NMDC Limited (526371) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '22 Earnings Conference Call of NMDC Limited, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Chandak from DAM Capital Advisors. Thank you, and over to you, sir.

Thank you, Margaret. Good day, everyone, and welcome to the Q1 FY '22 Earnings Call for NMDC. I'd like to thank the management of NMDC Limited for allowing us to host this call. We may have with us CMD, Shri Sumit Deb; and Director of Finance, Shri Amitava Mukherjee. So we will hand over the floor to Shri Sumit Deb for his opening comments, and then we'll open the floor for Q&A. Over to you, sir.

Yes. Good evening, everyone. So it's been a great quarter for NMDC in terms of production sales, profits. So good quarter for us. And we have, in fact, broken all sorts of records. The first quarter, in terms of production, has been all-time high, 35% increase. Even in terms of revenue from operations INR 6,500 crores. All of them, in fact, the EBITDA margins or the PAT. So this has been -- it has been a great quarter. Obviously, we believe that things will continue in this fashion. We hope to continue in this fashion, especially in terms of production we have targeted 44 million tonnes, and we hope to achieve that target. We are on -- I mean, 44 million tonnes is something which we need to do, and we will do it. And in terms of profitability also, we believe that prices have almost stabilized. The monsoon season, albeit a little bit of aberration. Otherwise, we believe that going forward, things should -- demand should be strong. We have good -- there's a -- the markets are -- having -- there is a lot of demand in the market, and we believe that things will work out in terms of production and sales also. As I see, we are planning to start our coal operations also in this financial year, probably from Q2, Q3, we should be -- at Q2 end, we should be able to start our coal mining operations in Jharkhand. So that also will add on to our bottom line. So these are things, going forward, we believe -- and we are also in discussion with the government, state governments for additional mining blocks. So things are looking good for us. So that's it. Thank you.

[Operator Instructions] The first question is from the line of Amit Dixit from Edelweiss Securities.

Congratulations for a good set of numbers. I have 2 questions. The first one is on the status of steel plant commissioning, where we are on that front? When we -- do we see it getting commissioned? And also, if you can share the status of the new company formation for which Board had already given its approval? That is the first question.

And let me answer that. You see, the steel plant, we are targeting to commission it in the Q3 or rather early Q4, late Q3 or early Q4. So we are waiting for the -- what you call the byproduct plant to get ready. And simultaneously, we are planning to start the coke oven heating very soon, hopefully. So it is a 4-, 5-month process. So that is the target as of now. Let's just hope that we'll be able to keep it. We are working towards that only. And the second is you asked for demerger. Well, the Board has already approved the draft scheme. Now it is to be filed with the stock exchanges and SEBI. So I think [indiscernible] maybe on 20th we'll be able to file it. All these requisite certificate from the auditors, et cetera, for filing has been received. And this week, definitely either tomorrow or on Friday, we'll be able to file that.

Okay. Okay. Okay. That's reassuring, sir. The second question is on a medium-term perspective, just wanted to get your idea that in medium term, that in next 3 years, if you can just let us know the key projects that you are targeting. And what is the approximate CapEx outlay for the same?

Approximate CapEx outlay for this FY is around INR 3,750 crores that we are anticipating. But a large chunk of it is related to NISP, and that is the steel plant, which is INR 2,150 crores. Apart from this, the major CapEx-es which we are expecting a, is in the slurry pipeline, around INR 250 crores to INR 300 crores on that this year; and b, is the third screening plant that we are setting up at Kirandul with MTPA. That is another INR 200 crores we were expecting. Apart from that, we will be spending some money in the coal blocks, which are in the near nature of statutory payments and some R&R payments. So the total is INR 3,750 that we are targeting, of which INR 2,150 is from Nagarnar itself and another INR 1,600 crores is from these other projects.

Sir, when do you expect this slurry pipeline to get commissioned and functioning?

It is supposed to come up by 2023 end -- sorry, calendar year 2023 Q3, it's supposed to come on. We have already awarded the major contract to L&T for INR 1,000 crore contract for laying of the pipeline. The work is underway. They have started the work. And we have the award of the 2 end projects, one is the beneficiation plant at the beginning end and the other is the pellet plant at the finishing end at -- yes. Those standards are in an advanced stage of finalization. So we hope that in about a month's time, we would be able to award them.

[Operator Instructions] The next question is from the line of Kamlesh Jain from Prabhudas Lilladher.

Yes, sir. Sir, 1 question on the part of this sales volume, like, sir, we did roughly around 9.4-odd million tonne. So this...

Beg your pardon? We couldn't hear you. Could you repeat that, please?

Sir, I was asking on the part of the sales volume. So this MMDR Act amendment came in, like, say, effective from 28th of March. So prior to that, whatever production we had, sir, there was no, let's say, incidence of project going up and royalty on that part. So out of this 9.4 million tonne, how much of the quantity is related to prior to this amendment?

Around 5.1 million tonnes.

So 5.1 million...

That is why our EBITDA is at 66% because normally, you cannot have -- with just 22.5% coming in, then normal EBITDA would be less than 60% because of the statutory expenditure. This quarter, it was 66% because more than half of my sales were from my opening stock, that is the pre-28th stock.

Okay. So the 9.4 million tonne included 5.1 million tonne from the inventory?

Yes. 5.1 million from the opening inventory, yes.

The next question is from the line of Ashish Kejriwal from Centrum Broking.

Two questions from my side. Again, once you said that you are going to file with the Exchange. So I think in that Exchange when we are filing, is it safe to assume that we are going to file the demerger value and after that, we'll go for SEBI and other approvals?

Yes. We filed with SEBI the exchanges, the draft demerger scheme and all these statistics, then they revert back to us if they have any modifications to suggest. If they don't, then we take it to the MCA, the Ministry of Corporate Affairs. If they do suggest something, then we make those small changes and then file it with MCA. And thereafter, the entire process takes around 4 to 5 months.

So still, we are sticking to December 2021 deadline and after that, we will list the shares?

So far, this -- yes, that delisting -- that listing will be happening only when the demerger is complete.

Okay. But after the demerger is complete, we will list the shares in the Exchange?

Yes. The new company will list the shares in the Exchange.

Okay. And that, we are expecting by December end?

It's a 4 to 5 month process so it could be 10, 15 days this side or that side. It depends on how much time SEBI takes and stock exchanges take, how much time the MCA takes. But our transaction advisers have advised that it will be around anything between 4 to 5 months. That is what they said.

Sure. Sure. And sir, second thing is on iron ore prices -- yes, sorry, sir, go ahead.

That's the normal time that they advise that they take. Go ahead.

Got it. Got it. Sir, second is on iron ore prices because we have seen global iron ore prices falling by around 25% in a month's time. And I think at this price, exports will become somewhat less lucrative. So do you foresee some incremental supply coming in, in the domestic market, which will lead to further correction in our prices?

Number one, we do not speculate on prices. We see it -- we take -- there's a variety of factors. Export prices are only 1 of them. Domestic availability is 1 of them. So obviously, domestic availability, as you know, Orissa, there has been a major change from the merchant mining sector to the captive sector. Some of the mines are still not producing, some of them have been surrendered. So as CMD said, that we are very optimistic about the situation and the prices as well. But we'll refrain from making an exact speculation. But nonetheless, we are very optimistic about the future scenario of demand and prices. So I don't see much negatives on that.

I would like to add there. What happens is basically that the exports which do take place are in the 60 -- 60-plus categories or less. So the higher-grade exports are very less from the country. It's more or less most of it is in the below 60. That is number one. Now number 2 is that we -- I mean, we have -- what we have been seeing is that our prices are much more -- I mean, there's no comparison with export prices. Export prices at the peak, were up and the domestic prices were at a discount. So that's why we don't see any major changes in the prices.

Sure. Got it. And lastly, on your coal operation, sir, you said that Q3 will start. So is it possible to share some numbers on that?

No, it will be very...

In terms of volumes? In terms of volumes, what we are likely to have in this year or next year?

So we don't have any volume for this FY because most of the mining that will start is basically R&R and preparatory services. Commercial mining will take maybe a little more time or a couple of more quarters. But the other activities prior to that would start in Q3.

The next question is from the line of Yogansh Jeswani from Mittal Analytics.

Hello?

Yes.

Am I audible, sir?

Yes. Yes.

Sir, my question is on the volume side. So for the last couple of years, the volume has more or less stayed stagnant. So going forward, how do you plan on doing this? I think you touched upon this point briefly, but if you could just elaborate on what are the plans or what is the vision going forward, what kind of volume growth are we targeting. If you could share that number.

So as CMD already said that we're targeting at least 44 million of this financial year. So we did 35 million last year. And we have Donimalai this year, so that will add straight away 7 million tonne. And another incremental from our existing mines would be 2 million to 3 million tonne. So 35 million plus 7 million is 42 million and another 2 million to 3 million, hopefully, from the -- our existing mines. We have got a new line in Kirandul, which will account for at least 2.5 million tonne, new screening line there. So that will account for at least 2 million to 2.5 million tonne. So we are very confident that we'll do 44 million at least this financial year.

Right. That's for FY '22. And sir, any similar target for FY '23?

'23, hopefully, we'll be having a marginal increase on that. But we are having a big time CapEx -- we are drawing up a big CapEx plan so that we can go up to 100 million tonne in 4 to 5 years' time. So we are drawing up the CapEx plan for that.

Understood, sir. And sir, again, going back to the pricing side of the scenario. So I think, like, how we are seeing prices come down internationally. So in near term, are we seeing -- are we expecting any more price cuts like we have taken, I think, 2 in the last month itself? So are we looking at any further price cuts in the near term?

As I said, we do not speculate on prices at all, number one. Number two, we have already said that we are very optimistic about the demand and the stability of the price scenario. And the 2 price cuts we took recently were essentially very marginal, INR 100 in the first one and INR 200 or INR 300 in the next in the 2 lumps. So basically, those have been much more token cuts as compared to the price increase earlier. But we have already said in the previous answer that we are fairly optimistic about the scenario as of now. So I should -- I think that should answer your question.

That's really helpful, sir. Sir, 1 last question from my end. Now that the cash flow generation that we are having this quite strong and quite good, and then we have a demerger also coming up. So going forward, any thoughts that you can share around maybe having a buyback at these prices or putting out more money in the hands of minorities by way of higher dividend? Any thoughts that management can share around these 2 things, sir?

These things are something that are confidential information. I would not like them to speculate on them on a recorded call. As and when the Board would decide on whether buyback or dividend, it is very difficult to speculate in an open call. But I'm sure that the Board will take cognizance of these, whether it is buyback or dividend at the appropriate point of time.

The next question is from the line of Bhavin Chheda from Enam Holdings.

Sir, currently, you have a EC limit of close to 51.8 million tonne. Last time you mentioned that the company plans to expand it to 83 million. So what are the current filings to increase the EC limit? What is the progress on that? And if you can update the same?

Yes. Donimalai in the Karnataka sector, we have already filed for Kumaraswamy mine from 7 million tonne to 10 million tonne. In the Karnataka sector also, we have filed for the Deposit-14. But these are long-drawn processes. These don't happen overnight. These are processes that take anything between 6 months to 18 months, depending on what sort of things are there. So we have drawn out a plan. And accordingly, we are filing -- and these have to be filed for each mine separately. So Deposit-14, we are filing; Deposit-11, we are filing; and some of them we have already filed in the initial stages. So it's a continuous process that goes, depending on your -- what is your reserve base. And it's a continuous process. So we are on that.

And sir, for mining up to...

Donimalai we are hopefully we'll be able to get it by the Q3 or Q4.

Sure. And sir, for mining, volume up to 51 million, you don't need to do additional CapEx or any other regulatory process to increase your volumes from this year, say, 44 million run rate to...

Not regularly, of course we don't need to up to 51 million, but we are already producing -- we are targeting 44 million, so that's almost more than 90% there. Our capacity utilization is also, if you see, it's 97%. And we are doing the debottlenecking in -- investing in debottlenecking in Kirandul and in Bacheli, where Kirandul we've already put in the fifth screening line; and Bacheli, we are -- the work is going on for the fifth screening line. So those are there. So up to 51 million, by these 2 debottlenecking and -- we will be able to reach that. And apart from that, for the enhanced EC, we are already -- we have tendered out. We are almost on the verge of finalizing in about 1 or 2 -- or 2 or 3 months, we'll finalize the SP 3 in Kirandul, the screening plant 3, which is a 12 million tonne capacity. So we are also augmenting our screening and OC of -- and dispatch and conveying capacities. We are -- we have got 2 more work sanctioned of relocating our crushing plant in Deposit-14. So that will go from 5 million to 10 million tonnes. And similarly, on Deposit-11 also, we are relocating the crushing plant there again. That will go from 7 million to 10 million . So these are in various stages of process. Some of them have been tendered out in advanced stages, some of them, the work has been sanctioned and are to be tendered out. But these are happening continuously. These are on...

Sure. And sir, my last question on the steel demerger, is the pro forma balance sheet of steel, if you can share for March '21 numbers, on the demerger what kind of borrowings, cash and gross block and network you intend to transfer to a steel company?

Yes. For -- we have spent on 31st March, something around INR 18,500 crores approximately, right? And we had on that day, a loan of around INR 524 crores, which was taken through the NCD route. And -- so that -- so these are the blocks that will be transferred. And this will be forming a part of the scheme. If you read the scheme once it is filed, so these numbers are well mentioned there.

Sir, any cash balance also you intend to transfer to the steel company?

No. There's no cash balance there because that has not generated any cash. So there will be no cash balance as such transferred. But we have taken a loan of INR 4,500 crore. We've got it sanctioned, which will be transferred to the new company, obviously. And the cash requirements can be met from that.

The next question is from the line of Nishtha Mukherjee from SteelMint.

I just wanted to ask, like, do we have any idea on which all mine blocks we want to augment our capacities further? Are any mine block auctions scheduled in Karnataka as well?

There are 2 main blocks. As you know, Deposit-4 has been awarded to a subsidiary company of NMDC that is NMDC-CMDC Limited, Deposit-4. We are also talking to the various state governments in Chhattisgarh to get -- we're requesting them to give us Deposit-1 and Deposit-2 there. We're also in talks with the government of Orissa and government of Jharkhand for various blocks. And we have no immediate plans, hopefully, as of now to participate in any auctions because we are on the reservation routes. But we are pursuing with various state governments; CMD himself is pursuing. He has met all the senior officials in the state governments, and we are pursuing, very seriously, of having fresh blocks in Orissa and Jharkhand as well as in Chhattisgarh.

All right, sir. And any mine block auctions expected in Karnataka in the coming months, sir, for the C category...

That I'll have to see. I'll not be able to say because -- whether the state government is auctioning or not. I'm not...

The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, firstly, you told that out of the opening stock of 5.1 million tonne, the EBITDA margins were higher. So if we remove this opening stock before the -- in the earlier regime, what was -- what would be now the margins -- EBITDA margins going forward? Not the blended one, but the one which is within -- yes.

Going forward, the EBITDA margins should be in the vicinity of anything around 50%, about 50 -- anything between 45 -- let us say, the range of 42% to 50% depending on the prices.

42% to 50%. And sir, what are the -- hello? Yes, sir. And import parity basis, sir, what are -- what is the variation, the grade for us?

I did not get your question. What do you mean by...

I'm talking about import parity prices. If imports happen, what are the prices? And what are our selling prices, the difference between the same?

As of now, we are at discount to import parity prices in the East Coast by around 40%. So if you are importing an ore of our quality at Vizag, my ore from Bailadila would be around 40% cheaper.

The next question is from the line of Abhishek Poddar from HDFC Mutual Funds.

Sir, regarding the steel plant, you mentioned about INR 500 crores of debt which will be there. How much will be the retention money and other payments that has to be made, which will go away with the plant?

See, the revised cost estimate for completing the steel plant is INR 21,900 crores -- INR 21,940 crores, in fact, of which we have spent already by the year-end around INR 18,500 crores by the -- by March 31, and currently, I think the figure is around INR 18,731 crores. So that makes anything between INR 2,000 crores to INR 2,500 crores more for most of this would be towards commissioning payments, anything between at INR 2,500 crores to INR 2,800 crores or INR 2,900 crores.

Right. And sir, how is the ramp-up of the plant be, let's say, in '22, '23 '24? What kind of utilization should we expect?

Once the plant is commissioned, I am told that this is the most modern plant and having one of the largest capacities of blast furnace. So I don't think the ramping up would be a major issue. Our technical people tell us because of the design of the plant, ramping up is not the issue. The issue is commissioning. Once we commission it and the plant stabilizes, ramping up would -- can we possibly be -- I'm told that it can be done in a very compressed time frame.

All right. And sir, the finished output that will come out of the plant would be 2.65 million tonnes or it would be a little different?

It is actually 3 million tonne plant. We expect to finish the output of 2.7 million tonne, which is basically flat products only.

Okay. And sir, the customer segment or any sense on, sir, what kind of markets you would be targeting initially?

These are all flat products. So as you know that right now, the prices of flat products are on the peak, and it is -- and all the industry experts do say that the flat products are likely to remain there for some time. So our total adjusted production is around 2.9 million tonnes, sorry, around -- in all grades. So these are good times to roll out flat product as soon as possible. We don't have any long products in this.

Sure. Sure. Sir, my sense was whether it would be export market, domestic market or any such a bifurcation...

I think there is enough demand in the domestic market, but that'll depend on how the market is behaving at that point of time. I think there are a lot of steel producers who are exporting their material. And there is a lot of domestic interest in our products in any case. So I don't think marketing, whether domestically or even as the export market, would be any of the constraint.

The next question is from the line of Noel Vaz from Antique Stockbroking -- sorry, from Ashika Stockbroking.

Yes. So actually, just 1 question regarding the steel plant. So the raw material sourcing for the steel plant, the iron ore and coking coal, what will be the sourcing arrangement?

Iron ore would be obviously from our mines at Bailadila, but it will be on an arm-length's basis, like any other customer like Vizag is our -- like RINL is a customer like, JSW is our customer, like ArcelorMittal-Nippon Steel is our customer. And this plant will be another of our long-term customers. We will be entering into a long-term agreement as we do with our major customers. And this will be -- and with our arms-length pricing. So -- and coking coal, as you know, is mostly imported in India. So our -- for the plant also mostly the coking coal will be mostly imported.

Okay. So -- but has the arrangements for coking coal been done already? Because right now, the...

See, we already have a standing, what is called, for the PSUs, what is called is an -- a JC, that is joint committee which is where SAIL and RINL also participate. We are also a member for that. So once we are on the verge of starting the plant, we can use that forum to order the coking coal. The turn -- generally from order to dispatch is around less than 3 months. So that's not -- the sourcing of the coking coal is not a problem because there's already a mechanism -- standing mechanism of which we are a member. We just have to put in our demand in 2 to 3 months' time, coking coal can be...

Okay, sir. Okay. And lastly sir...

It's the same source that -- it's the same mechanism that SAIL and RINL used for sourcing their coking coal, the same mechanism.

Okay, sir. And sir, just 1 other question. So I'm just curious, sir. Has the company made any commitments or plans to make any towards trying in the direction of decarbonization? I mean have there been any [ pressure ] from the market?

You see the latest environmental norms, which has been recently revised, for which we have to make additional -- we are making additional CapEx. I think these norms are one of the strictest that's possible, and we'll have to meet them to commission the plant without that -- without the authorities being sure of us meeting those pollution control norms, we'll not be able to commission the plant. So normally, we have already -- it is planned within the execution and commissioning process.

The next question is from the line of Pallav Agarwal from Antique Stockbroking.

Sir, I had a question on the quarterly results. So our sales being higher than the production number, we had a net gain in inventory. So -- or a change in inventory. So was that due to the -- some impact of the additional royalty or there were some other factor?

Yes, yes. That's because of valuation changes. You see, we took the price hike and this 32.5% also came in. So that's -- the book number is because of valuation changes, increase in inventory.

Sure, sir. Okay. Sir, also, so just to understand this. So the realization that we report, so that already includes the royalty, right? So when I'm computing this, say, 40% royalty, so that is already included in our realization...

The realization that we report of INR 6,800 that we have reported this quarter is exclusive of royalty.

That is exclusive of all royalties, sir, only the additional premium that you had?

It included additional premium, but excludes royalty. This -- we have reported the average realization of INR 6,512 -- sorry, INR 6,823 per tonne. Just a second let me find out. Sorry, this includes royalty. I've just seen. This includes royalty and all charges.

Okay, sir. So -- okay. So on a like -- sir, a like-for-like comparison can be made with what you've reported in earlier quarters, so?

Yes, yes. It will be a like-to-like.

The next question is from the line of [ Ritesh Umalkar ] from A1 Investments & Resources.

Basically, the later dated 13th July, we have shared that we are searching for investor to hand over steel plant. Any progress on that? Or any management thought on that?

You see, we and NMDC management is responsible for demerging the steel business into a new company. And once it is demerged, it'll have a mirror shareholding off NMDC. That means that the government of India would own around 60.38% of the shares of the new steel company. Thereafter, the sale of those shares are within the jurisdiction of the Ministry of Finance or DIPAM. We, as NMDC management, is not involved in that share sale, except for the fact that we would be participating in the various road shows, et cetera, et cetera. But the actual disinvestment and -- through the sale of shares would be done by the Ministry of Finance, that is the DIPAM. So that question needs to be addressed to DIPAM. As the management, we have no visibility or no hear on that.

Okay. And I -- as I understand, it's a locational advantage for any buyer to invest in that steel plant. But I would like to know, is there any disadvantage also or any local issues who are opposed to the demerger?

I mean that is very difficult to comment. You see, everybody says that this is a fantastic plant to buy because of steel cycle is at the top. It's the ready-made plant. You invest today, you start producing tomorrow, and it doesn't have any employee baggage or any baggage to be handed over. So it's a clean plant without -- the best modern technology plan without any -- almost without any employees to revive. So it is expected that it will be a very, very hot cake for sale. But regarding local disturbances, well that's a political call of that local area. I'm sure that those who buy will take that into account.

The next question is from the line of [ Anush Jain ] from Globe Capital.

Congratulations on the good set of numbers. Can I have the bifurcation between lump and fine in the total sale?

The rule of the thumb is basically 30% would be lumps and 70% would be fines and it is -- this quarter, I think it is 65%, 35% ;65%, fines and 35% lump. Exact, it will be difficult for me right now. I can't give to you that...

Okay. So on an average 60:40 ratio, we can understand or 65:35, right?

Yes. It is actually 70:30, 65:35, max, not 60...