Narendra Kothari, CMD, NMDC believes domestic prices are a function of domestic demand and not international prices. Moreover, domestic demand is still intact, he says in an interview to CNBC-TV18.
The state-controlled mineral producing company is set to export 2 mt out of total 30 mt in FY15. Kothari is confident of making up for production loss on account of cyclone Hudhud in Q4.
Going ahead, he does not expect an additional price cut.
Below is the verbatim transcript of the interview:
Q: You have already undertaken a price cut of approximately 10 percent. Is there more price cuts coming in the next say three to six months?
A: I don’t think so we have corrected our price in the last month. Our price depends upon the demand and supply in the domestic. Whatever we are seeing that international prices are going down and it is now five-year low of around USD 70 per tonne for the 62 percent iron ore fines category. Our NMDC price mostly depends upon the domestic consumption requirement.
Our prices from last six months more or less are same. Only in the last month we had corrected little bit price in the lumps and I hope that same price will continue.
Q: There is a 45 percent drop globally. Doesn’t that put pressure on you at all; you are not at all compared with the landed prices?
A: There is definitely a pressure but our domestic price earlier used to be much less than our international price listed today. My prices are comparable with the landed price of the international price in our country. So, our price depends upon the domestic demands and what is the cost of imported iron ore price a add in. The quality of iron ore of the NMDC is much better than anybody else. We are maintaining a little premium and still my prices at west coast particular the Vizag are less than international landed prices while we are able to maintain the price.
Q: What is the target for exports sales by the end of the year? Is there a loss currently on export sales? If yes, could you quantify that for us?
A: Normally, we do almost around 10 percent of our production in exports. Export is not very encouraging market for us because the exports are done at international price, whatever formula we have picked with Japanese customer. There is definitely not much earning for us in the export market. However, with the certain commitments we are doing it so we may be touching around 2 million tonne export out of our total production of 30 million this year.
Q: Will there be any inventory loss now that you have cut prices a bit? Should we expect something in the Q3 numbers?
A: We do not have much inventory problem. Whatever we produce, we sell and our productions and sales are almost matching. This year we have targeted to produce 31 million tonne and 32 million tonne of sales so we should achieve our sales this year.
Q: What about the fact that Tata Steel and some companies have been allowed to restart mines in Odisha and Jharkhand? Will that mean less demand for you? Will that pressure price in any way or quantity?
A: No, we have sufficient demand; much more demands are there. Whatever we produce we are able to sell to our customers. We do not have any shortage of demand as far as NMDC is concerned. In the last few months, Tata Steel has procured some items, material from us and they will also produce but at the time, they are still having orders with us and they are buying from us.
Q: Because of lower iron ore prices, how much do you think your margins could fall in the second half of the year from the 65 percent levels currently?
A: I do not think our profits will fall because in the second half of the year, we produce much more than the first half. The quantity will increase while our cost will remain the same or less. So, our margins will increase and we will be able to maintain the last year’s margins or little better than last year margins.
Q: Have you heard from the ministry anything on divestment. Should we expect it this fiscal?
A: No, we do not have anything of divestment in this fiscal till now. If the government decides, and whenever they decide we will go ahead with it.
Q: Should we expect any negativity in Q3 numbers because of that cyclone Hudhud as well if you can give us an update on that Essar slurry pipeline?
A: Definitely, we have lost certain production and dispatches due to the cyclone in month of October and November. This month we are covering up things and maybe little less but that balance will be covered in the next quarter definitely in January to March.
As far as Essar line is there they have certain in between trouble breakdowns but now it is working alright and whenever they have some money we are dispatching through Essar pipeline. At the moment, the line is working.
Q: Can we expect an EBITDA growth of 34 percent and revenue growth of 25 percent growth in the full year?
A: I think we will have growth in this full financial year and we will definitely do 32 millions tonne of sales in this year. Accordingly, our average prices are same as last year so we will be able to get the growth, which we are expecting.
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