Nava Limited (513023) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nava Bharat Ventures Q3 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 Limited. Thank you, and over to you, sir.

Thank you, Liza. On behalf of DAM Capital, I welcome you all to the Q3 FY 2022 earnings call for Nava Bharat Ventures Limited. From the management side, we have Mr. Ashwin Devineni, CEO; Mr. Sultan Baig, CFO; Mr. GRK Prasad, Executive Director; Mr. VSN Raju, Company Secretary; and Mr. Nikhil Devineni, Senior Vice President. Now I hand over the floor to Mr. Ashwin Devineni, for your opening remarks, which will be followed by Q&A. Over to you, sir.

Thank you, Mohit. Good evening, everyone, and a warm welcome to all the participants. The statement of financial results, both on standalone and consolidated basis and a press release detailing the operations of the Nava Bharat Ventures Group for the quarter and 9 months ended December 31, 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 they have provided adequate information on our performance for the quarter and 9 months ended December 31, 2021. Given the above, we would like to now proceed with the question-and-answer session. Thank you.

[Operator Instructions] The first question is from the line of B. V. Bajaj from Bajaj Shares and Securities.

Yes. Congrats for the team Nava Bharat Ventures on all fronts. The standalone results are very good and efficiently brought good results. But my only inhibition is your confidence level on the international recovery of low -- of the coal belt in Zimbabwe and how you are expecting that it will be resolved how fast better to your credits. That is my only question, sir.

Yes. Thank you for the question. So this is with regards to, I guess, the power plant and the coal project in Zambia. So yes, I think as you probably know, the arbitration is currently underway. And we are glad to note and happy to inform you that we have received an interim order for $250 million that ZESCO is supposed to pay us by January 31, 2022. As of now, we expect ZESCO to pay, but they have -- while discussions are underway between us and ZESCO in terms of them possibly coming up with a payment plan. As far as we are concerned, we will take all necessary actions until and unless we are satisfied with the payment plan to enforce the order and the award.

The next question is from the line of from [ M. Srinivas Rao from Jubilant Pharma Limited. ]

Congratulations on the good set of results. My question is, what is the outstanding amount on MCL to be paid to the lenders as on date? Not outstanding, overdue.

[ 413 million ]

Hello?

Sorry, can you repeat that? Are you asking for the outstanding amount as of date to the lenders or the remaining debt that is due?

Sorry. I'm asking what is the overdue loan amount, which is supposed to be said as of December '21.

Yes. So that amount is $118 million.

Okay. And what is the current order book provision for ferro alloys at Paloncha?

Sorry, can you repeat that?

What is the order book position for ferro alloys at Paloncha unit?

Mr. Srinivas, thank you. The order book for Q4 is fairly good in the terms of, it's more or less sold out. So we have good visibility in terms of our realization going forward for Q4.

We'll move on to the next question, that is from the line of [ Harish Shah from H S Investments ].

I have some questions. What is the status on manganese ore mining, if you can share?

Mr. Shah. So thank you for your question. The manganese ore exploratory works are currently underway. Unfortunately, owing to COVID, there was a slight delay in the grant of the statutory permissions required to conduct the works. Now, as we speak, all that is behind us and works are underway to carry the exploration.

Okay. So the revenues from these operations can be seen like coming in this Q4?

Unfortunately, this too nascent at this stage to comment on revenue is coming from the project. At this juncture, what we are looking for is, firstly, the deposits that are available in this concession area. And secondly, whether the quality of the ore present in this concession area are suitable for manganese alloy production. So I won't be able to comment in terms of revenue inflow just as yet.

Okay. Okay. Got it. And if you can share what is the maximum volumes can we do on the coal front -- coal business?

You said maximum volumes?

Yes, volumes.

Yes. So I think, I mean this is in relation with the Zambian operations. Today, we do about 35,000 to 45,000 tons on a monthly basis. Now in terms of volumes, we want to increase that to potentially like 50,000 and even probably 60,000 a month. But it all depends upon the demand. Today, we cater to most of the Zambian market. But what's happening is now we're seeing a fair amount of traction also from neighboring countries such as Congo and so on. So if that works out, then we'll definitely see an increase in volume. With regards to our production and the mine reserves, there is no limit really. We can go much higher than that.

Okay. Okay. And what is the approximate EBITDA that we get from this business?

The coal mining business?

Yes. Coal mining business.

Give me a second. It's approximately about 50%.

Okay. And my last question. What is the total remittance that we as a standalone business received from Zambia? That is MCL.

So today, as it stands from MCL, we have not been receiving any dividends primarily owing to the fact that some of the conditions that the lenders have imposed have not been met because of the partial payment from ZESCO. So I think now that things are moving in a positive direction, we hope to resolve that and probably they unlock the value and start receiving -- hopefully, we'll start receiving dividends in the near future.

So can we see that from the next financial year that this would come in?

It's very hard for me to say. All I can say, I think, at this moment, our discussions with ZESCO, given the change in government are very positive. I think they're eagerly also looking for a resolution. So I think once we structure something around that, I think we'll be able to discuss with the lenders and relax some of the terms so that we can start declaring dividends.

That is it from my side and wish you all the best.

The next question is from the line of Ankit Sonkhiya from Oculus Capital Advisors.

Congrats on the great numbers. I have a couple of questions. My first question, as we are working on this new tariff structure in Zambia, and currently, we are receiving $0.11 per unit. So can you just tell us what is the demand from the ZESCO side or the government side? What kind of tariff that they are demanding for? And we were working on the debt structuring as well because we have not paid the principal amount since last few quarters. So what is -- are we hoping that the debt -- total debt amount will come down? Or what is happening around this debt structure and the new tariff structure?

Yes. So I don't want to go into particulars, Ankit, because these discussions are fairly confidential. But what I can say is that with the recent discussions, where we are in terms of tariffs and what they are proposing, we're not too far apart. I think the key here is basically getting them to agree to a very robust payment security mechanism. So tomorrow, if we agree to this tariff, there won't be any more defaults. I think once that is achieved, then we go to the lenders to basically restructure the debt. The lenders are aware of what we are discussing with ZESCO. But I think once we agree on a tariff and a payment security mechanism that is acceptable both to us and the lenders, I think the lenders will come forward to restructure the debt.

Okay. And just on this one. Let's say, I'm assuming that the tariff will not be too low and we'll still make net profit on that. So then why will the debt holders agree to reduce the debt, if they know that we are also making money in the new tariff structure. So I just want to know why are the debt holders and also because now we have received this [indiscernible] coal order that they have to pay us $250 million, although I know that probably the government doesn't have -- the center doesn't have money to pay even if there is an order of the court. I just want to know whether is there any possibility that the debt will come down?

No. So firstly, I think in terms of the tariff we're profitable. I think the company is still in the moneymaking business. So won't agree to a tariff where we don't make money. It has to be a win-win situation. With respect to the debt and the lenders, I don't think our intention is to reduce the debt. It's more in terms of changing the loan profile. So that the payment terms and things such as the interest rate and all those things could undergo a slight change. So that's currently underway. And with respect to ZESCO not being able to pay, I think the way the current discussions are going on, is -- I think there is an intention to pay. And I think they're trying to work a deal with us where they get additional revenue essentially to pay us. So that's currently under discussion.

Okay. Okay. And last time I had heard that the coal mining, we cannot sell it in the international market, we are not getting the benefit of international prices because there is some landlock system. And just now you mentioned that we are thinking to sell it to neighboring countries. So do you mean that within Africa, you can sell it, but not outside Africa?

See, logistics is still an issue. It's not like we can't sell it anywhere. The only thing is logistics kills you if you want to kind of move it out of the African subcontinent. You don't -- you're not competitive anymore. So today, what we find is there is a -- if you look at countries like Congo and so on, there's a huge demand because they're increasing their cement capacity and also their copper mining plants are expanding, given where the world is going. So we're trying to take advantage of those opportunities. And there's quite a bit of demand there. So today, we cater to most of the Zambian market and now we're starting to see inroads into the Congolese market.

Okay. Got it. And just one last question. On this -- the receivables part. Because the government has changed and I believe you guys have a lot of discussions within the last few months with the new authorities. The receivables are still going up, as we speak or have they structured something that at least it will not go up and they will pay you for the new offtake?

No, the receivables, as we speak, are still going up until and unless we agree to this prospective tariffs that we are currently in discussions where we have made a fair bit of progress. As it stands right now, from what we have invoiced, they have paid us about 56% to 57% of what we have invoiced. But yes, I mean, today, when we build them, we build them based on the old tariffs and whatever is not paid falls into dues. Once we agree on the new tariffs and they start paying us based on the new tariff in full, then that will put a stop to increase of arrears.

And is there any discussion of reducing the existing receivables also in your new structuring plan?

Existing -- well, I mean, if you negotiate the tariff downward, essentially that would mean reducing receivables, right? So, are you talking about the previous receivables?

The previous receivables, I'm talking about.

So what we made clear is that we're going to be discussing prospective tariffs and that would only be applicable towards future receivables. The matter of previous receivables dues and arrears is something that is being dealt with in the arbitration process. So that is something we said we have to delink.

[Operator Instructions] The next question is from the line of Monika Arora from Share Giant.

I wanted to ask that our 150-megawatt power plant in NPCIL. What is the exact road map for the plant?

Yes. Monika. So we had experienced. I mean the country had experienced extremely good months in the month of, I think, September and October. And ever since that, I think tariffs have dropped. And unfortunately, for us, the coal prices also in Telangana have been increasing due to Singareni making abrupt increases now and again. So currently, we -- the 150-megawatt is currently shut, although we are currently working on some short-term supply initiatives to certain states. So we hope that in the next few days to a month, we will get it back into operation. As far as the short-term plan, that's what it is, where we are talking of 1-month to 6-month kind of tenders that we participate in with different states. In terms of the longer-term plan, we are still discussing this group capital scheme, which the 150-megawatt could be a part of. Unfortunately, there, we have experienced certain regulatory hurdles, which we hope we can overcome soon. And I think if that is out of the way, then the group capital scheme is probably the best long-term solution for the [ 150 ].

Okay. Okay. And one more question, like if we see our revenues have grown, but we are lagging somewhere in the actual cash receipt. So what is the ultimate goal? Like if you can give me an outlook for another, say, 1 year or 2, 3 years in line. What is the outlook for 2, 3 years for the company?

We can't make a forward-looking statement, but let's see look at it on a standalone basis, our ferro alloys operations seem to be on a nice level at this point. And we hope to see whether a further capacity addition can take place, but that is subject to various metrics, which our team is working on. So as -- one aspect, which we will be probably looking at. The second aspect is once this resolution has -- Ashwin has read the resolution of the Zambian payment problem is done, then what we could see is some kind of improved financial position at the step-down subsidiary level, which in turn gives us some more opportunities. At this point, we can't really say what they're, but we could probably look at some cash flow visibility once that resolution is done. But that can be better answered once this current arbitration is behind us, which probably will happen during this year -- during this calendar year.

Okay. So as an investor, what is the ultimate view we should look at?

Well, I think on a standalone basis, you should look at this company as a ferro alloys company with a base anchor position, and I would invite my CEO to dwell on what are the new initiatives that the company is looking at?

Yes. So I mean, as an investor, what GRK said is true. We are primarily a ferro alloys company supported by power. Ferro alloys is doing good. The steel outlook looks good. Definitely, I think one thing we are looking at is increasing our ferro alloys production capacity. But that hinges, like we mentioned on previous calls on us having integrated or having raw material security. And in terms of that, we are actively working on certain raw material assets. And I think once those materialize, we will definitely be expanding our production capacity. With regards to other initiatives that we are taking, I think now that we are seeing a fair bit of positive traction on the Zambia front, too, I think that is going to open doors to significant cash flow coming back into the company. And I think that's where we stand with respect to our core operations. With regards to other projects that are not within our core operations, we are exploring agriculture in Africa and we're also involved in a small way on the health care side in Southeast Asia.

[Operator Instructions] The next question is from the line of [ Harish Shah from HS Investments ].

We have seen good performance from the ferro alloys division this quarter. So are we -- like we are working on the optimum capacity? And according to the management, what are the next triggers for growth?

Thank you. I think for the first part of your question, the answer is yes. Both at our Orissa unit and where we're producing ferrochrome for Tatas under the conversion agreement, we are operating at optimal levels. In Paloncha, where we're producing silicon manganese, there as well we are operating at near optimal levels.

Yes. And in terms of the triggers for growth. As Mr. GRK and Mr. Ashwin had alluded earlier, one of the main triggers right now that we're seeing, which is contributing to the company's top line and bottom line on a standalone basis significantly is the ferro alloys division, particularly the silico manganese production. The prerequisites for us to expand further was to backward integrate and find our own raw material source, namely manganese ore. This is for 2 reasons. One is it gives us guaranteed fuel supply for any expansion unit. Second is, it insulates us from any market volatility in the index prices, which provides a significant cost advantage over our competitors. Now I'm glad to report that both the backward integration plans are coming to fruition. All the necessary clearances for us to start work are in place. And as we speak, the works are being undertaken.

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

My question is regarding the Zambia operation. I would like to know what is the status as far as coal mining is concerned? What is our realization per ton for coal mined from this mine in metallurgical coal and in the lower quality coal, which is used for power generation?

Yes. So in terms of the realization per metric ton, it's about $63 per metric ton, it is what the average realization.

It is for the metallurgical coal or the lower quality coal?

Yes, this is what we're talking about for the high-grade coal.

High grade coal?

Yes.

So when the international prices are ruling at 220, why are we realizing half -- not even half of it?

Well, I mean, I think the first thing is, as we said, the way the pricing works in Zambia being landlock is very different. When international coal prices were down, our prices were not lower to that level. So the way the coal pricing market works in Zambia is fairly different. We basically have to compete with our neighboring partners, which are Zimbabwe and Botswana. So if you price higher than them, then basically are -- the people that buy coal from us move to them. So essentially, we have increased our coal price from time and time again, but we definitely cannot peg ourselves with the international coal price market.

My second question is regarding expansion in Zambia. We know that Zambia is a copper each country. And currently, 2 mines, the Mopani mine and the 1 owned by Vedanta are in the market. The government has seized them and they have put them in the market. We've got experience from mining now from coal, and we know already about smelting, which we are making ferro alloys. So do you have any intention to enter into copper mining?

Well, in terms of the Mopani and Vedanta assets, it's not as simple as they're out in the market right now because I think that was the case with the previous government. I think now with the current government, there are a lot of court cases that are underway. Arbitration is underway in both the U.K., South Africa. And also, I think one needs to also realize there are a lot of debts behind Mopani and Vedanta. So one needs to be very, very careful in terms of these assets and need to their proper due diligence. As far as, us as a company, definitely, I mean, we would never say no. I think we all know which way the wind is blowing. We know copper is going to increase given the demand in terms of EVs and so on. So if we come across a good asset, which makes sense, we probably would definitely consider it.

So are we considering any expansion in Zambia at all? Any growth in Zambia at all? Maybe also in terms of doubling the power generation capacity?

So in terms of power, the first thing is first is we need to get our current 300 megawatts be it, I mean, paid for fully, which I think we're currently working on with ZESCO and we hope that, that will take place soon. Once that happens, I think we all know that there is a power deficit in the African -- Southern African region at least. We would like to take advantage of that. But let's also keep in mind that a lot of people that were supplying equipment for coal-fired power plants today are not doing that. If you look at China and so on, they're saying, an absolute no. Financing for coal-fired power plants or any new expansion in coal is very, very difficult to come back. So given those challenges, we will have to thread carefully and see how we can work it out. In terms of other expansions in Zambia, I think the agricultural project, where we have 10,000 hectares of land and where we are trying out different high-value crops, and we've zeroed down on one of the crops we are going forward with, which is avocado is something where we are going to look at expanding in Zambia.

Last question is regarding the Indian operations. Any further progress in liquidation of assets? Have we finally sold a sugar plant and other assets?

So in terms of the sugar plant, we've been doing it piecemeal, like I had reported in the previous call. 70% of the components have been contracted first. So that is currently underway. And with respect to the Nacharam property, we've been concentrating on that. Unfortunately, COVID has delayed it. We would have expected the court order by now, but we are in a very advanced stage, and we hope that would be resolved sooner rather than later. After which, we could look at monetizing it.

And Dharmavaram and Samalkot properties?

So in the Samalkot I just spoke about the asset sale. With respect to the land in terms of Samalkot, I think just selling it outright probably doesn't make sense given the valuation numbers. So what we have been looking at is actually -- we've converted some of that land into real estate and commercial land from agricultural land. So we're looking at different options and schemes for developing that on more of a residential and commercial basis. That's for Samalkot. And for Dharmavaram, all our attention has kind of been on the Nacharam, and getting that resolved because the valuations have gone up there, so we want to monetize that sooner rather than later.

The next question is from the line of Ankit Sonkhiya from Oculus Capital Advisors.

One of your competitors in ferro alloys industry, they have mentioned that these margins -- EBITDA margins of 30% plus. The average cyclical EBITDA for this industry is somewhere around 15%. I just wanted to know your view on the ferro alloy industry and how do you see in the medium term, whether these EBITDA margins are sustainable? Or what is the sustainable EBITDA margin in like medium-term perspective -- medium and long-term perspective?

Thank you, Ankit. I think you did reference a competitor, I would say that even our EBITDA margins, if you look at the last quarter and this quarter were more or less in line with what you have mentioned. Going forward to Q4, given that we have sold most of our production already, you can expect the same trend to continue into Q4 as well. Now if you look at the medium term, there are a couple of drivers, which point to the fact that steel demand is going to remain robust. One being the steel policy of India set out by the central government, envisages that the steel production from the current 120 million will to increase to 300 million metric tons by 2030. Now, this is not something that's just on paper. We see this actually playing out on the ground. Most of our large customers from India either have taken up expansions or the expanded units are running into operations. Secondly, the mean -- we are finding a strong resurgence in the automotive and construction sectors, not only in India but worldwide. And given these various factors, we feel that the steel prices in the medium-term are more or less going to remain intact.

Got it. And one last question. We -- like we are in ferro alloys, we are into mining, power, all those businesses. But I could not understand the rationale behind getting into health care in Singapore and Malaysia. So if you can just tell us the reason behind getting into this business, which is totally different from what we have been doing and in a different region?

Yes. So I think as a company, we are in very, very capital-intensive verticals such as ferro alloys, power, where we invest a lot of money. And in fact, with the power it's fairly government dependent and so on. So we thought while we continue those operations and expand in those operations, we would like to kind of plant seeds and in forward-looking kind of like progressive health care type sectors and other forward-looking sectors. If you look at our health care investment, it is very, very minimal. It doesn't -- I mean we're not really actively too actively involved on the management side of things. It runs by its own, and it's doing fairly well right now. While we continue to concentrate our attention on our main verticals, which is power, mining, ferro alloys, we do look at -- we are always looking at other sectors that could be pretty big in the future, one being health care, the second also being agriculture and so on.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for the closing comments.

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

Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.