Sarda Energy & Minerals Limited (504614) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Sarda Energy & Minerals Limited Q2 FY '22 Earnings Conference Call. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pankaj Sarda, Joint Managing Director, Sarda Energy & Minerals Limited. Thank you, and over to you, sir. Ladies and gentlemen, the line for the management is disconnected. Request you all to please stay online while we reconnect them. Thank you. [Technical Difficulty] Ladies and gentlemen, thank you for patiently waiting. The line for Mr. Pankaj Sarda has reconnected. Thank you, and over to you, sir.

Thank you. A very good afternoon, everyone. I extend a very warm welcome to all of you to the Q2 FY '22 Earnings Call of Sarda Energy & Minerals Limited. Our press release and investor presentation containing details of performance has been uploaded. Today's discussions may include forward-looking statements which must be considered in conjunction with the risks that industry in general and our business in particular face, and actual results may vary materially. The quarter gone by has been good for metal industry in general. Average sales realization of different steel products was broadly in line with first quarter. In case of Ferro Alloys, average realization improved from INR 84,000 to INR 96,000 and so the profitability, which is reflected in the segment performance. We have exported 24,000 tonnes -- metric tonnes of Ferro Alloys during the quarter against 10,000 metric tonnes in Q2 FY '21. We have always focused on ESG and invested in green energy and waste recycling. Today, our green energy generation capacity exceeds our thermal power generation, and we will continue to invest in green energy in the future. The Rongnichu Hydropower Project, which commenced commercial operations from end of last quarter, operated satisfactorily and generated more than 205 million units in this quarter. Provisional two-part tariff has been approved by the regulator for the project. Based on the provisional tariff, we have earned revenue of INR 128 crores in the quarter. The mining lease of the Gare Palma IV/7 coal mine has been granted on 18th October 2021. The company is in the process of getting mine openings and other permissions and execution of necessary documents. We are making efforts and are hopeful to start coal mining in this month. We are also participating in auction of iron ore mines announced by state governments. The Ferro Alloys expansion project at Vizag is expected to be operational ahead of scheduled commissioning of March 2023. The 25-megawatt Rehar hydropower project has achieved financial closure. The firm has started awarding contracts related to the project. We expect to complete the project before end of FY '24-'25. Mr. P.K. Jainji will brief about financial performance and position of the company.

Thank you, Pankajji. The company has achieved highest ever quarterly consolidated revenue of INR 1,025 crores during quarter 2 FY '22 against INR 832 crores in quarter 1 and INR 548 crores in quarter 2 of the previous year, registering a growth of 23% quarter-on-quarter and 87% year-on-year. Commercial operation of Rongnichu Hydropower Project has also contributed in improved financial performance of the quarter. The company has reported EBITDA of INR 440 crores during the quarter against INR 268 crores in the previous quarter and INR 157 crores in quarter 2 of the previous year. The company's profit after tax at consolidated level stood at INR 256 crores as against INR 168 crores in previous quarter and INR 84 crores in quarter 2 FY '21, resulting into earnings per share of INR 71. For the quarter under review, ore segments did better than the previous quarter [ sales ] position. At the stand-alone level, the company is net debt-free. As on 31st -- 30th September, bank balance and liquid investments stood at INR 360 crores. Term debt net of cash and current investments stood at below INR 1,200 crores. And net of loans given, it stood at INR 930 crores. Loans repayable within next 1 year is INR 120 crores. The company has persuaded lenders to accept prepayment and hence prepaid most of the loans falling due up to 31st March '22 without any prepayment penalty. Ongoing CapEx have been financed from internal accrual. CRISIL has changed the outlook of company's existing credit rating of A positive -- A+ from stable to positive and also upgraded credit rating of Sarda Metals by one notch and changed the outlook also to positive from here. Now I request Shri Manish Sarda to brief about global and domestic industry scenario and also industry outlook.

Thank you, Mr. P.K. Jain. The infrastructure push at global level to boost GDP has generated demand for steel and other commodities. Production cut to contain emission and de-incentivization of exports implemented by China have further increased global demand-supply gap and in steel boosting prospects for Indian exports. India exported 5.99 million metric tonnes of steel in this quarter against 4.76 million metric tonne in quarter 1 and 5.44 million tonnes in quarter 2 '21. The apparent consumption was down from 24.96 million metric tonnes to 24.16 million metric tonnes quarter-on-quarter due to seasonal effect but rose year-on-year from 23.60 million tonnes. The prices of iron ore pellet corrected on reduced demand from China. The price of finished steel remained firm on account of increased input costs, mainly coal and coke. Strong export demand enabled the producers to pass through the increased cost. On back of increased energy cost and demand from steel industry, prices of Ferro Alloys have touched record highs and are expected to remain at elevated levels in the near term. The export of Ferro Alloys has been increasing month-on-month from April 2021. Improved performance of Ferro Alloys has contributed in improved financial performance of the company. The price of iron ore pellet has fallen due to poor demand from China, but price of coal, coke has moved up substantially, resulting into elevated cost structure and higher prices for finished steel. The supply of coal against long-term linkages is also abnormally delayed, putting pressure on availability for the steel industry. This situation is expected to continue in near future. We have taken necessary steps in advance to ensure uninterrupted availability of coal and coke for our requirement. Profit margins have shifted in downstream projects. The increased demand has balanced domestic demand-supply of steel and Ferro Alloys which should enable stable capacity utilization and improved pricing. On global supply concerns, prices of steel is expected to remain firm. Ferro Alloys prices have firmed up substantially, and near-term outlook is also positive. Globally, many producers have cut their production due to high cost and nonavailability of power at viable price. Though incremental benefit will partly be negated by increased coal and coke prices, still this segment should perform better in the near future. From November 2021, all Ferro Alloys furnaces in Raipur will become fully operational. Due to shortage of coal and other sources of energy, the world, including India, is facing power shortage. However, we are forced -- we are assured of uninterrupted coal supply at reasonable cost from our own captive coal mines. Sale of surplus power may also give additional revenue to Sarda Metals in the current quarter. This is all about the performance and outlook. And now we leave the forum open for questions from the participants. Thank you.

[Operator Instructions] The first question is from the line of Subham Agarwal from Aequitas India.

Congratulations once again on a phenomenal set of results. My first question was related to the Ferro Alloy division. Given that we have seen a significant spike in cost in the last 1, 1.5 month, what is the current cost of production of Ferro Alloy for us?

Jain, sir, would you like to answer that question?

Yes, I'll take the question. Present cost is somewhere about INR 90,000 a tonne.

Okay. So basically, what I'm trying to understand is given the realizations have also firmed up and our cost of production has also increased substantially, last quarter, if we see our average EBIT was somewhere around INR 33 -- INR 33, INR 34, so can we expect similar or better EBIT margin in the current quarter or where is it heading?

We should be able to maintain our margin to that level.

Okay. Fair enough. Sir, secondly, my question was on hydro project. So in the opening remarks, sir did mention that total revenue contribution was around INR 128 crores. I wanted to understand what was the EBIT contribution from this Sikkim new power project? And we have also seen a significant spike in trade receivable by almost INR 190 crores. So was this because of the Sikkim project? And if so, what is the terms of receivable for this segment?

Yes. The EBIT margin from Sikkim Hydropower Project is INR 103 crores. And what you are saying is correct, the receivables have gone up on account of the Sikkim project because [Technical Difficulty] provisional tariff was approved in September end. Therefore, the invoices were raised only subsequent to that. And the payment is falling due after a given period of the credit. Therefore, as of 30th September, the trade receivables have gone up on that account.

Okay. So can we see this improving going forward or this will be maintained? Like this will be the level of receivables?

No, it will improve because this time for the whole quarter payment was due. Now always it will remain for 2 months or so, and it is again a seasonal effect. During rainy season, supply is more and subsequent to that it goes down to -- it will fluctuate, but it will go down from here and for 3 months [indiscernible] credit period is 2 months.

Okay, 2 months. And in the month of October, all around India, we saw increase in rainfall by around 33%, if I'm not wrong. So I wanted to understand where -- we were positively impacted by this. And the December quarter, will it be better than normal quarter that we have observed?

Last year also, I think there were rains in October. So definitely, overall season to season, it may vary, but if you see [Technical Difficulty] compared to the normal periods. But I think if you compare with the previous year, I have to check. So far as I remember, I think last year also we had some rainfall in October. There was delayed rainfall.

All right. And lastly, on the coal part. So given that we are starting coal mining this month, so -- and the prices of coal have substantially gone up, I remember in a few calls before you mentioned that per tonne benefit that we'll get will be around INR 1,000. So now that the coal price has substantially increased, how much per tonne will we be benefited in the current cost regime?

No. You see prices have been fluctuating. There has been sharp rise, then there have been some fall in the prices. Yes, margins will improve from here, but quantification will be very difficult at this moment. Yes, there will be improvement in our margins.

So we can consider by -- from December onwards, we will have coal supply from our mines for the 4 months this year?

Yes.

[Operator Instructions] The next question is from the line of Chetan Shah from Abakkus AMC.

Just one question, sir, from my side. Seeing the sharp volatility in the steel price and both iron ore and coal and also the pellet, could you just give us some sense of remaining 6 months, how do you see the pricing behaving and how is the demand getting impacted because of this? One is that. And second, on the Ferro Alloys side, such a continuous increasing in the price, is it getting any effect on a demand from our customer, both domestic and global? If you can give us some sense on that, please.

Manishji?

Yes. Okay. So first of all, let me tell you that we are in a commodity bull cycle. And a lot of it has also been there because of the Chinese policies on the cutback of production, pollution control, illegal mining and also that they are not going to at least push the production to their highest levels which we were used to seeing in the last so many years because of the Winter Olympics also being there. So all in all, what has happened is there has been a strong deincentivization in terms of policies in China. Also, a lot of production cuts have happened across Europe because -- in the Ferro Alloys, specifically in the Ferro Alloys sector, because of high gas prices. Crude prices have also gone up. The freight prices have also gone up globally, whether it is bulkers or containers. And we have seen the crisis of the supply chain system across the world. Apart from this, we have seen 2 years of COVID, which we saw was lackluster in terms of productivity because of manpower issues. And now that has all slowly dissipated. And now we are seeing the productivity has improved everywhere. The demand for Ferro Alloys has also increased. The demand for steel has also increased. And the export markets for India has opened up big time because of China's absence. So all in all, this will continue at least in the near term, we feel, for 6 to 8 months for sure. Now price volatility, as we speak, as Ferro Alloys prices have peaked, steel prices have also gone up. But again, we saw today morning that all the major steel producers, JSW, SR increased their flat product prices by INR 3,500. What realizes in the market in real terms will be seen in the next few days, but definitely a price increase is there, whether it remains at INR 3,000 levels or INR 3,500 levels is yet to be seen. Now what we see also is that world over, the productivity for all other things has gone up, but still there is a shortage of lot of products. And overall, default growth has to be there because of 2 years of lackluster productivity due to COVID. So we are very positive in terms of steel markets that steel markets will remain firm. Coke and coal prices have corrected a bit, but they will still remain elevated for the next 3, 4 months. Ferro Alloys prices have also corrected a bit. It had gone up to USD 2,000 levels. In terms of rupee levels, it had gone up to INR 140,000. It has corrected to some extent, and we were expecting this correction, which is very normal. But all in all, we feel that the steel market, the Ferro Alloys industry and the commodity cycle in general is going to be firm for the next couple of months, at least 6 to 8 months, that's what we think.

Sir, just one last question from my side. In terms of last 3 to 4 quarters, we were hearing lot of logistics-related issue in terms of not just for our business but for almost in general. So how is the situation now in terms of availability of the ship and other things? And is it relatively better? Are we back to normal? Or -- where are we standing over there [indiscernible]

No, we are definitely not back to normal. We are definitely not back to normal. The global trade freights have. The Baltic industry has gone up. It's holding up. The availability of ships and containers still is an issue. We are still facing shortages in terms of containers and bulkers across the globe. But relatively, what we saw few months back, the situation is improving day by day.

[Operator Instructions] The next question is from the line of Maan Vardhan Baid from Laurel Investment Advisors.

Congratulations for a great set of numbers. Just wanted to understand a little more on the hydel power front. I missed the first part of the call, so this might be a slight repetition. But if you could take us through the linearity of this revenue stream and how will it vary from one quarter to the other?

Yes. As you are aware, the hydropower is a seasonal business, so maximum revenue get in the second quarter of the year. Third quarter, it goes down. Then fourth quarter, it gets [indiscernible] at the minimum level. And first quarter, again, it goes up. So -- and again, it depends on the rainfall. But generally, if you see the maximum generation is in the second quarter of the financial year. Third quarter, it goes slightly down from there. Fourth is the minimum.

Okay. So if one were to break it up in terms of percentages, suppose we generate, let's say, close to 100% potential in the third quarter, what would that -- 100% potential in the second quarter, what would that potential be in the third and what would it be in the fourth? I mean roughly, I mean obviously, there's no sort of penciling an exact numbers on this but just to -- so that we can build in some things.

Really what happens in the second quarter, you get is, say, 90% of PLF for this quarter. And gradually, PLF goes down, maybe I think it will go down to 60% in the third quarter, then it will go down to 20% in the fourth quarter. And again, it will go up to in the first quarter. Again, it will go to maybe around 40% in the first quarter.

Fair enough. And also just wanted to understand, since now we are coming out of some major CapExes that we've done. So -- and so what would be our debt repayment agenda over the next couple of years?

Debt repayment, as already stated, we are making all payments on time, and slightly we are prepaying. And -- otherwise, whatever additional generation is there that is being utilized for our expansion projects. We'll be paying as per schedule and rest is -- there may be some prepayments but not materially. Rest will be going for expansion projects.

So what would be the expansion projects that we have ongoing right now?

Now, as of today, we have taken one expansion in Ferro Alloys plant in Visakhapatnam. Second is we have taken a 25-megawatt hydropower project. Third, we have taken coal mine set in Gare Palma, Chhattisgarh. Fourth is coal mine in Madhya Pradesh. These are the 4 ongoing CapExes, specific CapExes in addition to the normal CapExes, that are improvement CapExes are there in addition to these 4 we have already taken up. Then a few others are lined up -- 2 more hydro power projects are in pipeline. And definitely, maybe some solar side also we can look at, but no firm plans on that side.

Okay. And -- so are we also planning to liquidate some of our investments to fund these projects since we have some investments on the public listed equity side, et cetera?

As of now, that requirement is not felt. We have sufficient supplies to meet our CapEx requirement. If this is required, this will be taken care of. But as of now, we have sufficient surplus generation to take care of our CapEx plans.

And any further investments in public equity that is planned from the listed company?

No such plans as of now.

The next question is from the line of Madhukar Sheth from Blue Ideas Services.

Congratulation, sir. You have given excellent results. Question is what is the export -- I'm -- first of all, I'm sorry, I came late. [Foreign Language] JSPL is exporting 40% of his steel. How much do we export?

We are not exporting steel. We are exporting Ferro Alloys.

Only Ferro Alloys, no steel.

Yes. That is in the long [indiscernible] state and we are in the long product side.

On the long products. So flat product has premium. Long may not have.

Yes. Yes.

Sir, in our plants, sponge iron plant, we are writing 100 MTPD. Generally, when we read MTPD, we read million tonnes per day or whatever for [Foreign Language] Sir, we are already in metric since 1960. So I'm sorry, I confused -- I was confused. So [Foreign Language] this is only a suggestion and nothing else.

Sure, sure.

My question is that in 19 -- late '80s and early '90s, Jindals were putting up 1 lakh tonne per day of sponge iron -- 1 lakh tonnes per year of sponge iron plants in sequence [Foreign Language] I am forgetting the proper word and they were very happy with it. And we are making sponge iron plants in different sizes. So can we standardize our size so that we have interchangeability of spare parts and other things?

Fine. [Foreign Language] technology improvement, I have now standard size generally 500 tonnes per day or 600 tonnes per day standard size [Foreign Language]

[Foreign Language] And this sponge iron seems to be the cheapest route to making steel today because of the rise in coking coal.

Yes, yes.

Very good, sir. What is power consumption in Ferro Alloys plant which is said to be highly power consuming?

Pardon?

Power consumption.

Power consumption depends on the product to product. What type of product we produce and what type of raw material we use. But generally, in case of silicomanganese, it is in the range of 4,000 units. And in case of ferro magnet, it is in the range of 3,000 units.

Very good, sir. Because I remember, I'm 73 years old and I'm almost retired, but in good old days, I used to participate in many conferences [Foreign Language]. So now we are competitive in power generation. So we don't face such problems, right, sir?

No, no, we don't face.

Sir, you have diversified very well, and I'm sure you will continue to make profits -- better profits against even market conditions -- adverse [indiscernible].

Thank you. Thank you, sir.

The next question is from the line of Satyan Wadhwa from Profusion Capital.

Sorry, I joined a little bit late. I'm not sure if you covered this, but just wanted to know what is the per unit realization for the Sikkim project, the hydro project, if that's been finalized?

This is not a fixed tariff project. This is a cost plus tariff. Cost plus method where the tariff will vary year-to-year depending upon the cost restructure and all those things where we have been assured on that equity return as per regulations. There is a two-part tariff, one is the fixed cost and another is variable. So there is a detailed regulation. So there is no fixed tariff for this.

Okay. If there is no fixed tariff, is there a fixed sort of revenue that they will -- that you will be able to generate from this on an annual basis that will depend on the water availability and water flow, et cetera?

Yes. Pardon?

Is there a fixed tariff that you'll be able to get because it's a return on equity formula, right? So you will get 15.5% ROE. So what is the actual tariffs -- the total tariff that you can get from this project on an annual basis? So for FY '23, what is the likely revenue potential of this project, if you could just shed some light on that?

[indiscernible] the revenue potential should be INR 250 crores plus.

INR 250 crores plus. And should we take it about 80% EBITDA margin on that or more?

Pardon?

Should we take it at about 80% EBITDA margin of the INR 250 crores?

Yes, somewhere -- it should be somewhere near that.

[Operator Instructions] The next question is from the line of Abhishek Maheshwari from SkyRidge Wealth Management.

Congratulations on good set of numbers. Sir, my first question is regarding coal blocks. So this mining that you're going to start, is it going to cover your entire coal requirement for captive usage?

Yes, it will suffice our entire requirement. Now depending on the market conditions, we will take a call whether to sell the low-grade coal and rigor itself and keep on purchasing from -- high grade from South Africa or from ICCL.

Okay, right. So my second -- my follow-up question was on that only. So if you have more [Foreign Language] more coal in the mine, will you be able to sell it in the market at...

Absolutely. This is a commercial coal block. We can sell everything in the market.

Okay. So is there a premium limit to that?

As of now, the mining capacity limit environment clearance that we have got is for 1.2 million tonnes. We are trying to increase it to 1.8 million tonne in coming year.

Okay. So sir, my last question is regarding your coal imports. So right now, you're importing any coal from Australia, Indonesia for your coke requirements, coke and coal?

We have sufficient stock at the moment. Once the mine commences, we will -- our complete requirement will cover from our coal mines. We have washery also attached to the coal mine. So all our high-grade coal we will be able to get from that washery.

The next question is from the line of Aman Madrecha from Augmenta Research.

Sir, as you say, the Ferro Alloys prices are increasing. So like how is the scenario in the manganese ore prices, which is one of the raw materials for Ferro Alloys? How is it doing?

So the manganese ore prices, they have remained stable till now as the supply side is very well covered, and there are new mines which have come into production. But the last 20 days, we have seen some manganese ore prices firming up by, let's say, around 6% to 10% depending upon the different grades. But we don't see a big price size coming around in the manganese ore side as the supply side is very well contained. There's a lot of material in the international market which is available.

So sir, do we procure whole manganese ore from imports or through domestic environment?

So we have a very nice blend of domestic manganese ore from Manganese Ore India Limited. And also, we import high-grade manganese ore, and we have a perfect blend in terms of imported and Indian manganese ore.

Okay, okay. And sir, like as I'm known, the coking coal is just required in Ferro Alloys products or steel products?

We don't require any coking coal. We don't require coking coal in our Raipur unit, and we don't require any coking coal in our Vizag unit. All we require is coke, and coke is also -- the requirement is also not like very huge. The coke prices have an impact on our production, but it's not a very big impact as we are able to manage it with South African coal as well. So we use coke in our production of Ferro Alloys to the tune of 25% to 35%.

Okay. And sir, like how do you see the outlook for pellets, billets everything going forward?

As I said, in the initial half of the call that overall, we are in a commodity bull cycle, and we are foreseeing a very good firm, stable market and a very good stable demand for the next 6 to 8 months.

So -- and then in the last quarter, you said that the pellet realization, we are expecting the pellet realization to come down by 20% to 25%. So that scenario will continue or like is it going to increase only?

Our last quarter pellet realization for the pellet has been INR 13,900. And I don't foresee 25% downfall from here, maybe slightly down. 10%, 15% might be down. Otherwise, for the current quarter, it will not be materially down.

The basic volatility will be there in the markets but it's not going to be of a great impact per se, for the next 6 to 8 months. When we say stable, maybe some prices may come down, some prices may go up as well.

The next question is from the line of Rajesh Bhandari, individual investor.

Sir, congratulations for the very good results. Or by the way, sir, [Foreign Language]

[Foreign Language]

[Foreign Language], actually, liquidity in the market will go up to, say, many other people also will be able to participate?

[Foreign Language] definitely will place before the appropriate forum.

[Foreign Language]

[Foreign Language]

Now I'm coming to the technical points. [Foreign Language] Ferro Alloy total production at Raipur and at Vizag, that is 1,54,290 tonnes approximately. [Foreign Language].

[Foreign Language] Sir, our installed capacity is more. Apart from that, it also depends on what product you're producing. Suppose if we produce ferro manganese we can produce more than what you have just mentioned. But it depends upon the market demands and the dynamics of the pricing that we take a call as to what we are going to do quarter-on-quarter. And going forward, what we are going to do is we are going to expand in Vizag by one more furnace and we will be expanding our capacity by another 45,000, 50,000 tonnes there.

[Foreign Language] that Vizag expansion?

I think another 12 months we'll see the production. Jain sir, correct me if I'm wrong.

Correct. [Foreign Language].

For the 12 months, the production means after second half of the next year, production [Foreign Language]? Hello?

Yes, hopefully. We are hopeful.

[Foreign Language]

[Foreign Language] Chinese have an installed capacity of 25 million tonnes of Ferro Alloys. And in Europe, what has happened is that we have seen gas prices going up and Russia is unable to also produce enough gas and give it to them. So we have seen major plants like Ferroglobe, OFZ and other plants of Vale reducing capacity to 50%. Now these plants are big plants. What is happening is that globally, apart from China, there is a shortage of Ferro Alloys. And in China, what they are doing is they were exporting out of China also to the Asian markets like Taiwan, Korea, Japan. So that has stopped for the moment. And what China is producing is only consuming in their own captive way. So overall, what we are seeing is a supply chain imbalance in terms of markets like Latin America, Middle East, Southeast Asia, we are seeing a little bit of imbalance. And that is why the Ferro Alloys prices are on elevated levels.

[Operator Instructions] The next question is from the line of Hemant Manuj, individual investor.

Yes. Congratulations on a very good result. I have multiple questions but I would like to limit to 2. One is taking on the previous answer itself. You actually expand very well how the Ferro Alloys demand is -- or rather supply is getting impacted from China. So related points from that, I would very much appreciate if you could give us your view that while supply of Ferro Alloys is getting impacted because of their own power constraints as well as those various regulatory limitations that the Chinese government has imposed, do you think that there would also be a constraint in the reduction in the consumption demand of Ferro Alloys internally, and so that it might neutralize the reduction in supply?

You mean to say that the Chinese consumption will reduce?

Right.

So what has happened is we've seen steel contraction in terms of production there. So definitely, the demand for Ferro Alloys will be lesser in China. But you have to also understand that India does not export to China. India competes with China in the global markets. So what happens is there is a contraction in demand and then there is a contraction in terms of production of Ferro Alloys, India has an edge over China today in the global markets because India is producing -- we are like full stream -- all the production centers in India are doing very well. And we are one of the largest seaborne suppliers of silicomanganese in the world today.

Yes. I mean I was just trying to understand that since the supply is getting reduced and if the demand also gets reduced to the same extent, then China will be not left with any additional deficit. I mean the remaining -- rest of the world remains where they are.

No, I mean you have to understand that if Chinese steel production will go down the Ferro Alloy production is also down, their captive demand is met with their own captive plants of Ferro Alloys. But China becomes inconsequential when they are not able to export in the global markets. And India becomes a favorite after China because we -- I mean after China, we are one of the largest bases for silicomanganese production in the world. So China -- if China is not able to produce for their own captive self, they will definitely not be exporting in the world markets, right? And then we are there to compensate on those deficits in terms of supplies from China.

Right. Right. Okay. And now another question actually. On the coal mine part, I mean since you already have the Gare Palma now with you and you are now going to develop another mine, if you could give a sense on, roughly in percentage terms, what percent of -- I mean, I understand that you're also swapping your low-grade coal here, selling into the market and importing the higher grade goal, right? So net of that, what percentage will be covered by your Gare Palma mine in terms of coal availability as of, let's say, December end, and going forward, let's say, 6 months, 1 year down the line?

As you already conveyed, we -- it is sufficient to meet our 100% of our requirement and then also there will be surplus. Our total coal requirement is less than 1 million. But this sold, a part of that we may sell and to this extent we will import high-grade coal or maybe we will be buying high-grade coal from South Eastern coal fields. So that mine is sufficient to take care of our full requirement. And then also there will be surplus to dispose off in the market.

And we also have -- just to add on to that, we also have our own coal washery along with our coal mines. So our production capacity is 1.2 million tonnes. We've already requested the government to grant us the permission to produce 1.8 million tonnes going forward. And we will also see that what is the pricing dynamics that is available in the market and how we can arbitrage that situation to our advantage, to the company's advantage.

I see, which means you will be mostly on the spot market only on both sides, buying the imported coal -- or rather market coal and selling your own coal.

No, if our coal we can sell at a higher price and we can have a replacement cargo at a cheaper price on a fixed carbon basis, we would definitely look at that option as well.

Okay. Okay. So you evaluate regularly and then you decide whether to be in the...

Yes, it's a matrix that we'll have to follow to seek what is the best advantage to the company.

The next question is from the line of Subham Agarwal from Aequitas India.

I just had one more question regarding the coal mine. So what will be our average cost of production per tonne from this mine?

Jain, sir?

The cost of mining would be around INR 1,000 to INR 1,200 [indiscernible] from the underground coal mine that we have got, it will be around INR 1,600 to INR 1,800.

And this includes the premium that we'll pay or that is on top of this?

It will be on top of it.

Okay. Got it. So including the premium and on an average, taking the underground and this, what will be our average cost of consumption of this coal mine?

There are different varieties of coal, so it will be very difficult because the mine has got different themes with different VCV.

So let me put it this way, just to clear off your question, in the sense that you're satisfied with the answer. See, both -- one is a high-grade mine, one is a low grade, a power-grade coal mine, okay? And then once you start mining you have the different varieties of coal and plus we have our own washery. So we'll be upgrading also the coal. So it's a very difficult answer because it's a very futuristic answer as to what the coal pricing would be or the coal costing would be because it all depends upon the coal mining that we do and how much upgradation that we do at that point of time depending upon the market scenario.

Fair enough. Fair enough. Understood. And secondly, on the cost of production of Ferro Alloys, which Jain sir mentioned that it is around INR 90,000 currently. Sir, can you please give me some sense of the breakup of cost in power, coke and manganese ore currently?

No, this was based on the current market price. Based on our store position, definitely our cost of production is on lower side. But I had given the -- based on the current market price the cost is coming around INR 90,000 on the current market price.

And our per unit cost of power generation right now?

Our per unit cost of power generation in Raipur is well below INR 5, well below. In Visakhapatnam, present cost of power generation is on a little on a higher side because of the imported coal.

Okay. So this shall substantially go down post December?

Yes.

The next question is from the line of Satyan Wadhwa from Profusion Capital.

Just one more question on the hydropower front. Your total debt is roughly about INR 1,050 crores. Just wanted to know what is the interest payment on this debt for the hydro projects.

Pardon? Will you please repeat your question?

What is the -- have you renegotiated the interest on the hydropower project in Sikkim now that it's commercialized? And what would be the effective rate of interest on the debt for Sikkim for next year, FY '23? I guess you'll get a better rate now that it's a revenue-generating project.

Yes. There has been some reduction in the rate of interest post commissioning of the project. But so far as renegotiation or refinancing is concerned, it will take some more time because now after commissioning we have to have some performance -- actual performance in the field and final tariff has to [indiscernible] rating exercises going on. Once the rating is improved, there is the actual performance data available, then we'll go for refinancing or renegotiation of the rate of interest. So in '23 -- FY '23, there will be reduction in the rate of interest as compared to the present rate of interest.

So what is the current rate of interest, sir?

The average rate of interest is somewhere about 11% plus. 11%, 11.5%.

Okay. Right. And you would expect this to go down to maybe 8.5%, 9% post renegotiation next year?

Yes. It should go somewhere about in the range of 9%, below 9%.

Actually, it will depend. I mean the rate -- Nilay here. The rate will depend. I mean renegotiation all, it will depend on how the -- what the market is, how the interest rate cycle is at that point in time and then also the rate of interest.

No, I mean based on what the current market is. We don't know what rates will be like a year from now, but just in the current scenario, I'm trying to get a sense of like 200 bps reduction in cost of interest rate roughly.

[indiscernible] give you a number now. There will be a reduction, but very difficult to give a number right now.

The next question is from the line of [ Marshall ], individual investor.

Yes. First of all, my congratulation to the entire team for the fantastic result. I have 2 questions. One question is that, for example, in the case of our hydropower plant, what is the estimated rainfall in the East Sikkim during the December quarter and what was the actual rainfall during September quarter?

This is very technical question. [indiscernible] we have to get back to you on the actual numbers.

Okay. So as you said before that like that the production as compared to PLF will be approximately 60% in the December quarter from the hydropower, right?

What happens -- rainfall data is very difficult to quantify in this way. We can get back to you on this point.

No, no, sir. I'm not saying about rainfall now. I'm saying that as you mentioned in the reply of one of the other question that the estimated production -- or the projected production of the hydropower like during Q2, which is September quarter, is approximately 90% of the PLF. And then now in December quarter to be 60%, then it further tapered down in the Q4. So you are saying that 60% is approximately steel production will be there from the hydropower in December quarter, right?

During normal course.

Okay. Normal course, fantastic, number one. Number two, you said that we will be opening this new mine in December month. So to start with this mine in December month itself, what will be like estimated production in the first month itself?

It will reach the total required capacity 1 lakh tonne per month, so we will achieve it from the very first month.

Very good. Very good, sir. And then during this recent coal crisis, did it impact our company or not?

Pardon?

Like, yes, last few weeks we have seen that the Coal India stopped supplying coal to like other users -- to users other than the power plants.

No, no, no. We were not impacted during the coal prices. We had covered our coal requirements from the domestic as well as international markets way before the coal crisis happened.

Very good. Good planning, sir. Good planning. And my last question is that is, what was the average price of pellet and the wire rods during the second quarter? And what is the current prices?

As already given out in our presentation, in September quarter our pallet average realization was INR 13,900 approximate.

Okay. And what is the current price, sir?

Current price is somewhere about -- below -- around INR 13,000. [indiscernible] INR 13,000.

Okay. And sir, what about wire rod?

Wire rod is -- our average realization for wire rod was -- actually, if you refer to the presentation now, you will find this in the investor presentation.

But like I just -- I could see only production quantity, I could see [Foreign Language]. I can't find the average realization. Anyway, so like what is the current prices of the wire rods?

It was INR 45,000.

Current?

INR 45,000 in the September quarter. Currently, the prices are around INR 50,000.

Currently INR 50,000.

So like currently, the wire -- currently the price of wire rod is more than the September quarter?

Yes, yes.

Very good, sir. Very good. Fantastic, sir. Fantastic, sir.

If you refer to Slide #14 you will get all realization related data.

And sir, like my one more question, what cost rationalization efforts we have taken or we are planning to take, right, to optimize the cost and so on to be -- still to probably still better results?

Couldn't get your question. Please?

Sir, what I'm saying, like in order to -- like the like -- any like potential headwinds in the stride, every company takes [indiscernible] initiative on the cost control, cost reduction, cost optimization, whatever you call. So if you can give us a couple of points that what specific cost measures you have taken -- cost control measures you have taken so that which will [indiscernible] the entire company itself?

I'm happy to share that we have changed both of our turbines that were old, and it was a very high CapEx investment that we had taken so that we can improve our stream generation and stream consumption. So that is one of the major cost effective exercise that we had taken earlier. We -- in recent times, as you must have known, we have taken all our Ferro Alloys furnaces one by one under shutdown for 3 months, and we have upgraded all our equipment in these in the time -- in these difficult times when the coal and coke prices have increased 3x. We have covered ourselves in such a way that we don't see any shortages of these commodities in our existing running plants.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Pankaj Sarda, Joint Managing Director, Sarda Energy & Minerals Limited, for closing comments. Thank you, and over to you, sir.

Yes. We thank all the investors who have reposed confidence in the company. We hope we have replied the queries to their satisfaction. In case of any further queries, they can always reach to the company or our IR team. The coordinates are given in the presentation slide with the stock exchanges. Thanks once again for sparing time and participation.

Thank you. Ladies and gentlemen, on behalf of Sarda Energy & Minerals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.