NMDC Limited (526371) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '20 Earnings Conference Call of National Mineral Development Corporation Limited, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Thanks, operator, and good afternoon to all the participants, and thanks for joining in. We are here to discuss Q2 and H1 FY '22 earnings of NMDC Limited. From the management, we have Mr. Sumit Deb, Chairman and Managing Director; and Mr. Amitava Mukherjee, Director Finance. So without further ado, I'll hand it over to Mr. Deb for his opening remarks.

Mr. Deb? This is the operator here. Mr. Deb, we are unable to hear you. Mr. Mukherjee, can you hear us? We request the participants to please stay connected while we check the connection for the management. [Technical Difficulty] Thank you. Ladies and gentlemen, thank you for being on hold. We have the management reconnected. Over to you, sir.

Okay. So we, at NMDC have put up a very strong performance on the production front in Q2, which is reflecting in the results, which is there. So specifically, Q2 is normally a monsoon month where our productions get affected generally. And this is -- on the user industry also there is a slowdown. But this time, we have performed exceptionally well in the production front, and that is how -- we have just dropped [ a lakh ] in vis-à-vis our Q1 performance. So that has been very good. And that is how our -- if you look at our revenue from operations and H1 results, H1 revenue. So that has been substantially -- it has boosted our performance. To that extent, I think our employees, our stakeholders, and the support of the government, I mean, we have -- there has been good results, which is there to see. So with this, I would like -- Abhijeet, you can start the con call.

Sir, we open it up for Q&A?

Yes, please.

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

Congratulations for a good performance. I have a couple of questions. The first one is on your realization. So if I see blended realization, that has gone up by almost more than INR 700 a tonne despite your underlying prices not going that much. So is there any one-off in the realization that we are missing? Is there some carryover from last quarter?

Amit, this is Amitava, Director Finance. Actually, if you see the average realization has gone up by INR 221 without the royalty, other things, of which, let us say, about INR 100 is far better grade, that is we have got this time more bonuses. So the -- that accounts for about INR 100 despite that going down. Also slime sold in Q2 is about INR 1.3 lakh tonnes less. And as you know, the slimes are generally priced very, very low, at around INR 1,800. So that brings down the average. So that's another reason. And the third is, which is the most important thing is that there has been a deferred lifting of Q1 in Donimalai as compared to the current lifting. So even in the months of August and September, those auctions in the month of April and May when the prices at peak have been lifted. So that is another reason where -- why the average utilization has gone up despite the prices going down in Q2. These are 3 reasons.

Yes. So sir, a follow-up on this. So do you see these lessened slime sales and grade to hold? Is it sustainable or I mean grade can again go down?

Obviously, it's sustainable. Production practice is now being followed. We are concentrating on the quality. So we expect quality to be maintained, and that is why we'll have this bonus instead of penalties. So we'll have more -- we expect this bonus trend to continue. And regarding slime sales, of course, while our first preference would always be to sell [indiscernible] more mainline products, which is the lump sum finance.

Okay. The second question is on your cash balance. So if look at the cash balance netted, I mean, if I include the bank balance and everything, that is around INR 8,800 crores at the end of September. So can we expect some enhanced cash returns to shareholders?

Well, we cannot discuss this on a con call. This is for our Board to take a call. And I cannot preempt the Board regarding cash distribution. You will know about it in due course of time as and when the Board takes a call.

The next question is from the line of Vishal Chandak from DAM Capital.

Congratulations on an excellent set of numbers. So just wanted to understand what is the status of the Nagarnar steel plant demerger?

So this is Sumit Deb here. So the Nagarnar demerger is on schedule. We should probably be doing it in Q4 sometimes. So that's the status currently.

Just a follow up on that. Last time, I think you mentioned that the accounts of the 2 divisions could be presented separately by as early as Q3. So are we on target for that? Or we still have some time or the separate accounts for the 2 divisions, mining and the steel businesses, would be done in Q3 or Q4, sir?

No, you see. I cannot present -- we have -- this is Amitava, Director Finance. You see, I cannot present a separate account unless the demerger actually comes through. So we are expecting it to come through in Q4, and we are fairly on target on that because the stock exchanges, it has been filed. We have not received any objections. We are requesting clearly for that clearance. And once [indiscernible] gives the clearance, we will be on fast track asking the government for holding the shareholder meeting and creditors meeting and all that. So to that extent, Q4 will be done, but the separate accounts can be presented only when the demerger actually takes place.

Great. And sir, my second question was with regards to your expansion plans. So what kind of -- are we sticking on to our earlier projected guideline of about 42 million tonnes this year and roughly about 45% for next year?

So Vishal, we should be able to -- 42 million is something which is doable. And then however, we would intend -- our intention is to do much more than that. So that's something which we are working on.

The next question is from the line of Noel from Ashika Group.

Yes. Actually, sir, I want to add 2 questions. One is actually related to the pellet plant, which is expected to be commissioned in Q3 at Donimalai, 1.2 million tonnes. Is that -- or has it begun production in 3Q, sir, right now? Or is it now in [indiscernible] 4Q?

So this pellet plant is already commissioned, and it is already operating. However, we had some technical glitches there with regard to the beneficiation process. So that has been sorted out now. And this year, we have produced a lakh -- almost 1 lakh tonnes. And hopefully, now we should be able to run it smoothly continuously.

Okay. Okay. And the second question is actually regarding the production target for FY '22. I think last time it was mentioned at about 44 million tonnes. So there has been no revision to that on that side?

Yes. Yes, that's -- generally, that's around 44 million, 45 million. Is that -- what we are intending to do.

Okay. Could I have just like a mine-wise breakdown of that? Because I just wanted to know where exactly is the growth going to come from.

Pardon?

I just wanted to know this 44 million because it is quite higher than the previous year. So I just wanted to know where exactly is the growth coming from?

So in Karnataka, we are restricted to around 14 million tonnes. And the balance comes from Bailadila sector.

The next question is from the line of [ Rishab Dugar ] from CD EquiSearch Private Limited.

I just want to know that is there any scope of improving efficiency of your mining operations by retaining a large part of our annual free cash flows, which is somewhat near around INR 7,000 crores?

This is Amitava, Director Finance. We do have a lot of CapEx planned now. We've got major sanctions over the last 3, 4 months that we conclude INR 700 crores for shifting our crushing plants at deposit potency, another shifting of crushing plant. And then we have [indiscernible] and [indiscernible] coming in. And then we have [indiscernible] pipelines. So we are investing big time into more capacity utilization, both in terms of production and also for dispatches. So there is -- once these things come online, our free cash flow will be used for these major investments that we are planning and which will not only debottleneck our existing plant capacity, but it will also significantly enhance our production capacity in the next 2 to 3 years. By '25, '26, we should be able to see the benefits on the ground in terms of increased production.

So sir, can you give a bit idea about the -- quantify the amount you could spend? Because what I can see that in this half year, you have spent around -- you have done around INR 1,000 crores of CapEx of which I assume that INR 600 crores is for the steel business. For the nonsteel business, it's just around INR 400 crores. So can you -- which is very less compared to the cash flows you are generating. So could you quantify that we can see a change in this balance?

So what happens is that we have just started investing in these facilities, like Amitava has mentioned, whether it's a slurry pipeline or it is our doubling of the [ TK ] line. So these are especially the slurry pipeline, the pellet plant and the other expansion -- mine expansion. So these are just process has started and hopefully, we should be able to see the results in terms of the CapEx spending and enhancement of production capacity in the coming days.

Okay. So sir, you're talking about these processes, which you have just started. So I just want to know that the nature of these processes, is it more focusing on increasing your production capacities? Or is it more focusing on improving the efficiency of your existing capacities?

It goes both ways, both ways, investing in the logistics setup and then evacuation and enhancing the mine capacity, whether it is in -- and then automation power, automation and digitization of the mines. So these are all things which we are focusing on currently.

May I add just -- you see our plants already operate at 95%, 97% capacity. So they are -- it's not that there is any efficiency lag in our existing operations. So these are focused also on capacity enhancement. So we have a new SP3, that is the streaming plant 3, with an investment of around INR 3,000 crores that -- we have already awarded that work. So that will increase trading capacity by 12 million tonnes. So we have all this on the pipeline. And since there is a particular process from sanction to tendering and to actual execution of work, these are at various stages. So you'll see the things coming up from late this financial year and next financial year, where the capacity would be very, very significantly increased.

Okay. So what I can conclude that you are saying that with the current nonsteel CapEx, we will see a change in that and it will be much higher than what it is now?

Obviously, we have just awarded a tender for about INR 1,500 crores for the [ screening ] plant, the third [ screening ] plant. We have got the sanctions for relocating our crushing plant what that will be another INR 1,500 crores. So major CapEx have been sanctioned. Now to take them to the execution phase, [ the government company ] takes 6 to 8 months in terms of tendering in terms of making the specifications, et cetera, et cetera. So once that is done, we will see these effects coming up on CapEx from the next [indiscernible].

The question is from the line of Anuj Jain from Globe Capital.

Congratulations on the good set of numbers. So I just want to know, sir, how is the demand scenario right now? And how it looks going forward? I mean because -- Yes.

The demand appears to be good. I mean, especially in the domestic front, there's a lot of good demand for steel, and that's our user industry. Most of the iron ore goes into the steel sector. So especially in the tractor segment, we see a lot of demand, a lot of pull in that segment. So appears to be good, yes.

Okay. And sir, one more thing. I mean, as we have seen in the last -- I mean for the Q2 in the first 2 months, we have seen the price decline of the lumber declines. And in this month, for the month of -- sorry, for the month of October, we have seen that you have -- there is no decline in the prices, which you have announced this last week. So I just wanted to have some color on the -- what sense of price do you feel going forward? Like the pricing pressure has been -- this has been -- and/or it will still persist?

So what does happen is the international prices have moderated definitely sub-$100. So there, we see some prices going down. But however, the domestic sector is a little different. We -- the demand is there, good demand for iron ore. So we should -- going forward, let us see how it pans out. But otherwise, we see a good demand and prices are being range bound.

So we don't see any pressure on the prices going forward?

Not really at this point of time.

Okay. And one last question, sir. I mean what about this commissioning of steel plant? I mean that we said in the earlier con calls that it will be from Q3. So are we in line with the same?

So the plan for commissioning is in Q4 currently.

Okay. Now it is in Q4? Because earlier, we have guided for Q3.

So what we had said was December, end December, January. So that's the -- [indiscernible] what we plan to do.

The next question is from the line of Siddharth Gupta from Voyager Capital.

Congratulations, sir, on the set of brilliant results. But just carrying forward from the previous question, you did mention that the international pricing isn't really going to affect our outlook. But are we anticipating any change in the outlook that we planned for the year? You said there's no pricing pressure, but obviously, because the price has fallen from $144 at the beginning of September to almost $90 now. And secondly, sir, you mentioned that we are on track to commission the plant and have the [indiscernible] in Q4 happen. But is the plan for the strategic -- are you aware of any plans for the strategic sales processing parallelly? Or is it going to be after the demerger that you guys and everything will be [indiscernible]?

So currently, if you look at the international prices, like I mentioned, they have fallen. But otherwise, if you look at the domestic sector, like I said, the demand is strong. So we should see some effect on the domestic prices also, but then we don't believe that there will be too much of a pressure on prices currently. As far as the steel plant goes, we are currently focusing on the demerger part of it. Obviously, there is some activity on the disinvestment. But then that is something for the government to decide. We are focusing on demerging the company at this point of time.

So my understanding is that you do not anticipate any major effect to your upcoming top line in Q3, Q4 based only on the price falls, other factors effect?

Yes. With the current scenario, that's how it is.

The next question is from the line of [ Amit Saoji ] from [ AV Saoji & Associates ].

Sir, I would like to know is there any dividend policy of the company, which is applied for the dividend payment?

This is Amitava, Director Finance. There is a dividend policy of the government of India, which actually stipulates that PSU should pay at least 5% of its net worth or 30% of its PAT out as dividend. But traditionally, you see the -- our dividend payout, as soon as they have been remarkably higher from the minimum payout required. So we have been in the range from 30% to 60% 4, 5 years back. We would have paid 100 -- more than 100% of our PAT 4, 5 years back. So we are always substantially above the minimum guidance of the government of -- that the government stipulates.

Okay. Okay. And the second question is regarding our Nagarnar Steel plant. What is the total CapEx spent by us 'til date for that plant?

It's around INR 18,600 [indiscernible] approximately.

INR 18,600 crores?

Yes, approximately.

Okay. And we'll be planning to commission in December end or Jan start? That's what my understanding is.

Like I said, in Q4. Q4 is what we are planning.

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

We have been hearing some of the import bookings of iron ore taking place to India. So just wanted to know, will it impact somehow the demand for domestic iron ore as well?

Yes, we are aware of some imports, which are happening. The small -- medium sector, the small and medium sector, they have been importing some volumes. We're aware of that. But currently, we don't see any effect of that on our volumes.

The next question is from the line of Raashi Chopra from Citigroup Global Markets India Limited.

Sir, what is the total CapEx plan for this year and next?

For this year, we are aiming INR 3,720 crores of which INR 2,150 crores is for the steel plant itself. And the rest is for the mining business mostly. And for the next year, we are planning around INR 2,500 crores to INR 3,000 crores. It will depend on how the new sanctions that we have got, how much we can bring it to the execution stage. And the previous question that was asked, INR 18,600 crores was up 'til last year. This year, we have spent INR 400 crores on the cap -- on the steel plant. So the cumulative CapEx of the steel plant is around INR 19,000 crores.

So INR 400 crores is in the first half, right?

Yes. On the steel plant.

So that means for the second half, you're spending about INR 1,700 crores to INR 1,800 crores?

Yes, actually, you see the steel plant, most of the CapEx is related to commissioning and post-commissioning payments. Now the -- almost the entire expenditure is related to setting up the plant is complete. Now once the commissioning starts, so all the payments will get bigger. That is why we are hoping that once the commissioning starts, there will be a deluge of commissioning and post-commissioning payments, because that's how it was planned.

Okay. Sir, just a clarification on the royalty calculation, which is -- I mean which includes the renewal royalty, roughly the number should be about 42% of the -- your ex mine price, right? By and large?

No, it will be around 45%, 46%, 47%, because this 42.5% would be calculated on 1.2 rather than on 1. So there is a disproportionate effect on that. So if you take it to the base side, it will be significantly higher than 3% to 4% or 5% if we are calculating at that rate.

Sorry. So the 22.5 [indiscernible] calculated on what you said?

You see this. Their price is 100. So our royalty is [indiscernible] 120 and this 22.5% is calculated on 120 not 100. So it's actually 100 is because [indiscernible] calculated in 100. So yes, it will be around 43% to 44%.

It is calculated on 100 only you're saying?

It is calculated at 100 only. So the total effect will be around 40%.

So this time around, it's -- I mean…

43%. 43%, 44%.

43% of its [indiscernible] price, right? So this time, if the number seems to be materially higher than that, when I take it on the -- I mean, if I take it on your reported revenue that's come in to 42%, but your reported revenues already include your royalty. If I remove the royalties from your realization, the royalty as a percentage of the realization is coming to almost 53%. So I am just a bit confused on that.

It's coming out around INR 2,700 crores on both royalty and other levies and additional premium it comes to around INR 24 and 24 -- around INR 2,750 crores on the total income of around INR 13,500 crores. So it will be [indiscernible] -- it will not be very significantly higher, I think. And I'll just dig it out. I do not know want your maths is, but around INR 4,500 crores by -- sorry, INR 4,700 crores. INR 4,700 [indiscernible] by 39, that is coming to 35%. And it's coming to 35%, why? Because the original, if you remember the Q1 call, so we had a significant amount of sales from our closing stock, which did not include the additional royalty. So that is why even our Q1 EBITDA was around 66%. Because at that point of time, the significant portion of our sales came from the opening stock, which did not include the additional premium. So to that extent, it has been -- sort of 1 or 2 have been -- the maths has been a little bit skewed.

The next question is from the line of Sumangal Nevatia from Kotak Securities. The current participant has moved out of the queue. We move to the next question. That's from the line of Kirtan Mehta from BOB Caps.

On the nonsteel plant, you have spoken about the capital expenditure on slurry pipeline, the relocation of crusher plant and additionally, a screen plant as well. Could you again run us through, which are the contracts which are already awarded and which are the contracts which are sort of under advanced stages of negotiation? And what is the total amount of awarded contracts versus the total amount of contracts under negotiation? Could you summarize that for us?

You see if you -- let's take the slurry pipeline first. If you are talking in terms of the investments in the mining business, the slurry pipeline is a project of around INR 3,000 crores, of which we have already awarded the contracts worth INR 1,500 crores. They are under execution, including the range of pipelines which is INR 1,000 crores and other ancillary packages of around INR 500 crores. So 50% of them are under execution. And 2 major packages of INR 1,000 and INR 500 crores are in the advanced stage of tendering. So that's the slurry pipeline. The second is the trading plant at Kirandul, which has a CapEx -- which is expected CapEx of around INR 2,100 crores to INR 2,200 crores, of which the major package of INR 1,500 crores has already been awarded, and there was another ancillary package of INR 200 cores, INR 300 crores are under execution. So these are the 2 major ones that are already going on. Then we have the crushing plant and the screening plant -- sorry, the relocation of 2 crushing plants. Each of them will cost us around INR 600 crores. So they have just been sanctioned. And the tendering package is at the very initial stages because this something that is being made up. And so far as the coking coal is concerned, we are going to the NGO route, so there's not much CapEx that is to be happening [indiscernible] should hold up. And so far as the only coal block is concerned, of course, we have got the announcement level, but other BPR, et cetera, we're prepared, and we have to take a call whether we go to the NGO route, then the CapEx would be realized. And if we go to first filing, then of course, it will entail a significant CapEx. But that call has not been taken as yet. Apart from that, we have the township projects of around -- we are replacing a lot of orders in that mine. So that each of them would be around INR 200 scores each where we have -- in one, we have already tendered. In the other, we are process of tendering. So these will see the company execution stage early next financial year. So these are the major big ones. Apart from that, we have a streaming plant [ too ] in results at [indiscernible], which is, again, at the clearance stages. So once we get that, that is another INR 500 crores of projects. But that -- for that, the clearances of the various environmental clearances, et cetera, we expect, are awaited without which we cannot go into the tendering stage.

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

Yes, sir, if you could just give the figure of what was the payout to the shareholders for last year in terms of the buyback and the dividend? What was the absolute number, sir, for the last financial year?

It was around 60% of our PAT, including both. I'm giving you the absolute numbers and just give me one second, I'll give you the absolute number, but it was almost 58% of our PAT.

Okay. 58% of the PAT. And sir, do…

One was 57%, 58% of the PAT on both of these. So in one route, it was [indiscernible], the other was -- No, the buyback was another [ 30 ]. I just don't have the...

I'll do the numbers, sir. But just to take the thesis behind it, is it the same policy that should prevail since the environment has further improved in terms of the incremental cash flow? So...

I will not calculate on dividends and -- these are the domains which are strictly...

It is only an understanding on what the [indiscernible] has been on [ comps ] role earlier. So the same premise should be -- isn't the continued. This is what investors should take into account. That was my reason for asking the same, sir. Coming to my point, second point was regarding this pellet partner, as you have told that the pellet plant would be operational by the third -- by this quarter itself. So what would be the likely contribution from pellet for H2? Since we did some losses, we did make again losses of INR 50 crores for this quarter.

[indiscernible] beg your pardon. The pellet, we have finally sort of made a INR 6 core profit for H1. So -- and as the capacity increases, we expect to exceed that. So we are -- the problem that we were facing, which was hindering the production there is now getting over. By Q4, we should be able to run the plant in full capacity. So we should be able to make around INR 100 crores out of that in Q4. We are able to run the plant in INR 100 crores plus if the prices hold. It depends on the prices, but we should be able to make INR 100 crores plus if the plant and also cold steel in the Q4. We are almost probably technical problem is they are in various stages of testing and proving, but once that's done by Q4. So we expect that for Q4 would be almost INR 100 crores.

Sir, just to relate for this quarter, for the September, the revenue from the segment of pellet minerals and services is INR 106 crores and the CVT loss is around INR 50 crores. So this is mainly attributed to the pellet part only or the other minerals and services, other ones?

We have diamonds when we make a lot of -- because that money is not approval already. So that is around diamond, we a loss of around INR 30 crores a year. So that will be INR 15 crores for the quarter. And we have [ Kalana ], which is again a nonoperational plant where we make an annual loss of [indiscernible]. So that is another INR 3 crores to INR 4 crores of quarterly loss. So [indiscernible], other business losses are contributed by the diamond business, which is the [ mining ] opportunity, of course, and this business, [indiscernible].

This legacy loss will continue going forward also?

Yes, we do not see visibility of the diamond, although we are just processing it very strongly, but there are regulatory and the policy clearances that are due, we cannot divide -- like approvals are required. So once that comes, we'll be able to start to [ return ] that.

And one more point on the tax rate.

Pardon me. This is the operator.

Yes, ma'am. Okay.

Will you please rejoin the queue.

Yes, yes, yes. Okay. The tax rate part if I may ask?

Tax?

The tax rate for us, sir? What is the tax we are paying for this year? And since -- if I look at the cash flow, the total tax outgo is to the tune of INR 1,830 crores. So if you could explain as it is account for which year? Previous year or [indiscernible]?

This is the operator. Mr. Kapoor, we kindly request you to rejoin later.

Yes. Yes. Yes. I've asked my question, ma'am.

You want the basic income tax outflow, right?

Yes, sir. Yes.

So with -- part of it is for last year. But our average rate of tax would come to around 26%, 27% of tax.

We have the next question from the line of the Ritesh Shah. [Operator Instructions] Ritesh Shah from Investec.

In one of the prior questions, you indicated that there have been a few import shipments on iron ore. Sir, just wanted to understand what is the reason behind this? Is there not adequate supply locally? What will be the motivation for a larger mill or even for a smaller guy to actually import the material but in [indiscernible] for good quality and a better price locally?

So from whatever we have heard currently -- so these are some host pace steel small [ jarring ] plants who have imported some lumps, which are coming in from Kumba and South Africa. So apart from that, we don't see any other major imports currently you're not seeing.

Okay. And sir question, can you just help us refresh on the demerger time lines? Basically, earlier, you had indicated the process on the time line. If you could just help refresh that, that will be quite useful.

The overall time line generally is around 6 to 8 months. That is what our consultants say. So we are almost halfway through because the first activity, as you know, is filing with stock exchanges, our scheme. And receiving complaints from shareholders if they need to and then answering to them. So we had the [ fight which ] was the BSE and SPN [indiscernible] around 2 months back. Fortunately, none has been received with no objections of companies have been received. And now we are awaiting SEBI's nod. Once we get SEBI's nod, then the other processes kick in. That's when we ask the government of India, the MCA to allow us or to dispense with the holding creditors' needs and then holding the shareholders' needs, so that will take about a month at least because it's a 31 days' notice. And once that is done and then we go back to the stock exchanges, and that should take another month. So we had another 3 to 4 months way ahead. So we expect once SEBI approval comes in, and which could be any time because it has been signed of study some time back. So it will be -- after SEBI approval, it should take around 4 months to 5 months. So currently, we are in November so by the end of FY '20, between February and to April, and we should be able to do the demerger process.

The next question is from the line of Sagar Gandhi from Future Generali India Life Insurance.

Sir, my question pertains to royalty. So last quarter, you had some sales or offtake from the closing stocks. In this quarter, there was no such thing. Can we assume that royalty as a percentage of sales, what it was this quarter? Will it remain in that range for subsequent quarters?

Yes, more or less. That would be the [indiscernible].

The next question is from the line of [ Ajay Jain ] from [ Amacas Invest Private Limited ].

Sir, congratulations on a great set of numbers. Just wanted to ask you, there was a little bit of extra expense this time. The sales were more or less the same, but the operating expenses went up. So just wanted to understand why exactly that would have happened.

From quarter-to-quarter?

Yes. Quarter to quarter, sir.

Yes. That's because of stock adjustment because -- that's because of -- if you see, it's 1 to H1. I'll just come to the expenses. Our operational expenses H1 to H1, just a minute. You are saying…

About INR 600 crores, it has gone up.

Yes. This is basically stock adjustment. If you see with Q1, our opening stock was -- if you remove the stock adjustment, then it is of -- the Q1 expenditure was [ INR 1,930 ] crores and Q2 expenditure is [ INR 1,052 ] crores. But in Q1, we had a stock adjustment of INR 556 crores. So that is why the net expenditure was INR 377 crores. And Q2, the gross expenditure was INR 1,052 crores, and we had a stock adjustment of INR 72 crores. So the operational expenses was being shown as INR 980 crores. This is the only reason of around INR 600 crores was because of stock adjustment.

Okay. Okay, sir. And in the last conference call, in fact, you had given a proper time line of the sale demerger. So if you could just give a little bit of flavor use -- I'm sorry, you've already said it 2, 3 times. But if you could just give a little bit of flavor in the next 3 to 4 months. You're saying it will be completed in 4 to 5 months. But in the next coming 1, 2, 3 months, what could be the possible next hurdle that we could face or the next milestone that we have to complete?

Next milestone is obviously SEBI approval for which we have already discussed with SEBI. Now we cannot speak on behalf SEBI when the approval comes through. But once it comes through, the next milestone is approaching the government for dispensing with or our holding creditors need an EGM to get the scheme approved. So as you know, it requires a notice of 21 days, et cetera. So I take it that once SEBI approves. in about 45 days' time, we'll be able to hold the creditors need and the EGM. Now once that is done, we then again approach the stock exchanges and SEBI that it has been done. And once SEBI again approves that, we go back to the government for the necessary notification, et cetera, et cetera. So that's 3 major milestones.

The next question is from the line of Pinakin from JPMorgan.

Maybe you would have answered this question earlier and apologies for asking it again. We are running at around 8.5 million to 9 million tonnes per quarter of iron ore production and broadly sales. Going forward, sir, for the next 2 years, what kind of volumes do you see in terms of production and dispatches?

So currently, we are doing around 8.5 million, 9 million -- around 9 million. 9 million is what we did in Q2 and Q1 is around that we have done. So going forward, definitely, the H2 is much better traditionally than the H1. So like I mentioned, we should be doing around 44 million, 45 million tonnes in this year and in the next year, probably around 50 million tonnes is what we are targeting. So these are things which -- production targets, which we have in our mind.

Sir, just to labor this point slightly more. For the last 4, 5 years, iron ore production for NMDC has been 32 million to 35 million tonnes. So when you go from 32 million to 34 million, and 10 million tonnes incremental iron ore production, a lot of steel companies have started getting their own captive mines, ArcelorMittal, in India, JSW Steel. And while we have had iron ore disruption from the state of Orissa, once it normalizes, then how easy or difficult it would be for the company to place this additional volume? Do you see that effectively as your customers start mining -- ramping up their captive mines, domestic iron ore prices should come further under pressure?

No, I do not see -- currently with these levels of volume, we are assured of offtake so we are secured in terms of the current production. So we do not see any major disruption in sort of these volumes. So up to this point of time, really up to 50 million tonnes -- and then we have the option of going in for exports also. So that's always there.

Understood. And sir, lastly, just to understand on this 44 million tonnes What will be your royalty? Just a clarification on the royalty point -- Just clarification on the royalty? What will be the percentage of volumes which will have the higher royalty on the 44 million tonnes?

Except for 7 million tonnes, which comes from Kumaraswamy mine, which has not been -- come under renewal as of now. So this financial year, the additional royalty will be applicable to the entire production, except 7 million tonnes which will come from Kumaraswamy.

The next question is from the line of Abhijeet Bora from Sharekhan.

Yes, sir, I had only one clarification that you mentioned that INR 200 per tonne of incremental realization was on the back of improved rates and lower sales of line. So this is sustainable going forward to build in the EBITDA margins?

Beg your pardon. Once again, please, I didn't understand your question.

In the initial remark in one of the questions, you mentioned that from the further incremental blended realization improvement on a sequential basis, INR 100 per ton is on the account of your improved grades and remaining from a better product mix. So is this sustainable going forward like one should build that this will flow to EBITDA going forward also or this is one-off in this quarter?

Yes, yes [indiscernible] Last year, we sold about 1.4 million tonnes of [indiscernible] in a total production of 34 million tonnes. Now we do around 44 million, 45 million tonnes this year. I don't think our client sale is going to at all increase more than that. In fact, hopefully, it is going to be lower. So naturally, the product [indiscernible] is average realization would be much higher that way because of product mix.

The next question is from the line of [ Amit Saoji ] from [ AV Saoji & Associates ].

Sir, you have mentioned that the EBITDA margin is 47% for the Q2. Any guidance you can give this margin? Can we maintain this margin for next half year also?

Yes, the price is sustained, and it will be around -- just hang on. It will depend on the prices being sustained which we hope and which we expect that these prices would sustain. And if that's the case, the EBITDA will be around this because it's a fixed cost industry, there's not likely to be much increase in the cost of production, the steel and cost of production with increase of volumes. So we do expect to be around this range.

As they are considered royalty impact also in this?

Yes, yes.

The next question is from the line of Vishal Chandak from DAM Capital. As there's no response from the current participant, we move to the next question from the line of Monika Bajaj from SteelMint.

Sir, I just wanted to ask that in the last con call, you had mentioned that the coal mining operation would start to happen towards Q2, Q3. So are you like in line with that? Or are there some changes?

So we have 2 mines there. We have been allocated 2 mines in Jharkhand. One is in Tokisud and the other is Rohne. So Rohne, the formal clearances are yet to come to. The Tokisud is already there. However, the final clearance is awaited with the government of Jharkhand. So we are expecting it to come very soon. So once that comes, then our MDO is already in place. So we'll be able to start quickly.

So sir, like we can expect by about Q3, Q4 that could be like started?

I wouldn't like to speculate, but should happen.

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

Sir, just a small clarification. If you look at the line item selling expenses, including freight for the first half, the last year was around INR 245 crores. For this year, it is INR 102 crores. So what explains this drop, sir?

Because there is no exports. So we sell to our domestic customers, that's why. So the entire logistic cost to railways and other is borne by them. But in case of -- in case of export systems, I have to take it FOB by that. So that bit of expenses used to be ours but since there is no export, there's a significant drop in selling expenses.

Okay. Sir, currently, the iron ore index is holding below $100. So taking that into account, the import parity price for the country was at what level? And we would like to know whether we are still selling below the import parity prices, our benchmark?

So currently, yes. Currently yes. However, let us see, I mean, going forward, our Chinese -- with the Chinese buying not there in the market so the prices are down. But going forward, let us see how it works out.

[indiscernible]

So with the current import parity prices, our prices are at 20% -- 15%, 20% discount.

Discount. And lastly, sir...

So at the East Coast.

On the East Coast.

The next question is from the line of Noel from Ashika Group.

Yes. Actually, I just -- I don't know if this question has been answered, but I just wanted to know. So when we have said that the realizations have improved quarter-on-quarter due to better grade. So what exactly is this -- is the definition behind the improvement in the grades? Because previously, you had mentioned that in the previous quarter, the company was being penalized for meeting the grade requirements. So what exactly -- how exactly is it calculated? Could you perhaps [indiscernible]?

You see the -- when we sell, there's a declared grade. So if I sell at 45%, so there's a decline there canceling this 55% as the prices are set accordingly. Now, if they actually -- the grade is 66%, I had a bonus. If it is 45%, then a financing is charged on me and the customer pays that. But if I sell a higher grade, when it comes out of the chemical testing that this is actually 66%, then I charge the customer extra. So that's called a bonus. So this time, significantly our production quality has been sustained very well. So our actual grade has been more than our declared grade at the time of sale. So that is how around about INR 100 per tonne there has been a realization.

So what happens really is that we are -- I mean, the effort is to improve sell the higher grade rather than 60-plus grades rather than trying to. So we are investing in machinery and other processes, which improve our grades. So doing waste mining to ensure that the mine paces are well exposed. So that we have good grades.

Okay. So just to understand, this is mainly related to the ferrous content and not something like, say, a high sulfur on your sulfur? It's mainly on the ferrous content, right? I'm sorry, I didn't get that part.

Yes.

The next question is from the line of Venkatesh Subramanian from LogicTree Investment Advisors.

Sir, can you give us -- just 2 quick ones. For FY '23, you guided for a volume of -- is it 50 million tonnes or 54 million tonnes? Could you just clarify on that, sir?

Currently, we are aiming at doing 50 million tonnes.

Okay, sir. And second, could you give us -- throw some light on that you expect the iron ore prices in India to prevail over the next year, sir? Some sort of an idea based on your internal assessment?

We can't really speculate on the prices going into -- this being a commodity product. And obviously, international -- the domestic prices are not linked to the international prices, but they do have an effect. I can't really speculate on the prices at this point of time.

Sir, but to maintain our current profitability, what is the level that would be good for us, sir?

The -- as compared to last year?

No, the trends, sir. Compared to the recent quarter, what would be the weighted average price that you would look forward to for next financial year to maintain the current level of profitability, sir?

Well, the current level of prices would more than sustain us to maintain our profitability.

And would you put a number to that, sir?

The current level of prices, the average is around -- including DMF, [and immediate supply ] is around 60 -- 6,000 and…

6,000.

700 and 6,500, total [indiscernible]?

INR 6,700, sir? Yes?

Including [ loss ].

When you include it with the -- that includes royalty, DMF [indiscernible].

All included INR 6,700 crore. Okay. Okay.

And that's the average, the lumps and the [indiscernible].

So anything on top of INR 6,700 crores that we get for next year is going to be an addition to the profits, basically?

Yes.

The next question is from the line of Kamlesh Bagmar from Prabhudhas Lilladher.

One question on the side of steel plant commissioning. So we are guiding in Q4 for the commissioning. But I believe that still we have not fired even the coal plants. So what is the time line? And what's the realistic time line on the commissioning of the steel plant? Are we saying just a part of the plant getting commissioned or it's an integrated commissioning?

Normally, it's an integrated commissioning only is what we would look at. So -- and like we mentioned, it is -- we are targeting Q4 for starting the plant.

And sir, what's the status of various other plants? Like your Coke Oven or like the other segments which we are planning to commission?

So what happens is the Coke Oven is ready. Coke Ovens are ready for pushing. The heating has to start. We will start the heating in a couple of days. And then the other packages, the blast furnaces, the cement, they are all ready and the slab caster. So those mills are already at quite an advanced stage. So we should be able to commission the plant.

And secondly, on the side of service discount to import parity prices at the East Coast. 20-odd percent, which we are telling. So like I said earlier, it used to be around 45 -- or 40% to 45%. So what particular discount are we comfortable with? Because now the imports are again coming back and some cargoes have been booked. It's just more of a practice to keep the pressure on the domestic prices. So what level of discount we are comfortable with?

Anything between 10% to 20% is -- we're comfortable with that.

Okay. And sir, lastly, as compared to the quarter average, I believe the current realizations are down by roughly INR 1,000 odd per tonne. So is this particular conclusion correct on the pricing side or on the realization side?

Beg your pardon?

Your current realizations are roughly around INR 1,000 to INR 1,200 lower compared to the quarter average. And I think...

Previous quarter is it?

Yes, yes. Previous quarter.

No, it's actually INR 600, but if you take off the -- if you were to use the royalty, et cetera, on the basic price, it is around INR 120 to INR 250. And I had said that these are because of 3 reasons: one, is, of course, that we are selling better grades because of the bonuses that we have received as compared to Q1; second, the contribution of slime total sales is less; and the third that in Karnataka, Q1 auctions that the April, May auctions have been picked up in Q2. So they had bought in April and May, and the actual dispatch took place in July, August. So that is the 3 reasons why approximately INR 250 on the basic price there has been increased.

No, sir. I'm not talking about the September. I'm talking about the quarter average.

Yes, I'm talking about quarter only. Because Q2 average realization domestic was 7444. At Q1, it was 6813. So that's around INR 550. So if you leave out the royalty and additional royalty corporate out of it, on a basic price to basic price, the average realization, I'll just tell you both the figures. Just give me one second. The Q1-to-Q1 prices were…

I'm talking about the current realizations, current, which we are getting in October and/or November.

Oh. The current realization is slightly lower than the Q2 average.

The next question is from the line of Vikash Singh from PhillipCapital.

Sir, I just wanted to understand your expected sales loss, we have been getting accumulated with the Karnataka government. What is the amount as of now? And any update on the mix sharing?

The amount is -- the accumulated [ ACM ] that we are due to get from the monitoring committees around INR 2,600 crores as of now. Now -- But unfortunately, this will require a Supreme Court hearing to get this money from the inventory committee. And we are actually pursuing it with the Supreme Court. Unfortunately, we've not been able to get a date. As and when the matter is listed, I think in a hearing -- in 1 hearing or 2, we should be able to -- we are optimistic that we should be able to get the Supreme Court clearance that is required to get the INR 3,600 crores released from the monetary committee.

Understood. So my second question, [indiscernible] plant, since the commissioning date is now just a quarter away, considering as long as we are not selling, how are we planning to upgrade it? I wanted to understand in terms of our targets in terms of next year production as the sales [indiscernible] and the other personnel are in place. So what is our plan there in terms of our readiness in terms of if we have to operate since we have a little bit of less basically of managing the business at this point of time?

So what we have done is actually we have tied up with, I mean, MECON. So MECON is our consultant, EPCM consultant. And they are also -- they will go in for contracting people and hiring people, and that's how we intend to run the operations with -- in association with MECON.

So at this point of time, the entire teams are not have been finalized?

So yes, we -- MECON is going to do it. So they have already started the process. So I think they will be in place in the next couple of months.

And any update on the possible production next year?

Not yet.

[indiscernible] production?

No, I mean, we'll have to -- this will be -- I mean, this will have to be ramped up to 66% initially. And then after that, we'll go into full production. So I can't really tell you the numbers or the volumes, which will happen.

The next question is from the line of Abhijit Mitra from ICICI Securities.

I have a -- just a question on the royalty. If my understanding is right, for the [indiscernible] price is 100. The royalty should be 42.5%. So realization is 142.5. And then royalty is 42.5%. So your ideal case, even when the entire Karnataka comes under this royalty system should not be more than 30% of realization, isn't it?

No, no. I think your understanding is not very correct on that, unfortunately. Our declared price is 100, and then the royalty on that is around 15 and [ deal is delivering ] another 4.5%. So it comes to 20.2% or 21%, depending on whether it is in Karnataka or whether it is there. Now in Karnataka, the DFL limit is not a part 2 item. It is paid from our profit. And this 22.5% is also included in that INR 100. So that is also paid from the pocket. So if I take the overall realization for the customer, we think [indiscernible] will be around INR 120. So it will be around 44%, 45% of that INR 120.

But essentially, the base price would reflect this, right? I mean you will try to pass it on and then accordingly, the base price should come down. I mean, isn't that where the convergence would be or?

This was introduced in April this -- 28th of March actually, let's take it was effective from April between 2% and 2.5%. So we have taken 2 or 3 very significant price hikes as at that point of time, which almost inclined to be net effect of the finances of an NBC. But thereafter, it has been at market determined prices. They had been -- then thereafter, the price movement would depend on various market forces and not only this one. So -- but the -- in percentage price, you -- for now, call it 43% to 44% would from the entire collection would go to the government as royalties [indiscernible] would be and as the premium -- additional premiums would already go to the product.

The next question is from the line of [ Amit Saoji ] from [ AV Saoji & Associates ].

Sir, do you have any area or can you show any light on the possible impact of China pulling down steel production? So can India can fill up the gap or India can get more orders for that?

So obviously, now since China is not exporting, so there is a gap, and that's how we have seen exports going up from India currently. So in any case, it will entirely depend on the strategy, what China does at that point of time because they are a significant player in this sector.

India is getting benefited out of that?

Yes, yes. Yes.

The next question is from the line of [ Anmol Das ] from [ Systematics ].

My question is on this [indiscernible] steel plant. So are you going to have any exclusive contracts or resourcing of raw materials with -- regarding the iron ore as well as the captive coal mine also?

The [indiscernible] steel plant does have any sort of captive mines. So there will be -- and NMDC will supply the iron ore on an arm's length pricing basis. However, having said that, we would enter into a sort of a long-term agreement with the steel plant for quantity-based contracts. So that's on the iron ore front. The other [indiscernible] will have to be purchased as do other steel plants.

And we can expect this demerged steel business to be listed by end of Q4 on a broad base?

Yes, yes.

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

First point was about the fact that are there any talks of ban on export of steel scrap Europe? And what could be impact on the iron ore market in particular? And secondly, sir, on the slurry pipeline commissioning, what is the time line? And what are the benefits that we are going to accrue over a period of time?

So I'm not aware of any sort of ban on this European scrap. So can't -- won't be able to comment on that. So the other thing is about the slurry pipeline. So currently, our -- most of our material moves on rail on the K-K line. Obviously, we are doubling that line so to increase our evacuation capacity. But the slurry pipeline which we are building from Kirandul to Visakhapatnam, first phase is up to Nagarnar and then down to Visakhapatnam. So this is a 50 million tonne per annum pipeline.

The cost savings, if you could quantify what would be the savings annually post this commissioning and the time line for the [indiscernible]?

So the slurry pipeline is expected to be commissioned somewhere in FY '24 and -- the first phase of the slurry pipeline. And the second phase, obviously, it will take another couple of years more. The other thing is, obviously, there is a huge amount of cost benefit while moving the material to slurry vis-à-vis through rail, a huge amount of difference.

This is the [indiscernible] to Vizag.

So Vizag from our Bailadila sector, the total freight by rail is somewhere around INR 1,200. And by slurry pipeline, it takes hardly INR 200.

The next question is from the line of [ Rohan Dubry ], an individual investor.

Sir, I would like to ask that what are the measures taken by our company towards climate change? So that being said, what are we giving back to the nature as we are extracting iron ore from ground, sir?

So the company has embarked on this ESG thing. We are starting this ESG journey and working on sustainability goals. Also environment, we do a lot of activities in terms of afforestation. We have our mine closure plans in place. So there's a huge amount of work which goes on in terms of our CSR activity also. So environment is something which we always are -- is on priority. If you look at our mines, I mean each of our mines category are 5-star rated mines where environment is a major factor. So these are -- and we have been consistently receiving awards on our -- on the environment -- on the work which we do on the environment front. NMDC is actually one of those miners who have always invested in the environment and our stakeholders who are presently there with us in these regions.

The next question is from the line of Sagar Gandhi from Future Generali India Life.

Sir, my question pertains to -- sir, you highlighted in earlier questions that Kumaraswamy mine 7 million-tonne offtake will not be under the new royalty regime. So from when this new royalty deal will kick in for Kumaraswamy mine?

Kumaraswamy mine is due for renewal in 2023, sometime in, I think, '22. It is into October, I think it's October 2022 it has been everyone. Once the renewal is made under this guideline, there are some little entails this traditional royalty of that 7 million tonnes.

Okay. So sir, the current royalty as a percentage of sales, which as on Q2 stands at 40%, with Kumaraswamy are also getting in this, it will go higher.

That's for the next financial year. That will happen only in the next FY '22.

Yes. In the next financial year, but that understanding is correct? Right?

Yes, half of this financial, it will be affected. The other half will not be affected. So as you see, the full set will come from the customer at that point. That is the final deal.

Okay. And sir, with these debottlenecking projects going through over the next 2 to 3 years, what will be the production capacity? So you guided 44 million tonnes for this year and 50 million for next year. So for '24 and '25 NMDC's production capacity, will it go to 55 million tonnes, 60 million tonnes per annum?

Yes, yes, yes. It is currently with the sort of -- I mean there's the recent guidelines which have environmental guidance, which are also there. So we will be able to mine the -- the [ EC ] capacity goes up by 20%. So finally, we aim to do around 70 million tonnes [ EC ] capacity. We want to read that figure.

That should be by '24, '25?

'25.

Ladies and gentlemen, this was the last question for today. I now hand the conference over to the management for their closing comments. Over to you, sir.

Thank you. It has been a pleasure answering their questions. NMDC, as usual, we are determined to enhance our capacities and add value to this -- the nation's cause of self-reliance. And to that extent, we are determined to ensure that our production capacities go up. And as usual, you would have seen that our Q2 has been exceptionally -- we have done exceptionally well. I mean these are the figures which we have last achieved in 2012, so quite exceptional performance from our side. And we aim to sustain these sort of results. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of ICICI Securities Limited, that concludes our conference call. Thank you for joining us, and you may now disconnect your lines.