Sarda Energy & Minerals Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. The first question is from the line of Rajesh Bhandari from Nakoda Engineering. Please go ahead.

Sir good afternoon.

Good afternoon.

This time result has not come good, is it only because of the low prices? Padam Kumar Jain From operating performance you must have seen, in all the plants’ operation we have achieved record production. Rajesh Bhandari; Is there any chance of prices improving?

Prices have improved in first quarter as compared to the last quarter there is substantial improvement.

Means 15%, 20% improvement?

No it is not 15%, 20% it is 10% plus.

And ferro alloys exports?

That is continuing, and it is normal.

Because outside the condition is not good.

No, otherwise price movement would not be there if demand was not there. Price movement has happened because demand is there.

And SKS Power, what is the status of that?

In SKS Power, on our appeal, NCLAT has set aside the earlier order of NCLT Mumbai and asked them to hear our Plan approval application again.

Means the first case after hearing that order has been given so NCLAT has set aside those orders?

The NCLT order was not in our favour. They had told the CoC to reconsider again all the plans. That order has been rejected by NCLAT.

Yes it’s in our favour. CoC had given in our favour and NCLAT decision has come in our favour and they have asked NCLT Mumbai to hear it again. Earlier NCLT had told to the CoC that all resolution plans should be reconsidered that has been rejected by NCLAT.

Till what time it will come what is the hope of that?

This is a court case. NCL AT has ordered to decide preferably in 60 days. If not 60 days you consider it little less or more than that. NCLAT has given the time of 60 days for decision to NCLT Mumbai.

Mr. Bhandari may we request you to come back to the question queue for follow up.

Only last question. This decision will be in our favour?

Matter is subjudice. We don’t want to comment on judicial process.

Thank you sir.

Thank you. The next question is from the line of Pradeep Rawat from Yogya Capital. Please go ahead.

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

The capex outla y should be in the range of INR 500 crores a year put together across the company.

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

Capexes which have been announced, except coal mines, in current year no ne will come in production. So far as current year production is concerned , only we will have increased coal production. In the current year there won't be material change in the revenue except the price effect. So there will be effect of the whole production and rest will be the price effect.

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

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

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

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

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

That is already under process. This is in the range of INR2,000 crores plus minus is there. That is a larger acquisition.

Great. Thank you and all the best.

Thank you.

Thank you. The next question is from the line of Akshay Kothari from JHP Securities. Please go ahead.

Thanks for the opportunity. So first of all your outlook on ferroalloys.

Cutting up there Mr. Kothari you are sounding too low. Can you speak a bit louder please.

Is it better now?

Yes.

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

Yes, there is some disruption in Australia on the high-grade manganese ore of South 32 mine, there is a disruption. Because of that, there has been a supply disruption . Because of supply disruption prices have moved up. But we understand that, that is expected to be restored soon. And maybe I think by July, things should get to normal.

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

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

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

Okay sir. That’s it from my side.

Thank you. The next question is from the line of Pawan Nahar an individual investor. Please go ahead.

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

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

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

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

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

About 8.40 lac ton was sold in the market -- 8.4 lakh tons was sold in the market and the rest was consumed captively.

So this 840,000 tons that was sold in the market -- see what is happening is I'm just saying that the segmented steel numbers have dropped sharply...

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

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

What is the normal profit conversion?

Steel business is cyclical, to give a specific separate number for normal profit from steel will be very difficult and coal is also majorly captively consumed, it forms part of the steel only.

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

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

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

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

Yes, NCLT again.

So they went to NCLAT and the NCLAT board of judges have heard them all and then passed this judgement for asking NCLT to hear the case and dispose it off in 60 days.

That's right. So is there any other hurdle left?

Mr Nahar, may we request you come back to the question queue for follow up questions.

My question to the management is to explain if there is any other hurdle left in this and if Torrent or the other party has filed for any other fresh, what should I say, opposition?

Mr. Nahar, let me clarify. By the order of NCLAT, both the plan approval application, which was for Sarda Energy’s plan and also the interlocutory applications of Torrent and Vantage Point have been revived by that order. So, all the three would be heard in NCLT Mumbai. That is the status as of now.

Okay, so all the three would be heard. Okay. Thank you.

Thank you. The next question is from the line of Aditya Rathi from Aequitas Investments.

Most of my questions are already answered, sir. Only thing I wanted to understand is the tax rate for this quarter. So it is somewhere close to 37%. Is there any adjustment to it?

2, 3 aspects. One is the fair value change because the profit also includes a fair value gain on loss. And then there are losses in -- there may be loss in one of the subsidiaries, that may be the case. So we are paying tax on the profit side of few companies without setting of the losses of other companies. So all these factors affect the tax.

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

My first question regarding the volume. If I see your sales volume number. So all the segments have -- in steel segment, all the segments have the -- sales volume is down. So sir, which segment we see -- lowest realization where we see more realization down in this segment?

Sir, as I stated, Year-on-year, the price of Ferro Alloys is substantially down. Last year, it was around INR85,000, that has gone down to somewhere around INR68,000. Year on year, if you compare financially, if you compare on the quarter-on-quarter, the steel finished products prices have gone down. And the price of pellet and sponge iron remains more or less in tandem.

I was watching it from here, in that case everything is down. So our sales volume is down due to lower realization or any other reason?

Because of lower realization. And in case of hydropower project there is some fall of 10% because of lower rainfall.

Okay. So can we see some improvement in volume in Q1 because some like billet prices is near to 10% to 15% higher. So can we see volume uptake in Q1?

Quarter-on-quarter definitely it will be on higher side because in the last quarter we had shutdown of one of the turbines and boiler so that had affected the volume. So quarter-on-quarter definitely on annual basis there may be marginal improvement becaus e of the productivity otherwise more or less it will remain in line.

Okay. And sir, your view on the overall steel market and how is the -- for FY '25, how is outlook from your side?

Sir, as far as the near term is concerned, whatever is appearing we already stated, the prices have moved up in the current quarter. And with the better finances of the government as we stated in our address, we expect more spending from the government side on the infrastructure projects and the incentive schemes for promotion of manufacturing in the country. And that should create demand for steel.

Okay. And then in terms of realization, this will improve in Q-o-Q basis or this will be stable?

Pardon?

Regarding the realization, sir.

Yes. What exactly is the question about realization?

Yes. I mean, I'm saying, okay, your demand is good for FY '25. You said, okay, but what about the realization part how this will look like -- price will increase in FY '25? And how much it will increase, sir?

Giving any price range will be very difficult. It depends upon the market conditions -- as already stated, in the first quarter, prices have moved up -- about 10%.

The next question is from the line of Ruchika Dhanuka from Phillip Capital.

This is Vikash from PhilipCapital. Am I audible?

Yes, you are audible.

We are not adding any ferro alloys capacity.

Are there any plans?

We don't have any plans to increase the ferro alloys capacity in the immediate future.

Okay. So as of now, only SKS Power is the near -term target for us in terms of growth prospective?

Yes, growth -- then we have coal mines. There are 3 more coal mines which are under development. Hydropower project is nearing completion. Then solar power project we are putting up. So there are multiple smaller projects. As far as major project is concerned that is SKS acquisition. In addition to that, there are multiple small, small projects which are going on.

Understood. And sir, what is our specifically ferro manganese capacity at this point of time? And how much we have produced in FY '24?

Ferro manganese or total ferro alloys, what you are asking about?

So I am asking total ferro alloys capacity and ferro manganese capacities as well.

We have a combined capacity of ferro alloys. We can produce either silico manganese or we can produce ferro manganese, either of them. There is no specific separate capacity for ferro manganese or silico manganese.

As I understand that switching to the product also changes the overall rated capacity, right? So for ferro manganese if we only produce ferro manganese, then what could be the rated capacity versus the overall which you play?

The ferro alloys -- with the production of ferro manganese, capacity will go up by about 30% as compared to silico manganese. Quantum wise, if you consider that.

Okay and your total net rated capacity is around 240 KT right? Including the standalone volume.

Yes. And we have totally produced about 2 lakh metric tons in the last year.

Understood. Can at least with ferro alloy segment, you can see 10%, 15% kind of the volume growth or that is also not looking good?

There may be minor-- because of productivity improvement, whatever we can add up. It will be there. And, as we stated, in the last quarter we had some curtailment in the power generation so that may have some bearing on the additional production. More or less, it will remain in line, except for productivity improvement.

The next question is from the line of Balasubramanian from Arihant Capital.

My first question regarding like we have seen a lot of slowdowns in the projects especially infra side because of these elections and some of the steel consumers also like posted flat or degrowth in this quarter. I just want to understand whether it will continue for next 1 or 2 quarters, like you have mentioned, there is no volume growth in this financial year. I just want to understand when we can expect a substantial improvement, whether it is from Q2 or Q3 onwards? And also, you can talk about the export side, you have mentioned a slowdown in China market. I just want to understand on the export side, what kind of opportunities and traction we have?

Can you repeat your initial question, I couldn't get exactly -- what exactly is your question?

Okay, sir, first question regarding, we have seen a lot of slowdowns in the project side, because of elections, some of the steel consumers and pipe players, they have posted flat numbers or degrowth in this quarter. And they expect a lot of infra players also, there is no order intake in past 3 months or so. So when we can expect the steel consumption will increase, whether it is Q1 or Q2? Is there any impact because of these elections?

Yes. That is a general phenomenon, whenever elections are there, definitely, there is shortage of labour. Labour moves from cities to the villages and that has effect on the infrastructure projects. Otherwise also because of election restriction, there is effect on the demand side of the -- steel from the infrastructure projects. But as the elections are over and government comes into, again, full form we expect that the demand from the infrastructure projects should pick up. Government is also pushing the solar in a big way for the rooftop solar. That will also create demand. In addition to that there are -- Jal Jeevan mission is already going on and multiple projects as you are aware and we have stated in our address also, RBI has given a dividend of more than INR2 lakh crores and tax collections have also been very healthy. So that should leave surplus with the government for spending on the infrastructure side. And that's where we feel that the demand of steel from this level to improve.

Got it, sir. So on the export side, like you have mentioned -- like especially into China, we have witnessed the slowdown. I just want to understand like where we are witnessing traction on the export side?

No, we are not exporting any of the steel products, we are exporting only ferro alloys, so there is no material bearing on that side.

Okay, sir. Got it. Sir, like we are doing capex of INR500 crores, what's the breakup of this capex in this financial year?

There are multiple smaller, smaller projects as we told, one is the INR200 crores, we will be spending on the solar power project, then we'll be spending on 3 mines and some spending will be on the hydropower project during the current financial year.

Waste management project, we will be spending about INR70 crores. So , total will be about INR500 crores.

Okay. Sir, what kind of synergies we can expect from this INR500 crores investment in terms of cost savings or incremental revenue?

So as far as the current financial is concerned, except the hydropower project, none of other projects will get commissioned. One hydropower project of 25 megawatts will get commissioned during the current financial year that will have additional revenue.

And the remaining when it will get commissioned, sir, the solar power and mines and all.

Solar power, we expect to commission by end of the current financial year. And out of the 3 mines, one Shahpur coal mine will start maybe by end of the next financial year. But it will be - - for current and next financial year, there won't be any addition in the coal mining project. We are also spending some amount on our existing coal mine also. There also we are increasing the capacity. So some of the capex will be going in that mine also.

Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.

We thank all the participants of this con call. The company continues to diversify its revenues. Revenue from power and mining will increase over period, decoupling it from cyclicality of metal industry. Journey from here is exciting. We are adding solar power for captive consumption which will help in reducing our carbon footprint in our manufacturing facility. We are hopeful to get approval of our resolution plan for SKS Power soon. This will be a major milestone in our growth journey . Increase in the capacity of existing coal mines from 1.44 million tons to 5.2 million tons and the opening of 3 more coal mines at Shahpur, Kalyani and Bartunga will also help to accelerate growth. Please feel free to reach out to us or our IR team if you have any further questions. We look forward to connecting with you again in the next con call. 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.