Expect 7-8% sequential jump in steel realisation: Sarda Energy

Sarda Energy and Minerals reported a 25 percent fall in revenue to Rs 246 crore year-on-year (YoY) but its net profit went up 74 percent to Rs 10.8 crore.

The minimum import price (MIP) helped in maintaining prices but it was not supported by domestic demand, says Padam Jain, Director and CFO of Sarda.

Speaking to CNBC-TV18, he said that the company expects a 7-8 percent jump in steel realization on a sequential basis for the first quarter of FY17.Below is the transcript of Padam Jain’s interview with Reema Tendulkar and Nigel D’souza on CNBC-TV18. Reema: Let me start with minimum import price (MIP) because that was effective only in February of 2016 which means in the quarter gone by, you only had a part impact. In the coming quarter, it will be a full quarter impact. So, therefore, if you could tell us how much have the steel prices gone up in the current quarter that we are in year-on-year (Y-o-Y) as well as quarter-on-quarter (Q-o-Q) and what will it do to your realisations. A: Definitely the price impact of MIP had come in mid of the last quarter and continuously there was upward move in the steel prices, but afterwards, there have been some slackness in the steel prices, some correction again. Still effectively, the full quarter effect will be realised only in this quarter as compared to the previous quarter, definitely there will be an improved performance in the steel sector. Nigel: But could you give us some numbers? What were the realisations? That is the steel realisations in Q4 FY16 and what will it be in Q1 FY17? Can we see a growth of around 8-10 percent or 5-10 percent? Could you quantify that number for us, steel realisations per tonne? A: Definitely, if you convert into the terms of the price realisations somewhere about 7-8 percent price realisation will be better as compared to the previous quarter. Reema: What about the volume growth? How is that expected to be for you in the current quarter that we are in and have prices sustained only on account of MIP because globally, we can see steel prices continue to remain subdued. A: Yes, MIP is definitely helping in maintaining the prices and this raw material prices have also seen some current in the overall market globally also the iron ore prices had moved up. Scrap prices had also moved up. So, those are also helping in maintaining the prices of the steel also, but definitely when we compare with the global prices, definitely, domestic prices are maintained on account of the MIP. Nigel: Domestic prices, that means they are not being backed by demand? Are you getting that kind of a sense? A: Definitely, it is not backed solely by demand, but if the raw material price on this definitely the international price movement. Nigel: Let us talk about your other segment. The ferroalloys business, traditionally, we have been seeing it give you an EBIT of close to around Es 2-3 crore on an EBIT basis per quarter. Now, this time around, it came at around Rs 7 crore. We are well aware that MOIL has gone ahead and increased manganese ore prices in the last quarter or so or the last two months actually. So, do you think that the profitability of your ferroalloys business could take a bit of a hit, these kind of margins will not be able, you will not be able to maintain it on that segment of your business? A: No, with the movement in the raw material prices, the finished goods prices have also moved up substantially. And basically, if you see the finished goods prices moved first, then only raw material prices moved upwards. Recently, there have been some – globally if you see the raw material prices, it almost doubled, whereas MOIL had increased around 60 percent. So, global prices have again come down to some level, but finished goods prices are also moving up. So, there will be no fall in the margins. Reema: Could you give us an update on the debt on your books? How would it compare to a year ago as well as your outlook for the coming year? A: If you see our overall debt position, debt has gone down. Reema: What does it stand at and by how much? What is your current debt? A: Current debt if you see the long-term liabilities, if you see on our balance sheet, at a standalone level it is just Rs 277 crore and at the consolidated level also if you take it is around Rs 1,000 crore and the overall, our liability will remain within this. Rather there will be some reduction in the liability in the current year on account of the repayments. If you see the debt equity ratio, if you see the standalone level, our long-term debt equity ratio is hardly 0.25 percent, 0.25:1. And if you see the total debt equity also, then it is 0.6 at the consolidated level. Nigel: I want to get a sense of your raw material cost. Now, coal India they have gone ahead and they have hiked prices for a particular category of coal. They are also saying that they are going to sell more amount of coal via the e-auction route. How does this fit into your business? And also speak about iron ore. Now, we are aware that National Mineral Development Corporation (NMDC) has been revising their prices in the first couple of days of a new month. For this month itself, as things stand currently, give us an example. What exactly is NMDC’s prices, that is the landed cost at your unit and compare it with other private miners, maybe the likes of Rungta. A: When it comes to the coal prices, Coal India has reduced the high grade coal of grade G3 and G4, they have reduced the prices by about 15-20 percent. For the lower grade, definitely they have increased the prices at different level. So, mostly the high grade coal was being imported by the domestic industry because that was much cheaper than the Coal India and it was not moving up that is why the prices have been corrected. For low grade coal, they have increased about 6-7 percent. That will be increased across the country, so that will have bearing on the price of the power because low grade coal is mainly used in the power. For high grade coal, we have been importing and import is cheaper than the domestic price of the coal India coal. Nigel: And for iron ore, could you quickly tell us difference between NMDC and private miners? A: Yes, NMDC we are basically purchasing iron ore fines. We are not purchasing lumps because we are using our iron ore pellets captively. So, when we compare the domestic price of the iron ore fines, the landed cost for us of the NMDC is around Rs 3,900-4,000 per tonne, whereas if we procure from the Odisha miners and maybe from other miners, that is less than Rs 3,000. So, there is still a difference of about Rs 1,000 per tonne for the pellet plants.