Demand pick since Jan‘16 to aid revenue growth in Q4: MOIL

GP Kundargi, MD, MOIL in an interview to CNBC-TV18 said the demand for manganese ore that was sluggish throughout Q2 and Q3 has seen a pick up since January 2016, adding that the company has already signed contracts for dispatch of 4 lakh tonnes of ores in spite of increasing prices. In third quarter the contracts were to the tune of 1.35 lakh tonnes.

The company had increased prices by 8-15 percent in February across various grades, said Kundargi. The manganese prices that have increased in fourth quarter are in line with steel prices, he added.

The revenues in fourth quarter are likely to surpass that of third quarter on back of the uptick in demand, he said adding that margins too would see an improvement.

The passage of MMDR Bill would be a positive for the company, said Kundargi.Below is the transcript of GP Kundargi’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18. Nigel: We have been hearing that ferroalloy prices have been increased over the last fortnight or so. We do not have any update from you in the last couple of months. So, if you compare manganese ore prices in comparison to Q3, have they moved up? Could you give us the quantum? A: Definitely, the Q3 prices were very less as for the steel price also. Definitely, the prices in Q4 have moved up in line with the steel prices and ferroalloy prices. And, there was a very bad period for us during the quarter of October-December, but from February, we have increased also prices from 8-15 percent in various grades, in line with the ferroalloy prices which are also moving up slightly, in line with the steel prices. So, that is a good positive outlook, considering last eight months, volatile pricing in the market. Reema: So, you are saying that manganese ore prices have gone up by 8-15 percent since the month of February, right? A: Yes. Reema: Could you give us an update on the inventory situation at the company because as our understanding, the company is sitting on pretty high inventory. You have sufficient supply, the problem is the demand level. Now, if you have gone ahead and increased the prices, do you see sufficient demand for that kind of an off take? So, give us a sense of the demand and secondly, even the inventory that the company is sitting on. A: Basically, the demand was not sluggish in the third quarter. And Q2 also, you could not able to sell much of the material because the ferroalloy plants were shut down owing to the lower price structure in the market. But, from January onwards, demand has increased and we have already contracted more than four lakh tonnes material – manganese ore dispatches for Q4 actually. As compared, we have sold only about 1.35 lakh tonnes during Q3. But, we have already got a demand and contract signed for more than four lakh tonnes that is positive sign for us. And in spite of increasing prices, demand is going up. As far as the inventory is concerned, inventory of high grade was piling up in the earlier quarters, Q2 and Q3 which has been liquidated during Q4. Now, inventory of low grade is there. There is not much demand for low grade. Low grade means 25-30 percent manganese content whereas we have got a very good demand for 37 percent and above which is particularly import parity, which is imported in the country. So, we have also reduced slightly the production of low grade ores to have a product mix balance in the market to get a better realisation. So, hence our ferroalloy ferro grade inventory is about 1.2 lakh tonnes as on date and low grade is about two lakh tonnes. So, total inventory is about three lakh tonnes which is about three months production. But low grade will be liquidating low grade slowly, since a cut down in the production in that area, but ferro grade inventory will be liquidated by March. Nigel: You told us that prices have gone up by around 8-15 percent. Do you believe there is further chance to increase prices and also, could you give the difference, what exactly for the same quality of manganese ore, what is the difference of international prices as well as domestic prices? A: We are keeping the parity with the international prices. And because we have to absorb the tax structure in India, the import duty is only 2.5 percent whereas we have to shell out about 14 percent of taxation in domestic producers. So, we have to keep the prices in right spirit so that landed price will remain same for the customers, then only we will be able to sell. So we are maintaining that parity. Reema: What you are telling us is extremely positive for you company. A] the prices have gone up by 8-15 percent. Secondly, the volumes in Q4 are already three times the volume that you have seen in the prior quarter, purely on a quarter-on-quarter (Q-o-Q) basis. What will this mean in terms of the kind of revenues you could see in this quarter, in January to March? A: January to March revenues will definitely surpass about Rs 160-170 crore. Reema: So, that is double compared to what you did in the December quarter? A: Yes, it was Rs 87 crore. Reema: And at the margin level? A: Margin level is also increasing, because almost in October, we have touched breakeven point, almost slightly above the breakeven point, but we are going up now. Nigel: In terms of your cash balance now, the street has been focusing on that for so long. You have close to around 85 percent, if you just compare your cash balance with your market capitalisation, it is more than 85 percent. You are given an interim dividend of only around Rs three. What are your plans? What is your cash balance currently and how do you intend to use it? A: Cash balance as on date is about Rs 2,910 crore. But, whereas, we have now a lot of plans on hand actually. Next five years are planning to spend about Rs 2,000 crore and by 2024-2025, we have got strategic management plan in place for spending about Rs 2,800 crore. These all, everything is going for mine expansion and establishing new mines actually. We have got about 800 hectares of new leases in Maharashtra and also about 150 hectares of mining licence (ML) in Madhya Pradesh and adjoining our mining area. And also, we are in the process of getting 383 hectares of reservation to MOIL. So, in all about 1,200 hectares of leases we are going to get, and we will be spending much of these amounts in opening new mines and prospecting and also adjusting mines for almost all the projects are in hand. So, we are planning to double the production to two million tonnes by 2021 and 2.5 by 2024-2025. So, this cash is utilised. In addition to that there is a lot of competition in the market. Price competition is there. To cope up with the cost of production, we are now planning to go ahead with the 30 megawatt solar power project as well as another 15 megawatt wind power so this power can be captively utilised in the mines operation. So, cut down the cost because electricity costs are very high in Madhya Pradesh and Maharashtra. So, we want to control the cost of operations also some money in this renewable energy. So, these projects of exiting expansion of mines and new opening of new mines will attract a lot of investment which is going to start now. Reema: Just one clarification, you said in the next five years, your capital expenditure will be Rs 2,000 crore or Rs 2,800 crore? A: In next five years, actually Rs 1,900 crore. By 2024-2025, it will be Rs 2,800 crore. Reema: The Cabinet will be considering the Mines and Minerals (Development and Regulation) (MMDR) bill today. Will there be any impact on your company and if yes, could you explain how? A: It has got a positive impact on the company, because we are getting reservation to PSUs as per the clause, Rule 17A of the MMDR Act. That clause is intact there. And also, we can also go in for auctioning and auction process gets more elsewhere in the country also. So, it is definitely a positive impact on the PSUs like MOIL.