Indian Metals & Ferro Alloys Ltd

Earnings Call Transcripts Dear Sir I Madam,

MR. PREM KHANDELWAL– CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY– INDIAN METALS & FERRO ALLOYS LIMITED MR. BIJAYANANDA MOHAPATRA– CHIEF OPERATING OFFICER – INDIAN METALS & FERRO ALLOYS LIMITED MR. DEEPAK MOHANTY–HEAD OF FERRO ALLOYS BUSINESS UNIT– INDIAN METALS & FERRO ALLOYS LIMITED MR. BINOY AGARWALLA–HEAD OF POWER BUSINESS UNIT–INDIAN METALS & FERRO ALLOYS LIMITED MR. SANDEEP B. NARADE–HEAD, MINES BUSINESS UNIT– INDIAN METALS & FERRO ALLOYS LIMITED MODERATOR: MR. ARYAN RANA – VERITAS REPUTATION

Ladies and gentlemen, good day and welcome to the Earnings Conference Call of Indian Metals and Ferro Alloys Limited, arranged by Veritas Reputation. At this moment, all participant lines are in the listen-only mode. We will conduct a question-and-answer session later. If you have a question, please press star and one on your touchtone keypad. Please note that this conference is being recorded. I now hand the conference over to Mr. Aryan Rana from Veritas Reputation. Thank you and over to you, sir. Aryan Rana: Thanks, Melissa. Good evening to all of you and thanks for joining this earnings conference call of Indian Metals and Ferro Alloys Limited to present and discuss the financial results for the quarter and full year ended 31st, March 2023. With a market valuation of over INR1,500 crores, the company operates in the metal and mining industry business space. With 190 MVAs installed in its capacity and 204.5 megawatt captive power generating capacity, that includes 4.55 Mw solar power, and enormous chrome ore mining tracks, IMFA is India's foremost fully integrated manufacturer of quality ferrochrome. The company's business portfolio includes the manufacturing chain, the mining of chrome ore, the production of electricity and smelting of ferroalloys. We have sent you the results. I hope you have received the same. The results are also available on the Company website and the stock exchanges. Before we proceed to the call, let me remind you that the discussion may contain forward- looking statements that may involve known or unknown risks, uncertainties and other factors. To discuss the results and address the queries of investors, we have with us the management represented by Mr. Prem Khandelwal, CFO and Company Secretary. Mr. Bijayananda Mohapatra, Chief Operating Officer. Mr. Deepak Mohanty, Head Ferroalloys Business Unit. Mr. Binoy Agarwalla, Head Power Business Unit and Mr. Sandeep B. Narade, Head Mines Business Unit. We will start the call with a brief overview of the Q4 and year-ended financial year 2023 and then we will open the floor over to Q&A session. Each participant can ask two questions and then can come back in the queue. With that said, I will now hand over the call to Mr. Prem Khandelwal. Over to you, sir. Prem Khandelwal: Thank you, Aryan and good afternoon, ladies and gentlemen, for taking time out in joining this earning conference for the company. For the fourth quarter, the fourth quarter has been remarkable for the company because we are back on the track with a net profit of INR63 crores, as compared to INR10 crores in the previous quarter. And for the entire year, we had the highest ever turnover in the company with INR2,640 crores and highest ever total income of INR2,702 crores. Although, the PAT numbers are not as comparable, not as good as the last year, which was an exceptional year, but even then it is a creditable year in the sense that this is one of the best years in the history of the company, barring the exceptional year last year.

Yes, actually, we have procured in the $450 level earlier, but that has come down by another $70, $80 at the moment. But that coal will be received in the Q2 when it will be utilized. So it is coming down with the earlier, it was above $500, which has come down slowly. And ultimately, we have in the Q2, we are seeing a slightly much lower price for the coke, particularly for that region. So in fact, below $400 we have now booked, which will be received in the month of July. Prem Khandelwal: In fact, Saket, we had bought at the peak of $700 in last year. And from there, it has come down to around $380 now. So as we intimated earlier also, the costs are coming down gradually. Saket Kapoor: So the benefit of lower coal cost will be accrued from second quarter? Prem Khandelwal: In first quarter and second quarter also. Saket Kapoor: Sir, if we look at the lower volume part, there also, the MD mentioned that for the sales for the quarter have been 57,000 and there was some inventory at the vendor managed inventory yard. Can you elaborate what would be the amount of the stock that will percolate to Q1, sir? Prem Khandelwal: So 7,000 tons of ferrochrome were shipped on 30th of March. So billing will be done in this quarter, current quarter. Saket Kapoor: So 7,000 tons of ferrochrome is quarterly booked? Prem Khandelwal: Yes. Saket Kapoor: And sir, if you could also throw some light on the inventory part, sir, that is again, the inventory is higher because of this only, sir? We have the inventory at 137 tons. Prem Khandelwal: So that 7,000 tons is again appearing in the inventory. Saket Kapoor: And lastly about the Posco part, sir, earlier because of some natural calamity last time, there was some force majeure for Posco. So are there deliverables now? It went out and they have been disposed to that 7,000 tons per month? Prem Khandelwal: Deepak? Deepak Mohanty: Yes, sir. In fact, it was stopped in the month of September, force majeure that discussed. And from month of January, they have started taking. And at the moment for this quarter also, it's in the 21,000 level. And going on also, it will be in that range as per our contract. Saket Kapoor: And sir, could you throw some more light on the realization for ferrochrome currently? And one more request, sir, as we see in many companies' websites, there is a provision for the latest update on the international prices of the commodity that the company sells. Ours is a single product commodity. And for all investors, it is not feasible to track these prices. So if a link could be created for us so that on a monthly basis or on a 15-day basis that it is updated, we can get an idea of how the current ferrochrome prices are trending. It is available with

Both, sir. What we chose from the rejection coal was this. The average coal cost, sir. Bijayananda Mohapatra: Okay. Binoy, would you like to? Binoy Agarwalla: Yes, yes. I am answering. Actually, in Q3, the weighted average cost, MCL-plus washery rejects was to around INR2,800. But in Q4, weighted average of washery reject and MCL has come down to INR2,600. That is the difference of INR200 around. Saket Kapoor: And what will be that for Q1, sir? Binoy Agarwalla: Q1 will be remaining same as now in Q4. Saket Kapoor: Okay. And sir, Coal India did announce some increase in coal prices. That effect? Binoy Agarwalla: Coal India has increased. They have given the notification from G2 to G10. But we are using G12, G13 coal. So there will be no effect on G12 and G13. Saket Kapoor: And lastly, on the OTS part, Prem saab, it was the settlement has happened at INR52 crores. Earlier we’re envisaging is at INR71 crores. So that understanding is correct, post this…? Prem Khandelwal: No. INR71 crores is the amount we have to pay. That we have paid. So that was the amount to be paid, not the settlement amount. Saket Kapoor: But we have booked INR52 crores, I think so. Prem Khandelwal: We have already provided for INR26 crores in the books already. So the balance amount has been provided now. Saket Kapoor: Okay. And now the issue is there, put to rest, sir. Now the issue is put to rest. Now we don't have any other contingency. Prem Khandelwal: No. That is the final settlement we have entered into with them. Saket Kapoor: Okay, sir. Other than this, sir, any other contingency line items we have on that is pending to be resolved in the near future? Prem Khandelwal: Yes, there are other items also. So we are trying to resolve them. Saket Kapoor: Okay. Sir, I'll join the queue, sir. And thank you and all the best to the team, sir. Prem Khandelwal: Thank you. Saket Kapoor: And the AGM also, I think the notice is not yet, the dates have not been provided. Prem Khandelwal: No, that will be provided within time, in due course. Saket Kapoor: Okay. Thank you, sir. I'll join the queue.

Thank you. We have the next question from the line of Manish Sehgal, an investor. Please go ahead. Manish Sehgal: Sir, just wanted to understand with Utkal cash flow coming in and the kind of cash flow we'll get in H1 and H2, we'll have decent amount of cash and books by the end of the year with market cap at around INR1,500 crores and perhaps INR260 crores already in the books and maybe some more coming through. Would you think a buyback makes sense for enhancing shareholder value at the current prices that the shares are trading at? Prem Khandelwal: See, Manish, we have lined up a lot of expenses also. So buyback at this point of time is not sensible in our opinion. So although, we are paying good dividends, so buyback dividends will be rewarding shareholders, but buyback I don't think is feasible at the moment given the expansion plans we have lined up. Manish Sehgal: So, but expansion would be how much in terms of value? Because we've announced INR500 crores. Prem Khandelwal: Around INR2,000 crores we have been investing in over a period of seven years. So we need to have that kind of cash flow also in our kitty. And we are planning it through internal accruals. Manish Sehgal: So INR2,000 crores of total capex over next seven years is what you're saying? Prem Khandelwal: Yes. Manish Sehgal: Okay. Fine. Thank you so much. Do you think that will increase dividends perhaps if not buyback? Prem Khandelwal: Yes, wherever possible, we are trying to give the maximum dividends. Manish Sehgal: Okay. One final question in terms of cost of production, what you are seeing now versus Q4? Prem Khandelwal: That will be difficult to answer at the moment because it depends on what kind of material we are using when. So I won't be able to give the exact number for that, but it should be lower than Q4. Manish Sehgal: So sell price higher and cost of production lower. So which means fair, decent expansion. Prem Khandelwal: Yes, Q1 is better than Q4 we are expecting. Manish Sehgal: That means much better then, in fact. Prem Khandelwal: That is very difficult to pinpoint at the moment too early because it all depends on where the spot prices of ferrochrome and what kind of cost we are going to have. But yes, overall, we are expecting it is better quarter than Q4. Manish Sehgal: Okay. Thank you, sir.

Right. Thank you. Call Operator: Thank you. The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment. Please go ahead. Vaibhav Badjatya: Hi, sir. Thanks for providing the opportunity. So just a few questions from a longer-term perspective. So if you can help us understand, you know, how ferrochrome consumption in stainless steel series 200, series 300 and series 400 differs, that would just help us understand how the demand can fluctuate going forward. If you can just highlight this part, that would be helpful. Prem Khandelwal: Deepak, would you answer that one? Deepak Mohanty: So let me, nobody can tell, but let me tell you the 2022 calendar year, stainless steel output was at 55.255 million tons, which is, which was lower by 3 million tons from the previous year, that is 2021. But all predictions are there that in the current year, 2023, it will be reaching a new height of 60 million tons. So once the stainless steel is picking up, naturally ferrochrome has to go up, ferrochrome demand. And as such, you know, the stainless steel, ferrochrome is used mostly in stainless steel and the per capita consumption, particularly in India, is still in the range of 2 kgs to 2.5 kgs, while the international standard for any developed countries, it is around 15 kgs and China has reached almost around 10 kgs. So even if, and with the government interventions and all those things, with those kind of projections, government of India has already taken up movement towards that. So naturally, if it gets double also, ferrochrome will be in demand. So that's why I don't see. Vaibhav Badjatya: Yes, I understand that, sir. But what I was trying to understand is how the ferrochrome consumption differs between different grades of steel, which is series 200, series 300 and series 400. If you can provide certain consumption kind of thing, that would be great. Deepak Mohanty: So basically ferrochrome consumption varies between 12% to 30% and lowest 10% to 12% in the series 200 series and 400 series above 25 kgs, 25%. So that's the highest category and this is the lowest category. And depending upon what grade of ferrochrome you are using, because internationally India produces around 60%, but South Africa produces around 40% to 50%. And certainly like Kazakhstan, they produce more than 60%. So it depends, that percentage what I've told, I told in the context of mostly 60% level. Vaibhav Badjatya: Okay, got it. And as I understand, some of the ferrochrome manufacturing capacity in India is flexible to shift to even manganese ore. So if you can just highlight what is the total ferrochrome capacity and out of that, how much is actually shiftable to manganese depending upon the economies between manganese ore and ferrochrome, if you can help us understand that. Deepak Mohanty: Let me tell you, any furnace which is producing ferrochrome can produce silicon manganese or ferro manganese with minor changes, not much thing, anything can get over. So as such, at

Actually, I have I told you Q4, weighted average of washery reject and MCL is around INR2,600. But in Q4, MCL, what is the weighted average is INR2,800. And we have linkage option that price is quite low, because if we are getting coal from linkage, that weighted average is around INR2,700. If we are not getting sufficient coal from linkage, that is the reason why we are going for spot auction. Spot auction coal price is high. So weighted average of MCL cost is going high. Sagar Gandhi: Sir, what is the normal proportion between spot and linkage? I mean, contribution from both? Binoy Agarwalla: We have linkage as per our required quantity per annum, we have linkage. But in case we are not getting linkage, a linkage coal from MCL, then we are going for spot auction. In Q4, we had bought only 5,000 of spot auction, but in Q3, we had gone for around 30,000 of spot auction. It depends how it comes from MCL. Sagar Gandhi: But normally, whatever is your consumption, 50-50 comes from both avenues. Is that the broad understanding? Binoy Agarwalla: No, no, it is not 50-50. Suppose we are getting as per our required quantity from linkage auction, then we need not to buy from spot auction because spot option price is quite high. It is ranging from INR5,000 to INR6,000. Sagar Gandhi: Okay. And sir, what was your volume number for Q4? Yes, ferrochrome. Deepak Mohanty: Q4, I have already given the number. Deepak Mohanty: We are on 64000. Prem Khandelwal: Q4 is 61,200. Sagar Gandhi: Okay. And Q3 number was? Prem Khandelwal: 58,122. Sagar Gandhi: 58,122. Okay. Yes. Thank you. Thank you so much. Call Operator: Thank you. We have the next question from the line of Joe Shah from Seven Seas. Please Go ahead. Joe Shah: Prem, I have some questions for you. Two questions. Number one, as you said, there is sales for 57,362 tons in Q4 and 7000 tons were shipped the 30th of March, so which is yet to be invoiced. So now, when there is a form of inventory in transit for transit shipment, how come there is a reduction in working progress and the finished goods inventory by INR28.50 crores? Actually, this would have gone up, but now we have inventory has gone down by INR28.50 crores? So this is the one question.

Okay. And what do you expect that number going forward in Q1, FY ‘24? Prem Khandelwal: As I said, it will be very difficult to give any pinpoint number for that. What we can give a guidance that, it will be lower than Q4. Exact number would be very difficult to calculate now. Dhviti: Okay. Sir, one question regarding South Africa. So after the rampant rise in power prices, are ferrochrome smelters still viable in South Africa? So what would be roughly their break-even cost because during the correction of ferrochrome prices? The news was something about shutting down of plants. So if you could just throw some light on that? Prem Khandelwal: Deepak, would you answer that? Deepak Mohanty: Yes. Let me tell you. Actually, South African ferrochrome production, even with the power cost higher than other countries, they are much viable than China because you know out of total 15 million tons, China produces around 7 million tons, which is at a much higher cost because they buy the chrome ore from South Africa and then convert in China. So that's why, that advantage is always there with the South African producers. As far as chrome ore cost is concerned, which is a major part and the reduction also in South Africa is quite low. So they are always cost competitive. There is no issue. Main issue is the power availability. But you must have heard that, power situation in South Africa is extremely bad. And now, their winter from 1st of June to end of August, their winter is coming, where the tariff is higher as well as it is going to be in the stage of power crisis, which means, in a turn of 32 hours, 15 hours blackout. But so we have to see how things are coming out. They have a power crisis. It's not the rate what affects them. Availability can change the ferrochrome prices definitely in a different way. Exponentially it can increase if the power crisis in South Africa happens. Dhviti: Okay. And sir, on Utkal Coal, if you could give a revised timeline for, when do you expect the amount? Prem Khandelwal: That will be very difficult to give any timeline, madam, because you see last six months, we are expecting this money to come, but the government is taking its own sweet time. So very difficult. They were supposed to call us in end of May, for discussion. That has not happened. So maybe in June that discussion will happen and then next quarter, we can be expecting the money. But again, you see those are again expectations. So government is taking their own time. Dhviti: Okay. So one last question is, what is our per unit power cost for this quarter? Prem Khandelwal: It's INR4.26 variable power cost. Dhviti: Okay. Thank you. Prem Khandelwal: Thank you.

Thank you. We have the next question from the line of Krisha Kansara, an investor. Please go ahead. Krisha Kansara: Hello. Sir, I had two questions. One of them has been answered. So just one last question. What would be your volume guidance for the next quarter? Prem Khandelwal: Deepak. Deepak Mohanty: It will be volume guidance is around 64,000 production. Krisha Kansara: Okay. Thank you. Rest of my questions have been answered. Prem Khandelwal: Okay. Thank you, madam. Call Operator: Thank you. We have the next question from the line of Saket Kapoor from Kapoor and Company. Please go ahead. Saket Kapoor: Yes. Sir, in continuation to the answer, 64,000 is our production schedule for Q1? Prem Khandelwal: Yes. Saket Kapoor: And sales will be in the vicinity of? Deepak Mohanty: Sales, 64,000. Whatever we produce, mostly we will send it out. Saket Kapoor: And then there will be 7,000 also that is there in the inventory. So 71,000 should be in this…? Deepak Mohanty: No. Not like that probably. It will be basically, it will go against the quantity. The quantity which we have shipped in the month of, at the end of April, March, basically that went for April. Then April, we made the shipment that was delivered. So it will not be an additional quantity that way. It will be in that range only, 64,000. 640 so total. Only thing our inventory was not there at our, that major supplier. For that reason, it was in the last quarter it was lower. Saket Kapoor: Sir, come again. Inventory was? Deepak Mohanty: We supply that customer on this basis. So for that reason, we have to move because to that area, it takes 20 days to 25 days for arriving the material. For supplying the next month, we have to do in the previous month, which you used to do but it has stopped at certain point in time, so we didn't have inventory over there. For which mass shipment what we had. So that is basically for at least supplies not an additional. Saket Kapoor: Prem sir, for the other income part, we have seen for year-on-year, it has moved up from INR16 crores to INR24 crores. So what are the key constituents of the same? Prem Khandelwal: Other income, lot of things are there. Scraps sale, then interest income, then mutual fund income. So, lot of components are there. Not related to operations.

Not, they are not related to operations. And even sir for the depreciation part also, I will mail you as you have told because we have capitalized more than INR200 crores but the depreciation has gone down from INR110 crores to INR107 crores on a year-on-year basis. So that part is also. Prem Khandelwal: These are very specific questions. Saket Kapoor: Yes sir, I will definitely write a separate mail for the same. Sir, if you could give us some…Correct sir, you are right sir. I will do that. Sir, if you could give me some, only the last third point on some color on the breakup of the raw material cost for Q4 and the trend for Q1, sir. And sir, one more part about the sales realization, when you mentioned about 1,20,000. It includes the blending of both spot and contracted because spot is keep on changing. We are still one month left for the quarter to end. So what is that 120 number sir? Prem Khandelwal: It is a blend of spot and long term. And as far as cost is concerned, for Q4, I am telling you, the chrome ore cost is INR8,600, Metcoke is INR47,800 and power is INR4.26. And Q1 numbers should be lower because exact numbers, we cannot give right now. Saket Kapoor: Right sir. And coal prices also sir? Prem Khandelwal: Coal power, variable power cost, I have told you, INR4.26. Saket Kapoor: That is covered here. All right. Prem Khandelwal: Yes. Saket Kapoor: Sir, when you were mentioning about that 1,20,000 is the blended, so the spot prices will change for the month of June also. So how are we arriving at this number sir, 120? Prem Khandelwal: No, we are calculating as of now. If it goes on, it will go down further. Saket Kapoor: Okay, and out of the total sales mixture, what percentage is spot and how much is contracted, the volume out of the 64,000? Prem Khandelwal: What is the percentage Deepak? Deepak Mohanty: Maybe it will be something like 30% to 40%. 40% is your contract in long term and balance is spot kind of thing. Although, there is annual contract and other things. Including all those things, not directly spot. Long term, I am telling long term means more than one year. So that will be around 30% to 40%. Balance is some of them are 30% to 40% also in the range of one year contract basis. And balance 20%, 30% is on spot, real spot. Saket Kapoor: Sir, I am confused, once again, if you could just simplify me? Deepak Mohanty: So basically you can say on 75% around is your long term basis and 25% on spot basis. Saket Kapoor: 25% is the spot basis. Okay, sir, thank you for the elaborate answer and we hope for the continuity of these calls. These are very informative and give them an opportunity to interact