Nava Bharat Ventures Limited (NBVENTURES) Q1 FY23 Earnings Concall Transcript

Nava Bharat Ventures Limited (BSE: NBVENTURES) Q1 FY23 Earnings Concall dated Aug.12, 2022

Corporate Participants:

Ashwin Devineni — Chief Executive Officer

Analysts:

Mohit Kumar — DAM Capital — Analyst

AM Lodha — Sanmati Consultants — Analyst

Unidentified Speaker —

Nikhil Abhyankar — DAM Capital — Analyst

Siddharth Shah — MK Ventures — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. I’m Krithika, moderator for the conference call. Welcome to Nava Q1 FY ’23 Earnings Call hosted by DAM Capital Advisors. As a reminder, all participants’ lines will be in a listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I would now like to hand over the floor to Mr. Mohit Kumar of DAM Capital. Thank you, and over to you, sir.

Mohit Kumar — DAM Capital — Analyst

Thank you, Krithika. On behalf of DAM Capital, I welcome you all top Nava Limited’s Q1 FY23 Earnings Conference Call. From the management, we have with us Mr. Ashwin Devineni, Chief Executive Officer’ Mr. GRK Prasad, Executive Director; Mr. Nikhil Devineni, Senior Vice President; Mr. Sultan Baig, Chief Financial Officer; Mr. VSN Raju, Company Secretary and Vice President.

Without much delay, I will hand over the call to the management for their opening remarks, which will be followed by Q&A session. Over to you, sir.

Ashwin Devineni — Chief Executive Officer

Thank you, Mohit. This is Ashwin — Ashwin Devineni, CEO. So good morning, everyone. Thank you very much for joining us for our conference call for the first quarter of FY ’23. I hope everyone is keeping healthy [Phonetic]. I believe all would have seen our press release for the quarter. Our Q1 earnings are hugely satisfying and a testament to our continued efforts and commitment. Global prices were supportive for our operations and certain strategic initiatives helped in further fortifying quality of growth.

I will now begin this session by giving a quick run-through of our businesses and corporate clients. Manganese alloy business reported robust growth during Q1 FY ’23 on the back of sustained high demand from the steel industry. However, some softening in ferro alloy prices is expected going forward with the correction in steel prices. The company’s subsidiary secured exploration rights for manganese ore concession in the Ivory Coast, West Africa, enabling backward integration and affording further value-add opportunities. We are currently in exploration phase for evaluating reserves.

The Energy division has witnessed a remarkable improvement, backed by the IPPs in Orissa and the 150-megawatt of Nava Bharat Energy, which gave a boost to our overall domestic earnings. Both units have reported robust operations with significant improvement in PLF and realization. However, coal stocks also had a role to play in overall things, where margins were kept under check. The 300-megawatt power plant in Zambia is running at full capacity post the major overhauls of both the units in FY22.

Maamba Collieries Limited and ZESCO, which is the Zambian utility, has agreed on a new tariff and offtake mechanism for a revised capacity of 245.65 megawatts. And Maamba Collieries Limited can sell the surplus capacity in the open market. This provides certainty in cash flows, enabling debt restructuring with an eventual enterprise value accretion. We would also like to highlight that MCL has till date received full payments for the power sold in the months of May and June 2022, in line with the new arrangement.

We are evaluating options for monetizing the land assets in Hyderabad. Given that it’s a fairly large land bank, it is expected to take some time for maximum realization. Most of the debt on the consolidated front pertains to the Zambia operations, which does not have any recourse to the parent company or its other subsidiaries.

I trust you have perused the detailed statement of the financial results and the press release filed with the stock exchanges and posted on our website. I would now look forward to having an active interaction with all of you on this call for any further clarifications. Thank you very much.

Questions and Answers:

Operator

[Operator Instructions] First question comes from AM Lodha from Sanmati Consultants. Please go ahead.

AM Lodha — Sanmati Consultants — Analyst

Good morning, sir. Am I audible sir? Yeah, good morning, sir. Congratulations for good set of numbers again. Sir. I have got two questions, one is relating to your Maamba Collieries Limited, that is the Zambian subsidiary. What was the old tariff and what is the new tariff under the revised plan? It has not been given anything in the — presented. So, I had to ask the question, what was the old tariff at which we are selling — we were selling the power per unit, and what is the revised tariff under the new arrangement, sir?

Ashwin Devineni — Chief Executive Officer

Yeah. So Mr. [Indecipherable]. Yeah, in terms of the old tariffs, I’m talking of the tariff including the transmission tariffs, it was about 11.57 and then the new tariff is 9.06 cents per kilowatt hour.

AM Lodha — Sanmati Consultants — Analyst

Sir, what was the old? Sorry, sir, I couldn’t listen properly?

Ashwin Devineni — Chief Executive Officer

11.57 cents.

AM Lodha — Sanmati Consultants — Analyst

And new one is 9-point…

Ashwin Devineni — Chief Executive Officer

9.06 cents.

AM Lodha — Sanmati Consultants — Analyst

06? Okay, sir. Then, whatever the — I believe that 35 megawatts, we have been — 22 or 25 megawatts we have been allowed to sell in the open market. Remaining [Indecipherable]. Okay, sir? So what is the prevailing rate in open market is, sir? Last month…

Ashwin Devineni — Chief Executive Officer

Yeah, sorry. The open market is similar to our exchange here. It changes constantly based on the supply-demand scenario. It’s basically the Southern African power poor, where basically Southern African power pool members, which are other countries and companies can buy power based on their requirements. So it’s a variable number, it changes constantly.

AM Lodha — Sanmati Consultants — Analyst

But just for the sake of the information, if you can give the May, June, any month rate, average rate of the May and June that will do sir.

Ashwin Devineni — Chief Executive Officer

So basically, I think if you look at the first month of May, we looked at an average rate of — and I’m talking of peak and non-peak energy [Phonetic] sold is about 7 cents to 8 cents. But that being said, if you look at the month of July, it was a lot higher. it almost went over 10 cents, the average rate. So it’s a very variable tariff based on the supply-demand for the Southern African region.

AM Lodha — Sanmati Consultants — Analyst

Okay. I understand, sir. Thank you very much sir. Another question — second question is regarding again Maamba Collieries, how much is our total loan outstanding in your Zambian subsidiary and how much — what is the schedule of repayment of the loan to the institutions or banks? The loan outstanding is $413 million and…

Unidentified Speaker —

That’s right, 4-1-3. And it is set to be repaid over the next 5, 6 years. That is what we are talking to lenders now.

AM Lodha — Sanmati Consultants — Analyst

Next 5 years?

Unidentified Speaker —

5 to 6 years, yes.

AM Lodha — Sanmati Consultants — Analyst

5 to 6 years? Thank you very much. If anything else I will rejoin the queue, sir. Thank you very much. Once again, congratulations for a good set of numbers, sir.

Ashwin Devineni — Chief Executive Officer

Thanks.

Operator

Thank you, sir. Next question comes from Nikhil Abhyankar from DAM Capital. Please go ahead.

Nikhil Abhyankar — DAM Capital — Analyst

Thanks a lot, sir. And congrats on a good set of numbers. I have a couple of questions. What was the NBEIL revenue and profit during the quarter?

Unidentified Speaker —

Nava Bharat Energy revenue was INR120 crores for the current quarter and we had a profit of INR30 crores after tax in the current quarter.

Nikhil Abhyankar — DAM Capital — Analyst

Okay. And do we have any power tabs for NBEIL?

Unidentified Speaker —

NBEIL has been trading on lEX exchange where the offtake and offtake rates have been varying. So average utilization was good as compared to the normal time. So we realized about INR7 to INR8.

Nikhil Abhyankar — DAM Capital — Analyst

Okay. And sir, what is your outlook on ferro alloys over the next few months or let’s say a couple of quarters? Hello?

Ashwin Devineni — Chief Executive Officer

Yes, sorry. I think one of the mics is not working.

Unidentified Speaker —

Yeah. Sorry about that gap, there is some problem with the technical side. See, the ferro alloy prices, especially manganese alloy prices have been a little volatile of late, but if you had seen the Q1 results, the revenue and the profitability was pretty robust. That is because of the carry-forward orders that we had from the earlier quarter. And we see some volatility in this space for some time, but given that is a regular phenomenon in a commodity of this nature, we expect the margin plane to sustain, though, not at the same level as previous quarters, but at this point, it is difficult to predict what kind of profitability. But what we could see is the demand being very sustained with whatever is happening in the steel industry as well.

Nikhil Abhyankar — DAM Capital — Analyst

Understood, sir. And sir, you mentioned in the opening remarks that we are planning on monetizing some land in Hyderabad, so can we know about the area of that land and the location where it is?

Ashwin Devineni — Chief Executive Officer

Yeah. The total size of the land is about 65 acres and the location is at Nacharam, East Hyderabad.

Nikhil Abhyankar — DAM Capital — Analyst

Any ballpark figure about the valuation of that land?

Ashwin Devineni — Chief Executive Officer

No. I mean, I’m not going to speculate on the valuation of the land right now because it’s a large parcel. We have engaged — we are in the process of engaging some very large firms to monetize it. But I think it’s going to be our endeavor to get the best value for the land.

Nikhil Abhyankar — DAM Capital — Analyst

Understood. Thank you. Just a final question, where are we with the arbitration proceedings sir? Is there any update?

Ashwin Devineni — Chief Executive Officer

No, I think it’s an ongoing process, it’s still continuing. So I don’t think we would want to — given that it is still under process, I don’t think we’d want to comment on it right now. We hope for an early decision, but these things take their own time.

Nikhil Abhyankar — DAM Capital — Analyst

Okay, sir. That’s all from my side. Thank you and all the best.

Ashwin Devineni — Chief Executive Officer

Thank you.

Operator

Thank you, sir. [Operator Instructions] We are having a question from Siddharth Shah, MK Ventures. Please go ahead.

Siddharth Shah — MK Ventures — Analyst

Yeah. Thank you, sir for the opportunity and congratulations for a good numbers, and restricting the revised understanding at Zambia. Sir, just wanted some clarity on how will the profitability of Zambia operations be on a steady state [Technical Issues]. At the earlier tariffs you had given some guidance in one of the conference calls. So on the revised tariff, if any steady state, at, say sir, 85%, 90% PLF, what kind of EBITDA this Zambia operations can do, specifically on the thermal side? And probably you can add some for the merchant sale of coal.

Ashwin Devineni — Chief Executive Officer

Yeah, Siddharth, I think we have just got into the [Indecipherable]. But as far as collections are concerned, it is dependent on number of factors. We would probably give a guidance sometime later once we have all regulatory clearances in place.

Siddharth Shah — MK Ventures — Analyst

Sure sir. So, sir, my — the reason why I [Technical Issues] just wanted to understand what kind of free cash flows this entity can throw annually and this is pre and post the debt repayment and interest payments. Are we expecting any free cash flow from Zambia in next couple of years, or this would be only after three to four years when all the debt is repaid that we’ll be able to repatriate some of the capital?

Ashwin Devineni — Chief Executive Officer

That is specifically what I was referring to. We have been engaged with lenders and other stakeholders on this asset. So the clear picture will emerge probably in the next three months or so. Then I think we will be in a firm footing to talk about it.

Siddharth Shah — MK Ventures — Analyst

Sure, sir. And last question is on the receivables part. One is arbitration for about $250 million which is ongoing and which is further being challenged. But the remaining receivables also I think would be around $300 million or something, which is the past receivables. So, are we in process of any out-of-court settlement or something with them on this $550 million of receivables, which is past receivables, and does Zambian Government or ZESCO have this kind of liquidity available? Any visibility over next one or two years to liquidate this receivables, at least post some kind of negotiation?

Ashwin Devineni — Chief Executive Officer

Yeah. Siddharth, I think the arbitration deals with the entire amount, not just $250 million. It deals with the entire ending receivables. The $250 million was just the interim orders, but when we talk about the arbitration process ongoing, we’re talking about the entire number. Now in terms of ZESCO or Zambia having the money once the order comes out to pay everything, what we hear are efforts are kind of underway, where they are talking to financiers, IMF and so on in terms of how to clear their debt. And we do actually — we have been seeing a significant amount of seriousness from the government and ZESCO to really get this situation under control. But in terms of their current financial position and where they will be once the order comes, it’s too early to say.

Siddharth Shah — MK Ventures — Analyst

Sure. That’s helpful. Thank you so much.

Ashwin Devineni — Chief Executive Officer

Thanks.

Operator

Thank you, sir. Next question comes from P. Vijay [Phonetic], an individual investor. Please go ahead.

Unidentified Participant — — Analyst

Yeah. I have a few questions. The first one is about the ferro alloy operation. Can you hear me? Hello?

Ashwin Devineni — Chief Executive Officer

Yeah. We can hear you.

Unidentified Participant — — Analyst

Are you able to hear me?

Ashwin Devineni — Chief Executive Officer

Yeah, yeah. Please go ahead.

Unidentified Participant — — Analyst

Yeah. The ferro alloy capacity at Paloncha is 125,000 tons per year. That gives us a per quarter capacity of 31,250 tons. But if you look at this ferro alloy production, in spite of every con call the management emphasizing that the ferro alloy production is sold out for the whole of next quarter, that is quarter one financial ’23 included, it was quarter four financial ’21, 33,392; quarter four financial ’22, 24,634; quarter one financial ’22, 24,330 and this quarter, it is just 21,810. So the superb results that we’re showing in ferro alloy division are entirely because of the higher prices of ferro alloy and not because of production efficiency, am I correct in saying that?

Ashwin Devineni — Chief Executive Officer

See, the production has been sustained on the same level as before. But what you have seen is the number of — the sales volume, which has come down in Q1 of FY ’23. That is because, one, consignment for export got shifted to July, and domestic supply also got deferred. Again this is a function of — as far as domestic sales is concerned, function of how the steel market is behaving. So we expect that also to be addressed soon, but [Technical Issues] as far as the overhang is concerned as at the end of June 30, that has since been liquidated.

Unidentified Participant — — Analyst

So what has been the opening balance of ferro alloy production on July 1?

Ashwin Devineni — Chief Executive Officer

About 7,000 tons.

Unidentified Participant — — Analyst

Only 7,000?

Ashwin Devineni — Chief Executive Officer

That’s right.

Unidentified Participant — — Analyst

Okay. Next question is about NBEIL. Why is the PLF only 50% when there is a booming power market? Why could we not get a higher PLF and sell more, it’s a merchant plant?

Ashwin Devineni — Chief Executive Officer

Yeah. I mean we understand that, but the issue here that is prevailing in the state and so on, is a matter of fuel supply. While [Ends Abruptly]