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

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '25 Earnings Conference Call of Sarda Energy & Minerals Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. [indiscernible]. Thank you, and over to you, ma'am.

Thank you, Steve. Good afternoon, everyone, and thank you for joining us today. We have with us today the senior management team of Sarda Energy & Minerals Limited; Mr. Manish Sarda, Deputy Managing Director, Sarda Metals & Alloys; Mr. P.K. Jain, Director and CFO; Mr. Nilay Joshi, Head, Corporate Finance, who will represent Sarda Energy & Minerals on the call. The management will be sharing the key operating and financial highlights for the quarter and half year ended September 30, 2024, followed by a question and answer session. Please note this call may contain some forward-looking statements, which are completely based upon the company's beliefs, opinions and expectations as of today. These statements are not a guarantee of the company's future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect developments that occur after a statement is made. I now hand the conference over to Mr. Manish Sarda. Thank you, and over to you, sir.

Good afternoon, ladies and gentlemen. Welcome to Sarda Energy's investor con call on the results of the quarter 2. I hope you have a chance to go through the results, press release and presentation, which has been uploaded on our website and websites of stock exchanges. Economies across the globe continue to face macro headwinds. China announced another positive stimulus to boost their economic growth. However, there also appears to be short lived. USA reduced policy rates twice in last 2 months after 3 years. RBI has also changed [indiscernible] to neutral. As such, we expect a reversal of interest rate increase sooner than later, depending upon the inflation data. The intensified conflict in Middle East remains a concern for energy prices and global trade. Formation of new government in U.S.A. will also have its impact on the geopolitics and geoeconomics, the effect of which is broadly expected to be positive for India. On August 21, '24, we successfully completed execution of SKS Power Generation Chhattisgarh Limited, shortly called SKS under IBC route. SKS is having 2 operating thermal power, generating units of 300-megawatt each, in Raigarh district of Chhattisgarh. SKS has been amalgamated with our company with effect from September 1, 2024. The results for the quarter includes result of SKS power plant also with effect from August 22, 2024. One of the 2 power generating units was under shutdown from September 1, 2024 for overhauling and stopped operation for 5 years, which has resumed generation from October 12, 2024. As such, results of acquisition will truly start reflecting from next quarterly results only. Unsuccessful applicants had challenged the NCLT's approval of our plan before NCLAT appellate forum. NCLAT has dismissed their appeal. Now they have challenged the approval before Supreme Court. During the quarter, we reduced production of steel billets and downstream products to sell power on commercial consideration. 1 of 5 ferro alloy furnaces at Raipur was under shutdown from September 1 for modification, which really started from November 1, 2024. We recorded highest ever quarterly generation of captive thermal power. Hydropower generation recorded 8% growth year-on-year on back of better but delayed monsoon. Generation in the third quarter so far was also better when we compare year-on-year. Detailed operational data is available on our website and in press release uploaded on the websites of stock exchanges. We have received consent to operate for increase in the coal mining capacity of Gare Palma IV/7 from 1.44 million tonnes to 1.68 million tonnes. We have also received environmental clearance for increasing the capacity of coal washery from 0.96 million tonnes to 5.2 million tonnes in 2 phases, initially to 1.8 million tonnes and then to 5.2 million tonnes. We have also achieved Stage 2 forest clearance for Shahpur West coal mine. We are taking steps for execution of mining lease. Mine opening work will start [indiscernible] mining lease. We expect to get mine opening permission during current quarter. We expect to start production of the coal from this mine within 2 years from mine opening permission. Work for 50-megawatt captive solar power project is progressing as per schedule. The plant is scheduled to be operational by the end of current financial year. We are in the process of preparation and approval of detail project report and mining plan for Bartunga Hill coal mine in joint venture. 25-megawatt Rehar hydropower project has been installed and is ready for trial run. The Chhattisgarh government has announced incentive payment for recent investor policy to promote the hydropower sector in the state. The Rehar hydropower project will also be eligible for the incentives. The waste utilization project in Visakhapatnam is progressing as per schedule and expected to be operational before end of the current financial year. The order for replacement of 13 megawatts [indiscernible] has been placed with Bharat Heavy Electricals Limited and work on the project is processing as per schedule. The plant will be operational in mid of financial year 2026, '27. The company achieved consolidated quarterly revenue of INR 1,159 crores in quarter 2 FY '25 as compared to INR 926 crores last quarter and INR 1,001 crores in quarter 2 of previous year. Provision for income tax includes the effect of removal of indexation benefit on land in the current year tax flow. Consolidated profit after tax was INR 195 crores as compared to INR 199 crores in last quarter and INR 141 crores in quarter 2 of the previous year. The result for the quarter includes result of IPP of 600 megawatts acquired during the quarter. True effect of the acquisition will start reflecting from quarter 3. Acquisition-related costs have been booked and expense in our books as per Ind AS requirement. On account of increased import and reduced export of the steel, the prices of steel products remain subdued during the quarter. Post the announcement of the policy stimulus by China, some improvement was recorded in the steel prices, which appears to be short lived. During the quarter, we spent about INR 1,950 crores on acquisition of SKS Power Plant, in addition to the normal CapEx on the ongoing projects. Post acquisition of SKS, our consolidated debt including for working capital stood at around INR 1,300 crores. Long-term loans repayable within next one year is less than INR 200 crores. The company holds a strong liquidity with cash and liquid investments of more than INR 1,500 crores as of September 30, 2024 which is in addition to the loans given is part of treasury investments. The debt to EBITDA is below 1, which will go down further as the effect of 600-megawatt IPP start reflecting in the EBITDA. During 9 months of calendar year 2024, global steel production declined by 1.9% to 1,394 million tonnes. China recorded decline of 3.6%. But in the global spend during the same period, India recorded growth of 5.9%. Due to slowdown in the domestic economy, Chinese steel exports remained at elevated levels. Aggressive exports from China due to subdued domestic demand made on the global steel prices. China exported 84 million tonnes in 9 months, recording a growth of 21%. Many countries have invoked safeguarded measures against Chinese imports. In essence of safeguard measures, steel imports in India recorded sharp jump of 44.5% quarter-on-quarter and 43.2% year-on-year, whereas the export sale 14.8% quarter-on-quarter and 29% year-on-year. India is net importer of steel of about 1.9 million tonnes in the quarter. The EU imposed additional safeguards to moderate high steel imports. Ferro alloys prices corrected back to previous levels after sharp jump in June on the fear of shortage of raw material due to disruption in Australia. Merchant power prices remained subdued due to above average rainfall during the quarter. Domestic crude steel production in quarter 2 of current financial year fell marginally by less than 1%, but grew 2.7% year-on-year to 36.23 million tonnes. Domestic finished steel consumption grew by about 4.2% quarter-on-quarter and 11.6% year-on-year to 37.09 million tonnes. Ferro alloy exports have been stable. During the quarter, we exported about 28,200 metric tonnes of ferro alloys worth INR 251 crores in quarter 2 of current financial year as compared to 32,500 metric tonnes worth INR 273 crores last quarter, and about 25,500 metric tonnes worth INR 189 crores in the corresponding period of the previous year. India is the fastest-growing major economy on the strength of its domestic demand and demography. The reversal of interest rate cycle will further strengthen competitiveness of the industry. Government is also taking safeguard measures to take steel imports. China is also pushing its economy through policy initiatives. The fall in fiscal deficit provides legroom for increased government CapEx. All this should overwhelm for Indian steel industry. Good credit offtake and strong capital market, particularly primary issuances indicate rise in the private CapEx that should boost CapEx heavy projects. Real estate sector has also recorded healthy bookings creating demand for steel. The effect of 600-megawatt thermal power plant acquired by us will start reflecting from the current quarter. This plant will give a major boost to the top line and bottom line of the company. That concludes our performance and outlook. We now open the forum for question and answer. Thank you, all the participants.

[Operator Instructions] The first question is from the line of AM Lodha from Sanmati Consultants.

Again, am I audible, sir?

Yes, you're audible.

Sir, congratulations for the good set of numbers as well as congratulations to the entire team of the management for successful takeover of SKS Power plant. I have got 2 questions, sir. One in fact is relating to SKS Power and second is relating to coal. Now SKS Power, as you have mentioned in your presentation that NCLT appeal has gone in [indiscernible] party have gone in the Supreme Court. So what is the legal opinion of our legal lawyers for this acquisition and this Supreme Court letter [indiscernible]?

So it has been confirmed twice by NCLAT. That gives a reasonable reference on our strength of the case.

Did it make any material difference, particularly when you have taken the position of the plant and made the payment and payment has been made to the banker and the banker has disbursed to the lender. Will it make any material difference in Supreme Court?

It is up to the Supreme Court matter being sub judice. I don't think the Supreme Court will take into consideration each and every second aspect. Ultimately, it is being -- matter being sub judice, I don't think we can give any specific. Up to the Supreme Court, but definitely, all these sectors will also be considered.

Okay. So in this acquisition, how much is -- out of 600, how much we are selling under PPA and how much we are selling in the market in the [indiscernible]?

PPA, we have launched [indiscernible] we have long-term PPA, medium-term PPA, short-term PPA and IEX all. For short-term PPA quantity goes up and down. So maybe out of 600, maybe 400 around because it's a fluctuating figure. It is related...

What is the present rate prevailing in the Exchange?

Exchange, it also searches again, but generally, we are getting INR 5 plus only on average because it varies hour to hour and day to day.

Whether the management has any intent to double the capacity of this plant?

Let the matters first be resolved. Definitely, if all infrastructure is available, appropriate steps will be taken at appropriate time.

My second question is regarding the coal mine, sir. We have got the capacity expanded to 1.06, and we applied for 5.2 MTPA When we can expect to get the oil clearance for this expansion of the coal mines, sir?

In the first stage, we are increasing it further from 1.6 million tonnes to 1.8 million tonnes. We expect to get maybe by end of the current financial year or maybe in the beginning of the next financial year. Then we will go for the second life of 5.2 million tonnes. So that will take some time.

Okay, sir. Can I squeeze one more question, last?

Yes, sure, sure.

The question is relating to hydropower, sir. Our Sikkim hydropower 113 megawatt, Rongnichu power plant at Sikkim. That we have, I think, commenced the commercial production last year. It's the second year running, I think?

This is, I think, third year.

Third year. Third year. So...

Total 3 years, this is fourth year.

Fourth year. But just I wanted to know the extent of the loans taken for this power plant and repayment schedule?

Yes. I think best we can provide you offline. Immediately, it will be very difficult to provide specific figures with regards to...

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

So first of all, can you highlight on the total coal mix given that we are at 1.6 million tonnes of coal capacity currently. So how much according to us will be used towards the power plant? And how much will be used for our internal operations? Could you highlight on that? And what portion -- and second question is that what portion of the SKS coal requirement is met through PPA signed with Coal India and what portion is met in-house again?

Yes. Out of 1.68 million tonnes, 100% will be captively consumed whether it is in the power plant of SKS or internally for sponge iron plant, captive power plant and all those things. Broadly, maybe about 6 million tonne might be used in other facilities and 1 million tonne plus will be used in power plant, ITP power plant.

Sir, so for 1 million tonne of this coal, what percentage of power requirement will be met through -- let's say for example, for this 600 megawatt to run a fully, let's say, at 85% TLF, how much coal do we require, can you provide that number?

We require more than 3 million tonnes, maybe 3.2, depending on the grade of the coal. It will be 3 million tonnes plus requirement.

So given that, out of that 3 million tonnes, 1 million tonnes is met through this coal mine and rest we buy from outside in PPA, rght?

Yes, for the time being, yes.

Okay. Okay. Okay, sir. And can you also highlight on the upcoming 3 coal mines, let's say the Shahpur West and the other coal mines that is coming up? Where are we on the Shahpur West coal mine?

Given in our initial address, we have received for [indiscernible] also. Now we are in the process of executing the mining lease. Post that, we'll get the mine opening permission. And once we get the mine opening permission, which we expect to get before end of the quarter, then it will take about 2 years' time to start the production or getting the production from that mine.

Okay. And sir, if I believe, according to previous remarks, previous interaction, this Shahpur West coal mines quality is at par of the import coal quality, right?

Yes, yes.

The next question is from the line of [indiscernible] from GreenEdge Wealth.

Sir, my question is again on this SKS Power that -- now it's at least 3 months that we have the power plant in our hand. So what is the peak PLF that we can reach in these power plants now that you will have some more access to the power plants and how they work? So that is question number one. Question number 2 is, sir, you said the blended realization right now is around INR 5 a unit. So what would be the EBITDA or PBT per unit that we can make? I'm not looking at an exact number, but just a range depending on power coal mine or coal which we are using currently from Coal India. What is the potential here? So these are the 2 questions, sir.

In normal course, we should expect 85% of the PLF from the plant. And we have been operating at full capacity. We have been -- the plant is generating full capacity generation. So there is no -- there is some under capacity. That is not the case. The plant is capable to operate at full capacity of 600 megawatts. That is the first question, I think I have. What exactly you wanted? This is what -- and PLF is...

Yes, so PLF can be 85%, you are saying, right, or even more?

Yes, 80% to 85% because if we are selling part of the market in IEX, sometimes it happens that also you have the capacity, but prices are what is remunerated and sometimes you may have to cut down the production. So in that case, we may consider -- on the cash side, if we consider it may be 80% because it is on the long-term contract. Sometimes, we have to cut down the production. Yes.

Got it. And my next question is what is the EBITDA per unit or profit before tax, PBT per unit? Because you said revenue is around INR 5 a unit right now. Over the long term, where do you see this profit before tax number? It will be INR 1 a unit, INR 2 unit? What is the economics if you can just explain us, that will be helpful?

EBITDA should remain in the range of, say, INR 1.5 to INR 2.5, somewhere in between, depending upon the prices because price volatility is there.

And sir, the INR 1.5 to INR 2.5 EBITDA, this will claim once we have our own coal mine, this entire 2 million right now, which we are buying from Coal India, if we get it from our own mine Gare Palma 2, 3 years later, then does this number change? Or it may remain in the same range, 1.5 to 2.5?

It will improve marginally. Definitely, it will improve marginally.

Okay. Okay. Sir, last question was on the steel part. You just mentioned that the imports on China has been very high and everybody will be presenting to the government. So these imports are very high on which parts? Like is it mostly flat, long or in the products which we are there? Any color that you can give on this?

Manish?

Can you come again, please?

Yes. So my question was that the imports on China has increased a lot on the steel side. So I just wanted to check, are there specific products where Chinese dumping is very high in India? Or is it just mostly affecting our products? Or any such color you can give on the imports from China? And how different are the spreads? Our...

In the last few months, we have seen a lot of imports happening from China. And it's basically on the electrical steels and flat steels that are coming into the country. And the government has taken a lot of that and is working on that to curb the imports also. So soon, we'll -- we are very hopeful that soon we'll see that there will be some import curves in place. And overall -- basically, overall, what happens when you see such a large sort of imports coming into India from China, the overall sentiment gets a little shaky here in India.

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

So I have some basic questions. Can you just highlight what is the cost of mining of coal and iron ore from our mines?

Coal and iron ore -- coal pricing depends because we are paying a substantial part towards revenue share. See, we are paying 67% revenue share in our Gare Palma IV/7 and we are also paying royalties. The whole cost depends upon the market price of the coal, which fluctuates in a wider range. And in case of iron ore, it is somewhere in the range of INR 2,500 to INR 2,700 depending upon the output. There are multiple variables, lumps and fines. Again, because a major component of the output is the government taxes, which varies depend upon the grade and the size of the material taken out. So defining a specific pricing, what is -- the cost will be very difficult. In case of coal also, we have 4 different grades of the coal from the same mine. So the court varies in a much wider range for the grid to grid.

Yes. Yes, sir, I was just asking more about the cost of operations in mining, excluding that revenue sharing model that we do?

Yes, that is not material in overall cost of structure.

Okay. Okay. And we have Kalyani mines which could -- so when can we expect this Kalyani mines to operationalize? And are we planning to use some kind of advanced mining techniques like underground continuous minus? Or are we going to do it with existing lasting technology?

So far as the use of the technology is concerned, in case of underground mines, generally, continuous miners only will be used, take the case of Shahpur West Coal Mine will be in the continuous miners only for extraction of the coal from the mine. So far as the Gare Palma IV/7 present operations are concerned, that is an open cost miner, continuous miner is not required. So at appropriate -- whatever is appropriate technology depends upon the mine that is applied.

And can you also comment on when could we expect Kalyani mines to be operationalized?

In the last con call, we had stated that there was a dispute on the boundary. There was overlapping boundary of the 2 different mines alloted to different parties. So that matter was taken up with the same PDI and that boundary dispute has been sorted out. But now we are in the process of evaluating. Post redesign of the boundary, we are carrying out the DPR and viability survey and final outcome will come only once that is approved by the South Eastern Coalfields Limited. So as of now the position is standstill.

Yes, understood. Just last one basic question. We have purchased Surjagarh iron ore block for 126% revenue share model. So I was just wondering how can we be profitable when we are giving away more than 100% of revenue share to the government? So that was one basic question from myself.

Yes. If you see all the iron ore mines have gone only in this range and I think within this Surjagarh iron ore blocks also. Our -- well, I think is lowest -- maybe among the lowest of the premium, which was built by us. Others have [indiscernible] have in our bid in the same geology and same area. There were multiple blocks in Surjagarh, ourselves are block #1. And we have got a better quality of the iron ore. There are multiple variables again in the form of the pricing of the iron ore, iron ore fines, iron ore lumps. There are multiple variables there. What prices -- and their revenue share is payable on the notified price of the estate. It is not on your selling price because if we -- we'll be bringing -- in case of iron ore, the royalty and revenue share is payable on the notified price for the estate. So there are multiple variables in cost structure.

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

Congratulations for the set of numbers. So just wanted to understand the pricing point of you. Last quarter some price corrections around 6% to 8% for the less wire rod and HB wire and [indiscernible] source also has been corrected 10% to 27% based on high grade to low grade in that range. In this quarter, how is the price of -- what's the scenario right now?

This quarter also, we see that the prices will be a little subdued because December holidays are approaching. And typically, we see that December is a little lull month. Overall, I think the government spending will also start happening in the next 3 to 4 months because if you look, government spending has been not as much as we had expected it to be on infrastructure. So going forward, I think the demand will pick up. But in the next 2 to 3 months, I think it will be a little subdued as well.

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

For the follow-up, so I just wanted to understand more on the ferro alloy market. So how is it faring right now? And what can we expect going forward?

So the ferro alloy market, as you know, that it has gone up in the middle because of the ore prices which happened in Australia where there was severe flooding, et cetera, that happened in the South 32 mines. Right now, the alloy market is quite slow and the demand globally is not very high right now because you've seen major regions and disturbances like the Ukraine, Russia war happening, the Gaza attack, the Middle Eastern regions. Also, the credit tranche is felt across regions. So we're not hoping that the next 2, 3 months, there'll be an uptick on the ferro alloy side, or the ferro alloy pricing. But maybe after January and February onwards, typically, the demand picks up.

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

[Foreign Language] approximately, it will be around INR 2,000 annually -- INR 2,000 crores?

Yes.

And profit in the range of INR 500 crores?

[Foreign Language]

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[Foreign Language] December and January, it is expected?

January [Foreign Language]. You know that December peak is always a little low season and January, people start coming back to offices by the January 10. So after January only the pick up will start in terms of demand. But globally, the demand looks to be a little slow because if you know that Japan has got an installed capacity of 105 million tonnes, and they are not going to produce more than 90 million tonnes. So we are seeing shortfall in terms of steel production in Japan as well. We are seeing a shortfall in terms of production in European Union as well, yes, in terms of steel production. And this year looks to be a little low in terms of demand because of the war situation going on everywhere. And we are also waiting and watching very quietly as to what will happen when Trump's policy comes into place. What are the impacts that are going to be put in place for China? We have to see what are the policies that he's bringing out for trade. And only then we can expect some demand pickup.

[Foreign Language] so will the demand pick up from India?

[Foreign Language] but let us see that what is the policy that comes into play.

But January [Foreign Language] price stability and improvement is expected?

Price stability [Foreign Language] it is hovering around $860 to $880. So price stability is already there in terms of dollar terms.

I couldn't get it, $860 to $880, what is that?

$860 to $880.

Okay, okay, which is profitable for us?

Not too much, but it's okay. It's not that bad.

[Foreign Language]

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All the best for SKS Power.

The next question is from the line of AM Lodha from Sanmati Consultants.

There is one follow-up question which I skipped. Regarding SKS Power, sir. [Foreign Language] number of units?

[Foreign Language]

[Foreign Language] where I found that the total capacity after this 25 hydropower, you will be having 1,000 megawatt power in total?

Not hydro. Not hydro.

Not hydro. All, all. One place you have mentioned 751, anothre place 166 idle, another 50 [indiscernible] and there's 25 which is to commence the product. So I'm making the total, the total comes to 1,200 megawatts?

I don't think 1,200. It should be somewhere in the range 1,000.

No, not 1,200, 1,002 only -- yes, 1,000?

It will be around 1,000 tonnes [Foreign Language].

[Foreign Language] This is hydropower, since this year there was heavy rains. So I presume that hydropower also generate some units in the month of October, November?

[Foreign Language] October, November generation is better as compared to the previous year.

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

Yes. Thank you. We thank all the participants for attending this con call. To summarize what we stated, the loan related acquisition of SKS 600-megawatt power plant is completed, and this will be a major growth driver in our journey. Number of projects are under execution for consistent growth. Out of these, 25-megawatt hydropower project and 50-megawatt solar power project will be commissioned in the current financial year. Our diversification has resulted in better performance during volatile times. So we are poised for exciting times. Thank you. Please feel free to reach out to us or to our IR team with any further queries. Thank you all.

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