Nava Limited (513023) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. I'm Vidya, moderator for the conference call. Welcome to Nava Limited Q3 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, Vidya. On behalf of DAM Capital, we welcome you to the Q3 FY '23 earnings call of Nava Limited. From management, today we have with us, Mr. Ashwin Devineni, Chief Executive Officer; Mr. GRK Prasad, Executive Director; Mr. Sultan Baig, Chief Financial Officer; Mr. Nikhil Devineni, Senior Vice President; Mr. VSN Raju, Company Secretary and Vice President. Before we go on to the main call, I would like to read the standard disclaimer. There may be forward-looking statements about the company and the subsidiaries, which are based on the beliefs, opinions and expectations of the company management as of the date of this press release. The company do not assume any obligation to update their forward-looking statements if those beliefs, opinions, expectations, or other circumstances should change. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Consequently, readers should not place any undue reliance on such forward-looking statements. We will start with the brief opening remarks, which will be followed by Q&A. Over to you, sir.

Thank you, Mohit. A very good evening and a warm welcome to all the participants. The statement of financial results, both on stand-alone and consolidated basis detailing the operations of the Nava Group for Q3 FY '23 has 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 ending 31st December 2022. Given the above, we would like to proceed with the question-and-answer session and request you all to seek clarification as you may desire. Thank you.

[Operator Instructions] The first question comes from Kalpesh Agarwal, an Individual Investor.

I guess the numbers are very good for 9 months ended on a consolidated basis. And congratulations to the team for the good numbers. We are holding ourselves since 2013 now, sir. And in this last 10 years, we have received INR 22 dividend -- cumulative dividend. Now when I go through certain of the notification you sent on exchanges, you said that we have won the tribunal award from consent order, right? I want to understand that by August, you were entitled to receive that whole amount, plus we have a land parcel, which is in Hyderabad, which you are able to realize in coming years. And plus this 9 months, we have around INR 800 crores, INR 900 crores of PAT number, right? So in total, if we just took a calculation, it comes to around, say for INR 4,000 crores, INR 5,000 crores of cash flows, which is going to come to you in, say, 1 year down the line. We want to understand that what is the company's road map for this INR 5,000 crores? Because the dividend, you say -- I said INR 22 in 14 crores shares, that's hardly INR 300 crores dividend, which we have distributed and some buyback we have done. That total will not be more than, say, INR 700 crores, INR 800 crores in the last 10 years. I want to understand this INR 5,000 crores comes in, we have not -- we have only one mine, you from the previous call have said about one manganese mine. Besides that, there is nothing coming up in the company's capacity. I want to understand if there is any road map for the company or we will wait for that amount to come and then we will decide? But during that time, our balance sheet would look -- ROE and ROC numbers, because currently also when we look at the numbers in the INR 1,000 crores kind of a PAT, our company is sitting at only...

Can you please get to the question.

Yes. So I want to understand is what is the road map, sir, for the future?

Okay. Understood. So like you mentioned, we are financially healthy. We've always reported a healthy profit. In terms of bulk payments being received, you are right, both the land parcel, which would materialize, which will take some time, but eventually materialize will get us a good amount, but also the arbitration consent award. Now with regards to the company's growth path, we have reiterated in previous calls that we are expanding within our current verticals. Some of the expansions include expansion of ferro alloys division at Ivory Coast, expansion possibly in the power division at -- in Zambia, expanding our 300 megawatt capacity to something higher. We're also in the agricultural sector in Zambia. So all these require capital. And some of the proceeds of the amounts that are being received or will be received will be utilized towards these expansions. And then the remainder of it, definitely, we will look at certain corporate actions that will improve shareholder value, which includes dividend distribution amongst various others.

Okay. But don't you think we are too late to start something at this point of time? Because I want to understand that I mean, over the call, from last 3 or 4 calls, we've been asking the same question and you have been replying, but not a single amount has been allocated till date for any kind of a number. What we want to understand is that we waited patiently for that MCL to get operationalized and rationalized, that looks on the thing. But I guess, during the -- the difference between stand-alone and consol number is more with -- to do with Maamba, which has performed excellently well, which we can see from the result and the Power segment. But we, as an investor, are a bit worried that there is no proper guidance given by the company in terms of absolute quantity of ferro alloys you want to expand. What megawatt you're looking at Zambia? I mean any concrete will be much appreciated, sir?

Yes. We do see where you are coming from, but you know for a lot of these capital expansions, including ferro alloys and power, there is a lot of due diligence work that goes in. You would appreciate that we are not one of those companies that announce large numbers, get into projects, take on huge steps and end up like a lot of the other companies that have ended up in the space we're currently in. So it's not that we've not done anything. There's a lot of homework. There's a lot of work going on in the various areas that we are expanding. But in due course, when we finalize on exactly what the number is in terms of capacity or capital outlay, we will let the wider investors know.

Or can we expect a big dividend in FY '24, sir? Is there -- is it the right platform to ask at this point of time or we shall wait?

See, it is a little premature for me to answer that because it is dependent on certain cash flows coming in. So the land sale, like I said, it's a large chunk, it will take some time. And even with respect to Maamba, we need to get the utility to pay Maamba, Maamba need to declare the dividends and then we can announce it. So it's in our mind, but in terms of timing right now it's still difficult for us to commit at this stage.

The next question comes from Nikhil Abhyankar from DAM Capital.

Yes. Congrats on a good set of numbers. First of all, I want to understand where is this extra profit coming in, why has our EBITDA margin expanded in this quarter?

Can you repeat the question, Nikhil? We can't hear you.

Hello. Hello.

Yes. Can you repeat the question? We were unable to hear you.

What is the reason for this almost 9 percentage point expansion in our EBITDA margins for this quarter?

Nikhil, thanks for your question. The primary reason for additional margin in the quarter is better performance of Maamba Collieries. One, on the sales, which is slightly higher because we had in USPPI, increment on the sale tariff to ZESCO and also slightly higher realization on the sales to SAPP. And if you go through the notes, you would also find that we have not made any provision on the expected credit loss because the dispute with ZESCO has been resolved. So both these factors are contributing to the additional margin in the quarter.

Okay. And sir, back to the arbitration question, sir, the excess amount that we're going to receive, so that is only till May '22. So is the payment regular for period after May '22?

Yes, Nikhil. We have been receiving payments regularly as per the new tariff from ZESCO. So that [ will continue as default ].

Okay. And sir, what are -- what is your debt payment schedule?

Debt, as we declared in the financials, we have 5 overdue installments to be paid on the Maamba Collieries site. As of 30th December, we were able to pay one installment. Post that, we were able to make some small payment. But once we receive some amounts from ZESCO against arbitration process, we will clear the outstandings.

Okay. And we were thinking -- already we were thinking of restructuring the debt, so any progress on that?

It's too premature for us to answer that, Nikhil, because it depends upon the realization in the lenders' discussion.

Okay. Understood. And sir, now, what payments...

Nikhil, I think you're taking too many questions.

Okay. Sure, sir.

[Operator Instructions] We have a question from Yash Sarda from Sushil Finance.

I had a couple of questions. My first question would be looking at the quarterly results, the margins in the ferro alloy business have reduced drastically. This is part of the reason would be since we have committed the contract with Tata Steel. And so could you throw some more light as to when can we achieve the same levels in the margin front what we used to achieve with Tata Steel, how long will it take us and the road map ahead for the same?

Sorry, can you repeat your second question, please, relating to Tata Steel?

Sir, like, we added the contract agreement with Tata Steel, right?

Correct.

So I wanted to understand, so our margins have reduced drastically in the ferro alloy business.

Okay.

So what is your road map going ahead? When we'll be able to match the margins of that of Tata Steel and then beyond?

Okay, got it. So, Yash, firstly, thank you for your question. I think as you rightly pointed out, quarter 3 has been an extremely challenging period for all bulk alloy producers across the country and world over. There were 2 main contributing factors. One was with respect to the sales price falling by almost 15% from Q2 to Q3. This coupled with significantly high raw material costs has impacted margins very badly. Now going forward, fortunately, there's been a big drop in raw material costs. In this particular case, with respect to manganese ore, which has dropped by almost 50% quarter-on-quarter. And we are also witnessing an increase in sales price from Q3 to Q4 by about 10%. So both these factors put together, we are bullish on the way forward for the ferro alloys market. Now coming to your second question, see, with Tata Steel, the margins were fixed despite how the market behaves, whether there is an up or sometimes when there was a down, the margins was also canceled by Tata. In this case, we want to benefit from any increase in the market because we are doing the entire production and marketing on our own. Secondly, the switchover to silico manganese in Odisha was based on long-term planning. The main purpose was to increase our market share in the manganese alloys segment. As you may be aware, currently, there's been a 5.5% increase in steel production in India at 124 million tonnes. This figure is slated to increase to 300 million tonnes by 2030 as per the National Steel Policy Association. So going forward, we wish to enhance the market share in this particular case.

All right. My second question, the question would be the management has entered into businesses like health care and agri. So I mean like what exactly is the management thought process? Given as a shareholder, if I'm investing in a company which is into ferro alloys and power, I'm looking at the company, which should be focusing on its core and mainly putting 100% of their time and effort into the same business. Because earlier also, we faced an issue when we entered the sugar industry and we took an exit in that business and still we have an assets of around INR 25-odd crores which are still lying on our books and we are not able to monetize the same. So in that -- I wanted to understand the framework, if the management sees this business, this might not be the expertise of the management, is that coming from a power business and health care is totally different. So it's moving in India, that's something very ambitious I wanted to get your views on that thing?

Yes. No, I think we have to correct you on the sugar part of things, which I think the CFO will take. But with regards to our strategy of diversification, you need to understand that while we are in power, we are in thermal-based, coal-based power. The scope of expanding and constructing new coal-based power plants in India or many other parts of the world, say, apart from Africa are extremely limited. Now it's not like we're not expanding on the power side, like I just talked about the expansion possibly in Zambia and also on the ferro alloys side, we're looking to expand at Ivory Coast, where we also have security of our raw material. So while we expand in these verticals, I think it's always healthy for companies to look at new upcoming vertical plant seeds, and which we see could yield good benefits, say, 3 years to 5 years to 10 years down the line. And that's one of the reasons why, one, in the agricultural side, we've gotten into avocado growing in Zambia and also on the health care side, we're in Singapore and Malaysia.

And regarding the sugar business, you'll have to understand the history. We've been in the sugar production for almost 4 decades. And one of the reasons for us to come out of the business was non-availability of the sugarcane in that region, and it was difficult for us to operate on such a large state. And we have monitored all the assets at the sugar division above the book value and realized profit on that. Yes.

Okay. If I can just ask one final question please, if I can.

Please go ahead.

I just wanted to understand, sir, receiving [ $516-odd million ] from ZESCO. So what we have that consent, is it -- could you just give us some numbers on a quarterly basis how much we will be receiving from them? So I think that would be better for us to road map the debt restructuring, which you guys would be doing back, paying of the interest or something of that sort? Nothing more than this, sorry.

Yes, point taken. As and when we are realizing the amount from ZESCO, we are declaring to the stock exchanges.

Okay. So let's -- I think it's [indiscernible] you guys have received only $10 million as an upfront payment from them, right, out of [ $513 million ]?

Yes.

Okay. So we are still spending $500 million. Got it.

[Operator Instructions] We have a question from Samir Shah, an Individual Investor.

Yes. Sir, I wanted to ask $518 million, the agreement that we've done with Zambia, have we offered them any discount on that?

Yes, we've offered them -- so the entire outstanding includes principal and interest. We offered them a $60 million discount on it.

[ 6-0 ].

[ 6-0 ].

Okay. And there was a tariff rationalization with ZESCO. At that time, was it a unilateral concession from our side or was there a quid pro quo where they extended the concession tenure?

No. So firstly, with regard to previous answer, the total outstanding initially was $578 million. So when I talk about a $60 million discount, the number you have mentioned factors in the discount, okay?

Okay.

And the second question, sorry, can you repeat it?

Yes. I was saying that the tariff rationalization earlier that we did where we reduced the tariff for ZESCO, was that a unilateral concession from our side or did ZESCO also increase the tenure of our agreement to compensate us or something of that sort? Was there any quid pro quo?

No. So we had very lengthy discussions and negotiations. We looked at basically our numbers, ZESCO looked at their payment profile, and then we -- and then we are in the process of amending our existing PPA. There's no increase in tenure.

There's no increase in tenure. And in the arbitration, you said $518 million is net of the $60 million. There was some tax component also which has to be reduced from that?

That's right. Yes. There's a VAT component, which, in essence, we were paying. So basically, ZESCO is to pay us the money and then a part of that money we use to pay the VAT. Now what we have agreed with ZESCO is they will be liable to pay the VAT directly to the government.

Okay. So in essence, there is no discount concession on that, it's just a methodology change?