Steel Authority of India Limited (SAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Steel Authority of India Q4 FY '23 Earnings Conference Call hosted by Nuvama Wealth Management. [Operator Instructions] I now hand the conference over to Mr. Ashish Kejriwal from Nuvama Wealth Management. Thank you, and over to you.

Thank you, Pravin. Good morning, everyone. On behalf of Nuvama Institutional Equities, we welcome you all for Q4 FY '23 Conference Call of SAIL. We are happy to host Mr. Anil Tulsiani, Director of Finance, along with his team. Now I request Mr. Tulsiani for his opening remarks, and thereafter, we can open the call for Q&A. Over to you, sir.

Thank you, Ashishji. Good afternoon, everyone. It is my pleasure to welcome you all to the investor con call on the for Q4 and financial year 2023. Let me first briefly run through the economic scenario in which we operated during the financial year '22/'23, which was quite challenging. We saw a consistent decline in the prices of steel in the first 3 quarters on the back of international prices. There was some stabilization of prices in Q4. The year also saw fluctuating prices of inputs, inflationary pressures forcing corrective action by the Central Bank, which in turn led to growth-breaking compromise, disruptions in supply chains, slowdown in Europe and U.S., lockdown in China, et cetera, which impacted the GDP of economies across the globe. As a result, the current steel consumption saw a decline over 3% during the calendar year '22 over the previous year. Indian economy, however, fared better than the other major economies and the growth during financial year '23 is estimated at 7%. The domestic production and consumption of steel registered growth of 5% and 13%, respectively, during financial year '23. As for WSA, India at a rate of 5.8% was the one of the only 2 countries to register a positive growth during calendar year '22 among the top 10 steel-producing nations. Coming to the performance of the company, SAIL despite all challenges registered best ever production and sales performance during financial year '23. During the financial year, the company produced highest ever hot metal, crude steel as well as saleable steel. The hot metal production stood at 19.4 million tonnes as against the previous year of 18.7 million tonnes. Crude steel production stood at 18.3 million tonnes as against previous best of 17.3 million tonnes in financllial year '22. Saleable steel production stood at 17.2 million tonnes as against the previous year of 16.9 million tonnes in financial year '22. Now coming to marketing. The marketing had to face numerous challenges as already narrated. Despite the same, the company registered its best-ever sales volume during the year -- financial year '23 at 16.20 million tonnes, marginally higher than the previous best of 16.15 million tonnes achieved in financial year '22. In fact, the domestic sale at 15.8 million tonnes grew by 7% over 14.8 million tonnes during financial year '22. The exports, however, declined to 0.4 million tonnes in financial year '23 from 1.4 million tonnes in financial year '22, a degrowth of 68% as the international market faced [indiscernible]. On the financial front, the company once again reached the INR 1 lakh crore mark for its turnover. The turnover of INR 1.3768 lakh crores was the best ever outperformance of the previous best of INR 1.2805 crores achieved during financial year '22. The profitability, however, could not crack the level achieved during financial year '22, majorly due to high input prices and marginal decline in the NSR. EBITDA for the year stood at INR 9,379 crores, a reduction of 58% over CPLY of INR 22,364 crores. PBT and PAT at INR 2,637 crores and INR 1,903 crores, respectively, saw reduction vis-a-vis INR 16,039 crores and INR 12,015 crores in the previous year. The borrowings have increased to INR 29,270 crores as on 31st December '22 as against INR 13,386 crores as on 31 March '22, and has reduced in the Q4 by around about INR 3,608 crores, coming down to INR 25,662 crores as of 31st March '23. The recent decline in the steel prices, especially for the long products is again a cause of concern and may affect the profitability to some extent. However, the simultaneous prices of imported [ coal ] is expected to cover up the sales. Now coming to our sustenance and operational efficiencies. In addition to the production and sales in the current year, the company is committed to take measures for ensuring sustainable operations. In the operational efficiency, the company has been making steady progress for reducing coal and coke consumption, higher usage of CDI and improving its geared productivity. The company has achieved its best ever performance on these performance parameters during financial year '23. The company is leveraging its new facilities to a good effect. We had already stopped production through [indiscernible]. The production of [indiscernible] crude is also being brought down consistently. [indiscernible] financials '23 the same stood at 200% was 1.1 in financial year '22. The share of value-added steel increased to 32.7% in financial year '23 vis-a-vis 51.1% in financial year '22. The percentage of semis in production is also coming down with higher capacity utilization of our rails. The percentage which stood at 19.3% in financial year '22 has now gone up to 30.1% in financial year '23. By engaging conversion services in and around the plant, demand pockets the percentage share of semis in sales has been even lower at 9% coming down from 15% in financial year '22. As a responsible corporate we have been working for cleaner and greener steel by ensuring refinement preservation over the years by use of initiatives like waste utilization over 100% in financial year '23 as compared to 83% in financial year '17. Reduction in carbon footprints, various projects under our commitments do 0 liquid discharge, ecorestoration of areas, regions around the plants and mines, plantation of more than 21 million saplings till date, use of alternate social energy like hydro power and solar park. Towards stakeholder management, the company has paid a total dividend of INR 3.25 per share in financial year '23, which included INR 2.25 per share as final dividend of financial '22 and INR 1 as interim dividend of financial year '23. Further, the Board of Directors has recommended a final dividend of INR 0.50 per share for financial year '23 is subject to shareholders' approval at AGM. As a means to improve transparency, the company has been procuring materials through government e-marketplace, the procurement doubles during financial year '23 to round about INR 9,200 crores against the previous year figure of around INR 4,600 crores. The company has been engaging in numerous CSR activities across the country and primarily in the vicinity of our plants and units. The activities are undertaken in conformity with the company's act as well as DPE guidelines. IMF in its latest world economic outlook of April '23 has projected a global growth to bottom out at 2.8% this year. As supply chain disruptions are unwinding, dislocations to energy and food markets are IMF expects global growth to rise modestly to 3% in 2024 as inflation comes further to 4.9%. The major advanced economies are seeking much lower increase in GDP growth at 1.3% for 2023, with Germany and U.K. actually projected to contract by 0.1% and 0.3%. The emerging economies are expected to fare much better than the advanced counterpart growing at 3.9%. The Indian economy meanwhile stands out as a silver lining with a strong demand and consumption pattern. Amongst the major economies, we are placed much better and beating the growth projections even for China. India expects to grow in the range of 6% to 7% over the next few years in various reports like IMF, WEO World Bank projection, Monetary Policy Committee of RBI, et cetera. As per IMF, growth in India is expected to moderate in [ FY ] '23 to 5.9%, before climbing higher to 6.3% in 2024. As per the World Steel Association, demand will see a 2.3% rebound this year to reach 1,822.3 million tonnes. Steel demand is forecast to grow by 1.7% in 2024 to reach 1,854 million tonnes. In India, the demand is expected to show healthy growth of 7.3% in 2023 and 6.2% in 2024. I'm hopeful that the good times to await us and I know surely. With these words, I hand it back to Mr. Kejriwal for opening the Q&A session. I'm sure you all have some queries on the performance. Thank you.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Amit Dixit from ICICI Securities.

Yes. I have a couple of questions. The first one is on coking coal cost. If you could let us know what was the change Q-o-Q in the coking coal cost in Q4? And what do you expect in Q1? That is the first question.

Yes, the imported coking coal cost during the third quarter was around INR 25,500, and in the fourth quarter also, it was the same rate of around about INR 25,500. And coming to the projections for the next few months, it will be a bit higher at around about INR 28,000.

So when you get the benefit of the lower coking coal prices prevailing in the country?

See, the cycle is around about, you can say, around about 75 to 80 days. Like when we get coal from U.S. so the time taken by -- to reach our port is around about 40 to 45 days. And when it is from Australia, it is about 25 -- 20 to 25 days. So 40 to 45 days plus the movement inside within India and at the port. So the average is round about 75 to 80 days. So the benefit of, you can say, the month of May is -- from May, we have started getting the real benefit of lower prices of coal, April and May. It will probably carry -- probably start getting it from the last week of June -- 2nd half of June and July onwards.

Okay. The second question is essentially on demand. What we have seen that in several quarters, there are -- as we talk to different channel guys, they mention about the subdued demand prevailing in the country currently. While we are arguably, we are saying that the demand will grow by 13-odd percent. Now given all these aspects, where -- in which sectors do you see for yourself, demand growing? And what would be our sales volume target for this year, FY '24?

For the year FY '24, we have projected a sales volume of around 18.7 million tonnes, which is an improvement of 15% over '22 to '23. And we expect the demand to be there also, in all the segments, especially in the infrastructure, and of course, there will be a slowdown in the demand during the monsoon season. But we expect more or less a consistent further demand thereafter also.

In last 2 months, have you seen any slowdown in demand, particularly infra and the alloy sectors?

No, no, no. There is no slowdown in demand, at least for us.

The next question is from the line of Somaiah V from Avendus Spark.

The first question is on the [indiscernible]

There is a lot of disturbance on your line.

Am I audible?

We shall take the next question. The next question is from the line of Mohit Bhansali from Bonanza Portfolio Limited.

Yes. First of all, I want to know what was the employee strength comparatively in the year-end, last year to this year, how much reduction it has been?

There has been a reduction of around 3,000. 2,800 to be exact there is a reduction in manpower.

3,800 (sic) [ 2,800 ]?

Right.

2,800. So I'm curious to know that since the reduction is year-to-year, why the employee cost has gone up 15% year-to-year?

15%. I don't think year-on-year, there has been a reduction of around about INR 800 crores.

Last year, it was INR 3,000 crores, it is showing, now it is showing INR 3,400 crores.

I think you are talking about quarter-to-quarter.

No, I'm talking about last March quarter, last financial year March quarter.

Quarter-to-quarter, I think you're talking quarter-on-quarter.

Yes, yes.

Yes. Actually, what has happened is, in fact, at the year end, normally, what happens is we have a fresh valuation of our -- from our actuary. So based -- because otherwise normally grow by the previous year's figures only with some marginal escalation. When we have done the actuarial valuation this year, there was an increase of around about INR 400 crores because of that. so which has impacted in the particular quarter. And besides that, the pension provision, which we had made up to the third quarter, that was considering since the profit was low at -- up to the third quarter, we had taken it at 3%. And now we had to do it at the rate of 6.6%. So the 3.6% additional for pension and another INR 300 crores to INR 400 crores are approximately for this revaluation after the actuary had given the figures for '22/'23.

Okay. So what is the call for this financial year? Or what will -- it will be gradual, like earlier in -- earlier con call, you said that valuation will gradually come down.

Yes, it will be coming down this year also. See, there is a reduction of almost 5%. When the manpower is coming down, there is the reduction for that. But besides that see there is a normal increment and the [ deal ] provision, which we have to keep. So that also has some impact on the salaries and wages. At least you can say 6% to 7% for the normal employees who are still working. So basically, everywhere we can expect for around 4% to 5% in salaries and wages.

Okay. So it will be more or less same or it may come down a little bit?

It will come down a bit.

Okay. Second question is on your debt trajectory. What do you think your debt trajectory will be in this financial year. It will come down or it will go up?

We expect it to come down, especially with the softening of the coal prices, we will really get a benefit of that because at the present whatever is the outflow for coal, it is surely expected to come down by, you can say, round about INR 1,000 crores to INR 1,200 crores per month. But the other thing which plays a vital role is the net sales realization of our products. So we have to keep our fingers crossed for that. So if this happens so, maybe with the CapEx also, what we are planning of round about INR 6,000 crores, we may still be able to reduce our debt to some extent.

One thing I just want to submit that CapEx you are doing every year, INR 4,000 crores to INR 5,000 crores. So that is a huge CapEx. So why don't you mention what CapEx you are doing in your presentation like new coking [indiscernible] or SMS in our Rourkela? And what is the time line of completion. It will be very helpful for us if you mention everything in your presentation as well.

Okay. We'll keep it in mind.

The next question is from the line of Pritam (sic) [ Pratim ] Roy from B&K Securities.

Yes. First question is that you have mentioned our full year sales guidance of 18.7 million tonnes. So if you can tell me the where this is coming from, whether domestic or export and how the mix will come in. So that will be -- that is my first question.

Shall I get back to you regarding the domestic and this thing in a few minutes -- by the end of this call?

Yes. [ Definitely ] And my main question is that, is there any -- what is the mix on that? And from which sector it will come from? That is the main question. And the second question is that, that employee expense, that you have explained just now, other expense, there is a jump in sequential basis. So if you can mention, is there any one-off on that basis or anything else that you can [indiscernible].

There was a substantial jump in this year because of the foreign currency losses which we have taken in this year because of the sudden hike in the dollar rate. You know that most of our export -- imports are [indiscernible] there. Nearly 85% of our entire pool is being imported. So because of the sudden jump of the dollar rate in this particular financial year, we had to take quite a lot of it hit because of that.

Okay. And [ any situation ] that the overall debt will come down by INR 6,000 crores for the FY '24, right?

Yes, like our original planning is paying all the debt, but we are not too sure about this thing. It depends -- it entirely depends on the market dynamics, the NSR as well as the coal prices. The coal prices, if they continue like this, then there are a good -- there is a good chance of the debt coming down.

By INR 6,000 crores, right?

We cannot commit the figures at this point.

And the last question is, can you split 20% CapEx number for this full year?

Come again?

CapEx guidance for the year?

CapEx, you want to know about '22/'23?

'24.

'23/'24. We have projected CapEx of round about INR 6,500 crores.

For the coming year, right?

Right.

The next question is from the line of Sumangal Nevatia from Kotak Securities.

I have a couple of questions. Sir first, on the volume guidance of 15% growth, if we look at last 5, 6 years, I mean it took us almost 5 to 6 years to achieve this 15% growth from say 14 million to 16 million tonnes. Now we are guiding to achieve a similar performance in 1 year. So just want to understand some breakup as to which all plants? And how should we see on a quarter-on-quarter basis, the growth coming? Is it more back-ended fed? Or should we start seeing this growth from 1Q itself?

Actually, the growth is more or less -- from the quarter 3, it will be substantially higher. Like if you see that even in every year, we have a substantial growth from the third quarter onwards. But we have not done bad -- too bad in the month of April also. I think we have crossed -- 1.3 million we've crossed. So if you take that 1.3 million x 12 million, that only works out around about 16 million tonnes. And with some sort of growth towards the third and fourth quarter, we expect to achieve this target.

Okay. Got it. Sir, my next question is on working capital. Every year, there's a big swing. Last 2 years, there was a release of almost more than INR 20,000 crores. And in FY '23, the working capital increase is almost INR 14-odd-thousand crores. So sir, what is a stable level here to expect? And why such sharp increase in working capital?

See, basically, what is happening is this -- we are basically -- the trade payables, whatever we have got, and they are fluctuating a lot. That is basically depending on the coal prices and we have got these deferred payment terms. So that is basically playing a major role in this working capital this thing. Collections, we are doing quite well. Our debtors are coming down, means you can see that they are in the range of around about INR 5,000 crores. There was there last year also and -- and this year also they are on the same level. So basically -- it's basically the payables which are taking a [indiscernible] because it's entirely dependent on our payment terms with our coal suppliers.

So what is net debt as on the year-end?

INR 28,400. And there is one more thing. There has been an increase in the stock of steel this year as compared to last year, by round about 4.5 lakh tonnes. So that has also had an impact on the working capital.

Understood. Sir, one last question on the iron ore sales. Sir, what is the sales we did in FY '23? And I mean we are still carrying the inventories and we revalued in 2019 of around INR 8,000 crores, INR 4,000 in each current and non-current. So what is the comfort we are having in terms of realizing this value...

See, basically, the majority of our iron ore is located in Jharkhand. So there are some issues about issues with -- in case of Jharkhand for evacuation of ore from there. Some clearances are required from the Jharkhand government. So we are working on that. And we are optimistic that it will be cleared very soon. We've already deposited some royalty also in the [indiscernible] portal also evacuation of ore. So we feel that it will be -- we'll be able to evacuate quite a lot of quantity in this particular year. . Like I think we have projected almost -- more than about 2 million tonnes from Jharkhand group of mines in this particular financial year. And last year, I think the total sale of [indiscernible] is almost 4 lakh tonnes. So that is -- and yes, we are optimistic. And regarding this -- we plan to liquidate these stocks in a rapid manner because we have got a, you can say, a 3-pronged strategy in this. We'll be supplying to our own steel plants. We'll be using it for conversion to pellets, try to sell it also. And we are also planning beneficiation at the pellet plant, and grow our mines through an MDO route. So we feel that this evacuation will be quite fast once all the things fall in place.

Okay. So you said 4 lakh tonnes, right, for FY '23?

4 lakh tonne. Yes.

The next question is from the line of Rahul Jain from Systematix.

Sir, firstly, on the -- there is a large amount of provisional sales. So when you -- something around INR 8,500-odd crores, you have mentioned in your results. So when is this going to conclude? And what do you expect the direction of -- is it going to go higher? And also how much is receivable out of this?

Yes. Actually, this is mainly -- we have this provisional sales for our rail which we -- which is supplied to the railways. So basically, what is happening is the pricing is done after the financial year ends. But the issue which has come up is that till now, we have not been able to get the price for '21, '22 also. So we -- so the price at which we are billing to the railways is around INR 67,500 per tonne. So we expect a substantial amount from the railways once the chief cost finalizes this -- pricing of the railways for '21/'22. And '22/'23 also, we will try to get it this year, otherwise -- because there's normally a lag of round about 1 year. So '21/'22 we expect and say by the beginning or say by the second quarter of '23/'24. And we'll try to get the '22/'23 pricing also, which is again still at INR 67,500, and maybe at the end of '23/'24, or maybe '24/'25 beginning.

So you have booked INR 30,000 crores cumulatively, right? So on that number, we should see a big jump, right? Is that the right way to look at it?

Yes. And that will probably add [ shift ] to the bottom line also.