NAVA — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Mr. Mohit Kumar- ICICI Securities Limited Nava Limited - 2 - 02.02.2024

Good evening, ladies, and gentlemen.

I am Pelsia, moderator for the conference call.

Welcome to Nava Limited Q3 FY24

Thank you, sir.

Ladies and gentlemen, we will now begin the Q&A session.

If you have a question, please press * and 1 on your telephone keypad and wait for your turn to ask the question.

If you would like to withdraw your request, you may do so by pressing * and 1 again.

First question comes from A M Lodha from Sanmati Consultants.

Please go ahead.

A M Lodha

Congratulations for good set of numbers as well as very good operational performance of merchant power plant in India, along with the 300 MW in MCL also.

I have a few questions regarding your results.

Firstly, what is the status of arbitration award money, which our Company was supposed to receive by December 2023?

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, if you have any questions, please press * and 1 on your telephone keypad.

Next question comes from Jatin Damania from SAVAN Investments.

Please go ahead.

Jatin Damania

Thank you for the opportunity and congrats to the entire team for delivering the financials.

Just wanted to check in CY24, the last commentary, you said that we will be receiving US$180 million which was the leftover.

So, US$75 million, which has been carried forward to CY24.

Do we expect that to receive in the current quarter? or probably it should also get delayed to second-half of this calendar year?

Moderator · Conference Operator

Thank you.

Next question comes from Viraj Mahadevia from Money Grow.

Please go ahead.

Viraj Mahadevia

Hi, congratulations to the management team for such a fantastic job, on turning around the balance sheet.

I saw in your press release you have a debt reduction of INR 2,962 crores.

Out of which, the arbitration, as you mentioned Ashwin, is approximately INR 2,000 crores.

So, does that mean we can understand that INR 1,000 crores was generated as free cash flow from operations over the period?

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, if you have any questions please press * and 1 on your telephone keypad.

I repeat.

Ladies and gentlemen, if you have any questions please press * and 1 on your telephone keypad.

We have a follow up question from AM Lodha from Sanmati Consultants.

Please go ahead.

A M Lodha

Hello.

I have a few follow up questions.

Number one, what is the present power tariff at MCL in Zambia for 300 MW?

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, if you have any questions please press * and 1 on your telephone keypad.

Next question comes from Govindlal Gilada, an Individual Investor.

Please go ahead.

Govindlal Gilada

Thanks for giving me an opportunity to ask question.

And firstly congratulations for good set of numbers and making substantial debt repayment of INR 500 crores-plus in January month.

So, it is now mere INR 250 crores, and certainly I hope we'll do it in February and March.

So, I got two-three questions.

One is, if I remember correctly, till December we are supposed to receive US$93 million and now we are telling that it is $75 million.

So, $18 million have we received in January, sir?

Moderator · Conference Operator

Thank you.

That was the last question for the day.

Now, I hand over the floor to management for closing comments.

Nava Limited - 18 - 02.02.2024

Questions and answers

Nava Limited - 1 - 02.02.2024

Good evening, ladies, and gentlemen.

This is Ashwin.

I am pleased to welcome you all to the Nava Limited conference call discussing our financial results for the Q3 and nine-months period of FY24. It is with great satisfaction that we share the highlights of our achievements across various segments, demonstrating commitment to financial stability, operational excellence, and sustainable growth.

Firstly, I'm delighted to announce that Nava Limited has achieved its highest ever quarterly profit of INR 465 crores during the Q3, making a record profit of INR 1,001 crores for the nine-month period ending 31st December 2023.

One of our significant accomplishments is the substantial reduction in our consolidated debt which has decreased by 93% compared to December 2022.

Nava Limited - 3 - 02.02.2024

Thank you for the comments, Mr. Lodha.

In terms of the arbitration amount, till-date we’ve received US$264 million and US$254 million is pending, which we expect to receive by this calendar year end.

A M Lodha

No, the money was to be received in two tranches.

Some money was to be received by the December 2023 and US$180 million was to be received by December 2024.

I am not discussing about $180 million Company is supposed to receive by December 2024.

Nava Limited - 4 - 02.02.2024

No, in terms of 2023, out of what was supposed to be received, there is about US$75 million still pending.

But we have been in discussions with the utility because it's a very large amount.

And also, we are getting it in US dollars.

So, there are some currency issues.

But things are going as per plan and discussions are going well.

And based on the new plan that we keep agreeing with ZESCO, they are performing.

So, as of date, they still have to pay us INR 254 million before this calendar year ends.

A M Lodha

Okay, sir.

Sorry to interrupt you.

Is the Company receiving the Current monthly billing, on time?

Yes, we've been getting that on time.

There's no issue.

A M Lodha

Okay, sir.

My second question.

Since the Company is likely to pay entire external loan by March 2024.

What will be the allocation plan of the Company when the arbitration money or the cash surplus arises out of the normal operations of the Company?

And can we expect the money due to holding company of MCL in Singapore, which is due along with interest.

Can we expect that money to be brought back in Singapore subsidiary and then ultimately to Nava?

Yes.

So, I think one of the reasons we are accelerating to pay off this debt and prepaying a lot of this debt.

One is because interest rates are extremely high and number two is, also to allow us to access the cash that MCL generates in the form of MCL declaring dividends or paying off the loan from the holding company, Nava Bharat (Singapore) Pte.

Ltd. So, like you rightly said, our intentions and plans once we pay off the debt are, to pay off the shareholder loan and the interest, and then also further declare dividends post that, which will come that up to the parent company Nava.

Nava Limited - 5 - 02.02.2024

Yes.

Let me start off with MCL, which is probably the easier question.

We do have intentions to double the capacity at MCL.

In fact, a lot of the technical work is being carried out.

We have in fact spoken to the Government and we've indicated that they need to provide funding given that not a lot of banks come forward towards coal funding now.

So, the Government is also working on that.

So, we do have intentions of doubling our capacity in Zambia to 600 MW.

A M Lodha

Thank you very much.

In India, Mr. Lodha, the issue is with coal.

Fortunately, right now we do see a positive swing with regards to the power market.

But in terms of setting up a new plant, there are a lot of uncertainties.

And especially given the fact that coal prices have gone to a level where you only make money if the power tariffs are high which does not validate, possibly setting up a new coal-fired power plant at this stage in India.

So, currently that’s not what we’re looking at.

A M Lodha

Thanks a lot sir for clarification. and congratulations again for the good set of numbers.

Moderator · Conference Operator

Thank you.

Next question comes from Bharat Sheth from Quest Investments Advices Private Limited.

Please go ahead.

Bharat Sheth

Hi sir, thank you for the opportunity and congratulations on good set of numbers.

On power side, you have already replied everything.

I want to get some sense on ferro alloys business.

So where do we see?

Currently still we are incurring losses, but in your fair opinion, when we can really see that turnaround of business.

Nava Limited - 6 - 02.02.2024

I think the question you have asked is with regards to when we will be receiving the US$75 million.

US$75 million is a large amount.

We've been in discussions with ZESCO and they've been very positive.

They look like they have a very definitive plan.

I don't want to commit in terms of when exactly we'll get it because the discussions are still going on.

But we are positive that we'll get it sooner rather than later.

Jatin Damania

But I agree that because of the currency issues and everything which has got delayed, but it was supposed to come in the December.

So, is it that the debtors or the financing situation at the ZESCO is in problem and there we could see a further receivable piled up for CY24?

Nava Limited - 8 - 02.02.2024

No, it's nothing to do with their financial situation.

You got to understand that the arrears amount is a large amount.

And the fact is, in order to meet the arrears, they need to also take on certain loans and so on.

So, some of the reasons for the delay of the US$75 million have been caused because of certain external financials as opposed to ZESCO's health.

In fact, ZESCO 's health is only improving.

And that's the fact that we get our monthly payments on time and they paid $264 million to-date clearly shows that their financial situation has greatly improved.

With regards to US$75 million also clears that it has not come as a complete surprise.

We've been in discussions with them, every time they are facing certain difficulties or, we've been in discussions, and we agree to a new plan.

So, the plan now is that they will be paying us US$254 million before this calendar year ends.

Jatin Damania

And sir, what is the monthly payment that we are getting from the ZESCO?

It depends on the amount of power we sell to them.

And our current tariff is around US$10.3.

Jatin Damania

So, that amounts to about US$15-US$20 million, right?

Anywhere between that?

Yes, around that.

Jatin Damania

Now, you will soon be the debt free by the end of this financial year.

Post that, are we supposed to go back to lenders to take an approval for any corporate action and the CapEx that we will be doing it?

Or we are free to announce that by the Board itself without taking a lender approval?

No, the whole point of paying off our debt is, so that we don't have the lenders anymore.

And there are no restrictions from the lenders.

Because today, although we may have cash sitting at the Maamba level, we can't pay dividends or pay off the shareholder loan because of restrictions by the lenders.

So, our intention is once we settle everything with the lenders, we will be able to take corporate actions based on Board decisions at the Maamba level.

Nava Limited - 9 - 02.02.2024

Let's hope so.

Jatin Damania

Last two updates.

Now, since you've already highlighted the capital allocation that you will be doubling up the CapEx in MCL from 300-600 MW.

So, can you throw what is the CapEx that you will be spending ?

And secondly, update on your Ivory Coast and your agriculture business.

For the expansion at Maamba, we've envisaged a project cost of about US$400-US$450 million.

That's a project cost, that's not the equity portion.

Nikhil Devineni

With respect to the Ivory Coast, we are making headway into the last phase of the exploration.

We have completed two phases right now.

The last phase pertains to the drilling of the key borehole sites where manganese ore deposits have been identified.

So, we feel that within about four to five months, we should have a clear- cut idea in terms of both quality and quantity available at this mine.

In parallel, we are also getting the ground ready for setting up 22.5 MVA furnace to produce silico-manganese in Cote d'Ivoire.

So, the land acquisition process for this particular project is underway as we speak.

Jatin Damania

Broadly, sir, can you highlight what is the amount that you will be spending just for the Ivory Coast and the 22.5 MVA furnace out there?

Nikhil Devineni

Well, right now it’s tentative, but we are looking at about US$150 million.

Jatin Damania

Thank you, sir.

That's all from my side.

Congrats once again and all the best.

Nikhil Devineni

Thank you.

Nava Limited - 10 - 02.02.2024

Yes.

Viraj Mahadevia

Okay, great.

Secondly, you mentioned that the equity contribution, the overall project of the 300 MW additional and Zambia is about $450 million.

What would be the equity contribution towards that?

Roughly $100 million?

No. I think it's too early to say right now, because like I mentioned earlier, we're currently looking at a very unique financing structure where we're talking with the government.

So, it won't be the vanilla debt equity structure that we followed with the current project.

So, we can't really comment on what it would be at this stage.

Viraj Mahadevia

Understood.

And in the Ivory project, I just heard the previous caller, it's US$150 million project.

So again, what would be the equity contribution there?

Nikhil Devineni

About 30%.

Viraj Mahadevia

And in the 300 MW of Zambia, the Phase II, at full ramp would you generate about close to INR 500 crores of EBITDA?

It's all a function of the tariffs.

So, we got to also keep in mind that one of the reasons the government wants Phase II is so that the average tariff cost comes down.

So, it all would be a function of what tariff we agree for Phase II and what’s the average tariff of Phase I and Phase II would be.

Nava Limited - 11 - 02.02.2024

So, post financial closure and from ground breaking day, we estimate about two years.

Viraj Mahadevia

Okay, which doesn't start really contributing till FY26, may be FY27..

It all depends on the start date.

So, I think we've learned a lot from Phase I in terms of what to do and what not to do and how to structure the deal so that the risk is minimal for us as the parent company.

So, unless the terms are the way we want them, I don't think we will go forward.

But I think the government understands and they're working on a solution.

So, when they're ready, I think we'll be able to start.

Viraj Mahadevia

Great.

My last point is on a buyback by the Company, given that you just mentioned free cash flows of upwards of INR 1,000 crores annually with US$250 million yet to come in arbitration this year, you should have sufficient money for equity contributions, both for 300 MW Zambia as well as Ivory.

I'm hoping the management would consider a buyback while prices continue to remain attractive for the Company over the next twelve months.

Yes, I think we're always looking at positive corporate actions that benefit the shareholders.

But let's take it step by step.

I think once we get the cash in, definitely we would like to look at certain corporate actions that make sense.

Viraj Mahadevia

Excellent.

Thank you.

All the very best, Ashwin.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, if you have any question, please press * and 1 on your telephone keypad.

Next question comes from Vignesh Iyer from Sequent Investments.

Please go ahead.

Nava Limited - 12 - 02.02.2024

It's about US$10.3 per KW hours.

A M Lodha

When the next revision is due, sir?

September of this year.

A M Lodha

Okay.

What is the merchant power sale capacity in India?

Whether they are operating at full capacity?

All our plants are operating at close to full capacity and we have commitments all the way till the end of May.

A M Lodha

Okay sir.

The last question.

The coal sale by MCL.

Is there any restriction on limit or quantity of sale?

No, there is no restriction.

A M Lodha

Okay.

Thank you very much, sir.

Thank you for answering all my queries.

Thank you.

Nava Limited - 15 - 02.02.2024

Yes, we received $18 million.

Govindlal Gilada

So, out of $93 million, $18 million has been received.

That is very positive, sir.

Something we have received and balance we hope to receive in near future.

Yes.

Moderator · Conference Operator

Thank you.

Next question comes from Mr. Samarth, Arjuna Research.

Please go ahead.

Samarth Pachchigar

First of all thank you so much for the opportunity .What is the rate at which power is supplied to the state discom by the MCL?

Yes.

So, it's about $10.3 per kilowatt hour.

Samarth Pachchigar

$10.30?

Yes, US cents.

Samarth Pachchigar

US cents.

Okay.

And in Ivory Coast are we planning to set up a power plant or we are just exploring the mining business.

Nava Limited - 16 - 02.02.2024

No, I think you may be referring to a 20 MW power plant.

That still is idle, but not because of any legal reason.

It's more a commercial reason.

Because of the cost of generation being very high, we're not producing any power from them.

That's in Andhra Pradesh.

Samarth Pachchigar

Okay.

I have one more question.

The ferro alloy business of the Company is not yet profitable.

So, what is the market prospect for the business?

Because you said that you are going to set up one another plant in Ivory Coast.

Secondly, from next month you will be making available one furnace for ferro-silicon alloy.

So, how do you look at the market and what's your perspective regarding that?

Nava Limited - 17 - 02.02.2024

In closing, I would like to express my gratitude to all the stakeholders for their continued support and trust in Nava Limited.

Our achievements in this quarter reflect the collaborative work of the entire Nava team and our commitment to provide for growth to all our stakeholders.

As we move forward, we will continue to strive for excellence in our endeavors, creating value for our shareholders, employees, customers and the communities we serve.

Thank you very much for participating in this discussion.

I hope we've addressed all queries adequately.

If there are any questions or clarifications that remain unanswered, please get back to us and we'd be happy to provide answers on a wider investor platform.

Thank you, everyone.

Moderator · Conference Operator

Thank you, sir.

Ladies and gentlemen, this concludes your conference for today.

Thank you for your participation and for using Door Sabha's conference call service.

You may disconnect your lines now.

Thank you and have a good day.

Note

1.

This document has been edited to improve readability 2.

Blanks if any, in this transcript represent inaudible or incomprehensible words.