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Operator: Ladies and gentlemen, good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. [Operator Instructions] I would now like to hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am.
Samita Shah: Good afternoon, everyone, joining us in India and from the Far East, and good morning to all of you who are joining us from the West. On behalf of Tata Steel, welcome to this call to discuss our results for the second quarter of FY '26. We published our results yesterday, and there is also a detailed presentation on our website, which you can refer to if you haven't done already. As always, we will be guided -- this entire call will be governed by the disclosure clause on Page 2 of the presentation. To help you understand the results better, we have with us Mr. T.V. Narendran, CEO and Managing Director, Tata Steel; and Mr. Koushik Chatterjee, Executive Director and CFO, Tata Steel. They will make a few opening comments, and we will then open the floor for questions. Thank you again, and I will request Naren to make comments, please.
Thachat Narendran: Thanks, Samita and hello, everyone. As Samita mentioned, I'll make a few comments and then hand over to Koushik and then we'll do the Q&A. The global dynamics continues to be shaped by tariffs, geopolitical tensions and elevated steel exports. And Chinese steel exports are expected to cross 100 million tonnes again this year, and this obviously has an impact on pricing across the world. And amidst this Tata Steel has delivered strong improvement quarter-on-quarter and year-on-year basis. I would now like to make a few comments on the performance in each geography. In India, crude steel production was up 8% quarter-on-quarter and 7% year-on-year at 5.65 million tonnes, largely driven by the ongoing ramp-up in Kalinganagar and the completion of the relining of the G Blast Furnace, which is down for almost 6 months. We continue to stay focused on driving sales even in a challenging environment, and we were able to ramp up the sales in line with our production ramp up without having to build inventory. In fact, we increased our domestic deliveries by 20% quarter-on-quarter, a testimony to the strength of our customer relationships and the marketing and sales network. While average hot-rolled coil spot prices were down about INR 2,300 per tonne quarter-on-quarter, we were able to limit the drop in our net realizations to about INR 1,700 per tonne. We were also able to offset this impact to higher volumes and the ongoing cost transformation, which has resulted in an improvement in the EBITDA margin by about 80 basis points to 25%. And some segmental highlights. The seasonal rains in the second quarter impacted construction activity across India, but we successfully grew Tata Tiscon volumes by about 27% quarter-on-quarter as our expanding channel network and digital platforms enabled us to leverage insights into customer behavior and cater to the evolving needs. Industrial Products & Projects deliveries grew by about 22% quarter-on-quarter aided by value-accretive segments such as engineering and ready-to-use solutions. In the U.K., our delivery stood at 0.6 million tonnes, marginally lower on a quarter-on-quarter basis, and we continue to work on transforming the business and the 3 million tonne -- building the 3 million tonne electric arc furnace in Port Talbot. In Netherlands, the liquid steel production and deliveries were broadly stable quarter-on-quarter at 1.7 million tonnes and 1.5 million tonnes, respectively. And our performance was aided by the continued improvement in controllable costs. In September, we signed a nonbinding letter of intent -- Joint Letter of Intent with the Dutch government on an integrated health measures and decarbonization project, and we are committed to working with all the stakeholders on resolving the outstanding points before proceeding towards an investment decision. I will now hand over to Koushik for his comments. Over to you, Koushik.
Koushik Chatterjee: Thank you, Naren. Good morning, good afternoon or good evening to all those who have joined in. Before I talk about the results of the company, I would like to stress on what Naren mentioned that we should consider the backdrop of continuing global macroeconomic uncertainty, especially in the context of the trade, tariff, currency and the heightened exports from China, which, as you mentioned, has crossed 100 and are likely to cross 100, more towards 120 in the context of the financial results that has been delivered by the company in the first half. Let me now begin with some headline financial performance data for the first half ended 30th September 2025 of the current financial year. Our consolidated revenues for the half year was INR 1,11,867 crores and EBITDA was INR 16,585 crores at a consolidated EBITDA of INR 11,037 per tonne reflecting an EBITDA margin of about 15%. The EBITDA margin expanded by 280 basis points in the first half of this financial year, reflecting our continued focus on the India growth volumes, cost competitiveness and our focus on cash flows. Our global cost transformation program continues to deliver tangible results with around INR 5,450 crores achieved in the first half, as highlighted on Slide 13 of the presentation. This translates to about 94% compliance to our own H1 plan, and I will explain a bit of this further. Turning to the second quarter performance provided on Slide 23 of the presentation. Our consolidated revenues stood at about INR 58,689 crore, up 10% quarter-on-quarter, primarily driven by strong volume growth in India and continued improvement in the cost transformation program to the tune of about INR 1,300 per tonne. As a result, the EBITDA improved by about INR 1,000 per tonne quarter-on-quarter, and this marks an improvement for the second quarter in a row in a very difficult market. Expanding on the cost transformation program. As a company, we have delivered an improvement in costs of more than INR 2,561 crores during the quarter and are on track as planned across geographies. More specifically on -- in India, the cost transformation program achieved full compliance to our second quarter plan with leaner coal mix, optimization on the stores, repairs and maintenance expenses and operating KPIs, which delivered the transformation of about INR 1,036 crores for the quarter. In U.K., too, the cost transformation program was focused on reducing fixed cost in higher-end leasing, lower fuel charges and operating charges. In Netherlands, the program delivered about INR 1,059 crores for the quarter. We are on plan in all the operating areas, like optimization of supply chain, procurement and product mix, along with the other controllable costs. However, we are delayed on the people restructuring time line and the consequential benefits of the same in this year as the discussions with the Central Works Councils are still ongoing. Across geographies, we remain focused on execution of the cost transformation targets for the full year. Let me now provide an understanding of the India, Netherlands and the U.K. quarterly performance individually. Tata Steel stand-alone revenues for the quarter stood at INR 34,680 crores, and the EBITDA was about INR 8,394 crores, reflecting a quarter-on-quarter improvement in EBITDA margin of about 80 basis points to 24%. As Naren mentioned, our volumes are significantly higher in quarter 2 and this, along with improvement in costs, led to an uplift in the EBITDA margin. Our wholly owned subsidiary in the Neelachal Ispat Nigam Limited, also recorded about INR 260 crores of EBITDA for the quarter, up 17% quarter-on-quarter and reflecting an EBITDA margin of 20%. Let me now turn to the U.K. market and our performance. Firstly, I must say that amidst the growing trade protection across the world, U.K. remains a very vulnerable market as the import quotas of steel across several product grades are higher than the total consumption of the country, making it very open to cheap imports. In addition, the market demand has shrunk due to the weak economy, resulting in decline in domestic prices by more than GBP 150 per tonne since January '24. The U.K. demand for flat products has declined by about 33% since 2018, but the quotas have increased by about 20%. In 2025, on a year-to-date basis, U.K. imports are up by about 7% year-on-year, and this has continued to impact prices as well as the spot spreads. As a result of severe market pressure and despite significant cost takeout program, the Tata Steel U.K. EBITDA losses widened from GBP 41 million in the first quarter to GBP 66 million in the second quarter. As an industry in the U.K., we have brought the current policy disparity to the attention of the U.K. government and are engaged on the subject. Given the current market conditions, we are focusing on optimizing the fixed cost. They are down by about GBP 90 million compared to the second quarter of last year. But sequentially, we are marginally higher by about GBP 7 million due to the annual maintenance activities during the quarter. Moving to Netherlands performance. Revenues for the quarter were about EUR 1.5 billion on improved volumes but were partly offset by lower realizations. On the cost side, material costs increased by about EUR 75 million on a quarter-on-quarter basis, largely due to inventory drawdown in contrast to the buildup in the first quarter. This was largely offset by about EUR 72 million reduction in conversion costs, aided by lower employee benefit expenses and emission-related costs. We are also watching the policy development in the EU, especially on the EU steel plant 2.0 announced by the European Commission as it will have long-term ramification on the domestic steel industry in the U.K. in the future. During the half year, we generated about INR 10,000 crores of operating cash flows after interest, tax and working capital. Of this, we spent about INR 7,000 crores on capital expenditure and paid dividend for the financial year FY '25, about INR 4,490 crores. As a result, the gross debt was almost flat with a marginal increase of INR 842 crores versus end March, while the net debt stands at about INR 87,040 crores. The net debt witnessed increased versus last quarter as it also included cash utilized for the dividend paid of INR 4,490 crores. Our net debt to EBITDA stands at about 3x on a consolidated basis. As part of our strategic realignment following the planned surrender of the Sukinda mining lease, we are optimizing our ferrochrome processing footprint. In line with this, we have announced the proposed divestment of our ferro alloys plant in Jajpur and Orissa. The transaction is signed and is expected to be completed within the next 3 months, subject to regulatory and stakeholder approvals. We have often stressed about our focus on value-added portfolio and hence, as part of the growing the portfolio in India, we also executed yesterday, the share purchase agreement with BlueScope Steel Australia to acquire the balance 50% in Tata BlueScope Private Limited. The sale is subject to regulatory approvals, and we believe it will be value accretive that leverages the synergies with Tata Steel in multiple areas. As Naren mentioned, we have recently signed the nonbinding Joint Letter of Intent with the government of Netherlands and the province of North Holland concerning Tata Steel Netherlands decarbonization journey. This Joint Letter of Intent is an expression of mutual intent to explore a framework of transitioning to low CO2 production. I want to emphasize that this project will be designed and phased in a manner that is financially prudent. Both the government and the Tata Steel has conditions to fulfill, and we are working on each of them. There is no material spend in the immediate period, and we will talk more in details on the project cost, the financing structure and the project phasing closer to the binding agreement next year. We are also looking at prioritization, optimization and sequencing of the -- on the CapEx, such that it is affordable for all stakeholders. The final investment decision on the project will be taken next year after engineering preparedness, completion of the conditions, assessment of the regulatory clearances and the negotiations with the new government in the Netherlands on the tailor-made binding agreement. With this, I end my presentation and open the floor to the questions. Thank you.
Operator: Thank you, sir. We will now begin with the question-and-answer session. [Operator Instructions] Your first question for today comes from Vibhav Zutshi of JPMorgan.
Vibhav Zutshi: Congratulations on the strong results. The first question is basically on the European steel industry in the context of the October 7 protectionist measures and CBAM implementation. So some of the European steel players have talked about higher inquiries from new customers and a bit of a destocking cycle happening next year. So just wanted to get your thoughts on how you see utilization prices moving into the next year? And also that U.K. is probably not to be directly benefited from the protectionist policy, right? Yes. So just some thoughts on that.
Thachat Narendran: Sure. Thanks. Yes, the announcements in Europe has helped the sentiment as far as we are concerned in Europe because what Europe is doing is to make sure that the quotas for steel imports are brought down by 50% and have an import duty of 50% on any volumes exceeding the quotas. So this is a positive move for the European steel industry. And in a sense, Europe is actually working hard to have a stronger, resilient steel industry in Europe to take care of Europe's strategic needs, particularly defense and in other areas. So this is part of the plan. So it's good from a Tata Steel Netherlands point of view. We have already started seeing it having a positive impact on the price discussions with customers for the annual contracts for next year. And certainly, as you said, imports have stopped coming in, in anticipation of this. And the restocking, et cetera, will lead to some positive impact for us in Netherlands particularly from Q4. Maybe Q3 already a bit too late, and we are still dealing with the hangover of the last 2 quarters. But Q4 onwards, we certainly see an improvement in Netherlands. And this also has a long-term impact because these actions are also going to come with melt and pour conditions. So if you want to participate in the European market, you have to make in Europe rather than make somewhere else and ship slabs to Europe to participate in the potential CBAM protected market in Europe. So there are multiple reasons why this is a positive move for Tata Steel Netherlands. As far as U.K. is concerned, like you said, U.K. is left out of this. In fact, our discussions with the U.K. government is that the U.K. government also needs to take some actions. Otherwise, U.K. will bear the brunt of material, which can't find markets in the U.S. and Europe. We've not made headway yet. The government is saying they are looking at it. But that's one of the reasons, as Koushik said, we have struggled with our performance in U.K. I think all that we were supposed to do ourselves, we've done. And the cost takeout plan, the fixed cost takeout plan, everything is as per plan. But the market has not moved as per plan, and we would need some support from the government to make that happen. So U.K. is negatively impacted by these actions. But if the U.K. government takes some action to not only help Tata Steel, but the U.K. government has also invested in steel production in the U.K. just now. So they also have another reason to make sure that the U.K. steel industry is supported a bit.
Vibhav Zutshi: And just on U.K. then, would you reiterate the 4Q FY '26 guidance of EBITDA breakeven?
Thachat Narendran: Yes. If there are no actions from the government just by our own actions, it will be difficult to get EBITDA breakeven by Q4. But if there is some action similar to what has been done in Europe, then, of course, we can move closer to that. Like I said, all the actions that we had planned we've taken. The cost takeout is as per plan, but the market needs to improve a bit for us to come to EBITDA breakeven, yes. Koushik, you want to add to that?
Koushik Chatterjee: No, that's perfectly the answer. I think the spreads at this point of time makes it very difficult for any amount of positive EBITDA given the fact that the prices at which steel is currently trading in U.K. with the imports are very, very unsustainable at this point of time. So we certainly need policy intervention from a protection point of view.
Thachat Narendran: I think, just to supplement what both of us said, if you generally see the U.S. prices traditionally have been about $100 higher than Europe, and Europe has been about $100 higher than, let's say, India. So that's been the ladder. Over the last year or so, U.S. prices are almost $200 higher than -- prices in Europe because of the actions taken in Europe -- in U.S. We expect the European prices to start moving towards the U.S. prices, may not match the U.S. prices, but the gap could come down as it is today because of the actions being taken by EU. But in U.K., the prices are moving the other way. It's coming closer and closer to prices in India, which is not sustainable for the steel industry in U.K. So that's why our appeal to the government, and they are also evaluating it from that point of view.
Vibhav Zutshi: And just a second question on India. So on the Neelachal capacity expansion, any time lines with respect to the Board approval? Because earlier we are planning to get it by October. So any reason for the delay and the updated time lines?
Thachat Narendran: The reason is largely related to environment clearances and all the clearances that we need to have because as per our current -- the way we work is we go to the Board after we've got all the approvals in place. But behind the scenes, the work is going on, on all the engineering and the planning and the detailing, all that is going on. So that happens. But the FID will be taken once we have the environment approvals, which we expect in the next few months. There are some forest clearance issues, environment clearance issues which we are going through. Koushik, do you want to add to that?
Koushik Chatterjee: Yes. No, I just want to mention that we are pretty advanced in the environment clearance process. And as Naren mentioned, that we are progressing on it, and we will take it to the Board once we are in a position. The engineering work is also pretty advanced in many areas. And therefore, we are getting the investment case ready for the Board's review sometime soon.
Operator: Next question is from Sumangal Nevatia of Kotak Securities.
Sumangal Nevatia: Sir, my first question is if you could share our guidance on the cost and the prices, both for India and then Netherlands, U.K. separately for the coming quarter. And then generally, I just want to understand what's happening with regards to the safeguard duty. The provisional duty has expired, and we're yet to see the government notification. So just want to understand what is the latest year and what is our expectation?
Thachat Narendran: Yes. So I'll give you some guidance on the cost, as in coke costs. And if Koushik wants to add on conversion, et cetera, he can do that. So if you really look at -- from a realization point of view, our guidance is Q3 for India will be about INR 1,500 lower than Q2. Q2 was about INR 1,500 lower than Q1. So we had guided INR 2,000, but we ended up at around INR 1,500, INR 1,600, right? In terms of coking coal prices, we are saying India consumption cost will be about $6 higher in Q3 than it was in Q2 because it's starting to turn the other way because coking coal has firmed up a little bit in the last few weeks. As far as Europe is concerned, Q3 guidance just now is about EUR 30 lower in Q3 compared to Q2, but we expect Q4 to be much better because of what I said earlier. Coking coal consumption costs in Netherlands will be down about EUR 5 to EUR 10, largely because they have more stocks in the system, and so they will be consuming what they bought earlier. As far as U.K. is concerned, prices are generally seen as a bit flattish, no real drop, but our concerns are the levels that it surprise us today rather than the trend of the prices, and that's what we are working with the government on. In terms of -- yes, what you're saying is right, the notification, I think, has expired in November, and we are waiting for advice from the government on that, on safeguard. We are working with them, and let's see where it takes us because the larger point is the steel industry in India is impacted by steel prices internationally and some of the imports which is coming in. I think if the industry has to continue to invest the way it is planning to, obviously, we need to see what is the support we can get from the government in India as is being done by other governments elsewhere.
Sumangal Nevatia: So given the spot spreads in U.K., we are expecting the losses to widen. Is that the right understanding? And also Netherlands, given the pressure on prices, at least for third quarter, we are looking at some softer margins?
Thachat Narendran: In U.K., maybe things shouldn't get worse, let me put it that way. We're trying to see how to improve. Q2 was worse than Q1, but it's not necessarily Q3 should be worse than Q2. We are still working some of that, and we're looking to see what help we can get. Netherlands, yes, maybe some margin compression, but we are again looking to see what we can do there to manage that. Because like I said, the coking coal prices are lower, they are also getting some benefit on electricity and some of the other costs are lower in Q3 compared to Q2. So they will get some benefit there. In India, while there is some margin compression, but India will have 0.5 million tonnes more volume in Q3 than in Q2. So we will have a volume upside in Q3 because of the Kalinganagar ramp-up.
Sumangal Nevatia: Got it. Got it. Sir, my next question is on expansion. Now at India , I mean is it safe to assume 3, 3.5 years once we take the Board approval, so that time line in terms of Neelachal? And what is the peak level of volumes we can achieve in the existing capacity? So our -- I mean, question is coming from the background that maybe from FY '27 onwards, I think we will lack further room in terms of growth. So if you can explain that. And also with Netherlands, you said next year is the time line where -- I mean, we are looking to freeze all the discussions with the government. So FY '28 is the year when CapEx actually starts? And any CapEx intensity you can share there?
Thachat Narendran: Yes. So I'll start and then Koushik can kind of continue. As far as the volumes are concerned, yes, Kalinganagar is currently running -- I mean, if I look last month, it's running at 7 million rate, and it can go up to 8 million. So that's a Kalinganagar thing. Neelachal is pretty much -- you can get another 200,000, 300,000 tonnes more once we have all the environment clearances because the existing volumes can go up a bit more. Today, we are limited by the EC levels. We have the Ludhiana plant coming up next year. So that's another 0.8 million tonnes. We are looking at debottlenecking some volumes in the Gamharia plant, which is Usha Martin plant to support our combi mill. And we are also looking at some debottlenecking further in Meramandali. So we will get some additional volumes from all these places in addition to the 0.8 million, which we will get out of Ludhiana. The time line that you said, yes, post-order approval, 3 to 4 years, certainly, we want to complete the Neelachal project before that and try and see if we can do it faster. What also you should keep in mind is the product mix is also getting richer. The cold rolling mill has just started ramping up in Kalinganagar, the galvanizing line, 1 of the 2 lines are coming, the other one will come in by December. We have a combi mill, which is a state-of-the-art long products, plant, 0.5 million tonnes, which has just got commissioned last quarter. So you will see multiple initiatives and then, of course, this BlueScope acquisition that Koushik talked about. All this will lead to a much richer product mix. So there will be -- I would -- there's a volume growth opportunity. As I mentioned, there is also an upside potential on getting a better, richer mix and better realizations. In terms of Netherlands, even if we sign by next year, it's not as if immediately you'll have to spend CapEx because you will take a couple of years to get all the planning permissions that are required to start the project. So it's a slightly more long drawn out journey, but Koushik can add more color to that and the other comments I made.
Koushik Chatterjee: Yes. Sumangal, I think the 2 points. One is that as far as Netherlands is concerned, we will finalize the tailor-made agreement sometime next year and the FID will be next year. Then there is a permitting process. And post the permitting process, the major spends will start on the site, et cetera. So I don't see major cash out goes on Netherlands in the next couple of years even after the FID. I think the focus is clearly on NINL expansion. And once we get through, we should be site-ready when we get into the FID or almost in that kind of a position. And therefore, from there about 3, 3.5 years to get it done. We're also looking at -- to your question on existing assets. We are also looking at Tata Steel Meramandali where we look -- want to look at when there is a relining of a blast furnace there to look at expanding the volume, which includes putting up a finishing facility that will take the Kalinganagar 1.5 million tonne slabs to build up a thin slab caster. So there are, at least, if I were to say, 7.5 million tonnes of growth in consideration or in planning at different stages. When it is ready, we should be taking the Board approval to spend. And then some of these brownfield sites, especially in Meramandali, should have a shorter execution time than a greenfield site. So this is currently in the pipeline other than the fact that the -- what Naren mentioned, the Ludhiana will get commissioned, and we will also look at another EAF, either in the West or in the South, which is also under consideration.
Operator: Next question is from Satyadeep Jain of AMBIT Capital.
Satyadeep Jain: So I just wanted to start with U.K. We can understand that the CBAM in U.K. actually kicks in '27, so 1 year after the EU CBAM. Then in the context of current imports, what options, what is the process? Because from my understanding with Europe is that EU Parliament has to approve the report and findings of EU Commission, EU Council and EU Parliament, and the current safeguards expire in June '26 or so. When you look at U.K., what exactly is the process time line? Do they have to take the entire study and then the decision will be taken by Parliament? So the entire process, are we looking at some kind of support in '26 or not? And the cost savings that were there in the Rishi Sunak government on network tariffs and/or power cost being declined, has it already kicked in? So just wanted to understand Europe -- U.K. in general first.
Thachat Narendran: Koushik?
Koushik Chatterjee: Yes. So Satyadeep, 2 things. One is when you talked about the European part, the European steel action plan proposition that Naren talked about in terms of reduction of quota, tariffs beyond quota, et cetera, and melt and pour is going to kick in from June '26 because they are currently in the consultation process. Once the consultation is done, various stakeholders give their point of view if they have to change or modify et cetera, and then it starts from June. So that will kick in from June. As far as U.K. is concerned, at this point of time, the consultation process on CBAM hasn't started. It is in formulated position, but it has not yet started. They are scheduled to go live 1 year after the EU CBAM, which is '27, as you mentioned, but we have not seen that happening. And that is one of the conversations that we are having with the U.K. government. We are having conversations with the TRA, the Trade Regulatory Authority on the quotas. So U.K. is behind the curve as far as EU is concerned or competitive to EU is concerned as far as these initiatives are taken. So if it is '27, our plant and when in '27 is not yet determined. So we are actually trying to get an understanding as to when the consultation process will start, how much time it takes. It normally takes 6, 8 months, maybe a year. So we want to kick that up faster and to ensure that it is in time when our EAF comes. So compared to the policy announcement that happened last year, they are behind is the short answer. We'll see as to where this will progress in terms of time line. But to us, the more important priority here and now is actually the quotas the -- and then the CBAM. The CBAM discussion can happen in parallel.
Satyadeep Jain: The quota also, given it needs to go through a formal study and then final decision will be taken by the U.K. Parliament or is it executive decision? So is there a realistic chance of this quota reduction in U.K. if it goes through in '26, or are we looking at maybe quota reduction also whatever it is in '27, 28?
Koushik Chatterjee: No, no. So '27, '28 is simply very late. By which time, the U.K. government would have also lost a significant amount of money because of what they are managing in the steel industry in Scunthorpe. I think it is -- they are working on it and the assurance that we have got. The TRA has got all the data, that validation process is done. They -- I think they will have to recommend it from the Parliament and get ratified in the -- ratified -- sorry, recommend from the cabinet and ratified in the Parliament. That process in the U.K. is pretty fast. But I think the more important point is to get to that process. And that's what we are talking to the U.K. government about.
Satyadeep Jain: Okay. Secondly, on Netherlands, on the -- in the Joint Letter of Intent, it is mentioned, I'm just checking on the wording of the Joint Letter of Intent. It has mentioned that there will be support of up to EUR 2 billion for Phase 1. But explicitly, it is also mentioned that there will be no tailor-made support for Phase 2 as things stand. So does it mean that government is making it very clear they will not support any expansion beyond Phase 1? And also this import quota that we are looking at, needs to be ratified by the parliament, there's a lot of opposition from downstream users in Europe. Hypothetically, if we see this go through and European steel prices converge with Europe with U.S., do you see some challenges? I just want to understand because Europe historically has been a very different market versus U.S., but with the opposition -- so 2-part question. One on the Joint Letter of Intent. And overall, some of it potentially getting diluted? Or is that not a risk this current import quota reduction that you're looking at?
Koushik Chatterjee: So I would first talk about the -- the part on the Netherlands bid that you mentioned. The answer is yes. The -- this tailor-made agreement is specifically towards Phase 1 and our commitment to do the Phase 1. The Phase 2 is left to the company to decide as to when as far as timing the technology to be used and the project cost to be done, et cetera, which is one reason why they also want Tata Steel Netherlands to be significantly profitable to ensure that they can afford to do the Phase 2 whenever it is due. So that is how the understanding is, there is no commitment on funding and neither a commitment on when we have to do the Phase 2. So this is all discussion is on Phase 1. The circumstances and the policies may change in Phase 2 also. As far as the EU consultation is concerned, it is ongoing from the sense that we get, there are people who have been quieter or neutral. There are people who are supportive, and there are people who obviously have some views. So that's for the EU to proceed and then get a sense. Maybe Naren, you can add some comments on that.
Thachat Narendran: I think what you're saying is right. There is a disadvantage if you're making stuff using steel and exporting out of Europe, then if you have a higher cost of steel, then you may have a disadvantage. The auto industry is one such sector. But I think everyone is also looking at building strategic autonomy in Europe, and that's where there is a consensus that the steel industry is important for Europe. So even in Netherlands, we get a lot of support from that fact. They are not asking us, why do you need a steel plant in Netherlands. It's more about what is it that can be done to have a strong steel company or a steel business. So I think the conversation has changed in the last 2 years, thanks to the Russia-Ukraine issue, the U.S. trade issues, et cetera, right? So the second thing is, as the European governments are putting money in the industry, they also have, in some sense, a skin in the game. So there is an interest from that point of view to not put money in the industry and then end up destroying the industry for whatever reasons, right? So I think these are the things which we think are supportive for the steel industry. I also think the supply side in Europe will get restructured because as more and more blast furnaces come up for relining, unless you have tied up with the government for a transition, it will be very difficult to justify blast furnace relining from most of the steel companies in Europe. So there will be some supply chain side restructuring as well in the next 10 years.
Operator: [Operator Instructions] Next question is from Vikash Singh of ICICI Securities.
Vikash Singh: Sir, just wanted to understand, if you look at the Slide 10 of your presentation, though we have given a guidance to 40 million tonnes, we have not given the time lines for the same. And also the flat products are also increasing and long is coming after that. I believe that the long is Neelachal, so which is the large portion of that flat product, which expansion we are expecting? And if you could give us the time line for that?
Thachat Narendran: Yes. So let me put it this way. The sequence is not to do with the time. So as Koushik said, what we are most ready for is a Neelachal expansion. And then Neelachal expansion is a long products expansion. So the opportunities beyond Neelachal -- so Neelachal also, this is from 1 million to it will go to about 6 million tonnes. And from 6 million, it can go to about 10 million tonnes. That's the second phase of Neelachal expansion. Kalinganagar, as we complete 8 million, we can go to 13 million. That's the next phase. And from 13 million, we can go to 16 million. In Meramandali, we are first looking at taking it from the current level of 5 million to about 6.5 million, and then after that, go to 10 million. So in all these areas work is going on. And Meramandali we need to acquire some land, in Neelachal, we are waiting for the EC, et cetera, and Kalinganagar also a lot of work is going on in the background. So all these are at different stages of readiness. And as we mentioned earlier, we will now go to the Board only after we've got all the requisite approvals, and that's why we've kept the time lines a bit open. The second thing I want to say is we are also pacing our growth depending on the demand growth in India, the profitability and how to pace it, et cetera. And we are also looking at adding more and more downstream businesses. And that's why the BlueScope expansion and the combi mill expansion in Jamshedpur, and there are a few other proposals that we're looking at. So it's not just the volume growth. We are also looking at the value growth through investing more and more in downstream. So it will be a mix of both. We will -- the advantage we have is we can pace ourselves depending on the situation in India because between these 3 sites alone, you can -- as I gave you the numbers, you can -- and Jamshedpur, you can go to 45 million tonnes, right? So it's more a question of the appetite, the balance sheet, the demand requirements, the profitability of the industry and the priorities that we want to give.
Vikash Singh: My second question pertains to Netherlands. So we remember that we had this carbon-free carbon credit, which are gradually going down. So just wanted to understand, as we're starting the -- running green at a later part and that would obviously would take some time, how should we look at our cost structure there in terms of the carbon credit reducing?
Thachat Narendran: Koushik?
Koushik Chatterjee: So I think we -- so the free allowances will come down, it has started to come down slowly. And we have mitigants. For example, we are using more scrap charge. Currently, we are at about 18%, 19%. Our target is to max out on scrap to ensure that we get to it. I would also like to mention that in Netherlands, our CO2 emission as last quarter, which I just got the number a couple of days back, is at around 1.6. So that's my kind of -- one of the lowest we had gone down to 1.59. This quarter -- last quarter, we were 1.6. And we're taking a lot of effort in reducing the CO2 also including usage of scrap as a percentage. And last quarter, we were not able to max out more because of some volume issues. We will go beyond 20. And once we get to more and more scrap, we will be able to reduce CO2. So as the natural reduction happens on free allowances, we want to also undertake internal decarb efforts to be there because there is a clear cost advantage to this. So -- and along with our cost transformation program on other cost areas, I think we will continue to work towards reducing the conversion cost in Netherlands, including CO2 energy, natural gas and other costs. So that's the trend and that's the basis on which we think that the expansion on the margins will happen to be 1 of the top 3 in Europe. It's not based on how the prices will come. When the prices comes due to the steel plant or the CBAM, et cetera, that will be on top of it.
Operator: The next question is from Ritesh Shah of Investec.
Ritesh Shah: A couple of questions. First, on Tata Steel U.K. So what is the exposure from a revenue mix that we have from U.K. to Europe? And how are we looking to derisk it hypothetically if there are delays on the U.K. government taking a stance?
Koushik Chatterjee: So that's about 25% volume on the current basis. And that's the -- I was waiting who will ask that question, but that's the third lever of the negotiations with the government because in 2021, the EU and the U.K. have signed an agreement of no quotas and no tariffs between most of the grades except for some galvanized grades where there are specific quotas. But this new regulation that comes in as a steel plant will require the U.K. government to revise that understanding with the EU. So that's the third leg of engagement that we have requested the government to do it quickly, which they are cognizant of because that's important. And as politically, U.K. talks about the coalition of the willing, I think this is also something that they will be looking to work towards. And that's what our request is.
Ritesh Shah: That helps. Sir, my second question is on Tata Steel Netherlands. I think we have laid out certain details with respect to citing EAF, initially on natural gas, subsequently on CCS, finally biomethane and/or hydrogen. So there are multiple permutations over here. We also indicate support up to EUR 2 billion. Possible to give some high-level thoughts on what could be the CapEx number because we know it is up to EUR 2 billion, but we don't know what the CapEx number is. So how are you looking at the cash flow math? You did indicate no major cash flows next 2 years. But from an ROCE standpoint, from a cash flow standpoint and from a capacity standpoint, how should we look at TSL? And if not for, say, support in Phase 2, would we still continue with our stance that we will maintain our volumes for Tata Steel Europe. I think that's something what we had guided earlier. So would we stand to it?
Koushik Chatterjee: So Ritesh, if I may, since you wanted high level, I'll keep it high level. But I think the point when you talked about the different feeds of natural gas, hydrogen and biomethane, it is the switchability which we'll be building from natural gas to hydrogen to biomethane depending on the economics and the availability at scale of each of this. Natural gas is not a problem because Netherlands is kind of the hub for natural gas. And that's why we're building on it. Earlier when the EC was looking at these decarbonization projects, they were very insistent on hydrogen. And if you see some of our peers had gone ahead of us and the agreement that -- or the conditions that EC had given was purely on hydrogen, which is the reason why many of them have gone slow. So we actually did not want to go that hydrogen route because it's very uncertain on the availability as well as on the economics. So we were more focused on natural gas, and we have an optionality to auction for biomethane because after hydrogen, that is the one which is being proposed as the next best fuel. So in biomethane, we have the optionality for auctioning off this or tendering. And if it comes in at the right economics and availability, then this switchability will be looked at. It could also be more like a fungible on paper to buy it on a fungible basis as a hedge rather than on physical -- if the physical don't flow. So we have those optionalities to be tested out, but that is to be tested much later. It's not immediately on commissioning. It will be post 2035, et cetera. So I think that is the construct that we have as far as our understanding on the JLoI with the Dutch government as well as blessed by the EC. So what we are currently doing is what will be the CapEx and the engineering process is currently on. We have allocated a little bit more money to complete that process. That engineering will be known on CapEx somewhere around, say, May, June. That's my best estimate at this point of time. Because it's a complex process, it has 3 elements. It is the element on the health issues, which is the coverages, then it has the EAF and then it has the DRP. So there are 3 subparts to that process, within the integrated process. So that, I think, will be more fairer to talk about somewhere around in 6 months' time. By which case, the investment case will also be very clear and our understanding on the policy changes that we have asked for as a condition to the tailor-made agreement will also be clear, which is our network cost, electricity, the coal ban or usage, et cetera. So those policies will also be -- once the new government comes in, we will be able to engage more deeply because those are conditions for final FID. And there are some ask from them towards us, which we'll also -- we are working on with the local environmental agencies.
Operator: The next question is from Rajesh Majumdar of B&K Securities.
Rajesh Majumdar: Thanks for the opportunity. So I had a question on the cost takeout. You have already talked about INR 54 crore, INR 50 crores in the first half. How much of that has come from the Kalinganagar plant efficiencies? And how much more can be expected as we ramp up gradually to the full capacities with the value-added segments?
Koushik Chatterjee: So actually, this is unrelated to capacity utilization because this is on the baseline. There is some element of capacity utilization, but largely the -- it is run in an integrated manner. For example, we run it as one program on, say, stores, spares and maintenance. So it is not just one side, but it is across the combination. And this combination is actually the power of this program because when our colleagues run it on, say, stores management across 4 sites, it's much more efficient than managing it across 4 individual sites than a consolidated basis right from procurement to usage, to usage pattern, to storage and inventory, et cetera. So it's very difficult to give a site wise, but it is more specific by theme-wise. For example, stores using leaner coal mix across, using energy efficiently. So those are the kind of themes we've run across sites. And that's why we organizationally also, we are consolidated to do that.
Rajesh Majumdar: More specifically, sir, you earlier guided about, I think, INR 2,000, INR 2,500 kind of lower costs in Kalinganagar. So how much of that is achieved? And how much of that is likely to be achieved over the next few quarters?
Koushik Chatterjee: So I think we said INR 2,500 because at that -- I don't think we said site wise, but we said Kalinganagar...
Thachat Narendran: Koushik, I think we said at one time, as we fully ramp up Kalinganagar, there will be a benefit because obviously, it's a much more productive site.
Koushik Chatterjee: It's volume effect.
Thachat Narendran: Correct. That's the volume effect.
Koushik Chatterjee: Yes. So that's a per tonne volume effect, which is -- which will happen by the time we exit this year, we should be able to get there. And that's our target on the volumes anyways. We had some slowness in the first quarter. But second quarter onwards, we have been able to increase our capacity utilization, and we'll continue to do so in Q3 and Q4.
Rajesh Majumdar: Right, sir. And my second question was actually on your ferrochrome unit selloff. I mean we bought this unit just 3 years ago, and we earlier proposed a 50% expansion along with CPP, and we also have the chrome ore mines. But suddenly, you decided to sell this business. So what is the problem here? I mean if it is a small thing, then it was a small thing even 3 years ago when you acquired it, so, yes.
Koushik Chatterjee: So I think the -- it was linked to our Sukinda resources. And if you really look at it strategically, if you have to continue -- if we were to continue Sukinda, one was this whole confusion that happened on the MDPA, et cetera, because Sukinda needs to -- needed underground mining to sustain itself because the resources on the way we were doing it was coming to an end. So if you look at the investments required for underground mining, the ferrochrome market, in general, globally and the way in which the duty tariff structures, et cetera, works, our call was to exit the mining and Sukinda because of the high underground CapEx. And once we took that decision, it was necessary to rebalance the sources of mining. We have 2 other mines, more specifically one more mine which is more useful. And that required us that we do not want to be just a converter without a mine. And that is the basis on which we then took a decision to get out of it. And the buyer is consolidating in that space, so it helps him also.
Thachat Narendran: Basically, we wanted to limit our production to what we largely need for in-house consumption rather than be in the market because we are surrendering the Sukinda mine and the changes in the MDPA, et cetera, was not making this business as attractive as it was before. So it was more a rethink on this portfolio given the current context.
Operator: The next question is from Prateek Singh of DAM Capital.
Prateek Singh: The first question is on U.K. So given all the uncertainty and volatility that we are seeing in U.K. and Europe as well, so how confident are we of the level of profitability once the EAF comes in? Or to put it differently, what kind of EBITDA do we see as doable given the current environment, current pricing and current raw mat costs? That's the first question.
Thachat Narendran: So if I were to start and then maybe Koushik can add. When we did the EAF, the larger point was we said the cost position of U.K. will improve by about GBP 150 per tonne, okay? Because we were taking out a lot of fixed costs, we were using locally available scrap instead of imported iron ore coal, et cetera, right? So which meant that in the longer-term steel pricing that we've seen in the past, the U.K. business should be EBITDA positive and should be able to stand on its own because an EAF run operation has much less requirement of support on maintenance and many other things because you don't have the sinter plant, the coke ovens and blast furnace and many other such facilities, okay? So that hypothesis stands. What we are seeing now is a very abnormal situation, which is coming out of what's happened in the U.S., what's happened in Europe now, what's happening in China. So we don't expect these things to stay on forever. We are -- internal cost side, we are on track to what we said we would achieve. But the external aspects, we expect actions to be taken, like Europe has already taken to protect the European industry. And as Koushik mentioned, the U.K. government is also bleeding because of their investments in the other steel plants in U.K. So we are expecting some resolution to this in the next few months. So it's a hypothetical situation. If today's situation continues forever. Of course, there's a challenge, but we don't expect today's situation in the market to continue forever.
Prateek Singh: Sure. So just as a follow-up to this, so what kind of capacity does U.K. in particular needs? I mean, was there ever a discussion that maybe not put as big a capacity as we are planning and may be scaled down a bit given we don't need that much given how the environment is right now? Or we are okay with the current capacity that we announced for U.K.?
Thachat Narendran: Yes. We are comfortable with the current capacity level. I think the issue which has happened in U.K. is the quotas have not been changed, even though the demand has shrunk over the last few years, unlike EU where the quotas have been changed and have been tightened further. So our submission to the U.K. government is they need to keep realigning quota, import quotas to what is the domestic consumption. And I think that's what we expect them to be doing. But otherwise, 3 million tonnes with maybe 10%, 15% exports is fine. And optimally, also that was the right capacity for us given the balance of plant and everything else. Yes, Koushik?
Koushik Chatterjee: Yes. No, that's the same point. I think the -- there's nothing wrong with the capacity in the context of the demand. It's the issue of the imports that has come in. Also, the U.K. government subsequently in the last year, the new government came in, they were all focusing on infrastructure. And that infrastructure when it actually starts rolling will require a lot of steel, but that has not also happened. So I think there is a policy issue that the government needs to address, which is what is being worked on in terms of growth for the economy itself. But as far as the steel capacity is concerned, I don't think we could have done anything lower because we have a very tied in downstream network of our own, which uses the base-grade HRC or the quality of HRC for further value addition. So there is nothing wrong there. As Naren mentioned, we have taken out significant costs, and we continue to do so. This year also, there is continuing momentum on cost. But there has to be an uplift in the metal of our margin, so to speak, which is the -- what is the price at which you're buying the metal and what is the price at which you are settling the metal. So that metal over margin is an important thing. That has shrunk significantly, and that's purely because of the fact that cheaper imports are flooding the market.
Operator: The next question is from Pallav Agarwal of Antique.
Pallav Agarwal: Sir, firstly, congratulations on the good set of numbers and also on the cost transformation initiatives, broadly on track. So on the Ludhiana EAF, so what kind of profitability can we look at you compared to the stand-alone Indian operations? Obviously, it should be lower, but to what extent it would be lower?
Thachat Narendran: Yes. So there are a couple of things happening with Ludhiana. Of course, like you said, the profitability will be lower typically an EAF kind of operation in the Indian context. I would say it's more an INR 5,000 to INR 7,000 EBITDA per tonne kind of thing. But you should look at it in the context also of you're getting almost 1 million tonnes for INR 3,000 crores or less, right? So that's the -- when you look at it from a different angle, that's the equation that we look at. What we're doing in Ludhiana to supplement the margins that would normally be available is to see how can we reduce cost because of the fact that you're getting scrapped from 200, 300-kilometer radius and you're selling steel in a 200, 300-kilometer radius, right? So a lot of the logistics costs that we incur when we make steel in Eastern India and ship it to Ludhiana or elsewhere is what we're trying to save. So there are a number of initiatives on the route to market, the logistics cost, the supply chain costs, et cetera, so that we maximize the revenue potential in that geography. And of course, pretty much all that is produced there is going to the retail market where our realizations are higher than it is in the project market. So there are a number of initiatives, but what I've described is the starting point and let's see how we can bridge the gap between a project like this versus the back end, which is more iron ore and coal based. But from a speed of execution, capital intensity, et cetera, there are a lot of advantages in this model. And we do believe that while Tata Steel can continue to grow based on iron ore and coal in Eastern India, and like I described earlier between the 3 sites we can go to -- or 4 sites, including Neelachal go to 45 million tonnes, North, West and South, we have an opportunity to grow in a capital -- a bit more capital light. You need just 100 acres of land to build the steel plant. You don't need 3,000 acres, you can do it much faster. So we will refine this model, Ludhiana is a first step. And as Koushik mentioned earlier, we are looking at opportunities to set up similar facilities, maybe even for a richer mix. This is for retail, but tomorrow's plants could be for alloy steels for automotive, et cetera, long products basically in the West and South.
Pallav Agarwal: Sure, sir. Secondly, we used to highlight that probably on the pipe expansion part, so probably I think you were looking to expand from 1 million tonnes to 4 million tonnes. So I've not come across that in the recent presentation. So where are we on that initiative?
Thachat Narendran: Sure. So basically, most of that growth would have come through assets that we would lease, even today in -- whether it's in long products or in pipes, et cetera, a lot of our capacity goes through assets that we lease, which means 100% of that capacity is committed to us. So today, I think the pipes business is heading towards 1.5 million tonnes which includes the pipe business that we acquired through Bhushan and plus all the leased out capacities. I think I'm not remembering the exact numbers, but maybe 40% to 50% would be our own and the rest would be leased out. So most of the growth will come through that. We've recently invested in a precision tube mill, which has added 100,000 tonnes of high-quality pipes in Jamshedpur. So wherever it's high-quality, specialized, like we have the large diameter pipes, API pipes all available from the Khopoli plant. Wherever it's high end, we will make the investments, wherever it's regular stuff where the value is more in our branding and distribution, we will lease out capacity. So that work is going on. And we are -- as our hot rolled coil capacity grows, we will continue to expand the pipe capacity, and the ambition is to get to 4 million. Maybe you can share more details, Samita, in the next pack or something.
Samita Shah: Sure. And I just wanted to also add that for the EAF blast furnace sort of comparison because there are a lot of questions on that. The other sort of cost differential benefit will obviously be there when there are carbon taxes because EAFs emit significantly lower than blast furnace. So when India introduces carbon pricing, and we have seen over a period of time that will come through, then you will also have that benefit on an EAF operation.
Thachat Narendran: I think typically, the difference is $100 between an EAF route of production and a blast furnace route without factoring the capital cost, I'm just saying the OpEx kind of thing. And as Samita says, as and when -- I mean, already there's a carbon cost which is coming in. And as that increases, that's why in Europe, et cetera, once the carbon prices go up, the economic case for EAF becomes stronger. So yes.
Operator: The next question is from Ashish Jain of Macquarie. Ashish, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move to our next question. The next question is from Amit Murarka of Axis Capital.
Amit Murarka: On iron ore, like I wanted to get some thoughts on how are you kind of thinking about securing iron ore for Indian assets. I think in the last call, you did speak about it a bit. But could you also like help us understand, are you looking to get into some tie-ups with OMCs as well? Or it will be broadly merchant purchases? How are you thinking about it?
Thachat Narendran: Yes. I think we -- as we said last time, obviously, we already have some iron ore. We have maybe about 500 million, 600 million tonnes of iron ore with us today, which is available beyond 2030 based on our existing mines, which we got through our acquisitions or through auctions. Second point I want to make is when we bid for the mines, it needs to make sense. There is no point bidding a price at which the cost of iron ore is so high that you'd rather buy it from the market. Third is what you're saying is right. It can't be all spot purchases. So we are already engaging with OMC and MDC, et cetera, to look at what could be the arrangements that we could have. OMCs is of particular importance to us because a lot of our sites and production and growth is happening in Orissa. Fourthly, we are also looking at various other options. Depending on what is the cost of iron ore in India, we already have a mine in Canada, for instance, which is very high quality iron ore, very low alumina iron ore. It's 63-plus FE, alumina of less than 0.5. So today, we sell from there into Europe, et cetera. And there are some challenges which we've dealt with over the years. We are getting a shipment into India to test out that material. Traditionally, India is not an attractive market, but if iron ore cost and prices continue to stay high, then all options are available. Import is also an option that we look at. But it's not necessary that we need to have 100% captive. I think we will do that if it makes economic sense. Otherwise, we will look at buying in the market. Even coking coal, at one time, Tata Steel had 100% captive today, we have 20% captive. 80% is what we buy from the market. So we will exercise that option. The other part is our ambition and our actions on going more and more downstream is to also help push us on the revenue side. So the revenue per tonne keeps going up as we progress towards 2030 so that the cost per tonne is less impacted by any increase in iron ore price or rather the margin is less impacted. Let me not put it, less cost per tonne, yes.
Amit Murarka: Also, like is there any ballpark cost number that we can think of for your current captive iron ore mining? Or if you have done any calculations around it, what will be your cost of captive iron ore mining?
Thachat Narendran: I'm not sure we are sharing that. Are we doing that, Samita? No? Yes? Because we have a full range from expensive to cheap one. So we also decided on what to produce more where. So I think -- I don't think we are sharing that publicly, yes, Samita, yes?
Samita Shah: Don't actually comment on any specifics or any product or raw material details, but obviously significantly lower than market price.
Operator: The next question is from Ashish Kejriwal of Nuvama.
Ashish Kejriwal: My question is on account of domestic demand environment because see, for -- after so many months or years, we are seeing that our prices are much cheaper than the landed cost of imports despite the fact that safeguard duty is implemented. So actually -- and when we see overall demand environment or demand, you can say, volumes from JPC, it seems to be on the higher side, but actually, price is not getting that reflection. So my question is, are we seeing excess supply scenario or lower demand which is affecting our prices? And in light of that, when we have guided INR 1,500 price decline in Q3, are we factoring in that in December also, there is no price increase? That's my first question.
Thachat Narendran: Yes. So it's not that demand is not there, demand is quite strong. India is the only country which is showing double-digit growth -- major countries showing double-digit growth in steel consumption. And I think given the focus on infrastructure building in India, I do expect the demand growth to be more than the GDP growth rate, which is what happens in most developing countries, including in China, when they were growing. So if the economy is going to grow at 6.5%, 7%, steel consumption growing at 10% is to me par for the course, right? So demand is not an issue. Obviously, supply side, as you know, when we add capacity, we add in big chunks, right? So we've added 5 million tonnes, JSW has added something. JSPL has added something. So you will go through years when a lot of new capacity is coming on stream at the same time. But I do believe in the medium to long term, it is not going to be easy to build lots of capacity very quickly in India, given the regulatory environment, the approvals that we need to take, the time which takes in India to build a steel plant, et cetera. So I expect there to be a better balance going forward and which should get reflected in the prices. The more specific question you had, yes, this is factoring in November, December. We've not factored in major price increase in December. We are saying that we operate close to November levels. If there's an increase, there's a potential upside to what I just guided. So -- but just now, we've been a bit conservative on this.
Ashish Kejriwal: Sure. So effectively, you are saying October, November also, we have not seen any price increase. And in our assumption, we are not taking any price increase in December also.
Thachat Narendran: As a seller of steel, we will always try to increase prices, but it's the market which decides whether they're willing to accept those prices. So we will always try to push and let's see where we end up.
Ashish Kejriwal: Okay, understood. Secondly, we have acquired 50% stake in BlueScope and at value of something like INR 22 billion for the company, which is having net profit of INR 62 crores, INR 30 crores in the last 2 years. So rational-wise, I understand that we are going in the downstream, but the amount which we are paying is -- seems to be much, much higher if I look at on the profitability basis. So how can we explain that?
Thachat Narendran: Koushik, do you want to?
Koushik Chatterjee: Yes. So first of all, I think this JV has been making about 19% ROE for the -- over the -- since inception. Second is it is a combination of 2 parts. So one part is that we have -- this JV company had its own color coating, metal coating facilities. And then post Bhushan, as per the JV agreement, we had to ensure that the same that was there in Bhushan, facilities in Khopoli, et cetera, was also used by the JV, the substrate of which was passed on by Tata Steel. And that is the arrangement that we had with the JV and the JV partners, which is ourselves as well as BlueScope. And in some ways, there is a split in the profitability because of the transfer pricing, et cetera. So the -- you do not see the system profitability of this business. You just see, for that part of the business, only the downstream profitability, excluding the transfer price and the markups on the transfer price and so on. So I think it is important that -- and that's why -- and we were hindered in this segment because we were the first to come in, in 2005 to grow this business significantly, which is, I think, in our domain and leveraging the synergies and network of Tata Steel and enriching the product mix, also fungibility of the product mix between market segments and so on. And that is the basis on which we actually wanted to consolidate and BlueScope also in the strategic understanding wanted to, therefore, exit the business, which is what we have agreed upon. So if you look at it from an underlying EBITDA perspective, it is 7x, which from a value-added downstream perspective is what the numbers will effectively look at excluding the Khopoli and the ones which are leased because that brings down the performance of the company. So that is the basis which when post the acquisition, you will see it more on a system basis, and we will certainly explain the same to you. And you can see the numbers at that point of time.
Operator: I would now like to hand the conference over to Ms. Samita Shah for the chat questions. Over to you, ma'am.
Samita Shah: Thank you, Kanshuk. So we've answered, I think, a lot of the chat questions in the discussion so far, but I think there are a few which maybe we can touch upon. So firstly, I think there is some question on Thailand. Thailand EAF profitability, despite being an EAF operation is highly profitable? And can we expect that kind of profitability either in India or U.K. So maybe just want to give people a sense of Thailand duty structure, et cetera.
Thachat Narendran: Yes. So there are 2, 3 things when you look at EAF profitability, 70% of the cost is scrapped, right? So the price at which scrap is available, et cetera, is a big impact. And about 15% of the cost is energy. So these are the 2 factors which drive EAF profitability apart from operating performance, et cetera. Thailand, what you're seeing an upsurge is because, if you recall, there was an earthquake in Thailand, I think it was in April or something like that. And there was this viral video, which went around of a tall building, which was -- which collapsed. And the conclusion at that time was that a lot of this is happening because of the poor quality of steel, which is used and the quality standards need to be looked at once again. And because if you use poor quality construction steel, you run the risk of this kind of a thing happening, particularly if there's an earthquake. So as a consequence, a lot of local production, which seemingly, were not meeting quality standards had to be closed. And Tata Steel Thailand is seen as one of the best quality producers of steel in Thailand, has a good name, we have the Tata Tiscon brand operating in Thailand as well. And they got the benefit of that. That's why you see much better performance than we've seen in the last few years. But having said that, they are still settling. Traditionally, it's been a profitable business. It's never required any support from India. It's always been cash positive, EBITDA positive. So it continues to be that way. And as the quality considerations become more and more important, we think that, that's positive for Tata Steel Thailand. Now whether that kind of profitability -- again, like I said, we are in a much better place on the cost curve in Europe post EAF than we were in the past because of the fact that you're not using imported ore and coal, you reduce your fixed cost by about GBP 400 million, and you're using locally available scrap, right? So certainly, we'll be in a much better cost position than we were before in U.K. and similarly, Ludhiana, compared to the iron ore base production in Jamshedpur, you'll be at a higher cost position, but we look at how do we make this model work, taking out costs beyond the production costs, like logistics costs, route-to-market costs and so on and so forth. So as Samita said, as and when carbon prices come up because the CO2 footprint of the Ludhiana plant is going to be 0.2 or 0.3 tonnes, CO2 per tonne of steel compared to Jamshedpur, which is the best in India at 2.1 or 2.2, and Netherlands, which is one of the best in the world at 1.6, as Koushik said, 1.6. So Ludhiana is going to be at 0.2, right? So because it will use green energy. So when you start looking at paying a premium for low carbon, low CO2 steels, that's when some of these businesses will make even more sense than it does today.
Samita Shah: The next question, I think we have a few questions on cost transformation. So I'll just combine them for you, Koushik. So one is, are we on track? And what is the kind of number we're expecting for 3Q? And then there's a question about -- because of the delay in employee-related discussions in Netherlands, are you reducing your target for the year?
Koushik Chatterjee: So that looks like an exam question, but I think it is important to mention that we -- our target is the same, and I mentioned when we started off this that it is an 18-months program. So the -- and obviously, the work that can be done is being pursued by -- across the geographies, across teams, across functions. So I think we will continue to maintain the secular basis on which we are -- we've gone through the first 2 quarters. The compliance in Netherlands is lower, as you can -- as I mentioned, because of the employee restructuring going slower than what we had planned. But that is a timing effect, and I'm very hopeful, and all of us are working with the CWC to ensure that we get to it. But the point is less about quarter-on-quarter. It is more about getting structurally fit. It is about getting the competitiveness in place so that we become all weather. And I also want to say that the target will also keep changing as far as the -- once you achieve it, there will be more where we want to build a pipeline of it, and we continue this as a journey. And Tata Steel India has always done that for about 20, 25 years. But this time around, we have taken more structural view because we have become multisite and our capacity have increased significantly. And that's why this is an important journey in the competitiveness of Tata Steel, and we have expanded to all our global sites also, most critically U.K. and Netherlands. So we are going to continue this journey. And I think it is not to be just taken as a quarterly target. It is more about ensuring that structurally, we are in a better place.
Samita Shah: Yes. There are a few questions on TSN decarbonization, which again, I'm just going to combine. So essentially, I think the question is that given the political changes in Netherlands, do we expect the government to go through this commitment, which they've done, given, is 2030 a sacrosanct deadline? So some questions, I think, around the timing and maybe the probability of the government actually going through their push for decarbonization.
Koushik Chatterjee: So yes, I think the -- if I look at the way we have build up our conversation with the government and across the political spectrum, it has been largely bipartisan in terms of across parties because it was a Parliament-mandated process to get through to the JLoI. And subsequently, when we were signing the JLoI, it had to go back to the parliament for placement and noting. So I think with the political parties being the same, and it is certainly the assumption that we are working in that the government will continue to work on it because it's of national importance, and it is something of a commitment. We do have a journey in terms of final negotiations on the binding tailor-made agreement. But I don't think we -- any of us have a doubt that the government will not stand behind what they have signed, the new government. We have to give the time for the new government to form. The election is just over. Unlike in India, it takes a little bit of time. And we must give that, and then we could sit down with them on the tailor-made agreement. In the meanwhile, both sides are anyway working at the back end on the conditions that needs to be fulfilled in terms of preparing for the new government when it comes, that we will have a very clear understanding of what needs to be done before we sign the tailor-made agreement. That's where it is. And that is also where the timing of the project and the feasibility and practicality of doing it within certain years will also be considered and due action taken because we have to take the practicality of changes in policy, in the permitting process, in the construction, the site work required and so on and so forth. So we will have a conversation on that subject also. And the -- I think the political world in Netherlands is fully aware of that.
Samita Shah: Thank you. I think there are multiple questions on capacities of each of our downstream products or capacities. But I would just like to remind people that we don't really give guidance on individual product capacities. I think Naren mentioned a broad guidance and our overall growth path. So we will not take that. And then there is, I think, one broad question, Koushik, which you might like to address on our sort of leverage targets and how we are sort of balancing that? Or what is our approach towards leverage?
Koushik Chatterjee: I was having -- wondering when would that question also, again, come in. But I think we are managing our balance sheet pretty well under the circumstances in the context of our operating cash flows, all geographies being focused on working capital and profitability. And we have -- I think this quarter, we had a significant amount of cash outgo on our dividend, which is an obligation that we are clearly focused to fulfill as part of servicing our investors. And I think it is important to mention that our net debt to EBITDA is at about 3, and even with the kind of spend that we have. So we will be in that -- I've already said that in the past that between 2.75 and 3 is where we would like to maintain ourselves on a more sustained basis. At times when there are significant market challenges or volatility in prices, which impacts the working capital because steel, coal, iron ore prices do change significantly, especially on the seaborne market, that's the time when we do get beyond that metric. But largely, 2.75 to 3 is what we would like to maintain. And if they're in a mid-cycle period, like this are a low mid-cycle period like this, in an up cycle, we are on a different platform. So we would keep the metrics like that. Any opportunity to deleverage, we'll continue to deleverage. And -- but we also look at where best to apply that capital. Apart from leverage is in short payback period projects or acquisitions like the BlueScope that we've done because that actually effectively will help in consolidating the margin and the footprint and helping a product mix to grow. So those are decisions that we do take and then look at what the leverage allows us to do. When we look at the NINL, we will certainly look at the phasing spend and how quickly we can get the cash to cash cycle up. And that's why Naren mentioned, that we want to go at a time when we are ready, site ready to start work so that we can compress the period as much as we can. So leverage is an important part and the entire -- not only financial strategy, but also in the business strategy and how do we actually run the business. Thanks.
Samita Shah: Thank you. With that, I think we've answered all the questions. So thank you to everyone who's dialed in and look forward to connect with you again next quarter.
Koushik Chatterjee: Thank you.
Thachat Narendran: Thanks, everyone. Thanks.