Nava Limited (513023) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Nava Bharat Ventures Limited Q2 FY '22 Earnings Conference 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. Thank you, and over to you, sir.

Thank you, Neerav. On behalf of DAM Capital, we welcome you all to the Q2 FY '22 earnings call for Nava Bharat Ventures. From the management side, we have Mr. Ashwin Devineni, Chief Executive Officer; Mr. GRK Prasad, Executive Director; Mr. Nikhil Devineni, Senior Vice President; Mr. Sultan Baig, Chief Financial Officer; and Mr. VSN Raju, the Company Secretary and Vice President. I will start with opening remark. After that we'll open the floor for Q&A. Without much ado, I hand over the floor to Mr. Ashwin for his opening remarks. Over to you, sir.

Thank you. Thank you. Good evening, everyone, and a warm welcome to all the participants. 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 half year ended September 30, 2021, have already been filed with the stock exchanges and posted on our website. I hope you have had a look at them and trust that they provide adequate information on our performance for the quarter and half year ended on September 30, 2021. This quarter, stand-alone Nava Bharat Ventures' financial performance was exceptionally good, delivering an EBITDA of INR 161 crore and a profit after tax of INR 101 crore. On the consolidated financials, Nava Bharat Group reported a profit before tax and exceptional items of INR 243 crore, which is up by 59% year-on-year. Positive investment outlook following the change in Government of Zambia had resulted in a sudden and significant hardening of the local currency against the U.S. dollar by almost 26%. This has resulted in a notional restatement of tax liabilities denominated in the local currency by MCL at the end of Q2. The ForEx exchange of INR 189 crore has unfortunately impacted the reported profit after tax since we follow the India standards. However, it must be noted that this has no cash impact at MCL and absolutely no impact on the parent company's financials. Trust this addresses the concerns of the investors on the consolidated financial results. We will be glad to provide any other clarifications that may be required by the investors. Thank you.

So shall we open the floor for questions?

Yes.

[Operator Instructions] The first question is from the line of Mr. [ Srinivasa Rao ] from [ HCG Limited ].

Congratulations for a very good set of stand-alone numbers. My first question is on the MCL outstanding amount. During this past 6 months it has gone up by about INR 195 crores. What is the way out to get our payment for the power we're supplying to ZESCO? And the second question is, when are we expecting the arbitration award.

Yes. Thank you, Mr. Srinivasa Rao. In terms of MCLs outstanding amount, right now, it's at about 58%. I mean, they've basically paid us 58% of what we have billed them. So the outstanding amount currently is at approximately $460 million. We have been in discussions. The outstanding amount is essentially being dealt with the arbitration process. So I don't want to comment on that too much. And in terms of the timelines of the arbitration process, I think the courts will take their time, and we hope they'll make a judgment sooner rather than later on that. But with respect to the future tariffs, we have been discussing with the power utility there. So that is moving forward, the outstanding amount does not increase. But one thing I would like to add, in general, is, I think it's important to know that the MCL project, there's no financial impact on NBV in terms of the liabilities and debt. Whatever we needed to put in financially, we have put it in, in the form of equity, and the project finance has been done in a nonrecourse way. So in terms of the owing to the lenders and so on, Nava Bharat Ventures has absolutely no liability.

[Operator Instructions] The next question is from the line of [ Hanish Alluri ], individual investor.

Hello, this is Hanish. My question is regarding the goodwill. There is a slight increase in goodwill. Is it because of the acquisition of stake in BIPL?

Yes, of course. We invested in BIPL to make a controlling stake in that company, which makes management much better. That's one investment. We also made some investments in some of the subsidiary in the quarter.

[Operator Instructions] The next question is from the line of Mr. [ Mohit Kapoor ].

Sir, 2 or 3 questions. First on the -- of course, I understand that the arbitration hearing is complete, right? So what are the next dates, once we get the order to, is there any chance of the ZESCO to appeal against the order? Or do you -- once the order -- or once the order is given, only the recovery is the pending thing?

Mohit, you said you had a couple of questions. Is that…

No. That's the first question. Secondly, of course, there's a very -- in the -- I think the merchant power has in -- the merchant rates have been very high at 60-40, especially for the power sold in the quarter. How -- and so are we selling entire 150 megawatt and 60 megawatt in merchant right now? Or are we looking at some short-term bilateral? And the related question is that there was -- last time you spoke that they were looking at some solution for 150 megawatt. Is there any update which you can share? And also, if any update on the 60 megawatt IPP, which you can share with us?

Yes. So in terms of the Maamba Collieries question, Mohit, unfortunately, I don't want to comment too much on the arbitration process and also whatever process may follow that because that will just be me speculating on what could happen and what would happen. We see -- we're looking at the current government change like the rest of the world has seen as a very positive thing in the country. You've probably seen even the -- that's one of the reasons why the Zambian kwacha has also had appreciated by over 24%. So we do see light at the end of the tunnel. But I think one important thing to note is as far as Nava Bharat Ventures is concerned, we are right now at the bottom in terms of this because we -- all the exposure, all the financial exposures that we could possibly make has already gone in. So I think whatever happens will definitely be towards an upside for Nava Bharat Ventures because in terms of liability, in terms of further liabilities and so on, we have not as far as Nava Bharat Ventures is concerned. With respect to the independent power plants, both at Orissa and in Telangana, yes, fortunately, in terms of Orissa, we're very happy to note that the cases that we were fighting before were behind us, and it was operational, and we were able to take advantage of the higher IEX prices. Both the 60 megawatts in Orissa and the 150 megawatts in Telangana, we've been operating, making use of the exchange. And I think for both plants, we have benefited from the increased rates and extremely high rates in October too. But we hope we are -- I don't think it will be at the same prices, but we see a bright future for the power sector too.

Okay. Sir, so on the Ferro Alloys realization, so could you comment on the long-term solution for the 150 megawatt and 60 megawatt?

Mohit, actually the 150 megawatt and the 60 megawatt are both IPP. So that has no bearing on the Ferro Alloy's operation.

No, no, no. My question was, sir, you said that you are looking at some long-term [indiscernible] some sale to some captive companies. Is there any update which you expect which -- for the end of the quarter or which you expect in the next couple of -- next couple of quarters?

Yes. No, I think what you're talking about is the group captive scheme that we spoke about before.

Yes, right.

Those discussions are ongoing, Mohit, but we've been fortunate that we didn't tie up with any group captive scheme yet because we had -- that's one of the reasons why it benefited from the high merchant trade. So those discussions are going. But while they are ongoing, we are -- we basically are taking advantage of the IEX prices.

Lastly on the Ferro Alloy, what is the outlook? How was the realization last quarter? And what is the current realization compared to last quarter? And how do you see it panning out in the next 6 months?

Mohit, so last quarter was excellent for Ferro Alloy's vertical. We registered a growth of 33% in total realization over the preceding quarter. Now this was a function of both export and domestic realization going up. And going forward, we feel that the trend is going to continue. In fact, from Q2 to Q3, there has been a slight increase in realization. And we're at a stage right now where our total order book is fully booked out until Q4.

[Operator Instructions] The next question is from the line of [ Nimesh Vaja ] from [ KVB Financial ].

I would like to have a breakup in our revenue for coal sales. We read the news that coal is touching all-time high. So we want to understand what are the contribution of coal sales to our total revenue?

We give you the breakup, Mr. Nimesh, but just to keep in mind that in Zambia, unfortunately, we don't go as per the international trend, it is a landlocked country. So the pricing we follow there is, and the trends we follow there are slightly independent of the international trend. So the revenue from -- yes, the revenue from the mining operations for September -- end of September '21 was about $13.6 million. And the revenue from operations from the power segment on Maamba Collieries was $41.2 million. So that's the breakup.

[Operator Instructions] The next question is from the line of [ Vijay C ], individual investor.

So my first question is about the Maamba Collieries again. The power outage, total power outage in Zambia last Saturday and a month before, was Maamba Collieries power plants in operation during this outage?

With respect to the power outage that happened recently, we had one of the units operating. One was still under major overhaul. So the -- it was a complete grid shortage, I mean, great disturbance. So yes, our unit also tripped, but we got it back online immediately.

Yes. So again, with respect to that and the ongoing arbitration process. In the event the government insists on the initial commitment of Nava Bharat when the plant was started of putting up a 600 megawatt plant, which we put up only 300 megawatt and said we'll expand to 600 megawatt later. If that condition comes since Zambia is in perennial power deficit, if that condition is put by the government for giving a favorable arbitration outcome, where does Nava Bharat stand? Where does Nava Bharat stand to this?

Firstly, I think there's no specific condition that we need to put up 600 megawatts. I think what the understanding has always been is we'll set up 300 megawatts, we'll see how it works. And if the opportunity exists and we are satisfied as sponsors and shareholders, we will put up another 300 megawatts. So I think as far as we are concerned, we're still trying to make sure that the payment mechanism works. And I think once that works, I do agree with you, there is a power shortage in that region. We could always look at potential expansion, provided all the securities are in place.

So Nava Bharat is open to going in for the expansion, doubling the capacity to 600 megawatts.

Well, it's conditional on a lot of things happening and taking place. So yes, it makes financial sense. All the securities are in place and we are extremely certain that the current situation we're facing will not be faced if we put another 300 megawatts, yes, we'll be open to it.

And then coming back to Indian operations, with the boom in Ferro Alloys, I had asked this question once before, do we have any plans to expand our Ferro Alloy operation since almost 75,000 metric tons is committed to Tata Steel, which cannot be put to commercial use.

That's right. Mr. Vijay, in our last call as well, we had addressed this point. And if you remember, we were banking on having a backward integration, where we have certain fuel security, which kind of insulates us from any volatility in input cost. Fortunately, we have made significant headwind in that regard. The Government of Cote d'Ivoire in Ivory Coast has granted us a concessionary of 64 square kilometers of -- where there are proven deposits of manganese. So work is underway to engage the exploratory works to ensure what the reserve deposits are and so on. So right after that, we are looking at it meaningfully in terms of expanding in India and abroad. But at this moment we don't have a concrete plan to share.

This Cote d'Ivoire mine, will it cover our entire requirement of manganese for the Ferro Alloy plant?

It depends on what the reserve deposits are and what the quality of the ore is because even currently, to manufacture both export grade and domestic grade, we blend ore from different sources, high grade, medium grade and low grade. So if the quality is all of high grade, which we find, then there is no requirement to blend other ores, and we can use that as a single source.

Okay. Any update on the agricultural plans in Zambia?

Yes. So on the agri side, we have been taking it up seriously. In fact, we have been testing a couple of crops because one thing we've realized is rather than doing a mass farming crop like maize, corn, sugar and so on, we wanted to look at high-value crops. So we are still in the exploration stage. We're planting plots with different crops, recruited a couple of agricultural experts to help with that. And I think once something clicks, we will inform the wider group.

Any progress on the monetization of idle land bank assets?

So that, unfortunately…

Including the sugar plant, yes.

Well, let me start with the sugar plant. Sugar plant has progressed. The asset sale has progressed well. We have been selling a lot of the equipment piecemeal to traders and individual companies. That has gone well. The realization has been good, and almost 90% of the equipment has been sold. Now with respect to the other land banks in terms of Nacharam, unfortunately, that court case is still ongoing. COVID has unfortunately not helped with the timing. So things are being delayed. And in terms of Dharmavaram, we are still -- given the location, we're still evaluating options of monetizing.

Mr. Ashwin, my sincere request to you is to inform the investing public regularly about these developments, which we come to know only through the conference calls.

Yes. Mr. Vijay, I think if there are any significant developments, we do inform the investor community. Unfortunately, we can't inform the investor community about every step we take. But when there is a significant development, we do that.

Now the 2 specific developments that you disclosed just now about the acquisition of manganese ore mine in Cote d'Ivoire and the 90% sale of sugar assets. This the investing public is not aware of, nor is any announcement made by the company about this.

Yes. No, with respect to the sugar assets, I think we've made it clear that we are selling the assets by piecemeal. Now a lot has progressed, but it's difficult for us to inform the investment community for every piece of equipment we sell. So we found it prudent to inform them once everything is complete. And in terms of the Cote d'Ivoire exploration license, that's a very, very recent development that has just happened. And it's just -- it's basically an approval for us to go into the site for site activities and so on, while we await the formal communication from the President or the Prime Minister.

Yes. So today's results announcement was not accompanied by any press release. So I hope at least the press release includes all of these developments.

We are putting out the press release. Once again, as I said, any significant development will be informed in the press release.

[Operator Instructions] The next question is from the line of [ Kritika Jain ] from [ Sequent Investment Management ].

Sir, do you plan to acquire 100% in the [indiscernible] subsidiary?

Well, at this point, we have a controlling stake. There's no immediate plan to acquire 100% or something because we have a minority stake. If the party is willing to look at sales or something, then probably we could look at it. We -- our own -- he's not putting any effort at this point because anyway we have controlling stake.

[Operator Instructions] The next question is from the line of [ Nimesh Vaja ] from [ KVB Financial ].

Sorry, my line was disconnected earlier. As you said that coal, you do not sell at international prices. What is the typical discount on the coal prices? That is question one. And second thing, we'd like to know on the company's strategy going ahead. Is it -- we are seeing that we have unutilized assets, and we're just banking on those assets to be utilized. There is no growth seen. Is this we are looking kind of an opportunistic business here and there? And what is the line of trajectory of the business management is thinking going ahead? And the -- any light on this will be very helpful.

Yes. So in terms of the whole question, Mr. Nimesh, like I said, we don't have any defense. It's not like the discount factor that we apply on basically what the international prices are. The average realization, just to put a figure there, the average realization that we have booked is about $61.8 per metric ton, per ton of coal. Now the way we price is slightly different because it's landlocked. We are competing with other coal producers in Zimbabwe and so on. So we keep the coal competitive enough so that customers do buy from them. And we are proud to say that the majority of all the coal consuming customers in Zambia buy from us. So yes, in terms of the strategy, let me make it clear that it's not -- we're not just looking at making the operational -- the idle assets operational. Although we have done that with a couple of the idle assets like the 60 megawatt power plant. And also we've been fairly successful with the Samalkot equipment sales. We are also looking at expanding in the verticals we are currently in, which are promising and one being the Ferro Alloy vertical. As we have repeatedly said, we don't want to increase furnace capacity or production capacity unless we have some backward integration. And that's why we've been actively pursuing acquisition and exploration of mines in manganese rich countries, one being Cote d'Ivoire. So I think if we find that mine, and we hope we find it promising in terms of both quantity and quality. We will definitely consider expanding our Ferro Alloy's smelting capacity. And apart from that, we are always looking at other strategic investments and areas that are related with the current verticals we are in, in terms of expansion. The one point I would also like to make is we -- in Zambia, the agricultural project. I think that is another project that we are currently concentrating on where we are testing some, as I mentioned, some high-value crops. And if -- when we proceed, I think that will also be a significant expansion for the company. But as far as we are concerned, we are always looking at improving shareholding value by expanding in current verticals and looking at new promising verticals that could yield fruitful tomorrow.

Okay. One last question, if I can ask. One of our power plant, 150 megawatt in Andhra Pradesh. It happen, sometimes it remains idle, sometime it is operating. So what are the logical decisions we need to take, tactical decision you take while operating and getting it idle? Can you just elaborate on that? So as a continuity, as an investor, how I will come to know that this plant will remain operative or will remain idle because 6 months back it was idle, now it is operative as you've seen, the power units? Can you elaborate?

Yes. So in terms of the 150 megawatt, as I mentioned previously, while we are looking at group captive opportunities, which is an ongoing process and which requires several approvals, we've been subject to selling in the exchange, the IEX. Now if the IEX prices are lower, you're not even able to recover your variable cost, which is your coal cost. There's no point continuing to operate the plant. So that's when we turn it off. And when prices go up, we turn it back on. I mean, we would hope that prices would remain at high levels all the time. But unfortunately the reality is not that. But given where the market trend has been going, at least if you look at the Q2 power prices, which we think will be able to sustain moving on to the next few quarters, we should be fine with the 150 megawatts.

[Operator Instructions] Next question is from the line of [ Neeraj Khandelwal ], individual investor.

Sir, my question is on this manganese ore mine, which is the -- what is the term in the lease period basically? And are you paying any premium for this particular manganese ore mine that you just mentioned in the call? And my second question is on the power plant, the second power plant, which has been shut down more for past 6 months. What is the status? When is it expected to go live [indiscernible]?

Mr. Neeraj, thanks for your question. I'll take the first part regarding the manganese ore mine. The license we have been granted is for an exploration license. The period for exploration is given to us for 4 years. We feel that it should not take that long. We should probably complete it in a year or so. Now post exploration, the government grants you an exploitation license. That license is valid for a period of 20 years. Yes. Sorry, I -- Mr. Neeraj, I didn't get the second question. Could you repeat that?

Is there any -- once the grant of the exploration license, is there any premium that we are supposed to be like currently for other iron ore and everywhere where we are -- where anybody is buying the -- getting that ores allocated, if there's a premium that gets paid across by the company who has been allotted the coal? And the second question, the other question was on the power plant status. What is the status of the second power plant? When it is going to go back into production? Are the machineries, the critical parts, they've been arrived? What is the status on that?

So Mr. Neeraj, there's no premium as such that needs to be paid. But given that it is the natural resource of the country, the government takes 10% as free shares in the subsidiary holding company. So the profit sharing mechanisms would be that the government would -- due to its 10% holding, would get an appropriate portion of the profits, which amounts to 10%. Yes. And in terms of the second unit, for the overall, that has been completed. So currently at Maamba, both the units are running at full capacity.

[Operator Instructions] The next question is from the line of Mr. [ Sameer Mehta ], individual investor.

Yes. I have a couple of questions. I was looking at your consolidated segmental report. It shows that the mining revenues this quarter have been probably up by about 8% to 10%. But the mining profitability is down by about 30%. So is there a specific reason for that? That is the first question. And the second point is on the Maamba receivables. You gave us a consolidated number from 2016, '17, but would it be -- wouldn't it be prudent to give us a rolling number for the last 4 quarters because that is more relevant? At some point it was 80%, then 70%, then 60%, now it's 58%, because we take the historical numbers into calculation. Now if you just want to look at the last 4 quarters, what is the revenue accretion to us? That was my -- these are my 2 questions.

Thank you for your question. Regarding the mining overall revenue, it has increased to $13.6 million in the quarter compared to $10.4 million in the previous quarter.

Yes, the profitability?

There is a slight decrease in the profit -- yes. Profit before tax from the mining division for this quarter stood at $3.7 million as compared to $4.3 million in the previous quarter. The reason for decline is because of the taxes that we have to pay in the quarter. And similar to the mining, the power division, there is a translation loss, ForEx translation loss when you convert the kwacha tax into U.S. dollars. So that's why the profit in U.S. dollars is slightly lower as compared to the previous quarter, though there is a slight increase in the revenue, and just a notional loss.

Yes, and the second question on the revenue from Maamba, the percentage, can the management give us on a 4 quarter rolling basis the percentage receivable?

Yes, every quarter, the financials are published on the company website, sir. It can always be accessed as per the LODR requirements, we are publishing the results for the quarter compared to the previous quarter and the year-on-year basis. But if you specifically require, the financials are always available on the company website to be downloaded for viewing a quarter-on-quarter basis.

[Operator Instructions] As there are no further questions, I will now 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 will be happy to provide answers on a wider investor platform. Thank you all once again.

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