Nava Limited (513023) Earnings Call Transcript & Summary

Ladies and gentlemen, I'm Belsha, moderator of Nava Limited Q2 FY '23 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note this conference is recorded. I would now like to hand over the floor to Mr. Mohit Kumar from DAM Capital. Thank you, and over to you, sir.

Thank you, Belsha. On behalf of DAM Capital, we welcome you all to the Q2 FY '23 Earnings Call of Nava Limited. From the management, 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. We will start with brief opening remarks followed by Q&A. Over to you, sir.

Thank you very much, and good afternoon, everyone. Thank you very much for joining us on our conference call for Q2 and H1 of FY '23. I hope everyone is keeping well and had a joyous Diwali celebration. You must have gone through our statement of financial results for H1 FY '23 posted on our website and filed with the stock exchanges. I consider the performance of Q2 and H1 FY '23 to be quite satisfactory in the backdrop of the severe volatility in our operational segment, especially in Q2. Our diversified business strategies have definitely helped us to gracefully ride out of the several headwinds we faced. I would like to summarize the operations on stand-alone and on a consolidated basis as follows: Stand-alone operations. The total income for H1 '23 grew by 17% year-on-year. Profit after tax for H1 '23 grew by 58% year-on-year. Though there has been a degrowth of income by 40% in Q2 FY '23 quarter-on-quarter, the EBITDA fall was contained at 14% quarter-on-quarter. With respect to the consolidated operations, the total income for H1 FY '23 grew by 33% year-on-year. Profit after tax for H1 FY '23 grew by 22x year-on-year. So there was a slight degrowth of income by 21% in Q2 FY '23 quarter-on-quarter. The EBITDA fall was contained at 4% quarter-on-quarter, which is almost net. Some of the saving features. I think the Power division sustained the growth for H1 and steady performance in Q2 with the 60-megawatt IPP in Orissa being the lead contributor. The power generation was severely impacted by low availability of coal and steep increases in costs and subdued merchant power market during the lean season in Q2. The manganese alloys went through the anticipated cyclical correction, both in export and domestic markets, with the latter taking the brunt on account of slowdown in the domestic steel industry. Maamba Collieries Limited displayed a significant turnaround. both on operational front as in the cash flow subsidence. The prospective reduction of power tariffs had the desired result of Maamba Collieries Limited with the entire power sales from May 2022 onwards being realized in full. With the clear visibility of cash flows, the debt restructuring package proposed by Maamba Collieries Limited is under consideration by the lenders. Though wholesales in MCL were a tad lower than anticipated going to market constraints, momentum has since picked up. With the full-fledged membership on the Southern African Power Pool, Maamba Collieries Limited power operations have a significant flexibility now to optimize the power operations with multiple offtake agreements. I would also like to apprise you of certain ongoing corporate developments as follows: exploration work on the manganese ore concession in the Ivory Coast is in positive progress. Monetization plan of the urban land in Secunderabad is taking final shape and is expected to be firmed up by year-end. The avocado plantation is ongoing on the initial parcel, which will be expanded in phases over the next 2 years. Yields are expected in 4 years. Other commercial agriculture and processing opportunities are currently under evaluation. The health care services operations in Singapore and Malaysia are on track and will be turning cash positive next financial year. We, as a company, affirm that our strategy of building resilience in our balance sheet has been reaping us benefits, and we will continue to do so going forward. With this, we shall open -- we should be open to any further details the floor is speaking. I look forward to having an active interaction with all of you on this call. Thank you very much.

[Operator Instructions] The first question comes from [ Amisha Shah ], an individual investor.

First of all, congratulations for your results. My first question is, it's a bit long question. So you have INR 500 crore cash in stand-alone, which you won't be using to repay your NPL debt as we have no recourse. That leave us with a very interesting point now. Our cash balance is close to 15%, 20% of market cap. Plus, you have sooner or later coming up with your next [ XYZ ] project, which will definitely have a balance of more than INR 1,000 crores to INR 1,500 crores in our balance sheet. So with no land for expansion in ferro alloys and no power plant already running at capacity of close 50%, there is no CapEx on that front. I want to understand that by any chance we are planning for delisting as it makes more sense for promoters? Or what's the evident mindset of deploying cash, which can give us ROE of more than 20%? The other business, which promoters can take on individual basis like NBFC, almost some other kind of businesses? So I need to understand what is the ultimate road map? Or do you want to give an official investors that you will come out with a dividend policy? So investors has to be to assure -- this will be more assured for something like that?

Yes. We take your point very well. In fact, that is one of the agenda items that chair management is on. In terms of how to do the capital allocation going forward, as you rightly point out, we are probably better off than any in terms of the existing cash balance, which we would like to use prudently in whatever growth that could fetch us the return more than what has been projected for the sales. So at this stage we are positive. We don't have more details, but a lot of work is going on in the back end. So would probably be coming out with the proper allocation [ obviously founded ]. Yes, with respect to the amount of Maamba Collieries debt, I think it's on a nonrecourse basis, so there is absolutely no need to use -- there's no risk to the parent company as such. So there's absolutely no need to use Nava cash to repay any of Maamba Collieries obligations.

Okay, okay. I have one more question. My question is, so the volume of Q2 FY '23 on ferro alloys are significantly lesser. And it's obvious reason of export decision taken by [ Nava ] So we assume you would be having at least 4 to 5 months of sales volume to be done in Q3 FY '23. Can we assume that the quantum of numbers would be higher than Q1 by the margin or lower for FY '23?

Well, the inventory, as you point out, is getting liquidated as we speak. And we don't expect the same kind of performance as in Q1, definitely, for the balance of the months. But we see some uptick in performance levels, which will be currently reflected in Q4, if you ask me.

And the next question comes from Nikhil Abhyankar from DAM Capital.

Sure. Sir, I would like to know the status of the arbitration case for the Africa business.

Yes, so the arbitration on the areas with ZESCO is currently underway, and the final hearing is scheduled during the mid-December time frame of this year.

Sorry, sir. I couldn't hear you.

Can you hear me now?

Yes.

So I was -- I just said that the arbitration is currently in its final stages, and the final hearing for the arbitration is scheduled during the mid-December time frame this year.

Okay. And sir, have you started selling power in pool from Maamba?

Yes, we have started selling power -- some power in the Southern African Power Pool.

And sir, what are the realizations over there?

So I mean, you got to keep in mind that the Southern African Power Pool is kind of like that exchange. The rates fluctuate. So if I just give you the average in terms of the Southern African Power Pool rate, how they have been, the 1-year average is around like 0.09 and then the 6-month average is about 0.104. So there rate has been increased.

Okay. And sir, what is the receivables in Zambia?

With the total outstanding?

Yes.

The outstandings are only till the 30th April 2022. Because from 1st May onwards, we have a revised tariff agreement with ZESCO, and we are getting paid in full for the energy that is being supplied. The receivables under the old PPA, which have been stalled or not increasing since 30th April stands at $577 million.

Okay. And sir, regarding Indian business, do we have any power tie-ups for the Indian power plant?

No, we don't have a PPA. We sell surplus for the -- either a year or short-term contracts.

So we are not looking at any PPA to be signed in the near future?

No. We cannot get into a PPA because of the size of the power plant, one. So that effort is done in respect of our Indian subsidiary, which is 150-megawatt.

Okay. And sir, last question. Can you just give us an outlook about -- your outlook regarding ferro alloy industry for H2 or, say, for FY '24?

We can only, at this point, estimate going by what has been happening in the last few months, including October. What we saw is a severe dip in August and September and definite recovery in October. And we see some firming up of prices in the coming quarters as well. That being so, we expect some kind of the normalcy will be in place in terms of pricing effective from Q4. Q3 also could be slightly subdued, maybe better than Q2 in terms of realization. But I think the normalcy is expected only in Q4. And we look forward to a better time in -- definitely in FY '24.

Okay, sir. Sir, just one last question, if I may ask. Sir, what was the operating profit and like net profit for Zambia operations?

EBITDA is at $40.3 million, which is 57.2%.

Okay. 57.2%. And the profit?

Profit is $14.7 million.

$14.7 million.

$4 million for the quarter.

[Operator Instructions] And the next question comes from Abhinav Gupta from ALD Dynatech Furnaces.

Congratulation on the numbers, sir. Sir, in the results, you have mentioned a note that for the $250 million arbitration that was going on, that has again been settled in the period. So can you comment on that? Can we expect that cash?

Can you repeat the question? I think you said it a little fast. It got mumbled. We couldn't hear you. Can you repeat it slowly?

Sorry. So this is regarding the $250 million arbitration that you had for MCL. You have given a note that arbitration has again been [indiscernible] Can you just comment on that?

Yes. So the arbitration amount is for a much larger -- sorry, arbitration is for a much larger amount of outstanding. The $250 million you're talking about was an interim payment award that was passed by the tribunal. That award was subsequently challenged by ZESCO. And it went into a hearing in the high courts in the U.K. We are happy to note that we have won that hearing and just recently in the month of September. So we had won that. So -- and the final earnings for the entire arbitration is due during the mid-December time frame of this year.

Okay. So now we are sure to get this EUR 250 million, correct?

Well, I'll put it this way. The $250 million has already been passed. So out of the total amount, the tribunal has decided that we are definitely owed $250 million. Now over and above that, that's basically what's going to be discussed during the hearing in December.

And the next question comes from Samil Surendran from Argus Media.

Would it be possible to get your production as well as sales detail for this quarter for the Ferro alloy section?

It has been published as a part of the results. But for your benefit, I can briefly go through. Ferro alloy's revenue was INR 204.94 crores.

Sir, I'm asking about the output volumes in tonnage.

So 25,697 metric tons. And sales were 15,428 metric tonnes. Silico manganese.

Okay. And what about ferrochrome, sir? Did we have any ferrochrome production in this quarter?

Yes. Indeed, we had for the full quarter, it was INR 14,600 crores, 600 tonnes.

Okay. And similar would be the sales figure?

Yes. because the order quantity has been produced and transferred to TSM.

Okay. And sir, what would be the total for the H1?

H1 total for silico manganese is about 52,000 tonnes and sales, 37,000 tonnes.

How much, sir?

37,000 tonnes for silico manganese.

Okay. And sir, second question, last question is that, would you expect any drop in your output levels in this quarter?

Silico manganese should continue with -- a small production might be there because of lack of power and small planned outages. But as far as -- where our operations are concerned, as you probably know, we are switching over to manganese alloy. So the plant will remain shut for 1 month in November. To the extent that there will be a shortage of production.

Next question comes from Neha Sharma, [ Pearl ] Global Investment.

Sir, I just wanted to know, as we speak, we see our power rates has come down sharply, but offtake might have -- get affected. So what's our internal target for the year for all Indian power plant?

See, I think Indian power plants have some challenges, planning one is rate, as you pointed out. The other thing is the coal availability and the cost of coal for power generation, which seem to be going up without any reference to these prices. So what we are currently doing is to do the sales on merchant market where there is a clear trade-off, especially that is happening in operations. Within Telangana operations, we are not seeing that opportunity because the cost of coal is higher here.

Okay, okay. And sir, one more. I want to understand now that, as we are receiving the payments from ZESCO regularly, so you will be repaying the debt, obviously. But ultimately, would any -- at any given point of time, does the thought come across the management's mind that -- when would they impact the money back to India? Or is the management comfortable with the rate that it's going on at present?

Yes. I think that thought has always been on our minds. I think we've always been -- our efforts have always been to declare dividends there so it comes back to India. Fortunately, I think things have taken a positive turn. And with the recent events where we renegotiated the tariffs and we're being paid in full, and we've also approached the lenders for restructuring, which essentially would give a way for us to declare dividends. We hope that, that will happen sooner rather than later.

[Operator Instructions] Next question comes from Naveen Jain, Florintree Advisors.

Just wanted to check, what is the debt on the book of the Zambian entity right now? And the commission process that we are working on, what is the kind of broad terms that we are looking at? Is it like we are going to repay the entire thing in full or partly? Or how is it -- like what are the outcomes that one can expect?

The principal outstanding on the Zambian subsidiary is $413 million.

Okay. And on the restructuring, it's a little premature to disclose what the proposal is now. But I think our efforts are essentially to work out a proposal so that as we continue paying the principal and interest we can start declaring dividends.

Understood. And this $250 million or whatever we get in arbitration eventually. By what time frame you think -- the final hearing is expected soon, as you mentioned. And after that, so what time frame you think this payout will happen?

Yes, the $250 million is the incident payment. The final hearing is in mid-December. We have been engaged with ZESCO. ZESCO is aware of what is going on, and they have been engaged with us in terms of figuring out a way and a plan in which they will pay the areas. So those discussions are still underway, but I think we need to get the graph on the quantum first, and then I can -- they can chart out a plan.

Okay. But fair to assume that to the extent -- I mean, in a way, debt resolution plan is also dependent on this, right? I mean, whatever money that comes in, a part of it goes towards debt distribution, right?

Yes, in the sense -- to some extent, yes. But we need to have a clear plan, as Ashwin said, to really talk about numbers in detail.

Okay. Fair enough. And sir, just one last question on the monetization plan of the land bank. I guess you've made some progress in this quarter as you mentioned in the opening remarks. Any broad control as to what we are looking at? Are we looking to develop this land bank? Or are we looking to sell out entirely the land itself? Any broad sense that you can share?

We are looking at -- See, I think development was on our minds, but then I think they are looking at a sale for the most part of it. So this is a large parcel as you're probably aware. So we've been taking various actions to ensure that we get the best valuation. And we've also been engaged with some of the top real estate firms in terms of how to position it so that we get the best bank. But I think we're looking -- we are more inclined right now towards a sale as opposed to development.

Considering that we have a fairly strong balance sheet, and as earlier participant asked that there's no real CapEx plan as far as in -- so looking at the development opportunity, we are not kind of very inclined to do.

No, I think we see, we don't rule out any opportunity. We as a company are very conservative in terms of the actions we take. We really make sure that risks are mitigated. But when the right opportunity arises, we are fortunately in a position for, a very financially sound position that we can jump on it domestically or internationally.

[Operator Instructions] Next question comes from Sameer Joshi, individual investor.

I have 2 questions. What was incremental or differential EBITDA perspective, which...

Sorry. We can't hear you. Your line is very unclear.

Can you hear now?

Yes.

Basically, I have 2 questions. One is how much the incremental or differential EBITDA is while switching from [ federalized postal income ]. And second thing is which part of business will get affected in Q3 because of [ Titan ] shutdown or overall any of the plants, which is to come?

Well, I guess, whatever you're asking is probably can't be answered now. Our idea is to get into silico manganese production in -- is to have a better and higher platform for manganese alloys, given the underlying strong demand that is coming from this industry -- steel industry. In terms of the downside on account of the shutdowns, now some of the shutdowns are planned, some of them are forced. We got -- I mean we can't really put a number immediately. I guess we will have to defer the answer to that.

Okay. So basic, how much impact it will have on revenue of Q3 -- or Q4 because of…

This part of time, we can only say qualitatively, part is the production available and what is not available, but not in [indiscernible].

Next question comes from Mandava Sinivasan, an individual investor.

Sir, what about the promised mining prospects in Africa?

We are not -- you're talking of manganese or chromium?

I'm sorry. Manganese mining we have got between that.

Yes, yes, in West Africa in Ivory Coast, we have a possession of an exploration license. So that exploration for the manganese mine is currently ongoing.

Any poaching regarding availability of manganese?

Well, Ivory Coast is rich with manganese ore. We currently do procure quite a bit of manganese ore from the Ivory Coast. So -- but in terms of our concession, it is too premature to say what the potential is because these exploration works take time and they're currently ongoing.

[Operator Instructions] We have a follow-up question from Nikhil Abhyankar from DAM Capital.

Sir, just a follow-up question on the question earlier asked. So can you just give us a time line as to the sale of the land, what will be the realization through it? And how to -- how should we expect that you'll use that cash?

So in terms of time line and realization, Nikhil, I wish I could answer it. But unfortunately, I can't because the size of the land is very large. It's 65 acres, and we're right now working extremely hard to complete certain processes so that we get the best valuation and close the sale in the shortest time period. But in terms of exact numbers, we cannot give...

Sir, just a clarification. Will we get the 100% of the realization from the land?

What do you mean by -- will we get?

Like is there any other partner? Is there anyone else sharing a stake in that, in that land?

No. It's -- this land belongs to Nava Limited.

Okay. And sir, how do we use to -- how do we intend to utilize the cash, maybe a dividend or a buyback?

I think there are various things we will consider. We will definitely -- I mean, like what you mentioned, we will consider corporate actions that would enhance the shareholder value. But also, I think we are in a stage where we are growing in different areas and current areas internationally, so we would need to also reserve some amount for growth capital.

[Operator Instructions] That would be the last question for the day. Now I hand over the floor to management for closing comments.

Thank you very much, everyone, for your participation on this 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 would be more than happy to provide answers on a wider investor platform. Thank you all once again.

Thank you, sir. Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant evening.