Nava Limited (513023) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nava Limited Q1 FY '25 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities Limited. Thank you, and over to you, sir.

Thank you, Neha. On behalf of ICICI Securities, we welcome you all to Q1 FY '25 Earnings Call of Nava Limited. Today, we have with us Mr. Ashwin Devineni, CEO; Mr. Nikhil Devineni, Senior Vice President; Mr. Sultan Baig, CFO; and Mr. VSN Raju, Company Secretary. Without much delay, I will now hand over the call to the management for opening remarks, which will be followed by Q&A. Thank you, and over to you, sir.

Good afternoon, everyone. I'm pleased to welcome you all to quarterly investor call. Today, we are here to discuss the financial results for the quarter ended 30 June 2024. I am delighted to report that Nava Limited has sustained its growth momentum with robust performance across all our business divisions. This quarter, we achieved our highest ever quarterly income of INR 1,258.4 crores, marking a 16.7% increase year-on-year. Our profit before tax has also reached a record INR 530.8 crores, reflecting a 27.6% growth compared to the same period last year. These numbers are a testament to our strategic focus on operational efficiency and cost optimization, enabling us to navigate market volatility effectively. Our Energy division, both in India and Zambia has shown remarkable results. The Maamba Energy Limited power plant operated at near perfect 100% plant availability, contributing significantly to our consolidated revenue and profitability. We have also commenced the construction of an additional 300-megawatt power plant in Zambia, which will further strengthen our position in the energy sector. In the Metals division, we reported a profit before tax of INR 23.2 crores compared to a loss of INR 1.6 crores last year, driven by higher realization and successful product diversification to Ferro Silicon. Our Mining division sustained a robust wholesale contributing to our overall positive financial performance. Furthermore, I'm pleased to announce that Nava Bharat Singapore Private Limited has started paying dividends to Nava Limited and Maamba Energy Limited has commenced discharging accumulative interest to the sponsors with USD 19.5 million received since April 2024. These achievements highlight our commitment to enhancing shareholder value and generating reserves for future growth. Our Agri business has also made significant strides with Nava Avocado Limited successfully completing the plantation in Division A with over 90,000 trees and preparing for the next phase of planting. This aligns with our vision of sustainable agriculture and environmental stewardship. In summary, our diversified portfolio and robust business model has enabled us to deliver strong financial results and position ourselves for sustained growth. I want to thank all of you for your continued support and confidence in Nava Limited. Let us now open the floor for any questions you may have. Thank you.

[Operator Instructions]. The first question is from the line of [ Nidhish Shah ] from ICICI Securities Limited.

And congratulations on a great quarter. My first question would be on the Maamba Energy Limited, the 300-megawatt plant, do we have a PPA in place for that? And what are the terms of the PPA is there?

Yes. So we do have a PPA that -- it has been signed and also been approved by the Energy Regulation Board. The PPA terms that is a 20-year PPA and the offtake starts a post COD, which is going to be 2 years from now.

Okay. Okay. So past 2 years from now. Okay. And my second question is on the NBEIL. You gave the PBT numbers in the presentation. Could we have the revenue, EBITDA and PAT numbers? And simultaneously, do we have any tie-ups for this plant for the balance 9 months of the quarter?

So for Nava Bharat Energy, the total revenue for the first quarter was at INR 201 crores and profit before tax is INR 68.2 crores and profit after tax is INR 44.4 crores. For the current quarter, the plant operated at 91-plus percent PLF. We have bilateral contracts. And overall, for the year, we anticipate it to be over 70% PLF.

And my absolute last question would be is that the interest cost has come significantly down this quarter. What is the reason for that? And is it something that we will see over the full year or was this a one-off?

The debt has been completely repaid both at Nava, Maamba Collieries, Maamba Energy and also at Nava Bharat Energy. That's why there is no interest cost.

All right. All right. And are you planning to bring back debt in anywhere else? Or this is what we broadly assume the situation to be for the next 1 or 2 years?

I could not get you.

So broadly being debt-free is the plan for the next 1 or 2 years, right?

At Nava Limited, certainly, yes. But Maamba Energy Limited for the Phase 2 of 300 megawatt expansion, there will certain debt on the books.

I think just to explain on a consolidated level, we're not going to be debt-free because we are taking on -- we have taken no debt.

The next question is from the line of [ Sandeep Mathivanan ] from MoneyGrow Asset.

Okay. And congratulations on good set of numbers. I just have one question. So the gross margins have increased from 65% to 70% year-over-year. Is this primarily due to a decrease in coal prices [indiscernible] the RM costs have come down? Or are there any [indiscernible] in other RM costs contributing to the improvement that you would like to had?

So it's a combination of 2 factors, operating at high PLF and also reduction in the coal prices.

The next question is from the line of S.G. Kankani from S.G. Kankani & Associates.

Good afternoon, Devineni. I am very delighted to see the performance of the company in the first quarter. And I just had 2 questions. One is that what is the percentage in the present PPA, and as you have mentioned in the presentation in the PPA, which you've already entered into the tariff is $0.095. So what is the present tariff applicable in the present contract?

Currently, the Phase 1 is a tariff of $0.103.

$0.103.

2036.

So the present tariff being negotiated in lesser than the present tariff? It is 9.7 -- $0.095 as compared to $0.103.

Yes.

Okay. And sir, this is the first year tariff, whether there will increase in every year as compared to the cost of production or what is the second year, third year, what is the provision in the present PPA which the...

It is linked to U.S. PPA inflation is indexed every year.

Okay. Okay. And sir, my one question was this thing that what is the expected revenue from Avocado products in the next financial year? I have read that in the next financial year, the production will be there of Avocado. So what is the expected revenue from this product in the next financial year?

So next financial year, revenue will be small, about $3 million or $4 million, but the peak revenue will be from '27, '28 onwards.

'27, '28 onwards. Okay, okay.

The next question is from the line of Viraj Mahadevia from Money Grow.

Hello. Congratulations to the promoter group and the management team of excellent results. A question, what was the free cash flow in Q1 and any noncore asset sales planned by the company, such as the Hyderabad land parcel erstwhile sugar plant planned in Samalkot?

No. So I think in terms of the land parcels, definitely, valuations have increased especially we have the Samalkot land, and then we also have the Dharmavaram land. I think the valuations are definitely increasing. There's a lot of investors looking at setting up shop within AP now. So I think, hold on and look at opportunities, there's no urgency for us to sell. I think it's a good call that we also held on to the land parcels basically enjoying the fruit of the valuations going up. So we're always evaluating opportunities and when the right opportunity strikes, I think we will move.

Understood. I'm sorry, the free cash flow, Ashwin, in Q1.

The free cash flow at the group level will be about INR 500 crores.

INR 500 crores in Q1. Fantastic. So my next question is, Ashwin, I think I brought this up a few times before. Obviously, a remarkable job by yourselves and the team in making this debt-free and now net cash, both with incremental arbitration awards coming through as well as the organic cash flow generation. But given that scenario on net cash, what are the planned use of proceeds, I've seen that you declared an interim dividend of INR 4, but that's only INR 60 crores. So how do you plan to really reward shareholders for this cash pile is building up?

Yes. So I think we've started by rewarding. I mean, at the end of the day, we just started receiving the funds. We were getting all -- while we were getting paid in Zambia, we were clearing up all our debt for Phase 1 which has enabled us to become debt-free and essentially embark on Phase 2. So as we kind of start getting -- Maamba starts declaring more dividends and paying off its shareholder loan, we will definitely look at other corporate actions that benefit shareholders and increase the company value. And also, we are pretty embarking in terms of expansion of Maamba, the Avocado project, the Ivory Coast project. And we have other things that we are currently exploring. So we're definitely going to leave a significant chunk out for growth capital. Yes, that's basically how we plan on creating the cash that comes in.

No, I appreciate that. I mean, but just correct me if I'm wrong, but Avocado plus the equity contribution on the second 300-megawatt plant plus Ivory would probably not be more than $100 million, $150 million, which is about INR 1,000 crores. The company is generating INR 500 crores of free cash flow per quarter, plus you have an incremental INR 1,200 crores to come in from arbitration. Now the government is obviously in the recent buyback rules allowed a relaxation until the 1st of October. So that's one avenue. Two is obviously dividends, but keen to see either of the 2 or both come through for shareholders.

No. So I see, in terms of our payments and so on, there's still some due. We hope when it comes, we can take certain aggressive corporate decisions with regard to increasing shareholding value. But we are essentially going as a -- it's not a -- nothing is guaranteed here. So we're really trying to ensure that this will be based on time pays the areas. And I think once we get the cash, we will definitely take certain corporate actions. Yes, so in terms of the expansion, if you look at the equity portion of the Avocado and the Maamba, you're looking at about $120 million. And we are looking at other opportunities, too. You need to understand that we are in certain sectors that could be phased out and say, 20 years, 30 years from now. So we do need to kind of grow other verticals. So definitely, we would want to save some cash for other verticals that we want to get into.

Understood. All the very best on the growth and the shareholder value enhancement.

[Operator Instructions]. The next question is from the line of [ Govindlal ], an Individual Investor.

Congratulations to the whole team Nava for this great set of numbers. All cylinders are firing, sir. So as a shareholder, I'm very happy. So I got 2, 3 questions. First thing is that last call result in May, you have told that corporate action will happen very soon, sooner than later, that is the words what you used. So it is 3 months over, sir. So what is this very soon, sooner than later something you can define, sir?

Yes. So we -- I mean, we did say 3 months later, we did take the corporate action by declaring an interim dividend. So I think we just started receiving cash from our Zambian subsidiary. And as soon as we have, we have declared an interim dividend like promised.

On overall bigger picture this dividend is very small. We thought that corporate action something big, as a shareholder, we will be receiving. So it is a very small, I guess. So is that what you hinted last call, which is something small this quarter or something more is in pipeline?

Sir, you see, you have to -- we take decisions based on what we have. We've just started receiving money. So we've taken a corporate action. Now we are working hard to get the remainder of the areas, paid and everything. And once that comes we will take larger corporate action. So it is very hard for us to predesign of actions that we take and we don't have the money sitting with us.

Yes, I got it, sir. Then my second question is regarding this tax rate about second phase. So we will be getting similar holiday, what we got for Phase 1 for second phase also tax holiday.

Yes.

Hello?

Yes, we will be getting tax holiday similar to the Phase 1 and Phase 2 as well.

So Phase 1, first 5 years like that what we have got for Phase 1, same -- similar pattern, we'll get for Phase 2 also?

Yes.

Okay. Then last question is, sir, regarding this [ due ], how much the received at April, May, June, this 3 months arrears, how much we have received arbitration arrears?

In the current quarter, we received $15 million.

$15 million?

That is $229 million.

Now, how much is this as on today? $229 million.

$224 million, $224 million.

Now we have to receive, I think, $25 million every month going forward I think this August is $25 million. My understanding is right, sir?

No. So this is -- it's a very dynamic situation. You need to also understand that right now, [indiscernible] going to big power prices. A lot of the revenues at the state utility it would have -- are not there because of their hydros working at suboptimal plant load factors. So we are in constant discussions. They are paying us a certain amount every month, but it's a very dynamic thing which is happening during discussions. We are trying to work with them rather than being unreasonable. So I don't think we can communicate any numbers right now. But on a month-on-month basis, they are paying a certain amount, and that's based on verbal agreements that we are having with the utility.

I got it, sir. So just further to this question here. So this equity contributions are phased second, what we are putting this money will come from our arrears only, sir? These are from our responses equity contribution?

Yes. I think the good thing here is the way we structured the project finance has been equity rear-ended, unlike what it was for the initial Phase 1 project, which means our equity comes at the end. And we made it very clear that the equity would be from our side would just to be paid from the area of payroll. So what that essentially means is there won't really be a contribution from the Nava side.

So just to have a more clarity, so out of INR 100 crores equity, INR 65 crores we have to put. So this INR 65 crores, we are not putting from our side. It will come from arrears, that amount we'll be putting. My understanding is right, sir?

Well, that is our plan. We plan on -- as Maamba gets money and as it declares dividends to Nava Bharat Singapore, Nava Singapore will use that cash to fund its equity portion.

Yes, yes. Got it, sir. Last if you can permit one...

It seems like we have lost our current participant. We'll take a question from the line of [ Nidhish Shah ] from ICICI Securities Limited.

I basically wanted to ask that what is your CapEx guidance for the full year? And how are you going to plan it across the quarter?

Nidhish, your line has been very unclear. Can you come again, please?

Am I audible now?

There's a lot of disturbance at your end.

Yes. So I wanted to know what is the CapEx expenditure that we're looking at for the full year? And how are you going to plan it across the various quarters? And yes, that is basically the first question.

Yes. So in terms of the Indian operations with today currently -- there's no large CapEx plans. I think most of the planned M&As from our overseas operations, which include the Maamba Energy expansion, on the Avocado side since we are now looking at putting together a pack house and also with our exploration activities at Ivory Coast and also the lithium assets that we have recently acquired exploration licenses. We plan on starting the exploration activity there, too.

Also, the ferro alloys we saw this quarter that the profit has jumped quite a lot. Your EBIT margins from -- as compared to Y-o-Y. So now is this something that we see is a normalized rate of EBIT from the ferro alloys segment? Or is there still this period where this is the growth of this segment, and we will see margins maturing further?

Unfortunately, no, because these prices, which you're seeing in quarter 1 have tapered down in quarter 2. But having said that, I think we are also taking some mitigative measures particularly with respect to diversification of different products. So that is helping us retain the margin. And similarly, even for the existing the bulk product that we produce, which is silico manganese, we have a long-term agreement with overseas customers. So that is faring much better than, say, what the domestic market is offering. So these things are helping us the situation that we're facing today, but it's very different from what we had in quarter 1.

[Operator Instructions] The next question is from the line of Ruchita Ghadge from I-Wealth Management LLP.

Sorry if I missed on this point. So I just wanted to understand on ZESCO. So currently, for this year, how much amount are we expecting from them in terms of the arbitration?

Yes. So like we said, the outstanding amount is $224 million, okay? They are right now paying us about on a monthly basis, about $5 million towards the arbitration. They have to start paying a larger amount to the tune of about $25 million per month. Now unfortunately, given the current situation there, their revenues have also kind of come down because of the bad rains and the fact that they're not able to generate and sell as much power as they earlier envisaged. We currently are in discussions with them. They are very determined to kind of clear the entire $224 million. In fact, we are working on other initiatives such as taking loans to really clear this. But this is under discussion. So we can't commit to any payment plan in terms of how much they will be clearing every month, but they've been paying us $5 million on a monthly basis towards the...

Okay. Understood. And sir, what is the status on the magnetite exploration that you were supposed to start?

So we have been undertaking exploration activities. We do feel that there is high-grade magnetite there. So the activities are currently ongoing. Like any exploration activities, these are time consuming and we'll only get the results later.

Okay. And sir, just one question is regarding the unallocated the other segment that we report. So this quarter, the EBITDA has come at around INR 70 crores. So just wanted to understand what does others consist of?

Yes. These are technical services. These are technical services and also in terms of other income, yes. So technical services, which includes services that the company provides and also operation and maintenance services that the company provides.

Okay. The operations and maintenance that happens at Zambia?

Yes.

[Operator Instructions] The next follow-up question is from the line of Viraj Mahadevia from MoneyGrow Asset Private Limited.

When is the Zambia Phase 1 tax concession valid until?

I'm sorry, can you repeat that?

When is the Zambia Phase 1 tax concession valid until?

Current financial year, the last financial year for the first 5 years of tax holiday, then the next 5 years will commence from 1st April '25 onwards.

For Phase 2.

Understood. So after the current financial year FY '25 there will no longer be a tax concession. And what will be the tax rate going forward there?

30% corporate tax, rate of 30%.

30%. Understood.

The next question is from the line of Govindlal, Individual Investor.

Just a clarification on previous participant asking. So this year, we are adjusting first 5 years tax concession. So next year, I don't think it is full tax 30%. For the next few years, it will be 15%. After that, it will be 20%, 30% like that, I think. So my understanding is correct?

Yes, absolutely.

Just your answer to previous participant that it will be 30%. That's what I'm clarifying.

Yes.

So how much it will be from next year, sir? From nil to?

Last 2 years, it will be 75% exempt, then the next 3 years, it will be 50%.

Yes. That's -- I wanted to have a clarification. Then last one more question, sir. This quarter was very phenomenal. So the Zambia, okay, that is a regular business. This Indian operations, this power all that any seasonality is there? First quarter will be something -- or something like or how it is 4 quarters is distributed on power [indiscernible] any color can you give, sir?

Generally, for power, during the first quarter, there will be -- demand for power will be generally high where especially from the Northern states. That's why power -- energy sector continues -- generally it does better in the first quarter. And the demand for power slightly reduced in the Q2, but again picks up in Q3 onwards.

Then last one question. How much arrears we have to still write back, sir? Every quarter, something we have...

So the outstanding arrears on the arbitration as on today is $224 million.

No, no, no, the credit loss. So we are -- how much more is the credit loss to be allowing for the...

It was $31.9 million.

Still $31.9 million to be reversed?

Yes.

[Operator Instructions] The next question is from the line of Vijay, an Individual Investor.

Yes. I missed the part about Ivory Coast exploration. It was -- last time, it was said that this exploration had not given encouraging results, and we have given it up. Now what is the next that is happening in Ivory Coast?

So we're actively pursuing other options. Ivory Coast at the end of the day, does have a decent manganese potential. So we are looking at other options and as and when we get them, we'll disclose it to you.

So as of now, we do not have any opening in Ivory Coast as far as manganese ore is concerned?

No, we do. Essentially, the way it works with these concessions is you can have multiple concessions. One is not very fruitful. But there are other concessions that we are exploring in Ivory Coast. So it's not like we've given up on Ivory Coast. It's just that you find the most economical concession and the exploration activity is still continuing.

Coming back to the ferroalloy operation in India, every time somebody asked about the monetization of land parcels, it is required that there is no opening for usage of that money for the moment and the price is going up. So we are holding on to it. So what are we doing about expanding our ferroalloy capacity or the power generation capacity in India when we have the source of money for funding it?

Well, I think if you look at the last year, the ferroalloys division with the capacity that we have existing proved hard to turn profitable and that's mainly on account of your input costs are essentially the same as the competitor. Unless you backward integrate and have access to your own new raw material, in this case, it's manganese ore. So we're pursuing that very actively. I think once that does take place, then a call for expansion could be [indiscernible]. But at this juncture, when there is already an oversupply in the market, it doesn't make sense to expand.

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

In conclusion, I want to express my gratitude to our dedicated team for everything, and I hope we've answered all your questions. We remain focused on our long-term goals, future diversification and global expansion. We look forward to also delivering sustained growth and margin to all our shareholders and stakeholders. Thank you very much.

Thank you. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.