Godawari Power & Ispat Limited (GPIL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Godawari Power & Ispat Limited Q3 FY '24 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Sana Kapoor from Go India Advisors. Thank you, and over to you, ma'am.

Thank you, Viren. Good afternoon, everybody, and welcome to Godawari Power & Ispat Limited Earnings Call to discuss the Q3 and 9 months FY '24 results. We have on the call Mr. B.L. Agrawal, Managing Director; Mr. Abhishek Agrawal, Executive Director; Mr. Siddharth Agrawal, Executive Director; Mr. Sanjay Bothra, CFO; and Mr. Dinesh Gandhi, Executive Director. We must remind you that the discussion on today's call may include certain forward-looking statements and must be therefore viewed in conjunction with the risks that the company faces. May I now request Mr. Dinesh Gandhi to take us through the company's business outlook and financial highlights, subsequent to which, we will open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Sana. Good afternoon, ladies and gentlemen. Thank you for joining us today for the Q3 and 9 months FY '24 earnings conference call of Godawari Power & Ispat Limited. Our financial results and earnings presentation is available on our website, as well as on the stock exchanges website. I believe you have had a chance to review the same, I will take you through the results and the recent updates of the company, post which we will have the question-answer session. I'm pleased to announce that GPIL has demonstrated robust financial performance in Q3 and 9 months FY '24, driven by increased production volume of value-added products, higher realization of iron ore pellet, cost savings achieved through the reduction in power and fuel cost. Not only this, I'm happy to say that GPIL has received the environment approval for capacity expansion in the pellet plant and the company has decided to increase the plant capacity of integrated steel plant to 2 million tonnes instead of 1 million tonne proposed earlier. Before discussing on the financial performance in detail, I would want you -- to appraise the strategic updates for the quarter and till date. The company has received consent to operate the Sponge iron plant at an enhanced capacity of 595,000 metric tonnes from 495,000 metric tonnes earlier. We have been awaiting this approval for last more than 1.5 to 2 years, and we are happy to announce that this has been now received. Based on the same, we have increased the guidance for our production volume in the current year itself to 590,000 tonnes. GPIL has also received permission to operate the Steel Melting Shop at a higher capacity of 525,000 metric tonnes -- million tonnes -- metric tonnes from 400,000 metric tonnes at the existing plant at Siltara, Raipur, the enhanced capacity of Billet is operational and based on the same, company has increased the guidance for the production of the steel billet to 475,000 metric tonnes for the current financial year. Due to the consent for higher production of the steel billet, sponge iron manufactured by the company shall be 100% captively consumed, which will lead to value addition and improvement in operating margins. The additional power required to operate the higher capacity in the Steel Melting Shop will be made from the additional power being generated from recently commission, higher efficiency power generating turbine and solar project commissioned in the recent past. Overall, the increased capacity is value accretive. Coming on the updates on the CapEx plan. GPIL has planned more than -- plan to increase more than double the mining capacity at Ari Dongri Mine, expanding it from 2.35 million tonnes to 6 million tonnes per annum. The enhanced mining capacity shall be operational on receipt of environment clearance and production shall be gradually increased over the next 1 year. The company has already filed a revised mining plan for increased mining capacity of mine and TOR is also received. The public hearing is expected to be concluded in Q1 FY '25, post which the environment approval is expected to be received. GPIL also setting up a beneficiation plant at Ari Dongri mine with capacity of 6 million tonnes, the estimated CapEx for the same is INR 200 crores, which will be set up in 15 months after the receipt of environmental approval. GPIL has earlier planned to increase the pellet capacity by 3 million tonnes. This will be done in 2 phases. In first phase, pellet capacity will be increased by 2 million tonnes and another 1 million tonne will be done in the Phase 2. CapEx requirement for Phase 1 expansion is 600 crores. As mentioned earlier. I'm delighted to inform you that environmental approval for the same has been received and project is estimated to be completed in Q1 FY '26. Further GPIL has decided to increase the capacity of integrated -- proposed integrated steel plant to 2 million tonnes instead of 1 million tonne proposed earlier. Based on the detailed diligence done by the company, CapEx for the integrated plant has been revised to INR 6,000 crores for 2 million tonnes. The revised cost does not include the Coke Oven Plant and thermal power capacity required for the project. The Coke Oven requirements for the project will be made from procurement of coke from market in place of coal and converting it into the coke. Similarly, electric power requirements for the project will be sourced from the solar power to be set up under the group captive arrangement with the third party. It has been planned to be driven by the lower carbon emissions or lower CapEx. The public hearing for the project has been completed and environmental approval is awaited. It is expected to be commissioned in 36 months upon receipt of environmental approval. GPIL is dedicated to minimizing carbon footprint and actively pursuing the objective by setting up 4 solar projects to establish the combined power generating capacity of 173 megawatts, up from 155 megawatts proposed earlier. As of today, 145 megawatts solar power capacity has already been commissioned, and we are actively contributing to the cost saving and reduction in carbon footprint. I'm happy to share that out of 145 megawatt, 20 megawatt (sic) [ 22 megawatt ] solar power plant of Hira Ferro was commissioned in December, taking the total capacity in HFAL to 52-megawatt and 23-megawatt of solar capacity to meet captive requirement of power at Ari Dongri mine has been commissioned yesterday evening only after the Board meeting. The balance of the solar power capacity remaining could not be commission because of the nonavailability of contiguous land. Company is making efforts to purchase the land and same will be installed and commissioned in due course. Another 20-megawatt solar power plant that is to be set up to address the captive power requirement of fabrication and galvanizing unit is expected to be completed in June 2024. CapEx for the same is INR 80 crores, out of which INR 21 crores have already been incurred. This will be -- this will result in cost savings by INR 3 per unit besides reduction in carbon footprint. Further, a new high-efficiency 48-megawatt turbine generator has been commissioned, and duly synchronized with the grid in December 2023. The existing old turbine has been replaced with this new turbine, which is advanced and efficient in generating power and is expected to generate additional 7 to 8-megawatt electric power without any additional fuel cost -- fuel consumption. The additional power generated from the new turbine will be used for captive steel plant to replace the grid power. Debottlenecking CapEx for rolling mill modification is progressing especially and is expected be completed by Q4 FY '24. This will help meeting the company's requirement of steel in the fabrication and the galvanizing unit. Shareholders' approval for grant of 28 lakhs stock options has been accorded in December, and subsequent to which, company has granted over 8.8 lakh ESOPs to the eligible employees in January 2024. Coming on the financial performance -- operational performance. I'm delighted to mention that GPIL has achieved the highest ever production volume of Steel Billet, Ferro Alloys, Power on quarterly basis and for Sponge Iron, Billet and Power on 9 months basis. One of the major competitive advantage of GPIL is our captive iron ore mine. The captive iron ore landed cost for that in GPIL is INR 2,800 crores from the mines as compared to market price of over INR 6,000 a tonne. Iron ore mining production increased by 9% quarter-on-quarter basis to 165,000 tonnes in Q4 FY '24, though it dropped 13% Y-o-Y because of reduction of production volume in the Boria Tibu mine. Turning on the sales volume number, iron ore pellet sales dropped 15% quarter-on-quarter because of the piling off of certain inventory in the plant and at the port which has been now exported in January 2004 (sic) [ 2024 ] and the same will reflect in the sales volume of Q4 FY '24. Production volume across the division increased on Y-o-Y basis. The detailed production and sales volumes are shared with the investors in the investor presentation. Realization for pellet increased 27% and 6% to INR 10,505 per tonne on Y-o-Y basis and quarter-on-quarter basis. On 9 months basis, realization of pellet increased by 11% to INR 10,205 per tonne. Realization for other products showed a decreasing trend on 9 months basis. The cost for iron ore procured from the market and the coal was higher on quarter-on-quarter basis. Coming on the consolidated financial performance, the revenue for the quarter showed marginal increase of 1% and decrease of 11% to INR 1,309 crores on a quarter-on-quarter basis and Y-o-Y basis. The reason for decrease in realization other than pellet lowered owing to the piling up of the stock at the port. EBITDA increased by 80% Y-o-Y to INR 331 crores owing to higher realization of iron ore pellet in Q3 as compared to Q3 of FY '23 and saving in power and fuel costs. EBITDA margin increased to 25% as compared to 13% in Q3 FY '23. Profit after tax increased to INR 229 crores, up 79%. PAT margin also increased to 17.5% in Q3 FY '24. Company continues to remain debt free. The net cash in the balance sheet of the company as of December '23 is INR 768 crores approx. Coming on the 9 months performance, the revenue during 9 months dropped by 12% to INR 3,926 as compared to last financial year due to volume realization across the product range, except the iron ore pellets. However, EBITDA increased by 13% to INR 999 crores in 9 months FY '24 because of the increased realization in pellets and cost savings in power and fuel. EBITDA margin increased by 25% -- to 25% from 20% in 9 months Q3 '23. PAT Increased by 15% to INR 717 crores in Q3 -- in 9 months FY '24. Now coming on the market outlook. On international, front, global iron ore prices touched $144 per tonne in January, up from $103 per tonne at the start of the year and currently billing at about $133 per tonne. China imports -- import in China was strong. There was no explicit steel production cuts announced in China. At the same time, China domestic iron ore production lagged. World Steel Association is forecasting steel demand to grow by 1.8% to 1,814.5 million tonnes in 2023, another 1 million tonne in FY '24. This augurs well for demand for iron ore as well as expected the prices well supported around the current level. On domestic front, iron ore prices, as indicated by NMDC, 64Fe fines has increased significantly to INR 5,110 per tonne currently, INR 3,600 per tonne (sic) [ INR 3,660 per tonne ] in January '23. Prices have recovered well from the lows seen post imposition of export duty and are now closer to highs seen in calender year 2022. On the other hand, pellet prices after touching the lowest INR 8,800 per tonne in July '23 has increased to INR 10,150 a tonne in December end and is currently at about INR 9,850 a tonne. Given the positive steel demand outlook, pellet prices should be well supported at the current levels. India remains one of the bright spots globally for steel demand. World Steel Association forecasts India's steel demand to increase by 8.6% in 2023 and another 7.7% in calender year 2024 as compared to 9.3% in calender year 2022. Indian government push for infrastructure can be seen in recent budget with 11% increase in capital outlay to INR 11.11 lakh crores, augurs well for the steel demand in the country, specially for long steel products. In conclusion, I would like to emphasis that GPIL's strong net cash balance sheet, competitive edge provided by its captive iron ore mine, production of high-grade pellet, over 2 decades of industry expertise and dedicated and forward thinking leadership, diligent employees and dedicated support from all stockholders bodes well for the company's growth in future. With this, I conclude my opening remarks, and we can now open the floor for question and answers. Thank you.

[Operator Instructions] We have our first question from the line of Jatin Damania from Svan Investment Managers.

Am I audible?

Yes.

Sir, just wanted to understand, now since we have got a consent to upgrade and we will be consuming entire sponge captively. But I want to understand more on our expansion plans because if you highlight the rationale, we are dividing our pellets into 2 phases. Because earlier, we were supposed to do 3 million tonnes at one go. Now we are planning to do 2 million tonnes and 1 million tonne. So what is the rationale behind doing this?

Abhishek, you are taking?

Yes, yes. [Technical Difficulty] we want to...

Your voice is not clear, Abhishek.

Can you hear me now?

Yes.

So the rationale is we want to integrate the pellet capacity with our iron ore mines, so that we are able to maximize the production of high grades. Because buying iron ore fines from the market and then making pellets, in the long term, I don't see it commercially viable anymore. The capacities of pellet in India and the supply of iron ore. So to integrate the iron ore mines with the pellet plant capacity, we decided to reduce the capacity from 3 million and then going forward, when we're able to enhance further capacity in the iron ore mining, we will probably go on the commitment. That will be the rationale behind it.

And what is the -- I mean, in terms of the mining approval for the expansion, where are we on that? Because couple of quarters has been known that we are -- we wanted to expand it to 6 million tonnes and we are waiting on the...

See, we should be able to receive the environment approval in Q1 of next financial year. And once we receive that, we should be able to ramp up the capacity and by the next financial year, we should be able to touch the rigged capacity of 6 million tonnes.

So that means in FY '26, you will be a 6 million tonnes of the mining capacity in terms of the production. FY '25, we will be somewhere around 5 million tonnes right? If you get an approval?

Yes, yes. Everything is in line. So probably FY '25, we should be able to ramp up to the levels of, say, 5 million tonnes. And then in FY '26, we should be able to ramp up to 6 million tonnes.

By that time, our pallet will also be in operations?

Exactly, exactly. So that is the entire thinking behind revision in pellet capacity from 3 million tonnes to 2 million tonnes in the Phase 1.

Right. And last 2 questions, one was Boria Tibu. Where are -- what is the status? Where are we? And in terms of the beneficiation, are we looking at setting up anything on the Boria Tibu?

Yes, yes. We've already started working on the Boria Tibu mines. We should be able to apply for the environment approval very soon. And once we have that in hand, we will start installing the plant. But looking at the current scenario, I think next at least 30, 36 months is bare minimum that we are looking at Boria Tibu to come into operations again.

So -- but as of now, we don't have any impact on our performance, right, from Boria Tibu because the mine is not working?

So in terms of financial performance, Boria Tibu performance -- there will be no impact on the Boria Tibu performance.

Okay. And last question is on our CapEx. Now since you have highlighted that we'll be doing INR 6,800 of the CapEx, so can you highlight what are the products that we will be producing from the integrated steel plant? How are we going to fund this CapEx? And what is the CapEx plan for FY '25, '26?

See, on the new greenfield, we are focusing only on the flat products. We are not thinking of going to long products anymore. We already did long products. And the way Indian steel is shaping up, we think the demand for that flat product will be on a given trend. So we are only focusing on the flat product. On the CapEx side, as you already declared, with the mining and the bottleneck and the new pellet plant with INR 1,000 crores, so that will be done from internal accrual. For the greenfield also, depending on the final CapEx, once we are able to start taking orders, we are confident we should be able to...

Abhishek, we lost you in between.

We are confident we should be able to fund all our CapEx from the internal accrual only, the current pellet capacity, the mining expansion and for the greenfield.

And the CapEx for FY '25, '26 roughly?

For '25 the CapEx should be about -- for the mining and the pellet, should be about INR 800 crores. And after that, in '26, we should be able to start the new [ steel ] plant.

So that will be near about INR 1,000 to INR 1,500 crores, right?

Yes.

[Operator Instructions] The next question is from the line of Aditya Welekar from Axis Securities.

Sir, on the steel plant, we are -- we have announced the incremental capacity. So just wanted to understand from coking coal perspective, what will be our strategy? And what is the normalized EBITDA per tonne you expect from the plant in the future?

See, on the coking coal front, given the current scenario, we have no plans of putting up a coke oven, we will directly import coke using the blast furnace. The rationale behind this, there are a lot of capacities in Indonesia which are only making coke. Indonesia has low grades of coking coal, so a lot of investment has been done in Indonesia and our current capacity stands at about 20 million tonnes. And a lot of imports are already happening into India of coke. Instead of putting up a coke oven, we want to save on the CapEx and directly import coke using the blast furnace. That is the strategy at the moment.

Understood. And can you come again on the CapEx spending profile for coming 5 years? If you can just repeat that? I lost that part.

Okay. So for the current capacity in the mining expansion, it's going to close to about INR 800 crores which is already underway. And for the greenfield we envisage about INR 6,000 crores. Of course, this will be closed down once we are able to finalize the capacity and you start picking orders. But -- so going forward in the next 5 years, I think we should be somewhere about INR 7,000 crores.

[Operator Instructions] The next question is from the line of Vikash Singh from PhillipCapital.

Just wanted to understand the spot net steel prices versus the 3Q average, how much up or down they are?

Can you please come again? You're not audible.

The spot prices versus the 3Q average, how much up and down they are?

So for the current spot prices in the domestic are hovering at about INR 10,000 and it is in line with the quarter average. So not much changed.

No, that is for the pellet. The steel products, the prices are down as of now.

The quarter average was about [ INR 41,000 ], and currently, the price is about INR 39,000.

Understood. Understood, sir. My second question is given the current domestic prices as well as export pellet prices, are we looking at the export more or we would like to sell in the domestic more? So how the math is setting up right now? What is the difference between the net realization between these 2 at this point of time?

All right. So we did start exports in the month of December. We have already done couple of shipments. But China is on holiday right now and as you all know, China the iron ore prices have come down by 10% in the last few weeks because the China market is quite weak. So currently, we are focusing on the domestic market because the realization is much better. But as and when any opportunity presents, we are always open to start exporting again. So depending on realization, we are open for both the markets, export as well as domestic. Eventually, it's about selling at the best price possible.

Understood. And sir, just wanted to understand the thought process behind not going after big even power plant and tying up with the third party for the larger plants. So is it something to do with the CapEx cost or the environmental clearance related problem? Because...

No, no.

Usually, it is advisable for us to have everything in-house for the better margin. So how would the margin dynamic sets up in that scenario?.

So there are 2 scenarios. One is, of course, the carbon emission part with the Government of India focusing on decarbonization. So we also want to be in the same part. That is one of the reasons. Secondly, is on the commercial side. Today, operating a coal-based power plant where you don't have any captive coal mines and you [ purchase ] everything from the open market, the power cost varies from anything between INR 4 to INR 5 on a yearly average. And when you do a solar -- the solar plant, the yearly average is not more than INR 3.5. So commercially also we'll be saving on the operating cost, and on the carbon side also we'll be saving on the emission side. So both aspects were considered and that's why we took the decision.

Understood, sir. And sir, the pellet price outlook as per you? Because -- I think that yesterday pellet prices have actually gone down in the markets. So...

It's okay. That's what I'm saying, INR 200, INR 300 plus/minus, depending on the steel market and the domestic demand, it doesn't make a difference. And we have always been mentioning as a company with the volume we have, we always have an order book of close to 30 to 45 days. So even in Feb, I can say, we almost close to -- we almost covered till March. So the price is going down currently doesn't impact our numbers for this quarter at least.

Understood. Sir, just one last question regarding Boria Tibu. Usually, there are scenes of good grade or low grade on the mining sites. So have we done any survey which would give us an idea that whether the entire mine is of low grade or just we encountered an ore body which is of lower grade and then we can...

No, no. We have been in the mine for past few years. This year only we decided to close the mine due to commercial liability. So we know all the analysis, we know what grades are available. So the reason is because the overall quality of mines is on the lower side compared to Ari Dongri. So the best way possible is to beneficiate, make high grade from low grade and then bring it to the plant for usage. So that is the reason we have closed the mines and we are going for beneficiation in the Boria Tibu mines as well. It's a well-thought decision looking at the commercial viability of the mines and longevity as well.

Understood. So the entire mine actually is of lower grade?

Yes. The average is on the lower side compared to Ari Dongri.

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

My first question is regarding, sir, your numbers, Q4 -- Q3 FY '24, your top line is nearby INR 1,309 crores. So out of INR 1,309 crores, how much is the other operating income, sir, in this one?

So there is no other operating income. Other income is shown separately in the results, which is about INR 20 crores.

Okay. Sir, when I calculate your sales number with your realization, it's come nearby INR 1,262 crores. So there is difference between the numbers you have provided me or the numbers I have calculated, your sales volume multiplied by realization?

The overall sales includes the sale of certain byproducts, scraps, et cetera and which is not part of the investor's presentation. And therefore, there is a difference.

Okay. So compared to the last quarter, maybe -- if I check, the number top line is down by 10% -- 11% year-on-year. But when I calculate from them, your sales volume or realization is up by 9%. So...

Pellet realization is up on 9-month basis, but your steel plant realization are lower as compared to same period last year.

Okay. So sir, same period last year, scrap sale is more, sir, same period last year or high scrap sale?

No. There was a trading sale last year.

Okay, trading sale last year.

There was a trading sale to some quantity last year.

Okay. Right, sir. Sir, my next question is regarding for your margin part. Can you - just you say that due to the rise in coal prices and iron ore, the margin is down. So sir, in January, coal prices has come down. So can we assume for Q4 or next year, margin will improve from here onwards?

Definitely, the impact of this will be reflected. Whatever price changes are there, whether in the finished product or the raw material, the same will reflect in the financial numbers.

So we see -- we can expect from Q4 margin -- gross margin will improve?

No, that will depend on the realization of other products as well.

Just to be specific on the coal side, because we are importing coal for greater operations and with the current inventory, because we always have inventory of close to 45 to 60 days in transit material. So the coal prices impact can be seen in the balance sheet going forward. So I would say, Q1 of next financial year, you can see the impact of the coal.

Okay. Agree sir. So Q1 FY '25, we can see the numbers?

Yes, correct. Yes.

Next question regarding, sir, you just said -- recently, you have a support case -- you have commissioned nearby 25-megawatt solar power. So can we assume your energy cost will come down in Q4?

Yes, definitely.

Partly it will come in Q4 and then the full impact, it can be derived from Q1 of next financial year.

Okay, Q1. And how much is your asset currently, energy cost in terms of rupees and after how much it has come down?

Go ahead, Abhishek. Go ahead.

So currently our average energy cost per unit should be somewhere about INR 3.75. And going forward, it should be somewhere about INR 3.5. And that's come down from about average of INR 4.75. So you've already saved INR 1 per unit.

Okay. We can save INR 1 per unit, sir?

At the moment and going forward, once the pending capacity of solar gets commissioned, there will be further reduction in the per unit cost.