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    Sarda Energy

    SARDAENGood
    Metals & Mining·18 Nov 2024
    Management Summary

    Sarda Energy delivered a strong Q2 FY25 performance characterized by the strategic acquisition of SKS Power, which is expected to be a major growth driver with an estimated ₹2,000 crore annual turnover. While the steel and ferro alloys segments faced headwinds from Chinese imports and global demand slowdown, the company's expansion into power and captive coal mining provides a significant hedge. Management maintains a robust balance sheet with high liquidity and low leverage despite the large capital outlay for SKS.

    Highlights

    7

    • Consolidated Revenue reached ₹1,159 crores, up 15.8% YoY and 25.2% QoQ.

    • Consolidated PAT stood at ₹195 crores, a 38.3% increase YoY, despite acquisition-related costs.

    • Successfully completed the acquisition of SKS Power Generation (600 MW) for ₹1,950 crores.

    • Net Debt stood at ₹1,300 crores post-acquisition, with a Debt-to-EBITDA ratio below 1.

    • Coal mining capacity at Gare Palma IV/7 increased to 1.68 MTPA; applying for expansion to 5.2 MTPA.

    • Ferro alloy exports totaled 28,200 metric tons worth ₹251 crores during the quarter.

    • Hydropower generation recorded 8% YoY growth; 25 MW Rehar project ready for trial runs.

    Concerns

    1

    • Chinese Steel Dumping

    What Changed1

    vs Q3 FY25

    Guidance items6 → 5 (-1)

    Key financials

    Single quarter

    04 metrics
    1. 01Revenue₹1,159 Cr+15.8%YoY
    2. 02PAT₹195 Cr+38.3%YoY
    3. 03Net Debt₹1,300 Cr
    4. 04Cash and Liquid Investments₹1,500 Cr

    Segment breakdown

    Ferro Alloys
    28,200 metric tons Export Volume₹251 Cr Export Revenue
    SKS Power (Partial Quarter)
    600 MW Capacity₹1,950 Cr Acquisition Cost
    List

    Guidance & targets

    5
    CategoryTargetPriority
    Revenue
    SKS Power Annual Turnover
    ₹2,000 crores
    		High
    Profitability
    SKS Power Annual Profit
    > ₹500 crores
    		High
    Capacity
    Coal Mining Capacity Expansion
    1.8 MTPA
    		Medium
    Capex
    Captive Solar Power Project
    50 MW
    		High
    Margin
    SKS Power EBITDA per unit
    ₹1.5 to ₹2.5
    		Medium

    Risks & concerns

    4
    RiskSeverity

    Chinese Steel Dumping

    Steel imports in India jumped 44.5% QoQ due to Chinese slowdown, making India a net importer. — Management acknowledged

    high

    Supreme Court Challenge to SKS Acquisition

    Unsuccessful applicants have challenged the NCLT/NCLAT approval in the Supreme Court. — Analyst downplayed

    medium

    Global Demand Slowdown in Ferro Alloys

    Demand is slow globally due to geopolitical disturbances in Ukraine and the Middle East, impacting pricing. — Management acknowledged

    medium

    Areas of Evasion(1)

    • Specific loan repayment schedules for the Sikkim hydropower plant were deferred to offline communication.

    Q&A highlights

    3

    “So, it has been confirmed twice by NCLAT. That gives a reasonable strength to our case.”

    The acquisition is being challenged in the Supreme Court; management's confidence in the legal standing is critical for the asset's security.

    asked by A.M. Lodha, Sanmati Consultants

    2 min read5 chapters

    Detailed Narrative

    01

    SKS Power Acquisition: A Transformational Growth Lever

    The acquisition of SKS Power for ₹1,950 crores adds 600 MW of thermal capacity, nearly doubling the company's power footprint. Management expects this asset to contribute ₹2,000 crores in annual revenue and over ₹500 crores in profit. While one unit was down for overhauling in Q2, both units are now operational, and the full financial impact will be visible from Q3 FY25 onwards.

    02

    Captive Coal Strategy to Drive Margin Expansion

    Sarda is aggressively expanding its captive coal sourcing to fuel its power plants. The Gare Palma IV/7 mine capacity has been increased to 1.68 MTPA, with a roadmap to reach 5.2 MTPA. Additionally, the Shahpur West coal mine is expected to start production within two years, which management notes will 'marginally improve' the current ₹1.5-₹2.5 EBITDA per unit at SKS by reducing reliance on external coal purchases.

    03

    Navigating Global Headwinds in Metals

    The steel and ferro alloys segments are currently under pressure due to a surge in Chinese exports and a global demand lull. Ferro alloy prices have corrected back to previous levels after a brief spike in June, currently hovering around $860-$880. Management expects demand to remain subdued for the next 2-3 months before a potential pickup after January.

    04

    Renewable Energy and Waste Utilization Projects

    The company is diversifying its energy mix with a 50 MW captive solar project scheduled for completion by the end of FY25. The 25 MW Rehar hydropower project is also ready for trial runs. Furthermore, a waste utilization project in Visakhapatnam is on track to be operational before the end of the current financial year, enhancing overall operational efficiency.

    05

    Robust Balance Sheet Post-Acquisition

    Despite the significant cash outflow for the SKS acquisition, Sarda maintains a strong liquidity position with over ₹1,500 crores in cash and liquid investments. Consolidated net debt stands at ₹1,300 crores, and the Debt-to-EBITDA ratio remains below 1. Management highlighted that long-term loans repayable within the next year are less than ₹200 crores, indicating minimal liquidity risk.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.