NMDC Ltd
NSE:NMDC
Earnings Call Analysis
Q2-2024 Analysis
NMDC Ltd
The company has been actively expanding its production capacity. In particular, they are expecting to complete crucial testing and launch a 2 million tonne per annum (tpa) project, potentially extracting 1 to 1.5 million tonnes in its half-year operational period. Additionally, with approvals and contracts in place, the Kumaraswamy mine is set to increase its capacity by an additional 2.3 million tonnes, leading to a total incremental capacity of 4.3 million tonnes. Management is optimistic that this expansion could contribute to reaching an annual production of around 49 to 50 million tonnes.
Capital expenditure (CapEx) overruns are a focal point, with the company having expended approximately INR 1,008 crores to date against an annual target of INR 1,600 crores. This figure is projected to reach between INR 1,800 crores and INR 2,000 crores for the current fiscal year. On the investment horizon, plans include increasing pellet plant capacity from 2 million to 6 million tonnes, despite operational inefficiencies in one of the pellet plants due to regulatory and dispute-related setbacks. Furthermore, significant CapEx is planned for the next year, with substantial allocations expected for two major projects, including a screening plant at Donimalai and a downhill conveyor and crushing plant, each running into the ballpark of over INR 1,000 crores.
Pricing variations have been observed, with occasional increases noted, including a recent hike on October 1. Market demand for fines has seen an uptick compared to lumps, leading to potentially better headroom for price increases. The executives indicated that subsequent pricing decisions would be influenced by various factors, including steel prices and international market trends, hinting at a review in the coming days to recalibrate prices appropriately.
Revenue growth guidance appears conservative, with expectations of a slight increase. The company is slightly ahead compared to last year's performance, potentially leading to an upward revision of 0.5% to 1% in growth forecasts for the coming months.
The company's mining endeavors prove to be highly profitable, boasting well over 50% returns on investment (ROI), with the least profitable projects still generating around 30% ROI. Beyond mining production increases, other CapEx initiatives maintain robust ROI levels ranging from 20% to 25%, particularly when focusing on custom product facilities over value products from the mine head.
While production is on an upward trajectory presently, the company anticipates a potential stagnation in FY '25, with only a modest increase of 1 to 2 million tonnes, expecting to plateau at 51 to 52 million tonnes. This assessment is underpinned by the current environmental clearance (EC) capacity limitations and ongoing applications for EC enhancements. These processes are vital to facilitate future expansions and underscore the need for regulatory approvals to maintain growth momentum.
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Ladies and gentlemen, good day, and welcome to NMDC's Q2 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Dixit from ICICI Securities. Thank you, and over to you, Mr. Dixit.
Thanks, Steven. Good afternoon, everyone, and thanks for joining the call today. At the outset, I would like to thank the management for giving us an opportunity to host this call. From the management, we have today Mr. Amitava Mukherjee, Chairman cum Managing Director, additional charge and Director of Finance. Without much ado, I would invite Mr. Mukherjee for opening remarks covering the company's performance and outlook, post which, we will open the floor for an interactive Q&A session. Over to you, sir.
Good afternoon, and thanks for joining. Well, this Q2 and H1 has been the best ever. So that's a big positive that we have. Our production, as you know, was 25% higher than last year. Sales was around 14% higher than Q2 of last year, and these were the best ever, even H1. Month -- every month of this year, right up to October, bar one, except for 1 month, we have done the best production and sales. So we've got the momentum going for that target of 50 million tonne. We hope to achieve around 50 million. There are 2 or 3 big projects that are going to start any time now within a couple -- within a week's time. One is the -- one at Bacheli, which will augment our production capacity by 2 million tonne, and the final clearance for the Kumaraswamy mine in Karnataka for about an additional 2.2 million tonne will also be available within -- hopefully, within a week or 10 days. We expect to -- from these 2 new facilities as well, so that we can reach our stated target of 50 million tonne. On the CapEx front also, we've been doing pretty well. We are way ahead of our target. We are around 40% higher than last year what we had done up to this time and around 80% higher than our proportionate target for the year. We'll definitely cross the CapEx target of INR 1,600 crores that we have set up ourselves at the beginning of the year. We are -- definitely, we are going to cross that. So overall, the momentum is there, and we hope to achieve our stated results in the H2 as well. So we can now take questions.
[Operator Instructions] The first question is from the line of Kamlesh Jain from Lotus Asset Managers.
Sir, just one question on the part of the realizations. Like if we see our realizations, even if we see the current prices, they are at a discount of roughly around INR 5,500 compared to the import parity price. And the prices have moved significantly over the last 3-odd months, but our prices have not changed since last month, right? And over the years, we have never seen such a big discount, around 45% or 47% of discount. So what's happening on the pricing front? Even if we see the Karnataka, we have not done the auctions of the fines for the last 1.5 to 2 months. And I don't know what's the realizations there. But the way our revenues are there, it seems that realizations for Karnataka are far higher discount as compared to other markets, like say Bacheli or Chhattisgarh.
Yes, on the pricing front, of course, we are slightly higher than last year. Our realization in H1 is -- sorry, in Q2 is around INR 4,146 per tonne, which is around 7% higher than the year-on-year basis. And in H1 also, we have grown by 8% in sales and it's around INR 4,928 per tonne. Obviously, traditionally, even at East Coast as compared to the export prices, the general discount has been around 40% to 45%. That is how it works out. But even at these prices, we have worked out that if we factor in 30% of export duty and then the port charges and other things, our domestic realization would be higher than net back of the export realization. Because you know that so far as we are concerned, that for export, we also have to pay the transportation up to Vizag, which is almost $20 in dollar terms. So when we see the net realization at the mine, net of taxes and duties, even at this level, our domestic realization is more than the export realization. And that is why there is no -- as such economic case for an export. But yes, there is a strategic case for exports and then we are looking at it, what sort of our strategic case should be there for future. So we need to enter the market and have some presence for future. Not immediately, because immediately in terms of pure math, it doesn't work out right now. I make more money net of taxes, net of transportation, net of duties through domestic sales rather than through export sales. Apparently, it looks like a 45% discount, but still, when we factor in all these deductibles, domestic sales is a preferred policy purely on economics, and no another. Yes, the prices in Karnataka have been traditionally lower than that of the Bailadila sector, a, because of the quality. Obviously, the Bailadila quality is completely different and much better than the Karnataka case. That is there. And Karnataka doesn't have access to markets beyond Karnataka to that extent. So we have to be sort of a local player. Yes, we've just checked our IBM prices. They're are slightly higher than us. In Chhattisgarh, of course, our IBM prices are exactly the same. But in Karnataka, it is slightly higher to which gives us some amount of headroom there. I will take a look at it and take a call sooner than later.
Sir, like -- but based on your answer to the question, it seems that you were just focused on the export netback. But like it's not the case like -- because over the years, we are paying like say roughly around 22.5% additional royalty, while we are not leveraging that? Because if say any importer is there or like say any steel company importing iron ore, why don't you think on that part, like how much their cost would be if they import the iron ore...
Yes, I'm talking about landed cost basis only. Obviously, on landed cost basis, you know the duty structure. On high-grade iron ore exported 30%, on imported, it's 2.5%. So naturally, even at 45% discount, for us to sell outside, we will be taking a hit on our bottom line. But for a steelmaker, yes, still -- that is why they still buy from us because still it is cheaper. And it's always been the case, and that is why there's hardly any import into India because of the duty structure that is there. And it has been there for years now, 30% export duty and 2.5% import duty. It is obviously not very viable for us to export. But when the prices go down, it becomes viable for a steelmaker to import. And it has happened previously. We know that '18. '19, it has happened. And again, I think '19, '20, it has happened.
Next question is from the line of Alok Deora from Motilal Oswal.
Just had a couple of questions. First on the target of production for this year. In the last call, you mentioned about around 47 to 49. Are we sticking to that number? Or any updates on that? And also, there were certain capacity which was expected to get operational by September, and what is the status on that and Bacheli?
That's what I said in my introductory. We are still sticking to 47, 49. If you know that by H1, we have done around 20 million tonne in H1. And right now, I think we are at around 28 million tonne -- sorry, we are at around 24 million tonne mark, approximately 24 million tonne mark. So we are on our way, if you see the H2 production last year. If we went to 10% better than that, then we should reach around 46, 47. And two major projects, as I was mentioning in the introductory, that one is the fifth line at Bacheli, which is likely to add up 2 million tonne to our production. So that is almost -- that is complete. We are waiting for the CPE. Load testing has been done. And I think we'll go onstream hopefully in the next 4, 5 days. So all the testing, et cetera, has been done. So it's a 2 million tonne of annual capacity. Hopefully, in the half year, we'll be able to do more than 1 million tonne out of that or we are try to target 1 million to 1.5 million tonne out of that. So that will be an incremental on that. And then Kumaraswamy mine, as you know, that we have gone out, we have approval. One final approval is due. So we hope to get that within a week to 10 days. So then Kumaraswamy also, we can ramp up. The contracts are all in place. So that's another 2 million tonne -- in fact, 2.3 million tonne additional. So that is 4.3 million tonne of additional. So if we -- even if we can -- in the H2, if we -- even if we can do about 2.5 million, 3 million out of that of 4.3 million, so I think we should be able to reach 49, 50 around versus just seeing using 50 or just a little lower than that. So 47, 49 still holds good so far as we are concerned.
Got it, sir. And sir, you mentioned about the CapEx. There's been a sharp jump in the first half. What's the CapEx we have done in the first half, sir?
The CapEx till date, we have done around INR 1,000 crores, INR 1,000-some-8 crores or something till date against annual target of INR 1,600 crores. So we are definitely going to exceed that. We should be in somewhere around, I think, INR 1,800 crores to INR 2,000 crores range this year.
Got it. Sir, just one last question. So I just wanted to get an update on this NMDC steel, this divestment status because recently there were comments that it is not going to get divested. So just your -- update from your side on that.
As of now, we don't have a clear visibility on that issue. In fact, you should be referring that to DIPAM. They were -- I know that against the EoI several multiple offers have come. And -- but thereafter, because of the election in Chhattisgarh and other things, I guess, further progress has not been made. But yes, the draft SPA was also discussed with us. And from our side, we have given the go ahead. Whatever they've asked for us -- from us, we've already done. But the exact what is the situation now, I am unable to comment.
Next question is from the line of Noel Vaz from Union Asset Management.
No, my question has been answered.
Next question is from the line of Ashish Kejriwal from Nuvama Wealth Management.
Sir, two questions from my side. One, if I'm looking at a realization for this quarter, we observed that realization has been somewhat subdued, more subdued. Y-o-Y basis, lumps prices have declined by 2%, while fines prices have increased by 11%. So my question was whether is there any adverse product mix this quarter within lumps and fines? Or is there anything else which we're missing in terms of realization?
No. In terms of overall compared to Q2 of last year, yes, it has increased. But as compared to Q1 of last year, it has decreased in terms of the immediate previous quarter. Of course, overall, it has decreased. Now if you see the Bailadila sector and the Donimalai sector, they, of course, behave differently. Of course, the trend is the same. But from Q1, it has slightly decreased, not by much, by around 10%. But as compared to Q2 of last year, that's the year-on-year figure, we have had a reasonable amount of increase. Yes, there are pricing pressures earlier, but I think we have taken, I think, 1 or 2 price hikes recently, the last being on 1st of October. So now we'll again take a call on what the pricing looks like.
No, sir, my question was that fines prices were higher, but lumps prices were under pressure. So are we witnessing any shift in the product mix within lumps? Or is the grade remains the same?
The grade remains the same. The lump prices are still higher than the fines. But yes, if demand of fines is much -- has looked up much better than the demand of lumps in terms of -- and that is why the headroom maybe for fines might be slightly better than the lumps. I think there's a tremendous demand for fines right now. And I think we can have a look at the pricing. We'll be having a look at the pricing pretty soon now.
Sure. So that means that if I'm looking at OMC's recent auction as well as global prices and giving in fines that domestic steel or sponge iron prices are almost flattish type, then there is a room for further price increase if the demand is good, at least in fines, if not in lumps. Is that assessment right?
Well, let us see how does that translate into pricing opportunity. That needs to be seen because there are multiple factors to be factored in. The steel prices are a dampener. The demand is a good trigger. But the steel prices are dampener, but the international prices are again a good trigger. So we'll factor in all these things. Of course, the pricing does take into account multiple variables. And we'll take a call, hopefully, in the next 2, 3 days how the pricing should be.
Okay. Okay. Secondly, sir, we talked about Kumaraswamy mine, but that's a 3 million tonne mine. I think you mentioned 2.2 million to 2.3 million tonne.
That's a 7 million tonne mine. We have requested for an EC of another plus 3 million. But EC, we have got plus 3 million. But within Karnataka, as you know, that there is a ceiling that is redistributed. And what we are getting as of now is around 2.3 million tonne of extra mining permission.
Okay. So we will have a capacity of 10 million in Kumaraswamy. But as of now, permission will be up to 9.3 million.
Yes, 9.28 million or something. There's a fraction involved there. But you can say 9.3 million approximately.
Fair enough. And sir, is it possible to give status on your different four projects, which are ongoing. One is your screening plant 3-year Kirandul. I think you mentioned about 2 million tonne for that only or something else?
No, no, no, that's the fifth screening line in Bacheli, which is ready for commissioning.
Okay. So that will help us in increasing volume by 2 million tonne?
By 2 million.
Okay. So sir, a different status of this like screening plant 3 at Kirandul or slurry pipeline...
The rapid wagon loading system is being commissioned. I think it will be commissioned after 17th. 17th is today, so there's an election in Chhattisgarh. Thereafter, one CP, consent to operate, permission is required. So hopefully, we will get it in the next 7, 8 days and we'll start the rapid wagon loading system. So the signing that was loading 2 rigs a day will now load 4 to 5 rigs a day. So that part of SP3 project will be operational. This SP3 will be operational by February, May, but we've had a problem there in the other areas in a sense that due to the monsoons, one of the [ Bailadila walls ] have -- there's been a problem with the Bailadila wall which we are constructed. So that's going to sort of delay the project by a couple of months. So instead of '24 mid, which we were expecting to commission the plant, I think we should be able to commission the SP3 by '24 -- rather by around '25. That should spill over to '25 because of the various challenges that we are facing at the site. But half of the facility we'll be able to commission by end of financial year, which will substantially increase our evacuation. I think our evacuation will increase by 2 million, 3 million tonne after the RWLS that will be commissioned by this month end definitely and also, after the stacking yard is commissioned by the end of this financial year. The next big project is, of course, slurry pipeline. All the contracts have been given. All the contracts are there. The pipeline laying is going on. I think out of 113 kilometers, around 70-plus kilometers we have already done this stringing and laying, and another 35 kilometers, I think the pipelines are being ordered. So that is on track. Now the head and there is a beneficiation plant. The contract has already been given around 6 months back. The contractor is working. We expect to have that beneficiation plant by end of '24 or early '25. That is -- the pellet plant, of course, that was progressing very well, but we've put it on hold because we want to increase the plant capacity from 2 million tonne to 6 million tonne. So -- because we have gone back to the drawing board, so let us see how we design the next -- the additional 4 million tonne line. So that's under discussion, but we have taken an in-principle decision to increase the capacity of pellet plant near the steel plant, which is just bordering the steel plant, next to the steel plant, from 2 million tonne to 6 million tonne. That's a decision that we've taken. We are working out the engineering of it and the economics of it, but we'd like to have that at 6 million tonne. The SP2 at -- the screen plant 2 Donimalai, which is a 7 million tonne capacity and which will have upgradable to 10 million new capacity. That tender will be awarded next month. The offers have been received, and we are evaluating the offers. I think three offers have been received. So we should be able to award that somewhere around middle of next month. So these are three big projects we have. Apart from that, we have housing projects, worth of INR 300 crores or INR 400 crores. So that we'll be able to see a little later.
And sir, the doubling of railway line?
So that's progressing fine. About more than 100 kilometers has already been commissioned out of 131 kilometers. So two block sections they are working, which is the toughest of job section. One is near Bacheli and between Bacheli and Kirandul. That should -- the railways has given us visibility that they should be able to do it by the end of this financial year.
So sir, if I look at the entire thing in perspective, we are seeing that rapid wagon loading system that will increase our evacuation capacity by 2 million to 3 million tonne. Besides that, unless until our railway lines can double, we will not have enough evacuation capacity.
No, no, no. I think that this is slightly a misperception out there in the field. I want to make it clear that our current stance, single line has a capacity of 28 million tonne evacuation. And this doubling also because patch doubling, you can take the benefits of patch doubling. It need not be complete end to end to take the entire benefit. As and when it is fully completed, it will be 40 million tonne. But right now, the capacities are around 35 million, 36 million tonne. So that's not the issue. The issue is the availability of rakes and wagons. So even right now from Bailadila, we are evacuating only 20 million tonnes by rail, around 7 million tonnes through conveyor, 2 million tonnes through road and around 20 million, 21 million tonnes through rail. So we -- in terms of line capacity, we have adequate capacities. In terms of line capacity, that's not a constraint. The constraint is availability of the number of rakes in the K-K line. Once it goes up, about 1 rake is about 1.3 million tonne. We are average getting around 18 to 19, 18 rakes -- 16 to 18 rakes. So -- but once that availability goes up, then the current line can also cater to another 7 million, 8 million tonne easily in terms of line capacity.
Understood. So sir, unless until rakes availability increases, with the same rakes, we can at least extract a higher 2 million to 3 million tonne because of this rapid wagon loading system?
In terms of quicker...
Turnaround.
And once our loading yard is commissioned for SP3 that I was telling, these 2 rakes, which is likely to become 4 rakes now, will become 6 to 7 rakes a day from that side itself. Once you check in, you had iron ore commission in around February, March, that we target as of now.
Ashish, I'll request you to come back for a follow-up question. Next question is from the line of Sachin from Provision Investments. [ Sachin Madhava ], may I request you to unmute and go ahead with your question please. Sachin Madhava, can you hear me? Getting no response, we move on to the next participant. Next question is from the line of Pramod from Unifi Investments.
My question is like with the heavy investment in the NMDC still kind of the project going behind us, are you looking to jack up the dividend payout significantly? What is our dividend payout policy now? Since we don't have any huge CapEx...
In the public domain that we have to pay a minimum dividend of 30% of our net profit or 5% of our net worth. Traditionally, we have been paying around 40%, 45% of our net profits. The last -- if you see the last 6, 7 years in terms of -- if you combine the buyback and the dividend, the payout to our investors has been in the range of around 40% to 45% of our profit after tax. So the Board will take a final call when and what to take us. But we are designing a lot of CapEx because we want to get this organization ready for the 100 million tonne outlook. So basically, we have appointed a lot of -- we have appointed 2, 3 consultants to give us their inputs on what sort of marketing infrastructure we need. And as you know, that Kumaraswamy, we have -- sorry, it's not Kumaraswamy, Kumhar Marenga near Girdharpur, we have already commissioned. And that is the first place that we are -- where we are selling from our stockyard. So we, in future, would be building a lot of stockyards to cater to different type of customers. We believe that the market needs to be segmented in terms of types of customers because the blast furnace steel mills, the integrate steels mills, housing requirements as compared to the sponge iron plants. And we hopefully to -- instead of having a very rough product as of now, we are planning to have customized products. So we are now -- we have a set of consultants. And in about 3 to 6 months' time, we'll have a clarity on what sort of investments that we need to make to have customized products for different classes of customers rather than have vanilla product for...
Okay. Okay. Sure. And then next is like whenever we invest in incremental capacity, not in the mining, but the allied capacity like stockyard or the railway line or the irrigation facility, how we get compensated? How is our ROI on those CapEx are? Is it like linked to the -- any relation or we charge over and above the relation, some cost to the...
Over and above realization, most of these mining projects have an ROI of well above 50%, even at the current tax ranges. So the worst of them have ROI of around 30%. So mining that way...
No, I'm talking about the allied -- apart from the mining, whatever the CapEx we do.
Now apart from the mining production increase, whatever CapEx we do has a very healthy ROI of 20%, 21%, or even more than that 25% cash flow their ROIs are generally in the range of around 25%. Because when you make customized products, the value realization is higher than the value in our products. So that is now our next target to have facilities which can make these customized products rather than saving it off the mine head as a value in our product.
Next question is from the line of Vikash Singh from PhillipCapital.
Sir, just wanted a clarification. You said that you would be increasing pellet capacity to -- from 2 million to 6 million tonnes. As I understand, 2 million tonnes was also not running well. So can you just give us some insight that whether we have solved the problem and now it's ramping up?
Let's not confuse the 2 pellet plants. The pellet plant that we are talking about is Donimalai, which is about a 1.2 million tonne -- per tonne, which has never worked well. That is for a separate reason altogether. That pellet plant was designed for consuming 85% slimes, and only 15% is the fines circuit, right? And we never got the slimes because of regulatory issues, because of lease not being renewed. And now that the lease is being renewed, there's a dispute with the tailing dam. As a result of which, we have not been able to get the feed into the pellet plant. So that's a completely different reason for that plant not working to its rated capacity. Now this -- the other pellet plant that I was talking about is a part of the slurry pipeline. And the 2 million tonne plant just borders the existing steel plant, right? So that's a different one. So as you know, a pellet plant to have capacities of scale should be anything between 6 million to 8 million tonne. So we are now adding a module -- we are not immediately adding a module, but we are seeking a provision for adding a module for 4 million tonne as and when the steel plant itself the capacity has increased in future. So that is -- but it will be an integrated sort of an expansion. It will be a modular sort of an expansion, so that we can sort of bring up 4 million tonne line and just plug it and play it rather than constructing it all over again. So we are making the common facilities for 6 million tonne in terms of electricity panels and in terms of the buildings, in terms of the service buildings, in terms of the fueling arrangements. So those common facilities, we are making it up scalable. Although we'll be making only 2 million tonne right now, but as and when we decide to add another 4 million to it, it should be on a plug-and-play basis -- almost on a plug-and-play basis. So that is why we are redesigning most of the service facilities of this pellet plant.
Understood, sir. And my second question pertains to CapEx. So basically, you have expedited the CapEx. So which are the projects basically which was expedited? And does this mean that the next year, our CapEx intensity would come down because we have that 4, 5 projects, which -- on which we were spending money. So if we are spending INR 400 crores, INR 500 crores higher this year, that means the next year, those projects would have a lower spending, until and unless the project cost has increased?
[indiscernible] question, but what is there is what is not possible in the public domain, but you should know is that we have now created a vertical of projects organization. And we have had the senior most officials as head of projects who are now sitting at Kirandul, Bacheli and at Jagdalpur and at Donimalai, which is independent of our production units. So these are fully dedicated towards sanction and execution of projects. And this project vertical has been given full powers to sort of -- they have been delegated massive power so that most of the decisions can be taken at the project level itself rather. So a lot of bureaucracy in the project management has been cut, and that is what you see the results that we have about 80% higher than our targets and 40% higher than as compared to last year. So that's the first part of the question that we have expedited the project execution at each level -- in each of the projects, except for where we are going back to the drawing board. Next year, I expect the CapEx will be even higher because of another 2, 3 projects are coming up. One is, of course, as I said in my earlier answer, that the screening plant 2 at Donimalai. We will tender it out. In another about 30 days, we'll be able to award the work. The bids have already come in. We are evaluating them, and we'll be able to award. So that's about INR 1,000 crore project itself -- INR 1,200 crore project. We have the downhill conveyor and the crushing plant in Kirandul for augmenting our Deposit-14 and Deposit-11C. So that is another around INR 1,400 crore project. We have already tendered out the main packages. We have not opened the bids as well. We are waiting for a couple of clearances. Once they come, then we'll be able to award that definitely by February, March, we hope. So there are two more mega projects that will be added to the existing list of projects. So I expect the projects -- the expenditure to go up substantially in the next financial year. And going forward, as I said, that we will be -- we are now at the conceptual level of deciding what sort of investment is required for our -- augmenting our dispatches for especially making a product mix customized to different category of customers. So once we have that -- in the next 5 to 6 years, I believe that we'll have substantial CapEx. And that is, I understand, required for the company to become from 50 million tonne to 100 million tonne. It doesn't -- it won't be happening free of cost. So we need to make these investments now. So that in another 5 years' time, we are able to have the capacity to mine around -- mine and sell about 100 million tonne.
Understood, sir. Sir, just clarification, this screaming plant at Donimalai, which you talked about, how much additional this will add in Donimalai?
They will not add additional. You see, Donimalai already has a screening plan for 7 million tonne, which is the production capacity of the Donimalai mine. This Kumaraswamy is where we do a lot of contractual mining, and we have dispatch problems there because the entire dispatch of Kumaraswamy right now is by road only. So this will be processing mostly the Kumaraswamy ore. Of course, it will have the facility to process Donimalai ore as well. It is, to that extent, the feed is flexible. But it is essentially designed for Kumaraswamy ore and then for further evacuation to the Ranjitpura site. So my constraints of dispatching through roads will be taken care of essentially once we use this facility for processing our Kumaraswamy ore.
Next question is from the line of Kirtan Mehta from BOB Capital.
In terms of as we are feeling more comfortable about delivering on our 47 million to 49 million tonne target for this year, how do we now see the FY '25 production evolving? And what are the key projects that we'll be targeting to ramp up production further in FY '25?
FY '25, there will be a stagnation, maybe we'll add about 1 million or 2 million. We'll go up to 51 million, 52 million. Because our EC capacity right now is 51 million and with Kumaraswamy, it will reach to 53 million. So as of now, next year, I don't think we can go above 51 million or 52 million. But we have applied for the EC enhancement in Kirandul, et cetera, where the public hearing -- one round of public hearing is to be held. And it is a long drawn out process after having a public hearing, et cetera. So those in the Bailadila sector for enhancement of production, it is at the public hearing stage and before the public hearing stage. So we will get enhanced EC in around 16 to 24 months' time. So only then -- of course, we have designed the projects for that. We have tendered out the projects for that. So I think we should take another 2 years, at least, to ramp up further beyond 53 million after. So I don't see anything -- any production happening beyond 52 million, 53 million even in FY '25. And once we get the EC approved for the Bailadila sector, there is no more scope in the Karnataka sector after the Kumaraswamy enhancement. So right now, the enhancement has to come from Bailadila sector, for which the clearance procedure has just begun. So now the public hearings will be held, the ECs will be taken, expenses will be taken. It's a fairly long drawn out process, generally an 18- to 24-month time project. Next major ramp-up will happen after about the 2 financial years, current and the next.
Understood, sir. And one more question in terms of you've started talking about the customized -- targeting the customized iron ore projects. So what is the quantum that we can look at on the customized route? And how much premium could it add to our realization, some sort of initial color?
That's exactly what we are studying. We have put in McKinsey, BCG, Deloitte and everybody on the job to give us a feel of what the market would be in the 5 to 6 years and what would be the requirement of our customers. That is exactly what we are studying. And once we are clear about that what the various segment of customers will be --- what segment of customer would require what product, then we'll make those investments in making those products. That exact study that we are now doing. I'm going to say the integrated steel plants with blast furnaces have different requirements from our sponge iron plant with rotary claims and other things. So that's exactly what we have asked the experts to do a deep dive on the market, the current scenario as well as the future expansion plans of our customers and take into the account and come to a marketing policy. I think that should be ready by this financial year and we should have a complete clarity of what we want to produce and where we want to produce them. And only then the question of -- of course, we expect a 15%, 20% jump in realization when we are able to serve our customers with customized products rather than the clean products that we are selling right now.
Right. One more question, if I may. So in terms of the outside the iron ore mining sector, we are also exploring the opportunities in other mining area. Could you sort of highlight our sort of plan around the same and progress in that area?
Yes. You'll be happy to know -- sorry, I forgot to mention this in my introductory address, that we have commissioned our gold mine in Australia. It's a small mine to start with, about a ton of production in about a year to 15 months. So -- but bordering that, we have around 6, 7, another tenements which are highly promising. We should be able to complete the exploration and take a decision within the next 12 to 18 months. So gold is going to be our -- there in Australia. In Australia also, we have a big tenement where we have -- a very, very promising magnetite deposits, which has also a very promising lithium deposits. We are doing the PFS along with our partners, which is Henry or Hancock, which is the fifth biggest mining company in the world. They're partnering us in developing that. So we are in the PFS stage for the magnetite project and the pre-PFS stage for the lithium project. In India, as you know, that we have got 2 coal blocks. One of them, we are having site problem. So we have not been able to operationalize that because of land acquisition issues. The other one, of course, we are going ahead, that is the Rohne, our semi-coking coal for about 8 million tonne. So that should be producing in another 18 to 24 months. So we are diversifying our portfolio. We are looking at across the borders. In fact, we are scouting for probable leases in Western Africa, in Australia, in many other places. Within India, of course, we are requesting everybody if we can get some separate minerals as well. We are open to that. But we are not very hopeful in India because of the auction regime that is there. So for a merchant miner, it is not very viable for us to have a huge amount of mines that are very substantial premium. That doesn't make merchant mining viable. So naturally, we are looking beyond our shores and we are definitely looking beyond iron ore. The long term, it should be -- by around 5 years' time, we should be able to do a top line of around 10% to 15% of -- from other than iron ore. So that is what we are looking at. Maybe we will look at a target of 5% to 10% export -- sorry, overseas revenue as well. So these are the things right now. Some of them are being executed, some of them are being planned, and we are spreading our wings.
Next question is from Shweta Dikshit from Systematix Group.
Sir, just one question, I did not get it earlier. Could you repeat like what is the [indiscernible] mix -- product mix between fines and lumps? And going ahead [indiscernible] demand for fines is longer than lumps. So do we see the product mix changing in the near future?
Yes, the current lump to fine recovery is 30% to 70%. We recovered around 30% lump and 70% fines. But our preliminary survey suggests that in the next 5 to 10 years, the lump demand would be substantially reduced and the fines demand would substantially rise. And that is exactly what we are studying now, what our customers would be wanting 5 years from now. So that is what I said in my previous question, we are making a deep dive on the current market situation and the future -- the medium-term market situation in the next 5 to 6 years and in the long-term market situation which is 10 to 15 years. So -- and that is how -- based on that survey, we will be designing our product portfolio. So naturally, when I say I will not be making all that vanilla product in terms of ex-mine sales of either lumps or fines, we'd rather have them processed, blended and make customized products for different sort of customers. But this is just right now on the drawing board. We are doing the market survey for immediate term, medium term and long term. And we'll take a call on the investments that are required. But going forward, I'm told that what we understand our market -- primary market study is that possibly in another 5 to 7 years, the lump requirement would be much more subdued. The growth in lump would much more subdued and the growth in fine would be much more aggressive. So we are taking that into here. But then we have the experts sort of doing the entire market survey for us. And based on that, we'll take a call in another 3 to 6 months what sort of products we want to make and whom and from where we want to send.
Okay. My second question is, could you give a ballpark number of the CapEx next year? I understand that there are projects, like you said, INR 1,400 crore project and the INR 1,000 crore project...
Could you repeat your question, please?
Hello?
Could you repeat your question, please? I didn't get you.
Sure. I was saying could you give a ballpark number of the CapEx next year if we are expecting like...
CapEx, we should be doing about INR 2,200 crores to INR 2,300 crores next year. This year, we should do somewhere around anything between INR 1,800 crores to INR 2,000 crore against our target of INR 1,600 crores. We should be able to do INR 1,800 crore to INR 2,000 crores. Next year, we plan to do around INR 2,200, INR 2,300 of CapEx.
Next question is from the line of [ Mohammad Faruqul from Pearl Capital ].
So in the last couple of months, NMDC major client, RINL, has experienced significant success. Could you please provide insight in how much of this has benefited NMDC in terms of volume compared to the previous year? And additionally, what is the...
Can you repeat your question about RINL, please?
Yes, RINL has done a very significant success...
Hold on. Hold on. Hold on. You are not very clear. Can you be close to the mic?
Can you hear me now?
Yes, you are better.
Yes. In the last couple of months, NMDC major client, RINL, has experienced significant success. Could you please provide us insight into how much this has benefited NMDC in terms of volume compared to the previous year? And additionally, what is the anticipated supply of iron ore to NMDC steel plant for the current year? Hello?
I'll just give you the numbers. The last year, we had supplied RINL with around 27 lakh tonne, that's 2.7 million tonne. This year, H1, we have supplied around, 30 lakh tonne, which is 3 million tonne. So it's been a 10% enhancement as compared to last year. But RINL is one of our three big customers. As you know, that around 70% of our product is accounted by three people that is JSW, which may takes from Karnataka and also takes from their Western transit from Bailadila. The secondary customer is, of course, AM/NS, which has a direct slurry pipeline from our Kirandul, that accounts for 7 million, 8 million tonne. And RINL also accounts for, on an annualized basis, around 6 million to 7 million tonne. Now we have a new customer, which is our sister company, NMDC Steel, which will consume around 4 million to 5 million tonne. So -- and that's completely dependent on NMDC CEO. So we are supplying whatever is required. Right now, the plant is running at around 40%, 45% capacity. But whatever capacity it runs and whatever it takes, we will be supplying to -- naturally NMDC Steel is our primary responsibility to supply to them. So we will supply to them that way.
Okay, sir. Second question regarding -- when we analyze quarter 2 production pricing and profit, is it reasonable to assume that the production will go up by 30% and the pricing can go up by 30%. So the top line can go at least 50% to 60% up in the third quarter? And also, the bottom line can go up 70% to 80%, just a forecast for Q3?
It's very simple to make those forecasts. Those are very approximate numbers. We can -- and of course, our production in the H1 has gone up by around 20%. We intend to maintain that pace. So we can safely assume that our production on an annualized basis will be 10% to 15% -- around 15% to 20% higher. Even if we do 48 million tonne, so that will be 20% higher than our previous year. So around 20% to 25% increase in production is something that we are targeting and something that we hope that we will achieve. Second is, of course, the pricing, it's difficult to give a number to pricing because...
Compared to Q2 to Q3, sir, Q2 and Q3, at least at 10%, 20% up from last quarter...
No, no, no. I would be the happiest man if that happens. But pricing is a dynamic thing. The market conditions keep changing. The steel prices are a dampener, but the international prices are very encouraging. So there are multiple factors. Let's see how much further price realization we can make.
Okay. Sir, last question. Sir, NMDC currently has a substantial cash flow of close to INR 14,000 crores. It's noteworthy that within the listed space, there isn't a single company with a cash reserve of INR 14,000 crores and the market cap is less than INR 100,000 crores. We understand that you have a lot of CapEx and capital projects, like INR 2,000 crore, INR 3,000 crores every year, but you also do INR 5,000 cores, INR 6,000 crores profit every year. Now the question is, why the INR 14,000 crores is in the books? I understand there is capital expenditure. But at the same time, you have INR 4,000 crores to INR 5,000 crores profit every year. Could you please explain that, INR 14,000 crores?
Yes, the idle cash sitting on the balance sheet is not exactly a great thing to happen. We are designing CapEx so that there is a quantum jump in CapEx. This INR 2,000 per annum has to increase to INR 4,000 to INR 5,000 annum in the next 3 to 4 years. And we are taking steps to ensure that the projects are being conceived. As I said, we are going to entirely reorient our marketing infrastructure. We own blending yards and our dispatch yards to happen. One of them happened in Kumhar Marenga on a small scale. It's 2 million tonne capacity yard. So obviously, a lot of CapEx will have to be made in our orientation our production facilities. But it has happened in Kirandul, we already tendered out for around INR 1,400 crores of the project. So these projects will all come up and come together. And when the CapEx -- you will see a quantum there in CapEx in the next 5 to 6 years. But yes, it's a profitable business. We generate cash. And even after average payout of around 45% on dividend and share buybacks for the last 5 to 6 years, we have been able to generate adequate cash for both our CapEx and for service...
Yes. So final question on the steel plant, sir. So what news came up regarding the privatization has been stopped a little bit. We have seen the investor confidence come down a little bit after the announcement. How can we make sure that this is not going to be like a one-off like RINL or same in the future? How can we give confidence to the industry, in case if it is going to be -- it is not this investor?
This is one of the most modern plants in the world, not only in the country. It is one of the most state-of-the-art plants. And we are -- once we have commissioned it, we are now ramping it up. If you know, the commissioning was -- nobody, not even in the private sector, you had the finished product, which is for us, the hot roll, rolled within 9 days of getting the hot metal. So that has been a record in itself. We are already operating at 40%, 45% capacity. We are now testing the other -- the additional line so that we can ramp up to 70% to 80% by the end of the current financial year itself we hope, but we are planning to do so. And by the next financial year, we should be able to run at its full capacity. This being one of the most modern plants and we should be able to make all sorts of products. So our average realization would be higher than our compatriots in another companies. So by year-end, we should be able to...
Perfect, sir. Very good. But one point you mentioned last time, the breakeven needs 2 million tonne, which is almost 66% of deposits. Isn't it too high, 2 million tonne for a breakeven for this quarter?
That will depend on the prices. I think the -- I'm not very sure, I can't give you a number on the breakeven point exactly. But it's a function of price. So I do not know at what current level, whether it is 60% or 67% or 50%. I'll have to work that out. I'll not be able to give you an off-the-cuff answer.
Next question is from the line of Ritesh Shah from Investec.
Sir, a couple of questions. One is you indicated on the tenement that we have in Australia. And you also indicated about the lithium magnetite deposits that we have. Sir, can you highlight the scope of operations over here? How big it can be, if everything goes fine?
Yes. The goal right now is a very small gold mine. We'll do about a tonne in about a year's time, a year, 15 months, it will be done. But there are 6 other tenements very close to that. So we are -- so we will be exploring all of them simultaneously. And since that is a gold-bearing zone near the Laverton area near Kalgoorlie. So we expect to have a fairly big gold presence in around 24 months' time. Regarding the magnetite, it has around more than about 1.5 billion tonnes of very high-grade magnetite. They're just extremely high-grade magnetite. The PFS is being done. Water is a problem there. The PFS is currently being done. The evacuation routes are being currently done. But initially, if it becomes viable, if the PFS is right and then the DFS is right, then I think initially we'll start with a 10 million tonne mining, and it is scalable up to 25 million to 35 million tonne. But we will, by that time, have a 30% holding of that. So our proportional share would be around 3 million to 4 million tonne initially. And then going up, it will be 8 million to 10 million tonne. Of course, we are in the same fault zone. There are working lithium mines just above our tenement and just below our tenement. So we are now just exploring right now. So we are at the 3 PFS states. So we will hopefully undertake the PFS starting -- next April, hopefully, we'll start the PFS. It should take around 18 months to do the PFS. So of course, if the results are encouraging, we'll fast track everything. So let's see how the results come and then we'll let you know.
Right. And sir, gold and magnetite, both will be -- projects will be viable, right? So from a unit economic standpoint, there will be really significant...
Naturally. That is what the PFS and the DFS is there for. If it is not viable, we'll not be doing it. But the recent report suggested they are very encouraging.
Okay. Sir, any IRR number on the current...
We're already mining. One mine that will be viable, it will not give a huge amount of profit, but we expect 8 million to 10 million only in the next -- about a year. But that's not -- the big thing is there are other 6 gold tenements that we have in the surrounding. If we do that, then that will be substantial.
Sure. Sir, would you like to give some project IRR on the current spot prices for gold and magnetite?
I won't be able to give you one straight away.
Okay. No worries. And sir, lastly on India specific, there was this recent amendment. There have been 6 minerals which have been de-notified from atomic minerals. But you said we are not very hopeful given the auction regime. So are we saying that we would not go and even bid for it? Or how should we understand that?
No, you see the atomic minerals from a strategic standpoint, that's not something that's our area of interest. Because most of the value realization lies in processing, not in mining. If whether it is iridium or uranium or whatever it is minerals, these are -- the processing technology is the main challenge there, not the mining. And you don't realize too much value out of mining the minerals, it's the processing that's important. And as a result, except for -- we have a short list of 6 to 7, 8 minerals, which we want to do, whether it's bauxite, iron ore, gold, lithium and some others like copper, those opportunities wherever we get, whether in India or outside, we'll be happy to look at. So we have zeroed -- narrowed it down to 7, 8 minerals only, which we are really interested. These are small minerals, which are found in small craters and require huge amount of processing is something that we are not very keen of as of now.
Sure. And sir, lastly, on diamond. What's the update in India? And how should we look at this business say 3 years, 5 years?
Diamond, we have got the Supreme Court clearance. Post the community for our environmental clearance, some clarifications are required. So hopefully, in the next meeting, we'll be able to put it up. And let us see if they give us the clearance then we'll be -- we are ready for mining. We can go ahead for mining in a month's time after getting the EC clearance as for now.
And sir, scope for a project? Any challenges? How should we look at it, carat?
Beg your pardon, it's -- I think it's 40,000 carat mine that we have at Panna. But initially in the first year, I think we should get only 10,000-odd carats, but as we ramp it up, that mine needs to be redesigned. It will take us a couple of years. But no further diamond projects in India as of now. Diamond is another mineral that, going forward, we are not very keen on. Amit, I think it's been more than an hour. Now, I think I have another meeting to attend with the minister.
Ladies and gentlemen, we'll take that as a last question. I now hand the conference over to Mr. Amit Dixit for closing comments.
Thanks, everyone, for attending the call this afternoon. I would also like to thank the management for sparing their valuable time for interacting with us. I will now invite Mr. Mukherjee for his closing remarks. Over to you, sir.
Yes. Thank you for being with us. We are doing fairly well, but we expect it to do better. The near future, in the medium term, we have huge plans for the company. We wish to reorient the entire way that we sell our product and the products we sell also. So the company is under a major transformation right now. Starting with what you have seen with the logo itself. We are very keen. We have taken our sustainability, again, very, very seriously. We have just set up a sustainability department. We plan to have -- we call ourselves the responsible miners. That is the tag that we have. And we take our commitment very, very seriously. So going forward, we not only want to grow big, but we also want to be more responsible towards all our stakeholders, be it our customers, be it our shareholders, be it our -- the local community, be it the environment, be it our employees. So we hope to be not only bigger, but certainly, certainly better as well in the future. Thank you.
Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.