Tata Metaliks : Transcript of Conference Call - Q1FY23 Download

same level of 5,000 to 6,000 but coming close to it. So that's the positive.

Ductile iron pipe business coming to that, it's been a weak quarter. Why, firstly because the

prices have been so volatile, the buyers have been holding on. They've not been picking up

because in anticipation of price drops, we have just held on to the orders. So, we were

releasing orders on a monthly basis rather than on a yearly business or on six months or nine

monthly basis. But with prices stabilizing I think order release will also begin to happen. On a

positive note, the Government of India has investments on Jal Jeevan Mission which is the

flagship project of the Jan Shakti Ministry of Government of India, is now estimated to be over

1,25,000 crores in FY23 from the Central Government alone. There's an equal participation

40% to 50% from the states as well. So, we're looking at (+2,00,000) crores of investment

which is likely. In reality this may be much lower. Just to give you a sense, in FY22 that last

year, total investment by the Central Government was only about 20,000 crores under Jal

Jeevan Mission. As against 20,000 the announcement or the budget, total including unspent

amount is now 1,20,000. Overall, it gives a positive impact. There are some other numbers on

DI pipes orders. The visibility of DI pipe orders on projects together is roughly about 5 to 6

million tons. The installed capacity is let's say 2.6 million tons. So, we are looking at order

visibility, our project visibility of 2-2.5 years which is tremendous considering today's industry

order load of hardly about 7 months. I would close at this and start on with the question

answers. So, I'm through with my opening statement which is pretty long but I thought it

would explain. Thank you.

Sahil Sanghvi:

Thank you Sandeep sir. So, we will just wait for question queue to assemble. Rohan, you have

raised your hand, please unmute yourself and ask your question.

Rohan:

I just wanted to understand that bulk of the impact in the cost which we have seen is in the coal

side. So how are we managing that? Because in notes also it was written that our coke costs

have gone up by 30%, so are we doing any change our strategy in procurement of coking coal

and what is our current inventory? At what quotation period or what blend cost it is?

Sandeep Kumar:

You are talking about coke cost?

Tata Metaliks

July 14, 2022

Rohan:

Yes. Coke or coking coal. Do you procure coke or coking coal?

Sandeep Kumar:

Yes, we do both. Actually, we have our own coke ovens that serves about 80% of the total

coke consumption. So about 20% we buy from the market i.e. 15% to 20%.

Rohan:

How are we placed in the price terms, what is the blended coal cost per ton? Inventory I am

asking.

Sandeep Kumar:

Yes, so while I give Subhra to answer in detail but just to give you a sense, the coke prices

which were ruling it almost close to Rs. 60,000 or above Rs. 60000 per ton, let's say a month

or two months back have now come to slightly above 40,000. So, they're already down by

50%. The impact of that will start getting visible in our stocks only from the second half of

July and August. So, the cost is already down, number one. Number two is since 80% of our

coke is in house which means we import coal for that, we have fortunately not bought coal at

high prices, too much of coal. So, we've actually held on to very minimal inventory in the last

few months therefore the impact of the high-cost inventory on our overall cost will be much

limited I would say. But I would give it to Subhra, our CFO to respond to that in more details.

Subhra Sengupta:

So as Sandeep sir has answered. So, your first question was that inventory level where we are

in the normal circumstances the inventory level is 3 months to 4 months but as we have bought

less, in last 4-5 months we are fortunately buying less. We are having inventory level of

around 1-1.5months. So fortunately, we will be able to take the benefit of the coal price faster.

The second part of the question was that what was the strategy, now on the strategy earlier also

we have talked that the coal cost is one of the major costs in our cost structure and one of the

ways we can keep our margin intact which may have some relativity about the coal. So yes, we

are seriously now working on the hedging of coal based on the firm order of DIP because the

DIP order book is normally 8 to 10 months and the coal is available in 3 months. So, to match

both the asset and liability we will try to do some hedging of coal.

Rohan:

Subhra sir, if I understand it correctly, you are saying that whenever we'll book a long term

order like 6-8-10 months DIP contract we will correspondingly buy coal in that contract.

Subhra Sengupta:

You are partially correct because the coking coal market is not that liquid, its illiquid market.

We may not be able to do 9 months kind of long position on the coal but presently the normal

inventory is 3 months we'll try to do 3+3, at least 6 months visibility should be there.

Rohan:

In one of the last earlier conference calls this was mentioned that Tata Metaliks does some

coking coal hedging. Is this the hedging you were talking about?

Subhra Sengupta:

Yes, we have to do this.

Sandeep Kumar:

Just to come in here, two points what Subhra is saying. One is of course the hedging of coal.

So that's one. Secondly what you do is you tend to order more coal which we had done last

year. We ordered for almost 6 months. So, there is a working capital cost but then you hedge

you out, so especially when you are buying at $100 and the prices move up that helps. But of

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Tata Metaliks

July 14, 2022

course, you need to take those calls. Second one is the hedging on the exchange, let's say

Singapore commodity exchange. Number three is which the ministry has now introduced in a

much wider way is the WPI of pig iron. So, the DI pipe prices are being linked to WPI of pig

iron. It was always linked but very few state governments were actually including that in the

contracts. Now the Central Government Jal Shakti Ministry has had couple of meetings with us

in the last 2-3 months. There is an agreement that we should link it up because what is

happening is that the contractors, EPC contractors also can't handle such a massive increase in

prices. So, with the result the DI pipe projects were getting delayed. That is also the reason

why only 20,000 crores got spent last year. But as this thing, WPI of pig iron gets adjusted to

the DI pipe prices, it to some extent cushions the cost impact. So those are the three ways.

Rohan:

So, we are saying we will be doing hedging in all the three ways?

Sandeep Kumar:

Yes. Correct. Third way will be common for everybody. It's not only for us but that's also

getting operationalized now in a much wider, larger way. That's at least the intent of the

Central Government. That's the advisory which is going to the states.

Sahil Sanghvi:

Mr. Saket Kapoor you may go ahead and ask the question.

Saket Kapoor:

Coming to where you just were explaining to us, about that this WIP of pig iron prices if you

could elaborate the abbreviation WIP stands for?

Sandeep Kumar:

WPI.

Saket Kapoor:

The inflation index you are speaking.

Sandeep Kumar:

Yes. Wholesale Price Index. It is declared by the government every month. So just like the

other WPIs.

Saket Kapoor:

So, it will be indexed to that?

Sandeep Kumar:

Yes, it will be indexed to that.

Saket Kapoor:

Have we seen this implementation or only the circular is there. Taking into account the order

booking, have that been implemented into it, the imports also?

Sandeep Kumar:

No. Some state governments were already implementing it, had already implemented it. So

now the Central Government has realized that its projects are not moving. One of the main

reasons is the volatility in prices. So, they constituted a committee. That committee we had

also sent our recommendations and we have interacted with them. So that committee has

concluded that WPI needs to be included in every contract and that advisory is going to the

state governments or it has gone whatever. I'm saying going forward that will get taken care of

to some extent. Not fully but to some extent.