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Sarda energy and minerals ltd

SARDA ENERGY AND MINERALS LIMITED

  Sarda Energy & Minerals Limited (SEML) is one of the lowest cost producers of steel (sponge iron, billets, ingots, TMT bars) and one of the largest manufacturers and exporters of ferro alloys in India.

SEML has become the supplier of choice for many domestic and international customers across more than 60 countries.
Listed on BSE and NSE with Promoters’ holding 71.9%
Manufacturer and exporter of niche grade manganese based ferro alloys.

PRODUCTS OF SARDA ENERGY
Sponge iron (dri)
BILLETS
FERRO ALLOYS (ferro maganise & silico
Maganise)
Eco bricks
MINING
Power
Pellets.

  1. Sarda Energy & Minerals Ltd. is one of the leading integrated steel producers using the direct reduction process for steel making.
  2. SEML’s annual DRI making capacity is 360,000 MT and crude steel making capacity is 240,000 MTPA.
  3. SEML is also one of the largest exporters of ferro alloys from India with an annual production capacity of 75,000 MT.
  4. The captive iron ore and coal mines provide SEML a robust competitive advantage and guarantees continued supply of critical inputs at all times.
  5. SEML commissioned 24MW hydro power plant in Jashpur, Chhattisgarh and entered into PPA for a period of 35 years and a tariff of Rs5.04/KWH. With this operational hydro power capacity stands at 28.8MW. 96MW of hydro power projects in Sikkim, is expected to come on stream in FY19. Besides this, SEML is also working on setting up 53MW of addition hydro capacity in Chhattisgarh.

POSITIVES OF STOCK
1 ) Sponge iron (DRI) prices have appreciated by Rs 7500 per tonne since 13 jan 2017, and now on Rs 22000 rs as on 13 JAN 2018 vs 14500rs on jan 17 (almost more than 50%up).

  1. BILLETS prices have appreciated by Rs 7400 per tonne since 13 jan 2017, and TODAY now on Rs 35000 rs as on 13 JAN 2018 vs 27600rs on jan 17 (almost more than 25%up)

  2. SILICO MAGANESE prices have appreciated by Rs 6750 per tonne since 13 jan 2017, and TODAY now on Rs 71750 rs as on 13 JAN 2018 vs 65000rs on jan 17 (10%up)
    Manufacturer and exporter of niche grade manganese based ferro alloys.
    As per investor presentation in last 5 year export of ferro alloy highest at 45446mt in 2015-2016 fy year.
    in this latest investor presentation they mention FERRO ALLOY EXPORT 42066mt till sep 17.means still 6 month of accounting of ferrro alloy export remaining.So we see ever highest Ferro alloy export in this fy.

  3. In view of its long term strategic plan, SEML is very strongly focused on gaining 100% raw material self-sufficiency.

  4. POWER

    • SEML prides itself in being one of the select companies which is 100% self-sufficient in its energy requirements. Currently smel are operating 81.5 MW thermal power plant at Siltara plant.
    • Company has planned for future expansion of an Integrated Steel Plant. In this diversified planning, SEML wish to expand its power generation capacity from its present capacity of 81.5 MW. One more 350MW Thermal power plant is under installation at village Kolam, district Raigarh, Chhattisgarh
  5. Pellets
    pellets prices now on Rs 6500rs per tonne which is 4250rs 1 year ago on jan 17 almost 50% up

  6. debt to equity ratio
    Ther has been significant debt reduction in last 5 year.
    In 2012-13 they have 0.54 debt equity ratio and now only 0.16 today
    Overall all thing going in fevour of sarda energy.
    METAL SECTOR LOOKS VERY GOOD THIS YEAR.
    Definitely sarda looks Gd for long term

FINANCIAL DETAIL.
49

SARDA ENERGY Reserves & Surplus increse continuously from last 5 year.
in march 2013 they have 884 cr Reserves and as on march 2017 they have 1160cr Reservescompany secure loan also decresing in last 5 year.
in march 2013 they have 487cr secure loan and as on march 2017 they have 281cr secure loan.promoter have 71.9% share of the company which is good.

RISK

AS SARDA ENERGY PRODUCT ARE RELATED TO COMMODITY PRODUCT.SO IN GLOBAL MARKET IF COMMODITY PRICE OF FERROY ALLOY AND PELLETS AND BILLETS DOWN THEN IT DIRECTLY AFFECTED TO SARDA ENERGY.IF CHINA OFFICIALS GIVE CLERANCE TO STEEL INDUSTRY TO RESTART ITS PRODUCTION WHICH ONE RIGHT NOW CLOSE DUE TO POLLUTION ISSUE.

DISCLOSURE :: HOLDING

2 Likes

I went through the quarterly results.Last qtr results r good but in the past there have been losses.

Yes agree with u.
But future is good through metal cycle running very well due to China pain and our STEEL industry gain.
Even sarda ENERGY confident about 20% margin.
See below link.
Expect Q4 margins above 20% levels: Sarda Energy

Download moneycontrol app: http://m.moneycontrol.com/mom

Expect Q4 margins above 20% levels: Sarda Energy

Download moneycontrol app: http://m.moneycontrol.com/mom

Very appropriate analysis. I wanted to know how did you know the exact increase in billet prices in India?

From steelmint.com website…where u can see all STEEL related material and raw material price and semi finished material price in 1 platform.even we see past date of price.

1 Like

It is a paid website. !!

Yes.its paid website

Though I am yet to get enough details there is some mining license issue in Orissa and Sarda Energy was claiming to get some similar license which could give them cost edge being integrated player though clarity in this matter is not enough and so ask experts to include this in their comments ahead. With this there is some inconsistency in Q to Q results from June to September and OPM also got varied accordingly which put some questions in their efficiency to take advantage of macro tailwinds.

Operated pellet plant at 100% capacity last year, says Sarda Energy

Sarda Energy and Minerals Limited
Highlights of Q1 FY19 results
Key Highlights

  • Prices of steel and downstream products has seen substantial improvement .
  • Operational EBITDA stood at 137 Cr for the quarter
  • Company is focused on consumption of Captive Iron Ore
  • During the quarter company has consumed 1,57,420 MT tons of captive Iron Ore as against 1,14,000 MT tons in Q4 FY18 and 87,482 MT ton in Q1 FY18 registering a growth of 38 % and 80 % respectively.
  • During the quarter the company has achieved record production in steel , wire rods and Ferro Alloys.
  • Achieved record revenue of 624 Cr recording growth of 5 % qoq and 17 % yoy.
  • EBITDA grew by 17 % qoq and 67 % yoy
  • Other income is negative on account of M2M of 21 Cr on market investment compare to last financial year same quarter there was gain of 9 Cr. So net M2M recorded loss is 12 Cr.
  • Income tax provision is higher because tax has been provided on actual income result into M2M loss which is a notional entry.
    Sarda Metals
  • Company has produced 21,560 MT ton of ferro Alloy compare to 21,157 metric ton in Q4 FY18 and 18,880 metric ton in Q1 FY18.
  • Capacity utilization of ferro alloy plant has increased by 5 % QOQ and 58 % YOY
  • Higher iron Ore , Coke and Coal had impact profitability of ferro alloy operations.
  • Pallet Plan was operating at 100 % capacity utilization of permitted capacity of 6,00,000 metric ton .
  • Company has applied for environmental clearance for 8,00,000 metric ton and expect to get permission by FY19 ending.
  • Focus is more and more on consumption of captive iron and production of sponge iron and hence selling more pallet in the market.
  • Recorded 1,50,599 metric ton of Pallet growth of 159 % QOQ and 51 % YOY.
  • Realization from all steel product has improved substantially which is reflected in turnover and EBITDA.
  • In Q1 company has produced 38,714 Metric ton of Ferro Alloy against 36,377 metric ton in Q4 FY18 and 35,805 metric ton in Q1 FY18.
  • Company quoted 22,1222 metric ton of Ferro Alloy against 26,125 metric ton in Q4 FY18 and 16,241 metric ton in Q1 FY18 respectively.
  • During the quarter prices of Ferro alloys were range bound and that increase the input cost and pressure on margin. In current quarter prices of Ferro Alloy has seen some improvement.
  • Revenue from Hydro power project is looking low during the quarter because revenue from hydro power comes in Q2 only .
  • Construction work of 96 Mega Watt project is progressing steadily and is expected to completed in FY20 . Company had spent 880 Cr on the project.
  • Government is considering a slew of measure for Hydro power project to bring down capital and generation cost which includes bearing Infrastructure cost by state government by supply of free power until loans are repaid. These steps led the hydro power project attractive for fresh investment.
  • Steel and Iron market is growing and major contribution is coming from infrastructure , Oil & Gas, Automotive and affordable housing and these will be the drivers going forward.
  • India steel capacity increase to 102 Million to 104 Million metric ton . Import of steel has increased by 17 % to 9.6 million ton compare to 8.24 Million ton in 2016-17 & 2017-18. It will be more or less looking at 17-20 % increase in exports because company is seeing lot of antidumping duties to place and those are going to help Indian steel production to do well.
  • Overall the scenario looks very good for the next 3 years. Once all these infrastructure happen than Indian company see a bow and steel economy in India in coming time.
    Q&A
  • There was a 1000 Cr enabling resolution that was passed and previous CAPEX amount is not in line so does company planning any acquisition or any inorganic growth via this funding ?
    o This resolution is only a enabling resolution sort from shareholders because company AGM is due in the next month so the company thought it to have the approval in place from the shareholders . Large number of opportunity is coming in steel industry particularly through NCLT through ARC routes and company hence sourcing for the opportunity so from that perspective company has taken this enabling resolution . Company don’t have any specific opportunity in any plant to raise the funds .
  • What is the outlook on Pallet as it rate is not sustainable ?
    o Pallet prices have again moved up in Q2 from Q1 now it is 6400 to 6500 as per July and August number because substantial quantity of the Pallet is being exported from the country . Recent orders are placed at higher prices . Recent china is importing and selling to all sector now the Pallet prices depend on how much company export to other countries. And second is depend on substitute to that product that is Iron Ore placed by the bigger minor like NMDC at what price they quote for order. So ultimately the price depend on the export component.
  • Does there is any plan of company to make Hydro power plant as promoter company because promoter have substantial stake in that ?
    o Company present Hydro power capacity is too small .Company only have 2 power projects one of 5 MW and another of 24 MW which are operational whereas in the pipeline under construction project is 96 Megawatt single project and starting another 24 megawatt project. There are few more projects in pipeline where company got the license for implementation in hydro power projects. All other are smaller Hydro power projects. up to 25 MW. When Hydro power plant company will increase substantially at that time company will try to put additional value addition folder but currently it is very small. Going forward company will make it a seprate entity so all the shareholder get value.
  • Is there any opportunity for En-cashing the amount which lead to M2M loss of 21 Cr ?
    o Whenever company will need the money it will be En-cash . Going forward part of the acquisition is made from the internal accruals and part of the debt and remaining portion will be raised by of equity from the market.
  • How does company see Ferro Alloy business moving from the current level what is the trend and how is the realization currently ?
    o Ferro alloy business is cyclical . Many times volatility is too high and this is the nature of this business . Apparently the prices are better than the last quarter but the raw material prices of magnesium and coke prices in that today company have a antidumping duty of 25 $ in Coke and stick coke producers are not doing well because coking coal price is high and conversion rate is not that grateful. Company has to import coke from China as company export Ferro Alloy. Prices of the raw material will remain high like Manganese Ore primary . So it is temporary effect only overall it is fine and company will not going to stop the production of Ferro alloy going forward because company have fix plans , fix orders and company have to maintain that so this is just a cycle from where company have to go through. At the end of the day company have to look at the bottom line also currently power prices are very high or the earnings from power division is very good and that so strategic decision but apart from that company will continue it cant be stop or open again and again until unless there is a substantial margin as a whole. As of now Ferro alloy is giving better margin than power. In future if company see any opportunity in power than company have extra capacity of around 20 MW in WIZAG .
  • What will be the impact of trade war ?
    o It will give upswing to India because US if trying to put sanctioning on Europe , China , India everywhere to protects its own economy and bring back the manufacturing industry in US. But India will be isolated and other countries may be impacted because of that , India is not a major exporter of steel to US and India will be benefited from all these trade wars .
  • What will be the CAPEX plan for FY 19 and FY 20 ?
    o There will be not much CAPEX going ahead except the 96 MW hydro project company will have 300 Cr plus CAPEX in that account only and another 50 Cr in another hydro projects and normal capital expenditure of 50 Cr. So it will be not more than 400-500 Cr CAPEX during the both financial year.
  • Kindly give brief on M2M loss which is on 15.9 Cr ?
    o Company is holding certain investment in Can-Fin Homes shares so that is M2M loss because of price fall in that shares.
  • What was the Ferro export in current quarter and realization ?
    o 22,000 Metric tons and export realization is 72500 this is for the 64-65 grade of Silicon Manganese.
  • Any specific reason for decrease in Ferro alloy realization YOY and QOQ ?
    o Raw material prices has gone up . Coke prices has shoot up significantly because of Chinese companies under emission loss and environmental pressure.
  • What is the trend in Ferro alloy price and steel price in last six month and what company see it now ?
    o Steel price has continuous see the uptrend expect in recent past where the steel pallet price and finished price have basically seen some correction because there was a sharp increase that was not sustainable.
    o Ferro alloy prices are range bound and there was improvement in price of Ferro alloy in recent quarter.
  • Will company maintain the 36 % EBITDA margin going forward ?
    o Yes it should be
  • What was the main reason for increase in other expenses ?
    o Earlier company was exempt from the electricity duty but now it is applicable
  • What will be the outlook for Ferro alloy industry in FY19 ?
    o It will be cyclical because some companies are going into consolidation in NCLT and one has to monitor China Coke prices because it is major raw material other than manganese so it will be range bound again Export Prices remain in 120 $ to 180 $ for the high grade of raw material 940-950 $ for the low grade
  • What is the reason to keep investments in equity company like Can-fin homes because company primary business is Ferrous and Alloy so why to keep these volatile asset that effect the balance sheet?
    o It is temporary and company will take it out in some time.
  • Any update on Sikkim power project and when will be the revenue generation start from the same ?
    o It will be operational in next financial year and revenue operation will start from FY20-21.
  • What company will do if an opportunity come to acquire a company will promoter dilute its stake ?
    o Firstly understand that 1000 Cr is the upper limit company don’t have any plan of raising 1000 Cr . The quantum of raising the fund depend upon the size of opportunity that company will get. Current promoter stake is 72.5 % and if some dilution is required than it will also be taken care off may be partly promoter will participate in the further issues. Dilution will not go under majority stake that is 51 %.
  • What was the amount of production of coal in the Indonesia mines where company have a JV with Indorama group ?
    o In that Indorama maintain the whole management and hold 51 % stake and company have 49 % stake. Company have 280 thousand ton of coal and by the year end company is targeting 750-800 thousand ton of coal. There company have to transfer the coal from one Jetee Point to another Jetee Point and the permission are yet to confirm for second Jetee point. So currently company is operating at one Jetee point and selling the coal domestic itself. Once company raised the mining capacity company will be doing roughly 750-800 thousand of coal by this financial year.
  • What is the CAPEX plan for Ferro alloy plant ?
    o Total it will be 125 Cr and company will start working for it soon.
  • What was the production volume for Ferro Alloy on standalone basis and what will be the EBITDA number for it ?
    o 17,100 ton and sales was also 17,000 ton and EBITDA for WIZAG is 8000-9000 per tons
  • What will be the increase in the capacity of steel ?
    o There will be increase of 50 % in the steel capacity and on an average EBITDA per ton will be 2500 .
2 Likes

Despite average Q2 results and increase in promoters stake it is making new lows. Does anyone know the reason?

Steel is a global commodity and it is making everyone nervous given the kind of slowdown China is witnessing. However, folks will realise that India steel is not that bad place but even in India prices are in small downturn currently. Don’t track this company though.

1 Like

can the pellet prices go up to recent highs due to the incident in vale brazil

source https://www.steelmint.com/news/indian-pellet-export-prices-set-to-rise-on-vale-supply-disruption-reports-131118
https://www.bloomberg.com/news/articles/2019-01-30/global-iron-ore-market-convulsed-as-vale-flags-supply-disruption

Iron Ore Pellet prices at all time high.

Anybody still tracking this company?
Abakkus Fund has bought >1% stake recently

The 113 MW Sikkim hydro power generator has come online last month.

I think the RoCE will increase due to-

  1. Cash generated by sikkim hydro power plant (Cash cow with no additional investments)
  2. New coal mines located close to plants will increase operational efficiencies.
  3. Captive iron ore and coal mines guarantees constant supply at lower cost. (MOAT)
  4. Reduced Debt by repayment from power plant earnings
  5. No new capex for another 2-3 years except maintainance capex of 30-40 Cr.
  6. Higher realization on finished products due to strong tailwinds.

So there is good chance for upward PE rerating because-

  1. Return ratios and Earnings profile will be better
  2. De risk from being a comodity player to energy. Current PE of 6 is still near the 5 yr pe of 5.5
  3. Lowest d/e in metals sectors

Disc.: Invested from lower levels.

1 Like