Sterlite Industries' CEO Discusses F1Q 2013 Results - Earnings Call Transcript

Jul.28.12 | About: Vedanta Ltd (VEDL)

Sterlite Industries (India) Limited (SLT)

F1Q 2013 Earnings Conference Call

July 26, 2012 08:30 ET

Executives

Ashwin Bajaj – Director, Investor Relations, Vedanta Group

M.S. Mehta – Chief Executive Officer

D.D. Jalan – Chief Financial Officer

Tarun Jain – Director, Finance

S.K. Roongta – Chief Executive Officer, Aluminium and Power Business

Analysts

Pinakin Parekh – JPMorgan

Prasad Baji – Edelweiss Securities

Saumil Mehta – IDFC Securities

Alok Nemani – Nomura

Ram Modi – Dolat Capital

Dhawal Doshi – MF Global

Alok Rawat – BNP Paribas

Giriraj Daga – Nirmal Bang Equities

Bijal Shah – IIFL

Tanuj Rastogi – MSFL

Operator

Ladies and gentlemen, good day and welcome to the Sterlite Industries’ First Quarter Earnings Conference Call. As a reminder, all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions) Please note that this conference is being recorded.

I would now like to hand the conference over to Mr. Ashwin Bajaj. Thank you, and over to you, sir.

Ashwin Bajaj – Director, Investor Relations, Vedanta Group

Thanks, operator and very good evening ladies and gentlemen. This is Ashwin Bajaj, Director of Investor Relations. Thanks for joining us today to discuss Sterlite’s results for the first quarter of FY 2013. From our management team today, we have with us, Mr. M.S. Mehta, CEO of the Group, Mr. D.D. Jalan, CFO of the Group, Mr. Tarun Jain, Director of Finance, and Mr. S.K. Roongta, CEO of our Aluminium and Power businesses.

I will now hand it over to Mr. Mehta who will take us through the results and then we’ll be happy to take your questions. So, over to you, Mr. Mehta.

M.S. Mehta – Chief Executive Officer

Thank you, Ashwin. Good evening, ladies and gentlemen and thank you for joining us on the Sterlite’s Q1 earning call. We have had a good start to the year on operational front and have delivered excellent set of numbers.

Our revenues were up to over INR10,000 crores by 8% driven by volume growth in lead, silver, at our Zinc India operations and at our copper business and commercial power. Consolidated EBITDA was 2,337 crores reflecting low metal prices and depreciated rupee in cost and realization both. And of course, underlying EPS, as you can see was INR4.2 per share.

I will now briefly walk you through the segment wise performance. First coming to Zinc India, our results for the quarter have shown excellent ramp up of Sindesar Khurd mine, with 70% increase in the volume of silver and lead.

Ore production at SK mine has increased by more than 1.5 times from the year ago. We expect to reach 2 million tonne capacity during the year. Very importantly on silver side, after having delivered 33% growth in the FY ‘12, we are ready to deliver about 45% growth in the current year by positioning ourselves to produce 350 tonnes. As you will have noticed, we produced 80 tonnes in this quarter. We are steadily and rapidly moving towards the 500-tonne mark as we mentioned to you before, which we believe is the silver potential corresponding to delivering capacity at Hindustan Zinc. We are on track to deliver operational performance for the year, as mentioned to you in the earlier calls, which would include some fall of volume in H1, but more than that will be made up in the second half.

Hindustan Zinc, as you know, has reached mineral capacity mark and has been delivering fully exciting performance on the exploration success. We remain positive to continue delivering positive results around our brownfield exploration initiative, by adding more R&R that what we deplete. I think we have an unparalleled track record on discount in the sector. That said I wanted to let you know that Hindustan Zinc is in the final stage of its feasibility report for the next phase of growth, which it well deserves at the back of 45 years plus mine life and further potential to add R&R from our brownfield exploration initiatives.

As you are aware, we are developing underground mining operations at Rampura Agucha mine and also developing Kayar mine. During the quarter, we achieved significant progress in both these developments and we are here to deliver commercial production from both these assets from next year. As we have mentioned before, our open cast mining operation at Rampura Agucha will continue uninterrupted while underground mining development is going on and production start next year.

Just to reiterate, at the back of using the best-in-class mechanization, productivity and large scale mining operations, and of course, cost-benchmarked structure, management structure, we believe that Rampura Agucha mine, underground mine operations, it should be possible for us to deliver costs lower than current operating costs. I’d like to mention one more thing regarding Hindustan Zinc, while in the today’s atmosphere, where rupee is depreciated significantly impacting business in many ways, here is one company, Hindustan Zinc, which is only deriving benefit of depreciating rupee.. It’s very good to see a company, which is getting its true value from delivering expanded capacity.

Moving on to Zinc International, output at Zinc International operation was in line with our earlier stated guidance. Our commitment to continuous improvement culture has helped continuously reduce our cost. Our cost, during the quarter, reduced by 7% at ZI. Just to refresh the memory, we delivered excellent performance on the exploration front at ZI in the form of increasing mine life significantly all three assets renewed up to three years.

I’d like to mention to you that our exploration work is going on and we’ll be happy to share this outcome at the appropriate time. Gamsberg, as you know is 186 million tonne deposit of good grade available to open cast mining. And we reckon its potential as a mine, which can produce 400,000 tonnes per year in the lowest total cost. The good news is that we mobilized the project team at Gamsberg and should be back with more details on completion of feasibility report within next few quarters.

On the copper business, mainly Indian copper and Australian copper, we delivered superior operating performance on volume front in Q1 over the Q1 last year in Tuticorin and in Australia. Profitability was partially impacted during the quarter due to lower by-product credit, namely sulfuric acid. We have seen towards the end of the quarter and from July, I think market is reviving once again. We expect to deliver superior cost performance arising out of by-product credit in the second half of the year. CCRP, as you well know, has improved over the last three years and full year CCRP contracts are getting negotiated in the range of $0.15 per pound. We are on track to comply with these two main requirements asked by TNPCB post the discussions in Supreme Court and review by NEERI. The next stage of Supreme Court hearing is scheduled in end August. The plant, as you know, is continuously operating at full capacity.

Moving on to aluminium, Balco first, we continue to deliver stable volumes on aluminium. We remain focused on cost production. In Q1, the cost increased on account of tapering of coal linkage and higher alumina and carbon cost. I’d like to reiterate here that we are on track to bringing back the cost back to INR1 lakh mark shortly. And at the current exchange rate, you can well imagine it is going to be in the range of $1,750. To reiterate the fact that both at Balco and Vedanta Aluminium our costs are in the benchmark range of the global producers.

On the coal block, we need to rate on the coal block as soon as possible, because we need to make up for the coal tapering which has commenced. We had shared with you earlier that we got the environment clearance on coal block in May 2012. We are in the advanced stages of second stage forest clearance. Subject to that, getting received in next few months, we expect to start with mining operation by end of this year.

At Vedanta Aluminium, we delivered excellent operating performance in the form of cost in last there quarters in a sequence. Our costs have remained stable at around INR1 lakh tonne per mark and I expect to bring these sustainable costs down to INR95,000 to 98,000 tonnes, which you could imagine is in range of $1,700 or lesser in the current exchange rate and will be in the – around the lowest total cost of the global cost curve.

Our profitability during the quarter was adversely impacted by foreign exchange fluctuation, to the extent of INR180 crores. And excluding the same, EBITDA was INR263 crores. This you can calculate with EBITDA margin of 15% and we expect this to become better as we ramp up on the cost efficiency and take full advantage of the aluminium premiums, which have been rising continuously in last few months at the back of shortage of physical material in the market due to capacity cutbacks.

Just to let you know, the ingot premium improved to over $200 per tonne in the current quarter. As you are aware, we are using 1 million tonne capacity operating rate on Lanjigarh refinery, and on overall alumina basis, we get about 50% alumina from our own refinery and we source about 50% bauxite from Balco and balance is coming from third-party sources. Despite having not revenue efficient bauxite linkage, I am very proud and happy to share with you that we are able to deliver benchmark cost performance in league with our global and Indian players. We believe we are in strong position in this sector with our current valuable cost, which will get further strengthened tremendously with captive bauxite.

Moving on to power, at Sterlite Energy, we commissioned three units of 600 megawatts and fourth unit, as you are aware, is in the trial runs. During Q1, we had an important milestone of adding 700 megawatts of execution capacity at our Jharsuguda plant, what we call Euro 2. With that, our total transmission capacity at Jharsuguda now stands at about 1,850 megawatt. In Q4, we expect to add another 1,000 megawatt, the work on that is going on. That will take our total transmission capacity to over 2,800 megawatt. With that, you can well imagine, it will be possible for us to achieve higher PLF and turn in more EBITDA and cash profit. We continue to remain focused on cost and we are happy to share with you that in these plants, which are in the stabilization stage, we are improving the performance day-by-day and cost efficiency is getting better.

A word on coal, I think post Q2 of last year, when the whole industry experienced very tight supply of coal and everybody ran into serious problems. We have seen significant improvement in the whole sector in the form of coal supply becoming a major focus point for the key policymakers. And I am very happy to share with you that after seeing Coal India increasing its stock for many quarters, now they are offering the coal stock on stock for sale outside the quota, outside the linkage program through IPP and we’ve obtained some deals already and hope to use that coal to renew our overall coal security and sufficiency. At Balco power plant, we have some sub-optimal cost – operating performance, but we hope to make it up in the coming quarters.

In the Wind Power side, operating commission 150 megawatt capacity, we have taken our wind generation capacity 273 megawatt, and in the full quarter or full capacity operations, we are able to report 72% increase in generation.

On Sesa Sterlite merger, this quarter we crossed a significant milestone at the recently held AGM. We received the approval for Sesa Sterlite merger from Vedanta, Sterlite and Sesa shareholders. We are on track for completion of the merger by calendar year 2012 as per the original timelines. Sesa Sterlite, as you would know, would be simply one of the world’s largest diversified natural resource company and India’s natural resource major.

Overall, we are well-positioned to generate strong cash flow at the back of our Tier 1 assets, our continuous improvement culture, operating efficiency. As you know that we have very strong near-term volume growth potential ahead at the back of growth CapEx investment made in recent past.

With that, I would like to hand over to Mr. D.D. Jalan for his update on the financials.

D.D. Jalan – Chief Financial Officer

Thanks, M.S., and good evening, ladies and gentlemen. As you would have noticed on the release which we have posted today, we continue to have the strong balance sheet with cash and cash equivalent of INR24,917 crore. During the quarter we had increased cash and cash equivalent of INR1,500 crore after CapEx net of borrowing of INR77 crore during the quarter.

Now I shall touch upon some of the salient features of the results. The EBITDA of INR2,337 crore during the quarter is after considering impact of lower LME of INR317 crore and a positive of INR234 crore on the account of weaker rupee. Due to weaker rupee and consequent MTM of ForEx payable our profits are lowered by INR228 crore of which INR217 crore is under the head of other expenses and INR11 crore is under the finance cost.

In addition in (NYSE:WAT) also is the impact of INR256 crore of that INR150 crore is under other expenses and what M.S. talked about and INR76 crore is under the head of finance cost. Of course only 29.5% of that has been accrued in the line item in the results. The other income during the quarter was higher by INR245 crore largely on the account of higher surplus cash balance and improved yields during the quarter.

M.S. with that, I’m over with the salient features.

M.S. Mehta – Chief Executive Officer

Great, D.D. We are assuring that we are ready to take questions.

Ashwin Bajaj – Director, Investor Relations, Vedanta Group

Operator we can take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question is from the line of Pinakin Parekh from JPMorgan. Please go ahead.

Pinakin Parekh – JPMorgan

Yeah. Thank you very much. Couple of questions, first on coal, you mentioned that Coal India has put up the offer now, so I wanted to know whether it is applicable to Sterlite’s power plants at Jharsuguda. And what would be the challenges that Sterlite would face in evacuating that coal whether its in terms of with the quality of coal or whether it in terms of the truck movement or something. And how much of cost reduction can that lead to. And my second question would be on the Raykal bauxite transaction which to place if you can add more color over there?

M.S. Mehta

We have Mr. Roongta in the call. I’ll request him to take these questions please?

S.K. Roongta

Good evening, now first regarding coal, Coal India has offered their stock coal to the plant IPPs and Sterlite Energy’s all coal units are entitled for this coal. Right now this scheme has been announced for supplies up to March ’13. And we are qualified and in fact we have been granted allocation for that and supplies had already begun. There are some challenges with regard to evacuation, but this coal offered is primarily from the same mines from which already lifting is taking place. If we are confident that we will be able to lift that coal and this coal is being supplied at the same administered prices. So, to that extent it brings in significant savings as we can cut down our e-auction purchases and substituted with this coal.

Pinakin Parekh – JPMorgan

Sir, I just wanted to understand that what would have been the current coal supply from Coal India and how much would this increase to given this proposal that Coal India has floated and the company has accepted?

S.K. Roongta

Well, this is ad-hoc availability which Coal India is offering to the power plants in order to enhance the coal supply to the power plants. And as I said this is ad-hoc availability right now has been made available up to March ‘13, beginning July till March ‘13. And we expect to get about 2 million to 3 million tonnes of coal under this arrangement for Sterlite Energy Plants.

Pinakin Parekh – JPMorgan

So would now - I mean earlier in the year there was a guidance of 65% PLF. So, would PLF now be expected to increase at SEL because of this? And would cost reduce from the INR2.14 per units in the June quarter that was reported?

S.K. Roongta

Well, June quarter is behind us. This call has just started in the second half of July and well, PLF – in any case, PLF guidance are based upon coal we would have arranged from alternate sources. So, it does not materially affect our PLF guidance, but certainly it will have impact on cost. Now, we have to see that what kind of quality ultimately we are able to get and what is the GCV of the coal, which we get through this arrangement. Then only we’ll be able to precisely work out what is the cost saving, but surely there will be cost savings. I can’t quantify it at this stage.

Pinakin Parekh – JPMorgan

And so lastly, any updates on the Raykal transaction?

S.K. Roongta

So, on the Raykal, I suppose we have already announced that we have made an arrangement with L&T and where they have the prospecting license to mines in Orissa. This is primarily on Sijmali. And well there are certain payments linked to milestone. At this stage, I suppose we can only give this much of update.

Pinakin Parekh – JPMorgan

I understood. Thank you very much.

Operator

Thank you. (Operator Instructions) The next question is from the line of Prasad Baji from Edelweiss Securities. Please go ahead.

Prasad Baji – Edelweiss Securities

Yeah, thanks for taking my question. On the coal front, I was just wondering whether at Sterlite Energy, we are sourcing any imported coal also because from the balance sheets, one got a sense, and if so what is the quantum of proportion of that. And have you seen any reduction in that cost in rupee terms?

S.K. Roongta

Yes, we are sourcing some marginal quantity of coal through imports. In percentage terms, it won’t be more than 7%, 8% of our total coal requirement. And you are right at international prices of coal have come down in dollar terms significantly in last three, four months, but because of depreciation of rupee, the overall impact is not as much. But certainly what it used to cost about INR1.15 per GCV has come down to almost below INR1 per GCV on a blended cost basis. But since our coal – imported coal component is not significant, so in the overall coal cost, it may not make that significant an impact.

Prasad Baji – Edelweiss Securities

And you don’t see a scope for increasing that proportion considering the cost reduction, technical possibilities would rule out?

S.K. Roongta

No, the – technically, there is no constraint. And depending upon the cost considerations, we can always increase the share of imported coal, share – if a stage comes, imported coal is more cost effective as compared to e-auction and then we can certainly cut down on our e-auction coal and go for more imported coal. That comes by rate and we have the infrastructure to handle the rates from the ports for imported coal.

Prasad Baji – Edelweiss Securities

I understand. Just last question, what would be the…

S.K. Roongta

Just to supplement the imported coal picture as we see it that we have seen the dollar price of coal has come down by above 25% to 30%. And it is yet going down only, all the current indications are very bearish on the coal side, and considering the rupee depreciation for INR50 to INR57 in the same period more or less, the reduction is about 20%.

Prasad Baji – Edelweiss Securities

Right.

S.K. Roongta

So, in rupee terms also, one is able to see reduction of 20%. Now, depending on who ordered at what time, what is the total period one is looking at – always looking at the peak of the recent times and the current prices.

Prasad Baji – Edelweiss Securities

Yeah, I was just trying to understand, is there a meaningful usage of imported coal that we can have as a result of this.

M.S. Mehta

Yes, we have the possibility of blending imported coal up to 20% depending upon 20% to 25% depending upon the grade of imported coal and cost economy.

S.K. Roongta

But this question, Prasad, is more relevant to who is closer to the port.

M.S. Mehta

Right.

S.K. Roongta

Because, we do have significant capacity closer to the port who are taking the coal from central India and western collieries, and that impact will be significant and those are fairly significant as capacity. So, if the 10 million tonne capacity that were shipped from domestic to import, it can cause significant change, same 10% when it moves as a shortfall due to monsoon last year, we saw havoc playing. The same thing (indiscernible) also, but it’s all speculative. One has to see exactly how it comes out. I’m just trying to think as analyst.

Prasad Baji – Edelweiss Securities

Yes sure. Just last question what would be the blended cost, I mean in the June quarter what would be the blended cost of coal?

M.S. Mehta

Blended cost of?

Prasad Baji – Edelweiss Securities

Blended cost of coal for Jharsuguda power plant?

M.S. Mehta

Average cost of coal (indiscernible). We will provide them where in case – Average cost of coal will be less than INR2 for us in Jharsuguda.

Prasad Baji – Edelweiss Securities

Okay fine. That’s it from my side.

M.S. Mehta

Thank you.

Operator

Thank you. The next question is from the line of Saumil Mehta from IDFC Securities. Please go ahead.

Saumil Mehta – IDFC Securities

Yeah. Thanks for taking my question. Just I have one question, on your ForEx gains, is there any mark-to-market or something which has been unrealized, if yes can you quantify the amount?

D.D. Jalan

No, the ForEx gain is basically whatever sales we had made that is what on that we had realized that much gains. And on the borrowing side it is all mark-to-market losses.

Saumil Mehta – IDFC Securities

Sure and in your consolidated other income is there any one-off?

D.D. Jalan

I could not follow your second question. What are you saying?

Saumil Mehta – IDFC Securities

Other income of INR948.36 crore which has been reported in this particular quarter is there any one-off included?

D.D. Jalan

No, I mention to you that other income has gone up largely on account of higher interest income, which is aided by higher surplus cash, number one. And number two, higher yield.

Saumil Mehta – IDFC Securities

So, what was the average yield in Q1 FY ’13 only on development?

D.D. Jalan

The average yield, it will be somewhere around closer to 10%.

Saumil Mehta – IDFC Securities

And so how it has moved sequentially, what was the average yield in Q4 FY ‘12?

D.D. Jalan

In this quarter our yield – average yield has gone up almost by to 0.75%.

Saumil Mehta – IDFC Securities

0.75%.

D.D. Jalan

Yes and sequentially.

Saumil Mehta – IDFC Securities

Sure, that answered my question. Thank you.

Operator

Thank you. (Operator Instructions) The next question is from the line of Alok Nemani from Nomura. Please go ahead.

Alok Nemani – Nomura

Sir, I have a question on Balco like if I look at the Balco’s number and the cost of production is higher than Vedanta Aluminum. This is despite the fact that Balco is using most of its alumina from the (tool) bauxite. So what’s the reason for that?

M.S. Mehta

Well, the precise reason is that the mix, Balco has got two captive bauxite mines Kawardha and Mainpat. When Kawardha is higher grade bauxite, Mainpat is lower grade bauxite. Now the present environmental clearance period was getting over, so in the quarter one their mine more from Kawardha – Mainpat mine which is lower the quality bauxite. So, because of the change in composition of this bauxite quality the specific consumption of bauxite per fraction of alumina has been higher. And that is one reason for increasing the cost of alumina for Balco. But that was one-time thing. In the current quarter right now higher grade bauxite is being sent for tooling, and this cost should really come down going forward.

Alok Nemani – Nomura

My second question is on the power side if – like what kind of grade do we get in the e-auction coal. And secondly like since Coal India is offering higher coal from the stock side to IPPs now. So, will the quantity offered during the e-auctions come down because of that?

S.K. Roongta

Well, grade offered and e-auction depending upon the mines from where the coal is offered. So, it can be varying from generally the coal which we source is either the grade E or grade F. And well, this is a stock which has been lying dormant without getting moved. So, I don’t think it should be deducted by e-auction quantities because in any case, the Coal India production also is improving. In the first quarter their production has been about 6% more as compared to Q1 of last year and their sales also have been about 6% more. So, I suppose – well, they have not declared their plan, but it is presumed that they will continue to offer as much quantity or e-auction, because that gives them extra margins and money.

Alok Nemani – Nomura

Okay. And so this quantity that we have talked about, $2 million to $3 million tonnes expected, this is in addition to the coal linkage that we usually get?

S.K. Roongta

Yeah, yeah, this is – as I said, ad-hoc, one-time, which it’s stocks, which have been lying with the subsidiaries of Coal India all over the country. The Coal India has been talking about 70 million tonnes of coal in its stock. So, it is trying to clear part of the stocks and offer it to the power producers, so that their shortage of coal for power producers comes down and Coal India’s stock also go down.

Alok Nemani – Nomura

Okay. One question is there from the last year numbers FY ‘12 numbers, is that if I look at the Annual Report, then the coal used per tonne of power produced – per unit of power produced was close to 760 kg, which was quite high number. So, what is the heat rate of the plant and what kind of average grade of coal are we using actually?

S.K. Roongta

You are talking with reference to Jharsuguda plant?

Alok Nemani – Nomura

Yeah, Jharsuguda plant.

S.K. Roongta

Well, Jharsuguda plant, we are using coal as I said that it is primarily E and F grade coal depending upon – it’s a mix of linkage coal, e-auction coal, and a small percentage of imported coal. And average we get a GCV of a little over 3,000 GCV and that is the coal, which we are using in Jharsuguda plant right now.

Alok Nemani – Nomura

What is the heat rate of the plant?

S.K. Roongta

Heat rate, I think what we are able to generate, deliver is about 2,300 kilocalories.

M.S. Mehta

Yeah, 2,300 also, 2,350 also.

S.K. Roongta

Yeah, yeah.

Alok Nemani – Nomura

Thank you so much.

Operator

Thank you. The next question is from the line of Ram Modi from Dolat Capital. Please go ahead.

Ram Modi – Dolat Capital

Hello.

Operator

Please go ahead sir.

Ram Modi – Dolat Capital

Just wanted to know that how much fall we should expect in Zinc International for the full year in terms of production?

M.S. Mehta

I think we mentioned to you last time that we see some 10% fall in grades, which will reflect in the overall volume on a year-on-year basis.

Ram Modi – Dolat Capital

Okay. And these grades will be permanent, so this kind of volumes should be continuing in FY ‘14 also?

S.K. Roongta

You must notice that this mine life will be increasing in the near-term basis and ongoing basis. And as we’ll get to the third or fourth quarters of the year, we’ll have better visibility of the grades of the next year. So, that mine plan will help us to know, but we don’t see any grade change in the grade happening structurally. So, at this stage, I’m not able to add more than saying that will have more visibility of this in the Q3, Q4. Once, we made the mine plan for the next year with more details.

Ram Modi – Dolat Capital

Okay, okay. Thanks a lot sir.

S.K. Roongta

Thank you.

Operator

Thank you. (Operator Instructions) The next question is from the line of Dhawal Doshi from MF Global. Please go ahead.

Dhawal Doshi – MF Global

Hello, sir.

S.K. Roongta

Hello.

Dhawal Doshi – MF Global

So, just once again questions on the Jharsuguda plant, what was the total coal received during the quarter and of that how much was from the linkage?

S.K. Roongta

Well, we have linkage of about – for Jharsuguda, we have a linkage of about 3.5 lakh tonnes per month.

Dhawal Doshi – MF Global

Okay.

S.K. Roongta

The coal received through linkage would have been little over 1 million tonne.

Dhawal Doshi – MF Global

Okay. And what was it last quarter, because I was just trying to understand the reason behind a sequential fall in costs, is it because of improved availability of coal from linkage or something else?

S.K. Roongta

There are so many factors. One is yes, improved availability of linkage coal. Secondly, the improvement in quality, through concerted efforts and action we are seeing better quality received. There is a range of quality of the coal, which is offered by Coal India, so if you get on the higher band of the range, it can obviously, of course, come down, and currently, we have also improved our specific coal consumption in our power plants that is also bringing down our coal cost.

Dhawal Doshi – MF Global

Okay. So, just you said 3.5 lakh tonnes a month, so what was it during the fourth quarter?

S.K. Roongta

Well, fourth quarter…

M.S. Mehta

Mr. Roongta, we can provide this specific detail offline, but generally speaking that…

Dhawal Doshi – MF Global

Hello?

S.K. Roongta

These specific details we can provide offline.

Dhawal Doshi – MF Global

Sure, sir. Sir, just some more color on that Balco tapering linkage as in – what is the quantity of coal, what quantum of coal that you were receiving from the linkage has gone up in this quarter?

S.K. Roongta

The tapering is 25% of the linkage coal.

Dhawal Doshi – MF Global

Okay. So, that has started from this quarter onwards?

S.K. Roongta

Yeah.

Dhawal Doshi – MF Global

And how much cost escalation would we have seen on account of this specific thing and not because of the bauxite number?

S.K. Roongta

Well, we – cost escalation has again will depend upon what costs we incur on the alternate coal supply. So, well, we will have to work out the details in terms of the total cost escalation how it ultimately works out including our combination of different coal which we use, but certainly there is a cost escalation involved, when alternate coal will be costlier.

Dhawal Doshi – MF Global

Okay.

S.K. Roongta

So, we reckoned that this is the coal for CPP, where already Coal India is pricing its coal about 20% more than the prices they charge for the IPPs.

Dhawal Doshi – MF Global

Okay, fine sir. Thank you, sir. That’s all from my side.

Operator

Thank you. The next question is from the line of Alok Rawat from BNP Paribas. Please go ahead.

Alok Rawat – BNP Paribas

Good evening sir. One question on Talwandi Sabo, you said that you expect its first unit to be commissioned by end of this fiscal year, what is – for the first unit, how much of CapEx has already been incurred and what is the progress in terms of percentage of physical completion?

S.K. Roongta

We are going in a composite manner with all the three units together. Of course, the progress is more for the first unit, which is going to be commissioned by end of the current financial year. So, we have already spent over 50% of our total project cost in that – actually spending has taken place.

Alok Rawat – BNP Paribas

Alright. Thank you.

Operator

Thank you. The next question is from the line of Giriraj Daga from Nirmal Bang Equities. Please go ahead.

Giriraj Daga – Nirmal Bang Equities

Sir, couple of questions. First, our Mainpat bauxite mine like what is the status there, the mine was supposed to be due for renewal?

S.K. Roongta

We have the fresh public hearing has taken place, successful public hearing for the rest of the process has been followed to for the renewal.

Giriraj Daga – Nirmal Bang Equities

So, in the meanwhile, will we increase our production from other mine?

S.K. Roongta

Yeah. So, we’ll ramp up the production to the extent feasible from the other mine. We hope that in three months’ time, we should be able to get these clearances for Mainpat, and till then Balco is having stocks of alumina and bauxite from other mines should suffice of them.

Giriraj Daga – Nirmal Bang Equities

I just want to understand that we supply this bauxite to the VAL refinery, and we again take back the alumina replacement charge that we sell this bauxite over Vedanta Aluminum?

S.K. Roongta

No, no it is on a conversion basis.

Giriraj Daga – Nirmal Bang Equities

It is on a conversion basis. My next question about the power cost like the cost which we had this quarter is this sustainable cost going forward, in the sense like if we continue, first of all, is there likelihood that the current composition of e-auction and the linkage coal will continue going forward for the full year?

S.K. Roongta

For Jharsuguda?.

Giriraj Daga – Nirmal Bang Equities

Yeah, Jharsuguda, particularly.

M.S. Mehta

So, well power cost is sustainable, we have brought down our power cost as I told you through a combination of factors. I know better composition of the coal sourcing better quality and better – lower specific coal consumption in our power plant. So, we are confident that these measures will continue going forward.

Giriraj Daga – Nirmal Bang Equities

Okay. My last question is on Talwandi Sabo, like what is our coal status there, I know we have been allocated given linkage. But whether the linkage would – we’ll be able to get the coal immediately, as and when we start the plant?

S.K. Roongta

Yeah, because this coal is supposed to be provided by the power procurer and there is a linkage of almost 8 million tones of coal. And we are confident that by the time plant is ready, we will be able to get the linkage coal.

Giriraj Daga – Nirmal Bang Equities

Would you be able to share the details from which unit of the Coal India and say that is a new mine, whether they will allow the linkage or what is the status there?

S.K. Roongta

No, it is not from the new mine, it is from the existing mine, so it’s not linked to the development of new mine.

Giriraj Daga – Nirmal Bang Equities

It’s not linked then which is the unit of Coal India?

S.K. Roongta

It is from MCL.

Giriraj Daga – Nirmal Bang Equities

Okay, sir. Thank you from my side.

Operator

Thank you. The next question is from the line of Bijal Shah from IIFL. Please go ahead.

Bijal Shah – IIFL

Yeah, thank you for taking my question. I have two questions, both on aluminum business. The first one is with respect to Raykal. Is my understanding correct that since Raykal’s bauxite would now be used for Vedanta Alumina’s refinery, we need some approval or some change of use of approval from the government?

M.S. Mehta

Sorry, I couldn’t get your question, change of the approval, what?

Bijal Shah – IIFL

Yeah, see my question is with respect to Raykal. See Raykal was supposed to, I mean, despite mines allocated to Raykal were suppose to be used for alumina refinery which was supposed to be put up by L&T at that point of time. Now, L&T is not putting up any alumina refinery. And we proposed to divert Raykal’s bauxite to the VAL’s refinery. So, what percent do we need any approval for change of use in the bauxite from Sijmali and Kurumali mine?

M.S. Mehta

No, only show is that it has been the stated policy of Government of Orissa that they will give the mining leads only if there is a value addition within the state. So, that value addition condition will get satisfied through our refinery. So, to that extent whatever is the stated policy and condition of the government of Orissa will get met.

Bijal Shah – IIFL

Okay. So, do we need approval for change of use...

M.S. Mehta

That is what I have stated that this is the position at this stage and it meets – this arrangement meets basic condition of the Government of Orissa.

Bijal Shah – IIFL

Okay, second question is on alumina refinery, now public hearing for fresh approval from MOE was put on hold, which was scheduled on 3 May. Is there any update on that that how that process is going on?

M.S. Mehta

Yeah, that was due to some internal clarification in the Ministry of Environment and Forest. And we are pursuing with them. We are hopeful that this process will be taken forward.

Bijal Shah – IIFL

So, no new date has been fixed of date?

M.S. Mehta

Not yet, no new data has been fixed, but we are hopeful of getting a new debt fixed shortly.

Bijal Shah – IIFL

And one last question again on the bauxite mine. So, I just want to understand, assuming that absolutely there is no delays and I mean let’s we assume that minimum amount of time which is really required for searching a mine is taken. Then when do you expect either of these mines which are with Raykal to become operational and to start providing bauxite?

M.S. Mehta

We can’t give any precise timeline just now, but we have already, I suppose indicated that by 2015 we should be able to have captive bauxite.

Bijal Shah – IIFL

Okay. Thank you very much and all the best.

Operator

Thank you. Ladies and gentlemen, due to time constraints, we will take the last question from the line of Tanuj Rastogi from MSFL. Please go ahead.

Tanuj Rastogi – MSFL

Yeah, hi there, thank you very much for the opportunity. My question is on the Balco power plant upcoming. So, as you are all know about to synchronize first unit of 300 megawatt power plant. So, what about the coal security for the power plant, have you signed FSA with the Coal India?

M.S. Mehta

Well, we are in the discussion with the Coal India to sign the FSA, there are certain milestones to be met. I think very recently probably we have been able to complete those milestones. So, we are in dialogue dialog with SCCL for signing of the FSA.

Tanuj Rastogi – MSFL

Okay, sir, my second question is on the alumina for the upcoming Korba III smelter. Now our Lanjigarh refinery is almost running at optimal capacity and the rest capacity is on hold, so what about from where we expect to get the alumina?

M.S. Mehta

Well, for the time being, we have to source alumina from import and if – or from any domestic forces if it is available.

Tanuj Rastogi – MSFL

Okay, sir, but the Ministry commented that Korba smelter should commission on time or are we basically (indiscernible) Korba smelter commissioning?

M.S. Mehta

No, we have the – that’s a power plant and we are committed to commission the Korba smelter.

Tanuj Rastogi – MSFL

Korba, okay, sir. Thank you very much. That’s it from my side sir.

Operator

Thank you. Ladies and gentlemen, that’s the last question. I would now like to hand the floor back to Mr. Ashwin Bajaj for closing comments. Please go ahead sir.

Ashwin Bajaj – Director, Investor Relations, Vedanta Group

Yeah, ladies and gentlemen, thank you for joining us and please reach out to us if you have any further questions. Thanks again.

Operator

Thank you. Ladies and gentlemen, on behalf of Sterlite Industries, that concludes this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.

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