Sponge iron ore price rise to reflect in EBITDA: Tata Sponge

Sponge iron ore price has risen by Rs 500-600 per tonne in the last 3-4 days. Speaking to CNBC-TV18, DP Deshpande, MD of Tata Sponge, said the increase is due to expected demand from the neighbouring countries and shortage of supply there. He believes 50-60 percent of the price hike will reflect directly in the company's operating profits. Operating profit per tonne should improve to Rs 1,300-1,400 over the longer term and Rs 900 in the medium term, he added.Below is the verbatim transcript of DP Deshpande's interview to Reema Tendulkar and Nigel D'Souza on CNBC-TV18.Nigel: Sources tell us that the price increases around Rs 500 to around Rs 600 per tonne, can you confirm that?A: Yes.Nigel: The price has been increased in the past one week?A: Yes because of the perceived demand from the neighbouring countries or perceived shortage of sponge iron supply into the market, yet to be confirmed fully but these are the perceptions.Nigel: So you are saying that the price increases because you are getting demand from the neighbouring countries, so what portion of your total sales comes in from exports normally and are you looking to increase that?A: We would sell where we would be getting better opportunity. Neighbouring countries are equally distant as compared to any other Indian destination as well. So that is not a disadvantage. We export about 25-30 percent of our material to the neighbouring countries.Nigel: In the last quarter, your realisations were at around Rs 11,000-11,300 per tonne. So with this price increase, your realisations could move to around Rs 12,000 per tonne?A: You are correct, the way you are saying it but it also has to be looked at with the likely increase in the price of the coal. The coal prices have moved up by about USD 6-7 per tonne. South African coal is being used by Tata Sponge as well as most of the sponge iron industry as well.So the prices have moved up, that is one issue. Also, the sponge iron prices have moved up also as the input material prices moved up. Therefore, the full increase in the price won't get transferred into EBITDA change but 50-60 percent will certainly get transferred.Nigel: In the last quarter, your EBITDA per tonne was around Rs 900 per tonne?A: Yes.Nigel: So with this price increase, if you consider that you are saying coal prices as well have gone up by around USD 5-6, what could be the net addition on your EBITDA?A: In the near future, I can see Rs 1,300-1,400 straight away but on a quarterly average it may not be staying at that level, maybe they are slightly subdued, slightly lower.Nigel: The street is quite happy with what you are saying in terms of the EBITDA going up, the stock has moved to the high point of the day, the Nifty is at the low point of the day but you are sitting on a good cash balance, could you tell us what is happening with that? Any plans of utilisation of that cash and what is your total cash in your books?A:  We are certainly as much keen to utilise the cash so we are looking at projects which are attractive and where we can invest. So that exercise is going on, so currently we are actively pursuing the options.