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Godawari Power and Ispat Ltd
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Ladies and gentlemen, good day, and welcome to Q2 FY '23 Earnings Call for Godawari Power & Ispat Limited, hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sana Kapoor from Go India Advisors. Thank you and over to you.
Thank you, [ Aman ]. Good morning, everybody, and welcome to Godawari Power & Ispat Limited earnings call to discuss the Q2 and H1 FY '23 results. We have on the call Mr. Abhishek Agrawal, Executive Director; Mr. Sanjay Bothra, Chief Financial Officer; and Mr. Dinesh Gandhi, Executive Director. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. May I now request Mr. Dinesh Gandhi to take us through the company's business outlook and financial highlights, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.
Thank you, Sana. Good morning, ladies and gentlemen, and thank you for joining us -- with us on the earnings call today for Godawari Power & Ispat Limited. I trust you have had a look at the revised earnings presentation uploaded on the stock exchange and the company website. The presentation was required to be revised primarily on account of 2 errors in the presentation. One is relating to the H1 average selling price of the pellets sold, which has been revised. And number 2 is the capacity of [ Khairagarh ] solar power project, which is under construction which was only mentioned at 38-megawatt against 25 megawatts. So capacity continues to remain at 25-megawatt. And I will briefly discuss the results and then we can have the Q&A session after that.
Before I discuss the quarterly performance and H1 performance in detail, I would like to discuss on the 2 strategic updates. As you are all aware, the [ Chhattisgarh Environment Conservation Board ] have granted us the consent to operate for the enhanced pellet capacity from 2.4 million tonnes to 2.7 million tonnes. With this, we are revising our guidance for production of iron ore pellets from 2.4 million tonnes to 2.6 million tonnes in FY '23.
For the H1 FY '23, GPIL is already 50% of the revised guided targeted capacity and produced about 1.31 million tonnes of pellet. Our CapEx guidance continues to remain at about INR 500 crores for the current year. We have already incurred INR 179 crores in the first half of '23. The guidance continues to remain same. Despite imposition of export duty, these projects are primarily related to the cost saving and efficiency improvement related. The solar power project will help us improve our cost of power, get power which is more than [indiscernible] per unit. Against that, our generation cost will be [ hardly ] at operating level at about 30, 35 basis points.
Similarly, the replacement of turbine will improve the power generation at the same operating cost. And the CapEx at the mining would help us to beneficiate the overhead at the mine and reduce the cost of production for the company. The only project which we have kept on hold is the steel melting shop, where we are still working on the revised capacity and the products to be manufactured and after that, we will make a suitable announcement in due course of time.
Regarding the Greenfield Steel project, which the company had announced earlier, the status is -- continues to be -- we have not yet been able to acquire the land and the land acquisition is getting delayed and we have filed for the environmental approval for the project, which is under consideration of the central ministry. Once the environmental approval -- land acquisition is done and environmental approval is received, we will be able to free our investment plan and will guide the market accordingly in due course of time.
Coming on the performance, the market price of iron ore for Q2 FY '23 is INR 4,500, whereas our captive landed iron ore cost is about INR 3,000 a tonne, which shows the competitive advantage of the captive iron ore that GPIL has. In Q2 FY '23, GPIL iron ore mining and pellet production has increased by 34% and 17% on a Y-o-Y basis. Production of sponge iron, HB wire and Galvanized Fabricated products have also increased on Y-o-Y, versus our production of Ferro Alloys is reduced primarily because the market for the Ferro Alloys prices have gone down and we took this opportunity to do a maintenance shutdown for the Ferro Alloys plant of Hira Ferro Alloys and Alok Ferro Alloys.
Similarly, as you would have observed, our pellet realization has gone down by almost INR 3,500 a tonne compared to the pellet realization in the Q1 FY '23. And if you look at our numbers, the fall in profitability is mainly on account of the fall in pellet realization because our cost of production remains same. Sales are lower on account of the captive iron ore mining. And if you take the impact of the reduction in pellet selling price from about INR 11,500 to INR 8,000 something; 3,500 into 550,000 tonnes of the pellet, comes to about INR 200 crores. And to that extent, there is a fall in EBITDA of the company. And the fall in pellet realization is, as you are all aware, is on account of imposition of export duty, and simultaneously, reduction in the international selling price of iron ore prices -- iron ore [indiscernible].
Now coming on the financial performance for Q2, consolidated revenue increased to INR 1,307 crores, up 303% Y-o-Y basis, but decreased 22% quarter-on-quarter basis. The main reason for decrease is majorly because in the realization of iron ore pellet. The total expenses looks to be -- increased by 28% Y-o-Y, but actually, the expenses are looking higher on account of reduction in the selling price. So top line is higher. Expenses have not increased substantially, expenses continues to remain the same level, except the prices of coking coal on Y-o-Y basis.
The consolidated EBITDA is INR 231 crores, which is down 50% quarter-on-quarter and 47% Y-o-Y basis. The drop -- I've already explained the drop in EBITDA is mainly on because of the fall in the prices of the iron ore pellets. Also, consolidated PAT from continuing operations attributed to the owner is down 48% sequentially to INR 168 crores.
Now coming on the market outlook, starting with the international outlook, the iron ore prices have already fallen to about $80 from $158 as on 1st of April. The demand and production of steel and other commodities remains subdued due to -- in China due to COVID and real estate crisis and in the rest of the world, due to interest rate hike and the energy crisis.
Expectation is that in H2 FY '22 (sic) [ FY '23 ], things will improve due to China's stimulus to support economic growth. However, uncertainty remains due to China's zero COVID policy. Iron ore prices post correction are expected to stay in the range of $80 to $120 for the rest of the year. Also, the import of iron ore pellets of China has reduced 33% in January to September 2022 compared to same period last year because of the sustained crude steel production cut and weak domestic outlook.
Coming on the domestic outlook, government has levied export duty on iron ore from 0%/30% to 50%; on pellet from 0% to 45%; on steel from 0% to 15% in May 2022. This has resulted -- this has led to sharp drop in the domestic iron ore prices. NMDC has cut its iron ore prices by approximately INR 2,000 a tonne.
Iron ore production in FY '23 is estimated to be lower. Pellet prices decreased from INR 14,000 a tonnes in April to INR 7,450 and is presently trading at about INR 8,000 a tonne. Domestic iron ore prices have likely bottomed out at a much higher level than historical levels. The support has come from the cost curve, which has moved up by INR 1,000 to INR 1,500 a tonne post auction of iron ore mine. At current iron ore prices, many domestic mines have become unviable. Some support has also come from improvement in domestic demand of steel due to the increased off take from the infra projects. Going forward, improvement in the prices of iron ore and pellets will depend on the impact of the export duties. However, downside remains largely protected due to the cost curve of iron ore. We can now open the floor for question answers. Thank you very much.
Thank you very much. We will now begin the question-and-answers session. [Operator Instructions] First question is from the line of [ Prashanth Kumar Kota ] from Emkay Global Financial Services.
And really appreciate the very detailed presentation and the data pack that you gave. It's like one of the best in the sector. Sir, my question is regarding your view on iron ore pricing generally, internationally and in India. And to that extent, pricing of pellets, assuming the -- if you remove the government angle aside, just based on the current dynamics, what is your view and how do we see this from [indiscernible]?
So it looks like the international price is at about $80 is almost maybe bottomed out to some extent. If the demand and the China stimulus comes through, then the prices should improve from here on, rather than going down from here. The $80 should be the floor -- the lowest prices of the iron ore in the international market.
Okay, sir, and your view on the domestic side, the pellet side, have they -- can we largely say they've bottomed out after this government intervention, steep fall?
The steep fall has already happened in pellet prices. But there are some steel prices, as you are aware, in long products, the prices are more or less stable, maybe INR 1,000 here and there, the prices are [indiscernible], but mostly stable. Iron ore pellet prices have corrected only because of the imposition of export duty, and of course, the reduction in demand in international market. So both have impacted the iron ore pellet prices. And we believe that iron ore pellet prices at INR 8,000 and maybe 5%, 10% down from here should be stabilized.
Understood. Understood, sir. Sir, my second question is more to do with the social angle, social aspect of what you as a company do, sir. So basically, apart from running a profitable business for the shareholders, we also understand from our sources that you had a lot of CSR activities in the mining regions around your mine, sir. It's always very important to do that, given it's the local communities, development uplift and et cetera. So all those activities that you do are still continuing without any...
Yes, yes, yes.
Yes. Am I right?
I think we had highlighted at some point in time, we continue to transport our internal -- entire iron out from mines to our plant is by the road. We have an opportunity to reduce the cost through by transporting the [ rail ]. But in order to give the employment to the local population who are owning the trucks, which are flying between the Godawari Power plant and the mine exclusively, they get employment. And of course, that has elevated our cost structure by INR 300 to INR 400 a tonne. But on account of development of the reason where our mines are located, we are continuing with the road transport. Similarly, we have done a lot of CSR activities. I think each and every village, houses, pakka now, school facilities, there is hospital facilities. All those facilities are available. The roads in the village are now pakka road. So all those activities are being continuously done by the company.
Great, sir, really great. Really glad to hear. Fantastic.
And as a company, we also believe it is -- we are supposed to give it back to the society. That is our responsibility.
[Operator Instructions] The next question is from the line of [ Jodi Singh ] from [ Novama ].
I have 3 questions. One is looking at your consol numbers, I guess there are losses in your Ferro Alloys business. So in this case, how do you look at the demand and supply scenario of this segment, Ferro Alloys India? Can I go ahead with the other 2 questions? The second is, as you have mentioned that you will be doing a CapEx as per the plan. Are you confident that you will be able to achieve the guidance of INR 500 crores? Because in H1, you have done around INR 180 crores. Please let us know your plans regarding the Greenfield Steel project. And third is on your coal sourcing mix. So how do you think the coal sourcing mix looks like? And how much coal did you import in your second quarter? And what is the inventory of coal as on date?
Dinesh, let me get these questions. Good morning, ma'am. So on the first question of Ferro Alloys, see, we need to understand, India is a big exporter of Ferro Alloys, whether it's silicon, manganese ferro, any kind of, right? And primarily, our biggest market is Europe, and you all understand because of the energy prices in Europe, and ferro has been quite energy-intensive industry, so a lot of capacities have gone on into the steel making. If you understand, I was reading an article yesterday. So ArcelorMittal itself alone as a group has reduced their production by almost 10 million tonnes across the Europe, entire Europe. So that is the reason Ferro Alloy prices have dropped significantly in terms of the major regions. And in India, there is an oversupply of Ferro Alloys. So export is part of a good mix when you want to balance the entirety of managed supply in India. So at the moment, I would see pellet prices will be under pressure for sure going forward as well.
Okay, that helps. And then...
And on the coal side...
You know -- yes, go ahead, Abhishek, go ahead.
On the coal side, at the moment, see, I have told earlier this as well, we are importing coal for our [ DRI ] operations. We've already been doing that. And we still continue to import. We import from Africa. We import from Australia and currently, we import it from Russia as well. So depending -- and as all are aware, currently, finally the coal price has started cooling down. They've almost cooled by $100 in the last 6 weeks. So we are trying to operate new inventory so that we can take advantage of the lower prices. And for the power plants, we are sourcing domestic coal. We have linkage from Coal India as well as buying from the domestic market.
And what was your coal import in Q2?
In terms of volume or in terms of number?
Both.
Okay. So see, we usually import on monthly basis or 45-day basis because we want to go with the market, because the market is very volatile. So we imported about 1.5 lakh tonnes on -- in Q2. And then the average price would be about [ INR 18,000 ] landed to a plant.
Okay. And your CapEx guidance?
Dinesh G.?
CapEx is like, as I said, we have done INR 179 crores in the first half. The major work on the solar power plant, where we have to invest more money, has restarted after the monsoon. So except the CapEx on the steel billet side, everything else is expected to be completed in the current year itself, including the capacity for mining, both the solar power plant, 25-megawatt GPIL, 60-megawatt HFAL and our replacement of turbine.
So these are the main component of the CapEx, which is remaining CapEx and likely to be completed in the current year itself. So entire INR 500 crores, including INR 179 crores already done, will be completed in the current year.
Okay.
And if some is still are there, it could be more, for 5%, 7% of the CapEx here and there, but largely, we are on line. And one more point I want to add about the loss in the Ferro Alloys business is we are holding a lot of inventories of manganese ore, which we had procured at higher prices. And same is getting consumed -- same was consumed during the last quarter and continues to get consumed.
And therefore, the impact of inventory loss is also there. It is against the pellet inventory where we are not impacted because our inventory of pallet was hardly 7, 8 days. And iron ore is -- the cost is fixed because of the captive iron ore. So the inventory loss is mainly there with us in the Ferro Alloys business.
[Operator Instructions] Next question is from the line of Mitul Shah from Reliance Securities.
Sir, compared to Q2, how has been the trend during this October, November in terms of the demand situation? And also, if you can give some details on the thermal coal price trend in current quarter compared to Q2.
Abhishek, you will take it?
Yes. So demand in terms of steel or demand in terms of overall demand or in terms of pellet?
Overall demand and specifically to pellets, as our ferro is relatively better quality compared to...
Okay, got it, you are right. So on the overall demand side, see, the demand has been a little on the sluggish side because of the monsoons. Usually, steel industry, the demand is on the sluggish side because of the monsoon season. And thus, there was a lot of correction because of the imposing of the export duty. So there were a lot of changes in the supply. In the buyer side, everybody was concerned about the prices further going down. So buying was a little skeptical. And with the monsoon over, so November to April is usually the peak period for steel industry. So we're hoping the demand should come back soon. On the pellet side, the demand is a bit good for us at least, because out of entire production, we almost produced 65% of iron pellets.
So at the moment also, we stand an order book of almost 45 days. So we have orders booked to the end of December. So for us on the demand side for pellets, we have no concern at all. We are very much covered for next 45 days and the [ materials ] are quite low in the plant, for the pellet side.
Just a clarification. In initial, you have highlighted the demand was surprise. That was for Q2 or for October? Because my question was primarily on October side.
Okay. So that was, I think, Dinesh mentioned that was for Q2. On October side, again I'm saying the demand was still sluggish because of the festival season. As I said, the demand usually picks up post Diwali, which is November season. But on the pellet side, pellet being another raw material, considered as a raw material, so demand was still there back then and demand is still there right now also. And as I mentioned, right now, we have an order book of 45 days. So on the pellet side, we have no concern at all. Our order book is quite healthy.
And sir, during your discussion with your key major customers, wherein we are saying that a definite slowdown on Europe side and China to some extent. So overall, global demand is under pressure. So what is the indication coming from clients -- top client side during your discussion for next 6 months to 1 year point of view?
See, as is mentioned, I think it is very true, there's a global [indiscernible] in terms of steel production because of the energy -- one is the energy crisis and second is the inflation, especially with countries like Europe, they are going through heavy inflation. See, as I mentioned earlier, a lot of big steel companies are reducing their production, as to the demand. But eventually, it's about how competitive you are. And with our own iron ore mining, we see -- if somebody has to die, we'll be the last on the list, right?
So as I said, we are very much comfortable in terms of demand level because our volumes are not so big. And on the pellet side, we have been able to tap 3,4 big buyers in India, which have agreed to buy from us. So I don't see any concern going forward as well.
Sir, in terms of thermal coal pricing trend compared to Q2, how has been the situation in October, November, current quarter?
See, usually what happens, we are usually covered for 2 months, with the inventory, the plant stock and the materials in transit. So the impact of the prices, which have started pulling down in coming Q4 of this financial year. But at the moment, as I mentioned in the last call also, the prices currently stand at about [ INR 8,000 ] a tonne for DRI. And for domestic, the average mix of linkage, the domestic portage is about INR 5,500 a tonne for the power plant.
And sir, how has been the trend of the prices of this pellet price and steel prices in current quarter?
Post Diwali, the prices have been quite stable...
Have they stabilized or still continue to decline in November also?
No, no, no, no. So pellet prices are hovering about INR 8,000 [indiscernible] for the [indiscernible] pellet, which is being manufactured by [indiscernible] in India. And on the steel side, the prices are about INR 44,000 billets and sponge is about INR 30,000. So market has been quite stable post Diwali. There was a downfall pre Diwali, but post Diwali, the market has been stable. And we're hoping the demand comes back, the prices go up further.
So we expect prices upward revision in coming months in Q4? Or should stabilize more or less?
See, it's very difficult to ascertain what prices should go up. But I think as Dinesh mentioned, we feel the prices have bottomed out to a certain extent. We don't see a much downfall from here, probably 5%, 10% here and there, you can't say, but we assume this is a benchmark where price should not go below than this.
Sir, anything on the hedging, as currency fluctuation is 2 months this time and we are doing sizable import of the coal and a few other things, so do we follow any...?
See, earlier it was a natural hedge for us when we were exporting pellets for -- but after the exports have been stopped, so we do a close monitoring on a daily basis. We do keep a track of the dollar fluctuations and all the news rolling around it. For example, in the last 2 days, dollar has come down from almost 82 level to 80.6 levels. So we keep a close track. And depending on the market situation, we keep hedging our import exposures.
So what would be, sir, net exposure right now as a percentage of sales?
For import exposure?
In terms of import versus export earlier, as highlighted, that we used to do sizable exports. So it was a natural hedging but now export has come down significantly and import would still remain same. So then what is the parity now net...
Our overall exposure in the ForEx market at control GPIL will be close to about INR 700 crores -- total exposure.
INR 700 crores for this FY '23 or now?
Yes. At the time, we -- as of now, it is close to about INR 700 crores of exposure is there.
Okay. Sir, lastly, on the CapEx side, as you highlighted, INR 500 crores still we are maintaining and there is no spillover, sizable spillover to next year. How one should look at next year's CapEx, or majority of CapEx is being done this year or it will continue to be similar in the next year also?
Next year CapEx, we'll be able to guide it by end of the current or maybe at the time of the Q1 call. We have to start the work for our Greenfield Steel project. But the land acquisition and the environmental, both are delayed and it's taking time. So once we get the approval, then only we'll be able to guide how much of CapEx we can do in the particular year upon receipt of that approval. Otherwise, whatever this CapEx, which is currently going on, is likely to get completed by the end of the year. So for next year CapEx, we'll be able to guide in due course of time on you.
But any indication directionally, would it be higher or lower than this current year, may not be the number, but...?
Maybe similar kind of CapEx in the next year.
Close to about INR 500 crores in a year. It won't grow much because when we get the approval, then we're going to place the orders for equipment, et cetera. So I don't think CapEx is going to grow beyond [ INR 500 crores ]. And we will be able to meet that entire CapEx through internal accrual.
[Operator Instructions] The next question is from the line of Vikash Singh from PhillipCapital.
Yes. Sir, I just wanted to understand that had the high inventory -- high cost inventory, the entire impact has already been taken by 2Q or some of the impact would flow into the 3Q? And how the blended price you are expected to move in 3Q?
So most of the inventory [indiscernible] we had an inventory loss on manganese ore prices only. There the prices are mark-to-market. And I don't think there's any major inventory losses there in the company. And so it is mostly covered in Q2.
So the imported thermal coal, which would have come at a higher cost, that is also mark-to-market by 2Q and 3Q, we won't see any inflation because of that?
No, we won't see that.
Understood, sir. My second question pertains to our net cash. So if I just do the math, we would have earned some cash during first half, but our net cash position kept on declining. So barring INR 179 crores of CapEx, where is the rest of the CapEx cash has been deployed, because I don't see much of the inventory creation for us during first half?
No, on a net-net basis, the money has been deployed in CapEx as well as in the -- your current assets. If you see my net current liabilities has gone down by INR 300 crores. And current asset has gone down by INR 100 crores only.
In addition to that, there is a dividend payout of...
Yes, yes. INR 118 crores of dividend, INR 120 crores of dividend payout.
Understood, sir. And sir, my -- during my first question, I also asked that how the average prices movement you are expecting in 3Q versus 2Q in other major products such as pellets and sponge pellets. If you could give us some insight into it?
Can you come again, please?
So current average -- current prices versus your 2Q, how they have moved as of now for pellets, sponge...?
Okay. So see, on pellet side, the Q2 average was about INR 8,150. And currently, we stand at about INR 8,200, so it's almost the same level. On the sponge side, the Q2 average was about INR 33,000. Currently, the prices stand at about INR 30,500. So there's a drop of about INR 2,500. On billet side, the average was about INR 47, currently, the price stands at INR 44. So there has been a drop of about 8% on sponge and billet side. Pellets remained the same.
Understood, sir. Sir, one more question regarding the international scrap prices, which have been on a declining trajectory. So does that impact our sponge and the billet prices domestically or we remain fairly insulated? So what's your take on that?
See, as to domestic industry, scrap prices do not affect so much. But what has happened lately, because of the domestic prices on the scrap and [indiscernible] being higher, a lot of people have imported bulk vessels into India for their own consumption and then trading. For example, even Godawari, we import about [indiscernible] scrap on annual basis. For the first time, we imported a bulk shipment of scrap, it's going to arrive in December, because if you compare your melting cost for the sponge, so scrap melting is much more viable at the current level. So depending on the market situation, it does impact here and there. The impact is not very big, but it is there. You cannot ignore it.
Understood, sir. Sir, just one last question regarding our solar power plant. So right now, if you could give us some idea about the cost savings per unit which we are having on that? And how does that move in a couple of quarters down the line?
See, GPIL 70-megawatt has already been commissioned and we have started already using the power in our steel melting plant like the integrated plant at Siltara. There, we are buying power from the grid at INR 5.50 per unit. Now -- so against this, our cost will be less than INR 1.75, including the grid charges, the power banking charges. So net-net, there will be more than INR 3.5 per unit savings. The 25-megawatt power brand, where effective power generation will be about 4.5 megawatts, will be used in our mines. So mines, we are buying power at about INR 12 per unit. The tariff for the grid tariff in the mines is higher. So that will be again replaced with the power cost of INR 1.75 from the solar. So the entire saving will flow all the way to the profitability. So against INR 12, you can take INR 2 as the cost. So INR 10 savings is expected there.
Similarly, in Hira Ferro Alloys, we -- because of the very high cost of coal, we are using the power from the grid rather than running the coal-based power plant. And same will also get replaced with the solar power by end of the current financial year. So net-net, in our steel melting and Ferro Alloys business, we expect a saving of about INR 3.5 per unit. And in our mines, our saving will be close to about INR 10 per unit.
Our next question is from the line of Jathin from InvestSavvy.
Continuing with this [indiscernible], a question on the power. On the power saving, you said 70 megawatts and another 25-megawatt plant, there will be 4.5 megawatts which will effectively be produced. This is -- while in megawatt terms this is fine, but how many megawatts have actually produced -- megawatt hours are actually produced, like for solar power, in a month how many hours and how many days is it operational?
No, no. So to clarify, it will be difficult to answer that very specifically. You can consider a 17% PLF on an annual basis. For example, if it's a 70-megawatt solar power to 70 megawatts is to 0.17, so about 12 megawatts will be generation throughout the year.
So 12 megawatts into 365 into 24.
Yes, into 1,000. So basically, it's 12 into 24 into 365 into 1,000 means about 10 [ kilo ] units annually, 10.5 [ kilo ] units annually. That is how the calculation is done.
So basically, you are saving INR 3.5 to INR 10 depending. And this 4.5 megawatts is already taking the 25 into 0.15 and converting to [indiscernible]?
Yes, exactly.
Okay. So this will show up in the cost saving or show up in your...?
Cost saving.
So as Dinesh already mentioned, in the mines currently, we are importing power off grid, and then the average bill is about INR 11.5 per unit, which will come down to about INR 2, so about saving about INR 9, INR 10 there. And on the plant side, the INR 5.50 generation cost on the coal side, we'll save about INR 3.5. That's what Dinesh mentioned previously.
The power we are buying from the grid, small quantity of power from grid.
Yes.
Sorry, Jathin, your voice is breaking and we are unable to hear you very clearly.
If I do the rough math, there is a saving of about INR 75 crores a year based on what you've said -- so that is obviously a very heavy number. Also, a question in terms of the fact of...
[Technical Difficulty]
So if we look at the impact of dollar movement on your business, now is there a connection between the dollar, like the overseas price, you're saying $80 to $120 is what you expect it to trade at? Now if dollar has moved up, then does that mean that your realization will be better in India?
Export is not allowed, my dear friend. Export is not allowed.
Yes. It's not allowed, but is there a relationship between the domestic price and the global prices?
There is no relationship, because in India, pellets are not getting imported.
What he means is if we see that the dollar is moving up, does the domestic price also start moving up? So I would say not readily. For some people, it might change -- it might have an impact. Depending on the product type, for example, [indiscernible] or depending on imports. But on a regularly -- on a larger scale, it doesn't impact so much. And right now, the global prices of all the commodities or all the steel -- I would say, production, the pellets, sponge, long product, the prices are much, much, much less compared to the Indian domestic market right now. For example, billets, right now, FOB [ class ] fees it's about $490, which is about INR 40,000. And in Raipur, they're selling billet at INR 44,000. So it's already 10% higher. So right now, impact is not very relative compared to the dollar movement.
Okay. And historically, do domestic prices trade at a -- so when exports, et cetera, were allowed, and movement was [indiscernible], was the domestic price at a discount to the global price? Or was it par to the global price or was it below the global price?
It all depends on demand-supply. There have been times that domestic prices are much lower compared to the global side. So people start exporting more. And when the domestic prices are stronger than the global, then people start supplying domestic more and reduce their export volume. So every company, depending on the market scenario, keeps changing their supply mix in the domestic and export market. It's a very volatile market right now. So there are a lot -- a lot of reasons behind it. So it's difficult to give one particular answer.
Okay. What percentage of your cost is coking coal?
We don't use coking coal because we don't have a blast furnace. We are in DRI route. So we have pellets, sponge [indiscernible], coal-based sponge [indiscernible] and then [indiscernible] induction furnace route. So we only import thermal coal. We don't import coking coal.
Okay. And thermal coal is what percentage of your costs?
It's about -- so it's about 50% of my -- so total import -- so the total coal I consume in the entire operation, thermal coal is about 50%.
50% is imported. And the rest is...?
Domestic.
Total cost, total [ thermal ] cost it could be closer to be about 10%.
Okay. So domestic -- so the total cost of coal used is 10% of overall cost or 10% of the overall revenue?
Yes, yes, yes.
So revenue or costs?
Overall cost.
Cost, cost, not the revenue.
Okay. So -- and in terms of your operating margin, as we can see that because of the factors you've been mentioning, we have seen a big drop in like realization. And hence, the EBITDA has dropped -- but from 35%, it came down to almost 17% earlier for the quarter. So 28% to 17%. Now do you think it bounces back from here or stays here or goes lower?
That depends on the opening of the market for export and what is the international scenario. But long-term margins are closer to 20%.
Sorry, if -- sorry, I lost the last sentence.
Long-term margin in our business is close to about 20%, but if an extraordinary situation arises, like last financial year, then the margin can go up to 35%, 40%. Last year, we did 42% in H1 FY '22. So that depends on the demand-supply purely. And it's a commodity, so fluctuations are very wide.
Okay. So if you were to hazard a guess, like assuming that exports not open, let's say, in the next 2 quarters, in this quarter and the next quarter, then given all that's happening, you expect it to be around what it is or go up marginally or go down marginally?
We expected what it is to be. That is where, 1%, 2% here and there, but mostly in this range, what we did in Q2.
Okay. Wouldn't your power benefit actually kick into this then? Because now...
Not in the current year, the major benefit will kick in the next financial year when the projects get commissioned. Some benefit will come from the project which is already commissioned. But then as I said, 2%, 3% here and there could always be a fluctuation in the margin. And to the extent it will get covered in between that.
That plant you said that was commissioned in June, so it became operational in June or it was -- it became operational later?
No, it has already become operational. The impact should be felt from Q3, because in Q2, we had been entire powered. So it is diluted cost only.
Q2, there will be some impact, but then you also see some prices have gone down in Ferro, in sponge and some prices have gone down in pellet. So that impact will also [ progress ]. So on an average, it will be closer to 19%, 20% margin.
Okay. And the 70-megawatt plant, which was, I think there from August, has that been commissioned? Or is it going to commission soon?
No, no, it is commissioned and we have started utilizing power from October onwards. For 2 months, the power was banked with the state grid.
Okay. So for basically both the plants, Q3 onwards, full benefit will come in?
Yes. For 70 megawatts, Q3 onwards will come. And for the last 2 projects which are under construction, the benefit of which will come in Q1 into FY '24.
[Operator Instructions] We have the next question from the line of [ Chintan Mehta ] from [ Lloyd LLP ].
Yes. It's regarding the cost of iron ore in your presentation, you have mentioned INR 2,900 quarter-on-quarter. So I want to understand that this is including royalty. Aren't the costs -- the costs should have gone down quarter-on-quarter considering the fall in the market as of iron ore and royalty is a function of, to a certain extent, the price of the iron ore. Don't you think that cost should have fallen by INR 200, INR 300-odd, sir?
No, no. Just to clarify, what happens is we are supposed to pay royalty based on the IBM price which have been published. So right now, IBM has printed the price of month of July. So there's usually a backup of 3 months. So right now, the royalty has been paid versus the IBM price published in the month of July. And we paid in October. So we expect, as we move forward and the price has come down, so there will be a saving on account of royalty.
And what kind of reductions do you foresee, sir, in that price -- that will -- they are converted into our EBITDA, in other....?
So the system right now, which IBM follows, is they calculate the average of the volumes sold in a particular state based on the top 5 miners. In Chhattisgarh, there's only 1 miner which is selling, which is NMDC. So that is the impact of royalty. On account of the mechanism IBM is adopting now, the impact won't be very, very significant. If it had been Orissa, because there are a lot of commissioned mining happening, the impact is much more serious, but in Chhattisgarh, the impact will be very minimal. I'd say, probably in the range of INR 100 and [indiscernible] maximum.
And that impact is more confident that the price has bottomed out, because NMDC is kind of 2 royalty structure from the mine of Karnataka as well, where it has to pay premium royalty on an overall basis. So you think that NMDC prices has somewhat bottomed and that will be scope -- and Raipur as well, no scope of reduction? Is that the right way of thinking?
So I did read an article, which has been -- respected Chairman at NMDC and he said that the price had bottomed out and we don't see any further correction. So because of this statement, I'm assuming NMDC will not cut the prices further. So we don't expect much traction in royalty going forward as well.
The next question is from the line of Yogansh Jeswani from Mittal Analytics.
Sir, 1 question on your restructuring that you were doing. So we had brought in the assets from Alok Ferro Alloys and Hira Ferro Alloys. So just going through your group structure, so Alok Ferro Alloys, we own around 79% and then another 8%, 9% is owned by Hira Ferro Alloys and 12%, 13-odd percent are Ardent Steel, with Hira Ferro Alloys is a subsidiary and Ardent is associate. So are we further looking to simplify the structure and bring in the remaining stake also from local -- sorry, from Ardent and Hira into GPIL directly?
Hira will remain as it is. We don't intend to buy that in GPIL. And Ardent, yes, we intend to buy it at some point of time, we'll do the [indiscernible] but we are not in a hurry, that is within the group only.
Okay. Got it. On Ardent Steel, we continue to maintain this 37%, 38%, or do we intend to sell this?
No, no, no. We intend to maintain that stake. We will continue with that.
One clarification, sir, a lot of has been discussed over your power investments and power cost, so...
Sorry, come again?
Yes. I'm saying a lot has been discussed on your power investments and all the cost savings efforts that you are taking. So just 1 clarification. Suppose these solar power plants coming on stream will be roughly 250-plus megawatt power capacity, so we'll be self-sufficient or will we have some excess to sell in the market as well?
We'll be self-sufficient for our existing operations, including whatever is capacity under commissioning, we'll be self-sufficient. For new projects, we will have to look for the -- fresh power projects. We don't need any additional power from here on.
So I'm asking on new project, you mean the greenfield, right?
Greenfield, yes. For existing requirement, the power will be self-sufficient.
Got it. So once all these power plants are commissioned, so by next year, we can say on an average, your per unit power cost will be below INR 2.5 per unit, on an average.
On an average, yes. I think so, yes.
INR 2.5 to INR 3, depending on the [indiscernible].
So overall, simplistically in terms of margins, I mean you guys must have done this working. So if you'd simplify for us, last year, full year, we had spent something around INR 200 crores, INR 220 crores on power. So that should come down to less than INR 100 crores, right?
No, the numbers which you are looking in [indiscernible] includes the fuel consumed in the pellet plant. So that will not be the correct working [indiscernible] because we're already running the power plant captively. And the fuel for the power plant is [ clubbed ] into the raw material cost. So whatever power we are buying from the grid is classified into the power and fuel cost, plus the coal charge into the pellet [indiscernible] coal classification is charged into the power and fuel cost. But yes, our current cost of power is close to about INR 4 per unit, which will come down to about INR 2 to INR 2.25 going forward.
Okay. Got you. And what is our entire power consumption, sir, in terms of units -- for the entire operations, the increased operations that we'll be doing in FY '23 or FY '24?
Full capacity on any given day, the consumption will be about 95 megawatts.
Okay. And sir, 1 last question on the Ferro Alloys, you said you were taking a maintenance shutdown. And so in Q3, we will see some impact of it or in Q3, we will be back to normal?
Q3 we should be back to normal, but normal is now not like last year because the prices have already fallen from INR 130,000 to about INR 80,000.
So perhaps volumes would be normal, but realization and profitability will definitely be -- as compared to last year, it will be lower.
No -- and just to add to what Dinesh is saying, of course, power we are taken care of. But on the volume side, Hira Ferro will be absolutely back to normal, but Alok Ferro, there will be some impact, because still the monetization, the revamping is going up and the revamping will take into effect at end of November. So there will be a reduced volume from Alok Ferro this quarter, Q3 as well. From Q4 onwards, we'll be back to normal in terms of volume.
[Operator Instructions] We have the next question from the line of Aman Madrecha from Augmenta Research Private Limited.
Sir, can you please throw some light on the domestic market, like post imposition of the export duty, the pellets are being sold in the domestic market. And generally, you've highlighted in your previous calls also that the higher the pellets of 63% to 62%, and don't have much takers in the India market. So what has changed? And like how are these pellets being consumed by the domestic market or the domestic takers? Some highlights on this.
So see, on the pellet side, what has happened is, as you must be aware, as we go ahead, the quality of iron ore in India is going down. [indiscernible] being one of the major suppliers of iron ore [indiscernible] for pellet. Earlier, the benchmark was 63%, now the benchmark is 62%. So now the pellets produced here, produced on an average basis, all over India is about 62.5%, which is a high alumina silica content, and which is being mass production. In case of Godawari, the advantage we have is one is the higher grade pellet, where actually, it was 65%, and we produce about 65% [indiscernible] mix.
So our buyers are totally different, players like Tata or JSPL who are running blast furnaces. The reason behind using our pellets and paying a premium is because of the high coking coal costs. The coking coal that is still delivered to India at above INR 300, which gives them an advantage to use our pellets in their entire mix. So that is the prime reason we are still getting a decent premium over and above the other players in the market because of lower [indiscernible] fee. That is one thing.
And on the [indiscernible] pellet side, the second advantage we have is our phosphorus is quite low because of owned ore mining, because of which there are a few players in the domestic market who specifically want the pellet because of the steelmaking. Because right now, everybody in India is moving towards making quality steel.
So phosphorus does play an important role. And the average phosphorus all over India is quite high. So that is the reason I keep mentioning again and again, when it comes to pellet from Godawari, we don't have any [indiscernible] selling that. We get a premium over and above everyone else in the market.
For example, at Orissa plant at Ardent, which is basically -- the average selling is about INR 6,500 [indiscernible], whereas Godawari, it's about INR 8,000. So straightaway, in EBITDA [indiscernible] an addition [ INR 1,500 ] a tonne, which is huge in a volume game.
[Operator Instructions] Next question is from the line of Satyan Wadhwa from Profusion Investment Advisors.
Just 1 question. In the breakup of power, how much -- how many units of power do you use in the mining operation for which you pay INR 11.5, INR 12? Just trying to get a sense of what the saving on the mining side will be.
About 5 megawatts.
Sorry?
5 megawatts.
The next question is from the line [indiscernible] from [ KLG Securities ].
Yes. Looking to the cost savings and better realization of our product, pellet and all that, can we safely assume that in quarter 3 and 4, the profitability will be better than quarter 2?
It is very difficult to predict the profitability. But yes, the range would be somewhere closer to this, but there could be some variation here and there.
No, if the situation maintains the same, that about export and all that?
But some of the other input costs keep fluctuating. So it may not be exactly that, but the range would be closer to here only -- at this level only.
Next question is from the line of [ Wayne Dimelo ], as an individual investor.
So congrats on a good set of results given the circumstances. So my first question is in the previous quarter, since the imposition of the export duties, the fall in realizations for pellets was a lot more than that of sponge iron. So management had guided that we would try to sort of push more volumes on the sponge iron front rather than pellets. But I have seen that we've sold a lot more pellets, whereas sponge iron volumes have slightly come down. So could you throw some light on that?
No, no, no, no. See, we have a pellet capacity of 2.7 million tons and in sponge iron, capacity of 500,000, 0.5 million tonnes only. So we cannot change the mix lightly. You can do some arbitrage, but whatever sponge iron we are purchasing, we are operating a sponge iron plant in [indiscernible].
So beyond that, we cannot increase, so the pellet sales will continue. To the extent of 500,000 tonnes per month per quarter, that will continue.
Okay. My second question is, so on the pellet front, we are doing 65% of high-grade pellets. And we're selling to bigger players like Tata, JSPL, like you mentioned. So you guys must be aware that Tata Steel has in this quarter, in Q3, they have a pellet plant in Kalinganagar, 6 million tonnes, I think. So given that scenario, I mean do you have any outlook on the demand for our pellets?
Yes, I am totally aware about the Tata Steel commission, a new pellet plan. But as I mentioned earlier, the volume which we produce and volume which the bigger players require, for example, Tata or JSPL or [indiscernible]. So I don't see any change in that. I think we will have -- we'll continue to do business with all these guys, because of only the reason is to extent coking coal prices are at these levels, using our pellets will always be beneficial for their coking cost.
Okay. And 1 final question is, is there any update on -- we were auctioning -- we were bidding for some coal...
Yes, yes, so we are still trying. In our governance, come up with [indiscernible] coal mines. We are starting to look at other options. And as we said earlier, we are still looking to acquire a coal mine, and we will keep -- we'll continue to work -- work on that.
The next question is from the line of [ Ganesh ], as an individual investor.
So I'm looking at our -- the difference in the corresponding quarter 2 years back. Q2 FY '21, we made a similar EBITDA at that time also with the similar amount of pellet sales. But the gap between our iron ore cost and the pellet cost then compared to now, now we have INR 1,000 more per tonne. So what I'm trying to understand is if the profitability [indiscernible] gap is INR 1,000 more, is the profitability the same or similar because of higher input costs? And what are the input costs, just wanted to understand that?
No, we will -- you have to -- repeat your question, you are trying to ask whether our profitability has gone down in the quarter. It is not same as last quarter or the same quarter of last year.
Same quarter 2 years back. I'm just trying to think if the input costs have varied drastically to bridge that...
I got your question. So I'll tell you why. On the iron ore side, although we saved INR 1,000 a tonne, but you understand on the energy side, because of higher input prices for the DRI and about the thermal price for the power plant, the input cost side has gone up. So that has utilized the saving we did on the pellets -- on the iron ore side.
Okay. Okay. Got it. So we see the same continuing also, because I see the thermal coal prices are still fluctuating in the same way as it has the last couple of...
They have started cooling down. But in the current market scenario, I think they'll continue to do so, because thermal, still also the prices are quite on the higher side. So I think going forward also, say everything globally stabilizing in terms of energy, I think we will be impacted by the current market scenario on the energy side.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.
Ladies and gentlemen, thank you for joining the conference call of Godawari Power & Ispat to discuss Q2 results. We have tried to answer all your questions, but if anything is remaining or somebody has others, you can approach our IR team for further clarification, if any is required. Thank you very much. Thanks a lot.
Thank you very much. Ladies and gentlemen, on behalf of Go India Advisors, that concludes this conference. Thank you all for joining us and you may now disconnect your lines. Thank you.