Godawari Power & Ispat Limited (GPIL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'm Bharati, moderator for the conference call. Welcome to Godawari Power & Ispat Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note this conference is recorded. I would now like to hand over the floor to Mr. Ankit Toshniwal from Go India Advisors. Thank you, and over to you, sir.

Thank you, Bharati. Good afternoon, everybody, and welcome to Godawari Power & Ispat Limited earnings call to discuss the Q1 and FY '21 results. We have on the call, Mr. B. L. Agrawal, Managing Director; Mr. Abhishek Agrawal, Executive Director; Mr. Siddharth Agrawal, non-Executive Director; Mr. Sanjay Bothra, CFO; and Mr. Dinesh Gandhi, 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 risk 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.

Okay. Thank you, Ankit. Good afternoon, ladies and gentlemen. I thank you for joining us on the earnings call of Godawari Power & Ispat Limited for Q1 FY '21 to discuss the earnings for Q1 FY '21. I trust you have a look at our earnings results and presentation uploaded to the exchange and on the company website. During Q1, the company's business has shown significant resilience and has performed well despite COVID-led lockdown and disruption. The company has followed all statutory guidelines to maintain health and safety of employees across the operating plants and mines. The achievement of this result would not have been possible in these challenging times without the support of local government authorities and employees of the company. I will now briefly discuss some of the key highlights of the quarter. Pellet production at our subsidiary company Ardent Steel increased 39% Y-o-Y. This is led by capacity announcement in last financial year from 600,000 to 690,000 tonnes and better operating efficiency in the plant despite the COVID-led lockdown. Production and sales were overall impacted due to COVID-led disruption. However, our operations now normalized and are back to pre-COVID level. Our current plant utilization rate across the plant is 90% plus. We are also able to overcome the impact of lower domestic demand through higher export sales, mainly export of the iron ore pellet, 95% of our pellet production during Q1 was exported, which helped us improve our profitability and maintain the operations of the company. Despite almost around 30 to 45 days shut down in all other plants, pellet plant was shut down for about 3 weeks in main Godawari Power & Ispat and Ardent Steel. Despite lower sales and volume, the impact on profitability was largely mitigated as you could adjust our product mix towards the high margin product, and our EBITDA stood 4% higher quarter-on-quarter and just 10% lower on Y-o-Y basis. We continue to maintain our focus on balance sheet strengthening and deleveraging and have been repaying debt more than the scheduled repayment. As of July, we have repaid about INR 90 crores of debt in the current financial year against the scheduled repayment of INR 71 crores for entire FY '21. With the debt repayment, our finance cost continues to trend down, which is adding to the profitability and written ratios of the company. Some of our key priorities in the business as we have discussed in the past as well, continues to remain deleveraging the balance sheet and deploying the entire free cash flow towards the debt repayment. In fact, we -- in the current year, with INR 90 crores of debt already repaid, we plan to repay a total about INR 300 crores of debt during the current year. And we may be able to surpass if the current environment, business environment, continues throughout the year. We are aiming to become the debt-free company in the next 4 to 5 years. Until then, our Capex, we will not undertake any major CapEx and we do not want to undertake. However, our efforts will continue towards increasing the production capacities across the value chain through debottlenecking and normal CapEx. We will continue to focus on increasing profitability by adjusting the product mix towards the higher margin product. High-grade pellet products shall remain our key priority area. Before I open the floor for question-answer, I would like to briefly discuss the industry scenario. If you look at the international iron ore, prices have climbed from about $80 seen in the April 20 to about $120, touching 2-year high. Iron ore prices remain well supported despite global players returning to the normal production and maintaining their guidance. Demand from China continues to remain strong, both for iron ore and pellet. GPIL being captive in its iron ore production, the profitability is well supported by the captive, despite increasing trend of the iron ore cost in domestic market, GPIL cost is not increasing, mainly because of the captive source of the supply. Pellet prices, similarly on the lines of the iron ore, pellet prices have also reached to about $129 CIF China, as we speak. And GPIL is fully booked for its export and the sales order till September 2020. The domestic pellet demand continues on the rise. We have slightly shifting our supplier sales. Our -- during the first quarter, our major focus was on the pellet export because of the lower demand in domestic market. Now the demand in domestic market has continues to be improving. And from current month onwards, we are -- we will be partially diverting our sales towards the domestic market to meet the end requirement of the domestic consumer, and we would continue to export the pellet to China till our -- the high-grade pellet strategy starts playing out. The -- as you may be aware, the -- in Orissa, there was a mine auction in the month of March. And despite these auctions being taking place and due to the COVID-led lockdown, we -- all the mines have not been able to restart the production, which is also leading to the supply pressure in domestic market for the iron ore, resulting into iron ore and pellet prices -- pellet prices continues to remain on the increasing trend. The steel prices across the value chain have also increased by about 20%, 25% over a period of last 2 months. So this will also support our profitability going forward, along with the pellet and the billet steel prices. We expect to achieve much better profitability going forward in the current year, subject to maintenance of this price level. The external environment, of course, continues to remain challenging because of the ongoing pandemic situation. We are keeping continuous watch on the same. And we are undertaking multiple strategic initiatives to make our business model resilient. Our extremely fully integrated and highly efficient operations give us unique edge, thereby, ensuring long-term sustainability of the business. With this, I open the floor for question-answer now. Thank you very much. Thank you.

[Operator Instructions] First question comes from Niteen Dharmawat from Aurum Capital.

So just wanted to know what is the capacity utilization currently? And I also want to know about the high-grade pellet? So what is the price and price difference versus the normal pellet that we were producing or we are producing? And what is the margins that we are getting in high-grade pellet?

Okay. Thank you, Niteen. With regard to the plant operation, I've already said in my opening remarks, all our plants across the facilities have been operating above 90% capacity utilization level. So on production front, we are quite comfortable. With regard to the high-grade pellet strategy, I would request our Managing Director, Mr. B.L. Agrawal to take on this question, please. Abhishek?

Yes, as far as on the -- Dinesh, I'll take this question. So as far as in the high-grade strategy is concerned, currently, we're still making -- manufacturing our novel pellet, 3.5 basis pellet. We still haven't started manufacturing the high-grade pellets for the export market. The high-grade export market should come into, as Dinesh said, probably by, I would say, starting of Q3 of this financial year. So I would say another probably a couple of months or max 3 months. So as of now, we are still supplying our 3.5 basis only pellet to China. The only good thing is, the things -- because of our iron ore mining, the alumina content in our iron ore pellets is as low as 1.5%, because of which, we are getting a very good premium in the export market. The premium varies from probably from $5 to $6 at the current Chinese market level. So whatever premium we are getting compared to other peers in the market for the export, it's mainly on the alumina side and not on the high-grade side. High-grade pellets are still need to be delivered to the buyers, probably that will happen in Q3 of this financial year.

Got it. Got it. And what is the current pellet price? And how do you see the demand in the international market? Mr. Gandhi mentioned about it, but I just wanted the -- so with regard to pellets?

Right. So in terms of international market, the iron ore prices are hovering around $120 levels and the pellet market for -- the general market of pellet is around $120 to $122 level, but because we have a low alumina cargo, so we are getting numbers at $129, $130 level. For example, last 2 days back only, we closed one export cargo to China at $129 CFR level.

Next question comes from Vikash Singh from Philip Capital.

Sir, first of all, congratulation on very good set of numbers during a challenging period. Sir, I just wanted to understand, sir, our mining capacity has not been able to reach the full utilization from quite a sometime. So do we expect this year to reset to total 2.1 million tonnes or there is some problems, which would keep ourselves from realizing the full potential of money?

Abhishek?

When it comes to mining side due to COVID, there was a deception in the mining operation in both our mines. So we are trying to achieve 2.1 million, but we are confident we will be able to achieve at least 1.8 million to 1.9 million tonnes this year.

So next year, 2.1 million, we can be -- we will be able to achieve?

Yes, yes, definitely, definitely.

Okay. And sir, second question is with the domestic pellet prices also increasing, so just wanted to understand since the export also adds up few extra cost of rate and all that, so is this now profitable to sell domestically? Or is it still profitable to sell in the export market? And what's the margin difference?

See, when it comes to export, right, so since we have always been selling in advanced basis, so for example, as Dinesh rightly mentioned, we are already covered for exports till, I would say, first half of September. But looking -- owing to the current iron ore market in India, where there is a huge shortage, so domestic prices of pellet had gone up to almost 8,000 level, which is, I would say, almost at par with export levels, plus/minus 5%. So going forward, there is a possibility, we might reduce our export volumes and do some quantity in the domestic market because the domestic prices are also very, very high.

So just for the clarity, so INR 8,000 kind of domestic prices, which is the same margin, which is kind of $120, $125 of export prices this year. Is that a correct assumption?

No. Yes, so locally, you are correct, INR 8,000, but our export, the last cargo we sold was at $129. So in that, [indiscernible] plant will be somewhere at INR 7,700 level, 7-7-0-0. Yes, I would say, it's more or less on the same level. Yes. Yes.

Okay. Understood. And sir, regarding Odisha, iron ore supply, just wanted to get your view that post monsoon, when there's a possibility of most mining coming back, so how is your internal assessment when all those 14 mines which are not producing right now, at what stage they are with respect to restart the production? And if the post-monsoon, do you see that the pellet prices will again start tapering low because the supply is coming back into the system?

See, because of the COVID situation, the entire mining process was delayed by 3 months. And finally, in July, the new owners were able to execute the government formalities to take over the mine. So I would suggest -- it would take at least a couple of months or 3 months again to ramp up the production to the earlier levels. So I don't think so the [ situation ] of iron ore will ease out very soon. It might take up to, at least, another 3 to 4 months for the iron ore market to come back to the normal level, which it was pre-COVID.

Okay, sir. Understood. And sir, just lastly, in your presentation, you have given that we have some debottlenecking in the Urla power unit. So what kind of additional unit generation it can give us on an annualized basis?

I will take this, Abhishek, or you want to take it?

Yes, yes, please, please. No, no, please take it.

Yes, yes, yes. Okay. Vikash, it is something like that our generation in the current -- the last quarter, and even in the month of July has been all-time high in our solar power plant. In fact, there was no shutdown in the solar power plant during the lockdown in India. We have been able to operate the plant at full capacity. And because of the initiatives which the company has taken, the generation improvement is already likely by about 5% to 7%. In fact, we were earlier generating about 5% to 7% lower than the -- there is a software calculation based on the available DNI. Now for the first time, we have started crossing the numbers given by our -- the technical software for translating the production from DNI. So in all likelihood, this year it's going to be the best year for our solar power plant. And I would like to further add on this, with regards to the solar, we have continued to repay the debt in our solar power plant. So far, in the last 5, 6 years, we have repaid more than about INR 250 crores of debt. And our debt has gone down considerably. It is below about around INR 390 crores as of the date. We have repaid the entire FY '21 debt of our solar power plant. So solar power plant has been operating exceedingly well. And from this year onwards, we are expecting about 7% to 10% higher generation given the DNI numbers and hope that this company will also become a debt free gradually over a period of time.

Okay, sir. And sir, just one last thing, in our debt interest rates. So since our performance has been improving significantly and the interest rates has been on a downtrend, so have we got certain benefits as of now or we expect it to get it in the subsequent quarters? And what kind of interest rate deduction we are expecting?

In fact -- yes, I got your point, Vikash. We have got some reduction in our interest cost from some of the lender between, say, 50 to 75 basis points. And we are expecting another 1% to 1.5% reduction across our facilities or across the -- all the 3, 4 companies in the current financial year, the substantial reduction in interest cost over the period of last 1 year. Because this -- under the MCLR regime, MCLR gets reset at the each anniversary at the end of the 1 year. So all our renewal proposals are under process with the lenders. And we are expecting 100 to 150 basis point reduction in our interest cost during the current financial year, in addition to what has already been reduced. Because this, in fact, our interest cost continues to trend down because of substantial repayment of debt which we have been making out of our free cash flow. You can expect another 100 to 150 basis point reduction in our debt cost during the current year.

[Operator Instructions] Next question comes from [ Yognath Deswani from Metal Analytics. ]

Sir, a couple of questions on the export side. Can you please help me share the breakup of pellet exports from both Chattisgarh and Orissa plant? How much did we do from each of these?

In fact, Chattisgarh, as we have given numbers in our earning presentation, the entire shipment of almost 95% is to the export market during the Q1. July also it is entirely to the export market. It is only in the month of August, we are starting supplies of some quantities from this month onward in the local market. So that is what the breakup is. With regard to the -- our subsidiary company in Orissa, during the first quarter, up till at least end of May, the major supplies was in the export market. And after that, some supplies have resumed in the domestic market to the local clients who have been regularly procuring from us.

Right. So I see on your presentation that pellet GPIL export was 361,000. And from our Ardent, it was 180,000. So Ardent 180,000 is mostly export, right?

Yes, almost 70% is export and 20%, 25% is domestic in that. In fact, what happens, in Orissa, the entire domestic market pricing also runs with the export parity pricing, so it's loaded into rate level, so it doesn't. But in Chattisgarh, in fact, when we started the plant, the realizations were much slower and demand was not there. So we had to entirely depend on the export market. And in fact, when we restarted the operations in the month of April, China started looking up. So that is what supported us our profitability and our operations during the first quarter. And now the domestic demand is resuming, so we are shifting our strategies towards domain in export which we have been doing in past.

Right. That's really helpful. And I think in fact, that was my follow-up. So Ardent since it's in Orissa and it's near to the port, export does play a bigger role there. But so far in past, we have never been able to export pellets from the Chattisgarh plant, correct if I'm wrong. But I think this year, we have been able to and thanks for -- thanks to the realizations that we have got, so I would like to understand...

No, not this year, in fact, we have moved our strategy in the export market about 1 -- 2 years ago. And with this low alumina, we are now able to compete with the Orissa player so far as the export of the pellet is concerned. Earlier, what used to be there, there's a logistics cost differential should be there. Now we have devised our logistics or arrangement in such a manner and with the additional $5, $6 per tonne, realization from the low alumina product, which we are making, it is, in fact, helpful to export the product from Chattisgarh as well. So if you see my earning presentation, last year also, we have exported considerable quantity in the export market.

Right. So sir, I wanted to understand, till what export level, like, till what export realization does our export from the Chattisgarh plants are viable? Can you share that?

No. In fact, what happens -- no, no. What happens our export and domestic market sales strategy depends upon the demand supply in the various markets. But our ultimate aim is that our ex plant realization should always be healthy. Okay? So -- and that we activate through domestic and international markets. So our aim is maximum realization at the loaded into rate level, net cost to the -- net earning cost to us excluding freight for export.

So what I'm trying to understand is, till what price in export market -- I agree with the demand supply scenario between the domestic and the export, just to get a sense, till what price in the export markets are pellet export from the Chattisgarh plants viable. Can you share that exact realization...?

Yes, so Dinesh, I will take.

Yes, Abhishek, is taking this.

Yes. So if you look at our number, so then [indiscernible] Chattisgarh market at China $100 levels also, we are making profit. So we're even making money on that. So when we started exports in April, post-COVID, so the numbers are as good as $100, $105, because now it reached to $130 level. And last year also, if you see the market, China went up to $130, $135, and they were as low as [Technical Difficulty] So we have been exporting in all market conditions. The only reason is, I am the only player there in India, who is giving a low alumina pellet, where alumina content is below 1.5% max. Apart from me, every player in India, the alumina is as high as 2.5%, 3%, except KICL, which imports its iron ore basis of which you can get the alumina. As of now I would say, Godawari itself is a kind of brand in China when it comes to low alumina pellet. So my pellets are always in demand in Chinese market.

Understood, sir. Understood. And sir, one question on the Ardent Steel. So in quarter, we have been able to produce around 1.85 lakh, and if we extrapolate that, it goes well beyond our capacity, approved capacity. So is it like we still have room to grow more but we don't have the Environmental Clearance to go beyond 690,000? Or this is somehow we have managed through efficiency and we can still operate above 0.69 million on the Ardent plant, sir?

So see there are 2 reasons. One is there was no shutdown in the plant quarter, so that's by the percent on the higher side. And secondly, we have already applied for enhancement of ECE from 0.7 million to 0.8 million, so which we are hoping we should be getting by end of this year. But our main reason at this production level was there were no shutdown in the plant. For example, in this quarter, we have taken a shutdown of 15 days in the month of August. So if we compare a number of Q2, it will be eventually less than Q1. So this happens. So overall, when you compare on production basis, it has to be on an annualized basis not on a quarter basis.

Fair enough, sir. Fair enough. And sir, my last question will be on what's the status of the Jagdamba merger? Where are we on that sir?

I will take that Abhishek?

Yes, please, please, please.

Yes. Yes. So as regard to Jagdamba merger, we have received all the approval, especially the stock exchanges approval has been received. But we have not been able to file the papers to the NCLT because our NCLT falls at the Cuttack in Orissa, and as of now, no applications are being accepted there. Because of the COVID, the NCLT was not working, and they have got lot of pending applications. So -- and they are also -- I'm told that they are switching to the online system for filing the applications, which will also be up and running in a few days, and then we will be able to file there. And after that, the shareholders' approval and other approvals will be obtained.

[Operator Instructions] The next question comes from A.M. Lodha from Sanmati Consultants.

Hello? Am I audible, sir?

Yes, yes.

I congratulate the management for the excellent set of numbers even in the given circumstances. I have 2 questions, sir: one is regarding iron ore requirement. Whether I just wanted to know, sir, whether the company has -- and companies is at present fully using its own iron ore mines and not buying anything from the market?

Abhishek?

Yes. So yes. So I would say, the company has been using almost, I would say, 85% of its own iron ore sources and are only buying 15%...

How much sir?

85%.

Okay, sir. And 15% buying from the market?

Yes, because we are buying a typical quality iron ore from the market, so that is the reason we have been using that 15% in the... [Audio Gap]

In that case, what would be the blended cost for the company, sir?

The blended cost for the company, as of now, it is around INR 2,550, 2-5-5-0.

Okay, sir. My second question is, sir, what is the present capacity of the beneficiation plant, which we have got the approval for Environment Clearance, what is the capacity of that plant?

Currently, we're operating a beneficiation plant of 1 million on an annualized basis, 1 million throughput.

1 million. Then, when we can expect the additional beneficiation plant approval, and what will be the cost to the company?

So the public hearing has already been conducted, and we are hopeful we would get the additional capacity EC from the Ministry of Environment by end of Q3, at the max. And once we get the permission, then later that, we will enhance the capacity.

Then another question. Last question, sir. We are having presently the iron ore mines in Chattisgarh. So just I wanted to know to what period validity of our mines are there?

2049.

2049?

Sorry, 2059.

[Operator Instructions] The next question comes from [ Ayush Mittal from MAPL Value Investing Fund. ]

Congratulations to the team for a good performance in this time. Sir, I wanted to understand a longer-term thought process of the company in terms of reducing the volatility that we see due to the volatile pellet prices. As compared to others, we are more sensitive to the pellet prices. And whenever they fall, the numbers get affected much more and similarly they have improved in good times. Is there some way by which we can reduce this volatility?

Abhishek? Hello? I'm taking this question. See, like, if you see my last 3 year's number, you would be surprised to note that my volatility, although you can see in the market, there is a considerable volatility, say, running between INR 6,000 to INR 8,000 a pellet price over the period of last 3 years, which you have been observing from time to time, depending upon the demand supply situation in domestic and international price. But if we see the GPIL performance, and the quarterly of annualized realization because the realization depends upon each day sales purchases, sales, et cetera, and you keep on selling the product. So as we said, today, the prices are about INR 7,800. And at the beginning of, say, third quarter of -- the third week of April, the prices was close to about INR 5,900 or INR 6,000 a tonne in local market. Now we have been continuously selling the product in the market -- and we always keep an order for about a month or so. So our average utilization is ranging between INR 6,000 to INR 6,500 or max INR 6,700 in the last 3 years. And our performance has been more resilient because of the pellet. And the volatility which we have been observing in our business or the profitability is mainly because of the fluctuations in the finished steel, right from sponge iron to finished steel prices. If you analyze my numbers, you will be noticing that my volatility is increasing and my 75% of the profitability, or rather I would say, 65% to 70% is coming from the pellet business alone. Okay? And about 10% to 15% -- I'm talking about it on EBITDA level. And if you see the numbers for our subsidiary company in Orissa, which is a pure pellet play, you will note that this company has been consistently performing closer to about INR 90 crores of EBITDA for the last 3 years. So that will tell you how the retail performance is driving. And this volatility, like, see, in the month of, say, June quarter, we sold this [ one iron ore ] [indiscernible] at an average price of, say, INR 15,000, INR 15,500. Currently, the prices are at about INR 20,000 or so. Similarly, billet price has gone down to about INR 26,000, which has increased to INR 30,000. So more volatility is there rather than the pellet business. Pellet business is more resilient. You will see the pellet prices slightly trending higher when there is a higher demand from China. And some demand when Chinese demand goes down. And we see this pricing this year is more -- will be more resilient because now currently, it is a monsoon phase. There is a supply shortage in domestic market. And as the Chinese winter season starts, China will reduce purchases of iron ore and start buying the pellet. So the point which I'm trying to make is that don't say that pellet business is the volatile business. It is more than steel business, which is about 20%, 25% of my overall EBITDA is volatile and that is where we're maximum affected. I'm not saying that pellet also our profitability is consistent, there is some amount of volatility but not to the extent of your steel business.

So I agree with your -- the point you are conveying that pellet has been better than the other steel products. At the same time, what we see is that when pellet falls to, say, INR 5,000 levels or maybe INR 5,500 levels, that is where the worry starts. And basically, what I'm, sir, trying to also understand is that, is there a way that given our input prices are broadly fixed as we have our own mines, do we plan to get into longer-term contracts or do something to have a more stronger visibility for next 6 months or 1 year? Or maybe, I think, international exchange?

That we are targeting through the high-grade pellet. That will be there because that is how that product rates in the international market. And once the high-grade strategy starts playing out, that time we would be entering some kind of long-term or medium-term contract. Because in high grade, the contracts are linked to the exchange prices also there also, but it is on a yearly contract basis.

Got it. Got it. And that -- in the high grade, the delta is at least $15, $20 to the baseline...

To be higher, to be higher, to be higher than what we are doing presently.

Okay. And given that this time also, we are seeing a bit of a delay from your side, like, now you are saying we will do high grade in Q3, while earlier, it was, I think, August or September, and there have been delays from before. What is causing this delay?

It is because of the international market conditions. We are ready with our beneficiation plant for 1 million tonne. And it is the international market. Now you see what is the position in [indiscernible] because of this pandemic. So everything is getting delayed and delayed because of that reason. But so far when facilities are concerned, we are ready for that. We are awaiting an opportunity in the international market to enter that market now.

Got it. Got it. Sir, I had one important suggestion to make. When I look at your numbers, the company has done much better than many of the peers, but one thing that we -- everyone worries is one of the subsidiary that we have in Godawari Green Power because of which we have a very high debt and the return ratios are also impacted. Why don't we look to demerge this company, now that it is self-sufficient and the loan have reduced. This will massively improve the balance sheet that Godawari Power is having currently and the risk profile will also reduce substantially.

Okay. I think I have been addressing this question almost for the last 4, 5 years, and I have been making any statement that this business, which people have always been feeling that has been the drag on the earnings, of course, on an ROE basis, it may look like a drag on the earnings currently. But so far as debt payment is concerned, it is operating consistently with a variation of 5% to 10% in its profitability and earning EBITDA, and that too primarily because of the natural factors like DNI. Other than that, everything is in control in that company. That company has been never dependent on GPIL for its debt repayment. It has been questioning from day 1. After the initial capital was invested, we have not infused any money. Our aim is to monetize this investment. Unfortunately, because of the CSP technology and this technology is nobody is putting up a plant on this CSP technology now because of the higher cost of equipment, there's no interest in acquiring this business. Now so far as demerger is concerned, there is a technical difficulties which we are facing, it's something like a -- subsidiary cannot be demerged. Okay? If there is a premium undertaking, a division of GPIL, then it would have been easier to demerge it into a separate company and list it separately. But if this company repays debt, its profitability is increasing every year, you will see last year also, we had some onetime expenditure for shifting of some pipeline and some litigation costs that has gone finally in our favor. Other than that, the company will start making good amount of profit as our interest cost annually grows down there also. And we will start throwing a good amount of return on equity, maybe after 2, 3 years or so, but till then, yes. But this company -- and if you take my consolidated debt, the debt of this company is not more than about 25% to 27% of my consolidated debt. So this will rather cushion the profitability going forward in GPIL because it's a consistent revenue generator, like, in annuity business. The only thing is because of that, you are not able to see any return there currently. And as our strategy plays out from the current year, it will start throwing INR 10 crores to INR 12 crores of additional profitability in that company. And INR 3 crores to INR 4 crores of interest cost is going down annually. So this will start throwing the return on equity now. So while we continue to aim monetizing this investment and given an opportunity we can demerge also, but otherwise, this will not be a drag on the earnings of GPIL. This is all I have to say on this.

Yes. Sir, I got your point. My only contention is that we are doing quite well for the last 3, 4 years, but that doesn't get reflected maybe because of the overall high debt and depressing of the numbers because of the subsidiary. But point well taken that being a subsidiary maybe it's technically not possible?

And if you see right from 2010, when GPIL started on its pellet business, pellet has been the more resilient business in GPIL with captive mining rather than the finished steel or any other thing. I would just like a minute on this, if you see many steel companies, especially the mid-sized steel companies, after 2015, '16, they failed miserably and most of them have gone to the door of NCLT. During that phase also, GPIL profitability was resilient and one of the best among the peers. Okay? And this is all thanks to the pellet business. And the pellet is, of course, we have a 2.8 million tonnes, and that is a sizable capacity.

Next question comes from Pritesh Chheda from Lucky Investment Managers.

Sir, just confirming our complex can produce about 2.5 million tonne of pellets and about 0.5 million tonne of steel, and we tend to sell 2 million tonne pellets outside and residual we convert into steel and sell, right?

Right.

And lastly, sir, this complex of 2.5 million tonne plus 0.5 million tonne steel, what would be the replacement cost of this complex if one has to construct it?

Abhishek? Do you have any idea what would be the replacement cost of this setup?

Can you please come again with the question, please? So sorry.

I said, what would be the replacement cost of this setup which we have created of 2.5 million tonne pellet and 0.5 million tonne steel, which we have created alongside, if there is a support power infrastructure, if any.

I would say not less than probably INR 2,500 crores.

Okay. And lastly, what I've been hearing throughout the call is at $120 to $130 of pellet realization, which was above, let's say, above -- converts into about INR 8,000, INR 8,500, more than that, and which was about INR 6,000 that I see for the last 2 years consistently, and I'm seeing from your presentation. And you being a captive iron ore utilizer largely, so this incremental INR 2, INR 2.50 per kg or INR 2,000 to INR 2,500 per tonne should translate into your EBITDA? Or there is any other cost line, which...?

No. What you said, I totally agree with it. So it should easily come out to INR 2,000, INR 2,500 of EBITDA at a pellet level, definitely.

At the pellet level, right?

Yes, yes, yes. Definitely.

Okay. Okay. And via debottlenecking, which you have initially mentioned that you are not going to spend CapEx, but whatever debottlenecking, et cetera, you will do minor CapEx, what kind of capacities can you add or what kind of value addition capacities can you add?

See, it maybe comes on the operations side, for example, the steel-making capacity which we are running right now, so in the market, the furnaces we're using are very old, probably 10 years old. The furnace which are available in the market now are highly power efficient, where you can easily save almost 100 units of power per tonne of your steel making. But then they require a certain CapEx, it requires a certain production loss. So all those things need to be evaluated before taking any decision. So -- because technology is evolving every day, so every day new things comes up, where it can help in your production numbers, but it has a cost, it has a time and eventually it has to an ROI. So we will only take a call on any kind of CapEx depending on the situation. But currently, we are very focused on making this company debt free by next 4 to 5 years.

Okay. So there is no interim debottlenecking CapEx, which you are thinking of for the next 2 years, at least?

No, no, not right now. Nothing planned as of now.

Which will add capacity over and above the 2.5 pellet and 0.5 million tonne steel that we have.

No, not exactly. No, no, we're not at the moment. We're not.

Next question comes from Anurag Patil from Roha Asset Managers.

So what kind of volume we can expect in high-grade pellet segments in Q3 and Q4? Any target we have set?

Abhishek?

For the high grade, see, I'll tell you, technically, we are ready. But owing to the COVID situation and how bad the demand is in Europe, especially, and Middle East, where all the high-grade capacity is being consumed. So depending on the market, how it evolves, based on that only we will be able to take a call, whether we want -- at what price and when would we start the supply of high grade. For example, when we started this project of high-grade, 2 years back, the premiums which we're -- the buyers were willing to give was as high as $60 over and above the iron ore pricing, those premiums have now come down to almost $25 level. You can see almost a reduction by almost 1/3 on the premium levels and the quality is still same. Vale is still supplying the same quality pellet to the same buyers, but the value of their product has gone down by almost 30%. So we can only take a decision based on the market how it will evolve going into the future. Technically, we are ready to supply high grade in the markets.

Okay, sir. And any further debt repayment we are planning this year?

We have already said in our opening remarks. We already repaid INR 90 crore so far in the current year, and we aim to repay total INR 300 crores including this INR 90 crores. So additional INR 210 crore we are definitely targeting to repay in the current year. And it could be higher -- if this [ 800 ] pellet prices continues to sustain, say, throughout the year, then the repayment will be substantially higher from here.

Next question comes from Parthiv Shah from Tracom Stock Brokers.

Firstly, congratulations for a descent set of numbers, and most importantly, for further reducing the debt. Sir, I understand from your comment that you have bookings till September, and I just want to get a sense, what is the approximate price realization that we have fetched in these bookings along with some logistic orders that you would have taken?

Bothra, you have data?

Yes. Currently, we have order about 40,000-odd for local markets at around INR 6,800 to INR 7,000. And for export market, we have one pending cargo at $120 and one in September at $129.

And sir, I was -- I attended one of the con calls of one of your peers in Siltara, and they sold 50% of the iron ore from the domestic market. So as I understand that they will be getting the advantage of their pellets by around INR 1,000, INR 1,500 per tonne, but then that 50% component of their outside sourcing of iron ore has also increased by almost INR 1,000 to INR 1,200. In our case, as I understand, as we are sourcing only 15% ore from outside, is it safe to assume that our cost of production in pellet is relatively more stable, it's not gone up substantially because of our captive sourcing? Are there any other cost components in your pellet manufacturing, which you take the costs higher of late?

Totally, totally. Whatever you said is that would be attributed. So our cost component would be comparatively lesser than my peer because 85% of the iron ore is coming from my iron ore mine, where the cost is a little bit stable.

And I think that is the reason why, over the past 3 years, if I see your trend of pellets, despite the fact that the pellet prices have been very volatile, but you have still maintained very healthy EBITDA margins anywhere between 18% to 25%. Is that correct?

That is correct. Abhishek, I'm just answering this part. The point is that as Mr. Sanjay Bothra said that our current order position is INR 6,800 a tonne, some quantities are there. Now as you keep on selling the product throughout the year and price keep on volatile, so your -- at some point of time, your average realization which comes under your profitability and not be -- the absolute realization, which is today, say, INR 8,000 a tonne. Okay? So the prices keep going some up and some down, and you can't realize that the entire part throughout the year. So -- and therefore, this average will always be INR 6,000 to INR 6,000 plus for, think, the entire year. And that is what is making our profitability resilient.

One of the past conference calls, the MD sir, B.L. Agrawal, I think he had mentioned that because of the Orissa auction, there's a premium that's done above 100% based on the IBM prices. Godawari will always have around INR 1,000 per tonne advantage in its own captive ore because we do not have such options. Sir, based on the current IBM price trend, are we realizing that INR 1,000 or is it higher, what is the trend in that, sir, and how sustainable it seems right now?

INR 1,000 is what we have been regularly getting. Anything beyond that will be extra.

I mean...

Sorry. Abhishek, yes, you take this question.

Hello? Can you hear me, please?

Yes. I can hear you. Can you repeat the question?

Yes, I will repeat the question. In one of the past conference calls, MD Sir Mr. B.L. Agrawal, he did mention that because in Orissa, the bidders have paid a huge premium of around 100% over the IBM price. So that will always be a perpetual advantage to companies like Godawari who are mining without paying any premium to the -- and the benefit burst out to the tune of around INR 1,000 per tonne in the landed cost of iron ores. So that is perpetual, right, as my understanding goes irrespective of the IBM prices?

See, I would say, more or less, again, you were right, but I would like to repeat here is that in Orissa, the mining cost, because the minings are very big and segregation ratio is 1:1, so in Orissa, the mining cost is very, very less compared to my own mines. But yes in an overall scenario, anybody is having a captive mines without paying a premium, they will always have a cost advantage of at least, I would say, not less than $20 going forward because of the high premium the new miners have paid and which are to be buy the mines.

Next question comes from Utsav Chhawchharia from ANR International.

I just had some confusion regarding our raw material prices. I wanted to understand what is -- what determines our iron ore -- captive ore prices, the cost of raw material?

So see, I would say, on annualized basis, iron ore -- our iron ore captives mines, iron ore landing cost is somewhere around INR 22, INR 28 per tonne landed to my plant from my mines.

Okay. That's fixed or is that something dependent on some other factors?

You can see, you can add more or less 5%. Because the royalty keeps on changing every month based on the IBM price. Apart from that, more or less the cost are fixed.

Okay. So I can say that this cost is going to be fixed until the expiry of the lease, which is in 2059?

Yes. See, of course, there are still factoring the volume, the diesel price is going to be the transportation is based, but you can say, yes, more or less, the fixed rate is 10%, if not 5%, on the higher side. Yes.

That was the last question for the day. Now I hand over the floor to Mr. Dinesh Gandhi for closing comments.

Good afternoon, friends, again. I thank you very much on behalf of the management of Godawari Power & Ispat for participating in this con call. And we would be happy to answer the questions, if any, left unanswered. And you can always reach us directly over to our Investor Relation company, and we would be happy to answer all the questions. Thank you very much. With this, I conclude the call. Thank you very much.

Thank you, sir.

Thank you, Bharathi.

Thank you very much, sir.

Thank you.

Thank you. Thank you, everybody.

Thank you all. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha’s Conference Call service. You may disconnect your lines. Thank you, and have a pleasant evening.