Sterlite Industries' CEO Discusses F4Q 2011 Results
Ladies and gentlemen, good day and welcome to the Sterlite Industries' Fourth Quarter and Full Year Results Conference Call. As a reminder for the duration of this conference all participants' lines will be in the listen-only mode and there will be an possibility for you to ask questions at the end of today's presentation. I would but like to hand the conference over to Mr. Ashwin Bajaj, Director Investor Relations for Vedanta Group. Thank you, and over to you, sir.
And gentlemen, this is Ashwin Bajaj. Thanks for joining us today to discuss Sterlite's results for the fourth quarter and financial year ended 31st March 2012. From our management team we have with us today Mr. Navin Agarwal, Vice Chairman, Mr. M.S. Mehta, our CEO, Mr. D.D. Jalan, CFO, Mr. Tarun Jain, our Director of Finance and Mr. S.K. Roongta, CEO of our Aluminium and Power Business.
Hello everyone and very good afternoon. This is Navin Agarwal and I am delighted to make a few opening comments for our Q4 FY '12 results. So, this has been another good year for us. We continue to deliver on our growth projects and have achieved record production growth in many of our businesses. I'm as well pleased to share that we have announced a record dividend of Rs.2 per share for the year in line with our stated strategies to increase the payout ratios across our group companies.
I but want to move to a few basic themes that we are witnessing in our sector and in the country at large and the global economy at large. Last year we saw considerable volatility in the financial markets due to macroeconomic factors. While the middle of the financial year, European Sovereign debt fears pulled down the markets and commodity prices. The commodity prices were weak while the last quarter of 2011 in other words Q3 FY´'12. Now, as we have more often than not seen, commodity prices are supported by the marginal cost of production and the prices rebounded before long thereafter. More recently we have seen concerns over a hard landing in China affected sentiment and prices. After all, the consensus has been that these fears were overdone as a lot of the data is fairly benign, and China is expected to continue to grow at a healthy as by slower - slightly slower pace.
In Europe, the EU and ECB have taken strong action to stabilize their country's facing issues. And although the fears and volatility does resurface from time-to-time, we have seen strong will to keep the Euro Zone at the same time and prevent problems from going out of control. The U.S. economy, nevertheless, seems to be showing very promising signs of a recovery with positive momentum in the job market as so then.
Given this macroeconomic environment, we believe that we have once again delivered strong results. Our strategy to deliver long-term value by investing in growth projects through the cycle and asset optimization has enabled this performance. Going forward, we believe the demand for commodities will continue to remain strong, aided by growth in emerging markets. Urbanization in China, India and other emerging economies is a secular trend that will play out over the at once couple of decades driving growth in infrastructure and investment.
The supply side
As importantly on the supply side, resources are becoming scarcer, cost of production are increasing and a lot of new resources are in more difficult geographies, which we believe will support commodity prices. For instance, in zinc an estimated 1.2 million tonnes of mining capacity will see closure by 2015 which is 10% of the world zinc market. This we believe is expected to result in strong zinc prices going forward.
I'd like to make couple of comments earlier I go into business or business commentary. During we are pleased to deliver excellent set of results, we take equal pride in sharing with you that while the year, we contributed some Rs.5,500 crores to the Indian exchequer in the form of taxes, duties and royalties. This must be among the top few companies in the country.
In line with the indications we have been sharing with you in the last few quarters that we have launched an intense program of exploration at Zinc International assets we acquired from Anglo Zinc last year. Our efforts in investment paid us very favorably in the form of significant additions to all three assets of Zinc International. I would talk about it more detailed once I covered the Zinc International business.
Now moving on to business or business commentary at Zinc India starting with India Zinc, we announced its results last week. I hope you had a chance to go through that. As you would know, we delivered record production of refined zinc, lead, and silver while the year.
Coming to Copper India, which is a copper smelting business, cathodes smelting business, we continue to deliver steady performance in this business. And we target to deliver improved performance in FY '13 furthermore commissioning 160 megawatt of power plant.
Moving at that time to aluminium and aluminium business, fostered BALCO, we continued to deliver stable performance, stable volume, improving cost performance. The fourth quarter CoP being $1,918. At Vedanta Aluminium, we have successfully come out of abnormal plant performance situation in the first half of FY '12 arising out of pot outages. It is very evidently visible in the financial result and cost performance, wherein delivered $1,930 cost in Q4. Inspired by our March performance, we believe there is a more headroom to improve our cost and operating performance in the given situation of raw materials.
I like to remind you that in spite of not having a captive bauxite mine in proximity of aluminium refinery plant, but we've been able to deliver cost performance in league with the global plants. This in substance shows our interest expense and at this stage of time, we feel we are at a big point of our journey. We would like to meticulously work towards realizing full potential of 2.5 million tonnes of fully integrated aluminium business.
Moving on to power. We commissioned two units of 600 megawatt at Jharsuguda and we delivered about 65% PLF in Q4. The third unit was commissioned and the fourth unit which was synchronized towards the end of the quarter is currently pursuant to this agreement stabilization. This is the report of Q4. In 2011, 12, the power producers in India witnessed considerable uncertainty in the form of dislocation of coal supply from Coal India. As late as this, we possibly look forward to improve coal supply in the current year, at the back of recent directive of Government of India to Coal India.
This would remain constant focus of the management to secure right quality coal, ensure that we meet the expectations of our returns on the investment going forward. There will be some challenges of coal supply on day-to-day basis, now I think company will feel secure to be amongst the many of the power producers. Going forward, we expect the PLF of this plant Jharsuguda particularly around 65% to 70% in the FY '13.
Sure, Anuj on the Zinc International cost performance, you rightly guessed that there will be some impact on the cost arising out of volume there might be production. But together, we'll have to work uninterruptedly like we do anywhere else in operations. So, work for controlling the cost and achieving the business results as we envisage. Nevertheless some minor increase on apple-to-apple basis will happen because of drop in production due to a great change.
The power companies are in discussion with Coal India
So all the power companies are in discussion with Coal India and this contract as of but is one-sided because of Coal India is in a position to declare to their consumers. Now certainly the directive of the government and the decision of the Coal India stands at as against before threshold of 50% fulfillment, they have to do 80% fulfillment. So, hopefully some solution will emerge with regard to the clauses and terms which they have put, association of power producers and as well taken up with, power ministry and coal ministry regarding this thing. And we are hopeful that we will be able to move ahead in the coming -- in the current year.
Yeah, this is a total fund employed in Vedanta Aluminium Limited and you are right there is draw down of the fund from institution and the fund is declared for the operations in other words the working capital for the project as so then as for the funding of -- there is no impact if you look at EBITDA level the business is making healthy profit and whatever the shortfall in the interest financing in part it is used for that.
As of but, the unit with GridCo we have you know a tariff of Rs.3.20, which is due for ready to invest upon the coal prices and the balance is through open access.
Okay. And my last question is on the copper business revenues. I mean this have been consistently surprising positively over the last two three quarters, they account for 15% of consol EBITDA and this quarter though byproduct prices, byproduct realization for all that it was a good number. So is this a steady-state revenues given that you would have visibility on TCRCs for the straightway two quarters that we can assume for the unit to deliver?
I mean in the nearly-term the -- without captive bauxite at this moment our immediate ideal scenario would be to produce 2 million tonnes from this plant subject to approval of expansion etcetera. Post technical approval expansion would not take too long for us to put the capacity in operation. And in case -- the plan B would be in case the expansion does not go through within a financial year we need more alumina, we will import alumina as you know this time alumina market is as well softened, much, much softened a bit as compared to the previous two years. So, we will be one amongst many globally like 50% global capacity imports alumina. We will continue to import alumina although may not be the ideal scenario, however more like a plan B for us.
Okay. And one small question you had drop in your capital employed in the copper business any particular reason for that?
The linkage with the SCCL
BALCO for two units we have the linkage with the SCCL, Coal India. So we'll be getting the linkage coal. And for other two units linkage is pursuant to this agreement consideration. So we are hopeful of getting the linkage for the other two units. So, clearly that will be again governed by whatever are the current FSA rule. So, you know part of the coal requirement will have to be so strong market perhaps or auction or resources.
Okay. Look we have got in the Sterlite Industries we are in process of executing total projects worth $13.3 billion. And out of that we have already spent $8.5 billion till March 2012. So balance amount is to be spent is $4.8 billion. And this is going to be spent over straightway three years' time. Then year, we are expecting somewhere around $1.5 billion to $1.7 billion.
Okay. We have borrowed money and given it out to the subsidiaries. So that's why it is appearing in the interest expenses. In the main with the borrowing against the project should have got capitalized?
Okay. And sir just, there is a question on our aluminium business, at heart in terms of BALCO if you look at nevertheless the cost is not fairly similar between VAL as so then as BALCO, in spite of having BALCO having some of its own big side. So where is the disconnect?
It would be for the fourth unit but to be established so that will happen within this quarter. However it is an ongoing thing as far as government approval you know, all the new plants would get commissioned up to March 15th, will be covered in accordance with this new FSA regime.
Okay. And secondly, on continuing on Gamsberg, do you own only 74% and 26% is with someone else. So who is the partner and are they as well have been wanting to develop this mine and do they have money to put in so much money in development of this mine?
Part of being in agreement with them
This is a part of being in agreement with them and we have a partner from South Africa. And we believe they should be able to sort out the investment required for this.
Okay. So you can make their investments as well. Yeah, secondly on ASARCO, are we done and interested with ASARCO or for all that there would be something which can come out, because previously we had understanding that only 50 million would be the total loss which was a breakup fee, however this time a bit surprised to see another $87 million hit. So, what is the status there?
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