Ladies and gentlemen, good day and welcome to the Tata Steel Limited conference call. I now hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am. Thank you, Zane. Good morning, good afternoon, and good evening to all of you joining us today. I'm Samita Shah, on behalf of Tata Steel, I'm delighted to welcome you all to this call to discuss the results of Q1 FY22, which were published yesterday. My apologies for the issues many of you faced this morning with the technical glitches, I know many of you could not connect. We thought it best to reschedule to this afternoon. Apologies for all the inconvenience caused to you. Let's get started now. We have with us Mr. T. V. Narendran, CEO and Managing Director of Tata Steel, Mr. Koushik Chatterjee, Executive Director and CFO of Tata Steel. After a few opening remarks, we will take your questions. As before, if you have any questions on Tata Steel BSL and Tata Steel Long Products, we will be happy to answer them as well. I have to remind you that the entire discussion today will be covered by the safe harbor clause, which is on the results presentation uploaded on our website, and that will cover the entire discussion today. Thank you, and over to you, T. V. Narendran. Hi, Samita. Good morning, good afternoon, and good evening, all of you. Over the last 15 months, the global economy has been recovering driven by policy support and widespread vaccination, which has led to improvement in business and customer confidence. However, Indian markets were adversely impacted again during the last quarter due to the second wave of COVID-19. In these difficult times, we were working to minimize the impact on our employees, communities, and customers. As of July 31st, we've supplied over 68,300 tons of liquid oxygen to different parts of India, and we continue to support communities across our operating locations by providing medical facilities, meals, counseling, et cetera. Now over 90% of our eligible employees across locations have taken at least one dose of vaccination. As far as the industry is concerned, the Western market steel prices remain robust with supplies lagging demand recovery, further supported by increasing production costs and a recent spike in raw material prices. Iron ore has actually moved up by about $50 in Q1. Of course, over the last few weeks it softened again, and hard coking coal prices jumped to about $80 during this last quarter and still stays quite strong. Moving to China, the Chinese government is surfacing to control commodity price speculation. Our steel mills are facing margin pressure with higher input costs and are less likely to reduce prices because, for instance, the coking coal prices in China are much higher than it is in the rest of the world and rose by more than $100 per ton during this quarter to reach $335 in August as China's now buying from Australia, as you're aware. At the same time, the Chinese government is taking steps to limit steel production and discourage exports as it keeps focused on pollution control. Recently, it has again raised export tariffs for iron and ferrochrome while removing export tax rebates for various steel products. In this scenario, we expect the regional prices to remain at elevated levels for longer. These are structural positives for the steel sector. During the first quarter, Indian steel demand shrank by about 14.8% quarter-on-quarter due to seasonality and temporary weakness in various steel-consuming sectors with local lockdowns amidst the second wave of COVID-19. While the domestic steel prices had softened a bit during July, demand is recovering again, as are prices. Currently, steel prices are still at a large discount to import parity prices. It's about 20% less than import parity prices, and this we believe should support domestic prices. The third wave of COVID-19 and a potential tapering of liquidity support amidst rising inflation remain the key risks. As our performance this quarter is concerned, during the quarter, Tata Steel India's gross steel production declined by 2.6% quarter on quarter to 4.63 million tons due to supply of liquid medical oxygen to different states. Our steel deliveries declined 11% quarter on quarter to 4.15 million tons due to partial lockdowns and temporary shutdowns in various steel-consuming sectors. We increased exports to 16% of our total sales to counter the softness in the domestic markets. We continue to focus on our objective to attain and retain market leadership in chosen segments by focusing on building strong customer relationships, superior distribution network, rolling out brands and new product development. We've developed 24 new products in India for customers across segments, including automotive and branded products and retail. Few of them are included in our investor presentation. We also focused on value-add driven growth to drive market share in chosen segments. We are expecting to add about 1 million tons this year in India in terms of steel volumes through debottlenecking and capacity ramp-up across various plants. Our 5 million-ton Kalinganagar phase II expansion is focused on product mix enrichment and increase in competitiveness and cost savings. It will enhance the capability to produce high-strength steel and advanced high-strength steel up to 1180 MPa, a new product for automotive, construction, and other domestic steel customers. Our 6 million-ton Jharia plant and 2.2 million-ton cold rolling mill complex are expected to be commissioned in first half of 2022. We are making good progress on our various initiatives to de-risk the business. We launched India's first shredded ferrous scrap product, Tata FerroShred. It will help to substitute high-quality shredded scrap imports. We have also developed and supplied five new products under our new materials business initiative. In Europe, economic activities in steel-consuming sectors, especially automotive, continue to recover. Our steel production in Europe remains stable and steel sales volume declined about 6% quarter-on-quarter to 10.3 million tonnes in June 2021 with the product mix improved. Our spot hot rolled coil gross trade further improved during the quarter with high steel prices, which has started translating into the profitability of the steel mills. The European Commission has recently unveiled its Fit for 55 package to cut GHG emissions with Carbon Border Adjustment Mechanisms at the center of steel. While this is still at an early stage, a well-defined Carbon Border Adjustment Mechanism should ensure a level playing field in Europe, allowing Tata Steel to continue to compete for customers and support the transition to a net zero steel producer. In this March, we received shareholders' approval to go ahead with the merger of Tata Steel BSL with Tata Steel. We find the joint scheme efficient with the NCLT to sanction the merger scheme with its creditors since 2019, and this is under consideration by the NCLT. I will now hand it over to Koushik to comment on our financial performance. Thank you, Naren, and good morning, good afternoon to all of you. Hope you and your loved ones are safe and well, and all of you have got or are getting vaccinated because it's important for us globally to get vaccinated as soon as possible. Coming to our performance. Continuing with our strong performance in the first quarter of the last financial year, despite the second wave of the pandemic in India and disruption caused by the human suffering, our consolidated financial performance for the quarter was exceptionally strong on the back of strong underlying business performance and robust market conditions. Our consolidated revenue increased during the quarter by 7% quarter-on-quarter and more than double on a year-on-year basis to INR 53,372 crores. We again delivered strong financial performance this quarter by achieving a new highest ever quarterly consolidated EBITDA of INR 16,185 crores, which reflects essentially a 3% margin. Consolidated PAT stood at INR 9,768 crores, which is higher than the full year PAT of the previous financial year. Our India operations, which includes the standalone Tata Steel, Tata Steel BSL and Tata Steel Long Products, generated revenues of about INR 30,344 crores, supported by higher steel prices and stable operations. We achieved highest ever quarterly EBITDA of about INR 13,946 crores this quarter. Tata Steel standalone revenues were marginally lower at INR 30,798 crores as the benefit of the strong steel prices were offset by lower deliveries. Naren has explained on the deliveries front. Tata Steel standalone also achieved highest ever quarterly EBITDA of INR 10,274 crores with a 12% quarter-on-quarter growth. The operation generated free cash flow of more than INR 4,700 crores in the first quarter of this financial year. Our key subsidiaries, Tata Steel BSL, Tata Steel Long Products, continues to deliver strong operating performance. Tata Steel BSL generated an EBITDA of INR 3,118 crores, while Tata Steel Long Products generated an EBITDA of INR 554 crores. Both subsidiaries generated free cash flow of more than INR 2,700 crores and INR 450 crores respectively. As part of the overall deleveraging program, both companies have utilized the free cash flows to reduce debt. Tata Steel BSL and Tata Steel Long Products are close to being net debt-free individually. Moving to Europe, our revenues improved to 1.9 billion GBP during the quarter between season market prices starting to translate into the profit and loss account. Reported EBITDA for the quarter improved by 19% quarter-on-quarter with higher steel prices and mix partially offset by increased input costs as iron costs have started to increase. The reported EBITDA is after a one-off expense of about 15 million GBP related to the sale of CO2 emission rights sold earlier in the first quarter of last year. With continued elevated steel prices and with lag effects of spreads, we are seeing our European spreads widen materially in the second quarter, which would mean much higher profitability than past trends, even though coal prices have moved up recently. We continue to prioritize on CapEx spend on ongoing projects, especially in the expansion of Kalinganagar and strategically essential investments. On a consolidated basis, we spent about INR 2,000 crores of CapEx during this quarter, which includes our accelerated CapEx for Kalinganagar. As mentioned in my earlier call, our FY 2022 consolidated CapEx is expected to be about INR 10,000-12,000 crores. Despite the increase in working capital due to higher value of inventory and debtors for similar number of trading days, the company generated consolidated free cash flow of over INR 3,500 crores during this quarter. Besides CapEx, other key outflows in the quarter includes INR 1,100 crores for interest, which is now trending down due to the massive deleveraging that we have done, and we would see more reduction going forward. We now have a marginal tax regime and have paid about INR 958 crores for taxes. We will continue to deleverage in the coming quarters, and we expect to bring down the debt further by the end of the current financial year. We made debt repayments of INR 5,894 crores this quarter. Our gross debt has decreased to about INR 82,237 crores while the net debt has come down to INR 63,973 crores. Our credit metrics have improved significantly with net debt to equity remaining under 1x, and the improvement in net debt to EBITDA to 1.59x, which is now under the 2x threshold which we have talked about earlier. Our group liquidity position remains strong at INR 3,625 crores, including about INR 10,262 crores of cash and cash equivalents. With this, I'll end my comments here and open the floor for questions. Thank you. Thank you very much, sir. Ladies and gentlemen, we will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. All participants are requested to use handset while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask a question, please press star and one. The first question is from the line of Indrajit from CLSA. Please go ahead. Hi, sir. Thanks for the opportunity. Two questions from my side. First, on the working capital increase of about INR 8,200 crores, can you throw some more light on that what is the different head, how much will be inventory, and if there is any change in carbon cost related payout for the last quarter which you have done this year? How do we see this trending in the next three quarters of this year? Indrajit, I think large part of the inventory has happened due to not the quantity, but more on the value part of it. We clearly have seen that in India, the inventory increase as far as the quantity is concerned has been there, but most part of it is on account of TSE where the inventory value is almost only INR 2,000 crores, which has increased between the two quarters. I think that is an important part. Total increase is about INR 6,500 crores, of which INR 2,000 odd crores is in Europe and INR 2,000-2,500 crores is in India. The inventory doesn't have any relation to carbon. I think it's more about the holding base, which is what we track very clearly because the physical quantity determines the efficiency. Whereas the value which is somewhat out of our control is determined by the price in the market. I think largely the Indian inventory, as I mentioned to you, INR 2,600 crores and INR 4,600 crores is in Europe. Just to supplement what Koushik said, the inventory built up in India was also partly because of the local lockdowns. We expect to unwind that increase in inventory during this quarter. Sure. This is a combination of both finished goods and raw material. Correct. Okay. Sir, my second question. On Europe. Sorry, Indrajit. Go ahead. Sorry. It's okay. I was just saying that in raw materials, it has actually tapered down. In finished goods, it has been higher. That is the mix between the two. In tonnage terms, for example, in raw materials, we have been able to reduce more than 1 million tons in our inventory and the value effect has also come down. I am talking consolidated. In finished goods, I think the price of the product is something which has resulted in the value increasing. Sure. That is helpful. Second, on Europe costs, the other expenses in Europe have gone up from about INR 5,500 crore to INR 6,000 crore. What could have driven this and how do we see this trending? Also on raw material, in last quarter numbers, what kind of iron ore and coking coal prices could we have booked in Europe? Naren, you will take the second part. Yeah. I'll take the second part. I think as far as Europe is concerned, let me put it differently. From last quarter to this quarter, the coking coal prices at a purchase level may go up by about $30 and at a consumption level, maybe about $20, both in Europe and in India. That'll be the quarter-on-quarter impact of rising coal prices. Iron ore will be about not much impact in India, obviously, because we hardly buy any iron ore, but in Europe will be about $10 impact quarter-on-quarter. Kaushik, you want to add to the first one? You wanted to know about the other expenses in total, right? No, in Europe. In the presentation you have mentioned it has gone up from INR 3,500 crore to INR 6,000 crore. Let me come back to you. I'll come back to you. Okay. One last question, if I may? Sir, while we have seen significant interest cost reduction both in Bhushan and standalone, the same is not yet reflecting in the P&L numbers. When can we see that reflect in P&L and income? Actually, in standalone, Bhushan, LP all have gone down. In Europe this quarter we prepaid about half a billion euros of this. Because we have pushed those, there was a one-time cost on account of that. It is because of that we don't see a material movement in the consolidated. It will happen in the next few quarters because we are taking out significant capacity outside of India now, being that in Singapore as well as in Europe. Therefore you will see the consolidated numbers. In fact, now full year basis it will be materially lower than the previous year. Thank you so much. I have more questions. I'll join you. Thank you very much. Next question is on the line of Mr. Pinakin Parekh from JP Morgan. Please go ahead. Thank you very much. Sir, I have two quick questions. First is on Europe. If you look at the spot market HRC prices between the September quarter last year and June quarter of this year, HRC prices are broadly up just over $900 a ton. Against this, Tata Steel Europe's implied ASP per ton is up just over $300 a ton. Again, these are not apples-to-apples comparison, but there seems to be a material lag. At this point of time, starting from Q2, what% of the sales portfolio would reflect steel prices which were prevailing in the June quarter and how much will still be on older steel prices? Pinakin, there are two, three points I want to make. First thing is that spot prices which get reported are spot prices. Oftentimes not much volumes are contracted at those prices because typically a lot of the European contracts are a little bit longer tenure than the spot prices. That's one. Second point is it's not just the tenure, it also depends on the timing of the contract. For instance, we had a lot of contracts which were negotiated in November, December last year, and hence we had contracts from 1st January. We had a lot of contracts which have come up on 1st July, which is this quarter. You will see the benefits of the higher prices in Europe flowing through from this quarter. If I were to give you a guidance, let's say this quarter we expect the impact to be at least EUR 200-EUR 250 a ton in Europe of improving prices compared to the previous quarter. Just to understand more clearly is that given the lag, it also means that we will continue to see upward trending ASPs by Europe over the September quarter, even the March quarter, right? Because of the lag, the repricing of the contracts. As the mix changes, there are two impacts. One is the increase because you contracted at a higher price. Two is as you bill out some of the older contracts and the newer contracts are a bigger part of the mix, you will see the mix impact. That's why we are forecasting a very strong Q2, Q3 report from that perspective in Europe. We are watchful of raw material prices, which from a Europe point of view is good news when the iron ore prices drop. Thank you. Just two more questions. First is, sir, how do you see India ASP per ton over September quarter? Because in India also there is an auto contract portfolio. Secondly, on working capital, while we will see some release in India, is it fair to say that the INR 8,000 crore plus working capital build that we saw in the June quarter, at best over the next 2-3 quarters should be a neutral number because ultimately that is what will, if it's not working capital build, it will go towards paying down debt. As far as India is concerned, we expect this quarter the realizations to be about INR 3,000 higher than last quarter, largely because of contracts, also because export prices are better in this quarter than the last quarter because export prices hit the bottom line with a few months lag. When you book an order today, you ship it after 2-3 months. From that point of view, you'll see the better prices playing out this quarter. We will have more volumes and a better mix of downstream. For these reasons we see an INR 3,000 improvement in prices this quarter in India compared to the previous quarter. What is going to be softer that is being priced in the 3,000 is the Long Products prices this quarter will be lower than last quarter. Overall because we are more flats oriented and because of all that I've said. Longs also particularly for Tata Steel Long Products that are auto contracts at a higher price will kick in this quarter. Overall INR 3,000 is the guidance for this quarter. As far as working capital is concerned, we expect to sell more volumes in this quarter than we did last quarter. That's because particularly in India we'll be unwinding the finished goods that was built up and also market conditions are stronger and confidence trending more stable upwards in India and export markets continue to be strong and we are expecting to export over 30% of what we produce this quarter. That will help bring down the inventory. The more specific point that you asked, yes, inventory build up I think or rather the working capital build up to some extent seems to have peaked and if raw material prices drop then Europe is a bigger opportunity to release more working capital from that point of view. Understood, sir. This is very helpful. Thank you. If I can just add to Naren's point. I think given the steep increases that we're seeing in the second quarter spread, there would be pressure on working capital, but we see the third and fourth quarter to be the ones where we start releasing. I'll just repeat the way it was. Thank you. If I can just also answer the variation that you asked for in other expenses. Essentially, it is in the maintenance cost in Europe apart from rent and higher rates, which accounted for almost about INR 250 crores, the gap that you are seeing, INR 6,000 crores and INR 5,500 crores. All right. Thank you. The next question is from the line of Satyadeep Jain from Ambit Capital. Please go ahead. Mr. Satyadeep Jain, your line is unmuted. You may go ahead with your question. Hi. Sorry. Thank you for the opportunity. Couple of questions. One would be a follow-up to Pranav's question. The other steel companies have some of the increase in utilization. Can you talk about your strategy in Europe product mix? Especially have longer contract duration. Is it packaging or more auto compared to others? Are these to understand that late cycle or higher fixed cost exposure to Tata Steel in Europe versus some of the other peers? That should be my first question. Yeah. Satyadeep, the auto contracts and the packaging contracts are the longer tenure contracts, I think they account for about 50%-60% of our mix. Like I said, not everything is starting at the same point in time. They may be starting at different points in time. For instance, we had a lot of auto contracts due from 1st July, which got renegotiated at the new prices. It depends on when the new contracts kick in. Those tenures may vary across suppliers. Secondly, some of our peers, if you really look at it, there is also other income in that, non-steel income. I think you should also normalize that and then compare the price increases. Yes, we are lagging a bit. You will see that in this quarter we will more than make up for that. Thank you. The other question would be some of the peers in Europe are also taking the opportunity to running at 100% utilization for a while now. Do you see something like maybe a maintenance period for Netherlands, of course, for U.K. also in this year or in upcoming future? No major work apart from the regular stuff. We did some shutdowns in April, which was to some extent the reason why the maintenance costs went up as Kaushik mentioned. That's also why the production was a bit lower than the previous quarter because of those shutdowns. No major work which involves many days of shutdown planned in both IJmuiden and the U.K. the rest of the year. That's it. The second is 1 more on carbon. I understood that liability towards the end of the year and it needed to be settled by April for the shortfall that we did in FY 2021. Was that the case with your payment in April towards that? The company is also levying a carbon surcharge. Is that surcharge on all products and given some of the peers are not levying a carbon surcharge, is there a longevity for that surcharge if your peers not go to levy it anytime soon? I'll answer the second part and Kaushik answer the first part. The surcharge is basically calculated based on the difference between the allowances that we get and the cost that we incur, and that is the surcharge that we have added to our price. So far customers have accepted it. Our peers are also following it in some sense, whether they call it a surcharge or not. But the larger point is, I think any carbon cost in Europe is applicable to everyone. In some sense it's a cost being added to all producers. To ensure that the producers in Europe are not disadvantaged because of that additional cost, you have the proposed Carbon Border Adjustment Mechanism so that there is a level playing field and there is no carbon leakage through this scheme. I think while there are additional costs in Europe because of this, but in some sense that is reflecting in the higher price that we believe you will see in Europe compared to other geographies because of these factors. Kaushik can address the more specific question on CO2 payments. Yeah. The amount that was expected to be settled has been done in April itself, and it was around £227 million. That's been settled and done with. Okay. Thanks. Thank you. Before we move to the next question, we would like to inform participants to limit their questions to two per participant. Time permitting, you may listen to the queue for your follow-up questions. The next question is from the line of Saumil Mehta from Kotak Mutual Fund. Please go ahead. Yeah. Thanks for the opportunity. Congrats on a great India performance. I have two questions on Europe. One is it possible to give a broad data set to what are the long and short term contracts? By long it's mainly what percentage would be the annual contract if any? Yeah. I think just give me a minute. I think I answered the question differently, but more specifically, I think it's about 60%-70% what would be a six months and above kind of contracts. Okay. Six to seven. Yeah. Like I said, they are not all starting at the same time. Yeah. Yeah. Neeraj, you want to say something? No. My second question is, when you said that obviously there is a lag effect and you will see a positive traction, maybe about $200-$250 that come in this quarter, can we see a similar development in the subsequent quarter? Steel price have been up about $1,000, I understand, sort of spot with spot basis, but the realization was only about $300. A large part of that will come in Q2, but even Q3 can have a similar pricing increase based on whatever price assumption you see as of now. Yeah. The only point is long term contract prices will not reflect spot prices. Not just for us, for anybody else. Like I said, if the market consumes 150 million tons of steel in a year, spot will be a very small% of that. Right? To me, there will always be a difference between the spot that you keep seeing on a daily basis with the contracted prices. I think what you should look at is the realizations that steel companies around vis-a-vis the spot, and this will be the difference which is there. If you see a difference between Tata Steel and the rest, what we're saying is we will bridge that gap. There is a lag effect. Okay. In terms of the flexibility of the contract, how flexible they are in terms of any price revision or escalation, if any, or these kinds of things? Normally it's not so much an escalation clause, but if the changes are very significant, then there's always on a good faith basis a discussion between the customer and the supplier. It works both ways. When steel prices drop very steeply, also there is a conversation at times. Similarly, as the case is now, when it increases steeply also there is a conversation which happens. That is what is getting reflected apart from the new contracts that have been negotiated from this quarter, you'll see those prices. Sure. The final question is, when I study about the steel prices, I think last time around was maybe somewhere in 2007, 2008, these kind of prices. While I understand something is a lot different, but at that time the profitability was very different from what you are. I assume in last 10 years there have been significant cost efficiency, product mix have actually improved. We have right now a Long Products. Is it possible to see a few quarters of similar profitability, what we saw in 2008 or two, or that would be a tall ask at this point in time? I think there are a couple of things which are different, right. Yes, there is a lot more efficiency today than there was 10 years back. That is very clear. Secondly, what is also happening now is nobody is adding capacity as furiously as they were at that point in time. China was adding 40, 50 million tons a year at that point in time, right. Nobody is adding capacity significantly apart from in India. The supply side is far more disciplined than it was 10 years back. I think both these suggest that this will be structurally a different kind of few quarters, few years, maybe. I'm not saying that today's price will be there for the next few years, but all I'm saying is spreads and profitability for steel companies will be different. In many ways, profitability of steel companies outside China were determined by profitability of steel industry in China, which was very poor even in the best of times. The EBITDA margins were 5%-10%. Right? Since they were exporting at those prices, the EBITDA margins for globally, the steel industry also suffered. That is changing. As China is exporting less, there's more discipline in the market, and steel companies are making the profits that they should be making to get the return on the capital that they've invested. Thanks so much and all the best. Thank you very much. The next question is from the line of Vineet Maloo from Aditya Birla Sun Life Asset Management. Please go ahead. Good afternoon. Thank you so much for the opportunity. I'm trying to understand, you remarked in between some of these questions that the spot prices may not be truly representative because very less volume gets transacted at those levels. I understand the timing difference because of et cetera. My question is, does it mean that whatever the spot price is suggesting eventually we'll realize those numbers in some form or the other? Is that what it means? Basically it means that maybe 10%, 15%, 50% of the business will be transacted at those prices. Right? 100% of the business will not get transacted at those prices because typically who buys spot? Somebody who's a pipe manufacturer or somebody who's a commercial grade steel buyer who's buying spot. Most auto companies or packaging companies or anybody who buys steel of a certain quality from a certain supplier with a certain relationship will contract at least three months, six months, one year, whatever. Right? The spot prices are more reflecting shortages, people who've not covered their volumes and are hence buying in the market. If you're looking exports, which it does, to Europe, you get something close to the spot price because that's 30,000 tons or 50,000 tons. In a market which consumes maybe 12 million a month or 15 million a month. That's the difference between spot and contracted prices. That's why even if you look at other steel companies, you will see that the realizations are obviously lower than the spot. They may be higher than as you are seeing Tata Steel, but they are still lower than spot. That difference will always be there. Which is true in India as well, right? If you see auto consumption in India, while a lot of companies say auto prices are high, it is still lower than the spot prices. Normally these contracted volumes or contracted tonnages help more in a down market than in an up market. Just to clarify once again, sorry to belabor this point. Is it fair to say that none of the contract prices are indexed to any form of average or spot? They are independently negotiated. Is that how we should understand it? They are negotiated, but obviously the spot prices is a very important part of the negotiation. When you go to that customer, you will say that the spot price is so. That's an important part of the conversation. Okay. Even within India, we've seen something similar this time around, which is our realizations have sort of lagged in terms of delta versus yours and still has profitability in terms of delta. Why do you say that? Despite the fact that we would have had advantage of integration and others wouldn't. Just wondering, why should that be so? Why do you say profitability is lagged? I would say lagged versus delta. If you look at quarter-on-quarter delta, it is virtually same as some of our peers, whereas I presume we should have actually got advantage because we are more integrated than others. You're talking two things, right? One is price. Price is a function of the product mix. How much in flat, how much of downstream is part of that mix. Like for instance, in Tata Steel, The Tinplate Company of India is a separate company. It depends on mix, depends on whether you have flat products or Long Products, depends on many things. I think we should look at it at an elementary level, and we're happy to answer a more specific question on apples to apples basis. In terms of if I were to look at profitability, I would compare Tata Steel BSL with JSW Steel because Tata Steel BSL is not integrated. They get raw materials either from the market or from Tata Steel at transfer prices which are determined by market. That would be a good reference of profitability in that sense of the term. I think our numbers have been pretty strong. If it's something more specific, I'm happy to answer. Okay. Maybe I'll come back directly to IR team with more specific numbers and follow and understand this better. Yeah. Yeah. Thanks a lot. Thank you. Next question is from the line of Ashish Jain from Macquarie. Please go ahead. Mr. Ashish Jain, your line is unmuted. You may go ahead with your question. Yes, sir. Good afternoon. Sir, first I just wanted one clarification. The INR 200 million number that you said potential improvement in realization Q2, this is on the overall volumes or this is on the volume that may have gotten renegotiated for July quarter? Overall volumes. Overall. Sir, secondly, in European business, can you just clarify the one-off costs which are there, including carbon and if there's anything else as a one-off cost there? Prajakt? I mentioned the one-off cost was essentially GBP 14 million, which was one-off. Other than that, there are regular costs which, for example, reflects the increase in the increments of employees which was reflected in the Q1, which will essentially flow through into Q2, Q3, Q4 because that's the new increment of employee cost. Other than that, the one-off cost is more around GBP 14 million in Europe. I'm saying GBP 14 million, that's about INR 140 crores. Okay. That's it from my side. Thank you. Thank you. Next question is from the line of Bhavin Jain from ENAM Holdings. Please go ahead. Yeah, good afternoon, sir. Sir, I missed out on the number of iron ore and coking coal increase, if any, you guided for quarter two. I believe you gave quarter one number. It was $10 higher iron ore and $20 on coking coal. Any quarter two guidance there? No, that was a quarter two guidance. What I said is quarter two, we are buying coking coal both in Europe and India at about $30 a ton higher than quarter one. Consumption will flow through at about $20 in both Europe and India. Quarter two is going up $ 30 over quarter one. Already you said $20 increase in quarter one. No, no. I'm saying Q2 compared to Q1. Q1 compared to Q4, I'm not remembering the numbers. I'm talking of the quarter which we've reported to the quarter which we are in just now. Iron ore is about $10 in Europe. Basically in Q2, the cost could be higher than Q1 by about Sir, the carbon credit, the amount which was given, which is paid in the month of April. This is a direct balance sheet entry, right? It's not passed via income statement and the profit results, right? It is captured in the working capital change, right? EUR 227 million. It is the part of the cash flows, yes. It is not a P&L item. It's not a P&L. Okay, thank you. Thank you. We will take the first question. The next question is from the line of Abhijit Mitra from ICICI Securities. Please go ahead. Yeah, thanks for taking my question. Just to get a sense of the volume outlook for the full year and just to understand the impact of mix account of any shifts in auto volumes, does that pose a risk to the guidance in realization that is given for India as well as Europe? I think on volume guidance, we stand by what we gave at the beginning of the year. I think we said we will do close to 1 million tons more in India compared to last year. In Europe also, it was close to 1 million tons is what we had guided. We stand by that. Secondly, as far as auto is concerned, we are seeing a very strong recovery, but that has no impact on our volume guidance. I do not think mix will play out that much because price change export prices are even higher than domestic prices. Given the speed at which spot prices have gone up, auto contracts, unless they catch up much more, particularly in India, are still lower than the spot prices. Even if auto takes less, I think we will be able to sell to other segments at higher prices. Thanks. That's all from me. Thank you. The next question is from the line of Rahul Gupta from Fidelity. Please go ahead. Yeah, hi. Thanks for taking my question. I just wanted to dig a bit more deeper in this contract price discussion in Europe. I think you said that obviously spot prices are one of the important inputs that go into the discussion. Can you just help us understand what are the other factors that go into those negotiations? I mean, do the customers look at something like a steel spread? Is that an important factor that goes into it? The reason I'm asking this is now that iron ore prices have started correcting does that become a factor as well? Is there a cap, let's say, for negotiations to some extent? What happens typically in these segments is that you need to be an approved supplier, right. Always the options for a customer are limited to the three, four or five or six suppliers who are approved to supply, whether it's auto or packaging. To that extent, it is not a free for all kinds of any, they can import steel from anywhere kind of conversation, right. That is why our steel companies deal with such segments because it's less coverage than in commodities, say that anyone from anywhere in the world can supply. Technically within that community, obviously you will look at getting the best out of the contract. Today if you look at it in Europe there is more demand than supply in some sense of the term. There is a pull. There is an issue with the auto industry because of the semiconductor shortage. Otherwise, broadly the market is strong. European steel consumption is coming back to pre-pandemic levels. Import quotas are pretty much getting used up in the beginning of the quarter. Anyway impacts only the mid and the bottom end of the segment. When you have a conversation with the customer, you will look at certainly like I said, spot prices and tell the customer that this is the spot price and this is the option I have as a supplier. If the customer is not willing to contract because that's why we can always say we'll sell to the commodity traders who maybe at that point in time is willing to pay more than an auto customer. I think these are the conversations that happen and the start of the negotiation. We also keep in mind long-term relationships because in a cyclical business there will be times when you need the customer more than they need you and because so you need to remember that when it's the other way around. Understood. That's very helpful. Just wanted to understand so is like raw material cost or spreads are part of discussion or that's not what clients generally go into? No that- Sure. We will refer to spot prices. Customers will say iron ore prices dropped. I think that is part of any commercial discussion where you will highlight what is in your favor and they will highlight what is in their favor. Understood. Just one more question from my side again. It's more like a clarification. You said that Europe spreads, Europe prices will go up by let's say €250 in next quarter. Obviously the timelines for contract presentations are different so there is further scope for improvement let's say in Q2 and Q3 as more contracts get renegotiated. Is that right? What I meant is on an overall basis this will be the increase. There will be contracts where you may have negotiated a higher price. There may be contracts which are continuing from the previous quarter. The overall impact, and that was a question which somebody else had asked, when I say this is the improvement in spread and price, this is on an average for the overall volume. That's a Q2, right? I think as more contracts come for renewal in Q3, Q4 too, there is scope for further improvement if let's say spot prices stay here. Yeah. Absolutely. Sure. Thank you. Thank you. Next question is from the line of Abhishek Poddar from HDFC Mutual Fund. Please go ahead. Sir. Regarding the carbon emission allowances, I wanted to understand how would FY 2022 look like in terms of allowances versus our emissions? Koushik? The free allowances are based on expected production and the past averages and so on. We have about 1 million tons of deficit in the U.K. and about 2 million tons in Netherlands. That, it happens over four quarters. For this quarter, it is already included in the numbers that you see. You will find a similar number in the second quarter and third quarter and going on. The key question remains the price at which it gets traded and which you have to provide. This is broadly the equation as far as carbon allowances are concerned. Over time, these allowances will keep coming down, that is after 2025. Till that time, they'll largely remain the same, and the formulation remains the same. In U.K., the post-Brexit, the UK Emissions Trading Scheme has also got launched. It's not so liquid as yet, but that is the basis. There is a certain correlation with the EU ETS scheme. That's the way any operating company in Europe and U.K. would have to take care of the allowances. There is no other. This is the operating part of the carbon emission regime as far as Europe is concerned. Does the surcharge fully cover the cost that we are incurring now? As of now, yes, but it depends on how it moves. We've also increased the surcharge in recent times. The customer world is looking at it, and right now it's passing through. Effectively, there is a neutralizing mechanism that we are building in, which will at certain point in time be replaced by the Carbon Border Adjustment Mechanism, which is just now floated, which is not yet started and will not start very soon. Till that time, hopefully, we should be neutral on that on a net basis. Just one more question. On coking coal, you had said that the contract cost has gone up by $20, while spot market prices have almost gone up by $100. How is the contract structured, and when do we see large impact on the cost? Again, I think here the reverse is true. Where we are the customer, it's not that you are buying at spot prices. You will, just like on the other end of the revenue side, you are at a disadvantage because of some of these contracts. On the buying side, you are at an advantage because of some of these contracts. We obviously will and try to buy it at discount to spot. The smartness also lies in finding the right time to buy and the right volumes to buy. When we guide this, it's not as if every quarter. If you buy right, it should be quarter on quarter improvement can be minimized. When you say $30, it doesn't mean that the rest of the gap will get covered in the subsequent quarters. It's not necessary. If I just add to what Narendran mentioned, it's actually the index. We've seen in the past that procurement colleagues have been smart enough to buy at better than the index, which is what should reflect in the P&L as it. Right. The reason I ask because, $110 + $50 means like $150 and $50, whereas the spot is $220. The difference is close to $60, $70. That kind of efficiency we could have in procurement. No, I don't think. Sorry. Go ahead, Abhishek. No, go ahead, sir. You're saying last quarter buying price. Yeah. When we look at the, what do you call it, the consumption cost, which we report every quarter, that will give you. Even if you see last quarter's, when you say $110, right? I think coking coal price during this quarter was $150 or something. $150, $160, right? There will always be a gap. Like I said, on the sell side, very little is really contracted at spot price. The spot price is oftentimes an indicator of the trend, the sentiment, rather than the actual price at which all the buying and selling happens. The spot is a relevant input, but you don't cost it based on that, or you don't count your revenue based on the spot price at both ends. Spot influences the index, and that index is lagged to the spot. If you are smart, then you can do many things which will be better than the index. The other thing to keep in mind also, there are many blends in coal. One of the other things is to find the right blend, make sure you are able to operate with what we call a lean blend, because coal is not just one homogeneous commodity, there are different blends. Part of the operational excellence comes from being able to manage, you know, best blend from a cost point of view, price point of view, supply point of view, and so some of those efficiencies come from that. It's not just about buying cheaper than market. Thanks a lot. All the best. Thank you. Ladies and gentlemen, we will take our last question now, which is from the line of Raashi Chopra from Citigroup. Please go ahead. Thank you. I just wanted to check on realizations in India. You had mentioned that this quarter should be about INR 3,000 higher, but that's pretty much due to the export mix and downstream. You'd also indicated that the discount to import parity is around 20% right now. When do you think prices start moving up and is the demand really this constrained at this point in time, or are we starting to get better? I want to make a few comments. One is, apart from export mix and auto contracts, on a flat products on an all-time basis, we will see better prices this quarter than last quarter. I am saying average of this quarter versus average of last quarter. Long Products, as of now, is seeing lower average this quarter compared to last quarter, particularly for the reinforcing steel and products like that. Auto contracts in Long Products will get better this quarter than last quarter. I think the sentiment has started changing again. It had softened in June and July. If you see August prices, flat product prices have started going up. Long Products also is much firmer than we could have expected during the monsoon months. As more sectors of the economy come back on stream over the next few months, we expect things to get better. Because if you want to import steel, it is not available at anywhere close to domestic prices, set of imports is also not there. You must keep in mind that India is exporting 1.5 million tons a month now. As the Indian prices improve in the domestic market Indian exports, Indian producers have an option to sell more and more in the Indian market. Got it. Thank you. Thank you very much. Ladies and gentlemen, I would now like to hand the conference over to Ms. Shah for closing comments. Over to you, ma'am. Thank you everyone for joining us on this call, and I hope your questions were answered. If you need any specific info we are available. Thank you and stay tuned. Thank you very much. Ladies and gentlemen, on behalf of Tata Steel Limited, that concludes today's conference call. Thank you all for joining us, and you may now disconnect the lines.