The mineral producer has reported a 18.4 percent (year-on-year) growth in second quarter net profit at Rs 1,566.8 crore led by strong operational performance and revenue.
Narendra Kothari, CMD, NMDC is confident of FY15 being far better than FY14 on back of strong volumes.
The company has cut its iron ore lump prices by Rs 200 per tonne for November but will maintain iron ore fine prices at the current level because of good local demand, he added. The company also expects to maintain employee costs at Rs 200 crore per quarter, he added.
The mineral producer has reported a 18.4 percent (year-on-year) growth in second quarter net profit at Rs 1,566.8 crore led by strong operational performance and revenue but was impacted by exceptional loss of Rs 112.2 crore. Profit in the year-ago period was Rs 1,318.4 crore.
On the royalty front, he said higher royalties will be passed through to the consumers
The company targets to spend Rs 250 crore towards corporate social responsibility (CSR) in FY15.
Cyclone Hudhud did not impat their production process but impacted their dispatches significantly but once everything is in order, they will expedite the dispatches, he said.
Below is the transcript of Narendra Kothari’s interview to CNBC-TV18’s Ekta Batra and Anuj Singhal
Anuj: Could you detail your numbers with focus on realizations and have you taken any price cuts?
A: Q2 of this current financial year had a very good performance compared to year-on-year. We have increased our production by 9 percent. Now we are at 5.94 million tonne in place of 6.45 MT. Our sales have increased 7.27 from 6.5 percent which is a 12 percent increase.
Our financials are also quite impressive, our sales turnover this quarter if you compare year-on-year it is an 25 percent increase. Profit before tax (PBT) increased by 19 percent, profit after tax also increased by 19 percent which is now Rs 1567 crore in comparison to Rs 1318 crore of last year of this quarter.
If you compare the half yearly performance that also is quiet impressive. As you know that last year it was ever best production and this year we have surpassed last year’s performance.
Our production had increased by 12 percent, now it is 14.39 million tonnes against 12.86 of the last year. Our sales have increased by 15 percent which is now 15.86 million tonnes compared to 13.76 MT last year. Our sales turnover increased by 23 percent, profit before tax increased by 20 percent.
As you know there is lot of pressure on the international prices, where prices in April which were ruling around more than USD 100 per tonne for 62 percent of iron ore fines, now those are hovering around USD 80 per tonne.
Similarly, in country too price pressures are there but we have been able to maintain our price. We are seeing the demand and supply in the country and as such we have found that in the lump ore which is sometimes quite good in demand, there is difference in the prices, but the premium is there on the fines prices so we have reduced our prices with constant demand from our customers to satisfy customers and to see the international price trend. We have corrected our price by Rs 200/tonne from the month of November.
Ekta: Can you throw more light in terms of the pricing situation and also what was the impact of the cyclone Hudhud on volumes in October 2014?
A: First on the fine prices; fines are good in demand and we are producing it so that we can sustain the prices and our prices are quite comparable. Only in lump category we are having little higher prices and so we have corrected our prices.
For fines, we keep our price as per the market sentiment, market demand and supply position in the country. Most of our customers are like RINL, Essar and other domestic customers.
About Hudhud, definitely it has hurt us very badly. Our production did no suffer but our dispatches did. Earlier we used to do almost average 13-14 rake dispatch daily from our Kirandul and Bacheli site but during that period it had reduced to 7-8 rakes average or sometimes even to 5-6.
Due to the Hudhud cyclone there was one almost 20 meters long bridge which has been washed out in that terrain. Now there is no supply, wagons cannot go through that so we are re-routing from Raipur now and that is delaying and so supplies are a bit less.
However production continues so in the coming months, once this line is okay we will expedite our process and increase our dispatches to all our valued customers.
Anuj: With regard to your costs could you elaborate on how many months was higher royalty applicable, will employee costs stabilise at Rs 200 crore and what was your CSR spent for the quarter?
A: The royalty has increased from September 1 and we sell on net basis, the royalty is paid by the customers so royalty increase will not affect our margins but some impact will be there because the cost to the customer will increase and sometimes we have to correct our prices accordingly. So the prices will depend on the market conditions - on demand and supply position.
We know that throughout the world the oversupply is there so some pressure is there on the prices but by increasing our production we will control our cost and we will be able to maintain the margin which we are maintaining this time.
The employee costs increased this year because we had certain wage agreements signed. But now whatever the employee cost we will sustain the same level, we will not further increase but production will surely increase.
On CSR, upto September we had done Rs 17.60 crore. Now we are going to do more to about Rs 250 crore CSR expenditure in this financial year. We have no restrictions for CSR.
Ekta: Just to clear that point how many months was the higher royalty applicable for in the past quarter and will you do Rs 200 crore plus in H2 FY15 to make up for H1 deficit?
A: This additional royalty was there only for one month, balance five months there was royalty of 10 percent and last six months that was at the rate of 15 percent. Now as per the government rule, it will be 15 Percent so entire second half royalty will be 15 percent.
For CSR we have budget of Rs 250 crore which we are spending in all the areas including Swatch Bharat Abhiyan, education, expenses towards medical health, towards drinking water, towards skill development. So more than Rs 200 crore we will do in second half of the year.
Anuj: Will your margins then come down from 65 percent?
A: No, we will do extra production; we have done 15, now we will do 17 so everything will be done according. I don’t expect that due to this our margins will go down.
Ekta: Can you give us any update on steel expansion plans?
A: Steel expansion is going in a much faster way, our speed has increased, and we have already covered our capital expenses. This year first half we had planned our total capital expenditure at Rs 1256 crore and against that we have done Rs 1359 crore.
Especially if you see the steel plant our plan was for Rs 861 crore and the expenditure incurred was around Rs 1054 crore in H1, so that shows more work was done than planned. Therefore, we hope to complete these expansion projects by end of 2016 and the plant will be ready for commissioning by end of 2016.