Nava Limited (513023) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Talkia, moderator for the conference call. Welcome to Nava Limited Q2 FY '24 Results Conference Call, hosted by ICICI Securities Limited. [Operator Instructions] Please note this conference is recorded. I would now like to hand over the floor to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.

Thank you, Talkia. Good morning. On behalf of ICICI Securities, I welcome you all to the Q2 FY '24 Earnings Call of Nava Limited. We have with us Mr. Ashwin Devineni, Chief Executive Officer; Mr. GRK Prasad, Executive Director; Mr. Nikhil Devineni, Senior Vice President; Mr. Sultan A. Baig, Chief Financial Officer; and Mr. VSN Raju, Company Secretary and Vice President. With this, I'll hand over the call to the management for a brief opening remarks, which will be followed by Q&A. Thank you, and over to you, sir.

Thank you, Mohit. A very good morning, ladies and gentlemen. I would like to extend a warm welcome to all of you for joining the investor call today. I'm truly delighted to share with you some remarkable highlights from our recent performance. Nava Limited has demonstrated extraordinary financial growth and resilience in the first half of 2023. One of the most significant achievements has been the reduction of our consolidated long-term debt by an astounding 70% year-on-year. This has strengthened our financial position and reflects our commitment to sound financial management. In a testament to Nava strategic vision and resilience, our operational revenue and profit after tax saw impressive growth with a 24% and an 8% increase, respectively, in the corresponding quarter. This remarkable performance can be attributed to the improved operations of Nava Bharat Energy Limited and Maamba Collieries Limited, which played a pivotal role in sustaining our growth. Despite challenges in the Metal division, Nava Limited sustained its financial performance with a total revenue of INR 961.8 crores, and a profit after tax of INR 193.2 crores on a consolidated basis. We are making good progress in the maintenance activities at the ferro alloy plant in Orissa with expectations of this becoming operational by December 2023. Our commitment to sustainable growth and innovation is evident in the remarkable 21% year-on-year revenue growth in the Energy segment, driven by operational excellence in the 150-megawatt power plant in Orissa and Telangana. Moreover, we have achieved a significant milestone by becoming entirely long-term debt free in our Indian operations, and we are well on our way to achieving the same for MCL in the coming months. The successful clearance of long-term debt not only signifies our financial prudence, but also positions us for even greater success and value creation for our stakeholders. We remain unwavering in our commitment to growth, innovation and financial prudence. I look forward to discussing our financial results in more detail and addressing any questions or comments you may have. Thank you very much.

[Operator Instructions] First question comes from A.M. Lodha from Sanmati Consultants.

So our financials are concerned, it is -- I think it is not that the -- the company has repaid the good amount of the long-term loan and even prepaid the loans after paying the required amount of the charges to the bankers. So sir, my question is that the MCL loan is INR 2,700 crores and if you paid till September INR 1,641 crores. So still INR 1,059 crores is payable to the MCL lenders for the project loan. Can we expect this loan to be cleared by the March '24, sir?

Yes. So Mr. Lodha, I think we are endeavoring to clear our long-term debt on a consolidated basis as soon as possible. And our efforts, yes, we would like to clear everything before the end of this financial year.

Continuing this question. Sir, when we incorporated -- when we have bought the stake in the MCL in 2016, we have now invested in the Singapore subsidiary -- Singapore company. And the Singapore company has invested in the MCL in the form of equity as well as the loan. On -- with their Singapore subsidiary, a holding company of the MCL is getting -- making the provision of INR 43 crores interest every year. INR 43 crores, the interest provision is being made here. Can you tell us how much quantum is payable as well as the loan and interest to the holding company of MCL?

Loan amount payable from MCL to Singapore subsidiary, $89 million, Mr. Lodha. And as and when the distribution starts from MCL, the company will take a call to discharge interest in the loan.

So the $89 million includes the interest thereon or it is loan amount?

It is the loan amount, sir. Interest is $37 million.

Interest is accumulated for 6, 7 years, I think.

Yes.

Total, it is $126 million approximately? 126 million is U.S. dollar or Singapore dollar?

U.S. million dollar, sir.

U.S. Million dollar. Can we expect after repayment of this long-term loan taken by the MCL to the lender counterprojects. Can we expect that this $126 million will be refunded to Singapore subsidiary?

Yes, Mr. Lodha. Once the long-term debt is cleared by the MCL will take -- the MCL Board will decide upon the distribution to the shareholders.

The distribution to the shareholders is a different thing, sir. This is not a distribution. This $126 million is a loan amount given to the MCL. So it is not the part of -- that doesn't come under our distribution. That is the refund of the loan.

Mr. Lodha, the shareholder loan actually consulates project into [indiscernible]. So whether they sale as loan or equity, the distribution may be more than our distribution. But I think your point is well taken. Once the loan or extra loans are distributed, the MCL Board is free to determine in terms of repayment of the loan, [indiscernible] and then the prepayment of loan, subject to the cash that is being [ available ].

Okay, sir. Okay. There another point, an important point is that there is a considerable lower profit in power business on consolidated basis. I understand the sales is lower by INR 125 crores, and that the profit is down by 50% from the last June quarter, [ 223, against 405 ]. I -- we also understand that last year you had a write-off of INR 98 crores and return back. This year, it is lesser, around INR 44 crores. This means the INR 55 crores, I understand that it is less written off. Therefore, the profit may be lower. But still profits are lower in the power business. Can you explain to this, sir?

Sir, in the Indian power business, the net realization was lower as compared to the previous quarter. That's one of the reasons. And in Maamba Collieries, MCL has paid excess monthly fee of about $4 million to the O&M operator. That's why the profit is also lower.

But -- $4 million is that on account of what, sir? Maintenance, on account of maintenance?

The $4 million is operational bonus that the O&M -- actually, operational bonus that the O&M operator, which is also a subsidiary of Nava, gets, provided certain operational parameters are met.

It is one time?

No, it is half yearly. The total amount for the entire year is about $8.3 million or $8.4 million. And so it's paid half basically, provided the operational parameters are met.

Next question comes from Nikhil Abhyankar from ICICI Securities.

Congrats on the standalone level, sir. We have different dues remaining worth INR 24 billion. So what is the timeline for realization of all these dues? And have the payment been [ contained ] till date?

So what do you think -- 24 million?

INR 24 billion dues, we have dues worth INR 24 billion.

Mr. Abhyankar, the -- if I were talking U.S. dollars, it will be much simpler for everyone to understand. We are yet to realize about $280 million plus, out of which in the next calendar year, as per the press release we have given earlier, we will realize $180 million. Balance $100 million plus, we realized in this calendar year.

In this calendar. So okay, okay. And sir, can you also comment on the operational performance of our ferro alloys segment as to the production, sales and the average realization in the quarter?

Mr. Nikhil, with regards to the production volumes, we have currently 2 units in India operating for ferro alloys that we produce in [indiscernible]. The Telangana unit for the quarter in question produced about 23,000 tonnes. And the plant in Orissa contributed about 3,000 tonnes. The production volumes in the Orissa unit was lower this quarter, mainly on account of the accident that occurred in the first week of August, wherein the -- there was an accidental collapse of the bunker, which led to the conveyor system being also damaged. So that is currently being fixed. So we envisaged that from January onwards, that plant would be in operations fully.

Okay. So the losses that they have reported is majorly because of your production and not because of realization?

No, it's actually because of realization. Today, the ferro alloys market world over is going through a very sluggish phase. And one of the main reasons for this is that the Ukraine war has led to very high energy costs in Europe and Europe being one of the main destinations for Indian exports. That market is sort of no longer available. And as a result of that, most of that material which was earmarked for Europe is right now being dumped in the Indian market, leading to further pressure on the prices.

Okay. And sir, how much of the Indian power -- of the Indian power plants, how much do we have merchant capacity as in there?

Come again, Mr. Abhyankar. We could not hear you properly.

Yes. Am I audible now?

Yes, please.

Yes. So of the Indian power operations, how much is tied up and how much do we have in merchant capacity?

So merchant capacity, we have independent power plant of 60-megawatt in Orissa and 150 in Nava Bharat Energy, total. And we are on short-term PPS. We don't have a long-term PPS for this.

So on bilateral basis? .

Yes.

Okay. So can you please give us the revenue PAT for the 150-megawatt power plant? And what is your outlook for H2 as well?

In the current quarter, INR 150 -- revenue was INR 150 crores, Mr. Abhyankar. And we have made the operating profit of about INR 16 crores after -- yes.

This is for Q2, you are saying? .

Yes, Q2.

And how much was it for Q1?

Q1 was INR 37 crores. Overall, for the half year, it was about INR 53 crores.

Okay, okay, sir. And should we expect a similar performance in H2 as well, given the rising power demand?

It's difficult to comment on this, Mr. Abhyankar. It depends upon the power scenario and the monsoon and various other factors.

Next question comes from Vignesh Iyer from Sequent Investments.

Congratulation on good set of numbers. Sir, my first question would be, I would like to know -- I mean our MCL PLF is now somewhere around 83%, whereas we have been doing 90% plus constant for last 2 quarters. Can we see that are we getting back at 90% plus for the next 2 quarters? I mean is there any impact usually that happens in Q2?

Yes. So the reason we had 83% was because we had 2 scheduled maintenances for both the units. So this is the half yearly scheduled maintenance that we conduct and carry. That's why it was 83%. So I think now moving on, it will be back to around 90%, hopefully. And it's only the months where we're taking the units down for scheduled maintenance where you see a lower PLF.

Right. Got it. And sir, my next question would be, sir, what is our plans moving forward when it comes to power plant in Zambia? Are we eyeing for some expansion going ahead? I mean we have got a decent set of cash flows that are coming, and we are set to pay off our debt as well. I mean in, probably next year, 3, 4 quarters -- within 3, 4 quarters. So if you could just tell us what is the plan going ahead for MCL?

Yes. So in terms -- we are fairly bullish on the power scenario in Africa, and especially since we laid all the groundwork there, it makes sense for us to expand. We are currently in discussions with the government in terms of financing the expansion. So those meetings are currently ongoing. So when something materializes, I think we will go forward with the Phase II expansion of another 300 megawatts possibly.

Right. Sir, just to head the understanding on how the cash flow would be utilized going ahead. Sir, correct me if I'm wrong. So first would be any cash flow that vendor -- gets used towards the payment of -- the repayment of debt, followed by any subsequently paying off to the Singapore holding company, right? And any cash left after that would be utilized for CapEx, right? Just to get an idea because that Singapore facility payment has been pending for some time now.

Yes. So firstly, cash flows, whatever we get in the form of our monthly revenue and payments from ZESCO, with respect to the arbitration award. We first want to clear our long-term debt so that to enable distribution. Because with the current lender group and so on, distribution is posing to be very tough, given the conditions that they have placed. Once that is done, then whatever cash flows come in, MCL Board will basically decide with regards to distribution. The amount was meant to, like what my colleague mentioned previously that, was put in as a shareholder loan from NB Nava Singapore is -- was actually in the form of equity. The same was done by our 35% partners of the [indiscernible]. Their contribution has also been recorded as a shareholder loan. So as and when the loans are clear and we have surplus cash, the MCL Board will take calls in terms of distribution, which will allow funds to flow back to the parent company, which is Nava Singapore and Nava. And then as and when the equity requirement for Phase II arises, we will use those bonds plus internal resources to fund our equity.

Right, sir. One last question, if I could squeeze in. Would it be better, I mean, if this setup through Singapore is simplified in some manner where the holding company is Nava Limited, that is -- which is listed in India. I mean we can have a stake in MCL directly. That way, it is more easier to understand the setup. So because -- I mean, it's kind of a bit complex setup, right? And if you could just help us understand on this point.

Nava Singapore was setup with a view that we would have an energy vertical intermediate holding company, which will hold initially MCL energy assets. But our idea really was to see that, that space actually got expanded [indiscernible] hasn't happened. The reason why this structure was created is especially for that. Because holding from Singapore would make immense sense. But here now also, it's not like that structure is preventing us from flowing because the money could flow from Zambia to Singapore and Singapore to India. And then similar fashion, there will be some tax implication, though. But in Singapore, there is no tax implication. In that way, the money doesn't lose any value.

Next question comes from Govindlal Gilada, an individual investor.

So I have got 2 questions, sir. One, any update on our land at Nacharam. What is happening there?

Yes. So the land is still there, Govind. I don't think we're taking any actions right now. What we see is the upward trend with regards to valuation. I think prices, land prices in that region, given the development, are just increasing. So as a company, we've taken a decision not to take any action currently. Let's sit on the land, let the values go up. And then at a later point in time, we can evaluate what actions to take.

So there are 2 things on this, on investment perspective, okay, land prices will go up that's why we are holding or some technical problems are also there. Just a 1 line answer I want, sir. If today we want to sell, can we sell or any hiccups are there from government?

No, there are no hiccups or anything. It's basically we're looking at the upward trend in terms of valuation. It's more of a commercial decision where -- I mean, rather sell the land when the valuations are a lot higher. And especially when it is an upward trend, it makes no sense to do it right now.

So if you want, you can sell it?

Yes.

Because we are waiting for this. So how much land do you have got for this?

65 acres.

Tentative, what is the price going on right now? Any idea?

I am sorry?

Any rough guess what is price going on there, right?

Sorry, I'm not a real estate agent, so I can't mention anything on prices.

Okay. I understand, sir. But then my last question is about this $280 million what you said, $100 million this year and next year, $180 million. You are confident that there is no -- any issues in that for -- what time we have given. We are confident to repay all these things, sir?

No. I think from our end, we are confident that's why we are -- we started even repaying a lot of the long-term debt with the cash we received. And to be honest, ZESCO has been paying -- at least our ongoing bill they're paying regularly on time, and they are meeting their commitments with regards to the areas. I mean, as on date, we've received $291 million, which is a very large amount. So there's nothing to kind of hint at this stage that for us not to feel confident about getting the remainder.

So this $100 million, what you have received, any status, sir? When we can expect to receive in the next 1 month, 3 months?

No, what we hear, ZESCO is working on it. And as far as whatever communications we received from them, they seem fairly confident about paying that amount.

Okay. Sir, the last question is, sir, it is my request, suggestion also, what we have taken maintenance shutdown at Zambia. On [indiscernible] It will be better sir, [indiscernible] what kind of operation loss will be there. So [indiscernible] good companies all they use this kind of information to give it to the shareholders. It is my humble request, sir, if a letter is issued in advance when shutdown takes place, call that for maintenance purposes or other technical reasons [indiscernible]. If you notice the [ VIP ] shareholders, it will be highly appreciative, sir.

Yes. We'll keep that in mind. But you need to also understand that some of these things are a little dynamic. A lot of these shutdowns are done in discussion with the state utility there, given rainfall situation and various other factors. So things can change. But yes, we understand your point, and we will update.

Once it is final and decided, then [ inform ]. I'm not saying that [indiscernible] once it is decided that you are closing out then it is better.

Point noted.

[Operator Instructions] Next question comes from Vijay P., an individual investor.

I have a question about the ongoing projects of Nava Bharat now Nava Limited. In Zambia, we have the avocado project. In Ivory Coast, we have the manganese mine, and in Singapore and Malaysia, we have health care project. Surprisingly, this time, the press release didn't mention anything about these projects. So can you please let us know what is the current status on these 3 projects?

Yes, maybe we can start with the avocado project, Mr. Vijay. The project is progressing well. Our investment is on course for the development of the entire plantation. This year, we will be finishing plantation for about 270 factors of the land. The reason there is no mention is that this is an ongoing and there is no major ups and downs in the project. As regards to...

Is the product going to be in the marketing?

Sir, avocado generally takes 3 to 4 years for fruitening. We anticipate the crop from the first division to hit the market in 2026.

Okay. And manganese mines?

I think the experience works are still underway. So far, the results have been encouraging. However, I think by the end of Q4 is when we will know precisely in terms of what the quantity and quality of the mine is.

Okay. And the health care project in Singapore and Malaysia. Is it making any money?

Yes, Mr. Vijay, healthcare project is cash neutral as on today. We are not including any funds. It's sustaining on its own. And we are also evaluating adding additional products for distribution. I think in few months down the lane, we'll have a basket of products to start distribution in Singapore and Malaysia.

Yes. And just for the record, someone asked about the Nacharam land. We have also 2 land parcels of one, 200 acres and other if 20 acres in, I believe, Dharmavaram and Kakinada. Can you tell us if you are liquidating those or encashing those?

No, regard to those lands right now, we're not -- we don't have plans to liquidate them or so because their valuations are not great currently. So we don't see a point of liquidating them at this point in time.

Next question comes from Srinivas A.P., an individual investor.

It looks like a fantastic quarter because of repayment of loans and all the things. I have only 1 question, is while the low loan amount has come down, the interest -- the finance cost for quarter ended September 30, on a sequential basis has increased from INR 80 crores to INR 95 crores. Is there any specific reason for the increase in the finance cost when the loan has come down substantially?

Yes, sir, there are 2 factors. First, the loan was repaid on September 30. So you have the interest cost on the total loan that was outstanding in the quarter. Second quarter was, if you compare with the corresponding quarter in the previous financial year, the dollar was at INR 78.5, whereas in the current quarter, the dollar is at almost INR 83, which is INR 82.5. So you now have a 5% difference over there. And in the current quarter...

I'm comparing it with June quarter. I'm comparing it with June quarter.

Yes, sir. June quarter also there's a slight increase. And also, there was unwinding of the hedging costs, which hit our P&L of about 1.4 billion, whereas it was negative in the previous quarter because of the [indiscernible]. So that's the rate difference.

And the number would be somewhere around INR 80 crores now as an interest cost? Or it will be INR 95 crores also in the next quarter? Because this is what -- I was expecting that the interest cost will be substantially lower because of which your profit will be higher. But yes, the [indiscernible] interest cost.

Yes, it will get reflected in the next quarter somewhat, the lower interest cost.

[Operator Instructions] We have a follow-up question from Vignesh Iyer from Sequent Investments.

Sir, just regarding the balance sheet as well as the balance rate. And we have got trade receivables under noncurrent assets. We have seen a significant movement from INR 1,160 crores to INR 530 crores. I mean as of now, we have given the discount that is to be given to MCL. So what is stopping us from reclassifying it from noncurrent to current? Because it's very unlikely trade receivables are classified under noncurrent, right? I mean we have done the settlement and arbitration is done. So what stops us from classifying it as a current item? Do we still have doubt, any doubt on if the money can be recovered or not?

Thanks for your question, sir. There is no question on the recoverability of the amount. If you see the repayment schedule proposed by ZESCO, they proposed a repayment of $180 million in the next calendar year. That is the reason that amount has been classified under noncurrent. Because when we have a communication from ZESCO that amount will come in the next year, auditors would not allow us to be classified as a current. Whatever is due in the current -- next 6 months has been transferred into current.

Okay. Okay. And sir, going ahead, now we have been consistently making good profits. What would be the blended level at consolidated numbers for our taxation percentage? Consolidated balance sheet, what will be paying us tax as a rate, if you could tell me, as blended revenue?

I think the tax is a function of local jurisdiction. In Maamba, for example, the power would not be subjected to tax. The mining division is subjected to tax. Power is not subject to. In India, the tax regime is the -- lower tax regime, which we opted for. So excepting for some deferred tax project and all. I guess,the standalone tax rate could be in the region of about 27% to 28%. And as far as Maamba is concerned, yes, that's including deferred tax, it will be about 15%.

Okay. So what -- I mean, then you would have [indiscernible] I mean if Maamba power is not subject to tax there, and you're paying 15%. So on a blended basis, it should be I mean, around 20%, I mean, 18% to 20%? .

[ Applitude ] rate is 30%. 35%, in fact. But we are on a tax solid basis [indiscernible]. So that tax benefit will last another 5 years. [indiscernible] It's an approximate number. So deferred tax keeps varying but about 50%, you can probably issue, like power...

Okay. Okay. Understood. And sir, just on other partners. I mean are we uploading the presentation only every 2 quarter once. Is it the plan? Or will we be uploading a presentation as in on the volume numbers of it. I mean, how much coal be sold as power units, et cetera? Because last time, the presentation was quite useful.

Yes, we'll continue to do that. We update the numbers, including the volume numbers.

I mean would we see that for in this current quarter that got over? I mean the results we have probably [ send in ]. I mean because it was not uploaded till the call started.

We will be doing it shortly, sir.

We have a follow-up question from Vijay P., an individual investor.

Yes. I was just wondering, we have got a very steep fall in the value of the Zambia currency, Kwacha, in the last 2 months, it's falling by almost 20%. How does it affect our receivables and repayment schedule for the loans?

Yes. So it doesn't really affect us because all our transactions, both on the power side and in fact, also on the coal side, are USD denominated. So the Kwacha depreciation per se has not really affected our receivables, both on the coal side and also on the power side.

Does it affect in any way the repayment capacity of ZESCO? Because they are receiving their payments for power sold in Kwacha, and they are paying you in U.S. dollars.

Yes. So with regard to ZESCO, they don't receive all their payments in Kwacha. Their Kwacha payments are mainly from the residential and the smaller commercial. But what we count our payments on is basically the large industries they supply power to. And the PPAs and the power supply agreements that they have with the larger players, which are the copper mines, the manganese smelting units and so on, are U.S.-based -- USD-based.

As far as ZESCO is concerned their payments to us are absolutely up to date?

Yes. Completely. I mean, apart of the arrears they owe us, on a monthly basis, they pay us on time and in full. And they've been doing that [ May '23 ].

Next question comes from Prashant Parmar from [ Deals Capital ]. I repeat, the question comes from Prashant Parmar from [ Deals Capital ]. There is no response. That would be the last question for today. Now I hand over the floor to management for closing comments.

Thank you very much, ladies and gentlemen. As we conclude our investor call today, I would want to express my gratitude for your participation and your continued confidence in Nava Limited. Our journey and achievements position us for greater success and the value creation for all our stakeholders, and it underscores our commitment to setting the stage for sustained success in the years ahead. I encourage you to reach out to our team with any further questions or inquiries you may have. Your feedback and engagement are crucial to our continued progress, and we are here to provide the information and support you need. Once again, thank you very much for your time and your trust in us, and a very, very happy Diwali. Thank you.

Ladies and gentlemen, this concludes your conference 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 good day.