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

Ladies and gentlemen, good day, and welcome to the Sarda Q1 FY -- Ladies and gentlemen, good day, and welcome to the Q1 FY '26 Earnings Conference Call for Sarda Energy and Minerals Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankit Jain from Stellar Investor Relations. Thank you, and over to you, sir.

Thank you Shruthi. Good evening, everyone, and thank you for joining us today. To discuss Q1 FY '26 business performance, we have with us senior management team of Sarda Energy & Minerals Limited, represented by Mr. Pankaj Sarda, Managing Director; Mr. Padam Kumar Jain, Director and Chief Financial Officer; Mr. Manish Sarda, Deputy Managing Director; and Mr. Nilay Joshi, Executive Director. Before we proceed with this call, I would like to mention that some of the statements made in this call may be forward-looking in nature and may involve risks and uncertainties. The company also undertakes no obligation to update any forward-looking statements to reflect developments that occur after the statement is made. Documents relating to the company's financial performance, including the investor presentation have been uploaded on the stock exchange and company's website. I now hand over the conference call to Mr. Pankaj Sarda, and then we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. Operational performance. FY '25 marked a significant milestone in our growth journey and Q1 FY '26 performance reinforces the strong foundation and long-term sustainability of our earnings. The earnings mix has also evolved with increasing share of energy business in the total earnings. We achieved record revenue and profit this quarter, driven by better energy prices and higher hydropower generation. Hydropower generation grew by 37% Y-o-Y, supported by early monsoon. Our IPP thermal power plant achieved significantly improved plant load factor of 90.21% in Q1 as against 71.65% in Q1 FY '25, largely due to ongoing operational efficiency measures. For the quarter ended, the plant stood at 15th rank in Central Electricity Authority ranking of best thermal power plants against 118th rank in June 2024. The pellet plant and captive power plant also reported record production. We strategically terminated the long-term power purchase agreement executed with CSPDCL for 113-megawatt hydropower project. This now gives us the opportunity to sell power in open market, which we believe will be beneficial over the long term. Expansion and project updates. Coal mines. Gare Palma IV/7, we have received consent to operate for increased capacity of coal washery from 0.96 million tonnes to 1.8 million tonnes in May 2025. Final approval for increasing coal mining capacity from 1.68 million tonnes is expected this quarter. Shahpur West mine development work is progressing as per schedule and production is expected before the end of the next financial year. Bartunga Hill JV, DPR and mining plans submitted to SCCL forest land diversion approval is in progress. Power plant. Rehar Hydropower project, 25 megawatt. The commercial operation began on 8th July 2025. We have entered into long-term power supply arrangement with CSPDCL at generic tariff. Generic tariff for current year is yet to be notified by the regulator. Kotaiveera Hydropower project, 25 megawatt. The project is in approval stage with work expected to begin in next quarter. Two additional small hydropower projects are in various stages of approval. Captive solar power, 50 megawatts. Most of the equipment has been delivered and transmission line work is ongoing. Project commissioning is expected in current financial year. 30-megawatt TG set replacement. Work is on schedule with operations expected to begin by mid-FY '27. We'll be taking shutdown of the unit in next quarter. Financial performance. In Q1 FY '26, we posted record consolidated revenue of INR 1,633 crores, up 76% Y-o-Y and 32% Q-o-Q. The Y-o-Y increase partially reflects the inclusion of IPP operations required on 22nd August 2024. Improved volumes and realizations in steel and ferro alloys also contributed, especially after maintenance shutdowns impacted Q4 FY '25. Profitability. Operating EBITDA rose to INR 627 crores versus INR 382 crores Y-o-Y with the Energy segment contributing larger share. Consolidated profit after tax grew 118% Y-o-Y to INR 435 crores. Strong price realization for untied up power supported this growth, though prices have softened this quarter. Debt and liquidity. Net consolidated debt, including working capital loans, fell to INR 1,000 crores from INR 1,600 crores. Long-term loans repayable within the next year stands at INR 206 crores. Liquidity remains robust with INR 1,700 crores in cash and liquid investments, excluding treasury loans. The net debt-to-EBITDA ratio is well below 1. I now hand over to Shri Manish Sarda ji to discuss the industry overview and outlook. Over to you.

Thanks, Pankaj. India's fiscal deficit is projected to decline to 4.4% in FY '26, down from 4.8% in FY '25. The lower inflation has enabled early rate cuts supported by RBI's liquidity measures. Infusion of liquidity by RBI has helped in transmission of rate cut in the industry. This will positively impact corporate earnings and CapEx. Tax breaks is also expected to boost consumption. Global steel production declined over 4% year-on-year in quarter 1 to 466 million tonnes with China down 6%. Despite this, Chinese exports surged with net exports exceeding 53 million tonnes during January to May '25, putting pressure on global pricing. In contrast, India recorded 10.3% growth in crude steel production to 40.6 million metric tons with 8% growth in finished steel demand. Imports moderated post imposition of safeguard duty and quality control order, but still exceeded exports. Although because of higher growth in production over consumption, the long product steel prices remain under pressure. Lower input costs like iron ore, coal helped improve margins. The Indian Coal Index declined by 13% year-on-year from 142 to 128. We are focused more on domestic market for share of ferro alloys due to better realization. As a result, exports in Q1 dropped to 21,500 metric tons from 32,500 metric ton year-on-year. Outlook. The Chinese government has recently announced another stimulus of CNY 69 billion to tackle consumption bottlenecks and to bolster the domestic market amid global volatility. This will be the fourth batch of stimulus, bringing the total to the annual target of CNY 300 billion. This should be positive for metal markets and margins should improve particularly due to fall in input prices. Fall in interest rate will enhance competitiveness and spur capital investments. Increased government spending is expected to support economic growth and credit expansion. Power demand and solar power prices remain subdued in monsoon season, except for long-term supply contracts, which will have bearing on the performance quarter-on-quarter. However, higher generation from hydropower projects in the quarter will partly offset this. Commissioning of Rehar hydropower project will also add to the performance of second quarter. Lower finance costs are expected to further strengthen profitability. That concludes our performance and outlook. The performance improvement measures at our IPP are clearly reflected in the results. We remain confident of delivering...

Let us put the floor to the...

Yes. Okay.

[Operator Instructions] The first question is from the line of [indiscernible] [ Lig Advisors ].

Am I audible?

Yes, sir.

So, just wanted to understand, we have taken a resolution to [indiscernible] INR 1,000 crores of debt. So can you please specify what are the plans of the company with the debt which we are raising?

Can you come again? We lost you in between.

I wanted to understand we took a resolution for INR 1,000 crores debt raise. So can you please explain what are the plans of the company? Where are we planning to utilize them? And when are we planning to raise the same?

This is only an enabling resolution so that in case of companies with AA and above ratings are required to part finance their working capital requirement through market listed borrowings. So it is only enabling resolution. We don't have any plan as such to raise any funds. And this resolution has been taken into the past also, but we have not raised the funds.

The next question is from the line of Manav from [ YES Securities Limited ].

Congratulations on the good set of numbers. So my first question is on the update of the Supreme Court case on the SKS acquisition. Where are we as things stand currently?

So it is on -- as of now, it is listed for 6th August, which is day after tomorrow.

Okay. Got it. So 6th August is when we expect like -- it's going to be an interim hearing or a final hearing?

So whenever the hearing will happen, it is a final hearing only, but I mean as of now, it is listed for 6. That's all that we can say.

Sure, sure. So okay. The other thing on 1.8 million tonnes of the coal mine. So earlier, we were expecting it during this first quarter. Now it's shifted to Q2 FY '26. I mean, if you could just enlighten more on that?

No. We already have a permission for 1.68 million tonnes. And whenever we get during the year, even if we get by December or January, we will achieve the 1.8 million tonnes during the year. So it is irrelevant whether I get in March, June or September because for the year, we'll be able to achieve. It's only in the process, in the final stage of approvals. So it will not affect our annual target of 1.8 million tonnes.

Got it. Got it. Sure, sir. Sir, my next question is much more for the steel business. How do you see the realizations shaping up for Q2? Because I believe the long products is seeing realizations quite subdued. Do we see any improvements on a quarter-on-quarter basis?

So typically, you know that monsoon season is a season where long products prices are always subdued because construction activities practically in many parts of the country gets to a hold sort of thing. So we are hoping that now with consumption pattern going forward with the monsoons getting over, the prices also will improve along and the demand also will improve.

Got it. And sir, we continue to maintain our position, right, on not taking further expansions on the steel front and focusing majorly on the power story for the company?

Yes. As of now, the expansion is focused on energy and minerals only, yes.

The next question is from the line of Rakesh Roy, Boring AMC.

My first question regarding again realization and volume term. If you see the volume term on a year-on-year basis, our steel volume grew by near by 22%. But at same time, our realization is down by 23%. Any reason for the sudden jump in volume and big drop in realization?

Realization is not down, 23% in steel.

Overall, sir, because if I -- your number, steel number is revenue divided by the volume, like iron ore pellets, sponge iron [indiscernible] totals comes nearby how much?

Please refer to our presentation, which has been uploaded on the stock exchanges. So if you refer to Slide #9, you will get all the steel and ferro alloys realizations over the quarters, et cetera, all details are there. So you can see for yourself the realization -- I mean, what you are saying is not adding up actually. If you just look at the slide, you'll have clarity.

Okay. Okay. Right, sir. Because I have just taken the number from [indiscernible].

We disclose realizations every quarter for all the steel products and ferro alloys. So if you have a look at this slide, you'll get clarity.

Okay. Right, sir. And sir, in terms of from Q1, how much is our realization power, sir? How much is the unit per, sir?

That is also given on Slide 6, yes -- 6.16.

Sir. Okay. Right, sir. And sir, last question regarding, sir, any outlook for U.S. steel for whole year and power for whole year FY '26, any guidance?

So far as volumes are concerned, steel volumes will remain more or less same -- slightly -- whatever improvement is there on account of the efficiencies, that will be there. Otherwise, steel volumes are stable.

Like FY '25.

Yes, yes.

And regarding power, sir?

Power also because last year, it was only for the part of the year -- for the whole year, you can assume 80% PLF.

80% PLF. And sir, in terms of margin, margin will improve or margin will sustain this Q1 for next 2, 3 quarters for Q1 margin?

We have already given details in our opening remarks, and it is subject to the market conditions. It depends on the market prices.

Okay. So in short term, if you see, sir, in Q2, mostly, I can guess your margin will improve because the coal price is down. Can we assume?

There are multiple factors, coal prices, iron ore prices, then steel prices, there are multiple factors. But our outlook, we could say we have already covered in our opening address.

[Operator Instructions] The next question is from the line of Priyanj, an investor.

Am I audible?

Yes.

My first question is regarding the hydropower project. So we know that the PPA has been terminated. In this regard, please reply to the following questions. At what rate the power was being sold under the PPA Sikkim project? And at what rate is the company stretching now for sale in spot market or to other customers for the sale of this power? Is the company able to sell the entire 130 megawatts in spot market or some power remains unsold during -- after the termination of this PPA? Also, what was the reason which led to the termination of the PPA? The second question is regarding the steel division. So it has been exceedingly well -- doing well in the past quarter.

You can -- one by one -- one by one questions, that will be better. So your question on the on the hydropower project. So that we'll respond first. We had entered into power purchase agreement with cost plus tariff. So our tariff was going down year-on-year as the interest burden was going down, as our cost was going down, our tariff was also going down. And the transmission cost was in our -- on our head. So revenue was going down year-on-year. That's why we decided to terminate this agreement. And we are selling power in the open market. We are able to sell 100% of the power. And annual average of the realization for the time being may remain at the levels what we were getting previously. But yes, in longer term, we will be getting the benefit of the increasing rates of power over a longer period of time.

Okay. And do we have any estimate on the average rate that we're selling per unit?

Average, it depends season to season, it will vary, but it should be somewhere in the range of INR 5 plus/minus.

Plus/minus INR 5. Okay.

Anywhere in the annual average, it should be.

Understood. Okay. Got it. I'll move on to my next question then. So we know that the Steel division has been doing exceedingly well in the first quarter '25, '26 since the revenue increased by 10% Q-o-Q, but the profit jumped by 100% Q-o-Q. So my question is, is this jump in profitability of the Steel division sustainable in the current quarter or even next quarter? Or was there any one-off item in the June quarter, which led to this really high jump in profit?

No, there was no one-off item in the Steel division. Yes, volume had also gone up as compared to the March. In the March, there were certain shutdowns in the plant. So Steel division, there is no one-off item, and we should be able to sustain and improve from here.

So we'll be seeing a similar growth is what your...

[Operator Instructions] The next question is from the line of Gautam Jain from GCJ Financial.

First, congratulations for a solid set of numbers. My question is, can I get the breakup of your Power business segment revenue, which is like INR 939 crores. Can I get the breakup of that into captive IPP and hydro?

We can provide offline may not be available immediately, but that will be available. That should not be a problem.

Okay. In the hydro business -- hydropower business, is it like that your first quarter and second quarter are better than the last 2 quarters?

Your voice is cracking. Can you repeat...

Always in hydro, second quarter is always better than the last quarter.

No, I mean the first 2 quarters are better than the last 2 quarters on the financial, right?

Not always. First quarter may not always be better than the third quarter. Generally, second quarter is the peak generation because of the rainy season. Third quarter is a little better than that. And first depends upon the incoming of the monsoon. If it is early monsoon, we get good rains. And sometimes if monsoon comes in June, then revenues may be on lower side.

Okay. Okay. And the last question is you said about Chinese stimulus and that will be good for the steel pricing. So are we seeing better price in Q2 versus Q1?

Manish?

Yes. No, no, Chinese stimulus has just come around right now. We have just recently seen that the Chinese stimulus is there. We'll have to wait and see. But I'm sure that once the monsoons are over, we'll see better pricing and better demand as well.

Okay. Okay. May I ask one more question?

Sure.

So with regard to your gross debt and cash level, which is around INR 2,700 crores of gross debt and INR 1,700 crores of cash in hand. So what are the repayment schedule, if I may know?

No. INR 1,000 crores is the loan and INR 1,700 crores is the case. Both are opposite. It is not -- it cannot be combined.

No, no. I know. I'm saying gross debt is INR 2,700 crores and cash surplus INR 1,700 crores. So net debt comes to INR 1,000 crores. I'm asking is what is the repayment schedule on the gross debt side.

Repayment is hardly -- for the current year, it is only INR 200 crores for the current year.

So what we'll do with the cash in hand because that is substantially rising because of our cash flow is very strong.

Opportunity, right opportunity. And definitely, our growth plans are going on. We are spending about INR 500 crores to INR 2,000 crores a year on the expansion projects in different segments, whether it is coal mines, hydropower project and other projects.

So may I know total CapEx for next 3 years, including current year?

As I told now, every year we have been spending in the range of INR 500 crores to INR 1,000 crores a year as of [indiscernible] we have planned for next 2, 3 years.

Okay. So that will continue even from 2026, '27, '28, right?

That we have already planned. This is what we have already planned and there may be new opportunities also.

[Operator Instructions] The next question is from the line of Rajesh Bhandari from NAKODA.

[Foreign Language] it's more on power and mining. [Foreign Language] we will remain only in India or we will explore outside India also and rare earth also? [Foreign Language] do we have any plans for expansion of that 600 additional?

So the infrastructure is there for 1,200 megawatt. We definitely will be going for environment clearances for another 800 megawatt in future. That much land and everything in the infrastructure is there. And what was your another question, sir?

[Foreign Language] its more on power and mining.

Because 800 mega watt itself will take around INR 8,000 crores of CapEx.

[Foreign Language] this has turn the small cap into a large cap company [Foreign Language].

So have an operating a mine in Indonesia. [Foreign Language] We will try to achieve 1 million tonne in near future in that mine -- coal mine. [Foreign Language].

[Foreign Language]

[Foreign Language]

The next question is from the line of Priyanj, an individual investor.

Can you hear me?

Yes, sir.

My question again pertains to the Sikkim hydropower plant. So what was the average generation of power in the June quarter? And what is the power generation in the July month?

Just a moment. So June quarter, the numbers that you see in the investor presentation for hydro, that is largely from Sikkim.

This is the 100 million units.

100 million units. Okay. And in the July month?

July, we shall have to take immediately. We don't have it at hand.

Okay. Maybe I can reach out later to the team then.

The next question is from the line of Vedant Sarda from Nirmal Bang.

I wanted to know that what kind of ROCE we are targeting for the CapEx plans and for overall as a company?

Return on capital employed will differ project to project, but there are certain projects which are related with integration, there are new projects. So there are multiple variables and for different projects because if you go for hydropower projects, ROCE expectation is different because there you have consistency in the profitability. Then if you are going for the steel projects, then ROCE expectation will be different. So specifying a specific, this is my ROCE expectation, project to project and looking to the market condition and ROCE also you have to see only in the terms, whether market is in the upward mode or downward mode. In case of steel sector, when you enter into the -- when the market is already down, ROCE immediately, if you compare, that may not be very good. So ROCEs totally depends upon the market conditions, but definitely, it should be much better than our weighted average cost of the capital. That is what is the criteria.

Yes, sir, like we don't have any...