NMDC Limited (526371) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 results conference call of NMDC Limited hosted by Emkay Global Financial Services. [Operator Instructions] Note, this conference is being recorded. I now hand the conference over to Mr. Vishal Chandak from Emkay Global. Thank you. And over to you, sir.

Thank you very much, Vikram. Welcome, everyone, to the Q3 earnings call of NMDC. I'd like to thank the management team of NMDC for providing us the opportunity to host them for this call. We have with us Mr. Sumit Deb, Chairman; and Mr. Amitava Mukherjee, Directive of Finance, to represent the management. So without much ado, I will hand over the call to Mr. Deb for his opening remarks, and then we can continue with the Q&A session. Over to you, sir.

Thank you, Vishal, and glad to join in this con call. We have had a good Q3 as the results -- as the numbers reflect. And we believe that things are moving positively. In Q3, we -- if you look at Q1, we had lost substantial volumes, but then made it up in Q2 and Q3. And things look better also in Q4. January, we are almost logged a 15%, 16%, or around 17% of growth. So -- and we have made up most of our -- whatever have been put up the losses in terms of production. If you look at our 9-month results, we have made most of them up, and we are back at same level at CPLY last year in spite of the COVID pandemic, and prices also look good. I think going forward, things should be much better now. Thank you. Yes, Vishal.

Thank you, sir. So can you please open the floor for the Q&A?

[Operator Instructions] We have our first question from the line of Amit Dixit from Edelweiss.

And congratulations for a very good set of numbers. I have 2 questions. The first one is on the recent price cut that we have taken off almost INR 600 on [indiscernible]. Just intrigued that what prompted such as steep price cut because in [indiscernible] if you look at the historic data, we were always at premium to raise a base minus. But now we are, in fact, running a discount to be -- raise a base merchant minus. So just curious to what prompted this kind of decline. And whether the intent is to remain a discount to raise a base minus or something.

Yes, first of all, we are not exactly at a discount to raise a minus. If you look at this scenario, I mean iron ore primarily goes into sponges and pellets and then subsequently into steam. So the prices of sponge and pellets have corrected substantially in the secondary market. And even if you look at the long product segment of the market, there has been a steep fall in the market -- in the markets. Orissa miners have corrected their prices. If you look at the prices which have been obtained in the auctions in -- of [ Steel 30 ] or OMC, every -- all of them have corrected prices. So looking at all that, I mean this was something which was the market -- I mean, looking at the market, so we have made this correction. So in any case, I do not believe that we are at a discount to Orissa. We are definitely above Orissa over prices. So that's the overall.

A follow-up to this question. Do you see prices having settled at a reasonable level? Or do you anticipate further price cuts in the near future?

Yes. See what has happened is that, definitely, steel prices had, in the last couple of months, have gone up substantially. And there is now -- obviously, because of international prices of iron ore OMC. Obviously, they also had it reflected on the domestic prices. But then I do believe that prices have now stabilized, and there would not be any requirement, much requirement, of any further correction. We should be able to hold these pipelines.

Wonderful, sir. The second question is essentially on the -- on one of the most to the accounts in which you had mentioned these ongoing discussions with respect to Donimalai, there you have -- in the last results, you had mentioned that there was some sort of discussion or some sort of agreement that was reached with the relevant authority in Karnataka. So can you let us know what kind of agreement or resources or what's the agreement in a particular royalty? And if this royalty is extended, I mean if there is some enhanced royalty, whether it will be payable for September [ 9 ] quarter?

So this question has been coming up quite often. So in terms of payment of additional royalties, so this was something which was there earlier also and continues to be there. But then, there are other issues which we needed to discuss which had been -- which had cropped up with the government -- state government primarily on forest -- the forest department had raised some issues. So that, we have discussed with the state government. In fact, they had given us years to start the mine, then there were some issues, which are further raised we discussed with them. And most of the issues have now been sorted out, and we think we will be able to start very quickly, very smooth impact.

Sir, the only problem is that this issue has been flowing back and forth. We have been waiting for Donimalai's assumptions despite many kind of -- a lot of things have been done. And you have also been at the forefront and in the management team. But so far, we have not seen it getting resumed. And now this new forest department handle have cropped up. So is there something else that you anticipate because every time something new comes up essentially in this regard?

No, no. We have sorted out all the issues, and we hope to resume very quickly now.

With the additional royalty of 22.5%?

So that was never in the -- I mean that was always there. Only there were some other issues which had come up. But now all the issues have been settled, and we hope to start very quickly.

We have next question from the line of Saket Kapoor from Kapoor Company.

Firstly, sir, what steps are we taking here to ramp up our production from our existing mine, sir? What kind of CapEx are we putting up on modernization? And the technology which we have in our mine set, are they comparable with other miners globally, the world of [indiscernible] and others?

So it's like is that, as far as production goes, we intend to do -- our targets for this year was almost 35 million tonnes. And going forward, for FY '22, we have made plans for almost 30, 40 million tonnes. That is what internally we have finalized. As far as Donimalai goes, Donimalai's sector [indiscernible] is 40 million tonnes. So the balance will come from the Bailadila sector. The Bailadila sector, we intend to ramp up our production. And to that extent, we have taken -- we are putting in additional CapEx and equipment infrastructure with regard to screening plants, crushing plants and [indiscernible] equipments. And we are also in a big way going ahead with the digitalization drive in the company where we are automating our systems. We are introducing fleet management system, which we shall be, in fact, putting in place in this financial year, hopefully in this financial year. And then there are other technological or important mechanization processes which we are implementing. And hopefully, we should be as par with the global mining giants which are already there.

Sir, the MDO concept is being implemented or if we can go for that mine development operator, we are looking in that concept? And how are we going to utilize the cash generator, sir?

NMDC has never really gone into an NDA because we believe that we have the best of solutions for -- as far as mining goes, we have been in this business for quite some time now, almost 60 years. So we know what we want to do. And that is how -- we have done all our mining ourselves. So there is -- we don't intend to introduce MDO at this stage, at least in our currently in our mine. So if you look at NCL, probably, there we will take a call as and when it comes. But right now, there is -- we don't intend to introduce an MDO yet.

And on the utilization of cash, sir, what is your -- incremental cash and the entries we have grown with a buyback earlier, so what kind of dividend payout can we look with improved enhanced cash flow which we have done for the 9 months, barring the -- if you deduct the buyback amount? And going forward, for the fourth quarter also, you are giving a very bullish outlook. So what kind of dividend payout can we look? And sir, in the recent auction, I think, sir, there was some lukewarm response out of the number of rigs offered and the bids which were there. So what could be the reason for that, sir? And my last point will be on the demerger of the steel plant, sir. Are you facing any more headwinds? What is the update on the same, sir?

Sure. I'll take the last question first. Yes, the demerger process is on target, and we intend to finish it in another 5 to 6 months period. So that is there. So there is no issue on that count. As far as auctions goes, we have sold all the materials which have been there. So there is no question of any response. Whatever we intended to sell, we have sold. So there's no issue on that account also. There was a utilization of -- you're talking of cash? Yes, we have the CapEx in place. And apart from that dividend, obviously, we'll take a call in our Board as and when it comes.

So what is the CapEx plan, sir? If you could elaborate for -- coming 3 years CapEx, if you can articulate, then we can have a better understanding.

See, currently, this year, we almost are doing INR 1,900 crores. So next year also, we intend to spend around INR 2,500 crores or INR 3,000 crores. So these are the numbers which you are talking about.

And you have the split up on the same, sir? Where are you putting this money, sir?

So primarily, most of the cash is going into the steel plant. Obviously, but there are steel plants in Donimalai, in Kirandul also, and plus, our Slurry Pipeline Project, the first plant project in Jagdalpur. So all this is going to -- I mean we're going to spend on this CapEx.

A very small point, it's a very small point to make, sir. In the -- in our investor presentation, if we could also give a slide giving the CapEx and what amount is attributable to which projects and what percentage the projected completion, that would give us a better idea of the commissioning and the completion time line of the projects and the amount spent. So that would be -- that would give us better understanding, sir. These are a very small suggestion. And sir, now, sir, we also find that many of your customers are participating in the small mines which are auctioned. If you take the Southern India. So your dependence on your customer profile, sir, if you could give an idea of the dominance of the -- of your clientele. I mean a single customer is entitled to what percentage of the sales on the higher side, if you could give that detail, sir.

See, if I correctly understand this question. So it's like this. Obviously, in Karnataka, there is a dependency on customers. But then on a particular -- but then what happens is that everybody -- most of the capacities are expanding. People are expanding their capacity, their brownfield expansions are going on. And we believe that there should not be an issue in terms of customers. And then we have the -- our Nagarnar steel plant also coming up, which will also consume a substantial portion of the ore which is there. So as far as customers goes, I do believe that we have already worked it out, and there should not be any issues in selling iron ore.

Sir, on the steel plant, you have already clarified that there will be a separate block that will be offered for running on that, sir. I look at it separately. So you are now telling that ore will go to that part also, [ Mani ]. I could not understand that -- you have earlier explained that for the steel plant, a dedicated ore has -- will be allocated.

No, no, no. Sorry if there is any misunderstanding on that now. That plant ore which is going to be supplied to the steel plant is at the [indiscernible] distance and will be supplied from our existing mines.

Okay. There was no separate arrangement for that, sir, explain further?

No, no.

We have next question from the line of [indiscernible] Bansal from Bonanza PMS.

Yes. Sir, my first question is that your lease was pending -- Donimalai lease was spending in 2018. And then after that, in 2020, you got the approval from Chhattisgarh government. So -- and in the meanwhile, we have heard that Chhattisgarh government has had some letters also that they should also be given the same amount of premium, which you are going to pay to Donimalai's mine. So can you clarify that if it is applicable then, whether it is applicable to Chhattisgarh also or it will be applicable for Donimalai right now only?

So what happens is that the government will come out with some sort of directions in this regard. And it will be applied to all mines in this country, whether immaterial of minerals or stakes. So it will apply to everybody. So it is not that it is something specific to a particular state and mineral. Whatever moves will be announced by the government, Chhattisgarh Ministry of Mines. So they will apply to all states, all companies, the government companies, PSUs.

Yes. Sir, that is okay. That will be applied. But since you have already got the approval for the lease and you have started mining as usual in Chhattisgarh. So my question is that your -- you have already got your lease renewal. So when the government in the Parliament to pass this law, so whether this will be applicable retrospectively or prospectively?

No, no. I cannot really try to foresee what they will do. So whatever policies or rules they come out with, we'll abide by those rules.

Yes, yes. Because, sir, obviously, in Donimalai, you have been -- then other state government can ask that we have given approval after that only. Like in 2018, Donimalai was due and 2020 Chhattisgarh was due. So they may ask that since we have given the approval after that, so we should also eligible to get that premium, whatever you are paying to Donimalai.

See, like I said, that it will all have to be -- will have to depend on the sort of policy or the government directions. So I cannot really comment on what sort of -- whether we go to the -- prospective or retrospective. So that...

Okay. Second question, sir, what is -- right now, the prevailing price, what is the discount export prices?

There's no discount on export prices.

No, no. The export price right now prevailing around I think 1 60, 1 70 in India. I think you are -- that discount I'm asking, what is the ...

Okay. Okay. So there must be -- I would feel that there would be an account of almost around 30%, 30%, 35%.

Sir, why you are giving such large discount? Since I understand that all the companies, they are running good in selling steel. So why it be so much? It should be around 5%, 10%, not more than that. What is the reason giving 30% discount?

So it's like you said, the international prices are different. I mean we don't really -- obviously, that is factored in when we do our pricing. But otherwise, the domestic market is separate. Our customers are separate to find those uprate. So it's different from the -- and they probably -- there is a particular market trend, which is there [indiscernible] a major player. In Karnataka, we have a different market scenario. So to that extent, it is not that it's a -- NMDC is giving a discount to international prices. So we follow domestic trends primarily.

[Operator Instructions] Next question from the line of Vikash Singh from PhillipCapital.

Congratulation on good set of numbers. Sir, I want to understand, if I look at the royalty base -- the standard domestic realization, this quarter is being -- seems to get below somewhere around 15%, so any specific reasons for that?

I couldn't get your question.

Sir, if I look at the royalty part and basis, it's roughly around 6%, while you are domestic realization was somewhere around [ 44 07. ] So it comes around 15%. Usually, long-term sales was somewhere around 18% to 20%. So just wanted to understand why it was lower this time?

[ Mukherjee ], would you like to take this one?

Actually, there was an IBM adjustment that was -- where we had paid some advance last year, so that was adjusted this year. And price revision was from approximately around [ 4 91 ] tonnes. That is the case. So it came down from Q3, [ 470 ]. This year, it was INR 471 crores. Last year, it was, I think, INR 439 crores. So there was a [indiscernible] of INR 32 crores, 37%. So that was essentially because of -- I understand of IBM [indiscernible] in publishing rates at this time.

Okay, sir. Okay. Sir, I understand that some part may come in the next quarter as well.

[indiscernible] question. Can you please repeat that?

So just wanted to understand, since next quarter, if the realization might be 1,100 higher. So would the royalty rate would come back to the 20%? Or do you have some provision that which would keep the turn on lower side? Just wanted to understand that.

Current prices that impact Q4 [indiscernible] that is with a 3-month lag. So that is why you will not be able to get that -- to correct 20%, sometimes it will be 21%, 22%. For example, we have taken us this INR 600 price cut, right, in Q4, but the ideal price is about 3 months lag. There will be a -- have a Q1 [indiscernible] and basically Q3. So when we see the Q4 results, [indiscernible] results, it will be higher than 20%. It will also be the [indiscernible].

Understood, sir. Sir, my second question pertains to Donimalai's leasing [indiscernible]. So in case if we get this [indiscernible], upon timing, do we have to give some lump sum upfront payment also? Or it will be -- it will not be the case?

No. We need to -- on signing the lease agreement, you need to make a payment. So that will do.

Okay. And sir, just one last question. We have this expected credit loss amount this year filing [ of the case ] in Karnataka government. Just wanted to understand the total amount as of now. And any dates for the court hearing?

No. We have -- in the report wants to do a physical hearing. So I think as and when, the Supreme Court starts, they will do it at the earliest. But they want a physical hearing.

So you probably you don't have the dates for the hearing?

No. Not yet. Not yet. And total amount ...

[Operator Instructions]

The total amount is around [ INR 2,300 crores ] right now.

Your next question from the line of [ Jain Tilao ], an investor.

Sir, I have 2 questions. One is related to mining. I just want to know like what is our capacity, and how much is our generation of that capacity? And the second thing is on the -- our corporate social responsibility. We are a mining company. We are bettering our valuable plan, valuable mountain for our [indiscernible], meaning item related on corporate [indiscernible]. So are we doing on the -- exploring on this, like meaning research to -- are we doing any research on this mix so that our [indiscernible] should be like in a healthy way [indiscernible] description of our [indiscernible]?

So as far as CSR goes, NMDC is in fact, we are one of the leaders in this in this field, and we do a lot of CSR work in and around our mining projects. So in fact, we spent more than the required amount of 2% as laid down by the guideline. So -- and to that extent, there is absolutely -- we believe that we need to take our stakeholders into our -- take them into others. So that way, there is -- NMDC has -- we are actually taken as one of the -- as a benchmark to that extent. We spent almost more than 3% of our profits for -- in CSR. Today, to that extent, we are doing our bid for the people affected in and around our mines. And what was the other question which you wanted to? Hello?

Sir, I'm sorry, we lost the line. Let me check.

Yes. My question is on the volume, sir. Like how much is our capacity and how much we have achieved -- like maximum capacity we have achieved out of our full capacity?

So we think that the environment clearance is around 51.8 if you look at the entire NMDC. So currently, so currently, we are -- this year, we should do around 35 and then go up to 40 for the next year.

[Operator Instructions] We have next question from the line of Pallav Agarwal From Antique Stockbroking.

Yes. Sir, how much revenue we need to spend for utility on the Nagarnar plant so far?

So we spent -- around INR 17,000 crores were spent.

Okay, sir. And as the total amount was, I think about INR 23,000 crores, so probably INR 5,000, INR 6,000 crores is still there?

Yes, yes.

Okay. So yes, I guess on the second question, sir, we normally have this agreement for exports that we channelize to NMDC to Japan and South Korea. So at current prices, other exports in terms of contribution, are their contributions higher than domestic sales? Or because of the export duty and regulatory, et cetera, domestic sales are still more profitable compared to export, sir?

Currently, if you look at the current prices, the export realizations are better than domestic.

Even a contribution, this is not just realized and [indiscernible] profitability basis as well.

Yes, yes, yes. Our realizations are -- our profits are better.

We have next question from the line of Yogansh Jeswani from Mittal Analytics.

Sir, a quick broader question that I would like to understand from you that given the higher premium at this several of the industry players are based for these mines, and now that even if you look at NMDC, the kind of payments and [indiscernible] we think is significantly higher than what has been in the past. So do we see or expect payment in the whole pricing scenario changing going forward in the domestic market? And like we have been seeing that there has been a difference between international prices and domestic prices, so do you see that gap also narrowing down going forward? Or do you also anticipate a scenario wherein domestic prices might be at a premium compared to export prices? So any broader thought process that you have around this premium and how this whole pricing can change?

So obviously, once this premium thing kicks in, there's going to be some sort of an impact. But then going forward, we do believe that we would be able to enhance our production and work on our costs, reduce our costs. So we believe that things at the end should not -- there should not be any major impact, but some impact would definitely be there.

Okay. Understood. Sir, but my point of understanding was that I'm trying to ask you that, do we see in terms of the difference between our export prices, I mean the international prices of iron ore versus the domestic prices, there's usually a gap, right? Because of now the premiums that have come into the Indian market, do we see this gap also narrowing down? Do we feel that there can be a scenario where even domestic prices will be at par with the international prices or they will also go up and a loss in international prices start getting at a premium as well? So because of these premiums and higher royalties, do you see a change in this pricing scenario?

These are 2 separate things. In fact, the international prices and domestic prices, how the domestic prices are impacted by premiums and whether the gap can be narrowed now down. If you look at the international prices, there's a huge amount of volatility, which keeps on happening, fluctuations in prices. So today, they are at -- they're at a particular level tomorrow because the spot prices are constantly changing and changing because of the international scenario, whether it's China or buying or somebody else. So -- but however, if you look at the domestic prices, they are more or less stable. But like I said, I mean if premiums do happen, then they impact prices.

Understood, sir. That's really helpful. Sir, secondly, you did touch upon in your remarks or I think in the earlier questions regarding a correction, steel correction, that we saw in pellets on -- and in secondary market. So going forward, what is the sense that you are getting from the market value? Are we seeing more prices getting stabilized here? Or do we still see some pressure? Because I think, I think even in international markets, the pricing are correcting as well. Are you seeing some more pressure coming in for the coming quarters? Or do we see that despite stable and -- and also, if you could just talk a bit about in terms of the raw material and I think coking coal prices are on a higher ramp. So do we see any further margin compression in terms of higher volatility in prices [indiscernible] these points?

So if we look at the coking coal prices, obviously, there has been an increase. I mean they are on an increasing trend. They had touched almost $100, but then subsequently, their prices have been increasing for whatever reason, whether it's the Chinese sector or buying on online. So there has been an increase in prices. If you look at iron ore, iron ore has been on the reverse trend. They have been dropping prices. Prices have been dropping to that extent. So raw material prices are fluctuating. There's a huge amount of volatility in prices, which is happening. To that extent, if you look at -- however, the domestic scenario, they are having -- there has been a very steep increase in steel prices, which has now corrected considerably specifically the long period of product segment and then consequently corrected by the [ sponges ] and the correct prices, they have also corrected. However, I feel that the prices have stabilized to an extent and should be -- and we don't expect much downside to it at the moment.