Pick-up in demand to aid topline growth in FY17: Sarda Energy

Sarda Energy and Minerals has been in news lately on back of higher prices of ferro alloy and steel. The stock was up 30 percent in the last one month

The prices have moved up on back of uptick in demand believes Manish Sarda, Director of the company. In an interview to CNBC-TV18, he says manganese prices have moved up by 6-7 percent in the last one month. 

On back of better demand and higher prices, he expects the FY17 topline to be better than FY16 but one will have to keep a keen watch on what China does. Meanwhile, growth in bottomline is directly proportional to raw material costs, says Sarda.

SEML is one of the lowest cost producers of steel (sponge iron, billets, ingots, TMT bars) and one of the largest manufacturers and exporters of ferro alloys in India.Below is the verbatim transcript of Manish Sarda’s interview to Nigel D’Souza on CNBC-TV18.Q: Ferro Alloy prices have been moving higher, you produce I think Ferro Manganese as well as Silico Manganese, those prices have moved up. Give us a sense, what is the price increase if I compare it on a quarter-on-quarter (QoQ) basis and also could you tell us raw material prices as well have moved higher, that is coke, manganese ore prices as well. So, the output, what is the price increase there as well as the raw material price increase? A: The Ferro Alloy prices have moved up from August. If we see the Rs 44,000-45,000 benchmark, that point has moved down to Rs 51,000 today. Manganese ore prices have moved up to 15 percent and we are seeing another 10 percent increase which is going to come on October 1. So, we will see a composite increase of 25 percent on Manganese ore prices. Coke prices have moved very sharply from USD 140 to USD 190. Ferro Manganese and Silico Manganese both will be moving up in the next 10 days or so and I think the pricing, that we will be seeing at Rs 55,000-56,000 per tonne. So, we will have to move according to the raw material prices. The important thing is that we are looking at some good demand which is coming up, the monsoons are getting over and we hope to see that the steel demand is going to pickup very soon. Q: You are saying that the price increase has been backed by demand, so, that is a good thing. It is not because of lack of availability or something on that front? A: No, I think there is a bit of demand pickup which we are seeing in sponge as well as pellet also and scarp prices have moved up globally. They have come to USD 220-230 for shredded scarp. We have seen sponge iron prices move up by 10 percent. We have seen pellet prices which have moved in the last 20 days by Rs 500. So, that is also 10 percent increase.Iron ore apparently has also become a little stronger on the international markets. So we are seeing an overall growth spiral which is coming around slowly but I hope that the steel markets are going to recover very soon now. Q: On a sequential basis if I have to put it, Ferro Alloy prices are up by around 10 percent on a sequential basis?A: Agreed. Q: But Manganese prices have increase by around 15 percent? A: Correct. Q: What does it mean in terms of margins then, do you have some kind of low cost inventory, will your margins expand going ahead. I am talking only about the Ferro Alloys business first? A: For the Ferro Alloys business, there will be spike in terms of pricing on both Alloy as well as ore. We really have to see what the ore pricing will come around on October 1 from MOIL as well as international indexes. There will be some pressure on the margins but there will be a little improved situation than the previous months because we are seeing a bit of demand which is coming up internationally also and domestically as well. Q: Steel prices you were telling us you produce longs primarily, so, those prices have moved up by how much on a sequential basis?A: 6-7 percent compared to the last month. Q: Iron ore prices I believe that there are some private miners that have increased prices in the last one month or so, Rs 100-150 pricing? A: Rs 100 has been the increase last month and mostly I think they are going to not increase the prices any further because that will again put the pressure back on the margins. Q: For producing Ferro Alloys, you require coke. Now, I track various other sectors that use coke as well but they are talking about substituting it with coal. Is that possible in Ferro Alloys business or do you think that the coke component has to stay, maybe it can be reduced? A: Normally 25 percent can be substituted by Anthracite coal or by hybrid coal from South Africa and Australia but primarily in the Manganese business, you can reduce it up to 30-35 percent, on the chrome side you can reduce it to up to 25 percent but I think on the blast furnace side those people we will have a bit of a trouble because the coke prices have spiraled. The metallurgical coal prices have gone to USD 220 and coke prices have gone from USD 140 to USD 190. So, they will be feeling a bit of a pressure. However, sponge, pellet, all these other intermediaries, scarp, they look good. There will be a little bit of pressure on the long products but I think overall if you ask me, compared to the previous months, the demand looks to be good so everything should turnaround a bit and the margins would be a little better compared to the previous months. Q: There has been plenty of interest on your stock; it is up 90 percent in three months. So, our viewers, your investors, they want to know, tell us what exactly is the guidelines for this year? Last year I think on a consolidated basis you did roughly around a Rs 1,500 crore. You are saying that demand has come back so will margins improve from last traded blended of around 13-13.5 percent and also what is your bottomline going to look, there are eager investors waiting out there. A: Basically I think the topline should look better if we look at the demand which is going to be there. I think in the short-term the demand looks to be good but again we have to see how China plays out their game in the steel business because China when they start buying up, they make everything expensive for the rest of the world and their end product becomes cheaper because of the sheer buying capacity that they have. For our company, I can say that we are looking good at the moment and honestly the bottomline would be directly proportionate to the raw material price increase which comes in. So, we have to wait for some time to understand what exactly is going to happen in the raw material sector because we normally see that the miners increase the prices really fast compared to the end product.