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

Ladies and gentlemen, good day, and welcome to Godawari Power & Ispat Limited Q1 FY '24 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sana Kapoor from Go India Advisors. Thank you, and over to you.

Thank you, [ Lizan ]. Good afternoon, everybody, and welcome to Godawari Power & Ispat Limited earnings call to discuss the Q1 FY '24 results. We have on the call Mr. Abhishek Agrawal, Executive Director; Mr. Sanjay Bothra, CFO; and Mr. Dinesh Gandhi, Executive Director. We must remind you that the discussion on today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with the risks that the company faces. May I now request Mr. Dinesh Gandhi to take us through the company's business outlook and financial highlights, subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Sana. Good afternoon, everyone. Thank you for joining the earnings call for Q1 FY '22 of Godawari Power & Ispat Limited. Our financial results and earnings presentation is available on our website on the stock exchanges. I believe that you have been able to have a chance to review it. I'm excited to share our financial performance and discuss with the acumen and milestone this quarter. For this, we can proceed with the Q&A session. GPIL kickstarted FY '24 on a positive note. Before we dive into the financial business and performance highlights, I would like to throw some light on the strategic update. As you must be aware, GPIL had announced an ambitious CapEx plan aimed at significantly announcing the iron ore mining capacity and pellet plant capacity. The plant [ until ] more than doubling the mining capacity that it already mines, expanding from 2.35 million tonnes to 6 million tonnes. Additionally [indiscernible] intends to establish a new beneficiation plant at the Ari Dongri mine with a capacity of 6 million tonnes. The project pipeline for the same is completed by about 15 months with an estimated CapEx of INR 40 crore. GPIL has also outlined plans to augment the pellet capacity by 3 million tonnes, resulting in an increase in the capacity from 2.7 million to 5.7 million tonnes by constructing additional pellet plant. The expected time line for expansion of the project is approximately 30 months from now, these estimated CapEx of INR 800 crores. Further, GPIL has decided to increase the capacity of integrated steel plant by 1 million tonne, alluding from to a present capacity of 0.5 million tonne, taking the total capacity to 1.5 million tonnes. According to our estimate the CapEx for the same will be approximately INR 2,500 crores and expected completion time will be 36 months. We are awaiting the environmental approval for all these projects. Once the approval is received, the construction activity shall start. The time line for completion is in the -- for the regulatory approval is during the current financial year, and we hope to start the construction activity in the next financial year. Our company is resilient and commitment to reducing the carbon footprint. GPIL taking complete steps towards the goal by establishing total solar power capacity of 155 megawatts spread across 3 projects. As of FY '23, we had commissioned 70 megawatts of GPIL solar power plant and 30-megawatt on the HFAL and further constructing 55-megawatt capacity which is expected to be completed by end of September in the current quarter. I would like to highlight that when comparing the current prices of the [indiscernible] power, the cost of solar power generation, GPIL on average sales is [ 3 rupees ] per unit with the plant load sector of around 15% of the solar capacity. In the current financials, our normal CapEx [ for the ] steel and power plant other than the solar project is in [ Khairagarh ] INR 125 crores and the expected completion is in the current year, which includes replacement of turbine, some modification in our rolling mill and the steel billet plants, et cetera. Over and above this, I'm pleased to announce that GPIL has successfully introduced a new product the 66 Fe Pellets, which has received an overall positive response from the market. Notably, these pellets are affecting significantly better realization as compared to the 63 Fe Pellets. The additional realization is in the range of INR 1,500 to INR 2,000 tonnes for 66 Fe Pellet. Coming on the operational comments, I'm delighted to share that as per our volume guidance for [ FY '23 ], we have already achieved 30%, 25% and 28% target in sponge iron, billet and the rolled products. This is a strong performance given the confidence that we have been able to reach our guidance target for all products. We outlined in the last quarter and are sticking to our guidance for the current [ realization ] as mentioned in our presentation. Iron ore volume in first quarter Q1 FY '24 displayed a [ mining production target ], and we are confident of achieving the total volume for the current year. Iron ore pellet production decreased 21% quarter-on-quarter and Y-o-Y basis due to the client maintenance shutdown. On the other hand, sponge iron, steel billet and MS round production needs to be significantly primarily because of the shutdown taken in the last quarter in Q4 FY '23. Iron ore [ pellets ] decreased to 97,000 tonnes because of an increased capital condition of pellet for production of the sponge iron in the current quarter. Sales of sponge iron, steel billet and MS round have also increased significantly in line with increasing production. Realization for pellets has shown an increase of 3% on quarter-on-quarter basis. Our average utilization for the quarter is INR 10,200 per tonne. Other products have showed a slight decrease in the prices in line, obviously, with the reduction in the fuel cost. All in, Y-o-Y basis realization across the product has [ fallen ]. If you compare our results with Q1 FY '23, then the FY '23 was an exceptional period when the [ surplus ] prices of iron ore was very high, and therefore, our realization was very high, which is not a normal circumstance. So the Y-o-Y number estimate [indiscernible] normal market condition, which is -- which was Q4 FY '23. And our performance is in line with that. Coming on the consolidated financial performance, the revenue for the quarter showed a marginal increase of 1% to INR 1,326 crores. On quarter-on-quarter, however it dropped 20% on Y-o-Y basis, primarily because of falling realization of all products. EBITDA increased 14% quarter-on-quarter basis to INR 305 crores, PAT attributable to owners increased to INR 231 crores, up 36% quarter-on-quarter. I would also like to mention that there was an exceptional income of INR 18 crores in Q1 FY '22 -- Q1 FY '24, which was received from the buyer in terms of our share purchase agreement for sale of investment in Godawari Green Energy, which is about 25 megawatts solar thermal power plant, which we sold in FY '21. Moving on the stand-alone performance. Sequentially, the revenue dropped 1% to INR 1,207 crores, whereas EBITDA and [indiscernible] increased 9% and 16% to [ PAT to end at ] crores and INR 224 crores. EBITDA margin improved in the quarter to 25% as compared to 22% in Q4 FY '23. Coming on the market outlook, international global iron ore prices have touched 233 (sic) [ $133 ] CIF China in mid-March 2023 following the China's economic -- economy reopening. However, a sharp increase in iron ore supplies by global majors coupled with lower-than-expected demand pickup in China resulted in correction in prices to current level of $115 (sic) [ $117 ] a tonne. However, recent announcement by China to support housing and infrastructure sector might lead to an increase in consumption of iron ore. World Steel Association is projecting a robust 2.3% growth in the steel demand for FY '23 followed by further 1.7% in 2024. The positive outlook bodes well for the steel -- demand for iron ore and we anticipate prices to remain well supported at the current level. In domestic market, iron ore prices have [ an MSME ] -- there has experienced slight increase prices from INR 3,660 per tonne in January to INR 4,210 per tonne at present. While prices have recovered from the lows observed after imposition of export taxes, they have remained well below the last year level of INR 5,000 per tonne, considering daily pellet prices touched INR 10,200 in March '23, but has since declined to INR 8,800 a tonne or per normal grade of pellet, which is at 63 Fe. This positive outlook for steel demand, It is expected with the pellet prices should be well supported at current levels. With this, I conclude the opening remarks and we can now open the floor to question and answer.

[Operator Instructions] The first question is from the line of Jatin Damania from Kotak Securities.

I just want to check that, if you look definitely globally the realizing of the iron ore or and the pellet has corrected to INR 8,800 crore, whereas our realization on the sequential basis has gone up to near about INR 10,200 crore. So can you guide us in terms of what was the total contribution of the [ high tech ] pellet in the overall basket, which has helped us to run at such a high realization? And how do we see the pellet market and the realization going forward?

Okay. I'll [ answer the question to PAT ] In Q1, the [ higher grade ] production was less than 50% because we have taken the annual shutdown of our pellet plant, the bigger one. That's our strategy, we take a shutdown before monsoons. So Q1 is always the production volumes are low. But going forward, target production is going to remain at 65% level of the [ gas ] production.

65% will be a higher grade production?

Yes.

And from Q2 [indiscernible] from the July onwards is the pellet running at the full capacity or the shutdown at the end for monsoons [indiscernible]?

No, no. So from month of June, the operating at full capacity. The month of May and from June onwards. So whatever numbers we have given in terms of our annual [ realized ] volumes, we are confident we be able to achieve that.

Sir, a couple of more questions. Since you have already commissioned the 70 megawatt solar plant and [ 50 megawatt ] is expected. In addition to this, you are doing INR 125 crores of CapEx on the relining and the undersetting of the other turbine. So could you help us in understanding what will be the savings that will be having on both the solar and the new turbines comes in place?

So put together, the solar 70 megawatts plus that [ G ] capacity at the line, we're expecting an annualized saving of INR 100 crores, INR 125 crores on EBITDA level, on an annual basis.

And lastly, any update on the [ individual ] what product and where are we -- how are we moving?

As you see, we've been saying that timing again. But unfortunately, there has been quite a lag in terms of our approvals. So as I said, we still have a few months before we start the work. So I am making it very clear, but we are on the [ finishing ] side, we are exploring the [ in the long ] as well as [indiscernible] So I think in time once we start the groundwork, we should be in a position we decide which kind of [indiscernible] we be making. So we would need some time. But we're still exploring [ it all ] because a lot of [indiscernible] since this will be our first project in terms of primary production. So we will need some more time to finally decide the [ production ].

[Operator Instructions] The next question is from the line of from [indiscernible] from [ SBICap Securities ].

I just have a couple of questions. So the first question was that [indiscernible] like? And how much will you be importing Q1 [indiscernible]? And what is the inventory of coal as of date? And second question is what is the pay back [ to the head ] of this new CapEx plan?

Okay. So to answer your first question. So we import about 0.5 million for our [ DI ] operations. We have been doing that earlier, and we will continue to do that in the future as well. So on the pricing side, as you are aware, the [ Tumbler Index ] has gone below on big levels. And more [ such events ] are -- we are buying on index. So we are moving with the market. So as the market is going down, we will get the benefit of lower input for our [ DI ] production as well. So on a fixed number, you can say currently we landed close to the plant is about [ INR 12,000 ] per tonne, which will further go probably down by [ INR 1,000 ] in the coming months. Again [ INR 18,000 ] in Q4, say about [ INR 15,000 ] in Q1. So Q2, we can see a number of pay about [ INR 12,000 ] average mine [ coming ] costs from [ DRI ] and on inventory levels, usually including the transit in the pending shipments and the stock we have, we'll be maintaining a level of 2 months. Because the monsoon, we need to keep that leverage so that the plant doesn't get hampered. So at the moment we can [ give here ] 2 months. So basically, Q2 or previous 2, 3 years ago.

Okay. And what is the [ back end of this ] CapEx plan?

Okay. So there is [ multiplication ] going on. One is the steel capacity from 0.4 to 0.5 million, which will be commissioned in through to itself. Then second one is better mine, again, the 40 megawatts were buying which will be commissioned again in Q2. To combine these 2, we expect that the power can [ empower ] fuel costs to go down by at least [ 1 rupee ]. So on an overall generation, as I mentioned earlier, the [indiscernible] the solar, everything put together on the [ NG ] side, we expect sitting about [ around 25 ] years on an annualized basis.

[Operator Instructions] The next question is from the line of Chirag Singhal from First Water Capital.

So my first question is on the 66 Fe Pellets that you mentioned. So you mentioned that the realizations are INR 1,500, INR 2,000 per tonne higher. So is this in comparison to the regular 63 at the grade? Or the second highest [indiscernible]?

So just to be clear with things. So what we have done is, earlier we're making a 65 Fe Pellet. So we have improved that same pellet to 66 now and what Mr. [indiscernible] mentioned, so the premium of [indiscernible] is over the [ 63 ] pellets. If you compare [indiscernible] pellet -- so at the moment, since because this is new to the market, we are trying to establish for the new buyers to really getting if you know about [ x rupees ] over 65 Fe pellets.

Okay. And just wanted to understand the delta when you produced the 65 or 66 Fe [ pellet ]. So what is the incremental cost that [ you think of ]?

Inventory cost is about -- it's about INR 250 or INR 300. So the addition delta [ falling between -- ] which will add to a bottom end is about INR 500 to INR 600 per tonne.

Sorry, [indiscernible], you said INR 500 crores to INR 600 crores?

Yes, because [ repeated earlier ] are additional in food costs. And at the moment, we're able to realize that we know of, say, INR 800, INR 1,000. So if you compare apple to apple, so we'll probably make the about [ INR 500, INR 700 ] more compared to a 65 pellets.

Okay. Got it. And what is the price trend looking like for [ 65 Fe ] for the current quarter versus the last quarter?

See at the moment, so domestically, the prices are about INR 9,000 for the 63 Pellets, for the higher gain which we have started marketing. We are getting the price anything between INR 10,500 to INR 11,000. Still, I would say, it's early stage. What we are confident as people start using this quality, we would be getting the desired premium going forward.

So broadly for us, the realizations would be a little bit higher than what we did in Q1.

In terms of -- yes, definitely volumes are going to go up compared to Q1. That is for sure, because there are no shutdowns. And on the pricing side, we had a plan of INR [ a rupee ]. I would still say we probably will be in the range of INR 10,500 because this is monsoon season, the domestic demand is still very weak. The markets have been going down month-on-month. So if you're able sustain the same price, I think it should be a good number.

And what about the finished deal?

Finished deal? In terms of pricing?

Yes.

[ With this exercise ] so compared to Q1, the prices are further down to at least 10% in Q2, for sure.

Sorry.

Today sponge iron is about INR 27,000, billet is about INR 40,000, INR 41,000, and [ power ] about INR 45,000. If you compare to Q1, the spend is about INR 30,000. So there'll be a 8% to 10% drop in the [ industry ] prices compared to Q1 for this quarter. But at the same time, the input cost has gone down in terms of common coal or the power coal because the domestic coal prices have crashed. They are almost line with the lower end bottom prices, which used to be pre-COVID levels. So that will help further sustaining [ EBITDA ] level.

That was my last question, actually, the coal cost only. So you mentioned that -- so if I got it correct, you are expecting some INR 3,000 per tonne on your consumption cost in coal for the current quarter versus the last quarter?

Yes, INR 2,500. Exactly.

[Operator Instructions] The next question is from the line of Nikhil Chandak from JM Family Office.

Abhishek, so I had 2, 3 related questions all around the capital allocation policy, both at the company and at the promoter end. Now it's obviously a great thing, it's a cashless balance sheet. But look recently, for example, we did that unsecured loan to another company in the similar line of business, Prakash Industries, [ they flexed our ] shares in favor of Godawari. Why would you do something like this? As in why get into these unsecured loans to either players in the industry or outside the industry? That is the first question. On the second -- I also understand [ you had ] the promoter and there are a few other business interests also which the promoters have, like, for example electric 2-wheelers and things like that. Now any chance that you kind of would want to fund this from Godawari's balance sheet? Or would that be again funded by promoter end itself? And just from a management perspective, time allocation or between -- or focus between the 2 entities, with Godawari versus some of the other business interests. And the third one was, again, we saw like some decent selldown by the promoters, which was, frankly, I thought, surprising because there was a buyback which was just done and had [ tried to ] -- the promoters are cashless. So why sell down stake in the listed entity? And would you look to do more of those kind of sell downs?

I'll answer the question on the first part -- so yes, we do have given some entity loans against the [indiscernible] the hedging of the cash [ alternative ] but on overall, we do have a nice -- the shareholders, especially are not happy with this approach at the company. And as a management, I can comment to you, whatever has been done has been done, I can assure you, all the loans have given are -- all are unsecured, but they will come back to the company because [indiscernible] in case. And going forward, we have taken a management decision, we will not engage in this tactic any further. So whatever is gone, gone is going to come back to the company as for [ dealer ] agreement. But going forward, we will not continue with this practice. So then I can assure you that. That answers your first question. Second part would be -- on the -- we have no intention of funding any promoter investments or their growth from time company. Godawari [indiscernible] company and ensure whatever has [ certainly ] been done, it means the company to add value to the shareholders. And the third question. See, we did dilute some stake. The reason was, we were always looking to get good investors, gains [indiscernible] both so there was an opportunity. We thought it would add value to and everyone on board including the shareholders. So that is the reason [ no directive ] There's an opportunity where we wanted to get good investors on board. So we have [indiscernible] big customers. That was the only reason.

No, that's very reassuring. So just on the cash generation, which will happen in addition to the CapEx which is going into the business. So from a dividend plus buyback, would the similar strategy as in the recent past, continue over the -- say, the medium term?

So see, we have a dividend policy, which has been approved by the Board, and we will stick to the dividend policy. We are very clear, whatever cash [ generation is going to be ] here, either is going to -- we're going to distribute to the shareholders and we're going to go to the CapEx. So we will follow dividend policy by the [ fee ] and if you compare the last 3 years, the [ dividend issue ] was maybe more than almost 20%, 25% on a year-on-year basis. So I think that's a bit good dividend policy. So we will continue with that.

[Operator Instructions] The next question is from the line of Rakesh Roy from Omkara Capital.

This is Rakesh. Sir, my first question regarding, sir, how is the ferro alloy business doing as of now?

See, ferro alloy business, I would say, is not going very great because the [ buyer effect ] almost to the rock bottom. Currently, the [indiscernible] [ alloys ] are about INR 55,000 [indiscernible] plant. The only silver lining is the input cost, which is [ maybe the 90s ] and come and [ call in the ] coke . So [ sustainably ] they also dropped down in [ the end ] is hovering around at the end lower, rock bottom what I would say. And same is with for thermal coal and as well as the coke. Definitely, there will be a substantial savings on account of power generation because the prices of domestic coal have come down to rock bottom prices. So we can see some savings on the power generation side. But as a whole, the ferro industry right now, I would say it's operating at a very minimum profit, I would say.

Okay. Got it, sir. But sir, your reliance on [ coke ] has come down due [indiscernible], is that all right?

Yes, definitely, of course, because the prices are -- I think in Q1 is about [ INR 70,000 ] now in Q2, it's about [ INR 55,000 ]. And the demand is quite weak because India is suppressing alloy production. So a [ fund ] has to be expected to balance out the demand and supply. So the prices are definitely under pressure in terms of ferro at the moment.

Right, sir. Sir, my next question is regarding [indiscernible], sir, maybe I misheard. But sir, can you highlight on the new product, the 66 Fe or how the differentiate in terms of pricing from 65 and other?

So as I mentioned earlier, so we have improved a step further. Now we are making a 66 Fe pellets, for which we are getting an additional premium of pay about [ INR 1,800 or in above ] the 65 pellets. It's a very initial stage, I was a very initial phase. As people start using it, the [indiscernible], I'm sure we'll be able to prove the desire for the longer term.

Okay. So sir, same for [indiscernible] sir. Sir, in Q1, we have 65% of [indiscernible] on high grade [indiscernible]?

So we have been reducing the percentage of highly production of pellets compared to my normal. It is always 55% over the last 2 years, and we will continue to maintain that.

Okay. After 66, we will maintain 65 volume?

The percentage should be 65% only. Yes. At the moment, the production volume will be same. Exactly, we have improved the quality a notch more.

Okay, sir. Sir, next question is regarding -- okay, most of the steel plant or steel players are setting their own [ play platform ]. In that case, can we face any difficulty to selling the pellets?

No. So I would say a very stable answer. There are 2 reasons but -- because of the captive mines, our centers [ are in all ] at a very lower cost compared to others. And because the entire India is making the same grade, which is [ 63 Fe ] pellet. So -- but in my case, since I'm making a premium product, which is a [ 66 Fe ] now, so I have a different market, I have a different audience, different target audience. And [ practically ], we always put in the export market as well. So I don't see any reason that we would be taking any kind of [ permission ] from my peers in the domestic market because of quality.

So most of [indiscernible] companies saying [ they will call for ] next 1 month or [ thereon make their coke ] cost will come down. In that case, sir, our realization will come down or how much you are expecting, sir, in near term?

So as I mentioned, for us, I know doesn't come down much because it's the tax is also on me, right? Only on the royalty part, it keeps changing up and down. On the coal side, definitely someone [indiscernible] as I mentioned, in Q1 the average price was about INR 15,000 [indiscernible] to expecting average price of about [ x rupees ] So that will certainly add to our additional EBITDA. But at the same time, in the finish it had gone down almost 10%. So that will balance out. So whatever input cost has gone down, the finish has gone on in the same proportion. I don't see much improvement on that side.

[ You said ] usage coal will come down from INR 10,000 to [ INR 2,500 crores ]?

Yes, yes, for Q2.

Sorry, in total [indiscernible] how much percentage [indiscernible]?

See, I think coal -- so coal is about 35%.

35%, sir?

Yes.

Sir how much your energy we are using for renewal currently in terms of percentage?

In terms of renewable power, it's about 30% at a group level, [ that would be our ] level.

Any plan to increase in your [indiscernible], you are just mentioning [indiscernible] megawatts on the solar plant.

Currently 100 is running and another 55 is in pipeline, which will be commissioned in Q2. And -- so -- and going forward, there is plans into further power, then we will provision [indiscernible] We won't go with a full base plant in [indiscernible].

Sir, you said [indiscernible] pillar, the products price come down [indiscernible].

Yes.

Okay. But last year, same Q1, so the [indiscernible] there for [indiscernible] sir.

See, depending on the machine ability and the machine condition, we decide everything before hand before the year starts. So [ we sit down, can be ] Q1, [indiscernible] Q2. But on the overall guidance, if you see, at the end of the year, the numbers we have committed, we are [ continuing that ] the 0.5 million volume. [indiscernible] into year 2024.

Sir, last year, we have -- you will [indiscernible] by 6.7 lakh tonnes.

No. It's that other report that I give you, see that guide, see the annualized basis, we produced about some INR 2.6 million something. So this is also -- we are confident we will see the same volume.

For FY '24, we are still seeing the same volume?

Yes, definitely.

Okay, sir. All right, sir. And regarding, sir, your mining ferro, it takes how many months approval for full ramp up the new [ access the mining ] [indiscernible]?

Once the approvals are received, anything between, say, 12 to 18 months.

[Operator Instructions] We move on to the next question that is from the line of Vikash Singh from PhillipCapital.

Good afternoon, I want to understand one thing. Once we improved our pellet and new pellet product capacity, would the high-grade pellet ratio would remain the same, like today 65% or it could come down?

No, no, no. So the current capacity is 2.7 million going. So of course, we are -- we have applied for approval of 3 million tonnes. But I also said earlier, depending on the market conditions and then a mining expansion, we might see the capacity to probably set to past 1.5 to 2. But yes, going forward, whatever pellet we produce, it's going to be high-end pellet that is for sure. So we will solve the capacity in the same volume, and we can finance a mining capacity. So going forward, the ratio of higher pellets will go up rather than going down.

Understood, sir. And sir, one more thing. If I remember correctly, we previously talked about debottlenecking our [ sponge iron ] plan, bringing it to almost 6 lakh tonne capacity. Looking at the 1 quarter results, you see that is running at the same capacity. Considering we have done maintenance CapEx already. So why we are still giving a guidance of 0.5 million tonne only and not 6 lakh tonnes?