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Godawari Power and Ispat Ltd
Earnings Call Analysis
Q2-2024 Analysis
Godawari Power and Ispat Ltd
The company has successfully commissioned 100-megawatt solar power plants by FY '23, contributing to cost savings. Additional solar projects, such as the 30-megawatt GPIL and the 25-megawatt HFAL, are expected to be operational within the current quarter after delays due to monsoons. Moreover, a new project to establish a 20-megawatt captive solar power plant for Raipur's fabrication and galvanizing plants is projected to complete by June 2024.
Global iron ore prices saw a brief hike to $133, propelled by China's reopening, but adjusted to around $120 due to supply increases and subdued demand. Now, with China's stimulus in housing and infrastructure, prices hover around $125 to $127, while steel demand is forecasted to rise by 2.3% in 2023 and 1.7% in 2024, signaling stable demand and supportive pricing for iron ore. Domestically, iron ore and pellet prices have seen an uptick, with India's steel demand predicted to increase by 7.3% in 2023, backed by government infrastructure spending. These factors imply that the company's profitability is expected to sustain at current levels.
The company has reduced output due to low-grade ore at Boria Tibu, but this has not affected finances since equivalent volumes were already sourced from the market. Future optimism is pinned on the expansion of the Ari Dongri mines, expected to scale production from 2.35 to 6 million tonnes. The anticipation of government approvals post-election signals a strong outlook for the company's mining segment, with a potential for a fully captive supply to fulfill 3 million tonnes of pellet requirements.
The production of 65% grade pellets has ceased, transitioning to a higher 66% grade. The output mix is planned to be 65% high-grade (66%) pellets and 35% lower-grade. With a sale distribution of 50% high-grade to 50% lower-grade, this strategy ensures that half of the high-grade production caters to the company's own steelmaking needs, boosting self-sufficiency.
Progress on the approval front for new CapEx projects, specifically the pellet plan, is ongoing with the public hearing concluded and clearance expected by March of the financial year. Groundwork for these projects is set to commence in FY '25 post-receipt of necessary approvals, enabling the company to expand its operational capacity and upscaling its production capabilities.
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Ladies and gentlemen, good day, and welcome to Godawari Power & Ispat Limited Q2 FY '24 Earnings Conference Call, hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sana Kapoor from Go India Advisors. Thank you, and over to you, ma'am.
Thank you, Yousuf. Good afternoon, everybody, and welcome to Godawari Power & Ispat Limited Earnings Call to discuss the Q2 and H1 FY '24 results. We have on the call Mr. Abhishek Agrawal, Executive Director; Mr. Sanjay Bothra, CFO; 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 afternoon, everyone. And thank you for joining us, everybody, for today's conference call to discuss earnings results of Godawari Power & Ispat Limited for Q2 and H1 FY '24. Our financial results and earnings presentation is available on our website and on the stock exchange's website. I believe you had a chance to review the same.
I will take you through the results firstly through [indiscernible] performance in Q2 FY '24 led by higher production volume of value-added products and the cost savings achieved through the reduction in power and fuel cost on a Y-o-Y basis.
First, coming on the quarterly results, the revenue for the quarter showed marginal decrease of 3% and 1% to INR 1,291 crores quarter-on-quarter and Y-o-Y basis mainly because of decrease in the realization of value-added products other than iron ore pellets. EBITDA margin increased 18% on a quarter-on-quarter basis and 2% on Y-o-Y basis to INR 361 crores and to higher realization of iron ore pellet in Q2 FY '24 as compared to Q2 FY '23 and lower iron and fuel cost.
Operating margin increased to 29.63% as compared to 19.90% in Q2 FY '23 and 25% in Q1 FY '24. PAT attributable to the owners increased to INR 254 crores, up 11% quarter-on-quarter and 52% Y-o-Y. Paid margin also increased to 20% for Q2 FY '24.
The company continues to remain net debt -- the net cash on the balance sheet of the company as on 30th September 2023 was INR 650 crores. Coming on the half yearly number, revenue during H1 was lower by 9.6% as compared to H1 of the last financial year due to fall in realization across product range except pellets.
However, operating margin was higher at 27% as compared to H1 of the last year at 25%. Despite fall in the realization across value-added products and lower production volume of iron ore from the [indiscernible]. The higher operating margin was led by directly power and fuel cost in the steel division.
Coming on the operational performance, I'm delighted to mention that GPIL has achieved the highest year production volume of steel billet, captive power generation, and silico manganese on a quarterly basis and sponge iron, steel billet, and power generation on half-yearly basis.
Production volume for iron ore mining was lower as compared to the guidance and also as compared to the last financial year, mainly on account of lower production volume in Boria Tibu mine owing to lower quality of iron ore grade in Boria Tibu mine, higher volume of [ BMT ] material resulting in higher cost of mining as compared to market price of iron ore.
We have, therefore, decided to operate the Boria Tibu mine at a very low volume level. And in order to have -- take economical operations at the Boria Tibu mine, the company plans to shut the mining plant with annual mining capacity of 2.5 million per annum and also install a beneficiation plant at Boria Tibu mine.
The company has initiated a process for revising the mining plant and also applying for -- plans to apply for environment approval to increase the mining capacity and for setting up the beneficiation plant. Therefore, the company would presently be focusing only on Ari Dongri mines to meet its captive requirement of iron ore, and accordingly, guidance is revised.
The pellet and iron ore requirement is also in the market, which is steeper as compared to cost -- present cost of operations from Boria Tibu mine, and therefore, there is no impact of the reduction in the captive iron ore production on the overall iron ore cost to consume despite lower production from the mine.
Further, iron ore volume during the quarter was also impacted by the prolonged monsoon. Normally, during the monsoon period, the production volumes get reduced. Iron ore pellet production increased 21% quarter-on-quarter and marginally down by 1% on a Y-o-Y basis. I may remind you that during the last quarter in Q1 FY '24, the pellet plant was taken for shutdown, and therefore, in the last quarter, the volume was lower.
Production volume on sponge iron, steel billets, MS rounds, HB wires increased both on Y-o-Y and quarterly basis. On a half yearly basis also, steel billets, MS rounds, HB wires increased by 28%, 27%, and 71%, respectively.
Coming onto the sales volume number, iron ore pellet sales increased 44% -- 45% quarter-on-quarter basis to 432,697 metric tonnes. Sales of steel billets and HB wire also increased both quarter-on-quarter and Y-o-Y basis by 41% and 15% and on a quarter-on-quarter basis by 72% and 44%, respectively.
On half yearly basis, sale of the steel billets, MS round, HB wire, galvanized product increased 30%, 9%, 64%, and 39% respectively. Realization of iron ore increased 22% to 9,955% on Y-o-Y basis and declined marginally by 2% on quarter-on-quarter basis.
On a half-yearly basis, realization of iron ore pellet increased by 4% to INR 10,055 per metric tonne. Realization of other products saw the decreasing trend both on quarterly and on an half-yearly basis.
I would like to give some highlights on the strategic updates. I'm happy to mention that CRISIL has upgraded the credit rating of the company both for long term and short-term bank loan facility to CRISIL AA- stable from CRISIL A+ positive. And similarly, credit rating for the short-term bank loan has also been upgraded to CRISIL A1+ from CRISIL A1.
While coming on the updates on the CapEx plan, just to remind you that GPIL had announced the ambitious CapEx plan aimed at significantly announcing the iron ore mining pellet capacity and setting up an integrated steel plant. The plan intends to more than doubling the iron ore mining capacity at Ari Dongri mine, expanding it from 2.35 million tonnes to 6 million tonnes per annum and also setting up a beneficiation plant with the capacity of 6 million tonnes.
The project time line for completion is about 15 months with an estimated CapEx of INR 250 crores. GPIL also plans to enhance the pellet capacity by 3 million tonnes resulting in increasing capacity from current 2.7 million tonnes to 5.7 million tonnes and by constructing additional pellet plant. The expected completion time for completion is approximately 30 months from now, and estimated CapEx is close to about INR 800 crores.
GPIL has also decided to increase the capacity of integrated steel plant by 1 million tonnes from -- by additional 1.1 million tones from 0.5 million tonnes and taking it to 1.5 million tonnes. The CapEx for the same is estimated to INR 2,500 crores.
For all these projects, the company has applied to the Ministry of Environment and Forest for environmental approval. The -- there are 3 separate applications, one is for expansion in Ari Dongri for expansion of pellet and integrated plant and for setting up a new integrated steel plant by -- closer to about 30 kilometers from our existing plant.
The public hearing for setting up of an iron ore pellet has already been completed, and we are waiting the final approval sometime in the Q4 FY '24. The public hearing for Ari Dongri mines expansion as well as for the steel integrated plant is awaited, the time, and presently, because of the state election -- assembly election in the state of Chhattisgarh, the same is getting delayed.
We hope that the public hearing should take place in Q4 FY '24, and we should get the approval soon thereafter. The timeline for public hearing has got delayed because of the declaration of the state results, but we are quite hopeful that by the end of the current financial year, we should be able to get the approvals in place.
Further, as you're aware that GPIL is focused on reducing carbon footprint and is taking concrete steps towards this goal by establishing solar power capacity of 155 megawatts. As of FY '23, 100-megawatt solar power plants have already been commissioned and are actively contributing to the cost savings.
30-megawatt solar power plant of GPIL and 25-megawatt HFAL are expected to be commissioned in Q2. These projects were earlier expected to be commissioned in Q2; however, because of the monsoon, the commissioning got delayed, and now, we expect the commissioning to be over in the current quarter.
I'm also pleased to announce that the Board [indiscernible] on 3rd November is also approved, setting up an additional 20-megawatt captive solar power plant with an investment of INR 80 crore to move the captive power requirement of our fabrication and galvanizing plant in and around Raipur.
The project is expected to be completed by June 2024 and will result in saving of power and fuel cost by INR 3 besides reduction in the carbon footprint.
With regards to the CapEx in our steel plant, we have already commissioned the steel increase in capacity before announcing the -- sorry, increase in capacity will still be less from 400,000 to 500,000 tonnes. And now, we are awaiting the consent to operate. We are hopeful that the consent to operate shall get -- to be received by the end of the current quarter and slowly start contributing to the higher production volume.
The debottlenecking CapEx for replacement of our turbine and rolling mill modification are progressing and are expected to be completed in Q4 FY '24. The balance CapEx to be incurred for debottlenecking CapEx is close to about INR 71 crores in the current financial year.
Coming on the market outlook on the international front, the global iron ore prices have touched $133 CIF China in mid-March 2023 on the back of reopening of China. However, sharp increase in iron ore supply by global majors as iron ore's lower-than-expected demand pickup in China has led to correction to over $120.
Recent announcement by China to support housing and infrastructure might lead to increase in the consumption of iron ore prices. The current iron ore prices, CIF, China, is hovering around $125 to $127. The World Steel Association is forecasting steel demand to increase by a healthy 2.3% in 2023 and another 1.7% in 2024. This augurs well for demand for iron ore, and we expect prices to be well supported around the current level.
On domestic front, iron ore prices by NMDC have seen slight increase from INR 3,660 a tonne in January to INR 4,460 a tonne currently. Prices have recovered well from the lows seen post imposition of export duty, but remains well below the last year level of INR 5,000 a tonne. It is -- this ex-mine basis.
On the other hand, pellet prices are touching at about -- touching INR 8,800 in July 2023 and increased towards INR 9,000 in September and is currently hovering at around INR 10,000 a tonne. Given the positive demand outlook, pellet prices should be well supported at the current level.
India remains one of the bright spots globally for steel demand. World Steel Association forecast is India's steal demand to increase by 7.3% in 2023 as compared to 8.2% in '22. Indian government push for infrastructure with 33% increase in capital outlay in addition to 75% increase in the outlay for railways augurs well for the steel demand, especially for the long steel product.
Overall, we expect the different steel prices should remain supported looking at the demand level. And, therefore, we expect that our profitability also going forward should remain more or less supported at the current level.
With this, I conclude my opening remarks, and now, we can open the floor for question and answer. Thank you very much.
[Operator Instructions] Our first question is from the line of Jatin Damania from Svan Investment Managers.
Just wanted to understand on our mining business, now, because of a lower grade in our Boria Tibu, we have lowered our guidance by almost 20% for this financial year. So I just wanted to understand if you want to look from the FY '25 on our expansion perspective. So can you throw some guidance in terms of our mining for FY '25? And will we be able to ramp up our production? And in terms of the approval, where are we for the expansion of the iron ore mining? That's the first question.
Just to answer you, we have this year lowered the volumes, this financial year. But if you look at the numbers, earlier also, we were buying close to about, say, 20% from the open market. So in this financial, there will be no financial impact on the closure of Boria Tibu mines because the mines were commercially unviable at these prices and the grade we have.
And going forward, we are very confident that we will be receiving the permission for expansion of the Ari Dongri mines, and we will increase the capacity from 2.35 to as stated at 6 million. And we are confident for next financial year, the current requirement of iron ore for a pellet plant will be 100% tax free.
So is it fair to assume that the guidance of 3 million tonnes which you were giving earlier for FY '24 holds true for FY '25 or it may...
Yes, yes. Subject to government approval, but I think with the election getting over, and if the Congress government comes into power, I think the things will start moving. So we're very hopeful the next financial year, we should be able to -- I wouldn't say the volume, but whatever requirement is there from a pellet side is in a different perspective.
So that's assuming a 3 million tonne requirement, then that will be suffice from our...
Yes. If 3 million tonne, then, yes, it's 100% captive. Correct.
Yes. And with our pellet capacity, now definitely, we have seen some improvement in the realization of the pellet. So can you help us in understanding what was the high grade with about 65% grade of pellet that we sold this year? And once our new pellet capacity comes in place, what will be the proportion of the high-grade pellet in the same?
See, just to correct you, firstly, we have stopped making 65% pellets. Now, the pellet we produce is a 66% grade, much higher. And in terms of production level, from day 1, I am telling you 65% is bigger plan, 65% in high-grade pellet and 35% in lower-grade pellet. In terms of sale, so we sell 50/50. So you can pay 50% sale is of 63% and 50% sale is 66% pellets. And that specifically we are consuming not from a DRI steel making.
Okay. So the proportion will continue to remain at 50-50 only once the capacity...
Yes, yes. Because we produce about 1.5 lakh tonnes of high-grade, of which 50% is consumed in-house for steel making.
Right. Now, on to your new CapEx, which is going to be lined up on the integrated plant, we are waiting for an approval since quite a long time. So -- I mean, at what stage we are -- because on the pellet, definitely, as per your presentation indicate that we have already done a public hearing and we are looking for a clearance.
But in terms of the integrated steel plants, where are we in the stage of approval? And as a Board, have we decided whether we'll be moving into a long-steel production or a flat-steel production? I mean, how shall one look into this overall CapEx?
See, on the approval side, we are, I would say, just one step behind the pellet plan. In pellet plan, the public hearing already concluded. In this case, because of the election we couldn't do it.
So after elections, I think we are confident in December public hearing will happen, and if everything goes well, we should be able to get the clearances by March of this financial year. And once we have clearances, we can start the groundwork immediately.
So probably the groundwork will start in FY '25.
Yes, you can say that, yes. So groundwork probably -- because, of course, we can't start the groundwork before we get the approval. And in the meantime, the second question about the capacity and where we want to be moving ahead, so I would say they're still evaluating because we still have further time.
But to be honest, we're not looking at the long product side. We are mainly looking at the flat product side. We realize where the additional margins are there, and with demand of automobile going up because of especially the engine. So we'll start products in the right way to go forward. Still a final decision will be made probably next 3, 4 months.
Okay. And last question, which is a bookkeeping question from my side, can you help us in terms of the coal sourcing mix in the last quarter? And how much coal did we import in Q2? And what is the current inventory as on date?
See, so the coal mix remains the same. We only use RB1 coal for DRI making, for which we have to import throughout the year. That hasn't changed even for a bit. And for our power plants and for our -- for the steel operations, we will be choosing from domestic. We have certain engages from Coal India, and the additional coal we required, we source it from the market because Raipur being a big coal belt it's easy to source.
On the import side, our import remains almost same in any quarter on quarter because with the market being so volatile, it doesn't make sense at all to stock up extra inventory by buying more or buying not like -- so prefer to move with the market in current scenario. So we import about, say, 1.5 lakh, say, on quarterly basis, and that remains -- that will still continue to be the same.
The next question is from the line of Vikash Singh from Phillip Capital.
Sir, I just want to understand, given there's a mismatch in the timeline of our iron ore capacity coming in and pellet coming with a lag of 15 months, is it any provision which allows us to sell iron ore in the market or we will just bring down the Boria Tibu to 0 and start utilizing on the Ari Dongri. So what is the plan there?
See, we are definitely allowed to sell iron ore in the market after the new MMDR Act. But as a company, we have no intention selling iron ore in the market because eventually, even mining will take some time to ramp up from 2.35 million to 6 million. So the time period, say, from now on to the next pellet planning commission in, say, about 15 to 16 months, we can use all that time for ramping up the mining capacity.
So I think both the projects are in tandem, and we're hopeful to -- once the pellet plan is commissioned before that we're able to ramp the capacity in mining. But we have no intention of selling iron ore in the market, that's for sure.
Okay. But even if you want to, there would be some additional premium which you need to pay, right? That 55% premium...
No, no. There's no premium on it because our mines -- is before -- the delivery is due before the MMDR Act. But the rule says, if you have to sell in the market, you can sell it to 50% as a part of commercial mining, but then you have to pay additional royalty, which comes to about INR 1,000 a tonne. So straight away our license fee will be less. So it doesn't make any sense to sell in the open market.
Understood. My second question pertains to Boria Tibu. So is it the lower grade is the same problem or we are experiencing this problem with the entire mine or almost all of the teams are of low grade and which will be in future [indiscernible]?
No, no. So that is not small cases. This is how mining is. That's all the reserve you get. That is -- so until now, we were able to mine, bring it to plan, beneficiations around with the other mines. But then, given the current prices, we feel it's commercially unviable because of the recovery percentage, so it's better to install a plant in the mines and then beneficiate and then bring into the plant. So commercially, it doesn't make sense to operate Boria Tibu at the moment, right now.
And at what price basically you feel that it would be commercially viable?
See, the problem is we can't [indiscernible] mines, right, because there are lot of other factors as well. But where I'm -- say [indiscernible] from now on -- from here on if the [indiscernible] India, then it makes sense to use that mine.
But still, the impact of Boria Tibu going out of the production doesn't make sudden low volume, doesn't have impact on us because we are still buying from the market, and our first focus is to make Ari Dongri ramp up the production, and we make it captive.
Understood. Just one question on Ari Dongri, with the heightened capacity, how does this impact our mining life because I think we had just 30 years of mining life previously? Would it come down to less than 20? How does it plays out?
See, our lease is till 2057. So we still have about 34, 35 years in terms of the lease. But in terms of -- we have already declared a reserve of say 165 million tonnes. And further exploration is going on where we feel there is a potential of further deposits.
So as in there, probably if we have some data, we'll definitely share with everyone. But at the moment, you can say we are at least for the next 2 decades, at least 20 years with a increase in mining capacity.
Okay. So even with the increased mining capacity, 20 years is covered.
Yes, yes. With increased capacity, it's 2045, so nothing to worry on that front.
Understood. And just one last question in terms of our integrated steel plant. So just wanted to know if we have already purchased the land bank, what's the status of that? And this INR 2,500 crores seems to be a bit low for an actual steel plant. So is the module is something different, we are going in a narrow place while...
No. No, no. See, when we are encharged with this budget, we were doing a mix of flat, long. We were trying to explore other market as well because till now we have been doing long products. So this CapEx was incurred long back, but once we have the -- probably the final figures, then we decide on the capacity and what would -- probably then we can always amend and then use the data. But at the moment, since we don't have the numbers, which you are alluding, so we want to keep it INR 2,500 only. If it goes above, we will definitely share with everyone.
[Operator Instructions] Next question is from the line of Satyan Wadhwa from Profusion Investment Advisors.
Just wanted to know what sort of margin expansion you are taking out of the steel plant? Is it because you think demand for pellets will be lower going forward as China sort of slows down, and that's why you have to get into steel because -- in terms of this capital intensity, steel is quite capital extensive compared to your existing businesses, which are quite profitable?
No. I would like to defer on that. The reason why we entered into steel is because we see an additional EBITDA over the pellet margins. Because we are into high-grade market, we made a specific pellet. And so I don't think there was any pressure on us to sell pellets because the kind of capacity we are coming up in India and we'll see Middle East, right?
So Middle East is increasing capacity like anything because of the gas being available. So I don't see challenge in sending up high-grade pellets, which will be the main center of volume. But when we evaluate -- so when we consider the pellets at today's cost and transfer to the steel making, we further see an EBITDA by -- about INR 8, INR 10. So that is the reason we want to power integrate into steel rather than only remaining as a pellet player.
Right. The additional EBITDA over pellet EBITDA would be how much in terms of steel?
At current prices, say, about current market, it should be about INR 10,000 a tonne.
INR 10,000 a tonne?
INR 10,000, yes.
Above -- over and above the pellets EBITDA?
Of course. Of course.
Next question is from the line of Rakesh Roy from Omkara Capital.
My first question is regarding, just you told -- said your mining capacity is you have to revise due to the low grade from the Boria Tibu mine?
Yes. See, we are not undermining the mining capacity. All we've done is because in today's market that mine has commercially become a little unviable, so we have decided to lower the volume. And then put up a beneficiation plant there and then adapt that process of beneficiating and then bringing it to the plant for research. That's the main reason.
Is there any impact on revenue from this only? Or is there any impact of this so we have to lower mining from Boria Tibu or could this...
Financially, there is no impact in this financial year and going forward. Because at the moment, also, commercially, the mine is not viable. So it's better to source from the market rather than mining and then moving it back. So financially, this financial year and going forward, so we don't see any impact.
Okay. So next financial, we hope this mining will start normally.
No. Boria Tibu will take time because we will be putting up a plant to integrate, and we will further enhance the mining capacity. So we need to take the required approval from the state and the central government, including the mine's industry. So that will take some time. So we can expect Boria Tibu can come back into production with beneficiation, say, next 20 -- 24 to 30 months. We're looking at FY '27 probably.
So we have to set up a new plant near to Boria Tibu?
Yes, we will set up a new plant within the same plant in the mines itself. We have to get all the required approvals and other infrastructure has to be created, so that will take some time. Again, this will happen next financial year or we will finally increase the capacity of our other mines, Ari Dongri.
Okay. So we have to -- for example, Boria Tibu, we have 85 million tonnes of capacity reserves there, yes? Or...
As of now explored data, what you said is right, correct? Yes.
So, sir, in that case, can we ramp up our Ari Dongri mines? Is there a provision?
Yes. I've just spoken to them on that. We are waiting for the approval for the Ari Dongri mines, and once we have the approval, which we should be having in next 3, 4 months. From the next financial year, we will make the capacity from 2.35 million to 6 million tonnes.
Okay. Okay. So my next question is regarding, sir, can you help me -- help us to please tell you if you're able to achieve your FY '24 guidance for ferro alloy and pellets?
Yes, yes. So whatever guidance we've given this financial year, apart from mining, we are very much on track, and we are confident we'll be able to achieve it.
Okay. And in margin front, sir, can we hope this margin will sustain? Or is there any margin changes in the next 2 quarters, sir?
See, at the moment, things look good because China is buying a lot of iron ores, and the value of pellet has gone up in India as well. And with particularly getting over after Diwali and this is being the peak demand in purchasing in India, and with our spending, we are confident to see the prices to sustain.
And we should be able to maintain this EBITDA going forward unless, of course, worsening the market. But at these levels, we are confident we should be able to maintain an intact result.
Okay. Your outlook on the margin front is basically ferro alloy or this margin will -- this realization will be sustained for next 1 quarter or any downside is there, sir?
Very difficult to predict, yes, because even if -- ferro alloy is globally connected. So one thing is for sure that pellet -- the pellet prices are at the rock bottom at the moment. And with the current raw material prices, the margins are very minimum, which used to be earlier.
The only saving -- the only positive side for us is with the new solar plant getting commissioned our power costs will go down, which will improve the margins in ferro alloys. Ferro alloys is a high-power consuming unit. So we see an upside there. Apart from that, market looks quite stable, and it depends how will be steel prices because in India, ferro alloy has a big market pool as well, especially in Europe and all.
Okay. Sir, your view on domestic steel market size and especially how is the market in -- steel market in India, sir, in next one year, sir, from here?
I am bullish with the government spending. So let's see. Let's hope for the best.
[Operator Instructions] Next question is from the line of [indiscernible] from Niveshaay Investment Advisors.
I just had this question that as we are adding another process of beneficiation -- like beneficiation in our manufacturing process. So what is the improvement in margins that we expect from this expansion?
See, as I said earlier, the only reason we are ensuring a plan of beneficiation in mine is to do the cost saving part because earlier we were benefiting in everything by adding it to the right part of the complex. So we are losing on the transportation because when you beneficiate there is some telling -- the wheel loss as well. If we could save on that cost, which is substantial, say, INR 150 at the moment, we are installing a plant in the mines. So the main -- the quality of the pellet we make will remain same. The cost of mining and everything will go down.
Correct. Correct. Sure, sir. And what is the kind of EBITDA expansion that we are looking per tonne or EBITDA expansion in terms of margins?
See, the margin is going to be -- see, it's a small saving of INR 150. But when you look at the volumes you're going to be doing, so -- the payback is quite large. So it's not substantial improvement on INR 150, INR 200. But when you look at 600x going forward, it becomes almost INR 100 crores a year. So with the amount of CapEx we're doing, the payback is hardly 18, 24 months. So that's the reason we're doing in the mines itself, right?
Correct, sir. And also I have...
Plus saving on royalty -- plus saving on some part of royalty.
Exactly.
Okay. Correct. And I just had this question because what is the captive consumption of every level -- at every levels of manufacturing process, if you could give us any guidance?
See, at the current market levels, I think all the different products are in positive, be it pellets on their end, billets or -- but we know it's difficult to comment on individual performance because when it's a complete steel plant, so you have to look at from backward to power. So a little difficult to comment on legal product -- profitability, but I can assure you, all the divisions are making -- are doing good.
[Operator Instructions] Next question is from the line of Jathin Kaithavalappil from InvestSavvy PMS.
We'd like to know, one, your plans to split have actually got postponed or canceled. So is it like -- or is there a time line on which you will reconsider that? The other is that with the new emphasis on solar plants and power and fuel savings, while you are saying you'll be able to maintain the current EBITDA with the new power capacity, et cetera, which you are planning, will there be a benefit of that coming into the EBITDA margin as well? And finally, how are you seeing your pellet exports going forward in terms of growth on that?
For the first part, Dinesh will take care. I will answer the technical part, and then, Dinesh can take over. So see, on the solar side, definitely, we can -- once the entire plant is commissioned and with that effects of debottleneck, we can see an actual EBITDA of INR 700 crores going forward annually on the power side itself.
On the export side, we are always in the market, but for us, domestic prices are still better than the export market. And because of a high grade, we don't have any pressure in selling domestically. So till the time we don't -- the license doesn't come at par with domestic, we are happy selling domestic. So we have no -- we are always open, but then it's not guaranteed when we will start exporting again because for us, I guess, expansion -- license is the topmost priority.
And how do you see revenue growth going forward?
See, it depends on the steel prices because -- and for us, we are operating at almost at 100% capacity, 98% capacity across the plants. The -- so the only thing we should add up is our additional 1.5% of steel billet. So depending on the market prices, the revenue should go up going forward because I see the demand in India for steel is going to be an upside with the government spend.
Yes. I will have -- make some addition on the volume growth and the sales growth. In fact, the sales growth is going to come with the setting of an additional domestic stall here, then the plants are running almost at 95%, 100% capacity utilization. So volume growth will come only when we set up the additional pellet plant and additional steel plants, which we have announced.
Till then, this is the sales, growth will come only with the price growth. If there is a degrowth in price, there is a degrowth in sales. If there is a growth in the pricing, then the sales will also grow.
Coming on the split side, see, we had initiated a proposal to split share, but our Board of Directors felt that the current volume and the price of the share is not very high, which requires the split of shares. And we had almost about 1.5 years they split the share from INR 10 to INR 5. So those suggested to wait us for some time. And at an appropriate time, the proposal should be revisited. But there's no timeline for revisiting the proposal.
Okay. And practically speaking, when do you expect this additional capacity to start kicking in?
Start kicking what?
So you are saying your operating...
New capacity, he is asking.
See, so for the steel division, I think we are waiting for the ballot approval which should be in hand probably very soon. So I think for next quarter, you can see the additional capacity of steel melting come into production. And for the pellet plant, Q1 -- sorry, Q4 of FY '25 is what you're looking at for the additional volume, Q4 of FY '25.
Next question is from the line of Siddharth Gadekar from Equirus.
So my first question is on the pellet side. Now, given that our expansion will be starting somewhere in 4Q or early FY '25, when do we expect the first capacity to come online? And what should be a fair assumption in terms of volumes in FY '26? Or we will see the entire volumes coming in FY '27?
No, no, as I mentioned for FY '25 means, which is like a 3 months from now on, right? So from FY '26 we can start seeing the additional volume of the pellets capacity, which we will be putting up. We will be able to commission the plant 12 months earlier.
Okay. So -- and so pellet should be roughly around 1 million tonne of contribution in FY '26 and the balance will be coming in FY '27, is that a fair assumption?
No, no, no. See, the pellet plant -- the first pellet plant we will be putting out, it will be commissioned in Q4 FY '25. And so it will mean, FY '26, we can realize the entire production volume. Nothing we park from '27. Of course, we are confident we should be able to achieve 100% capacity within 3 months of starting the plant.
Okay. So our ramp-up will be much faster than normally you are...
Yes, yes, because I think we have good expertise on our end. We are running -- we are already running 2 pellet units, so we don't care challenging 90% capacity.
Okay. Sir, and in terms of our steelmaking capacities, is it fair that our CapEx should get over nearby end of FY '26 and FY '27 will be a meaningful volume growth on the steel side as well?
See, if they have the required approvals, then we will start the groundwork. We are confidently the new steel plant will take about 30 months from date of groundwork. So if that happens and everything is within the timeline, we should be able to see significant volume growth.
Okay. And once the approvals come in, that is when we'll finalize that what processes are we going to use to make the steel and...
No, no, see, that working is finally going on. They've been evaluating because for us also, this is something new, till now we haven't done it. So I think with all the stakeholders, the experts in the market, and -- I think we should be able to close everything in the next 3 to 4 months. So that -- once we get the permission, we can straightaway start the groundwork.
Okay. Got it. So broadly by FY '26 and all these CapEx should be completed, that is a fair assumption...
So the steel plant -- so I think steel plant can probably overlap -- yes, depending on the approvals and everything else.
Okay. So assuming things come by this year-end, we should be on track for a healthy volume growth in '26 and '27 driven by pellets and steel, that is a fair assumption, right?
Correct. Correct. That is a fair assumption. Correct.
Sir, and then, once our incremental pellet capacities come online, how should we look at the mix between high grade and the normal pellets?
No. So see the new pellet plant, which is coming up, is going to be again on the high grade. So the mix will change. So the product capacity, we should be able to produce, say, close to -- 75% will be the high-grade pellets and 25%, 20% will be of low-grade pellets, the normal pellets.
Okay. And the 66% pellets are currently at a -- premium because they are normal pellets?
So the normal pellets, yes, the premium is anything between -- depending on the market condition, it's INR 1000 as well as INR 2,000. But I would say, on a fair basis, about INR 1,500 on an yearly average basis, about INR 1,500 from the pellets.
Next question is from the line of Aditya Welekar from Axis Securities.
Sir, a couple of questions. How is the ferro alloy business doing as of now, if you can individually throw some light on GPIL, HFAL, and Alok ferro alloy business?
See on the ferro alloy side, in terms of market, the prices are exactly rock bottom because globally, the market is quite weak because India is suffering in terms of pellet capacity, so a lot of alloy has to be exported to obtain -- achieve that balance between domestic and export.
Because the export market is quite subdued, so it has the same effect in the domestic pricing. So I would say right now, the margins are between INR 2 to INR 3, but going forward, we hope the margins will improve when the demand comes back into the market.
Understood. And second one is on thermal coal. So what is the thermal coal cost you incurred in Q2 of this fiscal? And...
See, for Q2, average price was about INR 12,000 a tonne. And Q3, we still -- the industrial market has started going up, so there will be a marginal increase. And Q4 onwards, let's see on the marketplace. But Q3, we are below INR 12 and Q3 will be marginally above INR 12 because the incoming coal in on the higher side.
Understood. And lastly, I missed on that part on Ari Dongri beneficiation plant. So what's the CapEx -- incremental CapEx for that? And what is our CapEx guidance...
It will be -- within mining capacity enactment as well as the beneficiation plant, the total CapEx envisaged is about INR 200 crores, and we should be able to complete the desired projects within the budget.
Next question is from the line of Moksha Shah from YellowJersey.
So my question for the management was, there are market rumors about the company getting into forward integration, expanding into new business verticals. So what are your views on that?
So there is no market rumors, Moksha. We are in the process of building up a new steel plant. And there, we evaluate what steel will be manufactured, why the steel, what kind of products will be manufactured will be decided as Abhishek mentioned earlier. And, hopefully, it should be suitable to make a concrete -- announce a concrete plan on which kind of products maybe end of the current financial year or maybe at the time of the results call for Q4 FY '24.
Next question is from the line of Marshall, an Investor.
First of all, my humble request, sir, you are speaking through speaker, so your voice is very much getting echoed. We're not able to fully understand it. So if you could kindly speak a bit slowly, it will be really helpful, sir.
Thank you. I will do that.
Yes. Second thing, sir, regarding this, the price of a different product, can you please give some idea that what was the prevailing average price of pellet, sponge iron, billet, MS round, and the HB wire during the month of October or you can say recent price?
See, month of October, the pellet prices have been around INR 10,000 domestically. And for sponge iron, it was about INR 30,000. The market has gone down by over 5% due to weak demand in the festive season. Sponge iron was about INR 30,000. Billet was about INR 42,000, INR 43,000. Wire around about INR 48,000. And the prices remained -- at these levels only because of the subdued demand, and it should improve going forward when the festive season is over.
And MS round, sir?
MS, I said, INR 48,000.
INR 48,000, okay. Okay. And my second question is regarding the new CapEx. So first of all, I like this new CapEx of our integrated steel plant. Are we going to do the existing site, wherein like, for example, this existing common facility will be used or it will be also a greenfield plant?
It will be a different location, and it will be a totally greenfield project. It will be in the Godawari Power, the same company. But then, of course, it going to be a new location with a totally greenfield project.
Okay. And like, are we going to make the similar product like this MS round and HB wire? Or are we going to...
No, no. So that -- so see, currently, we follow the secondary of steelmaking, which is the coal-based DRI for the induction furnace. And going forward, we will be putting up a blast furnace and make value-added products like others.
It's like this hot rolled coil, cold rolled coil, like this, right?
Yes, depending if we go with the hot rolled coiled or we go for -- so whatever products we choose, we should be able to freeze on those in the next couple of -- 2 or 3 months.
Because I was just like making a small analysis here because our current capacity, for example, this is obviously MS round and HB wire is 60% and 75% only utilized. So I was thinking if you are explaining the same thing, then like it will be difficult. But if you are adding new product, then it's fine.
Yes, yes. So we don't intend -- to be honest, at the moment, I think the long products have taken a backseat and we're focusing on value-added steel.
Okay. But like there is 1 point, right? I want to play this like, for example, devil advocate here. We have come a long way. In 2017, we had net debt of INR 2000 crores. Now, we are INR 600 crores plus net debt. If we are going to have the INR 2500 crore CapEx at one shot, it means like whether we will be able to fully market it and however -- yes, and more so we don't have coal linkage also -- sorry, like we don't have the coal mining, our own captive mining.
So like how are we sure that like we will not again fall in the -- I will not say like, for example, debt trap. But for example, even if we make such a huge investment and if we are not able to fully utilize it, then like it will be a burden of depreciation or loss of, for example, like this funding revenue like which you could invest somewhere else...
No, no, see, to be honest, when we have first put up a billet plant almost 15 -- in 2008, 2009, we were the one of the first movers in India to put up a pellet plant. So we don't see a challenge -- with every new challenge, so we are very confident with the team we already have and further we are going to recruit. And I don't see any challenge being not able to produce at the desired levels or market it.
Secondly, since you mentioned, we don't have any coal mine. But we have an iron ore mine, which is a big, big plus. So one side of our steelmaking is always covered with the captive iron ore mining. So even in the cost implication because of no coal mines, I don't see a challenge in achieving the profitability we desire to.
But sir, like since we already have expertise in the mining sector, so why we are not bidding for the coal mining? Because government is like every third month or eighth month, the government is opening so many -- like the government is opening so many coal mines...
See, I'll tell you every reason why we're not doing it because for DRI, the coal available in India is not up to the same mark. If you start using the domestic coal production, then the DRI will go down, which we don't want to do. So we have to keep importing for our DRI, which is about 0.5 million tonnes annually or 0.4 million tonnes annually. That is the first thing.
For power plants, as we have announced, we have been expanding aggressively in solar to look at the cost savings as well as in terms of the green initiative of the carbon emission. Early, the remaining volume, or whatever we need to source from the domestic market, we have integrated with Coal India, which is almost at the market price depending on the auction.
So we don't see a very cost implication on the coal side compared to iron ore side. So since we have iron ore side covered, so for us, it's good enough to move forward. And on the CapEx side, see, we are a surplus cash company. And with the plans going forward, we should be able to edit damaged EBITDA on a year on year basis so that we can fund it internally.
So almost like, if you're not going to have any debt, like new debt for this integral plant, then it's a good thing.
See, that's the intention. But depending on the capacity, we go forward and which product available we will choose. Even if we have to take some debt, it's going to be within the limit because in the end we have realized where we had gone wrong 12 years back. So we are very sure how to proceed forward so that the balance sheet doesn't come stress any forward -- going forward.
Just like 1 input. We have seen that like another -- for example, other major player in the steel, they have tied up or they have acquired some stake in the overseas, for example, coal mining companies. So I don't want to name it here, but like you know it very well. So suppose -- since you are saying you have a logical point that this domestic available coal is not good for the DRI, that's fine. So why don't we acquire some stake overseas, in Indonesia or Africa or some other companies...
See, again, again, again, I don't think. See, all these assets are not available at cheap value. And to secure certain volumes of coal for a captive production, we don't see any value addition compared to investing the same money probably, again, going forward with a cheap plant.
So -- you've rightly mentioned we should, but I mean on the cost implication side, I would say, we are very much covered because of iron ore, and we want to utilize our money probably at making value-added steel rather than going backward and making coal captive.
Okay. But like this is very small point. So since you mentioned about the DRI, that's fine. So suppose if you take a local -- like suppose if you participate in any bidding of the coal mine auction so that coal can't be utilized for this manufacturing of sponge iron or this pellet or billet...
See, as I said, all these coals -- in the past also, we have bid for a few of the coal mines, but we were never very aggressive. And in terms of quality, all the coal produced in India is possible to use in our domestic production. But as I mentioned, if you use that coal, our production volume will drastically go down, especially in DRI because in domestic coal the ash is very high. And because of the higher ash, our production volume will go down, which we have no intention to reduce.
No, sir, I'm not saying about DRI use for the area. I'm only saying for manufacturing of our current product, for example, billet or for example...
See, for billet, we -- see, see, billet doesn't require any coal. As we generate power, we have -- we already -- having integrated Coal India for our thermal power plants so that is covered. For DRI, we keep importing. And for pellet plant, we have an exposure of about, say, 2 to 3 lakh tonnes annually, which is not a big exposure. And the domestic coal is readily available nearby.
Next question is from the line of Rucheeta Kadge from iWealth.
Congratulations on a good set of numbers. I had a few questions regarding your volume growth. So going ahead, do we -- like in the next 2 years, do we see any incremental capacity coming in other than the mining capacity that we have mentioned? So if you can give a little clarity on that.
See, the pellet capacity will further add up, as we've mentioned before also. The -- we expect the pellet plant approval to be in hand in the next couple of months. Once we have that, we'll start the work. And in FY '26, we can see the entire pellet volume coming into production, which is as desired.
And parallelly, next quarter, Q4 of this financial year, our additional steel capacity of 125,000 tonnes, 1.25 lakh tonnes will also be operational. The project is completed. We are just waiting for the required approvals. When we have the approvals, we will start the operations.
That is Q3, right, you will...
Q4. So Q3 is already running, so that will be Q4. And then next financial -- FY '26, you can see the entire volume of pellet into production, the new pellet plant.
Okay, by FY '26. And so, as you've mentioned, that you'll not be selling this extra mining capacity in the market, right?
Yes, we won't be.
You won't be doing this.
Yes. Because we want to preserve the iron ore for our captive convention, plus as per the new law, we will have to pay additional royalty for selling anything in the market. And so we have no intention of selling anything in the market.
Okay. Currently, a ballpark number, basically, your EBITDA per tonne is around INR 6,099. So do we see this settling at the current rate or we see it deviating? And what would be the reason?
So see, as I mentioned earlier also, depending on the market scenario, if the market sustains at these levels, we are confident of maintaining the current EBITDA levels. And of course, it can go here and there. Of course, there can be deviation, but we are confident with festive season over and the demand is going to be picking up going forward, we should be able to maintain such EBITDA levels.
Next question is from the line of [ Anand Mundra ] from Mytemple Capital.
Sir, how much of our current power sourcing is from the grid?
See, from grid, we are not importing -- we do import, but the portion is hardly, I would say, 2% or 3% of the entire requirement because we have commissioned our first set of solar plant of 70 megawatts under the banking policy of the state government.
And so whatever we are importing from the grid is mainly on account of solar power we generate, and the remaining is from the grid power. So in terms of -- you can say about 2% or 3% of the entire requirement only.
Okay. So it's majorly captive?
It's majorly captive, but I would say 98%, 99% captive only here.
All right. And for Boria Tibu, also, we are planning a beneficiation plan, right?
Yes, we are. We have started to apply for the required approvals and other things. And we will be putting our beneficiation plant in Boria Tibu going forward.
So until then, I think the plant is going to be shut unless obviously, you said...
The plant will not be shut. We will be operating at a quite low -- we will be operating at lower volumes because as I mentioned earlier, at the current prices, the mine is commercially unviable, so it's better to operate at minimum levels and then put up a plant going forward and then bring the ore to the plant for usage.
Okay. Okay. And so we are not planning any expansion at Boria Tibu, all our mining CapEx is happening at Ari Dongri?
At the moment, it's happening at Ari Dongri. Once everything is finalized in terms of Boria Tibu, we will share the required CapEx and the enhanced capacity and everything else. It's a very early stage, probably going forward when we have all the details in hand, we will definitely share.
Next question is from the line of Jinesh Shah, an Individual Investor.
Congratulations the entire team for the excellent set of numbers. The first question is, as I understand, the current product mix for pellet is 50-50 for 62% and 66%. Do we have any plan to improve that percentage for these high-grade pellets in this financial year?
So see, there is a confusion. Right now, the production of high grade is about 65% compared to 63% of 35%, but in terms of merchant sales, the ratio is 50-50 because the remaining is used in our in-house for steel making, the high-grade pellets. And going forward, the new pellet plant, which is going to come up, will also be producing high-grade. So the charge mix will change. It will be about -- 80% will be about high grade and 20% will be of 63% grade pellets.
Okay. The next point is regarding the CapEx plan on Slide #10, Page #10 of the PPT where you've mentioned that you will be taking 15 months for iron ore mining and iron ore beneficiation vis-a-vis the pellet plant will take 30 months. But based on today's conversion, what I understand, this 3 million capacity will be available by next financial year. Is this the right understanding?
So see, the mining and the pellet plant, so the 30 months were desired from data -- once we applied for the permission. Once we have the permission, which will happen in probably the next couple of months, the execution time of the project will be about 15 to 16 months. So we see the entire capacity of pellet coming into production FY '26.
Okay. But in that case, you will be having your iron ore mining beneficiation plant will be...
Yes. That's the whole idea. We have finally applied for permission for our Ari Dongri mine expansion as well. And once we receive the permission, so gradually, we'll also ramp up the capacity so that there is no lag between the new pellet plant and the new mining capacity. So that we remain fully captive going forward.
Okay. The next part is regarding your integrated steel plant, which you are increasing from 0.5 to 1.5 million tonne with the investment of INR 2,500 crores. Are we looking at any opportunity in terms of inorganic in terms of accretion of any existing steel plant?
See, we have always been open for any inorganic growth. So given if there is an opportunity where we feel that there is value to a certain asset, we will definitely look for it. But to be very honest, we haven't come up as such at the moment and [indiscernible] also. And finally, if we had the required approvals, then we were happy to go ahead with the greenfield today.
And what will be the ROI or payback period for the 1.5 million steel plant?
See, it's too early to call. But what we have envisaged with the current market scenario, we can see an additional EBITDA of, say, INR 8,000 over the current EBITDA of the current complex. So if we'll go back -- and second question is depending on the CapEx. We have envisaged INR 2,500 crore, but it remains INR 2,500 crore or it goes up, it goes down. So I think it will be difficult, but with the current -- with our own captive mines, we don't see a ROI for more than 2.5, 3 years, to be very honest.
Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Hello. Thank you, participants for joining us with the conference call of Godawari Power & Ispat Limited. If there is any question yet to be answered or if you need some more clarity on the company's performance, you can approach us directly or our Investor Relations agency, Go India Advisors. .
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