable] plant that we acquired and another 1 million in Neelachal, which we acquired. So that’s the 5 million, 5.5 million of long.
The Ludhiana plant will come up March of ’26, so that will add another 800,000, right? And hence, the next expansion that we have planned is Neelachal, which will take it from one to 5 million. So that will make our — if you look at India at 30 million, 31 million, you will have loans that maybe 8 million, 9 million for us and flats at 20 million, 21 million.
Samita Shah
Thank you. There is a question on our gas requirements regarding to Kalinganagar expansion, what are the requirements and what are the kind of arrangements you have in place? So just need… the
Thachat Viswanath Narendran
The gas because we are still building — we are expanding in Kalinganagar using blast furnaces. So we use coal, coking coal and the gases that we generate from our operations is used within the operation, but we don’t need to buy natural gas of any significant volume from anywhere. So we are not dependent on gas as an input cost for Kalinganagar.
Samita Shah
I think they probably are referring to oxygen.
Thachat Viswanath Narendran
Oxygen, okay. So oxygen is an important part of a steel maker’s cost. I think if I remember right, it’s maybe about INR2,000 per tons or something like that. So it is an important part of the cost. And there we typically work with global leaders. We outsource the oxygen production, we bid out the capacity, they build it for us, run it for us and we have a contract with them where the oxygen price is also dependent on the energy prices. So typically, the electricity cost is a pass-through. And so that’s a contract we have in all our steel plants and I think Linde is the supplier for Kalinganagar. I don’t know what is the specific question, but those are contract so…
Samita Shah
Broader arrangements. Things that answers. Thank you. And we’ll have the last question which we will take, which is two questions, but they are both related to the same issue. So one is the jump-in other income. And the second question is in the segmental EBIT, other trade-related operations, there’s a significant jump. So can you please clarify? So, Koushik, maybe you’d like to take that.
Koushik Chatterjee
You can explain that.
Samita Shah
Yeah. So this is on account of foreign-exchange translation, what we talked about earlier, there is a loan which we have, which is a Euro-USD loan and that — the difference when the currency moves, that is what gets reflected. So it comes in the segmental sort of allocation, it comes under trade-related operations. That’s what’s driving a bulk of the increase and that’s the same which is featuring in our other income as well. So with that, I think we have answered all the questions. Thank you to all our viewers and the participants for all your questions. So we look forward to connecting with you again next quarter. Thank you and have a good day.
Thachat Viswanath Narendran
Thank you.
Koushik Chatterjee
Thank you.