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

Good morning, ladies and gentlemen. I'm Bharti, moderator for the conference call. Welcome to Godawari Power & Ispat Limited earnings conference call hosted by Go India Advisers. [Operator Instructions] Please note, this conference is recorded. I would now like to hand the floor to Ms. Sheetal Khanduja of Go India Advisors. Thank you, and over to you, ma'am.

Thank you. Good morning, everybody, and welcome to the Godawari Power & Ispat Limited earnings call to discuss the Q1 FY '22 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, Chief Financial Officer; 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 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, Sheetal. Good morning, ladies and gentlemen, and thank you for attending the earnings conference call for Q1 FY '22 today. I trust that you had looked at the earnings presentation uploaded on the stock exchanges and company website. I'll very briefly discuss results and other decisions taken by the Board, and then we can hold the Q&A. At the outset, I'm pleased to inform that the Q1 FY '22 was yet another record quarter for the company. The company has all-around increase in the profitability. It was led by higher iron ore production and realization across the product [ range ] and the reduction in finance costs. The sales increased over 100% as compared to the same quarter of the previous year. There was some reduction in Q2 in the sales on account of certain accumulation of inventory at the port, which was been cleared in the first week of July 2021. During the quarter, the company has earned a revenue of INR 1,126 crores and recorded EBITDA of INR 573 crores, which was up 354% Y-o-Y. The PAT increased by 967% to INR 437 crores, which is record [ PAT ] for the company -- in the history of the company. Led by the higher profitability, the Board has approved the interim dividend of INR 5 per share. The company has recorded highest ever export turnover of INR 639 crores during the quarter. Our strong performance resulted into the robust cash flow generation, which has been mainly used for de-leveraging the stand-alone balance sheet. And as informed earlier, the stand-alone balance sheet, we have repaid the entire term loan on the stand-alone balance sheet. We have some debt still outstanding in our solar power business close to about INR 340 crores, which will be repaid out of the cash flow of the solar power business. In any case, if that business is under the sale and as and when the sale happens, then the cash flow will come to the company and that will be transferred to the buyer. The debt-equity ratio as of June has since reduced to 0.15x as on the date. The company has repaid over INR 1,800 crores of debt over last -- over the period of last 4 years. The further information on the CapEx, our strong -- the company continues to incur the funds towards the debottlenecking the capacity. We have already announced commissioning of iron ore beneficiation plant and the pellet plant, which has already started at 2.4 million tonnes, beneficiation plant at 3.28 million tonnes. We have also completed investment in sponge iron, but we are still awaiting to the consent to operate from the pollution board. And we expect this consent to receive -- to be received in the current quarter. The only CapEx in the debottlenecking remains the steel melting shop, where we have been gradually installing the furnaces. And by end of the current year, the entire CapEx, for [ 0.6 million -- 0.7 million ] tonne capacity will get completed. The company has actually started work on the setting up the 250-megawatt solar power plant and preparing initially on the DPR, et cetera and awaiting the consent of the state government for the use of the land for solar power plant. Once the state government approval is received, then we will start physical work at the project site for setting up 250-megawatt captive power, solar power plant. The Board has also decided to -- has approved the in-principle approval for the setting up 1.5 million to 2 million tonnes of integrated steel plant in Chhattisgarh. The company has already identified the land and applied to the state government for allotment of the land and preparing for TOR. The further details on this project will be finalized as to the exact cost of project and the further details as we go forward and upon -- by the time we get the approval from MOEF and the final allotment of land is done. With this, yes, there's another decision which the Board has taken with respect to additional equity investment into the Hira Ferro Alloys. Hira Ferro Alloys is an associate company wherein retail is already holding 48% stake. And this company is engaged in ferro alloys business with captive power generation. Hira Ferro Alloys is setting up 70-megawatt solar thermal power plant, solar PV power plant in Chhattisgarh to meet the requirement of the power, which is presently sourced from the grid. About 15-megawatt, Hira Ferro is sourcing power from the grid. And in order to meet this requirement, company is setting up 70-megawatt power plant, which will operate at PFL of about 17% or so. And this entire power will be used for the captive requirement of the Hira Ferro Alloys. With the infusion of the equity, Hira Ferro Alloys will become subsidiary during the current quarter. And the project of Hira Ferro Alloys will be commissioned by Q1 of FY '23. The company continues to operate across the plant at about 95% utilization. The disinvestment of the solar power plant, which we had discussed in the last conference call also, is still under discussion and the final agreement with the buyer has not been done so far. We continue to explore the disinvestment possibilities of the solar power plant, and we will update the investors as and when some final decision is arrived in the matter. With this, I will now open the floor for questions and answers. Thank you very much.

[Operator Instructions] First question comes from Vikash Singh from PhillipCapital.

Congratulation on very good set of numbers. Sir, I want to understand our investment on Hira Ferro Alloys. So in the next quarter when it gets basically a subsidiary of us, so along with it, what kind of debt also this Hira Ferro Alloys would be bringing with them?

Hira Ferro Alloys does not have any long-term debt. It has some working capital limits from the bank. And there is no debt coming to Godawari Power with the Hira Ferro Alloys, except, of course, some debt Hira Ferro Alloys will be taking for opening the LC for import of solar PV module for the setting up of this project. Otherwise, there is no debt coming to Godawari Power from Hira Ferro Alloys.

Understood. Sir, one clarification, we are setting up 70 megawatts of solar power plant in Hira Ferro Alloys, while we had, sir, this vision of 250 megawatts to become carbon neutral. So just overall, we are setting up 250 plus 70 or this 70 is a part of that overall 250 megawatt and that project cost will remain INR 750 crores?

No. 250 megawatts is for Godawari Power's requirement -- own requirement, and Hira Ferro Alloys is additional 70, so total 320 megawatts.

So that is only for the Hira Ferro Alloys' requirement.

70 megawatt is alone for Hira Ferro Alloys.

Okay, fine. And sir, one more thing, you have said that this is the initial investment you are making in Hira Ferro Alloys, and in future, you would be making more investments. So any thought process on that? Till what level we want to increase our equity in Hira Ferro Alloys? And what kind of money we will be putting in the future also?

No. I said Hira Ferro Alloys, we are already holding 48% equity share. It was an associate company. It will get converted. I've not said that we'll be putting in more money over and above the INR 70 crores. INR 70 crores will go over a period of next 6 months to Hira Ferro Alloys in one or more tranches. And after that, there is no investment proposal in Hira Ferro Alloys as of now.

Understood, sir. Understood. Sir, my third question is pertaining to pellet prices as well as sponge and billet prices in the domestic and international markets. If you could give us a sense that -- what is the current spot prices versus our 1Q averages in terms of pellet and sponge? And how would you see with China -- with the international iron ore prices are declining, any thought process on what kind of impact it would have on your export policies or the pellet prices in the export market?

Yes. So Abhishek, you will take this question?

Can you repeat the last line, please? Just to be clear for the question.

So current spot prices of pellet, sponge and billet versus 1Q average. And any thought process on the -- with China, there's a lot of talk about China putting restrictions on production export. That could be significantly high, its impact on the iron ore and pellet export market. And how are we looking to change here? How are we looking to counter that in terms of at least the volume execution part?

Okay. Okay. So on the first question, the current market levels compared to Q1. So pellets, on average, was INR 14,000. At the moment, pellet is hovering around INR 15,000, INR 15,500. That is for domestic as well as export realization. On the sponge side, the current domestic levels are around INR 30,000 a tonne, which was around INR 29,000 again in Q1, INR 28,500. And billet is hovering around INR 42,500, which was around INR 41,000 -- INR 41,700 in Q1. So I think that's slightly better outside of Q1 levels at the moment. Definitely because of monsoon, the domestic demand is on the weaker side. But we are hopeful, given the monsoon, [ both the demand ] will revive back in India. On the China side, yes, there have been downs on production cuts. There has been no official communication on any of the websites or any kind of media how much production cut. What I understand is they're trying to do production cut compared to last year by 2% to 3%. For example, if I produced 999 million tonnes last year, so roughly, they should be producing around 2% to 3% less. So that has been the round, which is making in news. But at the moment, there is no official communication from China government or even the China steel manufacturers officially. So it's something we're eagerly also waiting. If there is a production cut, there might be a subdued demand of iron ore by 2%, but at the same time, Europe has opened up, U.S. has opened up. And the bigger players like Rio Tinto or BHP, they're not able to feed the required amount of iron ore into the domestic -- into the global market. So I think the prices of iron ore pellets will be at elevated levels this year as well.

Okay, sir. Sir, just one question in terms of our iron ore mining capability increase. So previously, we were buying roughly about 15%, 20% on the outside market. Now since we would be fully integrated, so what kind of a cost shift we can expect on a blended basis because of that?

Yes. So in Q4, we were buying close to 20%, 25% from the outside market. From Q1 onwards, we have completely shifted to our own captive mines. That is why there has been an additional EBITDA in terms of addition because the cost has gone on almost an average of INR 4,000 to average of INR 3,000 at the moment right now.

So large part of it would be on account of iron ore cost only, right? Is that the correct assumption?

Yes, INR 3,000 iron ore costs exactly.

Okay, sir. And just one last question, if I may squeeze in. Thermal coal prices has been increasing pretty fast, so just wanted to understand what was our 1Q average cost and what kind of cost inflation we expect in 2Q.

See, at the moment, we are very, very much covered till November, which is Q3 of this financial year. And in Q1, the average thermal cost for our imports was close to INR 7,500. But in Q2, we did around INR 8,500 because we -- I have covered my volumes well in advance. So the impact is not very huge when it comes to Godawari operations for thermal coal.

[Operator Instructions] Next question comes from Bhavesh Chauhan from IDBI Capital.

Sir, congratulations on great set of results. Sir, I would like to know how this funding is going to take place for this 1.5 million to 2 million tonnes. We require 3,000 crores to 4,000 crores and this is to be spent over the next 3 years. So are we looking -- we'll be looking to debt -- resort to debt also?

Bhavesh, this project is in initial stage, and we have to see as to how our cash flow grows over a period of time. And this project, we are aiming it to commission by 2024, '25. So over a period of next 4 years and our stand-alone debt, balance sheet is debt-free. So we will have substantial internal accrual of the cash flow. And if required, we may have to temporarily take some debt on the balance sheet, which we'll be able to finally communicate and then we're able to decide on the final balance sheet and what is our further debt raising plan going forward. But we will not be raising a substantial amount of debt. That much I can assure you. And further on this topic, Mr. B. L. Agrawal -- I would request Mr. Agrawal to give more highlights on this. Hello, over to you, B.L., sir.

Because now the company is debt-free and we have [ substantial ] cash flow coming into it, now we have decided to go for the next stage of expansion. We completed our last expansion -- major expansion in the year 2014 by setting up 1.5 million pellets plant. But thereafter, only bottlenecking exercises we have done and mining capacity were ramped up. Till now, we were into the long couple of segments only, and we are [ categorized ] [indiscernible]. Now we have decided to be -- a part of the [indiscernible]. We have planned to set up 1.5 million to 2 million tonnes of product segment through [indiscernible], where the quality will be fully ensured. I believe that we'll be able to complete our CapEx at a much lower cost compared to our peers. [indiscernible] has been identified, the [ environmental ] clearance documents are under preparation. And [ techno-commercial ] discussion with the equipment supplier is already going on not only with European suppliers but also with the Chinese suppliers. I hope that in the next 3 months, there will be a clear visibility as to what is the exact size of our plants, what ultimate product we are going to manufacture. Definitely, we'll prefer to manufacture the product with the subsidy announced by the government of India under PLI scheme, which is ranging from 4% to 12%. I'm sure this project will be commissioned somewhere in the first half of financial year '24, '25. The final numbers are yet to be worked out. But I'm sure in the next 3 months, that in the next conference call with the result -- of the Q2 result, we'll be able to announce our plans finally. Along the same, by setting up 250-megawatt power plant, we are moving towards the carbon neutrality. When this project is commissioned, which I hope it will be in commissioned partly in the current financial year and partly in the next financial year, our aim is to go for the carbon neutrality also. Once this 1.5 million to 2 million tonnes plant is commissioned, I think Godawari will be the 6th or 7th largest player in the country. And we'll definitely qualify [indiscernible]. Thank you very much.

Quite helpful, sir. Second, one more question I have, which is we have classified Ardent as a non-core asset. So are we looking to sell out of Ardent's stake?

No, no, no. Bhavesh, we are not exiting on the Ardent Steel. We wanted to divest some stake, which we've already completed.

Next question comes from Amit Dixit from Edelweiss.

Hello? Am I audible?

Yes, yes, Amit.

Yes. So -- hello, am I audible now?

Yes, Amit. Yes, you are audible.

Yes. So congratulations for a good set of numbers. I have 2 questions. The first one is with respect to, again, steel plant. So as Mr. Agrawal mentioned that we are going for a 1.5 to 2 mtpa plant, and it is under PLI scheme, so just wanted to understand the specific benefit of PLI scheme that you foresee for this plant in terms of products and in other aspects. That is the first question. And the second one is, a little bit intrigued about your increasing stake in Hira Ferro Alloys and kind of integrating it. Because of your captive iron ore, the ROEs of the 2 businesses are very different. So I mean, how will you ensure that the overall ROE of the business remains optimal by integrating the Hira Ferro Alloys? These are the 2 questions.

B.L., sir, you will take it, first question?

Yes, I will take the first question. Yes, I would like to take the first question. The -- recently, government of India has announced a production-linked incentive in the industry segment also amounting to INR 6,300 crores. Here, we are going to be 4% to 12%, depending under different products of our turnovers. These are the specific products, which are currently being imported. We are focusing mainly on the 2 segments, one that is API grade of steel, which is being used for transportation of the [ gas and oil ]. And second will be the coated steel, which is being used for the roofing and all that. So these 2 segments we are focusing on and which are being covered under the PLI schemes. Thank you.

And just to add to what Mr. B.L. Agrawal said, currently, on the specialty steel side, the current production in India is close to 11 million tonnes whereas we're still importing 3 million to 4 million tonnes. With the government of India's initiative, Atmanirbar Bharat, so they are promoting people should try and manufacture the steel in the country only and the imports to start reducing going forward. Thank you.

Sir, can I ask a follow-up on this?

Yes.

Yes. So you just mentioned about coated steel and API grades. Now if I look at the -- your experience, it has not been in these products. So -- and these are very specialized products. So what gives you the confidence that you will be able to kind of -- because these are very specialized kind of products requiring a very specific value chains that you don't have at the moment. So what gives you confidence that you will be able to achieve the optimum utilization and on marketing front also?

See now, to be very honest, right, so -- of course, this is going to be a new venture. It's going to be a completely new ball game for us compared to what we're doing right now. So with the kind of expertise we have and experience of ours and other technical expertise, we are very confident. We believe we're able to commission the project and maintain the quality standards as per the -- required by the government of India. We had no doubt about that, to be very honest with you. There's no technical reason behind it, but we know that we can implement, we can commission the project timely, and we will be able to deliver quality products as committed by us.

Great, sir. Appreciate that. And the second question on this Ferro stake?

Yes. Second question, Amit, about the Hira Ferro Alloys. As you may be aware, Hira Ferro Alloys has been our subsidiary earlier and during 2016, '17, which was de-subsidized for infusion of money into the -- our restructuring package at that point of time. And we had reduced our stake. Now with the availability of free cash flow, we want to reintegrate Hira Ferro Alloys with GPIL and at the same time, fund the requirement of Hira Ferro Alloys for setting up the -- for the requirement for the solar PV power plant. The setting up of the solar PV power plant, the operating cost is going to be much lower, maybe in the range of INR 0.50 per unit against the grid rate of INR 5 per unit, INR 5.5 per unit minimum for Hira Ferro Alloys. So it is going to give substantial aid in terms of profitability to the Hira Ferro Alloys. And with the integration of iron ore and steel and with the captive requirement of Hira Ferro Alloys in the steel business, we feel that this is a logical extension. And this should have been done earlier, but since our aim was to reduce the stand-alone debt first and close that and then extend -- integrate the Hira Ferro Alloys. And therefore, we have taken this decision.

Got it, sir. I mean I have a few other things, but I will -- maybe I'll take it off-line with you. So...

Next question comes from Shantanu Mantri from MK Ventures.

Really happy to see how Godawari has turned around in the last, say, 3, 4 years. It's been an exceptional journey, and I would first like to congratulate the entire team. Sir, my first question is, just wanted -- somebody had asked earlier that -- now that we are fully integrated with the iron ore capacities, so just wanted to recheck that our captive cost of iron ore, say, now going ahead will be somewhere around INR 3,000 per tonne, right? Is that right?

[indiscernible]

Abhishek, go ahead.

Yes. See, it used to be around INR 2,400, INR 2,500 levels, but because the increase in royalty, because the IBM prices increased month and over -- so at the moment, it is -- I think it will be somewhere around INR 2,000 level.

Okay. And this will be only from our mine, right? So there will be no -- going ahead, no...

Yes, this is fully -- yes, yes, definitely.

Okay. Okay. Got it. And sir, just wanted to understand any particular reason why our pellet volumes were a little lower this quarter. And what would be your, say, now with the enhanced pellet capacity as well, what sort of pellet volumes we'll be targeting for this year?

See, as Mr. Dinesh ji rightly mentioned in the start, we have already enhanced the capacity from 2.1 million to 2.4 million. And this year, we are confident we will be able to produce close to 2.4 million. For that, the CapEx has already been done, whatever technical expertise was required. So that project is completed. So we are already producing at the rate of 2.4 million tonnes firstly. Secondly, the volume will grow by 5%. June is the onset of monsoon in Chhattisgarh, and right now, the monsoons are pretty, pretty heavy right from start of June. It has been raining in and out. So I think the 5% something, it is something which will be easily made up in the coming months.

Got it. Got it. Just wanted to check if -- okay. Okay. And sir, so one last question. Just wanted to know in terms of moving up the -- like in our current portfolio of billets, round bars and HB wire, what sort of incremental EBITDA per tonne would -- currently we are doing in -- increase of what, say, our pellet EBITDA per tonne would be? What sort of incremental spread we would be making in these 3 products? If you could give some idea?

Yes, it's very difficult to ascertain at the moment because we have been into exports of [ iron ore ] primarily from last few months because domestic demand is very subdued. But yes, margins, only on the average side, I would say over and above pellet, sponge will give you additional EBITDA of close to, say, [ INR 1500 to INR 2,000 ] than billet will be because billet is more of an Indian process now. Billet [indiscernible]. So when it comes to wire rod or HB wire, we're looking at additional EBITDA of close to INR 2,500 per tonne minimum over and above pellet.

Yes, yes, yes. I got that. I got that. And sir, last question, what sort of CapEx number we will be looking for this year? I believe some little bit of debottlenecking is left. Anything other than that?

We're not looking -- Dinesh ji, please.

No, we have already given the numbers in our presentation. So we would need during the current year and next year about INR 70 crores in the iron ore mining and about INR 60 crores in the steel melting shops. So you can assume safely that INR 100 crores will go in the current year and the rest out of this INR 30 crores will go in next financial year. And there will be some CapEx in the solar PV power plant. Solar PV will be about 50% to 60% in the current year, and the rest will go in the next financial year.

Okay. Okay. Okay. That's perfect. Once again, I like to congratulate the entire team.

Next question comes from Ayush Mittal from Mittal Analytics.

First of all, congratulations and appreciation for the super execution done by the company over the last 2, 3 years. Sir, I wanted to understand 2, 3 things. First, can you share -- like, nontax can cause the beneficiation increase to increase the output of beneficiation plant and some more mining that we can do. So what kind of volume growth and benefits to be envisaged from these clearances? And how much would be our value-added pellets as of now? And if you are looking to increase that proportion going forward?

Abhishek?

At the moment, if I -- just to give you a technical explanation. So currently, whatever we are getting from our mines, earlier, we were not [indiscernible] lower grade, which was below [ 60 80 ]. The current [ charge ] mix coming from the mine, so we will be beneficiating the entire input from a mine before the pellets and that will increase our production of premium pellets, which is a high-grade pellets of [ 65-plus ]. So going forward, since we got the permission and the plant is commissioned, so expecting the volume going forward should be more than almost 60%, 70% going forward in the future quarters of high-grade pellets.

And in this quarter, what would be that contribution as of now?

At the moment, the contribution is close to 45% to 50%. That will increase to close to 70% to 75% going forward.

Can you, sir, repeat? I missed the number. How much is it now?

It is around 45% at the moment. And going forward, once the plant is stabilized and everything is in line, we're expecting the ratio of 65%, 70%.

Okay. And this should fetch us least 15% -- 10%, 15% additional utilization?

See, currently at the moment, we're getting close to $15 to $20 extra from the international market.

Okay. 7%, 8%.

Yes, at the moment. Once the brand established and we are able to capture more market, I am hopeful the premium should increase going forward.

Okay. Okay. Yes. Okay.

Over and above this -- Ayush, I just want to add on what Abhishek said. Over and above this, the Ari Dongri mine capacity is increasing. And therefore, the additional -- we are expecting additional savings from the captive iron ore, which we were buying from the market.

And sir, that should [ be different ] going forward from Q2?

Q1, we have mined about 5.5 lakh tonnes. So Q1 -- it will be in line with Q1.

Okay. Okay. Sir, my second question is around this additional investment that we are doing in Hira. Sir, can you share the thought process behind the valuation? How we have arrived at the valuation? Because if you look at some of the other listed companies, for example Sandur Manganese from Karoli expansion. Their expansion cost was much lower. And if I look at -- assess their power capacity, it's not as big as Hira. So I believe the enterprise value looks a bit too high versus the replacement cost.

See, the valuation has been done by an independent valuer, and I don't have the exact numbers with me right now. But I can discuss with you off-line any time after the call.

Next question comes from Pavan Kumar from Ratna Traya Capital.

Sir, regarding the iron ore cost, did I hear it right that going forward, the total -- I mean, EBITDA -- costing for iron would be around INR 3,000 per tonne? And also secondly, I wanted to ask you your corporate structure? In the sense, it looks slightly complex and also we have companies, which we -- which Godawari owns 50% and maybe the promoters on half of it. So is there any steps that we are taking to actually simplify the corporate structure of the entire group?

See, your first question was on the iron ore cost. So iron ore is, if you listened to Abhishek in the earlier -- reply to earlier call, it is close to about INR 2,800 per tonne from the captive mine, including royalty and transport cost. Coming on to corporate expansion, I'll just...

1 minute sir. So that INR 2,800, after this incremental overcapacity comes in, it will remain at INR 2,800? Or will it go to INR 3,000?

But earlier, the blended cost was much higher. Earlier, the blended cost was much higher. Our current cost -- because we were buying about 20% from the market, and market cost was anywhere between INR 5,000 to INR 7,000 a tonne and it went up to even INR 9,000 a tonne during the last financial year. So on an average, it would be closer to about more than INR 4,000 a tonne, including the captive mining. So this will go down to about, on an average, INR 3,000 a tonne. So on the entire production, about INR 1,000 a tonne saving on the iron ore side.

Okay. Last year, the iron ore cost was about INR 4,000 per tonne. This year, it will come down to INR 3,000 because of the irone ore that we have.

Yes, yes, yes. Average cost for production of pellets.

Okay. And the entire 25 -- entire extra iron ore capacity will be used up for our internal production only or iron ore will be sold outside?

No. Iron ore, we will use it captively only. We do not aim to sell iron ore in the new market.

Okay. That's great. On the corporate structure question, sir?

On the corporate side, I'll just explain. Within Godawari Power, we have Godawari Green Energy, as we have said, where in we hold 76% stake. And the company is -- we are [ expected ] to liquidate this investment. So this is in progress. Once this is finalized, we will announce to the market. Regarding the Godawari -- there's another company called Godawari Green Energy. This company holding the land. On this, we are setting up the 250-megawatt solar PV power plant. Rest are held by the promoters. We are 100% integrating with GPIL. [indiscernible] by transfer of the land to GPIL. Ardent Steel will continue to operate at 37% because we have divested from the state wherein earlier, it will continue to operate as a JV with the partners. So we do not aim to increase the stake in Ardent Steel. So that stake will continue. Hira Ferro Alloys, we have taken a step forward and making further investments and increasing the stake in Hira Ferro Alloys. Over a longer period of time, it will get integrated with GPIL. [ Godawari Power ] is already in the process of merger. So once this is merged, then this company does not exist. So within Godawari Power, we will have major companies operating with Hira Ferro Alloys as a subsidiary company, Ardent Steel as a JV company. Godawari Green and Godawari Energy in longer term will not exist. And about the 3 companies, neither infrastructure, [indiscernible] and Chhattisgarh coal mining. These companies are non-operating companies and is in the process of winding up. We are finding a suitable mechanism to close these companies. Okay. And Chhattisgarh Ispat Bhumi, again, is a nonprofit organization, which manage the industrial area in which our plant is set up. Godawari, being leading player in that area, has taken 35% stake and the balance is held by the government and some private players. So this [indiscernible] organization.

Okay. That's great. I hope the structure gets simplified soon. And just one last thing on the -- what are the pellet price right now, sir, going at on the international market from our side?

Around INR 15,000 ex plant.

And in Q1, that was?

INR 14,000.

Next question comes from Noel Vaz from Ashika Group.

Yes. Actually, I just wanted to clarify one point regarding the iron ore sourcing. So previously the [indiscernible], in the prior quarter, there was some amount of non-captive sourcing of iron ore, right?

Yes.

So that was about 20% of the requirement of the company?

Yes.

Okay. I just wanted to clarify that point. And the second point is actually relating to the overall plan to set up the green energy units. So with the new 250-megawatt plant which is going to be set up, so that would meet all the -- [ would ultimately ] complete carbon offset to the current carbon footprint for the company? Or will it be an offset for even the expansion as well, as in how will that exactly work out?

No, no. Can you please repeat the question? I have not understood exactly.

Okay. So the new 250...

Yes, 250 megawatts solar PV power plant, yes.

Yes. Yes. So the new plant, which is going to be set up is going to help offset the carbon footprint for the current operations of the company, as in that is one of the -- I mean what is the other benefits are there in the lower power costing at present?

Yes, I got your point now. So it is like currently, we are buying some power from the electricity grid. Power is there, which we are buying at about INR 5.5 to INR 6 per unit. And with the increase in steel billet capacity as we have said in our presentation from 400,000 to 700,000 tonnes, there is an additional power requirement for our captive requirement. And some of the high-capacity old power plant is there, where the cost is very high. So that will get replaced with this solar power plant incremental requirement for our steel melting shop. That is where this entire power, about 35 megawatts will -- the actual generation will be closer to about 37, 38 megawatt because solar PV operates at about -- say about 16% to 17% PLF. And that will be used for our entirely captive requirement. Hope it is clear.

Yes, sir. Operator here, he dropped out from the call. So can we go ahead to the next question, sir?

Yes.

Next question comes from [ Raj Nahar from Milli Consultants ].

Congratulations to the entire team for superb results. I have 2 questions, basically. One is that you are putting up solar power in the ferro alloys business as well as in main companies. So how are you going to feed the power in the night? Because -- are you going to continue your existing setup of power plant? Or what way you are going to match your requirement?

As far as Godawari Power is concerned, I just replied. This is for the incremental requirement, plus replacing certain very high-cost power, coal-based power, in our existing locations, which is getting old. And in case of Hira Ferro Alloys, Hira Ferro Alloys is already drawing about 15-megawatt power from the grid, which will get replaced with the solar PV power plant, which will always [indiscernible].

What will happen in the night?

No, both this power, which is coming at a substantially high cost of INR 5.5 to INR 6 per unit will get replaced with the operating cost of INR 0.50 per unit plus interest and the grid [indsicernible].

No, no that is not my question. My question is that you are putting up such a large capacity. So in the night, you will continue to draw the power either from the grid or you continue to run on solar?

Dinesh ji, I'll take it. The government of Chhattisgarh has a solar policy, where we are allowed to [ dam ] the power. So whatever power we generate from the solar plant will be [ dammed ] in the grid, and we will draw from the grid as per the requirement.

Okay. So -- and how much costs are you going to incur for this cost -- getting from the grid -- additional any costs?

No, there is no additional cost, except minimum demand charges.

Okay. Because you have to keep higher demand basically constant demand. Okay. That is okay.

Which we are already doing because we're already drawing power from the grid.

Yes. Yes. The second point is basically regarding your beneficiation plant which is a great addition and it is going to give you sustainable saving. Can different strategy be adopted? Because the high-grade pellet gets around $300, [indiscernible] is around 63%, 67% as the content. So whether that can be exported totally or sold at a higher price and whether we can source the required iron ore from the market, by that way, the profitability of the company can shoot up substantially. And whether that kind of strategy are you thinking or is it viable? I just wanted to know your mind.

See, procuring high-grade iron ore [ fine ] from the market is [ totally of the question ]. The average actually available in today's merchant market in India is close to [ 16% to 16.5% ]. It is difficult to beneficiate and increase directly to 68, 69. To make 67 pellets, we need a concentrate of 69. So it is not possible with the current availability of iron ore from India. So that possibility is ruled out. And currently, what we are making is -- it is around [ 65.5 ] pellets compared to 67 of Vale. So Vale [ rides ] international market of pellet will give the highest premium. So we have been trying to streamline our processes to improve the [ FE ] so that we can compete against Vale and get a better premiums. But that is a work in progress. And I cannot commit anything concrete on this at the moment. It is still a work in progress.

Okay. And since pellet capacity is 2.4. So are you -- because beneficiation, we will get the fine concentrate, something like that. So what are you going to do for the pellet quantity? You can't use in the sponge iron plants or something like that.

No, no, no. So -- no, no, I'll tell you. 3.2 is the input into the [ beneficiation ] plant. It's not the output. So by 3.2, it means it is a throughput with a yield loss of close to 15%. So we will be getting an output of close to [ 2.8 million, 2.10 million ] tonnes, which will be used for making pellets.

Next question comes from [ Ram Shankar from Stocks Populi ].

Congratulations to team Godawari for excellent results. I think the last 2 years have been very high on execution, so congratulations. And also thank you for an insightful investor presentation, lots of details there, quite helpful for the investors. Sir, my first question is considering -- you mentioned our iron ore landed cost will be somewhere around INR 2,800 to 3,000 per tonne. So for pellets, and I'm asking specifically for pellets, at what selling price per tonne are we going to be EBITDA positive on pellets? Is it INR 4,000 per tonne or INR 5,000 per tonne? Roughly, any number that you can give?

On the pellets side, to be positive, we need a realization of ex plant INR 5,000 plus.

And sir, how much of this pellet capacity do we use for our internal consumption for sponge iron and billets, rounds, et cetera? Is it roughly 30%, 40%?

Yes. So in terms of number, I would say, currently our sponge capacity is close to 0.5 million. So we need close to 0.8 million -- sorry, 0.75 million for that. And once the sponge iron capacity goes to 2.6 million, so we'll be consuming around 0.9 million tonnes on an annual basis. Roughly about 40% of our installed capacity.

And sir, last time I understood that the pellet contribution to the overall EBITDA is roughly around 70%. So what is the latest product mix? Is it still 70%? Or is it -- any change to that number?

Yes. At the moment, because the pellet price is -- the iron making is getting a better leverage in the national market because of higher iron ore prices, so currently, the ratio is around 85% comes from ferro operations and 15% from the steel operations. But as probably going forward on the market [ realizes ], the prices are controlled, this -- there will be a shift -- there will be a constant shift in the EBITDA level, depending on the market.

Yes. So my second question, sir, and I understood that there was some inventory clearance issues at port and that has been cleared in the first week of July for the drop in the sales numbers. But sir, I am going through your presentation, Slides 13 and 14, for your production and sales numbers. So if I see even for FY '21, your production for sponge iron is roughly around 5 lakh tonnes, billet is 3.5 lakh tonnes, rounds 2.6 lakh tonnes. But the sales are roughly per -- sponge iron is just 20%, 1 lakh tonne; billets, 40%, 3.5 lakh tonnes. And the same thing is happening in the quarter also. If you see billets is only 25% of the production, the sales is just 25%, rounds is 50%. Sponge was very less, only 3%. So just wanted to understand how do -- what is the exact reason for this? And how -- what are we doing to kind of address this mismatch between production?

No, see -- no, so I'll tell you. So there is no mismatch. We have been increasing our steel capacity day on day. So we have taken a couple of projects for innovation, which are being completed. So moment the billet production goes up, the sponge sales will go down because the production of sponge is constant at the moment. So the moment we're able to ramp up our production of billet, so going forward, I can tell you, FY '22, the sponge sale will be completely 0 and that sponge will be committed to making billet, and billet will be committed to -- into the wire rods. So going forward, it will be complete integration of pellet to wire rod. There will be no sale of pellets, no sale of sponge iron.

Understood that, sir. Now sir, there was some adjustment of inventory in your income statement. So the last year balance sheet FY '21 year ending was roughly around INR 450 crores of inventory. So what is the current number, if you can give, sir?

Current number readily is not available. Bothra ji, are you aware?

Inventory level will be more or less the same as last quarter.

Okay. And sir, just last question, if I can squeeze in. Sir, you mentioned that the inventory at ports got cleared in the first week of July. So can we expect a higher sales number for this quarter because the sales number for Q1 was a bit subdued?

Yes. I'll tell you the -- yes, yes, I'll tell you. Currently, it's a monsoon season all over India. So port operations do get hampered to a certain extent because of the monsoon. So we try our best to deliver the shipments as per the contract and as per the agreed date. But here -- 15 days here and there, it is acceptable in such monsoon conditions. Once the monsoon is over, we are very confident that there will be no lag in deliveries. It's something which is not in our control. It's totally up to ports how they handle the cargoes and how they deliver the vessels. That is the issue.

Okay. Just one last question. Any...

Sorry to interrupt you, [ Mr. Ram Shanker ]. Can you please join back the queue for further questions? We have other participants waiting on the queue. [Operator Instructions] [Audio Gap]