Plan to bid for iron ore and coal mine:Tata Sponge

In an interview with CNBC-TV18, DP Deshpande, MD of Tata Sponge Iron said that the company is planning to bid for an iron ore and coal mine in the upcoming auctions.

His comment came after Tata Sponge released its fourth quarter earnings earlier today.

Net profit went up 49 percent to Rs 12.80 crore year-on-year (YoY) and revenue for the power business increased 356 percent to Rs 20.96 crore (YoY) for the fourth quarter.

Sponge iron volumes were at 100,000 tonnes for the fourth quarter of FY16 and realisation rate was at Rs 12,200 which Deshpande expects to remain at the same level for the first quarter of FY17.Below is the verbatim transcript of DP Deshpande’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18.Nigel: It is an improved performance none of the less but could you give us the couple of details in terms of your sponge business? What exactly was the realisations for the past quarter and also could you tell us what was the volumes?A: The volumes is about 1,00,000 tonne of sponge iron. The difference was that we could sell this, this quarter at a slightly higher NR because of the minimum import prices support that government provided generally steel prices have moved up. Therefore some sponge iron prices have also moved up. As a result we could get what is really due to sponge iron players.Nigel: What is that number, what is the realisation number per tonne?A: Currently it is running at around Rs 12,000. Reema: The big bumper this quarter has come in from the power business. Your revenues have gone up by 356, your EBIT margins do have improved for the power business. Could you explain what happened where do you sell your power, what rate and what is the outlook?A: Power business is not something which we run separately or we do really differently then what we have done in the past. It is just that the numbers are telling a different story nothing more than that. We sell our power to Tata Steel. We have a captive consumer in Tata Steel, so whatever we produce we sell it to them. When we produce more sponge iron we produce more power and we sell more. So, there is a general background behind it. We have not done anything extraordinary to be able to generate more numbers in power. Now what happens is the allocation of cost on the sponge iron business and the power business sometimes create this kind of a thing. I don’t want you to read too much in to it.Nigel: Come in the next quarter we shouldn’t see this kind of EBIT coming in from the power business then?A: No, EBIT will be there from power business but percentagewise it won’t be as that good. The NR for the sponge iron is Rs 12,200 for the whole quarter.Reema: For sponge you have told us the volumes were 1,00,000 tonne and the realisations or the rate was Rs 12,200. Can you tell us for the coming quarter what will it be on realisations and volumes?A: The coming quarter our expectation is that it will stay put at that current levels. Our expectation is it will be around Rs 12,500 or so in this particular quarter. Our volumes are going to be more or less 1,00,000 tonne once again. So, this is a plan that we have made. Nigel: You are functioning at 100 percent capacity utilisation currently is what I am assuming. Also tell us in terms of input cost raw material cost, coal cost as well as iron ore cost I believe that in the month of March we have seen a bit of an uptake so it is not only a realisation that will be going up even your raw material cost has gone up. Can you give us details how much was the cost of coal, how much is the cost of iron in comparison to the third quarter and also going ahead what kind of an impact can it have?A: The iron ore prices although internationally have gone up, but for domestic players like us it has actually not gone up. So, iron ore prices remain more or less same as what they were earlier. So, we have not seen any cost increase on account of either iron ore or coal. The coal cost have gone up on account of the Rs 200 cess that has imposed from April 1st so that is the only increase that has happened. The other cost, the raw material cost will remain at quarter four level.Reema: What the street really wants to know is what you are going to be doing with the big cash pile that you are sitting on. Rs 880 crore which is 60 percent of the companies market cap. Take us through what your cash utilisation policy is going to be in the coming year?A: We have been looking at multiple options for investing this money. Mostly in the value chain, we have first looked at upstream. Now we will look at downstream also. Right now we are looking at buying iron ore mine. Iron ore mine auctions are going to be in the near future, so if we can get an iron ore mine it will strengthen the company’s performance in the future. We were also looking for buying a coal mine, bidding for a coal mine. We actually did bid in the last auctions state of auctions but unsuccessfully. So, we have not given up so these are two areas where we have parked our funds for and also we also we are examining the options of investing to steel making etc. So, currently the market is not looking so rewarding so therefore the decisions are also getting examined and differed.Nigel: Just to check last quarter, you told us there was some trading income as well. Was there any trading income in this past quarter?A: In the quarter four we did not do anything of that sort. Nigel: Just want a quick clarification, your other expenditure includes close to around Rs 10 crore on account of some order demand that came in from government of Orissa and also off late we have been reading about that customs duty that has been levied close to around Rs 20-30 crore. Could you give your comments on both these two factors? Are we likely to see any kind of hit going ahead as well?A: Orissa government has instituted a water development fund and our industrial has been asked to contribute some crore rupees in multiples of the water consumption etc. We were required to pay about Rs 10 crore. This Rs 10 crore has been provided, we have actually paid only Rs 2 crore and Rs 8 crore is something which is a promise to pay to the Orissa government therefore it is charged off that is the arrangement of the water development fund.On the customs duty there has been an argument going on between custom department and Tata Sponge. The customs department feel that classification is not correct and they feel that the right classification is bituminous coal. The differential customs duty was actually made when they said so. Now when the case is been going on they have felt that we deliberately did this thing for classification and in lieu of confiscation they could charge us fine and penalty etc. We have a strong case, we are going to appeal and we have been allowed to appeal.