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Godawari Power and Ispat Ltd
Earnings Call Analysis
Q3-2024 Analysis
Godawari Power and Ispat Ltd
The company's financial performance in the last quarter shows resilience despite cost headwinds. Revenue increased marginally by 1% but decreased by 11% year-over-year to INR 1,309 crores. This change in revenue is largely due to the piling up of stock at the port, affecting pellet sales. Remarkably, EBITDA soared by 80% year-over-year to INR 331 crores—thanks to higher pellet realization and cost savings in power and fuel. The EBITDA margin rose to 25% from 13%, indicating improved profitability, while the profit after tax (PAT) jumped by 79% to INR 229 crores, enhancing the PAT margin to 17.5%. Notably, the company has maintained a status of being debt-free despite these fluctuations.
Looking at a longer time frame, revenue during the first nine months dropped by 12% to INR 3,926 crores. A silver lining comes from EBITDA, which increased by 13% to INR 999 crores due to the increased realization in pellets and lower power and fuel costs. Moreover, the EBITDA margin improved to 25% from the previous 20%. A positive global outlook suggests the World Steel Association anticipates global steel demand to grow by 1.8%, with forecasts showing India's steel demand surging by 8.6% in 2023 and 7.7% in 2024. This demand spike is expected to bolster iron ore prices and support pellet prices currently hovering around INR 9,850 a tonne.
The company is on the verge of receiving environmental approvals, expected in the first quarter of the next fiscal year, which should allow for a ramp-up in production capacity. By fiscal year 2025, the capacity is anticipated to reach 5 million tonnes and escalate to 6 million tonnes by fiscal year 2026. Addressing how to finance this expansion, the company expects to rely on internal accruals robust enough to cover the estimated INR 6,800 crores of CapEx required for the upcoming projects.
The company's future product lineup will focus exclusively on flat products, abandoning the production of long products. This strategic pivot is informed by inventory dynamics and demand expectations for flat products, likely tied to the automobile sector and pipe segments. All planned CapEx, totaling approximately INR 7,000 crores over the next five years, will fund expansions in mining, a new pellet plant, and an integrated steel plant. This expenditure plan includes INR 800 crores earmarked for mining and pellet operations with the new plant coming online in 2026, all funded through internal accruals without resorting to debt.
In a significant deviation from its earlier strategy, the company will import coke directly instead of establishing a coke oven, primarily due to substantial coke production capacities in Indonesia. This decision is poised to yield CapEx savings and is aligned with the industry's pivot towards reduced carbon emissions. Moreover, the move anticipates margin improvements as coal prices have softened. However, any such improvements are reflected in the financials with a lag due to inventory cycles, with the full effects possibly visible from the first quarter of the next fiscal year.
The recent commissioning of a 25-megawatt solar power facility marks a strategic step toward reducing energy costs, with the company expecting a drop from INR 4.75 to INR 3.5 per unit in energy costs. In terms of sales, despite a dip in the iron ore prices triggered by China's holidays and market conditions, the company retains a flexible strategy, open to both domestic sales and exports, depending on which market offers the best realization price.
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Ladies and gentlemen, good day, and welcome to Godawari Power & Ispat Limited Q3 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, Viren. Good afternoon, everybody, and welcome to Godawari Power & Ispat Limited Earnings Call to discuss the Q3 and 9 months FY '24 results. We have on the call Mr. B.L. Agrawal, Managing Director; Mr. Abhishek Agrawal, Executive Director; Mr. Siddharth 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, ladies and gentlemen. Thank you for joining us today for the Q3 and 9 months FY '24 earnings conference call of Godawari Power & Ispat Limited. Our financial results and earnings presentation is available on our website, as well as on the stock exchanges website. I believe you have had a chance to review the same, I will take you through the results and the recent updates of the company post which we will have the question-answer session.
I'm pleased to announce that GPIL has demonstrated robust financial performance in Q3 and 9 months FY '24, driven by increased production volume of value-added products, higher realization of iron ore pellet, cost savings achieved through the reduction in power and fuel cost. Not only this, I'm happy to say that GPIL has received the environment approval for capacity expansion in the pellet plant and the company has decided to increase the planned capacity of integrated steel plant to 2 million tonnes from 1 million tonne proposed earlier.
Before discussing on the financial performance in detail, I would want you to operate the strategic updates for the quarter and until the date. The company has received consent to operate the sponge iron plant at an announced capacity of 595,000 metric tonnes from 495,000 metric tonnes earlier. We have been awaiting this approval for last more than 1.5 to 2 years, and we are happy to announce that this has been now received. Thus on the same, we have increased the guidance for our production volume in the current year results to 590,000 tonnes.
GPIL has also received permission to operate the steel making shop at a higher capacity of 525,000 metric tonnes -- million tonnes -- metric tones from 400,000 tonnes at the existing plant at Siltara. Right now, [indiscernible] is operational. And based on the same, company has increased the guidance for the production of the steel billet to 475,000 tonnes for the current financial year. With the consent for higher production of the steel billet, sponge iron manufactured by the company shall be 100% captively consumed, which will lead to value addition and improvement in operating margins. The additional power required to operate the higher capacity and in the Steel Melting Shop will be made from the additional power being generated from recent commission, higher efficiency power generating turbine and solar project commissioned in the recent past. Overall, the increased capacity is very aggressive.
Coming on the updates on the CapEx plan. We have planned more than -- plan to increase more than double the mining capacity at Ari Dongri, expanding it from 2.35 million tonnes to 6 million tonnes per annum. The enhanced mining capacity shall be open for [clearance] and production shall be gradually increased over the next 1 year. The company has already filed a revised mining plan for increased mining capacity of mine and TOR is also received. The public hearing is expected to be concluded in Q1 FY '25, post which the environment approval is expected to resume. GPIL also setting up a beneficiation plant at Ari Dongri mine with capacity of 6 million tonnes, the estimated CapEx for the same is INR 200 crores, which will be set up in 15 months after the receipt of environmental approval.
GPIL has earlier planned to increase the pellet capacity by 3 million tonnes. This will be done in 2 phases. In first phase, pellet capacity will be increased by 2 million tonnes and another 1 million tonne will be done in the Phase 2. CapEx requirement for Phase 1 expansion is 600 crores, as mentioned earlier. I'm delighted to inform you that environmental approval for the same has been received and Phase 2 is estimated to be completed in Q1 FY '26. Further GPIL has decided to increase the capacity of integrated -- proposed integrated steel plant of 2 million tonnes instead of 1 million tonne proposed earlier. Based on the detailed [indiscernible] done by the company, CapEx for the integrated plant has been revised to INR 6,000 crores for 2 million tonnes. The revised cost does not include the Coke Oven Plant and thermal power capacity required for the project.
The Coke Oven requirements for the project will be made from fulfillment of coke from market in place of coal and converting it into the coke. Similarly, electric power requirements on the project will be sourced from the solar power to be set up under the group captive arrangement with the third party. It has been in driven by the lower carbon emissions or lower CapEx. Public hearing for the project has been completed and environmental approval is awaited. It is expected to be commissioned in 36 months upon receipt of environmental approval.
GPIL is dedicated to minimizing carbon footprint and actively pursuing the objective by setting up 4 solar projects to establish the combined power generating capacity of 173 megawatts, up from 155 megawatts proposed earlier. As of today, 145 megawatts solar power capacity has already been commissioned, and we are extremely contributing to the cost saving and reduction in carbon footprint.
I'm happy to share that out of 145 megawatt, 20 megawatt Solapur Power plant [indiscernible] was commissioned in December, taking the total capacity in HFAL to 52-megawatt and 23-megawatt of solar capacity to meet capital requirement of power at Ari Dongri mine has been commissioned yesterday evening only after the Board Meeting. The balance of the solar power capacity could not be commission because of the nonavailability of contiguous land. Company is making offers to purchase the land and same will be installed commissioned in due course.
Another 20-megawatt solar power plant that is to be set up to address the captive power requirement of fabrication and galvanizing unit is expected to be completed in June 2024. CapEx for the same is INR 80 crores, out of which INR 21 crores have already been incurred. This will be -- this will result in cost savings by INR 3 per unit besides reduction in carbon footprint.
Further, a new high-efficiency 48-megawatt turbine generator has been commissioned, and we synchronized with the grid in December 2023. The existing old turbine has been replaced with this new turbine, it is advanced and efficient in generating power, and is expected to generate additional 7 to 8-megawatt electric power without any additional fuel cost -- fuel consumption. The additional power generated from the new turbine will be used in existing steel plant and be replaced with grid power.
Debottlenecking CapEx for rolling and modification is progressing especially and is expected be completed by Q4 FY '24. This will help little the complete requirement of steel in the fabrication and the galvanizing unit. Shareholders' approval for grant of 28 lakhs stock options has been accorded in December, and subsequent to which, company has granted [indiscernible] to the eligible employees in January 2024.
Coming on the financial performance -- operational performance. I'm delighted to mention that GPIL has achieved the highest year production volume of steel billet, ferro alloys, power on quarterly basis and for sponge iron and billet and power on 9 months basis. One of the major competitive advantage of GPIL is our captive iron ore mine. The captive iron ore landed cost for that in GPIL is INR 2,800 crores from the mines as compared to market price of over INR 6,000 a tonne. Iron ore mining production increased by 9% quarter-on-quarter basis to 165,000 tonnes in Q4 FY '24, though it dropped 13% Y-o-Y because of reduction of production volume in the Boria Tibu mine.
Turning on the sales volume number, iron ore pellet sales dropped 15% quarter-on-quarter because of the piling off of certain inventory in the plant and at the port which has been now exported in January 2004 and the same will reflect in the sales volume of Q4 FY '24. Production volume across has been increased on Y-o-Y basis. The detailed production and sales volumes are shared with the investors in the investor presentation. Realization for pellet increased 27% and 6% to 10,505 on Y-o-Y basis and quarter-on-quarter basis. On 9 months basis, realization of pellet increased by 11% to 10,205. Realization for other products showed a decrease in trend on 9 months basis. The cost for iron ore procured from the market and the coal was higher on quarter-on-quarter basis.
Coming on the consolidated performance, the revenue for the quarter showed marginal increase of 1% and decrease of 11% to INR 1,309 crores on a quarter-on-quarter basis and Y-o-Y level. The reason for decrease in realization other than pellet lowered [indiscernible] piling up the stock at the port. EBITDA increased by 80% Y-o-Y to INR 331 crores, also higher realization of iron ore pellet in Q3 as compared to Q3 of FY '23 and saving power and fuel costs. EBITDA margin increased to 25% as compared to 13% in Q3 FY '23. Profit after tax increased to INR 229 crores, up 79%. PAT margin also increased to 17.5% in Q3 FY '24. Company continues to remain debt free. The net cash in the balance sheet of the company as of December '23 is INR 768 crores approx.
Coming on the 9 months performance, the revenue during 9 months dropped by 12% to INR 3,926 as compared to last financial year due to volume realization across the product brands, except the iron ore pellets. Our EBITDA increased by 13% to INR 999 crores in 9 months FY '24 because of the increased realization in pellets and cost savings in power and fuel. EBITDA margin increased by 25% -- to 25% from 20% in 9 months '23. PAT Increased by 15% to INR 717 crores in Q3 -- in 9 months FY '24.
Now coming on the market outlook. On international, front, global iron ore prices touched $144 tonne in January, up from $103 at the start of the year and currently rolling at about $133 a tonne. China imports -- import in China was strong. There was no explicit steel production cuts announced in China. At the same time, China domestic iron ore production lagged. World Steel Association is forecasting steel demand to grow by 1.8% to 1,814.5 million tonnes in 2023, another 1 million tonne in FY '24. This augurs well for demand for iron ore as well as expected the prices well supported around the current level.
On domestic front, iron ore prices, as indicated by NMDC, 64Fe fines has increased significantly to INR 5,110 per tonne currently, INR 3,600 per tonne in January '23. Prices have recovered well from the lows seen post imposition of export duty and are now closer to highs seen in calender year 2022. On the other hand, pellet prices after touching the lowest INR 8,800 in July '23 has increased to INR 10,150 a tonne in Dec end and is currently at about INR 9,850 a tonne. Given the positive steel demand outlook, pellet prices should be well supported at the current levels. India remains one of the bright spots globally for steel demand. World Steel Association forecasts India's steel demand to increase by 8.6% in 2023 and another 7.7% in calender year 2024 as compared to 9.3% in calender year 2022. Indian government push for infrastructure can be seen in recent budget with 11% increase in capital outlay to INR 11.11 lakh crores augurs well for the steel demand in the country, specially for long steel products.
In conclusion, I would like to say that GPIL is strong. Cash balance sheet competitive is provided by its captive iron ore mine, production of high-grade pellet, over 2 decades of industry expertise and dedicated and forward thinking leadership, diligent employees and dedicated support from all stockholders bodes well for the company's growth in future.
With this, I conclude my opening remarks, and we can now open the floor for question and answers. Thank you.
[Operator Instructions] We have our first question from the line of Jatin Damania from Svan Investment Managers.
Am I audible?
Yes.
Sir, just wanted to understand, now since we have got a consent to upgrade and we will be continuing entire funds captively. But I want to understand more on our expansion plans because if you highlight the rationale, we are dividing our pellets into 2 phases. Because earlier, we were supposed to do 3 million tonne at one go. Now we are planning to do 2 and 1. So what is the rationale behind doing this?
Abhishek, you are taking?
Yes, yes. [Technical Difficulty] we want to...
Your voice is not clear, Abhishek.
Can you hear me now?
Yes.
So the rationale is we want to integrate the pellet capacity with our iron ore mines, so that we are able to rationalize the production of high grades. Because buying iron ore mines from the market and then making pellets, in the long term, I don't see if it's commercially viable anymore. The capacities of pellet in India and you how the suppliers are. So to integrate the iron ore mines to the pellet plant capacity, we decided to reduce the capacity from 3 million and then going forward, when we're able to enhance further capacity in the iron ore mining, we will probably go on the commitment. That will be the rationale behind it.
And what is the -- I mean, in terms of the mining approval for the expansion, where are we on that? Because couple of quarters has been done and we are -- we wanted to expand it to 6 million tonne, and we are waiting on the...
See, we should be able to receive the environment approval in Q1 of next financial year. And once we receive that, we should be able to ramp up the capacity and by the next financial year, we should be able to touch the [indiscernible].
So that means in FY '26, you will be a 6 million tonnes of the mining capacity in terms of the production. FY '25, you will be somewhere around 5 million right, if you get an approval?
Yes, yes. Everything is in line. So probably after FY '25, we should be able to ramp up to the levels of, say, 5 million. And the in FY '26, we should be able to ramp up to 6 million tonnes.
By that time, [indiscernible] will also be in operations?
Exactly, exactly. So that is the entire thinking behind revision in pellet capacity from 3 to 2 in the Phase 1.
Right. And last 2 questions, one was Boria Tibu. Where are -- what is the status? Where are we? And in terms of the beneficiation, are we looking at setting up anything on the Boria Tibu?
Yes, yes. We've already started working on the Boria Tibu mines. We should be able to apply for the environment approval very soon. And once we have that in hand, we will start installing the plant. But looking at the current scenario, I think next 30, 36 months is bare minimum that we are looking at Boria Tibu to come into operations again.
So -- but as of now, we don't have any impact on our performance, right, from Boria Tibu because the mine is not working?
So in terms of financial performance, Boria Tibu performance does not impact the [indiscernible] Boria Tibu performance.
True. And last question is on our CapEx. Now since we have highlighted that we'll be doing INR 6,800 of the CapEx, so can you highlight what are the products that we will be producing from the integrated steel plant? How are we going to fund this CapEx? And what is the CapEx plan for FY '25, '26?
See, on the new greenfield, we are focusing only on the flat products. We are not thinking of going to long products anymore. We already did long products. And the way inventory is shaping up, meeting the demand for that flat product will be on a given time. So we are only focusing on the flat product. On the CapEx side, as you already declared, with the mining and the bottleneck and the new pellet plant with INR 1,000 crores, so that will be done from internal accrual. For the Greenfield also, depending on the final CapEx, once we are able to start taking orders, we are confident we should be able to build...
Abhishek, we lost you in between.
We are confident we should be able to fund all the CapEx on the internal accrual only, the current selling capacity, the mining expansion for the Greenfield.
And the CapEx for FY '25, '26 roughly?
For '25 the CapEx should be about -- for the mining and the pellet, should be about INR 800 crores. And after that, in '26, we should be able to start the new plant.
So that will be near about INR 1,000 to INR 1,500 crores, right?
Yes.
[Operator Instructions] The next question is from the line of Aditya Welekar from Axis Securities.
Sir, on the steel plant, we are -- we have announced the incremental capacity. So just wanted to understand from coking coal perspective, what will be our strategy means? And what is the normalized EBITDA per tonne you expect from the plant in the future?
See, on the coking coal front, given the current scenario, we have no plans of putting up a coke oven, we will directly import coke using the blast furnace. The rationale behind this, there are a lot of capacities in Indonesia which are only making coke. Indonesia has low grades of coking coal, so a lot of investment has been done in Indonesia and our current capacity stands at about 20 million tonnes. And a lot of imports are already happening into India of coke. Instead of putting up a coke oven, we want to save on the CapEx and directly import coke using the blast furnace. That is the strategy at the moment.
Understood. And can you come again on the CapEx spending profile for coming 5 years? If you can just repeat that? I lost that part.
Okay. So for the present capacity in the mining expansion, it's going to close to about INR 800 crores. It's already underway. And for the Greenfield, [indiscernible] about INR 6,000 crores. Of course, this will be closed down once we are able to finalize the capacity and you start taking orders. But -- so going forward in the next 5 years, I think we should be somewhere about INR 7,000 crores.
[Operator Instructions] the next question is from the line of Vikash Singh from PhillipCapital.
Just wanted to understand this quarter's net steel prices versus the 3Q average, how much up or down they are?
Can you please come again? You're not audible.
The spot prices versus the 3Q average, how much up and down they are?
So for the current spot prices in the domestic are about INR 10,000 and it is in line with the quarter average. So not much changed.
No, that is for the pellet. The steel products, the prices are down as of now.
The quarter average was about 31, and currently, the price is about INR 39,000.
Understood. Understood, sir. My second question is given the current domestic prices as well as export pellet prices, are we looking at the export more or we would like to sell in the domestic motor, how the mass is setting up right now? What is the difference between the net realization between these 2 at this point of time?
All right. So we did start exports in the month of December. We have already done couple of shipments. But China is on holiday right now and as you all know, China -- the iron ore prices have come down by 10% in the last few weeks because the China market is quite weak. So currently, we are focusing on the domestic market because realization is much better. But as and when opportunity presents, we are always open to start exporting again. So depending on realization, we are open for both the markets, export as well as domestic. Eventually, it's about selling at the best price possible.
Understood. And sir, just wanted to understand the thought process behind not going after the even power plant and tying up with the third party for the larger plants. So is it something to do with the CapEx cost or the environmental clearance related problem because...
No, no.
Usually, it is advisable for us to have everything in-house for the better margin. So how would the margin dynamic sets up in that...
So there are 2 scenarios. One is, of course, the carbon emission part with the Government of India focusing on decarbonization. So we also want to be in the same part. That is one of the reasons. Secondly, is on the commercial side. Today, operating a coal-based power plant where you don't have any captive coal mines and you pursue everything from the open market, the power cost varies from anything between INR 4 to INR 5 on a yearly average. And when you do a solar -- the solar plant, the yearly average is not more than INR 3.5. So commercially also we'll be saving on the operating cost, and on the carbon side also we'll be saving on the emission side. So both aspects were considered and that's why we took the decision.
Understood, sir. And sir, the pellet price outlook as per you, because -- I think that yesterday pellet prices have actually gone down in the markets. So...
It's okay. That's what I'm saying, INR 220 plus/minus, depending on the steel market and the domestic demand, it doesn't make a difference. And we have always been mentioning as a company with the volume we have, we always have an order book of close to 30 to 45 days. So in Feb, I can say, we almost close to -- we almost covered till March. So the price is going down currently, that will impact our numbers for this quarter at least.
Understood. Sir, just one last question regarding Boria Tibu. Usually, there are teams of good grade or low grade on the mining sites. So have we done any survey which would give us an idea that whether the entire mine is of low grade or just we encountered an ore body which is of lower grade and then we can...
No, no. We have been in the mine for past few years. This year we decided to close the mine with the commercial liability. So we know all the analysis, we know what days are available. So the reason is because the overall quality of mines is on the lower side compared to Ari Dongri. So the best way possible is to benefit it, make high grade from low grade and then get the plant for usage. So that is the reason we have closed the mines and we are going for beneficiation in the Boria Tibu mines as well. It's a well-thought decision looking at the commercial viability of the mines and well longevity as well.
Understood. So the entire mine actually is of lower grade?
Yes. The average is on the lower side compared to Ari Dongri.
[Operator Instructions] The next question is from the line of Rakesh Roy from Omkara Capital.
My first question is regarding, sir, your numbers, Q4 -- Q3 FY '24, your top line is nearby INR 1,309 crores. So out of INR 1,309 crores, how much is the other operating income, sir, in this one?
So there is no other operating income. Other income is separately in the results, which is about INR 20 crores.
Okay. Sir, when I calculate your sales number with your realization, it's come nearby INR 1,262 crores. So there is difference between the numbers you have provided me or the numbers I have calculated, your sales volume multiplied by realization?
The overall sales includes the sale of certain byproducts, scraps, et cetera and which is not part of the investor's presentation. And therefore, there is a difference.
Okay. So compared to the last quarter, maybe -- if I check, the number top line is down by 10% -- 11% year-on-year. But when I calculate from them, your sales volume or realization is up by 9%. So...
Sales realization is up on 9-month basis, but your steel plant realization are lower as compared to same period last year.
Okay. So sir, same period last year, scrap sale is more, sir, same period last year or high scrap sale?
No. There was a trading sale last year.
Okay, trading sale last year. There was a trading sale to some quantity last year.
Okay. Right, sir. Sir, my last question is regarding for your margin part. Can you [indiscernible] due to the rise in coal prices and iron ore, the margin is down. So sir, in January, coal prices has come down. So can we assume for Q4 or next year, margin will improve from here onwards?
Definitely, the [indiscernible] that will be reflected. Whatever price changes are there in the [indiscernible] product or the raw material, the same will reflect in the financial numbers.
So we see -- we can expect from Q4 margin -- gross margin will improve?
No, that will depend on the realization of other products as well.
Just to be specific on the coal side, because you are importing coal for other operations and with the current inventory, because we always have inventory of close to 45 to 60 days in transit material. So the coal prices impact is seen in the balance sheet going forward. So I would say, Q1 of next financial year, you can see the impact of the coal.
Okay. Agree sir. So Q1 FY '25, we can see the numbers?
Yes, correct. Yes.
Next question regarding, sir, you adjusted -- recently, you have a support case -- you have commissioned, you have a 25-megawatt solar power. So can we assume your energy cost will come down in Q4?
Yes, definitely.
Partly it will come in Q4 and then the full impact, it can be derived from Q1 of next financial year.
Okay, Q1. And how much is your asset currently, energy cost in terms of rupees and after how much it has come down?
Go ahead, Abhishek. Go ahead.
So our average energy cost per unit should be somewhere about INR 3.75. And going forward, it should be somewhere about INR 3.5. And that's come down from about average of INR 4.75. So you've already saved INR 1 per unit .
Okay. We can save INR 1 per unit, sir?
At the moment and going forward, once the pending capacity of solar gets commissioned, there will be further reduction in the per unit cost.
I agree, sir. Agree, sir. Regarding your -- next question, this year, you mentioned that you have exported some pellets in [December] time. So which country you have exported, sir?
At the moment, all exports are going to China.
China, sir.
Yes. Yes.
So any export order for Q4 also? Do you have any?
Yes, yes. We already are giving one more order, which will happen in the end of this month and discussions are already going on for the next month and future deliveries.
Okay. And we can assume pellets realization will remain the same at 10,500 or will come down?
It's difficult to say because you don't know where the market is going to go because even the key market is quite down in India and even in China has gone down. But Q4, we can expect similar realization. And in Q1, we don't know where the market is going to go. It still is filling in Feb. It's difficult to assume what will happen in Q1 of next financial year.
Sir, last question is you have increased for Greenfield from 1 million tonne to 2 million tonnes, sir. Any realization behind what you're looking -- why you are increasing or what you're looking from to 2 million tonnes? Which flat products of this market you are targeting, sir, flat products?
See, to be honest, the rationale behind increasing capacity from 1 million to 2 million is because earlier we were thinking of getting into -- we were exploring all the opportunities long, flat, round. But we have realized the flat product demand in India will keep going up, especially in the automobile sector and other pipe segments. So keeping that in mind, we decided to increase the capacity, and we are only focusing on flat products. We have dropped the idea of getting into long any further.
Okay. So which -- so you are focusing on auto and pipe segment?
Basically, we're actually focusing on the HR coil.
HR coil?
Yes. Yes.
So currently are we making any long products, sir, like a TMT bar we are making?
No. Currently, we are already making [indiscernible], we are not making TMT and we have no intention of getting into TMT now. We'll keep making [indiscernible] in the current premises and the new plant will focus on flat product. That's our goal.
Okay, okay. HR coil, sir.
Yes. Yes.
And what's your outlook regarding demand scenario and if you see the overall macro demand or macro outlook in steel demand, sir?
Currently, the demand is quite weak with the elections coming up. But the [indiscernible] steel production also going up on month and year-on basis. So we are quite positive in terms of the growth going forward.
The next question is from the line of [indiscernible] from KP Equities.
First question on the integrated steel plant. So there has been a lot of back and forth with regards to the steel plant. Earlier, we planned a 2 million tonne plant and the scrap case. Then we've decided to go to steel plant and 1 million tonne and then now 2 million tonnes. So what is the thinking behind this? And do we require any further approvals different from the one that we had public hearing for recently?
So I totally agree with your view. We have been going back and forth in terms of capacities and the future expansion. But after lot of deliberation and selling the market, we are finally freezed on the 2 million capacity, which will be focusing on flat product, as I just mentioned. And depending on the CapEx, as I said earlier, mostly we'll try to get environment approval.
And you mentioned HR, right? We are focusing on HR.
Yes, yes. Yes, correct.
[Operator Instructions] The next question is from the line of Ganesh from [ GK Advisors. ]
Sir, am I audible?
Yes.
So I'm looking at the profit and loss statement. And looking at the year ago quarter, basically Q3 '22 -- sorry, Q3 '23, the purchase of stock-in-trade, there's a difference of INR 220 crores improvement this year, which looks like it has contributed majorly to the profitability. So I mean, what are the components into the INR 220 crores? And my question is, is it also sustainable?
See, the profitability, if you see as compared to last financial year the same period, the profitability has gone up mainly because of 2, 3 reasons. Number one is increasing the selling price of the iron ore pellets compared to last year. It was about 8,500 something. It is now around 10,200. Similarly, the production volumes across the businesses and especially on the other end, steel billet has gone up, [indiscernible] some production volumes have gone up.
And the third component is trading on the iron ore and fuel costs. As you are aware, we have set up a lot of solar capacities over the period of last one year. And one by one, it's getting operational. So all those sectors are leading to cost savings and therefore have profitability. Is it sustainable in the future? We believe so. It will be sustainable in the future. The only capability is how the steel market and the prices would behave is the prediction. Otherwise, definitely, it is be sustainable.
Okay. Sir, just one more question. The SteelMint pellet index, it used to be a good proxy for tracking our pellet realizations. But I think in the last 2 quarters, I mean, our pellet realizations are diverted towards the upside. So is it mostly based on the higher quality pellets that we are manufacturing and selling?
Correct, correct. That index, correct.
[Operator Instructions] The next question is from the line of Aman from Augmenta Asset Managers LLP.
Actually, can you throw some light on the iron ore prices? Because recently, since last few months, we have been seeing that NMDC is continually coming up with the price increase. So what is driving up this iron ore price increase and it is directly beneficial to us? So could you let us understand the dynamics of the market currently? And what are you expecting going forward? What is driving this price increase?
So I'll tell you what is driving the market. See, post-COVID, once the iron ore mines are auctioned by the Government of India under the new MMDR Act. So the supply of iron ore from the merchant mining has gone down quite a bit. Now OMC is -- can say the [indiscernible] releasing sector and OMC does auction every month. They said that all the prices are probably decided at India level. The same now, NMDC fall in the same mode, they have connecting the auction to iron ore on monthly basis. And based on that, they have been deciding the biggest prices every month.
So -- and the second reason is the demand of iron ore India is going up day by day because of the increase in production. But the generation from the mines, the iron ore production in the mines has not being able to [round] up at the same capacity. So there is a supply -- bridge between the demand and supply. That is the reason the iron ore prices have been going up in India. And of course, the China [indiscernible]. So a lot of low-grade fines, below [indiscernible] has started exporting from India. So the big miners like [indiscernible], they've been exporting the low-grade iron ore. And subsequently, they've been raising the prices on the high grade, which has been continuing in India. So these 2 are the major reasons why the iron ore prices in India are on upside. And I feel, going forward, they will remain tight until the supply end is able to meet the demand supply.
Okay, okay. So going forward also, we are expecting at least for the next 6, 7 months...
Yes. Within the current scenario and with China on the highest -- with the China number on the high side, I feel the iron ore prices should stay elevated.
The next question is from the line of Anant Mundra from Mytemple Capital.
I just wanted to understand how are we planning to source power for the increased mining pellet capacity and also for the new steel plant?
Please, can you come again?
How are we trying to source power for the increased mining and pellet capacity as well as for the new steel plant?
See, so we have already installed solar in the mining, which we informed yesterday only. So our mining will be close to 100% captive in terms of green power. So that will be the sourcing for power in the mining side. And on the pellet side also, we are going ahead with the solar plant. We'll be solving another 65 to 75-megawatt of the solar. That will be used for running our new plant capacity. So as you told earlier, we are going ahead with green power in a big way. Of course, for 2 reasons: one is, of course, the commercial liability, this is a coal power plant; and of course, the carbon emission.
So this -- the cost -- the project cost does not include the power cost, right, for the new steel plant, the INR 6,000 crores project cost that we...
It does, it does. So we will be going through a good captive solar plant. So the INR 6,000 crores which we have in stated includes the power cost as well.
The next question is from the line of Kishan Toshniwal from Polar Ventures LLP.
I have one question only. The company is generating good amount of cash flows, which they are -- again it's good that company is again deploying back and expanding the capacity and all. But generating such a huge cash flow, do you see -- or is there anything on the Board's table that there could be a buyback or there could be huge dividend that might come out every year as you might change your dividend policy? That's my only question.
See, as you would have seen in our investor presentation and discussions during this call, we are almost on the verge of a substantial increase in our CapEx outlay for a period of next 3 to 3.5, 4 years. And therefore, I believe -- so as of now, our dividend policy remains same. And even then, our profitability improves and when the CapEx requirement goes down, we are always open to increase the dividend or go for buyback or anything. But it seems like in the near foreseeable future, we'll have to conserve the cash in order to deploy the money into the CapEx plan.
The next question is from the line of Raj from Mili Consultants.
Two questions. One is that your ferro alloy contribution or what is the EBITDA per tonne from the ferro alloy side, sir? Also, if you can provide EBITDA per tonne on your steel products. I believe that most of the profit is coming from the pellet operation. So whether the investment is giving return on ferro alloy currently or not and whether how is the price of ferro alloy currently?
See, on the ferro alloy side, the market is quite subdued from past couple of quarters. The prices, I would say, [indiscernible]. So currently the prices are hovering between 63,000 to 65,000 tonne for the products we make. And in the [indiscernible], we are able to reduce the power cost by installing solar plant. That will give us additional EBITDA. But in the current market scenario, I feel the pellet size is quite subdued and the profitability remains quite constant going forward.
And you still have demand from -- the demand of exports go up because a lot of sellers are exported from India because India does produce an extra ferro alloy which is being exported. As you know, the entire market is quite weak in terms of steel making, specifically Europe. So if the demand from Europe comes back, the prices in India should go up further.
Can you share the number basically for the steel contribution? Is it possible?
No, sir. It is not possible because we are preparing the numbers on a quarterly basis. But if you want to understand on a longer-term basis -- what we understand is that profitability keeps on changing depending on the price changes in the market, but on a longer-term basis, over and above the pellet -- market price of the pellet, the steel plant does give the margin of 7,000 to 7,500 per tonne on the longer-term average basis. But it is not possible to share a quarter-on-quarter number.
Yes. We have this new addition or new plant will be of 2 million tonnes or 1.5 million tonne?
2 million tonnes.
So 2 million tonnes, still making, you are projecting INR 6,000 crores which looks -- because recent additions by other players has been far higher than this number of 2,000 tonnes [indiscernible]?
So just to add to what you said, probably you were adding the [indiscernible] number. But we mentioned a few moments ago, so we are thinking of scrapping the coke oven which will save us even our money, plus going for a group captive solar, that also will help us save a lot of money. So these 2 accounts will be saving a lot of CapEx. That is why the entire INR 6,000 crores should be enough to go ahead with a 2 million plant.
[Operator Instructions] The next question is from the line of Faisal Hawa from H. G. Hawa & Company.
Sir, there was this case in the Supreme Court which is pending, I think which will probably allow iron ore exports and they have appointed some committee also on it. Is there any kind of progress on that?
Yes. So as an association, we have an association called PMI in national level. So we have been fighting the case as an association. And the next hearing is scheduled end of this month. So we'll get to know once the hearing is done. Of course, the case is quite [baseless], but still we have to fight it out.
I mean, the Supreme Court could may overrule the ban. Is there any time for...
See, the ban was imposed by Government of India a few months back, and they've already removed the ban. So the only case is, can people export iron ore and pellets without any duty? So -- but there is no ban as such. Already people are exporting [indiscernible] and already people are exporting pellets out of India.
Okay. So the hearing is this month?
Yes, yes.
And sir, what would be the difference in cost of mining for iron ore between us and NMDC?
Us and NMDC?
Yes.
I haven't tracked any NMDC numbers. But for us, the current value to our plant is about 2800.
The next question is from the line of [ Nishtha Mukherjee ] from BigMint.
Congratulations on the set of numbers. So my question is, could you please elaborate on the breakup of sales target for high-grade and the normal grade pellets that you produce, the 3.5 and [356 ]? And how is the response on the overseas market and your outlook for the same for FY '25?
See, on the sales side, it remains the same. So we produced about 55% of high-grade, 35% of low grade. 65% -- close to 50% is consumed for our steelmaking. So the whole sale of high grade will be about 35%, and 35% will be the normal grade. That's the sale only. And in terms of the interest of overseas buyers, so until now, we are only exporting [indiscernible] pellets, and we are discussing with the buyers for the [indiscernible] pellets, but since they have a long term with bigger suppliers. So now once March is over, we should be able to start supplying to the market going forward -- the market supports. At the moment, we are happy selling domestically, and we are able to sell quite easily our high-grade pellet.
The next question is from the line of Vaibhav Kumar Dubey from BigMint.
Sir, I wanted to know what is your outlook for FY '25 on sales and market for pellet?
See, the sales should remain same, but we've been focusing on a quarter-on-quarter because the portion level changes unless there is a maintenance plan. So we are assuming the sales should be about 4, 4.5 lakh tons for Q1 of next financial year. And the targets are depending on the market conditions. We're sitting in fair. What will happen in April, maybe we don't know. How China is going to behave, how the domestic side is going to be behaving. So it's difficult to contemplate and comment.
[Operator Instructions] The next question is from the line of Ganesh from [ SGK Advisors ].
Okay. Sir, in one of the previous calls, you mentioned that we'll be limiting our sales of sponge iron. So do we have any continuing policy towards that, number one? And secondly, do we have any policy towards limiting the amount of pellets that we sell versus what we produce?
No, there is no limit to it. The reason Mr. Gandhi mentioned is because our key capacity has gone up with the consent to operate of our commission of new furnaces. So now whatever [ spend ] we'll produce will be consumed captively to value-add steel. That's the reason, the spend [indiscernible] sales will be totally 0 going forward in next financial year. And secondly, same is on the pellet side, whatever we produce in the plant will be consumed captively. Remaining is sold in the market. So we never reduce our production in terms of same capacity. Whatever remaining is there, we sell in the open market.
Okay. And with the expanded capacity we'll be having in another 4 or 5 quarters, I'm assuming we'll have a subset of pellets available compared to our consumption. So will that be the same case whatever is beyond our consumption will be sold?
See, currently, our consumption is about 0.9 million tonnes annually for the DRI and making whatever is produced is sold in the market. With the additional capacity coming up in the next financial year, that will also be sold in the market.
As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you very much, everyone, for joining. I appreciate your time in joining with this conference call of Godawari Power & Ispat Limited. We are confident that we have relatively addressed all your queries. Should you have any further questions or need additional information, please feel free to reach us directly or contact our Investor Relations team at Go India Advisors. And finally, we sincerely thank you for all the participation and unwavering support to the company. Thank you very much. Thank you all.
Thank you. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.