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

Ladies and gentlemen, good day, and welcome to the Q1 FY '25 Earnings Conference Call of Sarda Energy & Minerals Limited. [Operator Instructions]. Please note that this conference is being recorded. Today, we are honored to have with us from the management team, Mr. Pankaj Sarda, Joint Managing Director of Sarda Energy & Minerals Limited; Mr. Manish Sarda, Deputy Managing Director of Sarda Metals & Alloys Limited; Mr. P.K. Jain, Director and Chief Financial Officer; and Mr. Nilay Joshi, Head, Corporate Finance at Sarda Energy & Minerals Limited. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, opinions and expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statement to reflect developments that occur after a statement is made. 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, and a very good afternoon, ladies and gentlemen. Welcome to Sarda Energy earnings call. I hope you have had a chance to go through the results and presentation uploaded on our website and the site of stock exchanges. Economies across the globe continue to face macro headwinds. China's GDP growth slowed to 4.7%, reflecting weakened private consumption and warning effect of fiscal stimulus. In China, the property sector continues to remain a challenge. The intensified conflict between Israel and Hamas and disruptions in the Red Sea has impacted see transport and fuel costs, with geopolitical risks remaining a concern. During the quarter, we reduced the production of steel billets and downstream products to sell power on commercial consideration. Hydropower generation decreased by 13% due to delayed launches. Delayed -- detailed operational data is available on our website and in the press release uploaded on the website of stock exchanges. Mine opening work of Shahpur West coal mine will start after we receive Stage 2 forest clearance and mining lease. We expect to get mine opening permission during current financial year. [ Instead ] of mining plan, preparation and approval for the Kalyani coal mine was held back to resolve overlapping boundary issues with adjacent mines of SECL, which are now resolved. Work for the 50-megawatt captive solar power project is progressing as per schedule. The plant is scheduled to be operational by end of this current financial year. 25-megawatt Rehar hydropower project is nearing completion. Dry run test has started for the first turbine. The power is at operational infrastructure and area of passing through forest patches is pending for want of final approval from forest department, which is expected in this month. We aim to commission the plant by the end of this quarter, ahead of the March 2025 study. So far as acquisition of SKS Power is concerned, NCLT has completed rehearing of the application for approval of our resolution plan and reserve debt for orders, orders expected soon. Now I request Mr. P.K. Jain to talk about the financial performance. [Technical Difficulty]

Ladies and gentlemen, we have lost the managements line connection. Please stay connected while we reconnect them.

Can you hear me?

Yes, sir, we can hear you.

Yes. So with regard to the financial performance, the company has achieved consolidated quarterly revenue of INR 926 crores in quarter 1 FY '25 as compared to INR 889 crores, INR 1,052 crores in quarter 1 of last year. Consolidated profit after tax was INR 199 crores, up from INR 88 crores last quarter and INR 172 crores in quarter 1 of FY '24. Prices across the value chain rose in the first 2 months, but reverted in June due to dumping from China. During the quarter, we spent approximately INR 150 crores on ongoing CapEx. The company's net debt free with consolidated long-term debt at around INR 1,300 crores. Long-term loans repayable within next 1-year totals to INR 240 crores. The company holds strong liquidity with cash and liquid investments of around INR 1,300 crores as of June 30. Now I hand over to Sri Manish Sarda to discuss the steel and ferro alloys industry scenario and outlook. Over to Manish.

Thanks, Mr. Jain. Good afternoon, everyone. Global steel production in the first 6 months of 2024 remained flat at 955 million tonnes, with China recording a decline of 1.1% and India growing by 7.4%, reaching 74 million metric tonnes. Due to slowdown in domestic economy, Chinese steel export remained at elevated levels. Higher exports from China due to subdued domestic demand weighed on global steel prices. In India, steel demand was stable despite impact of elections and heat wave. Price realizations improved during the quarter, but moderated in June and further in July. Steel imports moderated quarter-on-quarter, but in absence of safeguard measures, fall in exports was much sharper by around 50% year-on-year. Imports increased and exports fell. India remains a net importer of steel. The EU imposed additional safeguards to moderate high steel imports. Ferro alloys prices rose sharply due to sharp disruptions in Australia, but corrected quickly. Merchant power prices remained high due to elections and heat wave. Domestic crude steel production in quarter 1 for year '25 grew by 5% year-on-year, but declined by 2% quarter-on-quarter to 36.6 million tonnes. Domestic finished steel consumption grew by 14% year-on-year, but was slightly lower quarter-on-quarter due to seasonal effects and labor migration during the elections. Our Ferro alloys exports have been stable during the quarter. We exported 32,500 metric tonnes of Ferro alloys worth INR 273 crores in quarter 1 compared to 27,000 metric tonne worth INR 203 crores last quarter and 29,400 metric tonnes were INR 242 crores in quarter 1 for '24. Outlook. The Indian economy remains stable despite high inflation environment. Interest rates across the globe are expected to fall as inflation declines. Strong tax collection and sharp rise in dividend from RBI has strengthened government finances, allowing for increased infrastructure spending. Strong foreign capital inflows aided by Global Bond Index inclusion are set to further bolster the robust microeconomic growth. Good credit offtake and a strong capital market, particularly primary insurances, indicate rise in private CapEx, that should boost CapEx-heavy projects and real estate sector creating demand for steel. However, China slowing economy in subdued real estate sector have created a surplus in global steel markets. Increased Chinese exports are repressing steel prices. In the absence of trade barriers, India's imports especially through the FTA countries rising, which may affect the steel sector's performance. That concludes the performance and outlook. We are now open the forum for question and answers. Thank you, all participants.

[Operator Instructions] The first question is from the line of Vikash Singh from PhillipCapital.

Sir, you mentioned that the prices have started to decline from June. Just wanted to understand what are the current prices with respect to 1Q averages? How much it is down?

Prices of what?

So the steel product basically Pellet, Billet, Wire Rods and HB wires, including Ferromagnetic, which you would like to tell us.

The prices have corrected by around 6% to 8% as compared to the first quarter average.

Understood. And correspondingly, the cost of production, any guidance in terms of production in the cost of product numbers? The coal, iron ore cost for you?

For them, there remains a time gap. In the falling market, it takes some time to get corrections into the raw material prices.

So as of now, we haven't experienced anything. Sir, if you could give us spot basis then it would also be okay for this.

Spot prices?

Spot basis, the iron ore as well as the coal cost which you would experience versus 1Q averages.

There has not been any material correction in the raw material prices when you compare with the Q1 average.

Understood, sir. The secondly, we have spent INR 150 crore in 1Q. I wanted to understand the overall FY '25 CapEx, how much is left for spending?

It should be total CapEx should be somewhere in the range of INR 700 crores, out of which we have already spent about INR 150 crores in the first quarter.

Sir, we have done -- we have almost completed the hydropower thing. So remaining money is going where. If you could give us... idea.

There are 3 coal mining projects, then we are doing this waste utilization project in Vishakhapatnam, then turbine replacement project is going on. So major CapEx will be going towards the expansion of 3 coal mines.

Understood. And any timeline for these coal mines to start production?

No. As we stated in our opening remarks, will be the Shahpur West coal mine. So we will start working on that mine once we receive the forest stage 2 clearance, which we expect to get within the current financial year. And remaining mines will take time to get started, but land acquisition and all other processes will be going on when we will be spending money on those projects. Then in addition to that, we have solar power project also which is going on.

Understood. Sir, just one last question. For Gare Palma IV/7, we were in the process of increasing the limit for the or the capacity. Have we received it or at what stage we are in?

Currently, the mining capacity is 1.44 million tonnes. We have already got the EC for increasing it to 1.68 tonnes consent to establish and consent to operate, we'll get it in this quarter.

[Operator Instructions] The next question is from the line of Balasubramaniam from Arihant Capital.

Sir, regarding our Raipur captive power plant, it's been shut down on last quarter. So it's in the progress of overhauling SPC, wireless and turbines. So when do you expect reproduction in both unit? And hydropower project is also expected to be operational by this quarter, and what's the status on the project side?

That was statutory overhauling that was done. So it has again, restarted, I mean. So the Raipur captive power plant, it was one of the turbines was taken under shutdown, and boiler was taken in the shutdown for statutory overhauling, and it is again restarted. And what was your second question?

Sir, regarding hydropower projects, 25-megawatt?

As mentioned, the 25-megawatt Rehar hydro project. It will be commissioned in this quarter. And the target date was considered 31 March 2025 and we'll be commissioning it in this quarter.

Got it, sir. Sir, also, we have placed 30-megawatt TG set to save the energy under carbon footprint side. So when we can expect to be operational? And what is the status on that?

Right. So we have already given purchase orders to BHEL. And it will take at least 24 to 28 months to commission that 18 months -- the BHEL has taken 18 months to supply us the turbine. And we have to take a shutdown and we have to change it. It will take 24 to 38 months.

The next question is from the line of Rakesh Roy from Boring Asset Management Company, Omkara Capital.

First question regarding, sir, do you see more margin improvement in coming quarters, sir?

It depends upon the market condition. As we stated in our opening remarks, presently, the prices have gone down. And the correction in the raw material pricing is awaited. So as of now margins as compared to the first quarter are on the lower side, but how the things move post the rainy season and how the developments come in, it depends on that.

Next question sir, we see a [ slight bit of drop ] in Pellet, Billet and Wire Rod volume numbers -- sales volume number. Is this due to demand or sir, Chinese import?

No. We have already stated in our opening remarks also the production of Billet was intentionally curtailed to supply power to the -- on the IEX for -- where we were getting better realization or better margins.

Okay. So you supply power to the IEX instead of making billets?

Instead of making billets, we are using it in production of the billets. We have kept the [ partners ]. So we cut down our production of billet and the water surplus power we could have that was sold through IEX.

And sir, how is the current scenario for July?

There have been ups and downs in between, we get the opportunities to sell for a few hours. It's not that throughout that is because it presently, it's a rainy season. So comparatively, the power demand comparatively remains on the lower side.

Okay. So can we see, again, the products will be normalized from Q2?

Yes.

Okay. And sir can you give....

Yes. But in between, if we get the opportunity to sell power at high prices, again, we may decide to cut production of the steel. And as far as raw material prices are concerned, that question has come in between. So in case of Magnesium, oil has reduced the prices from 10% to 27%. For higher grade, it is in the range of 10%. And for lower grade, they have reduced prices by 27% in case of Magnesium.

Okay. Right, sir. And sir, my next question, sir, can you give some detail about the use of power project SKS? Where is it and how much time it takes because it's already more than one [ month ] has happened.

The matter had been held by NCLT after revert from NCLAT and everyone is awaiting for the orders.

Okay. So we expect by September by Q2, we'll get the order.

Yes. Hopefully, that should be clear. Maybe by before end of this month or let it be in this quarter.

Okay. And sir, one just -- our net debt stood at INR 1,300 CR?

Yes. No, not net debt is 0.

So that is debt is second in this year.

That is a gross debt. Net debt is 0.

Okay. Gross debt is INR 1,300 CR.

That is gross long-term debt.

Okay. I understand. And sir, your comment on, sir, steel demand in terms of looking for imports from China, how you look in domestic consumer demand probably in the next 1 year?

Manish?

So the steel, see I'll tell you something, the government is very clear on infrastructure boost and they are planning for infrastructure development in a big way. And going forward, the imports which are happening from China and from FTA nations will be looked in by the new steel ministry, which is just in place right now. But they have not yet formed up any proper protocols for the same. They are looking into it because there has been a sharp rise in terms of imports and especially through the FDA routes, so they are planning some policy, but we are all waiting for that policy. That should be out in the next couple of months.

The next question is from the line of Rajesh Bhandari from Nakoda Engineers.

Congratulations for good numbers. [Foreign Language].

[Foreign Language] Because the Chinese economy is also in doldrums right now, they want to come out with some stimulus in terms of consumer spending, and they're looking at also their rates, interest rates and everything. But with the ongoing multiple issues across Russia, Ukraine, Gaza Palestine, all these things, I think -- and with Japan, we have seen what has happened in Japan. I don't think within the next 2 or 3 months, things will be resolved because WTO matters are quite huge in terms of duties and FTAs are also in place. So government -- the Steel Ministry can only take cognizance of the fact that there has been sharp imports. But at the same time, they have to coordinate it with the Ministry of Finance, DGFT, DGTR, regulations, everything. So it is not that simple that it will happen in 2, 3 months. But we are definitely planning to put some QCOs in place, like for Ferro alloys we already have a QCO in place.

[Foreign Language]. That is the reason your Ferro alloys prices have not gone down.

No, That is not the reason. QC is basically quality control or audit. So what everybody who's exporting to India will need to register themselves in the system, so that is a little long-drawn process and kind of a lengthy process. So they are trying to see and if they're trying to curb cheap imports in India, which are not quality oriented and all those things. They're looking into all those things now.

[Foreign Language].

[Foreign Language]. We are getting imports of Ferro silicon from Bhutan, and we are getting Ferro Moly, which had an inverted duty restructure, but it's now been removed. So all these things are taking place and the ministry has just formed, right?

[Foreign Language].

[Foreign Language]. Ferro alloy prices have also come down considerably. At the same time, oil prices have also come down.

[Foreign Language].

[Foreign Language].

[Foreign Language].

That Mr. P.K. Jain and Nilay Joshi and all can comment upon that.

[Foreign Language]. And it is reserved for order. So we are also awaiting, hopefully.

[Foreign Language].

As going by the precedent. [Foreign Language].

[Foreign Language].

[Foreign Language].

[Foreign Language].

[Foreign Language] We will decide at appropriate time. As of now we don't have any plan in the immediate future to raise any fund.

[Operator Instructions]. The next question is from the line of Balasubramanian from Arihant Capital.

Sir, SKS acquisitions, what is the status on it. It's under NCLT. And how much CapEx we are planning for this [indiscernible]?

For?

SKS. Thermal power plant.

[Foreign Language] we will be acquiring it. [Foreign Language] based on the assessment that will be a separate issue. As of now, no CapEx is involved, it is a running plant, which we are acquiring.

Okay. Sir, after acquisitions, what kind of capacity we are targeting?

That we will decide. Independently after getting it. So it will be very difficult to comment on that at the moment.

Ok sir got it.

Running operational running thermal power plant that we are acquiring. The matter is sub judice and reserve for orders. So once it is resolved, then we will be able to comment.

Okay, sir. So post elections, like what kind of revamp on the operations side? Because I heard a lot of companies are facing issues because of shortage of laborers. So like post-election, how you are seeing the operations level, especially on the labor.

We are opening at normal levels.

Next question is from the line of Rajesh Bhandari from Nakoda Engineers.

[Foreign Language] are the power selling has better margin than steel selling?

[Foreign Language] Then we get a better price. [Foreign Language]

[Foreign Language] I was just asking.

[Foreign Language] power market year-on-year. [Foreign Language]

The next question is from the line of Atul from ULJK.

There are a couple of questions from my side. First question is on, as you know, there are global situation is not good due to China factor, especially the China is facing issues in that real estate [ part ]. Domestic story is good, sir. So how do we foresee a second half of FY '22? Is it a similar performance will be continue or we can see some improvement in coming quarters on the revenue side?

As far as volumes are concerned, those will remain at the normal levels, whatever operations we have achieved that will continue. So far as pricing is concerned, the markets are volatile and projecting in advance for the second half may be difficult, how the China story evolves and how the overall other scenarios, geopolitical conditions evolve, then interest rate scenario, there have been multiple factors which will decide the future course of action. But so far as the operations are concerned, quantitative performance or operational performance is concerned, it will remain at the normal level throughout the year.

Got it. Sir, second question is on the profit side. Like we have been following a backward indication strategy. We are like using our own mining and power plants now. So coming -- going forward, though there won't be any top line growth or even a moderate growth. Do we see further profitability improvement even though situation still persist under current level?

So plan one is the addition on account of the increase in the capacity of the coal mine. Another is the commissioning of our hydropower project and the third one is the commissioning of our waste utilization project -- waste utilization project will be coming next year only. But for the current year, there will be 2 more additions on account of the increase in the coal mining capacity and starting of the hydro power projects.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thanks. Thank you all the participants of this con call. To summarize, our diversification has resulted in better performance during volatile times. The commissioning of 25-megawatt Rehar hydropower project this quarter, the 50-megawatt solar power project and waste utilization project will help reduce our carbon footprint. Starting 3 more coal mines and hydropower projects will drive our future growth. Please feel free to reach out to us or our IR team with any further questions. Thank you all.

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