GPIL — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
Address
Hira Arcade, Near New Bus Stand, Pandri, Raipur - 492001, Chhattisgarh, India P: +91 771 4082000, F: +91 771 4057601 www.godawaripowerispat.com, www.hiragroup.com “Godawari Power& ISPATQ2FY22 Results Conference Call” November1, 2021
GODAWARI POWER · MR. DINESH GANDHI- DIRECTOR, GODAWARI POWER
MR. ABHISHEK AGARWAL-EXECUTIVE DIRECTOR,
MR. SIDDHARTH AGARWAL- NON-EXECUTIVE
DIRECTOR,GODAWARI POWER · MR. SANJAY BOTHRA- CHIEF FINANCIAL OFFICER,
MR. SANJAY BOTHRA- CHIEF FINANCIAL OFFICER,
GODAWARI POWER · MR. DINESH GANDHI- DIRECTOR, GODAWARI POWER
MR. DINESH GANDHI- DIRECTOR, GODAWARI POWER
Moderator · Conference Operator
MS. SANA KAPOOR - GOINDIA ADVISORS LLP Godawari Power & ISPATLimited November 1, 2021
Good Morning Ladies and gentleman welcome to Godawari Power and ISPAT Ltd.Q2
Questions and answers
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, we will now begin the question-and-answer session.
The first question is from the line of Monika Bajaj from Steel Mint.
Please go ahead.
Monika Bajaj
Sir I just wanted to ask what is your pellet production guidance for this fiscal and how much do you see the share for the domestic market and for the exports market in this fiscal?
Dinesh Gandhi
We aim to manufacture the entire 2.4 million ton in Godawari Power and about 700,000 tons in Ardent Steel.
The mix between domestic and export will depend and will be mainly driven by the market conditions, depending upon the demand and the size recovery.
Monika Bajaj
Okay and when we talk about low alumina pellet, how do you see the low alumina pelletwill doing, going forward in this fiscal, how would be its share and how will the market be driven for low Alumina?
Abhishek Agarwal
Can you please repeat the question?
Monika Bajaj
Sir, I just wanted to ask that how have the low Alumina pellet market been doing and how would its market be like going forward in this fiscal?
Abhishek Agarwal
See there is a huge demand from the export market for the low Alumina Cargo although the licensehad dropped significantly compared to the last quarter and domestic license are much better but still, we will maintain a ratio of you know probably doing 50% domestic, 50% export because the low alumina value is at I think, lot of customers from Europe and non-Chinese countries like Malaysia and Korea and all.
So, I feel the demand is there, of course prices are driven by the global market, as you all are aware that Iron Ore index is falling quite a bit but then pellet Premium which defines the pellet market has jumped almost double in last four weeks.
So, there is huge demand and I am sure will remain like that because China is now targeting directly steel to the blast furnace, so pellet will be there in demand.
Moderator · Conference Operator
Thank you.
The next question is from the line of Vikash Singh from Phillip Capital.
Please go ahead.
Godawari Power & ISPATLimited November 1, 2021
Vikash Singh
Good morning, sir, I just wanted to understand the current spot prices for other materials like Sponge and Billet as well versus 2Qas such and my second question would be, how is the export prices of Pellets now prevailing and given that the availability in the domestic market for Iron ore has been increasing, do you think that the trend, how the pellet prices would behave in the domestic market going forward?
Abhishek Agarwal
I will take this.
See as far as the current prices are prevailing, so Sponge Iron is hovering around Rs.
33,000 / Rs.
33,500, which is all time high in the history of Sponge Iron.
Ithad jumped to Rs.
35,000 couple of weeks back but now corrected to Rs.
33,000 whereas Billet is hovering around Rs.
46,000 / Rs.
47,000.
So,all these prices are at record high, ever high in history of the commercial segment.
As far as pellet is concerned, currently the domestic prices are hovering around Rs.
13,000 which was at the low of Rs.
11,000 and has jumped to Rs.
13,000 and whereas export market the prices are hovering around Rs.
11,000 /Rs.
11,500 but as you all are aware, we are exporting the High-gradePellets, so we will maintain the ratio, we will be exporting High-grade pellets and selling all our other 3.5pellets in the domestic market, so we will have mix of both where you can realize,arealizationofclose to Rs.
13000 for high- grade as well as domestic market because we get almost 30 orders more for the High-grade pellets, so that will keep therealizations at the same levels for the domestic and exports in case of Godawari.
Vikash Singh
And what would be our current mix in terms of export versus domestic as said?
Abhishek Agarwal
It is 50%-50% at the moment,50% domestic, 50% export.
Vikash Singh
Understood, sir my second question pertains to our coal availability as well as the cost, if you could update us what was the coal cost in 2Q, how do you see it going forward in 3Q and what is the availability scenario as of now?
Abhishek Agarwal
See as far as my BIO portion is concerned, we only use imported coal, so for that we are very well covered till January, February of next calendar year, with a very attractive prices we did lot of advance buying, so we are not totally, we are notat allimpacted by the recent jump in the thermal coal prices globally.
As far as domestic is concerned, we are getting supplies from Coal India via linkages, which is more than enough to run our power plants, so we have no issues on the coal front.
We have not purchased any single quantity from the open market at such high level, whether it is import or domestic.
So, in terms of coal, we are very well covered at a very good prices, I would say.
Vikash Singh
Sir any indication, how that, till January the prices which we have booked in 1Q levels or, an indication of the levels at which you would have booked the …
Abhishek Agarwal
So, for the import coal, my levels at 120, 125CFR levels.whichat the moment, it went up to almost 240, 230 CFR levels and have corrected to around 170, 180 levels, so our coal is Godawari Power & ISPATLimited November 1, 2021 covered at 120, 125 CFR levels for pure RB1, we only use trying coal, which is called RB1 international market, we use only that for Sponge Iron making.
Vikash Singh
Understood, sir just for my understanding purpose, so basically since imported coal has now have a longer timeline in terms of logistic, so we have to buy the coal by end of November, right?
So, if prices does not come down by end of November, we have to import for, or look for a higher coal cost or a certain portion of it can be substituted through domestic purchase?
Abhishek Agarwal
No, see we do not use any domestic coal for our sponge iron making for the quality because the moment we started using the domestic coal, our production goes down.
As far as prices are concerned, theinternational prices have already fallen by almost $90 in last two weeks because China has again come into the picture and they want tocontrol the prices, so the Coal Index which hadjumpedto almost to 240 levels, starting October, has come up to 140 levels already.
So, going forward, I am sure we would not be in battle world.
I guess, prices coming down already, internationally.
Vikash Singh
Understood, sir just one last question, if I can slip in?
So, we have reduced our power solar PV plant from 250 MW to 100 MW but the cost has been just trimmedof by half, my estimate was that since we had a sizeable portion of our own land bank, so the cost per MW should have come down in similar proportion, so can you just explain what I am missing here?
Dinesh Gandhi
So, Vikash there are two things in this, number 1) is you are aware because of the power shortagein the China, most of the solar modules are being imported, so most of the Chinese manufacturers of the module have invoked the force majeure clause and have started negotiating for the increase in price, number 2) the land bank for 100 MW of the project between GPIL and Hira Ferro Alloys we have to do the land acquisition also fresh because the earlier project was proposed to be setup in Raigarh where we have a land parcel but if I see the economics of the project, setting up a 100 MW capacity in Raigarh does not make economic sense because the transmission cost is very high from that place, unlike 250 MW project and therefore with the change in location of the project as well as the increase in the cost by Chinese manufacturer, the cost has tentatively has gone up by 15-20% for these projects.
Moderator · Conference Operator
Thank you.
The next question is from the line of DV Jalan from KLJ Securities.
Please go ahead.
DV Jalan
My question is that if I understood correctly the inventory level at this quarter is very high, why this is so?
Dinesh Gandhi
No sir the inventory level during the last quarter was higher which has been sold in the current quarter, except some raw material where some of the inventory cost has gone up but it is not substantially higher.
But the kind of, will keep on happening.
DV Jalan
And what about the present and future demand of pellet.
Godawari Power & ISPATLimited November 1, 2021
Dinesh Gandhi
I think Abhishek has already explained about the pellet demand, Abhishek would you like to take it again.
Abhishek Agarwal
Yes, so about the pellet demand, domestic demand is at the moment very good because the spongepriceshave reached all time high of Rs.
33000-34000 levels, so because of which the margin expanse is quite high in the domestic market and for export as I mentioned China is trying to reduce their carbon emission so they are trying to reduce their direct feed to the blast furnace which is a sinter.
So, sinter is one of the most polluting industries, so the demand of pellet is going up every day and there is a huge demand of pellet in the Chinese as well as non- Chinese markets.
So, I do not see any reason the demand is going to come down very soon because China winter season has started and now in February Olympics is going to be held, so China is very serious about the pollution, so demand of pellet will be on the upper side going forward as well.
DV Jalan
Our focus is on the domestic or export market?
Abhishek Agarwal
No, as I mentioned, with the current realizations we will be doing a 50-50 charge mix, 50% will stay in domestic and 50% we will be exporting our high-gradepellets.
Moderator · Conference Operator
Thank you.
The next question is from the line of Anuj from Anubhav Securities.
Please go ahead.
Anuj
Good morning, everybody.
My question here is, you know over the last quarter, that is ended 30th June, we had a profit toincome ratio of about 48%, 49%, which has now fallen to 27.5% or 28%, you mentioned that the coal that you have got has not really impacted you, your profitability so much because you are tied up till January, so what has caused such a steep decline in the margin and do we see these margins getting covered up or do we see this could be the new normal?
Dinesh Gandhi
See the margins, primarily the margins have gone down by about a Rs.
1000 reduction in the pellet realization as compared to or slightly more than the Rs.
1000 a ton as compared to the last quarter; this is number one.
Last quarter we had certain inventories of the finished goods, you know which was sold during the current quarter and although the turnoverhas increased, the overall EBITDA has gone down primarily led by the drop in the volume as compared to the last quarter.
So, you know, the slight drop in the margins from earlier quarter to this quarter is because of the volume drop, because of the reduction in the pellet realization and higher component of the finished steel sale, which is leading all to, because in our industry each and every item impacts the margin, absolute margin may not be calculated in the same manner as it was there in the last quarter.
And pellet isone product where our margin component is very high, our cost of production is around Rs.
5000 a ton whereas the last quarter, the realization was more than Rs.
16, 000, Rs.
15, 000 a ton.So, that one product can impact the margin sizably for the company on an absolute basis.
Godawari Power & ISPATLimited November 1, 2021
Anuj
Thank you, yes that is understood.
So, my query was more that, okay so based on the price and not anything else.
Dinesh Gandhi
Yes, because my cost remains same know, my cost is not changing, so my top line is impacting.
Anuj
So, what is the scenario now in the last one month that is gone and the two months coming forward?
Are we looking at the same status quo, are we looking at an improvement?
Dinesh Gandhi
It will be more or less inthe line with the last quarter is of now.
Anuj
Okay, so one can look forward to about 25% to 28% kind of.
Dinesh Gandhi
Yes, long term margins.
Moderator · Conference Operator
Thank you.
The next question is from the line of Preeti Singh from Valley Investments.
Please go ahead.
Preeti Singh
Sir my first question is, what is the status of the specialty steel plants that you wanted to set up and what is the rationale behind this plant?
Dinesh Gandhi
See, I think I already outlined the status of the project in my opening remarks.
The project is currently on the drawing board, we are in the process of land acquisition and we plan to file for the environmental approval in the current quarter.
The rationale for this project is to grow the business of the company, now since the company is debt free on the standalone basis and generating substantial cashflow, we want to deploy into the similar line of activities with definitely better value-added project and this investment will run through over a period of next 4 to 5 years, wherein the company plans to deploy its internal generation of the fund to grow the business of the company.
Preeti Singh
Okay, got it Sir and my next question is, so why has there been a dip in the Sponge iron production this quarter and when do you expect to receive the clearances to operate at a higher capacity?
Abhishek Agarwal
See for Sponge Iron, the production in marginally down, you that happens usually because the monsoon is never ideal season to operate the steel plant, you know the rains and this time speciallyrains have been quite heavy compared to previous years as you all are aware.
So, if you take the marginal drop, which will be recovered going forward, Ido not see any issue there.
And secondly, about the EC, the file is probably at the last stage now and we are confident we should get approval at this quarter, early next quarter.
Preeti Singh
Okay, got it.
That is, it from my side, I will join again if I have any further question, thank you.
Godawari Power & ISPATLimited November 1, 2021
Moderator · Conference Operator
Thank you.
The next question is from the line of Vikash Singh from Phillip Capital.
Please go ahead.
Vikash Singh
Thank you for giving me opportunity again.
Sir, can you just tell us the Hira Ferro Alloys total EBITDA for the quarter.
I understand that you have added for last two days only, so if you could give us the total quarterly EBITDA run rate for the entire Ferro Alloy and any expectations going forward?
Dinesh Gandhi
Mr. Bothra, do you have handy available?
Sanjay Bothra
That is there on the presentation, just a minute.
The total EBITDA of Hira Ferro Alloys for the last quarter was Rs.
47.5 crore against Rs.
68 croreof previous year same quarterand immediately previous quarter, it was Rs.
28 crores.
Vikash Singh
Yes sir.
So, sir this is the normalrun rate, where Rs.
47 crore we can expect going forward?
Dinesh Gandhi
Yes, as of now that is the market condition and mind you, the only Hira Ferro Alloys Limited consolidate only for the two days, that is for 29th of September, so the fullimpact of the consolidation of Hira Ferro Alloys has not reflected into the GPIL number which will start reflecting from the current quarter.
Abhishek Agarwal
And for that as far as the pellet business is concerned, the market has been on a upper trendmainly because China has started cutting down their capacities ofFerro Alloys because of Ferro Alloys being a high-powered melting unit.
So, as everybody is aware, China is coming down heavily on powermelting unit because of the coal crisis, so pellet prices have been on the upper side, there has been impact because of the coke for the ferro alloys that we are using but still the margins are where it has been same as the last quarter, I would say.
Moderator · Conference Operator
Thank you.
The next question is from the line of Jaymant Manoj, an individual investor.
Please go ahead.
Jaymant Manoj
Hi good morning.
I wanted to check with you that why you are expanding or putting more investments in the power sector, I mean from the numbers it is very clear that the ROCE, return on capital from your power sector is much lower than that from the steel sector, so any thoughts on that?
Dinesh Gandhi
Yes, I got your point.
So, investment in power is for the saving of the cost, it is not an IPP project.
The investment which is proposed for about 170 MW of solar PB power plant is for replacing the grid power, the company is buying the grid power in the range of about Rs.
6 per unit and whereas the cost of generation from the solar without interest would be hardly about 30, 35 basis points and with interest in investments, it will not rise more than Rs.
2 per unit, so there is substantial saving expected.
So, the investment in power is not an IPP wherein we Godawari Power & ISPATLimited November 1, 2021 want to see the ROE in the range of 15% or so, this is going to save substantial cost for the company.
Jaymant Manoj
Right, so if I can follow it up with this, the additional solar plant that youare setting up, that will be for your captive consumption.
Dinesh Gandhi
Yes, captive consumption.
Jaymant Manoj
And that will be replacing some of the grid power that you are drawing now?
Dinesh Gandhi
Yes, so that will help us achieving the carbon neutrality as well as replacing the high-cost grid power.
Jaymant Manoj
That makes sense, number one.
Having said that, I mean in the current quarters and the previous quarters, the power sales that you are still doing, there is still some power sales you are doing, right?
Dinesh Gandhi
That is from our IPP solar, that 50 MW solar thermal power plant which we have in Godawari Energy and for which we are discussing about the divesting the stake, it is the sale of power from that company, there we have a fixed price PPA with NTPC Vidyut Vyapar Nigam.
So, that is an independent project, yes.
That we are in the, we are proposing to divest that investment.
Jaymant Manoj
Okay, that makes sense.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Raj Nahar from Mili Consultants.
Please go ahead.
Raj Nahar
Good morning.
I have some questions regarding your beneficiationplant, now is it fully ready basically?
Abhishek Agarwal
See as far as the plant connection is concerns, which isRaipur,the plant is fully operational and we have obtained to seek the consentto operate from the local pollution board, so that plant is running now and as far as mines is concerned, so Dinesh mentioned, that will take about a year’s time to commission the plant.
Raj Nahar
So, right now, what is the capacity of your beneficiation plant now?
Abhishek Agarwal
It is 3.28-million-ton throughput at Raipur.
Raj Nahar
That is right, okay and that new mine capacity will be how much?
Abhishek Agarwal
6 million tons (approx).
Godawari Power & ISPATLimited November 1, 2021
Raj Nahar
And one more question sir, regarding this now are we able to realize better pricing as you have been telling that you will get about $25 extra for the high-grade pellet.
Abhishek Agarwal
We have been rising that very much, there is no doubt about it.
Raj Nahar
Okay, so going forward we are going to continue now get about $20, $25, $30 extra for ..
Abhishek Agarwal
Yes, definitely.
Ourpremium product for the low aluminum and higher Fe, because of which we will keep getting higher premium from the market.
Moderator · Conference Operator
Thank you.
The next question is from the line of Srishti from Wellwin Consultant.
Please go ahead.
Srishti
Hello, good morning,sir and thanks for the opportunity.
I just have couple, so first question is on, I wanted to know about your current dividend policy and second, I wanted to know about the CAPEX plans we are having for the Ardent and what are the uses of that cashflows we are getting from there, that is it?
Dinesh Gandhi
See dividend policy is already announced, it is available on the company’s website.
We have already announced that we will distribute about 10% to 15% of the incremental cashflow for the dividend.
As far as Ardent Steel is concerned, we are in the processof making an investment plan in that company and till the investment plan is completed, we are deploying the funds into the short-term instruments, so that as and when the investment plan is finalized the funds can be utilized there.
Moderator · Conference Operator
Thank you.
The next question is from the line of Anuj from Anubhav Securities.
Please go ahead.
Anuj
Good morning again, thank you for answering all our questions so nicely and clearly.
One question that we face from the investors always is, what are the triggers for the next quarter?
So, I understand Ferro Alloy being clubbed with your balance sheet is one what are the potential other triggers that may lead to an upside in the next quarter, was my question, thank you.
Dinesh Gandhi
See near term trigger will be definitely higher production in the project because as you see the last quarter there was a drop in the volume because of the monsoon and during this period we utilized it for the routine maintenance period and maintenanceof the plant as well.
So, definitely you can see, some improvement in the volume going forward in the immediate quarter.
The major trigger in the medium term will definitely come from the solar project which we are in the process of commissioning over a period of next one year, then the impact of the higher captive mining and replacingthe ore which we were buying earlier from themarket and this is getting adjusted against the volatility in the finished product sizes.
So, while there is an improvement, it may not reflect 100%, you know because of the volatility in Godawari Power & ISPATLimited November 1, 2021 the finished productsize but there are three, four triggers are there in the immediate future, the higher production from the captive Iron Ore Mine, leading to the lower cost, impact of the Ferro Alloys business, impact of the lower interest cost going forward on a y-o-y basis definitely that impact is going to reflect over a period of time.
So, these are the near-term triggerfor the company.And then of course, the profitability will continue to be drive out by the pricing of the product in the market.
Anuj
Yes, that is the key trigger obviously.
Dinesh Gandhi
Yes.
Anuj
What is your gut feel on the prices, you think this China mess will help us?
Dinesh Gandhi
I think Abhishek has already outlined; we are quite confident that this pricing level where we are currently is likely to sustain over a medium period of time.
Moderator · Conference Operator
Thank you.
The next question is from the line of Shikhar Mundra from Vivog Commercial.
Please go ahead.
Shikhar Mundra
I just missed the pricing of the pellet prices, so what were the prices in the second quarter and what is the current pellet prices?
Dinesh Gandhi
It is closer to the same about Rs.
13000 a ton.
Shikhar Mundra
Okay and what was the volume drop in the second quarter and how much is the volume expected in the third quarter?
Dinesh Gandhi
I think these numbers are there in the presentation you can have a look at it there.
Shikhar Mundra
Okay alright and for the solar plant what is our expected EBITDA to be generated from the 70 MW solar plant and when is the date of commissioning?
Dinesh Gandhi
See solar one project we are targeting 70 MW by next financial year that is April 2022 and rest of the 100 MW will come in the second half of the FY23.
Shikhar Mundra
And what is the EBITDA expected from this 70 and 100 MW?
Dinesh Gandhi
This project will generate about say, 70 MW project will generate close to about 10 crore unit and 10 crore unit will translate into Rs.
4 per unit, as against the current pricing, so Rs.
40 crore for enam of the additional EBITDA and similarly this new investment of170 MW will be on the same line.
So, you can expect close to about Rs.
100 crore additional EBITDA going forward from the solar.
Godawari Power & ISPATLimited November 1, 2021
Moderator · Conference Operator
Thank you.
The next question is from the line of Jaymant Manoj an Individual Investor.
Please go ahead.
Jaymant Manoj
I wanted to check on your strategy for coal sourcing IE, are you in a wait and watch mode or given the current circumstances do you have some longer-term forward plan on the coal availability, imports or bidding internally, is there something?
Abhishek Agarwal
Yes, for the coal price we have no issue because we have achieved volumes till end of January, early February which is almost 3 months from now on and the market has started going down drastically it has already dropped by $100 in last 2 weeks because of China’s intervention and whenever we buy volumes we buy on index.
So, if that index falls automatically the price starts going down.
So, on the coal front we have no issues of sourcing as well as the pricing.
Jaymant Manoj
So, you will wait for the extending the ordersbeyond temporary?
Abhishek Agarwal
Yes, my next batch would come in start of January, which is almost 2 months from now on, so by then the prices will further cool down because of China’s intervention.
Jaymant Manoj
And I may ask which countries you are importing the coal from?
Abhishek Agarwal
Australia and South Africa.
Jaymant Manoj
Because there is a political impact also.
Abhishek Agarwal
Yes, between China and Australia.
Moderator · Conference Operator
Thank you.
The next question is from the line of Anil Sharma from AB Capital.
Please go ahead.
Anil Sharma
Sorry if I have missed out this earlier but just wanted to check on your plans in terms of Ardent steel, so are you planning to sell your entire stake in Ardent Steel or will you keep it maintained at this particular level only?
Dinesh Gandhi
We will maintain at this level.
Anil Sharma
Okay it will be maintained.
And one more thing I wanted to check about that 30 MW of solar plant that is coming up, so what other capacities that are actually coming up in that particular location and where is that particular 30 MW coming?
Dinesh Gandhi
No, the 30 MW is coming in Chhattisgarh only.
We have done a particular location of land identification and the acquisition is in process currently.
But it will be somewhere in near to the Raipur division only.
Godawari Power & ISPATLimited November 1, 2021
Anil Sharma
Okay and lastly one more thing any inorganic growth opportunities in steel that you are looking at?
Dinesh Gandhi
Sorry come again.
Anil Sharma
Are you looking at any kind of inorganic growth opportunities in steel?
Dinesh Gandhi
Looking at our size and the investable surplus currently, there is no good project available as we understand, so if there is an opportunity, we are open to definitely looking at it.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen that was the last question, I now hand the conference over to Mr. Dinesh Gandhi for his closing comments.
Dinesh Gandhi
Once again good morning, everyone.
We have tried to answer all your queries in the call, if you have any more queries, you can directly reach us or our investment relation from GoIndia Advisors and we will be happy to answer all your questions.
Thank you very much and thank you for your time.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen on behalf of GoIndia Advisors LLP that concludes this conference call.
We thank you for joining us and you may now disconnect your lines.
Thank you.