#1A ENERGY & MINERALS SARDA SARDA SARDA ENERGY & MINERALS LTD. VAN INVESTOR PRESENTATION May 2018#2DISCUSSION SUMMARY 01 Company Overview 02 Business Overview 03 Strategic Priorities & Growth Outlook 04 Financial Results 05 55 Annexure SARDA SARDA ENERGY & MINERALS LTD.#3COMPANY OVERVIEW SARDA SARDA ENERGY & MINERALS LTD.#4Health and Safety Assets & Operational Detail . • • • At SEML, safety is taken as top priority. The workers are equipped with necessary safety gears on their operational role Regular medical check-up and in house medical facilities ensures that workers keep in good health The incident rate (including minor injuries) has seen a declining trend over past few years All employees at plant has to go through training on safety every year Corporate Social Responsibility • The Company has adopted 90 single-teacher schools in the tribal areas of Chhattisgarh for providing basic education • The Company actively sponsors medical facilities, assisting in primary healthcare across villages. • • It runs a well-equipped ambulance with doctors and set up first- aid facilities in the villages surrounding its mines Extended financial assistance to Bhartiya Vidya Bhawan and R K Sarda Vidhya Ashram for school buildings/operations 253 SARDA SARDA ENERGY & MINERALS LTD. No. of Incidents(including minor) 43 37 21 15 CY13 CY14 CY15 CY16 CY17 3#5Key Milestone SARDA SARDA ENERGY & MINERALS LTD. Installed 25 TPD Electric Arc Furnance in 1990 Acquired 3 Power units in 1993-94 Installed Two Sponge Iron 1979-89 Kilns of 30K MT each in 1993 and 1995 1999-08 Company acquired Raipur Wires and Steel as a sick unit in 1979 Installed 10 MT electric arc furnace in 1981 to produce ingot Installed Continuous casting machine in 1984 for Billet production Sold two power units and installed one as captive power plant 1989-99 Company started 24 MW captive power plant and Ferro Alloy plant in 2001 Commenced a fly ash brick plant to utilize hazardous fly ash from captive power plant Acquired Iron ore mine with reserves of 20 Mn MT. I, commenced iron ore extraction from the mines n 2004 Coal mines and 4.8 MW Hydro power plant started operations in 2008-09 Pellet plant commenced operations in 2009-10 66 MVA Ferro Alloys plant and 80 MW Thermal power plant started at Vizag in 2012-13 24 MW Hydro Power project started in July 2017 2008-18 Post 2018 Steel plant capacity to be increased by 50% in FY 2019 Commissioning of 96 MW Hydro Power plant located in Sikkim in FY 2020 and 24 MW plant located in Chhattisgarh in FY 2022 4#6Company at a Glance Operations Vertically integrated producer of steel with captive raw materials SARDA Steel SARDA ENERGY & MINERALS LTD. Leading Manufacturer and exporter of niche grade manganese based ferro alloys. Ferro Alloys Financials Ventured into hydro power in Uttarakhand, Chhattisgarh and Sikkim as Government push towards clean energy Hydro Power Sustainable Growth Background Sarda Energy & Minerals Limited (SEML), incorporated in 1973, is the flagship company of Sarda Group. SARDA SARDA ENERGY & MINERALS LTD. Financial Performance Revenue grown at 21% CAGR in last two years. EBITDA has Grown 45% in the same period Low Gearing Debt to Equity stands at 0.79 in FY18, lower than 0.88 in FY17, is one of the lowest in the sector Production has grown profitably in the last few years across segment 5#7FY2018 - A landmark Year in Sarda History ** SARDA SARDA ENERGY & MINERALS LTD. ① Pellet Highest ever Pellet production of 6 lakh tonne Billet highest ever production at 1.36 lakh tonne Ferro Alloys Highest ever production of 148982 MTs in FY2018 Hydro Power Highest ever energy generated 19.10 Mn units Revenue Highest ever revenue over 2200 crores with all division contributing to the growth ** EBITDA Highest ever EBITDA of INR 4,016 mn PAT reached highest ever PAT of INR 2057 million Dividend Highest ever dividend of Rs. 5 per share reflect management focus towards rewarding shareholder SARDA SARDA ENERGY & MINERALS LTD. 5#8Operations: Geographical Footprint Iron ore mine in Rajnandgaon 4.8MW in Uttarakhand 96MW in Sikkim SARDA SARDA ENERGY & MINERALS LTD. Lower transportation cost due to close proximity to raw material and end users Rajnandgaon (Iron Ore mine) to Siltara (SEML Plant) 140 kms 24MW in Gullu SEML plant in Siltara SMAL, VIZAG Ferro Alloy plant at Vizag operated under SMAL 00 6#9Buiness Steel Ferro - Alloys Hydro Power Product Offering Offerings Billet Iron Ore Silico Manganese Ferro Manganese Wire Rod & HB Wire Pellet & Sponge Iron Demand Driver Infrastructure & Urban development Housing for All Construction All types of Steel, demand aligned to increased in steel demand Requirement is higher in manufacturing Alloy Steel Government Push towards clean energy To meet peak demand for power Hydro more viable option in difficult terrain with limited sun light and wind for logistic 7 SARDA SARDA ENERGY & MINERALS LTD.#10Board of Directors Kamal Kishore Sarda, CMD Mechanical Engineer with 40 years experience in Iron and Steel Industry. He is responsible for steering SEML towards the path of growth SARDA SARDA ENERGY & MINERALS LTD. Pankaj Sarda, Jt Managing Director MS in Industrial Administration from Purdue University, USA, With industry experience of more than 12 years. Jitender Balakrishnan PGDM in Industrial Management. Ex DY. MD, IDBI Bank, having wide experience in the field of Oil & Gas, Refineries, Power, Steel etc. Padam Kumar Jain, Director and CFO CA, CS with a rich experience of 31 years in the field of accounting, finance, taxation, costing and corporate laws. Asit Kumar Basu BME graduate with 40 years of experience in the field of finance. Ex chief general manager of IDBI Bank. Uma Sarda, Director Arts graduate with specialization in Home Science. Active member of NGO that works for primary education and healthcare of tribal people Prabhakar Tripathi Former CMD of NMDC with a rich experience of 45 years in the field of mining and related activities. Gajinder Singh Sahni Post Graduate from Cardiff University. IAS officer from Madhya Pradesh Cadre and Former MD, MSIDC & MP, Cabinet Secretariat, Govt of India Independent Non Executive Director C K Lakshminarayanan An Engineer with experience spanning across various institutions like ST CMS Electric, IDBI etc. Rakesh Mehra, FCWA with over 35 yrs of experience in finance & accounting. Ex GM, Madhya Pradesh Audhyogik Vikas Nigam. 8#11Strong Corporate Governance == SARDA SARDA ENERGY & MINERALS LTD. Experienced Board Majority consisting of independent directors from diverse field with rich experience who drive the Board and policy decisions and strategy making Employee Engagement Clarity on thought process related to business is clearly communicated to all the employees which helps them to align their goals with the vision of the management Values Management has a culture of ethical values to be followed while working with the company. Transparency The management team also believes in transparency on all the company matters which helps them to build a surrounding of rich moral values within the organization Corporate Policy All the crucial decisions related to company's operations are taken without deviating from the company's policy Shareholder Wealth The company also believes in rewarding shareholders, Dividend is being paid consistently since FY 2003-04 9#12SARDA SARDA ENERGY & MINERALS LTD. BUSINESS OVERVIEW#13Steel Business India's Steel Industry Overview Sector overview • India became the 2nd largest crude steel producer in 2018, as large public and private sector players strengthen steel production capacity in view of rising demand. SARDA SARDA ENERGY & MINERALS LTD. India Crude Steel Production (Mn Tonne) 97 89 90 82 102 • India is the largest producer of Direct Reduced Iron (DRI) or Sponge Iron. • The steel sector contributes over 2 per cent to the GDP of the nation FY 14 FY 15 FY 16 FY 17 FY 18 World Steel Demand Intensity • India's per capita consumption of steel grew from 59.6 kgs in FY 14 to 68 kgs in FY18 60000 Per capita 50000 GDP, USD USA, 294 Germany, 4 84 40000 Japan,497 Future Growth 30000 • Renewed push towards infrastructure development will increase steel demand going forward 20000 Russia, 275 10000 Brazil. 103 India. 68 Turkey, 437 China, 489 Government has set target for 300 million tonne production by 2030, c.3x from current production run-rate 0 Per capita Steel Consumption, kg 0 100 200 300 400 500 600 Source: IBEF; FICCI report 10#14Steel Business SARDA SARDA ENERGY & MINERALS LTD. Iron ore Pellet Sponge Iron Billet • • • Iron ore mines near SEML plant in Siltara Production run rate of 5 lakh tonne with mine life of 30 years Pellets are produced from Iron Ore Fines and majority is sold in local markets, remaining is consumed captively for production of Sponge Iron. The capacity of the pellet plant is 6lakh tonne Sponge Iron is produced from Captive Iron Ore Lumps and Pellets Sponge Iron capacity is 3.6 lakh tonne Billets are semi finished steel products produced by continuous casting process Billet production capacity is 2 lakh tonne Wire Rods are hot rolled products made from direct hot billet charging Wire Rod & HB Wire • Wire Rods production capacity is 1.8 lakh MT's • Wire Rods are cold drawn to produce HB Wires Eco Bricks • Eco-Bricks are mainly manufactured from fly-ash and waste generated from the power plant Company's annual production capacity is 1.3 lakh tonne 11#15Steel Business Iron Ore Assets & Operational Detail • Company's operational Iron Ore mine has potential reserves of 180 Lakh MT and annual production output of 4 Lakh MT* Semi-mechanised mine commenced operation in 2004 Iron ore business act as a feeder to Pellet & Sponge Iron Plants Future Strategy SARDA SARDA ENERGY & MINERALS LTD. Iron Ore Production (Lakh MT) 4.54 Iron ore production will be increased up to 5 Lakh MT in FY2019 based on requirement from Sponge and Pellet plant 3.71 • Further mines allotted in Chhattisgarh with estimated 2,400 lakh tonne of reserves, further clearances in process 2.55 * Production run-rate at the end of FY18 at 5 lakh mt 1.48 FY 15 FY 16 FY 17 FY 18 12#16• Pellet Steel Business Pellet Plant & Sponge Iron Pellet • Current production capacity of 6.0 lakh tonnes Sponge Iron • Current production capacity of 3.6 lakh tonnes SARDA SARDA ENERGY & MINERALS LTD. 65% of the production is sold externally and remaining processed internally for further downstream production Applied for environmental clearance for 8.0 lakh tonne, expected to received during the year Pellet consumed as raw materials by local sponge iron plants • . Since India has ample supply of thermal coal, sponge iron is preferred route of steel making in the country 40% -45% is used internally and remaining is sold in local markets Thermal coal is sourced locally, primarily from subsidiaries of Coal India Started exports during the year Pellet and Sponge Iron Production (Lakh MT) 5.5 2.4 4.9 6.0 6.0 3.0 2.7 2.8 FY15 FY16 ■Pellet FY17 FY18 Sponge Iron 13#17Billet Steel Business Billet • Current production capacity of 2 lakh tonnes • 15% of the production is sold externally, remaining processed internally for further downstream production The company plans to expand steel billet capacity to 3 lakh tonnes in FY 2019 2222 • Well positioned with complete back end integration to enhance capacity 1.18 Billet Production (Lakh MT) 1.35 1.33 1.36 FY15 FY16 FY17 FY18 SARDA SARDA ENERGY & MINERALS LTD. 14#18Steel Business Wire Rod and HB Wire Wire Rod • • Current production capacity of 1.8 lakh tonne, with current capacity utilization of over 60% Wire Rod is a hot rolled product made from hot charged Billets • High strength products offered at reasonable price in the local markets • • Wire Rod is sold to local markets, hence minimum expense on logistics The company has exported Wire Rod for the first time in FY 17-18 • Increase in Billet production capacity will lead to rise in production of Wire Rods without any incremental capex HB Wire • Current production capacity of 30,000 tonnes • HB Wire are Cold drawn from Wire Rod and sold on different specification, sold to local markets in Chhattisgarh SARDA SARDA ENERGY & MINERALS LTD. Wire Rod and HB Wire Production (lakh tonnes) 1.13 1.01 0.92 0.82 0.22 0.27 0.30 0.28 FY15 FY16 FY17 FY18 ■Wire Rod HB Wire 15#19Ferro Alloys India's Ferro Alloys Industry Overview SARDA SARDA ENERGY & MINERALS LTD. Sector Overview • Ferro Alloys are vital additives for Steel making. Ferro Alloys enhance the strength of the Steel and acts as a de- oxidant in Steel manufacturing Approximately 1.5% of Manganese Alloy is required to produce each tonne of Steel Future Growth • India's Ferro Alloys Production (Mn Tonne) Globally, the industry is expected to grow at a CAGR of 5.9% between 2017 and 2025 and is expected to reach a valuation of US $188.7 billion by 2025. 1.80 1.90 1.70 1.70 The growth in the steel sector will drive the demand for Ferro Alloys 0.5 0.5 0.4 0.5 FY 14 FY 15 ■Ferro Manganese FY 16 ■Silico Manganese FY 17 Source: CRU India and IFAPA 16#20Ferro Alloy Business SARDA SARDA ENERGY & MINERALS LTD. Ferro Alloys Production (Lakh MT) • Company has two operational plants of Ferro Alloys which are located at Raipur and Vizag with a total installed capacity of 111 MVA 1.49 1.28 1.13 1.07 • The company manufacturers manganese based Ferro Alloys which is sold domestically as well exported to other countries • Company received the prestigious export promotion council award in 2018 FY 15 FY 16 FY 17 FY 18 Ferro Alloys Exports [VALUE] 31195 [VALUE] [VALUE] 0.52 0.43 0.37 0.86 FY 16 FY 17 FY 18 FY 15 Ferro Alloys Exports (Lakh MT) Ferro Alloys Exports (Rs Lakh) • • • SEML& its subsidiary both have been awarded Two- Star export house status from Government of India. The company exports majority of the Ferro Alloys exports to Japan Company's Ferro Alloys exports grew from 0.37 Lakh MT to 0.86 Lakh MT in FY 18. 17#21India Push For Hydro Energy Hydro Power Installed Capacity 50000 44,478 45,293 45000 42,783 40,531 41,267 40000 35000 30000 25000 20000 15000 10000 3,804 3,991 4,274 4,418 4,486 5000 0 FY 14 FY 15 FY 16 FY 17 FY 18 ■Small Hydro (MW) ■Large Hydro (MW) Hydro Power projects below 25 MW is considered as Small Hydro as per Government of India's guidelines and they are a part of Renewable Energy Source: MNRE, CEA SARDA SARDA ENERGY & MINERALS LTD. • Government of India has set a target of adding 175 GW of renewable power in the country by 2022 Government has earmarked US$ 250 billion for renewable energy over next 5 years. • • • • Discom are mandated to procure 15% of energy units from renewable source by FY 20 India's small Hydro power installed capacity has grown from 3804 MW in FY 14 to 4486 MW in FY 18 India's large Hydro power installed capacity has grown from 40531 MW in FY 14 to 45293 MW in FY 18 India has committed towards reducing its carbon footprint, hence reducing carbon emission by 33% - 35% from 2005 levels by 2030 Under Union Budget 2018-19, US$ 581 million has been allocated for grid-interactive renewable energy schemes and projects. 18#22Hydro Power Business SARDA SARDA ENERGY & MINERALS LTD. Uttarakhand 4.8MW Operational since 2008 Operated at 45.42% PLF during FY 14-17 PPA signed at 3.85 per unit with the state discoms for 35 years Average units sold stands at 19.33 mn on a yearly basis 18.26 mn units were sold in FY 2017-18 Chhattisgarh 24MW Operational since July, 2017 Operation started in the mid of year, expected PLF to be around 50% in FY2019 PPA signed at 5.04 per unit with the grid and tenure of PPA is 35 years. Chhattisgarh needs hydro power to meet its renewable energy obligation against thermal power generation Sikkim 96MW & Chhattisgarh 24MW Under Execution Sikkim power plant to be commissioned in FY 2020 Sikkim offers ideal terrain for hydro power Chhattisgarh power plant to be commissioned in FY 2022 19#23STRATEGIC PRIORITIES AND GROWTH OUTLOOK SARDA SARDA ENERGY & MINERALS LTD.#24Strategic Priorities 01 02 03 80 04 SARDA SARDA ENERGY & MINERALS LTD. Financial Discipline Maintain financial health of the company, with Debt Equity ratio not more than 2x Profitable Growth Gradually ramping up Iron Ore production capacity and increasing profitability of the company Integrated Operations Different business division complements each other, thereby increasing overall efficiency and profitability Identifying next growth avenues Strategically expanding ongoing operations and scouting for future growth from inorganic route 21 21#25Sarda Energy Project Expansion Plan Steel (Pellet plant) Capacity pre- Post-expansion Incremental Spend till date expansion Capacity Capex 6.0 Lakh MT 7.5 Lakh MT Nil Nil 2 Lakh MT 3 Lakh MT Rs 25 Crores Rs 10 Crores (Billet plant) Steel Ferro Alloys 111 MVA 144 MVA 125 Crores Rs 1 Crore Hydro Power 29 MW 149 MW 1430 Crores Rs 835 Crores Remarks SARDA SARDA ENERGY & MINERALS LTD. Approvals are required and Pellets will also be sold externally along with captive consumption The upcoming Steel plant will be commissioned by FY19 which will lead to higher capacity utilisation Capacity utilisation by commissioning of Vizag plant will be increased by FY 2020 Sikkim Hydro Power plant (96 MW) will be commissioned by FY 2020 and Chhattisgarh power plant (24 MW) will be commissioned by FY 2022 22 22#2600000 00000 SARDA SARDA ENERGY & MINERALS LTD. FINANCIAL RESULTS#27וווה Results Highlights REVENUES * 3,917 2,296 Q4 FY17 Q4 FY18 21,737 14,342 FY 2017 FY 2018 SARDA SARDA ENERGY & MINERALS LTD. Q4 FY18 YoY ANALYSIS (Standalone) In Rs Mn EBITDA & EBITDA MARGIN% # PAT, & PAT MARGIN % 15.6% 24.2% 8.0% 947 359 14.0% 550 184 Q4 FY17 EBIDTA Q4 FY18 -EBIDTA Margin % Q4 FY17 PAT Q4 FY18 PAT Margin % FY18 YoY ANALYSIS (Consolidated) 15.1% 18.5% I 8.9% 9.5% 4,016 2,170 1,270 2,057 FY 2017 EBIDTA FY 2018 -EBIDTA Margin % FY 2017 PAT * Revenue excluding excise duty, previous numbers restated accordingly FY 2018 PAT Margin % 24 24#28FY2018 – Segment Analysis 21.1% REVENUE 0.4% 42.6% 35.9% 39% 1% EBIT 60% ■ Steel ■ Ferro Alloys Power ■ Others ■ Steel ■ Ferro Alloys ■ Power The Ferro Alloys business segment contributed 42.6% to the overall revenue in FY 17-18 followed by Steel Business and Power The EBIT as on FY 17-18 clearly displays Steel business segment commanding a higher proportion of 60% than Ferro Alloys which has 39% Commissioning of hydro power at Sikkim will further move revenue and EBITDA split towards more stable and predictive business SARDA SARDA ENERGY & MINERALS LTD. 25#29ווווה Consolidated Profit & Loss SARDA SARDA ENERGY & MINERALS LTD. Particulars (INR Mn) FY 18 FY 17 YoY change Steel 9,114 6,437 42% Ferro Alloys 10,809 6,941 56% Power 5,348 4,563 17% Unallocated 96 77 25% Less Excise duty 429 1,368 NA Less Inter Segment Revenue 3,201 2,308 39% Total Income 21,737 14,342 51% COGS 14,778 9,422 57% Employee Benefit Expenses 771 754 2% Other Operating Expenses 2,172 1,995 9% Total Expenditure 17,721 12,172 46% EBITDA EBITDA (%) Other Income Depreciation/Amortization Finance Cost PBT Share of Profit/ (Loss) from Subsidiaries Exceptional Items Tax 4,016 2,170 85% 18.5% 15.1% 31% 703 674 4% 732 687 7% 967 938 3% 3,021 1,220 148% 9.1 0.7 NM 78 282 -72% 895 232 286% Profit after Tax (Before MI) 2,057 1,270 62% * Revenue excluding excise duty, previous numbers restated accordingly 27 27#30ווווה Consolidated Balance Sheet SARDA SARDA ENERGY & MINERALS LTD. Liabilities (INR Mn) FY 18 FY 17 Assets (INR Mn) FY 18 FY 17 Equity Share Capital 360 360 Fixed Assets 21,420 19,824 Other Equity 16,289 14,046 Investments 548 225 Total Equity 16,649 14,407 Other Financial Assets 165 150 Deferred Tax Assets Borrowings 9,832 9,232 Other Non-Current Assets 676 427 Other Financial Liabilities 152 129 Total Non Current Assets 22,809 20,626 Other Non Current Liabilities 78 95 Deferred Tax Liabilities 681 557 Inventories 4,113 3,426 Total Non Current Liabilities 10,743 10,012 Trade Receivables 1,312 1,065 Cash & Cash Equivalents 216 106 Borrowings 3,267 3,483 Other Financial Assets 4,423 4,597 Trade Payables 1,308 1,111 Current Tax Assets (Net) 4 2 Other Financial Liabilities 1,623 1,858 Other Current Assets (Net) 1,249 1,330 Provisions and Other Current Liabilities 536 280 Assets Classified as held for sale Total Current Liabilities 6,734 Total Liabilities 34,126 6,732 31,151 Total Current Assets 11,317 10,525 Total Assets 34,126 31,151 28#31ANNEXURE SARDA SARDA ENERGY & MINERALS LTD.#32Sarda Energy: Financial Data Revenue (Mn) 21,737 17,599 14,799 14,342 3,773 FY15 FY16 563 PAT (Mn) EBITDA (Mn) 2,170 1,920 SARDA SARDA ENERGY & MINERALS LTD. 4,016 FY 15 FY 16 FY 17 FY 18 FY17 FY18 1,277 1,270 Debt Equity Ratio 2,057 1.01 0.90 0.88 0.79 FY 15 FY 16 FY 17 FY 18 FY15 FY16 FY17 FY18 30 50#33Annexure Realization 58,208 Trends in Sales Realization (INR/MT) 55,890 54,306 53,443 46,434 44,113 34,244 32,480 33.639 35,079 28963 28588 18,561 8,137 54,312 53,344 SARDA SARDA ENERGY & MINERALS LTD. 72,122 65,125 33,898 27,795 27,089 32,110 27587 26,013 26,040 23265 21601 19,112 16,842 13,506 12,206 7,747 4.958 FY 14 Iron Ore Pellet FY 15 Sponge Iron Steel Billets FY 16 Wire Rod -HB Wire 4,245 5,272 FY 17 --Ferro Manganese FY 18 - Silico Manganese 31 31#34Annexure - Production & Sale Data SARDA SARDA ENERGY & MINERALS LTD. Production FY16 FY17 FY18 External Sales FY16 FY17 FY18 Pellet (MT) 494,916 599,925 599950 Pellet (MT) 252,750 207,786 383,831 Sponge Iron (MT) 265,508 304,193 278147 Sponge Iron (MT) 143,250 176,315 150,415 Steel Billets (MT) 134,566 133,442 136349 Steel Billets (MT) 37,852 29,456 19,633 Wire Rod (MT) 92,437 101,176 113466 Wire Rod (MT) 52,178 72,348 85,567 HB Wire (MT) 26,764 29,552 27763 HB Wire (MT) 26,101 29,387 28,615 Ferro Alloys (MT) 106,928 127,602 149288 Ferro Alloys (MT) 112,727 120,334 149,316 Power (mn KWH) 1,182 1013 1010 Power (mn KWH) 463 197 145 42 32#35+ THANK YOU SARDA SARDA ENERGY & MINERALS LTD. Padam Kumar Jain - CFO Contact No: +91 77122 14238 Email: [email protected] Laborant DICKENSON SEAGULL ® Aakash Mehta - IR Consultant Contact No: +91 98706 79263 Email: [email protected] Ravindra Bhandari - IR Consultant Contact No: +91 92836 14197 Email: [email protected] Laboram shutterstock