Nava Limited (513023) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nava Bharat Ventures Limited Q4 FY '21 Earnings Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from DAM Capital Advisors Limited. Thank you, and over to you, sir.

On behalf of -- thank you, Madika. On behalf of DAM Capital, we welcome all the participants to the Q4 FY '21 and FY '21 earnings conference call. We have with us Mr. Ashwin Devineni, Chief Executive Officer; Mr. Sultan Baig, Chief Financial Officer; Mr. GRK Prasad, Executive Director; Mr. VSN Raju, company Secretary and Vice President; Mr. Nikhil Devineni, Vice President, Commercial. We'll start with a brief update, followed by Q&A. Over to you, sir.

Good morning, everyone, and a very warm welcome to all the participants. This is Ashwin Devineni, the CEO. The statement of the financial results, both on stand-alone and consolidated basis and a press release detailing the operations of the Nava Bharat Ventures Group for the quarter and year ended March 31, 2021 have already been filed with the stock exchange and posted on our website. I hope you had a look at them and trust that they provide adequate information on our performance for the quarter and year ended March 31, 2021. Given the above, we would now like to proceed with the question-and-answer session and request you all to seek clarifications as you may desire. Thank you.

[Operator Instructions] The first question is from the line of [ Lodha ] from Sanmati Consultants.

Am I audible, sir? Am I audible, sir?

Yes.

I'm talking about the consolidated accounts of the company. The [ initial ] issue is a provision of INR 334 crore during the financial year '21 and [ INR 33.88 crore ] during the quarter allows for the credit loss. Can you little bit explain briefly to us what is the nature of this transaction, sir?

Yes. This is on account of time value of the receivables in our Zambian company. So a provision is made in accordance with the IFRS regulations, and it's been done on a quarter-on-quarter basis. So you will find this year the charge is about [ $5.6 million ]. And together, it's about $75 million as of 31st March 2021. This is a mere provision for time value of receivables.

Okay. My second question is, sir, there is a shutdown in the -- I think in Mumbai already. There is a shutdown -- there was a shutdown in the [indiscernible] facility in one of the units for maintenance shutdown. But during the shutdown, the [indiscernible] critical parties was required and, therefore, the facility is in the operating or nonoperating result?

Well, the shutdown was a planned shutdown in Q4, started from January and was scheduled to complete by end of March as is now with the power plants. But we found that some of the critical parts of campaign require replacement, and that replacement is currently going on. While the replacement was kind of pursued, what we did was we ensured that the availability of the offline with the other units continued as it is until now and also for the next month or so. So in a way, the budgeted generation isn't greatly impacted, excepting for a couple of months where we were required to operate both the units that last will be there in the current year -- current financial year.

Presently, only one unit is working, sir?

One unit is working.

And so then in that case, in the -- for [indiscernible] coal, we are now selling the coal in a [indiscernible] in a merchant [ sale ]. Can we expect the higher coal sale trending in this quarter, sir? Interest of the power is then not being produced, then coal -- standard coal can be -- we -- are we selling that all outside the merchant [indiscernible]?

You see, actually, the sale of coal for national customers is of a different grade. That's a metallurgical grade coal, whereas the coal that is intended for power generation is a low-grade coal. Our, what we call -- yes, low-grade coal. So the stoppage of work line doesn't impact the coal sales at all, because that is a separate revenue stream. And in fact, it has been pretty robust the last few months. So that coal sale is happening without any hindrance, and we'll continue to do so this year as well. But stopping the coal plant has no relationship with the coal sales, because that is a separate coal and separate [ margin of the business ].

Secondly, your revenue coal -- your revenue...

Sorry to interrupt sir...

Just one question, [indiscernible].

See, the power-grade coal is used for power generation, and the high-grade coal is used for merchant sales.

The next question is from the line of [ Monica Arora ] from [ Shared Joint Wealth Advisors ].

I have 2 questions. One is how was the performance of the health care business in Asia? And the second is, what is the outlook of power business in Orissa?

Yes. So in terms of the health care business, it definitely -- COVID has taken its toll because of lockdown and so on. So some of the sales that we were expecting were not realized because of that. But that being said, the business is growing quarter-by-quarter by a substantial amount. So I think once these lockdowns end, we do see potentially a fair bit of growth on the health care side of things in Singapore and in Malaysia. Now with respect to the Orissa power, I mean we were glad to announce that the 60-megawatt independent power plant that was on the shutdown for a long time, due to a matter that needed to be resolved with the utility, was resolved, and we have recommissioned the 60-megawatt IPP in Orissa, which is currently selling power.

[Operator Instructions] The next question is from the line of [indiscernible] Pura from DAM Capital.

My first question is regarding the ZESCO tariff orders. So is there any development in negotiations with the ZESCO tariffs? And can you please update on the arbitration cases and time lines on that?

I'm sorry. I missed the second part of your question. Could you repeat that?

Can you please update on the arbitration cases and time lines? Wanted an update on them.

Sure. So on the ZESCO tariff negotiation, which is essentially perspective, those discussions are currently going on. There have been certain delays, given that the Zambian election is scheduled for the month of August, but those discussions are currently -- are going on. And the arbitration in London is also underway. I don't want to discuss too much about the arbitration, because it's still [indiscernible], and we are hoping for an early verdict once we are [ hear from them ] .

Sure, sure. The second question was regarding -- we had listed out some assets for monetization. So what is the status of monetizing those assets which we had listed only about [ 2 ] years ago?

Yes. In terms of the monetization of the assets. I mean there were a couple of assets that were -- that we are talking about. One is the Dharmavaram land. Because of the entire COVID situation, the progress has been fairly slow. One, because a lot of companies are looking to expand at this stage, and even the valuations have taken a large hit. So we're hoping that once things settle, we can accelerate activities to monetize the Dharmavaran land. With regards to the land near Hyderabad, the matter was at court, the [indiscernible] matter and the hearing is done. The arguments were made, and the results are expected shortly. So once that is out of the way, then we could go forward with looking at -- looking for buyers and monetizing it. So that has progressed fairly well, in terms of the [ Nacharam matter ]. And in terms of [indiscernible] court, as you probably know, we are looking at selling the machinery and that process is currently underway.

Sure, sir. The next question was regarding -- we have given fantastic numbers in the stand-alone. So how are the ferroalloy prices faring right now? I just wanted to understand the sustainability of this.

Ferroalloy prices, as you pointed out, are doing extremely well right now. This uptick in momentum was seen through -- maybe through quarter 1 onwards. And the momentum has kept up as we speak. Going forward, I understand that even in Q2, the prices might have a small correction, but there should not be a major correction because most producers have already booked their quantities for Q2. And coupled with that is the export market also is doing extremely well right now, because 2 major producers in Malaysia had been shut down or had to curtail their capacity owing to COVID, so this has given a boost to Indian markets.

Sure, sir. One last question from my side was -- are the 150-megawatt IPP in AP and the 64 megawatt in Orissa operating now? And what is the outlook on that?

Yes. So the 150, unfortunately, is not operating. It just operated for a couple of days previously when tariffs were better. Given the COVID situation, the lockdowns, the demand has significantly dropped, and therefore, the IEX prices for power has been very, very low. So financially, it didn't make sense continuing running the 150. But I think once the lockdown eases, which it is currently, and the demand rises, we will see an improvement on the IEX side of things, which will allow us to fire up to 150 again. In terms of Orissa, the 60 megawatts, which we have the matter with the utility that was resolved, we have recommissioned it. We are currently exporting about 25 megawatts and the 60 megawatts. And the remainder of the power, once again, I think we're looking for a slightly better IEX prices to fire up the second boiler and start exporting the remainder to the public.

The next question is from the line of Samil Surendran from Argus Media.

My question would be on the ferroalloy business segment. Likewise, we have seen a rise in export's demand from overseas. So do you expect to focus more on exports in the coming quarters?

Samil, normally our -- we normally cater to about 35% of our production to export and 65% to domestic. But this ratio always fluctuates based on the realization that you're able to procure. Sometimes the domestic market, this data is far better than the export. So based on the orders that we book and the realizations of those orders, we either cater to the export market or the domestic market. That being said, last year, we have stuck to this ratio of 35% to exports and 65% to the domestic market.

And any guidance on the ferroalloy business for the full year?

Well, as we mentioned earlier, right now, the ferroalloy prices are doing extremely well, particularly for silico manganese. And we expect that there would not be any major correction in Q2, mainly owing to the fact that most suppliers have sold out their quantities. That being said, it's very hard to predict going forward. On one hand, there has been stock improvement in the real estate and infrastructure segment, which accounts for almost 60% of the steel. So given that the end users of steel are suffering right now because of extreme high prices, there might be a correction post Q3, but we don't expect it to fall much.

[Operator Instructions] The next question is from the line of [ Keshav Garg ] from [ CITL ].

Sir, first of all, I want to thank and congratulate you for the share buyback. And sir, our share price is so undervalued. The company is so undervalued in relation to its assets, sir, that it makes more sense for the company to buy back and extinguish its own shares rather than go for some external investment opportunity. Sir, because the market is providing us that opportunity. So thank you very much for that great decision, and I hope sir, in future also you carry on the share buybacks. Sir, just to get some [ VIP person ] you would appreciate that our huge part of our consolidated network is stuck in this trade receivables from our Zambian operations. And sir, this amount is increasing every year. Sir, so until some clarity or some reassurances you are able to share with us sir, then there will be a state of constant suspense that although you are maintaining that there is a sovereign guarantee. Sir, but what good is it that if every year we have to provide for some part of it? So yes, sir, so if you could provide some clarification on that part, then that would be really helpful.

Yes. Thanks, [ Keshav ]. In terms of the Zambian operations, yes, it is kind of unfortunate that the amount of receivables are going up. But I think the process to resolve that has commenced. I think one major step that we have taken is arbitration, and arbitration deals with what is due, everything retrospective and what is due. So we have a clear indication of the amount and it's clear to all parties. And there has been a determined effort from both our side, the vendor's side and also the [indiscernible] with a new tariff that is workable both for us and for them moving forward so that we can kind of freeze these receivables and the dues going up. So both of those processes are underway. Unfortunately, these processes do take time. Since you are dealing with a country utility and the arbitration process takes its own time. But we're hoping that once both are resolved, we will have a proper sustainable result in terms of the Zambian project.

The next question is from the line of Raj Nahar from Mili Consultants.

Congratulation on superb numbers. My question is that first is on the ferroalloy. Are you looking this for the start-up conversion contract at the market rate? Or it is basically conversion charges in our sales realization?

The Tata contract is on a conversion charge basis, where their suppliers, we own, and we have the rights to marketing the finished product.

Okay. And then second question is again on the ferroalloys, since the -- many of your competitors in India are expanding the capacity and you have the power with 150-megawatt power plant and also 60-megawatt power plant is lying down basically. So are you considering a ferroalloy expansion, because availability of raw material is also not a big concern? And you are also projecting that market is likely to continue good? So are you considering any kind of expansion?

We are considering it, but I must add here that the current raw material control is not in our hands. We are procuring it from outside suppliers. So in the interest of having some visibility on our cost of production, we are looking at also backward integration, where we are scouting for having our own manganese ore mines. That process is also underway. I think once there is some visibility on that, expansion would be taken out.

Okay. Sir, the last question is about the coal in Zambia. Basically, the -- whether the merchants sell coal, this quarter, you produced over 100 tons. So what is the potential there, because that money you are getting 100%, not like power, where you are -- start getting only now 57.8% only. But in this case, you are getting 100% payment. So what is the scope where we can increase? Whether we can go to 2.5 lakh tons per quarter or something like that? Is it possible? Is my question clear, sir?

Sorry, connection got -- we understand your question. It's like this. The coal is currently being sold in Zambia and surrounding regions. And there is, to some extent, a limited market. Whatever the market is there, we have been able to service that. So we are actually looking at a new mine pit that is coming onstream, whereby the quantity of coal would go up, in which case, there is a possibility of expanding this coal volume as well. But at this point, it is early stage, but the demand actually percolates from surrounding region. That is to be capped. Whatever that is happening, it is happening in Zambia predominantly.

So what kind of quantity you are projecting or possibility to this coal per quarter?

We can't put a different number than what was achieved last year, excepting for a slight increase. Yes, the certain increase is certainly visible, given the robust performance. But beyond that, in the current year, it is difficult to say. We are actually working on that. You're right in the sense, the coal revenues and -- revenues have been 100% realized. There is no issue. That is one of the significant developments in Zambian operations.

The next question is from the line of [ Amit Mora ] from TCS Securities.

I'm Amit from [ TC ] Securities, just a correction. One thing, sorry if I missed it, I joined the call a bit late. Is the other income for the quarter of course it's the same as it was in the last year -- last quarter in the same year Q4. What is the reason for the increase to INR 107 crores? Any clarification there?

Yes. The other income actually comprises FX gain and the MTM gain in terms of our Zambian operations. That is the principal contributor to that for the quarter.

And if you can give a breakup, that will be helpful, sir.

Roughly out of INR 107 crores...

For the year [ 2019 ]?

No, no, for the quarter. It's about [ INR 45 crores ] is the FX gain. And the MTM?

About [ INR 210 crores ].

Together it's FX gain and MTM are [ INR 500 crores ], which is [ very different ].

[ INR 45 crores ] is FX gain and [ INR 12 ] is MTM?

No, both particularly is [ INR 45 crores ] and the balance, of course, is more an interest provision, which has happened, but that is available even for the previous quarters also.

So what is the kind of other income other than the ForEx that is like the interest provision that we can assume that will continue? Because for the full year as well I think our other income is almost [ INR 250 crores ] compared to eligible other incomes.

Yes. This other income actually has stemmed from the interest charge that is happening on the outstanding receivables. So it's not like the interest from bank finances or anything like that. So it's a function of the receivables being outstanding and interest being levied on there.

And this is being received? I mean this is the cash for the receivable? Or it is only a provision that we are making in the quarter?

This is the first part of the overall receivables.

Okay. Okay. All right. Okay. Got it. Got it. And sir, on the interest costs, sir, what is it that we can expect the interest cost to be as a steady run rate because now we are almost cutting around INR 80 crores per quarter interest costs.

Again, it's principally driven by MCL operations. if you see the stand-alone debt is pretty low, completely driven by MCL debt. And interest, a small variation is on account of the principal being outstanding for the last 3 installments. So a little additional interest incidence would have happened. But other than that, it is a standard interest charge if you look at it, and it will continue for -- while the loans are outstanding.

All right. And last question, sir, if I may squeeze it and then I'll join back in the queue. Any incremental debt that we are planning to have in the FY '22 in this current year, sir?

No. We don't have any plans at this point.

This is our fee date is a fair assumption?

Yes. Because we have no capital plans at this point, so I don't think any debt is being planned.

The next question is from the line of Vijay, an individual investor.

I hope -- can you hear me clearly?

Yes, please.

Yes. My first question is about the ferroalloy plant utilization. As can be seen from the figures, the silico manganese plant utilization is 75% and ferrochrome plant utilization was 75% too. Now when the ferroalloy market is moving so much and the prices are going through the roof, why are we -- why is the plant utilization low? Is the demand low?

So Mr. Vijay, the -- for the ferroalloy unit in Orissa, the plant utilization was slightly lower than the preceding year, mainly on account of a planned shutdown that we had for 30 days. This was something that was inevitable for the furnace relining activities. And this is an immediate requirement, and therefore, it had to be shut down.

The first quarter is almost ending now. So for this quarter, will be booming ferroalloy prices. Can we say that the plant is fully utilized? Orissa, as well as the one in Telangana?

Yes, you could say that. See, the plant utilization, for example, is a function of how much power we are putting in there. So if you look at it, we have 4 smelters in [ Telangana ] and 2 smelters in Orissa. All 6 are at 100% utilization at this point.

That's the question I wanted answer. 100% utilization is what I wanted to hear. The second question is about the dividend distribution policy of the company. You have increased the dividend from 1.5 to 2.5 this year, which is very good. But what percentage of the profits is this? What percentage of stand-alone profits and what percentage of consolidated profits?

Yes. So I think Mr. Vijay, our dividend policy has generally been 20% of the stand-alone PAT. But I think this year, given the good performance on the stand-alone side owing -- mainly because of the ferroalloy's division, we thought we would give a little more. And I think the current dividend that we've declared equates to about 23% or 24%. 23%, sorry. 23% of...

Why is it our standalone profit? The company has a entity. Is that stand-alone profits alone? Or consolidated profits as well?

Yes. No, the reason is with respect to consolidated profits, a lot of that is owing to Maamba Collieries, right, where some of these, we're having issues in terms of the receivables. So that amount is not completely being received. And some of those issues are being dealt with in Zambia in the form of arbitration and tariff negotiations. So that's why it's a part of stand-alone.

Yes. The purpose of my question is particularly in the light of the monetization of land that the company is looking at in the future, which is not happening for a long time, but it seems to be close to happening now. So that monetization, if we have a clear dividend distribution policy, I suppose that monetization will be shared with the shareholders, with all the stakeholders, given the percentage -- given the policy that the company has.

Yes. No, in terms of -- yes, the monetization is progressing, and we will definitely come up with a policy, because we're also doing buybacks to improve shareholder value. So we will kind of look at all the various options and probably come up with something.

Okay. If I may be permitted to ask a last question. The haircut value, are you contemplating any haircut in Zambia, your receivables in your arbitration proceedings?

Well, the arbitration matter is right now [indiscernible]. So I don't want to comment on the arbitration matter at this point in time.

The next question is from the line of Samir Shah, an individual investor.

Hello. Can you hear me?

Yes, please.

Yes. I wanted to ask about the time line of the arbitration with ZESCO. You did mention that there were elections and all that going on, but would you have a definitive time line in mind? That is my first question. And the second question is about the merchant power business. You had a bit of ups and downs some quarters when the IEX numbers are high. It goes into sale and then it kind of, again, comes down. So do we have a sustainable strategy for that in the long term? Because 150 plus 60, 210 megawatts, is a fairly large capacity to just idle and go only in fits and starts. So these are my 2 questions.

Yes. So to answer your first question with regards to the arbitration, it has nothing to do with the Zambian election. I think the Zambian election I brought up more in terms of the tariff negotiations for the prospective tariffs. The arbitration is being currently held in London. In terms of time lines, it's very hard to say. We hope that we'll have something by the end of this year, but it all depends on how the proceedings go. With regards to the merchant power in terms of the 150-megawatt and the 60-megawatts, I completely agree with you, the IEX prices fluctuate quite a bit. So the long-term solution we have been looking at is a group captive scheme for both the units, both the 150 megawatts and the 60 megawatts.

Okay. And when would that kind of come into play? Would that take a long time?

Well, with respect to the 150 megawatts, there are certain procedural issues that we are facing. It is in court, and that process is currently underway. And with respect to the 60 megawatts in Orissa, we just recommissioned it. And so we were happy to kind of get -- go past all the issues that we had with the utility and resolve that. So now that we have recommissioned the 60, we are pursuing the group capital scheme, and we'll inform you once significant progress has been made.

If I can just take one last question. This is about the sugar business, the discontinued sugar business. I can still see that there is some [ sugar ] sales being recorded over there, probably some inventory of the past. But there was some announcement that the sale has been canceled. Could you throw some light on that?

Yes. In terms of the sale, we had identified parties and we had signed an agreement, but unfortunately, some of the conditions precedent were not met, so we have to terminate that agreement. So we are currently engaging other buyers with regards to the machinery sale.

Would you not -- would you -- sorry, would you not want to relook at that business now that ethanol is starting to come on its own and most sugar producers are kind of very excited about the new ethanol policy and 20% blending?

You see, for this unit, it has not -- nothing to do with ethanol or anything. The major problem that was being encountered is scale availability. That is getting shrunk year-on-year, and it was coming to a point where it wasn't meeting even our minimum kind of operations. That's the reason we didn't want to pursue that business there. But given that we have taken decisions and we have to move on in terms of the unit sale and all, so I don't think there is any intention to relook at the resumption of operations at that location at least.

The next question is from the line of Ayush Agarwal from Mittal Analytics.

I had one question on the interest in receivables start that we had mentioned to the other participants. So as I remember in the previous con calls, we had mentioned that we did not need to book this. So the first question is, what was the reason behind the booking risk income this year? And again, is it -- I missed that part. Is it provisional? Or have we received some [indiscernible]?

[indiscernible] As for the terms of the PPA, we are eligible for interest on the delayed payment so from ZESCO. As per the terms of the PPA, we are raising invoices on ZESCO for the delayed payment and we are having the revenue in other income. And the same is being carried in the receivables amount from ZESCO. This is as per the terms of the PPA.

Will this be done retrospectively?

Sorry, can you come again?

Will this be done retrospectively?

No. This is being done on every month basis. So whatever outstanding receivables that are there, they also have this interest component.

No. Right. But in the previous years, we did not use to book this income.

It was there [indiscernible].

During the previous financial year, we have recognized a revenue of $1 million for the interest [ utility ].

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

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

Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.