Vedanta Iron and Steel Limited (VISL) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Vedanta Iron and Steel Limited's second quarter and half-year FY2627 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchstone phone. Please note that this conference is being recorded. From the management side, we have Mr. Charanjeet Singh, Group Head Investor Relations, Mr. Pankaj Sharma, CEO, VISL, and Mr. Naveen Jaju, CFO, VISL. I now hand the conference over to Mr. Pankaj Sharma for his opening remarks. Thank you, and over to you, sir.

And good day, everyone, and thank you for joining us. I am Pankaj Sharma, CEO and whole time director of Vedanta R&M Still Limited. I am here to take you through our performance for second quarter and the first half of FY27. To run across the full value chain from mines in Odisha, Goa, Karnataka, and Liberia to steel operations in Goa and Bokaro, to 532 KT, and to 1114 KT in H1, and shutdown at Bokaro and Goa steel plants, supporting improved production stability in coming quarters. The rising coking coal price and the same may continue in coming quarters by securing 21 megawatt of open-access solar power to be carbon-neutral by 2050 because of seasonality. Iron ore production was 1.5 million tons on dry metric ton basis in Q2, and this is down by 13% year-on-year, and 4.2 million tons on dry metric basis in H1, down to 3% year-on-year. Revenue for the quarter was 2,788-83 crore. For H1, revenue to 6,450 crore and EBITDA grew 54% to 598 crore. Sales healthy with a credit rating of double economic activity, while overall softer NSR and higher input costs exerted pressure on margins. 1,104 kt and this is up 3% year-on-year, while Q2 sales were 532 kt. EBITDA margin in Q2 was 1,381 per ton. In H1, it reached a record of a 4% increase over the same period last year, even under pressure and higher discounts for low-grade material. In H1, sellable production was 4.2 million tons, broadly stable against 4.3 million tons last year. With a growing contribution from Goa and Odisha, in Q2, the sellable production at Iron Ore Goa increased 22% year on year. Total sellable production was 1.5 million tons. On the sales front, in Q2 was 0.8 million tons. Q2 sales in Karnataka were impacted due to name change transfer post-demerger and sales resumed. H1 total sales were 2.8 million tons compared to 3.2 million tons last year. The margin for H1 was 960, aligned with 967 per ton last year. And QT margin was 198 rupees per ton, mainly because of seasonality and lower sales from Karnataka. The ongoing investment across steel, DI pipes, and mining remain on track and will progressively strengthen our capacity base. With key milestones planned across FY27 and FY28, 39.8 thousand beneficiaries across 68 villages in five states. Key outcomes include stronger rural livelihoods, renewed recognition.

Thank you, Pakha, and thank you for joining us. Let me take you through the financials for the half-year and the quarter. The quarter was characterized by seasonality, software NSR, planned shutdowns, and elevated input costs, which weighed on sequential profitability. However, on year-on-year basis, the business continued to demonstrate a meaningful improvement in earnings. For the first half, revenue was Rs.6,450 crores and EBITDA was 598 crores, up 54% YOY, with margin at 9%. EAT loss narrowed to 203 crores from 622 crores last year. In Q2, revenue was 2,788 crores and EBITDA was at 83 crores, up 56% YOY. Our balance sheet remained strong with net debt to EBITDA of 1.3x. Total net debt was 2,763 crores and cash and cash equivalent stood at 847 crores. Our credit rating remains double-A stable by crisis. Gross debt came down to 2637 crore from 2792 crore. Net debt was broadly stable at 2763 crore in September against 2733 crore in June. Working capital was down by 191 crore on account of release of inventory built ahead of monsoon. This largely offset $129 crore of growth capex during the quarter and $92 crore movement under the cash from operations.

Thank you, Navi.

Finally, to conclude, we've been a growth of 54%. With the annual shutdown completed and the market environment becoming more supportive, we enter S2 with stronger operational preparedness. S2 has historically been a stronger period for the business, and we remain focused on capturing this opportunity through higher operating stability and discipline execution of our growth plans.

I hand over to the moderator.

We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone phone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. This question comes from the line of Ashish with Leo Capital. Please go ahead.

Hello, am I audible?

Please go ahead.

Thank you. Thank you for taking my question. So I have two questions. The first one would be, what is the status of the regulatory approval for the second phase of expansion and commission for the steel plant? By when do we expect all the clearances to come in and where are things stuck? That would be my first question. Any timeline? And the second question is, has there been any progress made on the Liberia project? What sort of investments would that need, and what are the economics of the project at today's price of IRNOS? Does it make commercial sense at today's price?

So, Liberia project, when we speak about ASIS, the magnetite ore with 4 billion tons of RNR with a potential where 30%. So, look at the project. The project is at the kind of it will carry considering affinity for the high-grade concentrate in the market and the effort to move towards the low-carbon intensity steel.

And what sort of investments would that need, and what are the economics of the project?

So the project will require, when we look at overall project requirement, it will be somewhere between 70 to 80 million dollars per million ton. So that is the kind of capex requirement which it will carry. And when we look at the, again, overall project with index closer to 90 dollars, So, project will have a payback of 3 to 3.5 years.

Sorry, can you repeat that?

The project will require 70 to 75 million dollars per million ton as a capex. And when we look at the payback for this particular project, it's $90 index. The payback will be closer to 3.5 years.

3.5 years. Okay. Okay. Okay. Can I ask one more question, two more questions, or should I get back in the queue? Yeah, please continue. Okay. What sort of ramp-up profile do we see from the iron ore volumes in the next two to three years, and which states or mines will drive that growth?

So, fundamentally, when we look at iron or volume ramp-up, there are mining assets which will become operational in next, I would say, one year, like Kudne mines in Goa, which will add another half a million ten kind of capacity. Then there will be Jantkal mine, which is there with us, which will become operational, adding another half a million ton kind of capacity. While the Goa unit, the existing operating unit of Goa, which only mines, present capacity is 3 million ton, which in phased manner will move closer to 5 million ton. So immediate ramp-up will be happening from 3 to 3.6 million, then to 4 million ton, and then the subsequent growth.

Got it. And as volumes grow, how do we expect the margin profile to be for some of the newer mines?

We will have to look at some of the areas in totality. Kudname largely will be meeting our captive requirement at Goa. So that is how it is designed for. While when we look at Jantkal mine, Jantkal mine will work in conjunction with the existing Iron or Karnatka mines. So, at given index where we are today, the iron ore Karnatka mines together with Jenskal mines will be delivering EBITDA margin somewhere between $7 to $10.

Got it. Got it. Thank you. Thank you for answering my questions, and that's a plug.

Your next question comes from the line of Sunil Jain with Nirmal Bang Securities Private Limited. Please go ahead.

Yeah, thank you for taking my question. Sir, about this iron ore, what is the volume target for the second half for Goa and Karnataka?

So, for Goa, our volume target will be closer to 2 million ten for the second half, while when we look at Karnataka, again the volume target will be somewhere between 2 to 3 million ten, so that is the number which we are eyeing for.

This quarter, what was the EBITDA per turn in the iron ore?

So this quarter, EBITDA per turn overall for iron ore had been closer to $2 per turn. And this is largely the seasonal effect which we see in Q2, where the mining operations in Goa remain subdued, as well as from Karnataka, volumes had been down during the quarter as explained earlier in the commentary.

And about the CapEx, if you can talk anything about what is the ERT CapEx plan and how much we had incurred in the first half?

Yes. So, till date, in the first half, we have spent 300 crores on the CapEx. In the second half, we would be spending another 600 to 700 crores on the CapEx. In totality, if we You see, out of our total CapEx program, we have spent 2,800 crore and another 900 crore is to be spent.

About this FC2 approval, I think you had already foreworded the formality from your side completed. Only the approval from the other side is pending. Once you receive that approval, then how much time will it take to complete the project from 1.6 to 3 million tons?

To five months of time.

How much more investment need to be done?

In this particular case, we have already spent 2,200 crores, so another 600 crores, capex will be required.

FC2 clearance, we can expect in Q3 or will it go to Q4 also?

It's on the final leg of approval, so we can expect... All the best. Thank you.

Your next question comes from the line of Vishal Gupta with Himalaya Capital. Please go ahead.

Thanks for your opportunity. My first question is on the ski business. Banti's approvals come in. What sort of trajectory do you expect for that business over the next two to three years? What is your expectation and what sort of capex would that mean? When we look at our steel business,

we can divide it in two parts. One is the existing capacities which are in progress, on which Pankanji spoke about, where we will be completing our phase one, and our overall hot metal capacity from the present capacity of 1.6 million will move to 3.2 million at Bokaro. And when we look at the capacities both Karo and Goma put together, the capacity will move closer to 4.4 million tons with this expansion. Then we subsequently have second phase where we are de-bottlenecking the existing blast furnaces and putting the downstream facilities for the hot metal which is getting produced. So that will take us to 5 million ton fully integrated value added product still players. So that will take us to that particular capacity. The present phase, the total capex is 3,700 crore, out of which 2,800 crore we have already spent. The second phase, for the second phase is earlier communicated in the investor call, somewhere in May, was $400 million, and more or less, we expect it to be around that.

Got it. And the 600 crores capex in the second half that you have highlighted, that is for the phase one, which is pending. The 900 crores, which is pending, 600 to 700 crores, you expect to incur out of that in phase one, in H2.

Correct. Absolutely, absolutely.

Got it. And phase one, just to clarify the timeline, you said that the approval comes in, another six odd months you should be ready to commission this, and phase two will take this time. Is that correct?

Phase two will take time.

Phase one coming through, what sort of spreads, you know, given the current market scenario What sort of revenue and EBITDA profile do you expect on the steel business for the full year once this phase one gets fully commissioned?

Fundamentally, when we are completing our phase one, phase one will include our railway siding as well as the logistics ecosystem within our premises. Plus, it will have cocoa one, it will have the DI expansion, it will, of course, have the hot metal capacity expansion, which will come in. So, there is synergy both in terms of cost, what we will be getting because of our captive setup and better logistics infrastructure, what we will have under phase one, as well as the increased volume capacity, what we will be getting. So, somewhere, again, we can calculate, basically, the present market, what kind of margins it will add. On the cost front, $20 to $30 is the advantage which we will be getting by completing our project.

And one last question was around the Liberia project. You said that the feasibility report is ongoing, but any sense on timeline there? By when do you expect to initiate CAPEX there, and by when do you expect that project to be in production?

Somewhere, I would say, later part of the year, we expect this to trigger, and the typical timeline which the project will take is closer to 24 to 30 months. That is the high-level understanding which we have right now. So, somewhere in FY30, we will start seeing the first production coming from that particular asset, if everything goes well.

Thank you.

Vishal, you can also see the details in the deck which we have released earlier in May, which has the details for each and every project from the CapEx, proposed CapEx to the timeline of completion. So the details are laid out in that investor presentation.

Next question. A reminder to all the participants, if you wish to register for a question, you may press star and 1. Participants, you may press star and then 1 to ask a question. There are no further questions. Sorry. We have a last-minute registration coming from the line of Mr. Ashish Kejriwal with Nuama Institutional Equities. Please go ahead.

Hi, good evening, everyone. Thanks for the opportunity. My question is on our steel business only. Is it possible to somewhat quantify in somewhat details what kind of cost-saving measures you are going to adopt and which will be somewhat prominent in nature? Because earlier, what I remember is that you have indicated about the railway siding logistics, $20-25 coming from there only, then Coke oven was separate, and then volume growth has been somewhat separate. So is it possible to quantify from here on till these projects come in, at the end of the first phase of the project, what kind of cost savings we can see, which is more or less permanent, I think?

Yes, sir. I'll take it.

Thank you for this question. So, in terms of parameters other than the cost efficiency, there are three aspects. One is the benchmark PTA injection rate, which is a part of any blast furnace. This is what we have taken up, and we are doing good over there. And beyond that, in terms of infrastructure, you rightly pointed out, the railway siding, the region tripler coming inside the plant will give us around $10 to $12 of margin. And horizontal cocoa one that we are yet to commission, which is also subjected to the regulatory clearance, it is all set to start. These two infrastructure additions will give us around $20-$25 per ton of additional cost gain. So, I mean, these are the two major points beyond what we call in terms of volume and fixed cost reductions that will come with a higher volume.

The peak capacity, if you can spell out what kind of fixed cost absorption. So, see, this kind of EBITDA per turn in this environment also is very, very low. As compared to your competitors, we are nowhere closer to that. So, when we have guided for a 10,000 rupees per turn, you know, I don't know at what price we can able to do that. So, that's why I'm asking more on the cost side because, see, prices are not in our control. But after looking at these two aspects only where we are saying $20 per turn or $25 per turn saving in the cost, and then marginally you can say on terms of cost reduction, in terms of higher fixed cost objection, then also 8-10,000 rupees per turn, I'm not sure whether we are able to get it ever or not.

So, Ashish, so put together, we are seeing that we will be able to save around $50, and that 6,000 rupees per turn margin. So, put together, we will be able to see that, you know, a growth of around 10,000 after the expansion comes. We come to a benchmark number.

So, sir, one can expect that in FY29, we can have these kind of numbers which we are talking about, right?

So, there are two parts. One is that my immediate still volume, the cost will come down the moment we have our project completed. So, the existing still volume will have the margins the way Pankajji was speaking about. From Q1 level, we should see the margins, comparable margins should be Q1, because Q2, there was a shutdown, which plant shutdown, which was there. So from that level, we will see that increase happening to a double-digit number. That's one thing.

FY29 is the better option?

Worst case, FY29.

28, if it happens, that's good enough for us.

Correct, correct. So, for us, FI28 beginning is what we are anticipating, that we should be getting to this number.

Thank you. Thank you so much, and all the best.

That concludes our question and answer session. Thank you, members of the management, on behalf of Vedanta, Iron, and Steel Limited. That concludes this conference. Thank you, everyone, for joining us on Humanow Disconnect Alliance. Thank you.