Will hold margins in FY16 despite DMF contribution: NMDC

Latha: Now with all the Mines and Minerals Development & Regulation (MMDR) bills and the mineral concessions, not only have royalty rates gone up, an equivalent amount has to be contributed to the district mineral fund (DMF) as well. Can you tell us how much will be the pay out in FY16 and what will that do to your profits?

A: The MMDR Act is coming and the procedures are being finalised. As soon as the entire procedure and details will come out, definitely as a policy NMDC will sell material at our mine head price and all other duties, royalty, etc, will be taken over by customers. We give our prices that of royalty at our mine head.

So as such, it will not directly affect anything for NMDC but in future, ultimately customer demand [may be affected] as total cost to him at his place [will increase]. It all depends on how pries go. It has no direct relation but definitely this will effect in our margins but that we are going to compensate with high level of production in coming year.

Latha: Can you tell us the amount. What will be the royalty amount? You may pass it on to your customer but there are some analysts who have calculated it at around Rs 1,500 crore-Rs 1,600 crore. If you add the DMF contribution to it, how much will it be?

A: I think it will be roughly around Rs 1,000 crore. We have not calculated the details but it depends upon prices. These are in percentage terms, so all depends on prices. At the moment prices are at lower levels so amount can vary depending upon iron ore market price.

Latha: Royalty is Rs 1,000 crore plus you will have district mineral fund?

A: Royalty is 15 percent of prices. We have to calculate the amount because it depends on my total prices of iron ore prices. However, prices of iron ore are different for fines and lumps so royalty also go accordingly. One cannot calculate right now because prices are very volatile. Things are the way it is going on.

Sonia: Global iron ore prices have seen a sharp fall and NMDC has undertaken an iron ore price cut of around Rs 500 per tonne or so. What is the way forward? Will you have to undertake more price cuts and if yes, by how much?

A: We did tremendous price cut in the month of February and March, almost Rs 500-600 in lumps and fines and in the last three months, more than 25-30 percent price cut was done. However, at the same time international prices have also gone down from October to March now -- they are down 50 percent and our prices. Our prices, which were around Rs 114 in last April have come down to Rs 47-48 for 62 percent benchmark price.

So definitely pressure is there on prices and we are also maintaining the price and ultimately we have to sell our product to our customers. We cannot sit idle. Therefore, we have to correct our prices as per the market demand and supply and international prices also.

This country needs more than 120-130 million tonne of iron ore. We make around 30 million and balance 75 percent is done by others and another 30-40 percent comes in the market by the merchant miners. So price depends upon market supply but definitely I agree that there is lot of pressure. However, for this month we have kept same price as March price but we will see further and if required we will correct our price in coming month.

Sonia: The last time we checked, your prices were higher for some of the coastal steel mills like Essar Steel, JSW Steel etc. At Rs 47-48, is it competitive enough for them or do you think you would have to bring it down further?

A: Today is not competitive enough. My prices are little higher on western coast but our major customers are on eastern coast. At Vizag, Rashtriya Ispat Nigam Limited (RINL) and Essar take from our area. But JSW, which is a big customer, takes from Karnataka.

So our prices are very competitive, but we are not that competitive for one or two customers who import on western coast like JSW, Ispat. But we have a policy to keep same price throughout the country. So we balance prices accordingly -- whether in Odisha, Chhattisgarh, Andhra Pradesh, Karnataka -- same pricing policy is there and we try to give our customer the best prices.

Latha: You were posting superb 64-66 percent margins. What margins have been in Q4 and what will they be for FY16?

A: The work is still going on for Q4 so I will not be able to give the figure, but for the entire year, our margins will be at same level. We have lot of pressure on prices but with some more production and more sales we will be able to maintain same level of margins which we maintained the last year. If I compare year on year basis, we have been able to maintain same margins.

Latha: Above 64-65 percent?

A: It will be the same as last year. We will be able to maintain that level and for coming year maybe lot of price pressure will be there but we will increase our production and that way we will compensate our profits due to more production and more sales.

Latha: How much more production. You did 30 million tonne this year. You do 30 million tonne in the year that ended on March 31. How much will you do this year?

A: We have planned to sell 38 million tonne in the year ’15-16; 38 million tonne of iron ore in sales and 35 million of production. We have sufficient stock with us, so we will do 38 million tonne sales in year ’15-16.

We have started new mechanised mine, the 11B mine has just started production and one fully mechanised 7 million mine is coming in this year, so definitely we will add some production. We are planning to give what is required. We want that country doesn’t import iron ore and we will be able to supply whatever is required.