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Godawari Power and Ispat Ltd
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Ladies and gentlemen, good day, and welcome to Godawari Power & Ispat Limited Q4 FY '22 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, Peter. Good morning, everybody, and welcome to Godawari Power & Ispat Limited Earnings Call to Discuss the Q4 FY '22 results. We have on the call Mr. B.L. Agrawal, Managing Director; Mr. Abhishek Agrawal, Executive Director; Mr. Siddharth Agrawal, Executive Director; and Mr. Dinesh Gandhi, Executive Director.
We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces.
May I now request Mr. Dinesh Gandhi to take us through the company's business outlook and financial highlights, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.
Thank you, Sana. Good morning, ladies and gentlemen, and thank you for joining the earnings call today for the Q4 FY '22. I trust you have had a look at our earnings presentation uploaded on the exchanges and the company website. I will briefly discuss the results and other business development, then we will open the house for Q&A.
As you are all aware, FY '22 was a landmark year in the history of GPIL. We have achieved many strategic milestones during the year. Just to name, GPIL had a record-breaking financial performance, substantially higher and highest ever revenue EBITDA and PAT.
The consolidated revenue increased to INR 5,399 crores. EBITDA increased to INR 1,864 crores, which is 36% and 64% higher, respectively. The consolidated PAT more than doubled to INR 1,403 crores (sic) [ INR 1,481 crores ] from INR 627 crores, an increase of about 136% Y-o-Y. Even on quarterly basis, PAT from continuing operations attributable to the owners of the company increased by 24%. The company has acute net debt free status on a standalone balance sheet in Q1 FY '22 on a consolidated basis in Q4 FY '22. The company is net cash positive as of 31st of March and is [indiscernible]. Consequently, the pledge on promoter shareholding was fully extinguished and reduced to 0 in April 2022 from the level of 32% at the end of the last financial year. The company has divested its entire 100% shareholding in non-core business of solar thermal power housed in Godawari Green Energy and earned a net profit of INR 98 crores on investment, which is reflected as an exceptional item in our results.
The company has started manufacturing high-grade pellet during the year, which commands a higher price in market by about INR 1,500 a tonne over the commercial grade of the pellet. The company has started supplying pellet to large steel companies in domestic market as well as started exports of this year. The company has taken a step forward to consolidate the operations related to Ardent Steel business in the group. And the same is being consolidated under GPIL and accordingly increased the [ effective ] to 76% in HFAL. Going forward, company plans to consolidate remaining investments in Hira Ferro Alloys and Alok Ferro Alloys.
Further moving on the consolidation, the Board has approved acquisition of 25-megawatt thermal power plant of Jagdamba Power on Sump Sale basis at lump-sum consideration of INR 70 crores, the transition is expected to be completed by June end. This transaction is value accretive as GPIL needs the power and the cost of power on a longer-term basis, which will be much competitive as compared to the grid power. The 25-megawatt power project is also critical for valuation addition business. Otherwise, we cannot move the volume on the grid power alone. Finally, the Board has declared the final dividend of 140% on expanded share capital consequent upon a split of equity shares and issue of bonus share during the year in the ratio of 1:1.
Coming on the operational performance, I'm happy to report that GPIL has achieved the highest production volume in iron ore mining, iron ore pellet and ferro alloys business. All of them are up 36%, 6% and 13%, respectively, on Y-o-Y basis. The production volumes of the value-added products like sponge iron pellet in Q4 was lower on account of production quantity reaching the full EC limit. And therefore, we had to suspend the production of sponge iron and which resulted into lower vested recovery power generation and, consequently, the lower production of the steel billet.
On a Y-o-basis, the sales of iron ore pellet and sponge iron is up 3% and 21%, respectively. The sale of billet and HB wire reduced by 33% and 64%. The lower volume of billet and wire was on account of the strategic shift of the higher volume of sales of sponge iron and wire rod on account of better profitability as compared to the value addition margin.
Realizations, if compared annually, on all products have shown great performance due to better demand conditions in domestic and global markets. The pellet realizations was much higher in the first half of the year, and the valuated business had a better realization in the second half. As compared to FY '21, average realization of iron pellet ore and sponge iron increased 44% and 54%, respectively. Even on quarterly basis, Q4, our iron ore pellet realization and sponge iron realization increased by 10% and 8% quarter-on-quarter basis.
I will now briefly touch upon the growth outlook and the initiatives taken by the company in this regard. As you are aware, we are focusing on reducing carbon footprint by setting up 3 captive solar power projects with a capacity of 155 megawatts. These projects are not only environment friendly but also expected to save a substantial cost for the company by replacing the grid power. The construction of the projects are progressing well. In regards to the 70-megawatt Rajnandgaon project of GPIL is fully ready and awaiting synchronization with the grid and expect to start generation very soon, maybe in a couple of days. The other 2 projects are expected to be commissioned by end of Q3 FY '22. Apart from this, company already generates 42-megawatt captive power from vested recoveries, 20-megawatt biomass power in GPIL and 8-megawatt biomass power in HFAL, Hira Ferro Alloys that is.
We'll continue to focus on our competitive advantage. Our earlier proposal of setting up HR and CR mill has dropped in view of substantially higher capital investment originally envisaged by the company. Our focus will now be on intermediate product like pellet, pig iron and billet. We are working on the final product details and will be announced in due course with capital investment required. The company is aiming to set up 1 million tonne greenfield steel iron plant. There is a good demand of pellet in our local markets. The company is also planning to set up a lower [ width strip ] mill at its existing location. And therefore, company has kept on hold the expansion capacity in the steel billet. The final details about the change in plan are being worked out and will be announced with Q1 results.
Our iron ore mines have a long life of 35 years. I'm happy to report that the reserves in our iron ore mining has substantially increased consequent upon the additional drilling taken up by the company during the year. And now we have established that the results are to the extent of 165 million tonnes both the mine as compared to earlier estimate of 35 million to 40 million tonnes. We have now -- we are now moving ahead with the increase in the EC limit for our iron ore mining capacity from 3 million tonnes to 5 million tonnes. And eventually, we will increase it to 9 million tonnes depending upon the future growth plans of the company.
The CapEx guidance for FY '23 is around INR 500 crores. As we have mentioned, our CapEx will be primarily funded through the internal accruals. The details of the CapEx is given in our presentation. As regards to the guidance on the production volume in FY '23, we expect to produce about 2.7 million to 2.9 million tonnes of iron ore and about 2.4 million tonnes of pellets in FY'23. The company is now 100% captive in meeting its iron ore requirement. We will maintain focus on high-grade pellet and intermediate pellet. Company is better placed compared to the other players in view of captive iron ore resources, which is through cost saving and high-grade pellets, in which we realize higher prices.
Coming on the market outlook. On the international side, the iron ore market is in slightly deficit in Q4 FY '22 and production disruption. Russia and Ukraine war disrupted the supply of iron ore, supply of steel and raw materials, thereby increasing the demand of iron ore in Europe and Asia. Iron ore prices in Q4 were range bound and are expected to stay in the range of [ 120 to 200 ] in the rest of the year. The demand and consumption of steel and other commodities in China is subdued due to havoc created by the COVID and the lockdown. Expectations that the Chinese market will recover if the lockdowns are expected to ease and government will provide required stimulus. I was just seeing in media report that China -- the Chinese government has announced a stimulus package of CNY 300 billion, although the reports are not yet confirmed, but this is what is floating in the social media.
Coming on the domestic iron ore. As you are all aware, government has recently levied an export duty on iron ore, iron ore fines from 0% to 30%, 0/30% that is iron ore fines and [indiscernible] to 50%. And pellet, which was a nil export duty, has been subject to now export duty of 45%. Finished steel products and semi-finished product, the export duty is levied at 15%. This is likely to definitely put pressure on the domestic iron ore and the pellet prices and also the finished steel prices. The prices are expected to be close to the export parity prices based on the international demand-supply. And this has already reduced the iron ore prices by INR 715 a tonne a few days ago.
Going forward, the price dynamics of iron ore pellet will depend on the impact of export duty and demand-supply scenario in both domestic and international prices. Some support will come from the increased cost curve -- cost -- introduction of the auction of iron ore mine under the given circumstances. The markets are expected to be normalized over the next couple of days. We remain conscious of the situation and watching the emerging market conditions, which will drive the profitability of the company going forward.
Thank you. And now we can open the floor for the question and answers. Over to you.
[Operator Instructions] Our first question is from the line of Jatin D. with Kotak.
Just wanted to understand the overall I mean, the view of the company on the export tax because we are one of the largest exporter of pellets and with this 50% export tax. How do you see the pricing moving in the domestic market and the impact on the overall profitability of the company?
See, it is very difficult to quantify on the profitability of the company at this stage. But definitely, the 45% duty wherein the India has an export of surplus of iron ore as well as iron ore pellet both, India was exporting close to about 20 million tonnes of iron ore and about 15 million to 20 million tonnes of iron ore pellets in the global markets. Now this is definitely going to put in the pressure. As I said in my opening remarks, we are watching the situation. But we expect that the prices should -- for a higher grade pellet, we should command better price of INR 1,500 a tonne. And not only in export, we have reduced the export in the second half of the last financial year, and we have started supplying the high grade pellet even to the large steel manufacturing companies in India. And partially, pellet, we have captive consumption; and partially, we sell it in the local market. But the pricing trend will be able to come to know only in the next few days because everybody is shocked with the kind of decision which we take and trying to assess the situation.
Just to add what Dinesh said, with the coking coal prices still being on very high side, so our USP of the high grade pellet [indiscernible] of [ 65 ], which [indiscernible], so we have been able to tap the domestic market where Tata Steel, JSPL or these big buyers who operate as big customers have been using our high grade pellet from last few months. Tata Steel has been buying from us every month. So we are confident with bigger chunk of production being on the high grade side. We should be able to utilize some level of price drop because of the export ban rather duty to on the export side.
[indiscernible] with immediate effect so we will be having some contracts, which will have been lined up for to be exited in this quarter. So have you executed this or you will be taking a hit on the current quarter's volume as well in the export market?
No. So again as you always mentioned, a book out of almost 4 to 6 weeks, so this quarter, there will not be any impact because we are already supplying our maximum volume in the domestic market. So this quarter, there will not be impact -- much impact of the export market. There was one shipment we were supposed to go end of June, so we are talking to the buyer to amicably find a solution so that, on a long-term perspective, the relations doesn't get spoilt. And that particular volume will be substituted by supplying the domestic market. So this quarter, we don't see where to begin timing happening on the pellet prices and the impact on the financial side.
Our next question is from the line of Kunal Motishaw with Reliance Securities.
Firstly, congratulations on the great performance in FY '22. Sir, could you quantify the export percentage in 4Q and FY '22 of volume or something as a percentage of total sales?
FY '22 will be closer to 30%, 35%. And Q4, Abhishek, you have readily the quantity available, export, how many consignments?
See, we were doing about one shipment every month. Since we were supplying the domestic market, so we reduce the volume in the export side, and we were doing 1 shipment of 55, 55 kV every month. Yes, that's it. So volume has continued going down compared to previous quarters.
Okay. Got it. And sir, also, how much was the realization gap be between domestic and exports?
No, so we were supplying the same levels, which we're supplying for export for our high-grade pellet.
Okay. So there's no gap as such?
There was no gap as such because we were selling the product domestically and exported at the same level. So if the export market was going up, so domestic prices were automatically going up. The domestic prices were going -- sorry export was going down, so substantially the domestic prices went down. So both were in tandem.
Okay. Okay. Understood. And sir, you've guided us 2.4 million tonnes for FY '23. So I mean this is obviously the rated capacity of yours. So are you confident that, I mean, without exports, would you achieve this? And till when do you expect this export duty to be in place?
See, I wish we had an answer for whether the duty is going to be reversed, but we are hopeful that this is a short-term measure to control the prices because everybody knows the inflation is very high. The intra projects were on a standstill because of the prices. PMT being sold at [ 7,000 ] plus, so this was a measure taken by the Indian government to probably control the inflation. So hopefully, this is a short-term measure, not a long term. You have to wait and watch. And in terms of the processing volume being sold, we are confident we'll be able to find new buyers to replace the export volumes only because we have this high-end market where coking coal being on the higher side is going to support us.
Okay. Understood. So sir, are you in dialogue with the government or something for this? Or how is it I mean...
See, of course, we have a penetration at India level, so we have started a dialogue. We are -- it's always better to talk with numbers and data. So we have given certain numbers and data to the government. And hopefully, this will get resolved soon. It's too early to say anything, but we have started a dialogue with the Finance Ministry and the Commerce Ministry, and at institution level, of course, on an individual level.
All right. Okay. Okay. And sir, what would be -- the last one would be the current spot versus [indiscernible] average, current spot price of our high grade pellets?
Our current spot price of high-grade pellet is about INR 11,500 going forward. The earlier target was sold about INR 12,500, so a reduction of probably INR 1,000 we are expecting looking at the current market scenario.
Sir, I'm sorry, I didn't get you. You're saying INR 11,500 currently?
Yes, because already executing the high-grade orders are at INR 12,000 plus levels. And since we are booked till almost end of June, so we have time to select pricing is required going forward. At the moment, we are very comfortable.
Our next question is from the line of Prashanth KP Kota with Dolat Capital.
Congrats for the good year in FY '22. What we all were praying should not happen has happened. I think, sir, what we -- how the steel industry operates, steel sector operates because it's in the same value chain. Exports, they'll do exports at some price, right? That's all also it's on pricing based on the international matter. But when it comes to domestic market, all the [ pellet, non-pellet ] entire metals space has import parity price. And similarly, even now if there is a duty, let the duty be there on exports, we will reduce the volume of exports. But domestic volumes, we should collectively work along with the iron ore industry, et cetera. The prices can be held up well, sir, where I'm coming from I will tell you. If pellet prices come down, iron ore lumps will come down. If iron ore lump comes down, price will come down. Again, sir if price will come down, pellets will come down. So it's a vicious spiral. Somewhere, someone has to lock it sir. And if we take the first step -- first mover in terms of reducing price -- we as in the industry, pellet industry, then iron ore will follow. Then iron ore will also follow pellets will follow the price will follow and pellets will follow, so somewhere, somebody has to completely lock this, sir. Sir I want to know your thoughts and how to think about it?
No, no. So unfortunately, I don't agree with the thought process because everything, commodity means demand and supply. So of course, everybody knows there is a pellet surplus in India, so eventually, there will be a price fall. But the only way it has to look at it, when the price has to go up, even it takes a second for a [ seller ]. But when prices has to go down, it takes almost a day. So the different -- the time gap which is required for the prices to correct takes some time. So you basically see all the pellet buyers supplying between the fines, so miners has become under pressure, then they will raise their prices. So it's a cat and mouse game. It's all about being patient. Things will not happen overnight. So going forward, we have to wait and see how much pricing go down, how much client prices go down. So it's really complicated. But the patience is the only thing I can say right now. It's too early to say anything about it right now.
Got you. Sir, just one input from the steel. Steel always trades at input price in the domestic market. So some efforts from our side also. If you are not there, what is the other alternative that the steel [indiscernible]. Even iron ore, if Indian miners don't supply, they have to import, then what is the price in import tariff? So somewhere...
Eventually, prices will correct definitely. It's about a matter of time. Nobody would like to -- for example, miners, they would never would want to do mining and don't sell in the market, right? Even they are into the merchant mining. Eventually, they will sell, they will scale the prices. But everything could be given by demand and supply. And things will take time for a certain level of correction about certain level of stabilization. We reduce the [indiscernible] [ last week ] only this is the second week. So be patient and see how the market corrects itself.
[Operator Instructions] Our next question is from the line of Vikash Singh with PhillipCapital.
Sir, while the prices would obviously take some time to readjust to the new reality, I just wanted to understand in last 1 week how has the prices for our product segment has changed basically?
See, there are no more major transactions in the pellet as of now in the local market. Everybody is leaving and waiting and watching. So we are also supplying whatever ordered quantities are there. So the business continues as it is, and everybody is in waiting mode. But if you see the prices have gone down to some extent, I think sponge iron prices have gone down to about INR 32,000. Billets have come to the level of INR 35,000. So prices have started falling in the finished market. And at some point of time, the prices will come down in the pellet as well, but we have to wait and watch.
Understood, sir. And sir, my second question pertains to our 4Q volumes have been lower because of the mill was under shutdown. So have we been able to complete the maintenance, and now it is up and running actual utilization? Or still 1Q would also be impacted to a certain extent?
No. I will tell you. In fact, Q4, our production volume in sponge iron and billet, as I said in my opening remarks, were lower because of we reaching the EC limit. Our production capacity for sponge iron is 500,000 tonnes, and we reach that limit, so we cannot produce more than that. And our application for announcement in the capacity, environmental approval is still pending with the state government, so we had no choice but to shut down. And if I shut down the sponge iron, then the power generation will be lower [ rested ] recovery. And I can't produce the billet at the grid price [indiscernible] because it will not be economically viable, and buying sponge iron from the market. So we discontinued the production in steel billets as well. And we took this opportunity for the maintenance of the plant. So maintenance were completed, and now plants have started functioning as normal.
Understood. Sir, what is the export prices of high-grade pellet, if you can tell us in dollar terms right now?
The last order, we did was roughly about INR 12,500 ex plant realization, which is supposed to delever in June.
Okay. And whatever the orders we had, we don't have to pay duty on that, right? So that is the basic understanding or there is still some confusion?
No, no, no, there is no confusion. So unfortunately, whatever orders are pending if it's for export, you have to pay the duty. There is no relaxation by the government. So if we happen to export pending order which is supposed to be in June, then we have to absorb 45% duty and sell the shipment. So that's why I said that largely talking to the buyer. We have a long-term relationship with the buyer. We've been doing business with them for almost 3 years now. So even we are in the same situation, so we are trying to find a solution where both are happy.
Understood. And sir, this Jagdamba Power purchase, we are paying that money for 66% of the pending stake, right?
No, no, Vikash. We are buying the plant on the slump sale basis. So we'll pay INR 70 crores to Jagdamba Power. And going forward, we will either tender the share in the buyback to be announced by Jagdamba whatever shares we have. And let me tell you and clarify that Jagdamba, given this 26% shareholding at a price of INR 10 per share in 2013 when we wanted to, and they wanted to supply us under the captive route. So we are trying to find out a mechanism for them to tender the share today.
So are we saying that our effective price at the end of the day because we have to tender certain shares would be less than INR 70 crores? Is that a...
It slightly less than because we had not paid the fair value at the time of taking this 26% shareholding. At INR 10 per share we have taken.
We would be tendering also at a very low price?
Yes, yes, yes, definitely. I have to tender because this is an arrangement -- mutually beneficial arrangement was there. We don't wanted to invest money in 2013, '14 when the market conditions were there at that point of time.
Understood. And sir, just one last question in terms of our high-grade pellet versus normal grade pellet. If we had to shift this entire quantity to the domestic market, I just wanted to understand, is the propensity in the domestic market is more towards the cost, and they would take a lower grade pallet and then we have to free our production? Or is it vice versa that high-grade pellet would continue to dominate the market, and we would be slightly better off than the rest of the players in the -- pellet players in the market [indiscernible]?
I would go with the situation, too. So firstly, the domestic market of pellet, which is bigger of [indiscernible], the commercial market, which is driven by demand and supply, high grade pellet are only coming in India who was making high grade pellet. So the target customers are totally different, which are because bigger steel mills like Tata, JSPL and all these guys, and they prefer -- they give us priority because of the coking coal prices. Because of the better quality, the coke will condition in the blast furnace goes down, so it gives them added advantage in the free production in terms of the cost as well as the production level. So both the markets are going to be different, and we will continue to produce at a desired level, will not be reducing any kind of production. That is for sure. We are confident we can sell whatever we produce.
Our next question is from the line of Sachin Kasera with Svan Investment.
Congrats for a good set of numbers. Regarding this high-grade pellet, can you just give us a breakup of the -- is it that last year, the entire production and sale was high grade pellet? Or was there some break-up?
Abhishek?
To be honest, it's difficult to give you an exact number, but I can say with the current production volume, about 60%, 65% is at high grade pellet, and about 30%, 35% is our [indiscernible] pellet. So [indiscernible] pellets are totally sold out in the domestic market. For the high grade pellets, part of it is consumed in steelmaking, and part of it is remaining sold in the merchant market. Between export and domestic, now it's going to be totally domestic till the duty material resolved.
Sure. And for our capital consumption, we have flexibility on both high grade and fine grade pellets? Or is it...
No. So we have flexibility in both. Depending on the current seen market and the prices, we're keeping it in the combination. Ultimately it's about [ end pricing ] should be on the higher side.
Yes. Sure. And you mentioned that from what I could get that you gather around INR 1,500 per tonne premium when you sell high-grade pellets, correct?
No. That was the earlier phase, so when you started doing that. But now since we are established brand in the domestic and export market, now we're getting close to [ INR 2,000 to INR 2,500 per tonne ].
And in case of your target for the next year, if you want to produce entire quantity of high-grade pellets, is that possible for us?
Yes. Going forward, that is possible for that we need to wrap up a mining production for which we have taken certain measures. So this year, it will not happen. Probably by the end of this financial year, when the mining production starts getting ramped up, we can shift towards 100% high grade but not at the moment. It takes some more months.
Sure. And what is the difference in cost of production for you between the normal grade pellet and the high-grade pellet?
0. Absolutely 0.
So that incremental INR 2,000 to INR 2,500 are getting [indiscernible] to your EBITDA.
Exactly, yes, yes.
Okay. There's one more thing that you mentioned that the high-grade pellets are the premium and first they are being preferred by the buyers because of the high coking coal rates. Now going forward, assuming for whatever reason, the coking coal prices were to correct, how would this impact the scenario for the high-grade pellets?
See, I think it's a very superficial thing to comment at the moment because I don't see any reason why the thermal coal prices and the coking coal prices are going to come down. There will be correction, of course. If we go to [ INR 600 ] will come down to [ INR 400 ] again. But what I know of investment market is coking coal prices are here to stay for at least some more time. It will not happen overnight for sure. And same is the case with the thermal coal as well.
Sure. But just by understanding, this premium that we get of INR 2,000, INR 2,500, can that come down, suppose for whatever reason, I understand you said the outlook is very strong, and that's what we are also getting.
Coking coal goes from probably 400 to 200, definitely premium will come down. There is a direct relation with the coking coal because [indiscernible] produce. Yes, there is direct relation. So if the coking coal price goes down, then the premium should go down.
Sure. And now that the company has become debt free, is there any thought process to improve the overall payout ratio either via buyback or a dividend? So I think we did 10%, 12% the last 2 years. But now we have become completely debt free. Do you think it makes sense that we should look now at a much higher percentage, 20% to 30% of the cash flows to be paid out to shareholders dividend and buyback? Any thoughts on that?
Yes. Sachin, this will be determined going forward based on what kind of profitability is there in the current financial year, number one. Number two, our CapEx plan as to how much is the CapEx plan, we already have about INR 500 crores kind of CapEx in hand. We have some cash reserves as well. So that will get completed. And then based on that, we'll reduce and if it is a surplus case, we would be happy to distribute it to the shareholders.
No, sir, the point is that earlier, we had a lot of debt, and it was very much understood that we kept the payout ratio was a little low. Regarding CapEx, we know it's a very capital-intensive industry. So it's in our hand, we can do INR 500 crores of CapEx also. And there will be projects which we can look at INR 2,000 crores, INR 3,000 crores every year also.
So we have to make a balance between the growth and the distribution.
Yes. But sir, that is one of the reasons for the [indiscernible] that we should look at a higher payout ratio.
I understand and I totally agree with you that payout should increase as the profitability increases. But if you see FY '23 as to '21, I think we had a debt and utilized 100% of the money for debt repayment, we did not do even much CapEx. Now CapEx is something for debottlenecking, even solar, et cetera, which is critical in cost savings we have taken up in the last year. And in Q1, we became debt free on the stand-alone basis. Of course, with the investment of solar projects, we have become now net cash positive as well as the debt free on a consolidated basis. So definitely, I agree with you, the payout should increase, and we'll definitely aim to increase the payout going forward. And that will definitely depend on whatever is the investment you have, and surplus will definitely get distributed.
Yes, and I would also request that we should consider a buyback considering the correction in the stock price and the type of cash flows we are looking even at the positive correction in the pellet prices. I think the Board should seriously evaluate a buyback.
Definitely, point is taken and will definitely take it forward in our Board and assess the situation, let the market cool down first because of this -- the entire -- and therefore, I'm not able to commit to anything at this point of time.
Our next question is from the line of Aman Madrecha with Augmenta Research Private Limited.
So given that you said that currently, over the last 2 quarters, we have not exported pellets, so I just wanted to know what was the peak export number in pellet in any previous year, if you could help with that.
Maximum 2 consignment -- okay. Abhishek, you go ahead. Yes.
No, no, he's thinking about the price, not the volume.
I'm talking about the volumes, like what percentage of the pellets exported during the peak period, yes?
Okay. So when corona had just come in, so the steel production in India was quite down and the consumption was down. So we were exporting about 1 lakh, 2 shipments agreement, about 1 lakh a month.
Okay, okay. Okay. And currently, it is 0, right, exports of pellets?
No, no, it was down to 50%. We were doing 1 shipment a month. And going forward, it will be completely 0 till the duty matter is resolved.
Okay. Okay. And given that, like how is the export opportunity for billets? Like is there an export market for billets given that there's no export between pellets, like...?
Yes. So we have exported somebody for billets in the last couple of years. And we are always in touch with our esteemed buyers. So there's an opportunity for export and we think the realization better than domestic market, we will export. We have done that before as well, and we'll continue to do so.
Like out of the total billet, like volume is exported or it depends on the market situation?
No, no, no, the volumes are very, very limited because we have a very good domestic market. The reason being since the pellets are higher fee, the phosphorous content and the sulphur content is quite low, so we get a premium in the domestic market because of our quality. So for steelmaking, you use the same pellet. And the same will get sold in the market. So we have a very good market for that. So as such we have no issues in terms of sales in the domestic market.
Our next question is from the line of Raj Shah with Statheros Capital LLP. [Operator Instructions]
I have some bookkeeping questions. I understand that the realization for the Ardent Steel is fairly less for pellet. If you could just show some light on this thing.
Abhishek, go ahead.
No, I think the license is not quite low. So see, Ardent Steel, where they are making the steel pellet which is a benchmark in India. So as I said earlier, everything in the demand and supply. And please understand, sometimes there is a transition phase where the market corrects on the finished side, but the fines doesn't correct at the same time. So there is always a transition period. So probably that's the reason why probably Ardent Steel is on the lower side compared to previous quarters. Otherwise, there is no other reason. It is a market correction, nothing else.
Okay. And the 3 power projects, solar power projects, what will be the impact cost for the same? And if you could just quantify the cost savings.
INR 3.5 crores per megawatt. I think complete detail is available in our investor presentation how much we have invested, how much is the total cost and what is balance to be invested in the current year?
Okay. And it will be operational by the entire project?
Yes, 1 project, 70 megawatt is expected very soon, I would say. It is just awaiting the synchronization with grid. And the rest 2 are under construction, so by Q3, and it will get commissioned.
Okay. Okay. Good. And just last thing I would concur what Vikash said on the Board could think on the buyback, with the sudden drop in the share price. It would really help the minority shareholders as well.
Sure, definitely. We have taken note of that point, and we will take it forward.
[Operator Instructions] Our next question is from the line of Siddharth Agarwal with Prudent Value Partners.
Sir, my first question is regarding our iron ore. So we are -- we have -- reserves have gone up to almost 165 million tonnes now. So could you just let us know what is -- is there an expected increase in cost of extraction from these reserves depending on how these reserves are being located? So in this quarter, our cost of production was roughly INR 2,800, so how do you expect this to pan out for the new reserves that we have identified?
Yes, I got your point. Rather the -- with the increase in the volume in the mining, the cost should proportionately -- because of the operating leverage, cost should go down. Cost is also at elevated level because of royalty in the IBM price. And because of whatever announcement in terms of export duty the government has done, which will reduce the iron ore prices. And therefore, IBM prices will fall. So that will also result into some fall in the royalty payment to the -- which we are paying on our iron ore mining. And of course, some reduction has been given in the petrol and diesel prices, which should have some impact, minor impact on our transportation cost.
Okay. And so could you also speak a little bit about what is our cost of pellet production today per tonne and how are we placed vis a vis our competitors and who are merchant not using the [indiscernible]?
So since we have the iron ore coming from a mine, so there are 2 costs. One cost is the iron ore cost, which is quite low compared to our peers because of a captive iron ore mining. On the operating cost side, currently, our cost is about INR 1,600 a tonne.
Okay. So from iron ore, plus INR 1,600?
Yes. So from iron ore mining, until you can get [indiscernible] about INR 5,500 a tonne [indiscernible].
How much?
INR 6,000.
INR 6,000. Okay.
But it will go down because, as Dinesh-ji just said, so the royalty portion will start being gone in the future. There has been a correction in the diesel prices. So both of that will be impacted to a certain extent. So going forward, the cost should come down.
Our next question is from the line of [ Saravanan Balakrishnan with Salwa Capital ].
Just wanted to understand that about the new steel capacity CapEx that's been going on. Like 2 million tonnes, could you give an elaborate answer on that, like in terms of we expect to sort of keeping the current scenario? And second one is primarily on the -- one query on the earlier participant has also asked like in terms of dividend payouts, like any reason like we will expect to let sort of again improve on that? Like we are getting to of, again, 30%, 33% of that?
Abhishek, you will take this?
See, on the dividend payout, Dinesh-ji already mentioned, we need to strike a balance between the free cash plus the CapEx as inertias also grow. So your point is well taken. We will definitely discuss amongst our peers and among the management and the Board, and we take a [indiscernible] call accordingly. On the steel side, the future expansion has been kept on hold for 2 primary reasons. One is we are waiting for the sponge iron EC to get clearance because a lot depends on the sponge iron EC because if you expand the capacity and we don't get the permission of sponge iron, then we won't have the raw materials to free to the steelmaking capacity. So there will be a bit of bottleneck. We're hopeful we'll get the consent of sponge iron in this financial year. So once that is cleared, we will move ahead with our expansion. And second one was we have taken up a turbine project where we are replacing -- we have also mentioned it, we're replacing the whole efficient turbines with a new efficient one of 40 megawatt which will give us additional power of about 10% and 12% with the same [indiscernible] generation. On when these 3 things -- these 2 things are clear, then we will go ahead with expansion of steel because these 2 -- so we will be able to feed the mill with the furnaces to produce more steel.
So what is the IRR and cost of capital for the steel expansion?
See, the IRR now, the entire scenario is changed. What we -- what Abhishek is talking about is whatever is the debottlenecking CapEx which we are doing it in the existing plant. So far as -- and I think your question was with regard to the fresh investment to the greenfield. We want to do and start with an investment. But for that, we have filed an environmental approval. We are still awaiting the approval for the land acquisition from the government. And once these 2 things are decided, and then we'll do a viability workout based on the prevailing scenario. Till then that large project is kind of hold. FY '23, there is no investment is going to go in the project, except some money is required for the land acquisition and will be reviewed in due course of time.
Got it. So one last question, sir. So like once the new plant goes live, so what will be the average time it will take for the new capacity to go above 80% utilization?
The existing plant?
No, the new plant. New plant [indiscernible].
New plant, we'll give you more details when we are able -- we are closer to the investment. As of now, it is in the approval stage, et cetera, et cetera. So we'll give you the guidance on that. But in FY '23, except land acquisition, if it is approved, then there will be there, no more CapEx on the new greenfield investment in FY '23.
Our next question is from the line of [ Viraj Nag with Millie Consultants ].
Congratulations on excellent results. One particular point that you mentioned about that coking coal will come down because of high grade and efficiency of the blast furnace will also go up. So the percentage of iron ore and pellet is already higher by 3% to 4% compared to the normal rate. So does it mean that you get roughly about INR 2,000 per tonne advantage on getting a higher yield. And 5% coking coal product costs come down, that's what the other sale and other people have been talking about it. So there is a huge advantage of using the high-grade pellet. So can you throw more light on that cost saving on that part? And how much can it be sustainable on a longer-term basis so the extra realization we are getting?
Definitely. So yes, government of India reduced the import duty on coking coal 5%, for example, coking coal prices are hovering around $500. So by $25, the import cost will go down, which is about -- you can say about INR 2,000 a tonne, right? So which is a little contribution on kind of cost savings for the import players like the biggest mill. On our side, we get a better realization because of higher [ FE ] -- the GaN import in system is less, which is between silicon alumina. And with lower alumina, the coke rate in the gasoline goes down. So whatever discussion we had in an engine discussion, the numbers we got is with our pellets, they are saving around INR 4,000 a tonne in the blast furnace in terms of the input cost, which is the reason of coking coal going down and the volume also goes down. So these prices, they are saving about INR 4,000 a tonne. So that is why we are able to pass on a margin of, say, $30 to us. So it benefit the parties.
Okay, sir. One more question is that in our own -- we are buying the coal from Coal India and [ linkage ] or are we buying on the auction? And what is the impact actually now if we are buying from the auction because prices have gone up very high in the auction also?
Yes. So unfortunately, because of the Russian war, I think globally, there has been impact on every side. And I mean we are impacted in India as well. So we have linkages from Coal India. There has been a slight delay in terms of the deliveries, but they are trying to cover up the gap to a certain extent. And for sponge iron, as we said earlier, we are totally using the imported thermal coal. We don't buy from the open market. And for the Coal India linkages, it's mainly going to our power plant. So the impact on the domestic supply is not very high when it comes to [indiscernible].
Sir, regarding your biofuel based power plant, cost has gone up for purchasing the biofuel in your area?
No. See, the cost -- if you look see biofuel, it's mostly a seasonal commodity, right? So post Diwali the average price now would be around about INR 3,000, which is quite reasonable compared to the coal prices which are in the market right now. And there is sufficient supply of biofuel in the market, so that is one thing we are doing with [indiscernible] on that side compared to coal.
Yes. Our next question is from the line of Vikash Singh with PhillipCapital.
Sir, just wanted to know, with Jagdamba, our merger with ourself, do we invest any cost savings also or it won't be coming...
Yes, because the power which we are getting from Jagdamba currently is cost plus certain margin to Jagdamba. So whatever is cost will continue to get incurred. And -- but if I compare this with my grid prices, then it is INR 2.5 cheaper price on a production volume of about INR 15 crore unit annually.
And Vikash, since the Indian government do say that if it's an IPP, then you won't get a credit of GST, the import credit. But when you merge with Godawari, Godawari [indiscernible] manufacturing, so we will save on 5% GST on the import coal side and 80% GST on the services side. So there will be additional 6% to 6.5% savings on the operating side as well because of the merger with Godawari. INR 0.30, INR 0.35 on an annualized basis per unit.
And sir, just one more -- one last question. Our blended coal cost, how is it moving in 1Q over 4Q or what kind of the cost inflation we can expect?
Q1 versus Q4 FY '23, right?
Yes, sir.
Yes, see, going forward, we don't see a substantial difference in terms of pricing because we have hedged our cargoes at a reasonable level. So my Q4 cost, average cost of thermal coal and Q1, there will be different probably say 10%, 15% maximum. So we are not very much impacted by this coal prices.
But then your cargo would have hedged up to a certain point, right? Beyond that, if coal cost remains higher, then that cost would hit us because we use imported coal for response? So I wanted to know, this higher cost, when it is going to hit us, this higher cost of production.
That's what I'm saying. We are -- at the moment, we are very well covered until next 3 months, which is June, July, August. So September, we still are uncovered, but I think September is too far away to think right now. Because the market is very volatile, the prices are going up almost 20%, 25% on a week-on-week basis. So for the next 3 months, we are already covered it. I think it's a decent level of hedge companies we have. So Q2 will not have a very substantial impact on the coal prices.
[Operator Instructions] Our next question is from the line of [ Jatin with Investor Savvy ].
Congratulations for a good set of number. So my first question is that sir can you share some idea about your revenue breakup for financial year '22 in general, domestic and export in general, percentage-wise?
Sorry, sorry, come again, please?
Dinesh-ji he wants to know the revenue of export versus the domestic supply.
For FY '22.
I don't have, frankly, the numbers readily available. But export, close to about 600,000 tonnes of pellet at an average price of INR 12,000 a tonne.
Sir, you don't have percentage wise breakup right now for FY '22?
Right now, we don't have the percentage. I can tell you after or you can get in touch with Sana in our Investor Relations. We will provide the data, and she will give it to you.
Okay, sir. Sir, my second question, sir [indiscernible]...
Why is it not clear? Frankly, your voice is not clear.
Am I audible?
No, not clearly.
Hello? Am I audible?
Yes. Are you on hands-free or what?
[indiscernible]
There's a disturbance in your call?
One second, sir. Sir, is it better right now?
Yes, yes.
Sir, my second question, in Q4, there is some exceptional gain of INR 134 crores. Sir, can you throw some more light on that?
Exceptional?
Exceptional gain, exceptional item gain.
It's INR 98 crores, not INR 134 crores.
Yes. Can you throw some more light on that?
That as I said in my opening remarks and earlier announced, we have gained this amount on the sale of our stake in our solar -- 50 megawatt solar power [ IGP ] that is Godawari Green Energy. We have divested 100% stake in that company.
Our next question is from the line of [ Shamanth Bharadwaj ], an investor.
Congratulations on the great set of numbers. I just wanted to ask, there's around INR 270 crores of loan on the balance sheet. Who is it given to and is it a related party transaction?
No, it is not a related party transaction. Some short-term advances have been given to certain parties, and this is on demand. We were big on demand.
Is it secured?
Secured, in this sense, it is unsecured, but we have high confidence on the parties.
And while calculating working capital changes, we have included noncurrent -- other noncurrent assets and liabilities. Why is that?
Sorry, sorry, come again?
In the cash flow statement, while calculating working capital changes, you have included other noncurrent assets and liabilities.
We calculated other noncurrent assets in the assets and liabilities side. I will have to recheck it and then can you tell me? Or like you can separately give you the clarification on this?
Yes, yes, sure.
Yes, yes, yes. Sana will get in touch with you.
Ladies and gentlemen, due to lack of time, we will end the question-and-answer session, and I would now like to hand the conference over to Mr. Dinesh Gandhi for closing comments.
Once again, thank you very much on behalf of the management of Godawari Power for joining the Q4 and FY '22 Earnings Call. We'll continue to be happy to answer all your queries. You can get in touch with us or our investor relations agency for further clarification, if any, you need on the results or the operations of the company. Thank you, and thank you all.
Thank you very much. On behalf of Go India Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.