Iron ore prices have been falling for a while now and NMDC ’s iron ore sales and production numbers too were disappointing for August. But Narendra Kothari, CMD of NMDC, believes prices have bottomed out and should increase a bit after this.
He believes that the 20 percent safeguard duty will benefit steel companies and hence indirectly iron ore companies as well. The soft iron ore prices in part can be attributed to domestic demand, which has been rather low, and supplies have risen on the back of production from Odisha. Another reason can also be falling steel demand and prices.
The NMDC stock is down 28.13 percent year-to-date. Below is the verbatim transcript of Narendra Kothari's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Let me start with your main product iron ore do you think the price have bottomed out?
A: Prices have almost bottomed out and should increase a little bit. It is almost USD 55-56 for 62 percentages going on at the moment.
Latha: This duty if it is imposed, 20 percent duty would that be helpful? Would you find your buyers more willing to buy iron ore?
A: Which duty you are telling?
Latha: The safeguard duty on steel.
A: Definitely, it will be a helpful. The safeguard duty will benefit the steel industry and stainless steel will also be benefited. The iron ore industry will also benefit in return.
Sonia: Can you tell us exactly what the lump prices are at this point in time and when was the last time you took a price cut?
A: At the moment lump price is Rs 2,850 per tonne ex-mine. On September 1, we had reduced prices. Prices were corrected by Rs 100 and especially for calibrated iron ore this DR CLO is 67 percent, for which we have cut prices by Rs 400 to Rs 3,400 from Rs 3,800 on the September 1.
Sonia: So any more price cuts that we can see from now until the end of the year?
A: I can’t say those things right now but at the moment we are almost at rock bottom prices. In future, it all depends how the international markets go.
Latha: You had given us production guidance of 35 million tonne and sales guidance of 38 million tonne. I think year to date, April-August that is, I am not counting September, your sales are 11.7 million tonne. You think you can still do 38 million tonne for the full year?
A: Normally, sales improve in the third quarter and last quarter. This year we have not been able to do export yet, but we are finalising exports. So, another 3 million tonne export we will there in the second and third quarter. We will try and hope we will reach at least more than 35 million tonne of sales and production.
Sonia: Can you break it up for us on what the expectation is from Chhattisgarh and from Karnataka?
A: Karnataka, we will do around 11 to 12 and balance from Chhattisgarh. We are targeting 12 million tonne from Karnataka and that we will continue to do and balance we will do from Chhattisgarh.
Latha: You have a problem of obviously volumes and realisations because of the state of the industry and at this point in time government has also imposed higher royalty and that district fund contribution. What might your margins be if you took all this, if you netted out all this?
A: Today as per the District Mineral Fund which is expected or what we are hearing that they had not yet dictated how much percentage would be there. If it is 30 percent of royalty as soon as it is declared may be around Rs 200-300 crore effective will come in this year.
That depends again on pricing because we charge all royalties and taxes, etc., from customers. Our base price is without all those things. I hope certain price adjustments will be done accordingly.
Latha: So your margins will be at 60 percent EBITDA margins? A: Our margins, in last quarter was 61 percent and I hope to maintain this 61 percent definitely or may be more. Sonia: More than 60 percent is it?
A: Yes, definitely.
Sonia: There was a time when NMDC used to give 75 percent margins as well. Do you expect that time to ever come back because the situation has gotten so worse you will sort of hover around this 60-61 percent itself?
It is difficult to go to that 75 percent because you know prices which were hovering around USD 117-120 has come down to 50, while cost has remained the same or rather increased. But we will definitely try to achieve our tonnage. Maybe percentage wise it will be less but it will be more than 60. However, by increasing our production we will try to do more margins.
Sonia: You had some expansion plans as well. Steel plants was expected to commence production from 2016 December is that on track?
A: Our steel plant is on track. We are seeing a lot of progress and we are keeping December 2016, the construction will complete. We will start commissioning activities or operation activities from that time. So, sometime in 2017 production will start from that plant.
Latha: Even after this capital expenditure (CAPEX) you will be able to maintain your dividend. I think last year you paid Rs 8.5 per share. Will you be able to maintain such dividends because you have a capex plan?
A: Capex plan we have and we have quite a good amount of reserve also. We are trying to maintain the same dividend in this year also.
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