Q1 24/25

Aug 5, 2024

Summary

Q1 FY25 consolidated PAT rose to INR 199 crore, while revenue was INR 926 crore. Steel output was shifted toward power sales when returns were stronger; pricing, imports and Chinese oversupply remain key uncertainties.

Ladies and gentlemen, good day and welcome to the Q1 FY 2025 earnings conference call of Sarda Energy & Minerals Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch tone phone. Please note that this conference is being recorded. Today, we are honored to have with us from the management team, Mr. Pankaj Sarda, Joint Managing Director of Sarda Energy & Minerals Limited, Mr. Manish Sarda, Deputy Managing Director of Sarda Metals & Alloys Limited, Mr. P.K. Jain, Director and Chief Financial Officer, and Mr. Nilay Joshi, Head Corporate Finance at Sarda Energy & Minerals Limited. This call may contain some of the forward-looking statements which are completely based upon our beliefs, opinions, and expectations as of today. These statements are not a guarantee of our future performance and involve unforeseen risks and uncertainties. The company also undertakes no obligation to update any forward-looking statement to reflect developments that occur after a statement is made. I would now like to hand the conference over to Mr. Pankaj Sarda for opening remarks. Thank you, and over to you, sir. Thank you, and a very good afternoon, ladies and gentlemen. Welcome to Sarda Energy's earnings call. I hope you have had a chance to go through the results and presentation uploaded on our website and the site of stock exchanges. Economies across the globe continue to face macro headwinds. China's GDP growth slowed to 4.7%, reflecting weakened private consumption and waning effect of fiscal stimulus. In China, the property sector continues to remain a challenge. The intensified conflict between Israel and Hamas and disruptions in the Red Sea have impacted sea transport and fuel costs, with geopolitical risks remaining a concern. During the quarter, we reduced the production of steel billets and downstream products to sell power on commercial consideration. Hydropower generation decreased by 13% due to delayed monsoons. Detailed operational data is available on our website and in press release uploaded on the websites of stock exchanges. Mine opening work of Shahpur West Coal Mine will start after we receive stage 2 forest clearance and mining lease. We expect to get mine opening permission during current financial year. Process of mining plan preparation and approval for the Kalyani Coal Mine was held back to resolve overlapping boundary issues with adjacent mines of SCCL, which are now resolved. Work for the 50 megawatt captive solar power project is progressing as per schedule. The plant is scheduled to be operational by end of this current financial year. 25 megawatt Rehar hydropower project is nearing completion. Dry run test has started for the first turbine. The power evacuation infrastructure in area passing through forest patches is pending for want of final approval from forest department, which is expected in this month. We aim to commission the plant by the end of this quarter, ahead of the March 2025 schedule. So far as acquisition of SKS Power is concerned, NCLT has completed re-hearing of the application for approval of our resolution plan and reserved it for order. Order is expected soon. Now I request Mr. P.K. Jain to talk about the financial performance. Ladies and gentlemen, we have lost the management's line connection. Please stay connected while we reconnect them. Hello? Hello? Can you hear me? Yeah, sir. We can hear you. Yeah. With regard to the financial performance, the company has achieved consolidated quarterly revenue of INR 926 crores in Q1 FY 2025 as compared to INR 889 crores, INR 1,052 crores in Q1 of last year. Consolidated profit after tax was INR 199 crores, up from INR 88 crores last quarter and INR 172 crores in Q1 of FY 2024. Prices across the value chain rose in the first two months but reverted in June due to dumping from China. During the quarter, we spent approximately INR 150 crores on ongoing CapExes. The company is net debt-free with consolidated long-term debt at around INR 1,300 crores. Long-term loans repayable within next one year totals to INR 240 crores. The company holds strong liquidity with cash and liquid investments of around INR 1,300 crores as of June 30th. Now I hand over to Shri Manish Sarda to discuss the steel and ferroalloy industry scenario and outlook. Over to Manishji. Thanks, Mr. Jain. Good afternoon, everyone. Global steel production in the first six months of 2024 remained flat at 955 million tons, with China recording a decline of 1.1% and India growing by 7.4%, reaching 74 million metric tons. Due to slowdown in domestic economy, Chinese steel export remained at elevated levels. Higher exports from China due to subdued domestic demand weighed on global steel prices. In India, steel demand was stable despite impact of elections and heat wave. Price realizations improved during the quarter but moderated in June and further in July. Steel imports moderated quarter-on-quarter, but in absence of safeguard measures, foreign exports was much sharper at around 50% year-on-year. Imports increased and exports fell. India remains a net importer of steel. The E.U. imposed additional safeguards to moderate high steel imports. Ferroalloys prices rose sharply due to sharp disruptions in Australia, but corrected quickly. Merchant power prices remained high due to elections and heat wave. Domestic crude steel production in Q1 for year 2025 grew by 5% year-on-year, but declined by 2% quarter-on-quarter to 36.6 million tons. Domestic finished steel consumption grew by 14% year-on-year, but was slightly lower quarter-on-quarter due to seasonal effects and labor migration during the elections. Our ferroalloys exports have been stable during the quarter. We exported 32,500 metric tons of ferroalloys worth INR 273 crores in Q1 compared to 27,000 metric ton worth INR 203 crores last quarter and 29,400 metric tons worth INR 242 crores in Q1 for 2024. Outlook. The Indian economy remains stable despite high inflation environment. Interest rates across the globe are expected to fall as inflation declines. Strong tax collection and sharp rise in dividend from RBI have strengthened government finances, allowing for increased infrastructure spending. Strong foreign capital inflows aided by global bond index inclusion are set to further bolster the robust macroeconomic growth. Good credit uptake and strong capital market, particularly primary issuances, indicate rise in private CapEx. That should boost CapEx-heavy projects and real estate sector, creating demand for steel. However, China's slowing economy and subdued real estate sector have created a surplus in global steel markets. Increased Chinese exports are repressing steel prices. In the absence of trade barriers, India's imports, especially to FTA countries, are rising, which may affect the steel sector's performance. That concludes the performance and outlook. We are now open for forum for question and answers. Thank you, all participants. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Vikash Singh from PhillipCapital. Please go ahead. Good afternoon, sir. Sir, you mentioned that the prices have started to decline from June. Just wanted to understand what are the current prices with respect to one Q averages. How much it is down? Prices of what? The steel product basically. Pellets, billet, wire rod and HB wire, including ferro manganese, which we would like to sell. The prices have corrected by around 6%-8% as compared to the first quarter average. Understood. Correspondingly, the cost of production any maintenance in terms of correction in the cost of production wise, the coal, iron ore cost for you? There always remains a time gap. In the falling market, it takes some time to get corrections into the raw material prices. So as of now, we haven't experienced anything. Sir, if you could give us on basis, then it would also be okay for us. For prices? On basis the iron ore as well as the coal cost, which you would experience versus one Q averages. There has not been any material correction in the raw material prices when you compare with the Q1 average. Understood, sir. Secondly, we have spent INR 150 crore in 1Q. Wanted to understand the overall FY 2025 CapEx. How much is left for spending? It should be total CapEx should be somewhere in the range of INR 700 crore, out of which we have already spent about INR 150 crore in the first quarter. Sir, we have almost completed the hydropower thing. Remaining money is going where? If you could give an idea. There are three coal mining projects. Then we are doing this waste utilization project in Visakhapatnam. Then turbine replacement project is going on. Major CapExes will be going towards the expansion of three coal mines. Understood. Any timelines for these coal mines to start production? No. As stated in our opening remarks, will be the Shahpur West Coal Mine. We will start working on that mine once we receive the forest stage 2 clearance, which we expect to get within the current financial year. Remaining mines will take time to get started, but land acquisition and all other processes will be going on, where we will be spending money on those projects. In addition to that, we have solar power project also, which is going on. Understood. Sir, just one last question. For Gare Palma IV/7, we are in the process of increasing the limit for the mining capacity. Have we received it or what stage we are in? Currently, the mining capacity is 1.44 million tons. We have already got the EC for increasing it to 1.68. Consent to Establish and Consent to Operate, we will get it in this quarter. Understood. That is all from my side. I will back in the pool time for that question. Thank you, sir. Thank you very much. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Bala Subramaniam from Arihant Capital. Please go ahead. Good evening, sir. Thank you so much for taking my questions. Sir, regarding Raipur captive power plant, it has been shut down on last quarter, so it is in the progress of overhauling AFBC boilers and turbines. So when we can expect repo production in both unit? Hydropower projects also expected to be operational by this quarter or next quarter. What is the status on the project side? That was statutorily overhauling that was done. It has again restarted. The Raipur captive power plant, one of the turbines was taken under shutdown, boiler was taken under shutdown for statutory overhauling, and it is again restarted. What was your second question? Sir, regarding hydropower projects, 25 megawatt. As mentioned, the 25 megawatt Rehar hydro project, it will be commissioned in this quarter, and the target date was considered 31st March 2025, and we will be commissioning it in this quarter. Got it, sir. Sir, also, we have placed 30 megawatt TG set to save energy on the carbon footprint side. When we can expect to be operational, and what is the status on that? Right. We have already given a purchase order to BHEL, and it will take at least 24-28 months to commission that. BHEL has taken 18 months to supply us the turbine, and we have to take a shutdown, and we have to change it. It will take 24-28 months. Got it, sir. Thank you, sir. I will come back in queue. All right. Thank you very much. The next question is from the line of Rakesh Roy from Boring Asset Management Company, Omkara Capital. Please go ahead. Yeah. Hi, sir. My question regarding, sir, do you see more margin improvement coming quarter, sir? It depends upon the market condition. As we stated in our opening remarks, presently, the prices have gone down, and correction in the raw material prices is awaited. As of now, margins as compared to the first quarter are on the lower side. But how the things move post the rainy season and how the developments come in, it depends on that. Thank you, sir. Okay, sir. Also, my next question, sir. We see a sharp drop in billet and bar volume number, sales volume number. Is this due to demand or, sir, Chinese import? No. We have already stated in our opening remarks also the production of billet was intentionally curtailed to supply power on the IEX, where we were getting better realization or better margins. Okay. We supply power to the IEX instead of making billets. Instead of making billets, we are using it in production of the billets. We have kept it apart. We cut down our production of billet and whatever surplus power we could have that was sold through IEX. And sir, how is the current scenario, sir, for July? There have been ups and downs. In between, we get opportunities to sell for few hours. Okay. It's not throughout the day because presently it's raining season. Okay. Comparatively, the power demand comparatively remains on the lower side. Okay. Can we see again the production will normalize from Q2? Yeah. Okay. And sir can you- But in between, if we get the opportunity to sell power at higher prices, again, we may decide to cut production of the steel. As far as raw material prices are concerned, that question has come in between. So in case of manganese ore, MOIL has reduced prices from 10% to 27%. For higher grade, it is in the range of 10%, and for lower grade, they have reduced prices by 27% in case of manganese ore. Okay. Right, sir. My next question, sir, can you give me some detail about the SKS power project? Where is it and how much time it takes? Because it is already more than one year happened. Matter has been heard by NCLT after revert from NCLAT, and everyone is awaiting for the orders. Okay. We expect by September, by Q2, we will get the order, sir. Yeah, hopefully, that should be clear maybe before end of this month or latest by in this quarter. Okay. One just to ask, our net debt is INR 1,300 crore. Pardon? No. Net debt is zero. Oh, net debt is INR 1,300 crore. That is a gross debt. Net debt is zero. Okay. Gross debt is INR 1,300 crore. That is gross long-term debt. Okay. I agree, sir. And sir, your comment on sir, steel demand in term of looking sir, import from China, how you look domestic steel demand probably in next one year, sir? The steel, see, I will tell you something. The government is very clear on infrastructure boost, and they are planning for infrastructure development in a big way. Going forward, the imports which are happening from China and from FTA nations will be looked in by the new Ministry of Steel, which is just in place right now. They have not yet formed up any proper protocols for the same. They are looking into it because there has been a sharp rise in terms of imports, and especially through the FTA routes. So they are planning some policy, but we are all waiting for that policy. That should be out in the next couple of months. Okay. Right, sir. Thank you, sir. Thank you very much. The next question is from the line of Rajesh Bhandari from Nakoda Engineers. Please go ahead. Hello. Good afternoon, sir. Hanji, good afternoon. Congratulations for good numbers. In fact, there was a little doubt about the turnover. You told us that you sold the steel and power. Sir, will this steel problem be settled in the next 2-4 months? China steel. No, it will not be. It will not be settled in the next 2-4 months because the Chinese economy is also in doldrums right now. Mm-hmm. Yeah. They want to come out with some stimulus in terms of consumer spending. They are looking at also their interest rates and everything. Yeah. But with the ongoing multiple issues across Russia, Ukraine, Gaza. Palestine, all these things. I think, and with Japan, we have seen what has happened in Japan. I don't think within the next two or three months, things will be resolved because WTO matters are quite huge in terms of duties, and FTAs are also in place. The Ministry of Steel can only take cognizance of the fact that there has been sharp imports. But at the same time, they have to coordinate it with the Ministry of Finance, DGFT, DGTR, regulations. everything. It is not that simple that it will happen in 2, 3 months. All right. They are definitely planning to put some QCOs in place. Like ferroalloys, we already have a QCO in place. Okay. Ferroalloys. That is the reason ferroalloys prices have not gone down. No, that is not the reason. QCO is basically quality control on audit. Everybody who is exporting to India will need to register themselves in the system, BIS. Okay. That is a little long drawn process and kind of a lengthy process. They are trying to see, and they are trying to curb cheap imports in India, which are not quality-oriented. and all those things. They are looking into all those things now. Mm-hmm. Ferroalloy will also be imported, sir? Ferroalloy, some is imported. Like we are getting imports of ferrosilicon from Bhutan. We are getting- ferromolybdenum, which had an inverted duty structure, but it has now been removed. All these things are taking place, and the Ministry has just formed, right? Mm-hmm. Ferroalloys prices have not fallen that much. No, ferroalloys prices have also fallen. Ferroalloys prices have also come down considerably. But at the same time, ore prices have also come down. Yes. Yeah, so. And yes sir. [Foreign language] margins, more or less, [Foreign language]. हाँ, तो margins intact रहे वहां तक तो ठीक है, because prices ऊपर नीचे demand supply के साथ रहेगी। Correct. SKS Power also within one or two months will be done, sir? That Mr. P.K. Jain and Nilay Joshi can comment upon that. जी। चल रहा है, matter court में सुनवाई हो गई है। जी। It is reserved for order. We are also awaiting, hopefully. यह 99.99% अपने favor में ही है, सब कुछ। Going by the precedents. जी। You can make. अच्छा sir, एक चीज है, छोटे मुँह बड़ी बात बोल रहा हूँ। यह जो आपने अभी market से पैसे ले रहे हैं sir, तो यह पूरा QIP में क्यों नहीं ले लेते हैं sir? लोग तो दौड़ के आएंगे। अभी हमारा कोई fund raise का ऐसा intention नहीं है। केवल enabling resolution है। वह हम हर साल ले रहे हैं ताकि कभी- हाँ, वह तो मालूम है, Sir. अभी तक कोई plan है ही नहीं fund raise का। SKS तो आएगा ना, Sir? SKS आएगा। [Foreign language] Yahi bola ki humne enabling resolution liya hai. Abhi we will decide at appropriate time. As of now we don't have any plan in the immediate future to raise any fund. अच्छा, ठीक है, Sir. बस यही है। All the best to you, Sir. Thank you. Okay. Thank you very much. A reminder to all the participants. You may press star and one to ask a question. The next question is from the line of Bala Subramanian from Arihant Capital. Please go ahead. Thank you so much for follow-up questions. Sir, SKS acquisitions, what is the status on it? It is under NCLT. And how much CapEx we are planning for this acquisitions? कौन? SKS. SKS Thermal Power Plant. [Foreign language] immediate [Foreign language] [Foreign language] acquisition [Foreign language] operating plant [Foreign language] We will be acquiring it [Foreign language] [Foreign language] [Foreign language] based on the assessment, that will be a separate issue. As of now, no CapEx is involved. It is a running plant which we are acquiring. Okay sir. After acquisitions what kind of capacity we are targeting? That will decide independently after getting it. It will be very difficult to comment on that at this moment. Okay sir, okay, got it. 300 megawatt running operational, running thermal power plant that we are acquiring. The matter is sub judice and reserved for order. Once it is resolved, then we will be able to comment. Okay sir. Sir, post elections, what kind of revamp on the operation side because I heard a lot of companies are facing issues because of shortage of laborers? So post elections, how you are seeing the operations levels especially on the laborers? We are operating at normal levels. We are very optimistic just to add. We are very optimistic. Okay sir, okay, got it. Thank you. Thank you very much. Next question is from the line of Rajesh Bhandari from Nakoda Engineers. Please go ahead. [Foreign language] sir, one question [Foreign language] power selling has better margin than steel selling? यह बीच-बीच में change होता रहता है। Power selling का 24 hours का नहीं रहता है। अभी तो बरसात का season है तो कुछ घंटों के लिए कई बार demand अच्छी आती है, then we get a better price। तो उसमें supply करके- क्योंकि अभी अपने पास जो SKS आ जाएगा। हाँ। [Foreign language] point of view [Foreign language] I was just asking. Power [Foreign language] market [Foreign language] year on year [Foreign language] strengthen [Foreign language] [Foreign language]. Power prices are going up year on year. [Foreign language] power [Foreign language] demand [Foreign language] and power prices [Foreign language] [Foreign language]. हाँ। ठीक है sir। Thank you sir। Thank you very much. The next question is from the line of Atul from ULJK. Please go ahead. Yeah, thank you for the opportunity sir. Sir, there are a couple of questions from my side. First question is on, as you know the global situation is not good due to China factor, specially China is facing issues in the real estate market. Domestic story is good, sir. How we foresee a second half of FY 2025? Is it the similar performance will be continue or we can see some improvement in coming quarters on the revenue side? As far as volumes are concerned, those will remain at the normal levels. Whatever operations we have achieved that will continue. So far as pricing is concerned, the markets are volatile and projecting in advance for the second half may be difficult how the China story evolves and how the overall other scenarios, geopolitical conditions evolve, then interest rate scenario. There have been multiple factors which will decide the future course of action. But so far as operations are concerned, quantitative performance or operational performance is concerned, it will remain at the normal levels throughout the year. Got it, sir. Second question is on the profit side. We have been following a backward integration strategy. We are using our own mining and power plants now. So going forward, though there won't be any top-line growth or even a moderate growth, do we see further profitability improvement even though situations still persist on the current level? Top line, one is the addition on account of the increase in the capacity of the coal mine. Another is the commissioning of our hydropower project, and the third one is the commissioning of our waste utilization project. So waste utilization project will be coming next year only, but for the current year, there will be two more additions on account of the increase in the coal mining capacity and the starting of the hydropower project. Right. Got it. Yeah, that's all from my side, sir. Thank you. Thank you so much. Thank you very much. Ladies and gentlemen, we will wait for a moment while the question queue assembles. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Thanks. Thank you all the participants of this con call. To summarize, our diversification has resulted in better performance during volatile times. The commissioning of 25 megawatt Rehar hydropower project this quarter, the 50 megawatt solar power project, and waste utilization project will help reduce our carbon footprint. Starting three more coal mines and hydropower projects will drive our future growth. Please feel free to reach out to us or our IR team with any further questions. Thank you all. On behalf of Sarda Energy & Minerals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.