Key Takeaways from the Call

During Q4 FY12, net sales increased by 10% to Rs 304.71 crore on y-o-y basis due to recovery of demand. The OPM improved by 30 bps to 20.2% aided by economies arising from the company's integrated business model thereby enabling 13% growth in the operating profit to Rs 64.29 crore during the period under review. But, 30% spike in interest costs to Rs 18.30 crore and 74% rise in provision for depreciation to Rs 17.04 crore pulled down the net profit by 10% to Rs 22.04 crore on y-o-y basis. During the quarter, the cash profit increased by 14% to Rs 39.08 crore on y-o-y basis.

During Q4FY12, the ferro chrome production was 51,000 tonnes and sales were 52,951 tonnes. The price realization of ferro chrome was Rs 58,500 per tonne and its EBITDA per tonne was 22% during the period.

DuringQ4FY12, the average cost of power generation was Rs 4.25 per unit, reduced by Rs 1.25 against Q2FY12 as the company started sourcing 50% of coal through e-auction, 40% from linkage and rest 10% from imports.

The e-auction rate for coal stood at Rs 3,300 per tonne while the landed coal costs stood at Rs 6,500-7,000 per tonne during the quarter under review.

The average cost of chrome ore mining was Rs 3,500 per tonne in Q4FY12 including a royalty of Rs 850 per tonne against Rs 3,000 per tonne on previous quarter.

The company obtains the metallurgical coke (met coke) largely from China and in minor quantities from Vietnam. The met coke costs for the quarter under review stood at Rs 26,000 per tonne, up by 13% on y-o-y basis and 2% on q-o-q basis.

During FY12, the consolidated net sales increased by 10% to Rs 1145.55 crore on y-o-y basis. But OPM declined by whopping 1250 bps to 19.1% and led the operating profit to drop by 33% to Rs 227.39 crore due to pressure on ferro chrome prices along with steep rise in input costs mainly of thermal coal for power generation and reductants used in smelting. However, the company being an integrated producer was able to limit the erosion in margins to some extent.

During FY12, the ferro chrome production was 196,000 tonnes and sales were 197,245 tonnes. The average cost of ferro chrome production was Rs 44,000 per tonne while the cost of power generation was Rs 5 per unit during the period under review.

During FY12, the exports accounted 84.25% of the company's net sales while domestic sales are likely to increase in future on the expected increase in stain less steel production locally.

The off-gas system of the 30 MW dual fuel power plant was successfully commissioned in April 2012.

The 2*60 MW captive power plant is in the final stage and the unit is expected to be commissioned during Q2FY13 taking the total power generation capacity to 258 MW

The captive coal block in Angul, Odisha being developed by Utkal Coal, is expected to commence operations in Q3FY13 and will ensure the availability and cost-effective thermal coal to the company's requirement. This was delayed by more than 3-4 months, as the company has to do again some forest clearances.

One of the chrome ore mines operations was closed since Feb 2012 and a ferro chrome furnace of capacity 60,000 tonnes per annum was shut down since late April 2012 and this is likely to bring down the ferro chrome production by 6% to 48,000 tonnes during Q1FY13 on q-o-q basis. Both furnace and chrome ore mine are likely to resume production during Q2FY13.

The company's target of ferro chrome production is 180,000-200,000 tonnes for FY13. The production is likely to increase more than the stated target in FY13 on expectation that no issues will be faced in the power generation with the commencement of coal mine and on the resumption of closed chrome ore mine operations during FY13.

The ferro chrome prices have started recovering after being under pressure particularly in the H2FY12. The current global ferro chrome prices stood at USD 1 /lb while domestic price is at Rs 65,000 per tonne. Hence, the company expects price realization about Rs 64,000- Rs 65,000 per tonne during the Q1FY12 and thus expects a 5% improvement in the EBITDA per tonne during the period on sequential basis

The company is likely to resume ferro silicon production, which was closed in late 2008, for short-term duration to compensate the loss behind the shutdown of ferro chrome furnace and chrome ore mine. During the period, the company expects to produce about 1200-1500 tonnes of ferro silicon per month.

During FY12, the capital invested for 120 MW power plants was Rs 290 crore and for Utkal coal block was Rs 40 crore. In FY 13, the capex spend will be Rs 87 crore for 120 MW power plant and Rs 13 crore for Utkal coal mine block.