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

Ladies and gentlemen, good day, and welcome to the Q4 FY '24 Earnings Conference Call of Sarda Energy and Minerals Limited. [Operator Instructions] Please note that this conference is being recorded. Today, we are honored to have with us from the management team is Mr. Pankaj Sarda, Joint Managing Director of Sarda Energy & Minerals Limited; Mr. Neeraj Sarda, Deputy Managing Director of Sarda Metals and Alloys Limited. Mr. P.K. Jain, Director and CFO, Mr. Nilay Joshi, Head, Corporate Finance at Sarda Energy & Minerals Limited. I would now like to hand the conference over to Mr. Pankaj Sarda for opening remarks. Thank you, and over to you, sir.

Thank you so much, and good afternoon ladies and gentlemen. A very warm welcome to each one of you attending Sarda Energy's Earnings Call. Some of the statements made in this call may be forward-looking, and a disclaimer to this effect has been included in the investor presentation. I hope you have had a chance to go through the results and presentation uploaded on our website and websites of stock exchanges. Economies across the globe continue to face macro headwinds on account of property, sector drag and Chinese economy, more-than-expected delay in interest rate, reversal by central banks, stressed war between Israel and Hamas, high fuel cost and disruption in seaborne transport, following attacks on ships in the Red Sea. In India, Domestic steel demand continues to grow and was up around 9% Y-o-Y. But steel spot prices moderated in line with the global cues without corresponding correction and input prices at such profit margin, some slight pressure. During FY '24, the plants reported improved performance. We recorded highest ever production of coal, iron ore pellets, billets, wire rod, ferro alloys captive power. The production during the quarter was lower Y-o-Y and Q-o-Q on account of shutdown of one unit of captive power plant at our Raipur, taken for overhauling of one of FBC boilers and one of our turbines. Hydro power generation during the year was lower by 10% due to lower rainfall in catchment areas and pipeline damage from landslide in our Uttarakhand project. Specific details are given in the operational data uploaded. During FY ['24 ] -- we exported 115,000 metric tons of ferro alloys worth INR 875 crores against 98,000 metric tonnes, worth INR 983 crores last year. In Q4 FY '24, we exported 27,000 metric tonnes of ferro alloys valued at around INR 203 crores against 33,500 metric tonnes in Q3 FY '24, valued at INR 242 crores; and 34,500 metric tonnes in Q4 FY '23, valued at INR 294 crores. Mines and minerals. The Gare Palma coal mine operated at full capacity and produced 14.4 lakh tonnes of coal during the year. We have received environment clearance for increase in the mining capacity from 1.44 million tonnes to 1.68 million tonnes. The CTE and CTO is expected soon. We proposed to increase it further to 1.8 million tonnes during the current financial year. To meet the increased in-house coal requirement post proposed acquisition of SKS Power, the mining capacity is proposed to be increased to 5.2 million tonnes. The mining plan and mine closure plan of 5.2 million tonnes has been already approved. The capacity of the coal washery is also proposed to be increased initially to 1.8 million tonnes from 0.96 million tonnes. This will be increased further as may be necessary post increased mining capacity. We are also taking steps for setting up railway siding and loading infrastructure in the coal mine for movement of coal through rail for cost-effective movements of coal and mine refilling materials. The Indonesian joint venture coal mine produced 5.58 lakh metric tonne coal in FY '24 and 2.24 lakh metric tonne coal during the quarter. We expect to produce about 1 million tonne coal from this mine in FY '25. Our proposal for Stage 1 forest clearance and environment clearance, for Shahpur West underground coal mine in Madhya Pradesh has been approved. Mine opening work will start after we receive Stage 2 forest clearance and mining lease. We expect to get mine opening permission during current financial year. Immediately after getting the permission, mine development work will be started. Post commencement of production from this mine, 100% of our high-grade coal requirement will also be met from this captive mine, insulating us against price fluctuations and high cost of imported coal. Process of mining plan, preparation and approval is going on for Kalyani coal mine located in Chhattisgarh. We have formed a joint venture subsidiary company for reopening and operating of Bartunga Hill high-grade coal mine of SECL. This will further strengthen company's presence in commercial coal mining. Surjagarh 1 iron ore mine. We have received a letter of intent from the government of Maharashtra for composite license for the mine. Necessary approvals, including forest clearance are being taken to start prospecting work. Solar power project. Land has been acquired. Material has started reaching at the site. Process of grid connectivity approvals is going on. The plant is scheduled to be operational by the end of this current financial year. In addition to the cost savings, it will also help in reduction of our carbon footprint. Replacement of turbine and generator. The company has placed order for replacement of existing 30-megawatt TG set with new energy-efficient TG set to save energy and reduce carbon footprint. The new TG set is expected to be operational in the first half of FY '26, '27. With this, all the 3 turbines shall stand replaced. Hydropower projects under construction. Construction work at 25-megawatt Rehar Hydropower project is progressing ahead of schedule. And the plant is expected to be operational in the next quarter, taking the advantage of part of this year rainy season against scheduled completion of March 2025. Acquisition of SKS Power. On our appeal, NCLAT has set aside the order of NCLT. NCLAT has revised plan approval, application of our plan along with interlocutory applications with directions to dispose of the application preferably within 60 days. SKS is having an operational thermal power plant of 600-megawatt capacity near Raigarh, Chhattisgarh. And this acquisition will bring operational synergies with our coal mine. Presently, NTPC is running the plant under O&M contract. New independent director, and last 2 more prominent persons as independent directors. They are Mr. Rajeev Sharma and Mr. U.P. Singh. Mr. Rajeev Sharma is ex-CMD of PFC and Mr. U.P. Singh is retired IAS Officer. Before retirement, he was Secretary to GOI in different ministries. I now hand it over to Mr. P.K. Jain Ji, who will take us through our financial performance.

Thank you, Pankaj Ji. The company has received quarterly consolidated revenue of INR 889 crores during quarter 4 of financial year '24 against INR 25 crores reported in last quarter and INR 1,076 crores in corresponding quarter of previous year. The company's profit after tax at consolidated level stood at INR 88 crores against INR 114 crores in the previous quarter and INR 115 crores in the quarter 4 of FY '23. Prices across the value chain except for finished steel remained stable during the quarter. Price of steel products, including billets were lower than last quarter. For FY '24, the company has achieved revenue of INR 3,869 crores against INR 4,212 crores achieved in FY '23. The fall in revenue is attributable to the fall in selling prices year-on-year. The profit after tax has also gone down from INR 603 crores to INR 531 crores because of slight pressure on the margins. The company is taking steps for long-term sustainable margins which include productivity improvement, installation of solar power projects, waste utilization project, the replacement of all TG set with energy efficient TG set and replacing high-cost imported coal by captive coal. The effect of all these efforts will be reflected in the medium to long-term. Debt position. The company's net debt free at consolidated level. At consolidated level, gross long-term debt is about INR 1,250 crores. Amount of long-term loans repayable within next 1 year is INR 195 crores. The company has strong liquidity to meet capital requirement for acquisitions and ongoing CapEx. As on 31st March, we held cash and liquid investments of INR 1,325 crores. The company is not exposed materially to currency rate fluctuations. Foreign currency import exposure is fully covered by our exports. Dividend. The Board of Director have recommended a dividend of INR 1 per share, which is 100% against regular dividend of 75% paid in the previous year. The industry scenario. The domestic crude steel production in financial year '24 registered a growth of 13% to 144 million metric tonnes against 127 million tonnes in FY '23. Production from induction furnace too saw a sharp jump of 25% to 50 million tonnes. The domestic finished steel consumption has registered a growth of 13% to 136 million tonnes in FY '24 on the back of government-supported infrastructure projects. India has become a net importer of steel in FY '24. During FY '24, India registered 38% surge in import of finished steel to 8.32 million tonnes as against 6.02 million tonnes imported in the previous year. Ferro alloys export has been stable. During the quarter, India exported 0.66 million tonnes ferro alloys against 0.59 million tonnes in the last quarter. During the year, India exported 2.65 million tonnes of ferro alloys. Thermal and coking coal import saw a sharp rise on back of lower prices. Lower coal prices resulted in higher import of high-grade coal by sponge iron plants. And consequently, sponge iron production also increased by 20% to 52 million tonnes against 43 million tonnes in the previous year. The coal production has almost reached 1 billion tonnes against 893 million tonnes in the last year, registering a growth of 11.65%. This has kept the prices of thermal coal under check with comfortable stock levels at power plants. The quarter gone by has seen strong domestic demand, but slowing global demand. Increased export from China had an impact on the pricing of steel. China's property market remained sluggish affecting steel consumption. During the quarter, India produced 37.3 million tonnes of crude steel, recording a growth of 9.7% year-on-year. During financial year '24, India produced about 144 million tonnes crude steel according -- growth of 14.5% against negative growth of 1.66%, in China and 3.48% growth in global crude steel production. During the quarter, India recorded growth in steel production despite jump in the imports from 2 million tonnes to 2.6 million tonnes. Apparent consumption has gone up from 33 million tonnes to 36 million tonnes year-on-year, registering a growth of 9%. Iron ore, iron pellet and sponge iron prices remained stable. Finished steel prices saw downward pressure resulting into compression of margins. Ferro alloys prices also didn't improve during the quarter from fall in the last quarter. However, the prices of both steel and ferro alloys have seen upward movement during the current quarter. Outlook. The Indian economy remains stable against the pressure of high inflation, high interest rate and high interest rate environment. Interest rates across the globe are expected to start falling in view of the declining inflation across the globe. Strong tax collection and sharp rise in dividend from RBI has strengthened finances of the government, creating space for extra government spending on the infrastructure projects. That should boost CapEx heavy projects and real estate sector, creating demand for steel. India's steel production and consumption is expected to continue its high growth momentum. The apparent steel consumption has recorded a healthy growth of 14% in FY '24. Growth in the steel sector is driven by government spending on infrastructure and recovery in private investment, which have been the focus of this year's budget. Money flow from election-related spending should also stimulate demand. Iron ore, coke and coal prices have also moved in tandem. Peak power demand has breached level of 243 gigawatt level, keeping in view the growth in power demand should remain remunerating, throwing good opportunity for the company. There is disruption in the production of high-grade manganese ore in Australia, affecting supply chain. This has caused sharp rise in price of manganese ore and also ferro alloys. We have sufficient inventory of manganese ore. Current prices of silicon manganese of 60% grade is around INR 85,000 against the average realization of INR 67,000 in quarter 4 of FY '24. That's all about our performance and outlook. Now we have the forum open for questions from the participants.

[Operator Instructions] The first question is from the line of Rajesh Bhandari from Nakoda Engineers.

[Foreign Language] Is it only because of the low prices?

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[Foreign Language] As compared to the last quarter, there is substantial improvement.

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[Foreign Language] SKS power -- status?

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[Foreign Language] so decision is going to be in our favor?

Mr. Bhandari, may we request you to come back to the question queue.

Only last, only last question. [Foreign Language]

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The next question is from the line of Pradeep Rawat from Yogya Capital.

So I have a couple of questions. First question is regarding our CapEx outlay. So during this financial year, FY '25 and beyond, what should be the CapEx outlay that you foresee?

The CapEx outlay should be in the range of INR 500 crores a year put together across the company.

And the revenue potential at current market price, like keeping market price stable, what should be the total amount of revenue that we can generate from current capacity and capacity after the CapEx that we have announced till date?

[Foreign Language] So far as current year production is concerned, only we will have increased coal production. That is only one aspect. Otherwise -- so it will not -- otherwise, except that there won't be material change in the revenue, except the price effect. So there will be effect of the whole production and rest will be the price effect.

So you are guiding for no volume increase for next like 1 year?

For the current financial year except whatever performance productivity improvements -- nominal whatever is there, that will be there. Otherwise, there won't be any material improvement in the quantum side. But yes, the effect of the price increase will definitely be reflected into the volume -- revenue.

Okay. And with regard to our cash and investments, so we have close to INR 1,450 crores of cash and investment, and we will be getting cash flow from our operating profits in a couple of years next down the line. So what we are planning to do with this cash that we have at our hand and the cash flow that we will generate in coming years?

As already stated, we are in the process of acquisition of SKS, a 600-megawatt thermal power project. So that will be the major outflow, which has not been considered into our projections of the revenue. So that will be the first and foremost major outflow. In addition to that, we have been spending on the regular CapEx side, including solar power project, then hydropower project, waste utilization project, so multiple -- and coal mines. There are multiple coal mines where we have been investing for our future growth. So on all these projects, we will be spending this money.

Okay. So how much we will be spending on SKS Power?

That is already under -- this is in the range of INR 2,000 crores plus/minus is there. That is a larger acquisition.

The next question is from the line of Akshay Kothari from JHP Securities.

Sir, outlook on ferro alloys and especially manganese ore because we have been hearing that there has been some supply side shortages on manganese ore with one of the Australian facilities going offline.

Yes, there is some disruption in Australia on the high-grade manganese ore of South32 mine, there is a disruption. Because of that, there has been a supply disruption -- because of supply disruption, prices have moved up. But we understand that, that is expected to be restored soon. And maybe I think by July, things should get to the normal.

So we won't be affected much by the rise in manganese ore price?

No, no, we do have sufficient inventory. But longer term, whatever the price movement goes up, that will be in tandem with the finished goods prices also. So we will not be affected adversely, rather it may be a positive for us for the inventory gains.

Okay. And sir, how much time does it take to do the price pass on? Because generally it takes time to price -- to pass on the price lag.

This time, the price of finished steel also moved up immediately along with the raw material. So there is no fixed trend in this. It depends upon multiple market scenarios. And this time, the price of the finished steel also moved immediately as the prices of the raw material moved up.

[Operator Instructions] The next question is from the line of Pawan Nahar an individual investor.

So I have one question -- I have one request. Mining is becoming an important part of our segmental or of our numbers, so it is not showing exactly...

Your voice is not clear. Your voice is not very clear.

Okay. So I have a request. Mining is becoming an important part of our segmental or our business plans going ahead. Now if we can disclose revenue and EBITDA separately from mining, commercial mining, it will be very useful. So, any plans to do that?

Yes, as of now, because a substantial part of our coal mine is captively consumed. So as of now, it is not that important part of our overall revenue side. But yes, as another mine starts production, as soon as this Shahpur mine, coal mine comes into production, we'll definitely start reporting separately, the mining operations. Presently, majorly, we are using it for captive consumption.

So this year, we produced 1.44 million tonnes, how much of that was captive? And how much was commercial sales?

About 8.4 million tonne was sold in the market -- 8.4 lakh tonnes were sold in the market and the rest was consumed captively.

So this 8,40,000 tonnes captive was sold in the market -- see what is happening is, I'm just seeing that the segmental numbers have dropped sharply...

Again, your voice is not clear, your voice is not clear.

So what I'm saying is the segmental numbers of steel have dropped sharply. Now I understand that coal prices would have also come down and that would have impacted and likewise on the steel business. I was just trying to get a sense what is the normal profit from your steel business?

What is the normal profit conversion?

Steel business is cyclical to giving the specific separate number for normal profit from steel will be very difficult. And coal is also majorly -- whatever is captively consumed, it forms part of the steel only because...

Okay. Fine. I'll stop on that one. The second request I have is, did we put out any press release relating to the NCLAT order, on SKS. I think not. Can you please correct me? I think you've not put out any press release on the NCLAT order. If not, my request...

Can you repeat the names regarding NCLT order because your voice was -- we were not able to hear your voice.

I'm really sorry, my request to you is that SKS is a very important aspect of the business plan right now, I would imagine. So my request to you is that please continue to issue press release on the development from SKS. So I think there was no press release on NCLAT order; one, we have to get it from the press. And now we are waiting whether Torrent or any other party would file any fresh reason for, I mean, why it should not be allotted to us. So have they field, has Torrent or the other fund side anything with NCLT again?

No. If I heard you correctly, you mentioned Torrent and other companies going to NCLAT, right?

Yes. NCLT again. NCLT, with fresh reason.