Nava Limited (513023) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nava Bharat Ventures Limited Q3 FY '20 Earnings Conference call hosted by IDFC Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shirish Rane. Thank you, and over to you, sir.

Good morning, everyone, and welcome to the Third Quarter FY '20 Conference Call of Nava Bharat Ventures Limited. We have with us today, from the management, Mr. Ashwin Devineni, our CEO; and Mr. GRK Prasad, Executive Director of Nava Bharat Ventures. To start off the call, Mr. Ashwin will make opening remarks, and then we will start -- and then we will have questions and answers. Over to you, sir.

Good morning, everyone, and a very warm welcome to all the participants. The financial -- the statement of financial results, both on the standalone and consolidated basis and a press release detailing the operations of the Nava Bharat Ventures Group for Q3 FY '20 have already been filed with the stock exchanges and posted on our website. I hope all of you had had a look at them and trust that we provide adequate information on our performance for the quarter ending 31st December 2019. Given the above, we would like to proceed with the question-and-answer session and request you all to seek clarifications as you may desire.

[Operator Instructions] The first question is from the line of Mohit Kumar from IDFC Ventures.

Yes. Three questions. So first, on the receivable side, I believe the receivable would be now USD 232 million from Maamba -- for Maamba. Given that there's a tariff hike taken by ZESCO, when do you expect our receivables to normalize? And have you heard anything from the government? First. Second question was around the Maamba performance for the quarter of -- there was planned maintenance shutdown. But -- and I hope that by January, the power plant would be up and running and Q4 will have a higher availability. So whatever revenue loss was there in Q3, will it be recouped in Q4? And sir, last question on the ferro alloys business. We have seen a sharp dip in the volumes in the quarter. And can you let us know, how the Q4 is panning out?

Yes. Let me give you a rundown on the ferro alloys business. As you know, ferro alloys business drives the steel business, which has gone through a severe downside in the last quarter. So there's no exceptions because, one, we also had a strict pressure on our margins as well as the movement of stock also. So that actually led to the below-par performance for manganese alloy in Q3. Having said that, we see now a quick ramp up of volumes that have taken place in Q4. So to some extent, the situation is normal, as I would say, on the volume side. But pressures were -- pressure on margins still seems to continue because the price volatility has been seen in the last couple of months and still is varying. We see that normalization should happen maybe in a month or 2 time once the stock levels have adjusted and normative buying takes place. And I sort of partially [indiscernible].

Hi, Mohit. Yes, as you rightly said, current outstanding receivables is about USD 232 million. The tariff high entity is very positive, that's both from ZESCO side and the government side. In the past, ZESCO has been trying to hide the tariff, but didn't get the adequate support from the government. But this time around, I think the government was behind ZESCO. And they have definitely hiked the tariffs by almost about 113% to all the domestic and the commercial users, which constitute about 40% of ZESCO's receivables. So this essentially will result in additional receivables being recognized by ZESCO, and I think the primary aim and objective of this is to ensure that ZESCO meets its payment obligation to all its IPPs and suppliers. So yes, we do look at this as a very positive kind of move by the government and ZESCO. But that being said, it is going to take a couple of months before ZESCO starts receiving the additional receivables and is in a position to start paying in full. This will -- what we also see is that the outstanding amount to us is fairly large, and we're hoping that the government and ZESCO uses these additional receivables to secure loans that they were trying to do in the past to ensure that they start paying us the outstanding amounts in addition to paying our monthly bills in full.

Now with respect to the shutdown that we had in Q3, yes, in the month of October and November, we did have shutdowns for both the units. Now these shutdown were not planned. They were unplanned shutdowns, and unscheduled shutdown, primarily caused due to tube leakages, which is a fairly common phenomenon when you run the FBC boilers and due to certain grid disturbances because of the ZESCO grid. Now generally, when you take a shutdown for the tube leakages, you shut it down for about 15 days because there's a certain period for cooling before you can run any of the works. Now there was a planned shutdown scheduled for the month of January, which is this month. So what we thought was, given that we already are shutting down the unit because of the tube leakage, we would extend the shutdown and carry on the works, which was scheduled for the January scheduled shutdown, so that we don't have to take another shutdown for both the units until the next major overall shutdown, which is scheduled in the month of March. So we do expect to see increased availability in the -- during the Q4 because of that phase.

My question is, sir, will there be overrecovery in Q4, given that the under -- there will be availability for 9 months would be below 80%. Since for Q4, the availability are expected to be much, much higher than 80%. Does it mean that some kind of revenue will get revenue loss, which happened in Q3, will get recovered in Q4?

I think the availability for Q4 could be close to 100% for the rest, but given that, it's only for a short period. We -- target is definitely to reach 80% on average availability. We'll see how it pans out. The other thing about, I think, what needs to be understood is that although we only had 1 unit running, which is just 150 megawatts running in the month of, say, most part of October and November, the receivables we had been getting from ZESCO remain unchanged. We were still getting that $8.5 million to $9 million on a monthly basis. They did not slash that by half. So the receivables that we recognized remain unchanged.

Understood, sir. And sir, what is the availability for Q3 FY '20 for Maamba? If you can share the data?

55%.

Availability also? [ ELF ] was 55%, right?

Both.

The next question is from the line of [ Harshvardhan Reddy ]. He's an individual investor. As there is no response from the current participant, I have muted the line. The next question is from the line of Ankit Gupta from IndiaNivesh PMS.

Sir, regarding this maintenance, you said next maintenance will be in March 2020. So sir, how many days of shutdown should we expect for that month?

Well, this is a major overhaul that is required for turbine of both the rigs. Normally, this takes about 60 days, each way. So our plan, scheduled plan, is after March. But given that we had a long outage, and doing that, the number of hours will be still there. We probably could take it up in FY '21 in a snagger fashion for each unit, but that schedule is yet to be finalized.

Understood, sir. Understood. And sir, regarding our receivables. Can you tell us, in the past 9 months, what was the billing and how much worth receivables, increment receivables, in the past 9 months?

Well...

See, anyways $169 million, we received $112 million.

We received $112 million?

That's right.

So our receivables will increase only by $50-odd million, right?

$57 million.

$57 million, okay.

The next question is from the line of [ Ayush Mittal ] from [ MAPL Value Investing Fund ].

Sir, in line with the discussion around that country has increased the tariff after a very long time and this is a very major progressive development for the long term, what kind of expectations do we have? Do we believe that going forward, our billing will be honored 100%? If yes, by when do you expect that to happen? Also, how do you plan that this long-term accelerated receivables will be addressed? Any clarity on that?

Yes. As I said before, I think our aim is and also ZESCO's aim is that they honor 100% of their monthly build commitment. I think that's one of the reasons the government let this tariff increase, so that the government does not need to step in and subsidize their scope. So with respect to the monthly billing, we are hoping that ZESCO will honor 100% of this billing requirement. But it is going to take a little time. And when I say little time, it will take probably a couple of months before the cash flows ZESCO starts receiving that from its end customers, and they are in a position to pay the full bill. Now with respect to the outstanding, as you probably know, they were efforts in the past, that -- where ZESCO tried to secure a large loan to the tune of almost $500 million to pay off all the outstanding to the IPPs. That unfortunately is being progressed because of numerous reasons, one, being which -- that couldn't have enough receivables to kind of a time. So we're hoping that now that the tariff has increased, ZESCO will be getting more receivables that the government and ZESCO will reach into those efforts to secure that large loan, which will enable them to pay the outstanding amount. Probably in a staggered process, but nevertheless, at lease commence paying and reducing the outstanding amount.

Okay. Any litigation of any risk equity that we see in the -- on the receivables that we have been standing in our book as of now?

You said litigation?

Yes. Any risk or any risk to it as of now?

Well, neither ZESCO nor the government has disputed the amount outstanding from ZESCO to us. So as of now, as where we stand, we hold what we have built and there has no dispute on that number.

The next question is from the line of Siddharth Shah from MK Ventures.

Sir, my question is basically on -- again, on the receivables part. So from January onwards, when there are receivables -- ZESCO's own receivable increases, you are expecting, from February onwards, the payments will increase at least or sequentially now? And in 2, 3 months, it will be completely normalized?

We will be -- we're hoping so. I mean, that is basically what we're trying to -- we are having also series of meetings with ZESCO to impress upon ZESCO to start increasing their monthly payments, with a hope that they will start increasing as soon as possible and where we normalized and pay the bill in full down the line.

Sir, have they inclusively agreed or shown any intention to now increase the payouts on a monthly basis?

No, Siddharth, let's understand this: ZESCO's traffic implementation has -- I mean, has happened as expected from 1st January 2020. The actual cash inflows should happen by end of Jan and February onwards. So we are waiting to see how their financial position improvement will happen. Now our target, as Ashwin briefed, is to see that the monthly bill payment is met full by ZESCO instead of that 45%, as it has been happening, which some bulk payment is coming every 6 months. So our priority is to ensure that first. The second thing is, a lot of us also should be aware that there has been a severe power deficit in Zambia, and there has been a load management. So the revenue expectations, whatever have been projected by ZESCO, to us, it looked -- will be achieved over a normative full year. But this year, being still subject to some loan management, we expect some revenue side they will not get as expected. But that is definitely going to happen because as with any kind of changes, the financial position should improve over a period of time. So given all these factors, we are seeing that ZESCO would be in a position to meet our full monthly payment, maybe in a couple of months or whatever. And also we'll see that the monthly accretion that's been happening, in respect of outstanding, will be minimized. So that's one great development we would see from what has been happening -- what has happened in Zambia, which has been in the wings for almost like a couple of years now.

Right. So has this tariff hike been fully absorbed among the locals? Or is there any local opposition or any opposition party's kind of demonstrating this? Anything you're seeing there?

No. Actually, it's other way around because the situation has become so detrimental in terms of lack of power and all, the -- there are some resistance, but generally, people expected ZESCO to perform better with this kind of division. And actually, we are looking forward to a better service from ZESCO.

Sure. So we're not expecting any -- even partial rollback or anything, right?

No.

The second question is on the sustainable kind of EBITDA and PAT for this Maamba -- this Zambian subsidiary. If you can just tell us, if the availability is full for next year, what is a sustainable EBITDA or PAT can this new kind of subsidiary do?

You see, as has been happening, availability -- I mean, nonmetal availability is about 80% -- 82% to 85% from that subsidiary. And if ZESCO dropped the power in full, then [ ELF ] also will match. Now based on that number, we were looking at something, like, $220 million of annual revenue coming from the subsidiary. And -- I mean, I don't see why that should undergo any change in the near future and rest of the numbers also follow.

Okay. Sir, any guidance for EBITDA at the subsidiary level? On...

No, I don't think. Let's -- we will probably do it, but I don't think we've been giving any guidance. Expecting that, next year, we'll have these major overhauls for these 2 turbines, which would effectively be available to some extent, but nevertheless, the targeted availability, I think, is about 70% next year because of shutdowns.

Okay. Sure. Sir, also, can you share what is the total tax provisioning you have done cumulatively till now at the Zambia subsidiary?

See, Zambian debt started with $590 million. It's now stands at $413 million.

No. I'm saying about the tax provisioning, which you have been doing early quarterly basis. How much is the tax provisioning done till now?

How much? Sorry?

How much is the tax provisioning we have done till now?

$177 million.

$177 million is the tax provisioning cumulative till now?

It's being repaid. That's, like, about $16,000.

No, I'm asking about the tax part. The tax provisioning.

Siddharth, can you come again with us?

Sir, how much is the tax provisioning we have done in the subsidiary till now? We have been providing some tax every quarter, right?

In Maamba?

Yes.

Maamba, the tax is relatable to mining division. Our expectation is tax could be about $2.5 million this year.

Okay, okay. But for the power division, you have tax benefit for 5 years, right?

Correct.

Okay, okay. Sir, on the domestic business side, we have a short-term PPA till March. So any guidance? What kind of visibility do we have after March?

It is unfortunately not withstanding PPA. The withdrawal from the distribution companies hasn't been up to the mark. In fact, it severely dented the profitability now our 150 megawatt subsidiary for Q3. But from January onwards, withdrawal has been almost full. The 135 megawatts has been -- is being drawn. And what, 20-odd megawatts is being drawn from our 114 megawatts.

Right. But this PPA -- short-term PPA ends in March or April, right?

That's right.

So are we already in talks with them for renewal or entry?

No, no, no. Just want to make a small correction. See this 135 megawatt is the contract. So they are actually drawing 70%, which is the committed offtake, and off late, they drawing here more. So we expect a slightly better performance in Q4.

Sure. But beyond that, we do not have a visibility as of now, right?

This should come, right? I'm not sure time line. Normally, it's a month before they start. So sometime -- something can happen in February.

Sure. Sir, on the ferro alloys part, is the agreement with Tata coming up for renewal anytime soon?

See, Tata's mining lease is expiring on 31st March 2020. So our commercial increment also is coming to end there. But what's been happening is, Tata's plan to extract ore to enable us to continue the conversion for some more months, maybe 3, 4 months later beyond that. Well, we are talking to Tata as to how it would be resumed thereafter.

Sure. So they are still under discussion?

Yes, it's because they have 2 mines now already, and based on that, some negotiations are on.

The next question is from the line of Ravi Purohit from SiMPL.

Most of my questions have been answered. Just a few questions regarding asset monetization steps that we had initiated a few quarters back or maybe a year back. Anything that you can -- you could update us on any steps that we've taken so far on that?

Yes. So in terms of the monetization, efforts are underway. Since we are sitting on a couple of assets that we are looking at monetizing or forming JVs for development, but there's nothing to report at this point of time. But everything is underway, and we're working hard to close some things sooner rather than later.

Okay. So this is -- so there are some -- a few line passes, which we had mentioned in August press release about 6 months back. But there is also an idle power plant sitting in Orissa. Anything that we've been able to kind of do about that power plant? Any buyers or anything about it? It's been like 5 years, that we've put up that 60-megawatt, and it's like just sitting on the ground.

Yes, I agree. The 60-megawatt still awaits the court resolution. We expect that to happen anytime soon because it's getting listed now, unlike earlier where it doesn't even getting listed. So matter is getting listed. So we expect to have solutions very soon. And given that there are certain changes in the -- on the ground in terms of our local distribution company being taken over by private power firm, so we expect some better situation to continue -- come along.

Okay. And sir, this reduction in equity capital, by when is it likely to kind of get done? Any -- what are the next steps?

Currently, it feels before LC/LV. So we expect the LC/LV order maybe in a couple of months.

The next question is from the line of Bhavesh Chauhan from IDBI Capital.

Sir, on Maamba Collieries, what we are saying is that next year the availability will be only 70%, right?

That's right.

Okay. And from FY '22 onwards, it should be higher?

85%. See this 70% is more occasion because of the turbine overhaul, which is mandatory after 3 years of running up the power plants. So both the units will go through that overhaul. But for that, the availability could have been higher. But now the availability is 80%.

Okay. And sir, once we have cash flows from ZESCO and ZESCO is likely probably to pay us in the coming years, what is the management's view on utilizing that cash flow? How does management think about that?

Well, we are looking forward to receiving new cash flows before we sort of thinking of any deployment unit scheme. So our priority is to get that equity returns back to be in post-subsidiary and to Indian companies thereafter. That is the first step, then we'll...

Sir, few quarters back we had a...

Once we have a clear time, we'll certainly come out with a plan.

Okay. Sir, a few quarters back, we had said we wanted to set up a sugar plant. So that is now out of way?

Sorry?

Sir, we wanted to set up a sugar plant in Zambia, I think, which was announced long, long -- some quarters back.

That was probably suspended, yes. We're not moving with that project in the current cost anyway. We still have the land of 10,000 hectares. So the project is currently on hold because the government has promised to meet certain limited obligations with respect to providing infrastructure, which they've not met. So right now, that's on hold.

[Operator Instructions] The next question is from the line of Viraj Mehta from Equirus PMS.

Sorry, my questions have been answered.

The next question is from the line of Mohit Kumar from IDFC Ventures.

Sir, perhaps -- sir, one question. So there is some -- in the press release, you have mentioned that the expected credit loss on receivables, which have booked during the quarter. Can you please just say the -- can you please tell me the amount?

It's about $3.5 million.

[Operator Instructions] The next question is from the line of Siddharth Shah from MK Ventures.

Yes. Sir, just a follow-up, This 10,000 hectares, in Zambia, that is a pre-owned land or it's a leased land or what is it?

It's a 99-year lease. All land in Zambia are leasehold. There is no freehold land in Zambia. So this is a 99-year lease.

Sure. Sir, also if you can just highlight, once again, the asset monetization plan? If you can just describe the assets which we are looking to monetize in terms of location, acres? I understand it's difficult to see the time line of value, but at least, we can describe the assets which we are now kind of planning to exit?

Are you talking about monetization of Indian land office?

Yes.

See, the problem with giving time lines is...

I understand the time line is difficult. If you can just describe the assets, how much land, at what location?

See, there are 2 land parcels that we are talking about. One is 60-and-odd acres in Secunderabad, which used to be our machine-building division. That is on block. The second one is about 200 acres of land along with 20-megawatt power plant in East Godavari district of Andhra Pradesh in a place called Dharmavaram.

Sure. Secunderabad, how many acres, sir?

65 acres, I said.

65 acres. Okay, sir.

The next question is from the line of Ravi Purohit from SiMPL.

Sorry, I just forgot to ask one question earlier. Have we been still receiving bullet payments. I think, earlier, the Zambian government was actually making bullet payments every 6 months when our own debt repayment schedule was kind of due. So is that bullet payment continuing? And if yes, how much did we receive as bullet payments in the quarter of December and September, so the half year?

Yes. I mean, we had our 6 monthly loan repayment due in the month of September. During that time, the Zambian government did exist with a certain lump sum payment of -- 24?

$30 million.

$34 million, let's say?

Yes.

Yes. So about $34 million. So we have been receiving the 6 monthly assistance from the government in the form of lump sum payments. But I think moving on and going into the future, I think one of the intentions of the government addressing this tariff increase is so that we don't need to come into the picture every time we have loan repayments or so on. And that ZESCO can be in a position to make -- do with its payment obligation cycle.

The next question is from the line of Anurag Patil from Roha Asset Managers.

So can you briefly explain payroll as segment in terms of realizations and the raw material in last quarter and the outlook for the same in the next couple of quarters?

We can't probably give you specifics, but with the price drop, which was there in Q3 was about 14% from what was prevailing in Q2. And there was no associated fall in the ore price, which is the manganese ore. So that, in fact, resulted in negative performance from the manganese alloy unit. Our expectation is Q4 would be definitely better because, one, there's been volume jump in terms of sales, and there is a slight improvement in realization of [indiscernible] by about 5% or so. So in Q4, we expect that to be definitely better. But coming to future months, we have to see how situation pans out. But all expectations are in kind of a normative situation for steel scenario. So we follow that trail.

The last question is from the line of [ Srinivas Venkat ] from UTI Mutual Fund.

Yes. We have invested close to $150 million in the Zambian venture, both in the form of debt and equity. So just from a very theoretical perspective, I want to understand what is the time frame and conditions under which we can recover this money back once the payment schedule starts over the next 2 to 3 years?

Yes. [ Srinivas ], see, it's like this. This debt equity for reposit from our side is about $220 million, which is in the form of equity share capital and shareholder loan. So once the distributions are considered by the lenders, which we expect to happen in FY '21, it could take the shape of either interest on shareholder loan, which is already accrued and standing in our books, or it could take the shape of repayment of shareholder loan as well as dividend on equity share capital. So we expect these things to be decided by the Board in their mix, but all three are possible.

But in terms of at least getting the interest back, I mean, you have been accrued. So what is the total interest which is accrued in our books because you would have been accruing it for the last 2 to 3 years?

Yes. It's about $18 million.

Okay. And we have not received any payment on this?

No, we haven't. It's accrued.

And what would be the condition? I mean, is the loan -- I mean, is that Zambian loan falling below a certain threshold would be the trigger to get at least this interest money coming? Or what are the essential conditions for that?

These are normal conditions for allowing dividends only. So...

No, no, I meant the interest. The interest which has accrued, $18 million, if we were to get that money into India, what would be the condition -- preconditions for that?

Understand what I'm saying. The preconditions are these payment of interest as well as repayments of loan and equity dividends are same, which is mostly relatable to payment performance by ZESCO. A standard payment performance by ZESCO, let's say, over in a year's time. So we have been engaging with lenders, then they should allow us at least this interest on shareholder loan. If this ZESCO payment performance is improved in this year, we expect that interest payment being committed.

So I mean, you remain confident that in FY '21, at least some money will flow in from the Zambian venture to us?

Yes.

Or if this will get pushed to FY '22?

No. In -- especially in the set of imprest payroll.

Yes. But I would like to add that, as we speak, we do have money coming in from our Zambian operations, not in the form of NPL but in the form of the O&M services, which is flowing on a monthly basis.

Okay. So there's no outstanding on that? I mean, that is getting serviced?

Due to offsetting. In fact, the company has agreed for an increase also.

Okay. No, no, I meant that O&M that you are providing of $10 million, that is not outstanding? That is getting paid on a regular basis with the Zambian entity?

Yes, yes. Completely. There is no outstanding at all.

I think what Mr. GRK was saying is even that O&M speed that we charge to Mamba has increased starting from January. So there will be additional revenues coming in.

Okay. And sir, secondly, we had that PPA with the Telangana or Andhra government for 6 months. And my guess is looking at the number, it's probably not honored. So is there any kind of penalty which is being payable by them because of them not honoring this PPA? Because you had one from July to March, if my memory serves me right.

Yes, the PPA postulate that they have to take -- offtake, at least 70% of the committed power. And if they fall below 70%, they have to pay 20% of the agreed tariff as penalty, roughly INR 1 per unit. So there is an accrual of that penalty, but the matter will be settled after the contract is closed.

Okay. But we have not accounted for that?

We have not accounted for that.

And what would -- what can be the potential amount? If you could give us some indication?

Well, I mean, we'd not like to give a number because it's requires a settlement. The accrual amount could be in the region of about INR 20 crores, so between ours and auxiliary?

But historically, we have got this, right? I mean, in the past, whenever they have not -- I mean, committed to their share of PPA, we have got this amount?

Yes, in the sense, after some discussion. So that's something which we would not like to dwell on now.

Okay. Okay. And sir, if I just look into next year, I mean, since you have lot of merchant capacities available, I mean, is there any discussions that you are doing to ensure some kind of visibility for our merchant capacities for next year? I mean -- or we have to rely solely on the IEX or on the spot basis to kind of make some money on the power assets?

No, we are looking forward to some contracts, medium-term contracts, definitely because the distribution companies have indicated that they could come up with tenders. We are waiting for them to come. The exact period we will know once the tenders are out. Meanwhile, we're also looking at possibility of top line bulk consumers, too. That's an alternate proposal which we are pursuing.

Okay. Okay. And this ferro alloys, all these mines are coming up. So are we interested to bid in for any of these mines so that we can be fully integrated on that business? Or we still would largely be a converter kind of a model?

See, the entry barrier is kind of high for these bidding process because the mine that is coming out talked about a certain value in terms of what is the ideal price and you need to put 10% of it as the [indiscernible]. That actually puts an entry barrier for us.

Okay. Okay. And sir, lastly, on the sugar business, it's a very small scale operation. While it is not losing money, I mean, what is the outlook on that? I mean, are you looking to let go of this business if you get a certain price? Or you're looking to put some investments into ethanol because a lot of sugar mills are putting money into ethanols and trying to make the overall business profitable. So what is our overall thought process on the sugar business that we have?

See, we are not intending to put any investment. We are doing some kind of heavy molasses conversion into ethanol just to get that upside captured. But beyond that, no investments are being planned. Obviously, there are investments in this business. And we probably will take a considered view post the current season which is ongoing.

Okay. But this is also on the block, like, some of the other assets? Or this we are intending to continue this business in the medium term?

We haven't taken a decision on that, [ Srinivas ]. Actually, we have declared a crop holiday, and things are falling in line. We'll see how it takes shape by end of this season, sometime early April.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you very much for your participation, everyone, on the call. I hope we have addressed all the queries adequately. Or if there are any queries, questions or clarifications that remain unanswered, please feel free to get back to us, and we'd be happy to provide answers on a wider investor platform. Thank you all once again. Thanks.