Godawari Power And Ispat limited (GPIL) Q2 FY23 Earnings Concall Transcript

Godawari Power And Ispat limited (NSE:GPIL) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate participants:

Dinesh Gandhi — Executive Director

Abhishek Agrawal — Executive Director

Analysts:

Sana Kapoor — Go India Advisors — Analyst

Prashant Kumar Kota — Emkay Global Financial Services — Analyst

Jyoti Singh — Nuvama — Analyst

Mitul Shah — Reliance Securities — Analyst

Vikash Singh — Phillip Capital — Analyst

Jathin Kaithavalappil — InvestSavvy — Analyst

Chintan Mehta — Lloyd LLP — Analyst

Yogansh Jeswani — Mittal Analytics — Analyst

Aman Madrecha — Augmenta Research Private Limited — Analyst

Satyan Wadhwa — Profusion Investment Advisors — Analyst

Deepak Jalan — KLG Securities — Analyst

Wayne D’Mello — Individual Investor — Analyst

Ganesh — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Q2 FY ’23 Earnings Call for Godawari Power and Ispat Limited hosted by Go India Advisors. [Operator Instructions]

I now hand the conference over to Ms. Sana Kapoor from Go India Advisors. Thank you, and over to you.

Sana Kapoor — Go India Advisors — Analyst

Thank you, Aman. Good morning, everybody, and welcome to Godawari Power and Ispat Limited earnings call to discuss the Q2 and H1 FY ’23 results. We have on the call Mr. Abhishek Agrawal, Executive Director; Mr. Sanjay Bothra, Chief Financial Officer; 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.

Dinesh Gandhi — Executive Director

Thank you, Sana. Good morning, ladies and gentlemen, and thank you for joining us — with us on the earning calls today for Godawari Power and Ispat Limited. I trust, you’ve had look at the revised earnings presentation uploaded on the stock exchange and the company website. The presentation was required to be revised primarily on account of two reasons in the presentation. One is relating to the H1, the average selling price of the pellets sold, which has been revised; and number two is the capacity of another solar power project, which is under construction, which was already mentioned a 38 megawatt i.e., 25 megawatt. So Godawari [Phonetic] continues to remained at 25 megawatt.

I will briefly discuss the results and then we can have the Q&A session after that. Before I discuss the quarterly performance and H1 performance in detail, I would like to discuss on the few strategic updates. As you are all aware, the State Pollution Control Authorities have granted us the Consent to Operate for the enhanced pellet capacity from 2.4 million ton to 2.7 million ton. With this we are revising our guidance for production of iron ore pellets from 2.4 million ton to 2.6 million ton in FY ’23. For the H1 FY ’23, GPL is already 50% of the device targeted capacity and produced about 1.31 million ton of pellet.

Our capex guidance continues to remain at about INR500 crore for the current year. We have already incurred INR179 crores in the first half of ’23. The guidance continues to remain same despite imposition of export duty and these projects are primarily related to the cost saving and efficiency improvement as I said. The solar power project will help us improve our cost of power — grid power, which is more than INR5.50 per unit, against that our generation cost will be hardly at operating level at about 30 basis points, 35 basis points.

Similarly, the replacement of turbine will improve the power generation at the same operating cost. And the capex at the mining would help us benefit the ore at the mine and reduce the cost of production for the company. The only project which we have kept on hold is the steel melting shop where we are still working on the revised capacity and production manufactured and after that we will make a suitable announcement in due course of time.

Regarding the Greenfield Steel Project, which the company had announced earlier the status is continues to be — we have not yet been able to acquire the land and the land acquisition is getting delayed. And we have filed for the environmental approval for the project, which is under consideration of the Central Ministry. Once the environmental approval is — land acquisition is done and environmental approval is received, we will be able to freeze our investment plan and will guide the market accordingly in due course of time.

Coming on the performance. The market price of iron ore for Q2 FY ’23 is 4,500, whereas our captive landed iron ore cost is about INR10,000 a ton. This shows the competitive advantage of the captive iron ore that GPL is. In Q2 FY ’23 GPL iron ore mining in pellet production has increased by 34% and 17% on a Y-o-Y basis. Production was point around HB Wires and galvanized fabricated products have also increased on Y-o-Y basis. Our production of Ferro Alloys is reduced primarily because the market for the Ferro Alloys prices have gone down, and we took this opportunity to do a maintenance shutdown for the Ferro Alloys, Hira Ferro Alloys and Alok Ferro Alloy.

Similarly, as you would have observed our pellet realization has gone down by almost INR3,500 a ton, as compared to the pellet realization in the Q1 FY ’23. And if you look at our numbers, the fall in profitability is mainly on account of the fall in pellet realization because our cost of production remains same on account of the captive iron ore mining. And if you take the impact of the reduction in pellet selling price from about 11,500 to 8,000 something, 3,500 into 550,000 tons of the pellet comes to about INR200 crore. And to that extent, there is a fall in EBITDA of the company. And the fall in pellet realization is all — as you are all aware is on account of imposition of export duty. And simultaneously election in the international selling prices of iron ore prices.

Now coming — on the financial performance for Q2. Consolidated revenue increased to INR1,307 crore, up 3% Y-o-Y basis, but decreased 22% quarter-on-quarter basis. The main reason for decrease is majorly decrease in the realization of iron ore pellet. The total expenses looks to be increased by 28% Y-o-Y, but actually the expenses are looking higher on account of reduction in the selling price. So top line is higher expenses have not increased substantially expenses continues to remain at the same. We all except the prices of coking coal on Y-o-Y basis.

The consolidated EBITDA at INR231 crores, which is down 50% quarter-on-quarter and 47% Y-o-Y basis. The drop — I’ve already explained the drop in EBITDA is mainly on because of the fall in the iron — prices of the iron ore pellet. Also consolidated price from continuing operations attributable to the owners is down 48% sequentially to INR168 crores.

Now coming on the market outlook. Starting with the international outlook, the iron ore prices have already fallen to about $80 from $158 as on 1st of April. The demand and consumption of steel and other commodities remained subdued due to in China due to COVID and real estate crisis and in the rest of the world due to interest rate hikes and the energy crisis. Expectation is that in H2 FY ’23, things will improve due to China’s stimulus to support economic growth, however uncertainty remains due to China’s zero COVID policy.

Iron ore prices post correction are expected to stay in the range of $80 to $120 for rest of the year. Also, imports of iron ore pellets of China has reduced 33% in January to September 2022 compared to same period last year because of the sustained crude steel production cut and weak domestic outlook.

Coming on the domestic outlook government is levied export duty on iron ore from zero — from 30% to 50% on pellets from NIL to 45% and still from — from zero to 15% in May 2022. This has resulted — this has led to sharp drop in the domestic iron ore prices. NMDC has cut it’s iron ore prices by approximately INR2,000 a ton. Iron ore production in FY ’23 is estimated to be lower. Pellet prices decreased from INR14,000 a ton in April to INR7,450, and is presently trading at about INR8,000 a ton.

Domestic iron ore prices have likely bottomed out, at a much higher level than historical level. The support has come from the cost curve, which has moved up by INR1,000 a ton to INR1,500 a ton post the auction of iron ore mines. At current iron ore prices many domestic mines have become unviable. Some support has also come from improvement in domestic demand of steel due to the increased off take from the Infra project. Going forward, improvement in the prices of iron ore and pellets will depend on the impact of export duties. However, downside remains largely protected due to the cost curve of iron ore.

We can now open the floor for question-and-answers. Thank you very much.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Prashant Kumar Kota from Emkay Global Financial Services. Please go ahead.

Prashant Kumar Kota — Emkay Global Financial Services — Analyst

Hello, good afternoon, and thanks for the opportunity. And really appreciate the very detailed presentation and the data pack that you gave, it’s like one of the birds [Phonetic] in the sector. Sir, my question is regarding your view on iron ore pricing generally, internationally, and in India. And to that extent of pricing of pellets assuming if you remove the government angle aside, just based on the current dynamics, what is your view? And how do we see this from the H1 [Phonetic]?

Dinesh Gandhi — Executive Director

So it looks like the international prices at about $80 is almost maybe bottomed out to some extent. If the demand, the China stimulus comes through, then the prices should improve from here on rather than going down from here. The $80 should be the lower prices of iron ore is recent market.

Prashant Kumar Kota — Emkay Global Financial Services — Analyst

Correct, sir. And your view on the domestic side. Sir, pellet side, have they — can we largely say they bottomed out after this government intervention steep fall?

Dinesh Gandhi — Executive Director

This is already happened in pellet prices. The rest of the steel prices as you were aware in long products, the prices are more or less stable, maybe INR1,000 here and there, the prices are [Indecipherable] but mostly stable. Iron ore pellet prices have corrected only because of the imposition of export duty and of course the reduction in demand and international market. So both have impacted the iron ore pellet prices and we believe that iron ore pellet prices at INR1,000 [Phonetic], and maybe 21% [Phonetic] down from here should be stabilized.

Prashant Kumar Kota — Emkay Global Financial Services — Analyst

Understood, sir. Understood, sir. Sir, my second question is more to do with the social angle, social aspect of what you as a company do, sir. Sir, basically, apart from running a profitable business for the shareholders, we also understand from our sources that, you do a lot of CSR activities in the mining regions around your mines, sir. It’s always very important to do that given the local communities, development, upliftment, et cetera. So all those activities that you do are still continuing without any —

Dinesh Gandhi — Executive Director

Yes, yes. If you know, I think we had highlighted at some point of time, we continue to transport our entire iron ore from mines to our plant is by the road. We have an opportunity to reduce the cost through by transporting the road. But in order to give the employment to the local population we’re owning the trucks, which are flying between because of the power plant and the mines exclusively. They get employment, and of course that has elevated our cost restricted by INR300 to INR400 a ton. But on account of development of the reason where our mines are located, we are continuing with the road transport. Similarly, we have done lot of CSR activities. I think each and every village, how it is pakka [Phonetic] now. In school facilities, there is a hospital facilities, all those facilities are available. The roads in the village are now pakka [Phonetic] road. So all those activities are being continues to be done by the company.

Prashant Kumar Kota — Emkay Global Financial Services — Analyst

Great, sir. Really glad to hear that, and fantastic. And wish you all the best.

Dinesh Gandhi — Executive Director

And as a private company, we also believe it is — we are supposed to give it back to the society. That is our responsibility.

Prashant Kumar Kota — Emkay Global Financial Services — Analyst

Completely agree with you, sir. Fantastic. Great.

Dinesh Gandhi — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Jyoti Singh from Nuvama [Phonetic]. Please go ahead.

Jyoti Singh — Nuvama — Analyst

Hello, good morning, sir.

Dinesh Gandhi — Executive Director

Good morning.

Jyoti Singh — Nuvama — Analyst

Yeah. I have three questions. One is looking at your consol numbers, I guess there are losses in your Ferro Alloy business. So in this case, how do you look at the demand and supply scenario of this segment, Ferro Alloy in India? Shall I go ahead with other two questions, or –?

Dinesh Gandhi — Executive Director

Yeah.

Jyoti Singh — Nuvama — Analyst

So second is, as I have mentioned that you will be doing capex as per the plan. Are you confident that you will be able to achieve the guidance of INR500 crores because in H1, you have done around INR180 crores, so please let us know your plans regarding the Greenfield Steel Project? And third is on your coal sourcing mix. So how do you think the coal sourcing mix look like? And how much coal it will import in your second quarter? And what is the inventory of coal as on date?

Abhishek Agrawal — Executive Director

Dinesh Ji, let me take these questions.

Dinesh Gandhi — Executive Director

Yeah.

Abhishek Agrawal — Executive Director

Good morning, ma’am. Yeah. On the — so on the first question of Ferro Alloys, see we need to understand, India is a big exporter of Ferro Alloys, whether it’s silicomanganese ferro or any kind of ferro [Phonetic]. And primarily our biggest market is Europe, and you all understand because of the energy prices in Europe, and ferro is being quite energy intensive industry, so lot of capacities have gone down in terms of steel making. If you understand, I was reading an article yesterday, so [Indecipherable] itself alone as the Group has reduced their production by almost 10 million [Indecipherable] ton across the Europe, entire Europe. So that is the reason why pellet prices have dropped significantly. That has been the major reason. In India, there is an oversupply of Ferro Alloys. So export it — is part of a good mix when you want a balance the entire demand and supply in India. So at the moment, I would see pellet prices will be under pressure for sure. Going forward as well.

Jyoti Singh — Nuvama — Analyst

Okay. That’s helpful. Thank you.

Abhishek Agrawal — Executive Director

On the coal side —

Dinesh Gandhi — Executive Director

Yeah, yeah. Go ahead, Abhishek. Go ahead.

Abhishek Agrawal — Executive Director

On the coal side, at the moment, see, I told earlier this as well, we are importing coal for a DRA [Phonetic] operation. We’ve already been doing that. And we still continue to import. We import from Africa. We import from Australia. And currently we imported from Russia as well. So depending — and all are aware, currently, finally, the coal prices suddenly cooling down. They’ve almost cooled by $100 in last 6 weeks. So we are trying to operate new inventory, so that we can take advantage of the lower prices. And for the power plants, we are sourcing domestic coal. We have linkage from Coal India, as well as we buying from the domestic market.

Jyoti Singh — Nuvama — Analyst

Okay. And what was your coal import in Q2?

Abhishek Agrawal — Executive Director

In terms of volume or in terms of number?

Jyoti Singh — Nuvama — Analyst

Both.

Abhishek Agrawal — Executive Director

Okay. So Jyoti, I — we usually import on monthly basis, on a qualitative basis, because we want to go with the market, because the market is very volatile. So we put it about 1.5 lakh tons in Q2, and then the average price would be about 18,000, landed to plant.

Jyoti Singh — Nuvama — Analyst

Okay. On your capex guidance?

Abhishek Agrawal — Executive Director

Dinesh Ji?

Dinesh Gandhi — Executive Director

Capex is like, as I said, we have done INR179 crores in the first half. The major work on the solar power plant, where we have to invest more money has started after the monsoon. So except the capex on the Steel Billets side, everything else is expected to be completed in the current year itself. Including the capacity for mining, both the solar power plant, 25 megawatt; GPL, 16 megawatt [Indecipherable] and our replacement of turbine. So these are the main component of the capex, which is remaining capex and likely to be completed in the current year itself. So entire INR500 crores, including INR179 crores already done will be completed in the current year.

Jyoti Singh — Nuvama — Analyst

Okay.

Dinesh Gandhi — Executive Director

And if some we see still are there it could be [Indecipherable] of the capex here and there, but largely we are on line [Phonetic].

Jyoti Singh — Nuvama — Analyst

Okay, understood. That is helpful. Thank you.

Dinesh Gandhi — Executive Director

And one more point I want to add about the loss in the Ferro Alloys business is we are holding lot of inventories of manganese ore, which we had procured at a higher prices. And the same is getting consumed, which was consumed during the last quarter and continues to get consumed. And therefore the impact of inventory loss is also [Indecipherable]. As against the pellet inventory where we are not impacted because our inventory of pellet was hardly seven days, eight days. And iron ore is — the cost is fixed, because of the captive iron ore. So the inventory loss is mainly there with us in the Ferro Alloys business.

Jyoti Singh — Nuvama — Analyst

Okay. That was helpful. Thank you so much, and all the best for the future.

Dinesh Gandhi — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mitul Shah from Reliance Securities. Please go ahead.

Mitul Shah — Reliance Securities — Analyst

Thank you for taking my question. Compared to Q2, how has been the trend during this October, November in terms of the demand situation? And also if you can give some details on the thermal coal price trend in current quarter compared to Q2?

Dinesh Gandhi — Executive Director

Abhishek, you will take it?

Abhishek Agrawal — Executive Director

Yeah. So demand in terms of steel or demand in terms of overall demand or in terms of pellet? I would like to clarify —

Mitul Shah — Reliance Securities — Analyst

The overall demand and specifically to pellet, sir. As our pellets relatively better quality compared to —

Abhishek Agrawal — Executive Director

Okay. You’re right. So on the overall demand side, see the demand has been on the sluggish side, because of the monsoon. Do we, seriously, the demand is already on the semi side because of the monsoon season. And but there were lot of correction, because of the import and export duty. So there were lot of changes in the supplier and the buyer side. Everybody was concerned about the prices further going down. So buying more in skeptical. And with the monsoon over, so November to April is usually the peak period for steel. So we open. The demand will come back soon.

On the pellet side, the demand is have been good for us least, because out of entire production, we almost produce 65% of IFLS [Phonetic]. So at the moment also we send the order book of almost 45 days. So we have order books in end of December. So for us on the demand side of the pellets, we have no concern at all. We are very much covered for next 45 days, and give us a quite low in the flat for the pellet side.

Mitul Shah — Reliance Securities — Analyst

Sir, just to — just a clarification, in initial you highlighted the demand was suppressed that was for Q2 or for October, because my question was primarily on October side.

Abhishek Agrawal — Executive Director

Okay. So that was I think, Dinesh Ji, you mentioned that was for Q2. On October side, again I’m saying the demand was still sluggish because of the festival season. As I said, the demand we picked up post Diwali, which is November season, but on the pellet side being on the — pellet being another raw material, considered as a raw material. So demand was still there that then demand is still there right now also. And as I mentioned, right now we have a order book of 45 days. So on the pellet side, we have no consider [Phonetic] at all. Our order book is [Indecipherable].

Mitul Shah — Reliance Securities — Analyst

And sir, during your discussion with your key major customers, wherein we are seeing the definite slowdown on Europe side and China to some extent. So overall global demand is under pressure. So what is the indication coming from clients — top client side, during your discussion for next six months to one year point of view?

Abhishek Agrawal — Executive Director

See, as we mentioned, I think it is very true. With global macro in terms of steel production, because of the energy — one is energy crisis, and second is the inflation. Especially the countries like Europe, they are going to heavy inflation. See as I mentioned earlier, lot of big steel companies are reaching the position necessary demand. But eventually, it’s about how competitive you are. And with the iron ore mining, we see, if somebody has to dive into the last nonetheless, right. So as I said, we are very much complement in terms of demand level, because our volumes also not so big. And on the pellet side, we have been able to tap three, four big brands in India, which are ready to buy from us. So I don’t see any concern going forward as well.

Mitul Shah — Reliance Securities — Analyst

Sir, in terms of thermal coal pricing trend compared to Q2, how has been the situation in October, November, current quarter?

Abhishek Agrawal — Executive Director

See, usually what happens, we are usually covered for two months with the inventory that plan, stock and the material which is in transit. So the impact of the prices which have started putting down will come in Q4 of this financial year. But at the moment, as I mentioned in the last call also, the price is fairly standard about [Indecipherable] for a BRI. And for domestic, the average mix of linkage at the domestic purchase is about [Indecipherable] from the power plants.

Mitul Shah — Reliance Securities — Analyst

And sir, how has been the trend of the prices of this pellet price and steel prices in current quarter?

Abhishek Agrawal — Executive Director

Post Diwali, the prices have been quite stable.

Mitul Shah — Reliance Securities — Analyst

Reliance or still continue to decline in November also?

Abhishek Agrawal — Executive Director

No. So pellet prices are hovering about INR8,000 extra on dry fruit [Phonetic] for the — which is being manufactured by [Indecipherable] in India. And on the steel side, the prices are about INR44,000, fund is about INR30,000. So market has been quite stable post Diwali. There is a downfall pre-Diwali, but post Diwali, the market has been stable. And we hoping with the demand comes back, the pellet should go up further.

Mitul Shah — Reliance Securities — Analyst

Sir, do expect prices upward revision in coming months in Q4 or to stabilize more or less —

Abhishek Agrawal — Executive Director

See, it’s very difficult to ascertain where pellet should go up. But I think as Dinesh Ji mentioned, we feel the prices have bottom out to a certain extent. We don’t see a much downfall from me. Probably 5%, 10% here and there, you can’t say. But we assuming this is a benchmark there. You should not go below this.

Mitul Shah — Reliance Securities — Analyst

Sir, anything on the hedging, the currency fluctuation is too much this time, and we are doing sizable import of the coal and few other things. So —

Abhishek Agrawal — Executive Director

See, earlier it was a natural hedge for us then we were exporting pellet. So natural number after the exposure. So we do a close monitoring on daily basis, do keep a track of the dollar fluctuations and all the news rolling around it. For example, in last two days, dollar has come down from almost 82 level to 80.6 levels. So we keep a close track and depending on the market situation, we keep hedging our import exposure.

Mitul Shah — Reliance Securities — Analyst

So what would be the net exposure right now as a percentage of sales?

Dinesh Gandhi — Executive Director

[Indecipherable]

Mitul Shah — Reliance Securities — Analyst

In terms of import versus export earlier as sir highlighted that we used to do sizable exports. So it was a natural hedging. But now export has come down significantly and import would still remains same. So then what is the priority now net –?

Dinesh Gandhi — Executive Director

Our overall exposure in the forex market at consolidated level will be close to about INR700 crores, total exposure.

Mitul Shah — Reliance Securities — Analyst

INR700 crores for this FY ’23 or —

Dinesh Gandhi — Executive Director

Yeah. It is — as of now, it is close to about INR700 crores of exposure.

Mitul Shah — Reliance Securities — Analyst

Okay. Sir, lastly on the capex side, as you highlighted INR500 crores, still we are maintaining, there is no spillover — probably sizable spillover to next year. How one should look at next year’s capex. Our majority of capex is being done this year, or it will continue to be similar in the next year also?

Dinesh Gandhi — Executive Director

Next year, capex we will be able to guide it by end of the current or what maybe at the time of the Q1 call. We’ll be able to start the work for our Greenfield Steel Project. But the land acquisition and the environment approval both are delayed and is taking time. So once we get the approval, then only we’ll be able to guide how much of capex we can do it in the particular years upon receipt of that approval. Otherwise whatever this capex, which is currently going on is likely to get completed by the end of the year. So for next year capex, we will be able to guide it in the — in due course of time only.

Mitul Shah — Reliance Securities — Analyst

But any indication directionally, it would be higher or lower than this current year, may not be that —

Dinesh Gandhi — Executive Director

Maybe similar kind of capex in the next years, close to what INR500 crores in a year. It won’t go much because when we get the approval, then we’re going to place the orders for equipment et cetera. So I don’t think, in fact it is going to go beyond INR500 crores, INR700 crores. And we will be able to meet the entire capex through our internal accruals.

Mitul Shah — Reliance Securities — Analyst

Yeah, sir. Thanks. That’s all. All the best, sir.

Dinesh Gandhi — Executive Director

Thank you.

Abhishek Agrawal — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Vikash Singh from Phillip Capital. Please go ahead.

Vikash Singh — Phillip Capital — Analyst

Good afternoon, sir.

Dinesh Gandhi — Executive Director

Good afternoon, Vikash.

Vikash Singh — Phillip Capital — Analyst

Yeah. Sir, I just wanted to understand that at the high inventory, high cost inventory the entire impact has already been taken by 2Q or some of the impact would flow into the 3Q? And how the blended price you are expected to move in 3Q?

Dinesh Gandhi — Executive Director

No, most of the inventory has already taken, because we had an inventory loss on manganese ore prices only. Rest of the prices are mark-to-market, and I don’t think there’s any major inventory losses there in the company. So it is mostly covered into Q2.

Vikash Singh — Phillip Capital — Analyst

So the imported thermal coal, which would have come at a higher cost that is also mark to market by 2Q? And 3Q, we won’t see any inflation because of that?

Dinesh Gandhi — Executive Director

No, we believe or we won’t see that.

Vikash Singh — Phillip Capital — Analyst

Understood, sir. My second question pertains to ask net cash. So if I just do the math, we would have earned some cash during first half, but our net cash position kept on declining. So barring INR179 crore of capex to where the rest of the capex cash has been deployed because I don’t see much of the inventory correction for us during first half, sir?

Dinesh Gandhi — Executive Director

No. On net-net basis, the money has been deployed in capex as well as in the — your current exit [Phonetic]. If you see my net current liabilities has gone down by INR300 crore and current asset has gone down by INR100 crores only.

Vikash Singh — Phillip Capital — Analyst

In addition to that, there is a dividend payout of…

Dinesh Gandhi — Executive Director

Yes. INR118 crores of dividend, INR120 crores of dividend payout.

Vikash Singh — Phillip Capital — Analyst

Understood. And my — during my first question, I also asked that how the average prices movement you are expecting in Q2 versus 2Q in our major products such as pellet and sponge pellet. Guess you could give us some insight into it.

Abhishek Agrawal — Executive Director

Can you come again, please?

Vikash Singh — Phillip Capital — Analyst

So current average — current prices versus your 2Q average how they have moved as of now for pellet…

Abhishek Agrawal — Executive Director

Okay. So see, on pellet side, the Q2 average was about INR8,150. And currently, we stand about INR8,200, so it’s almost the same level. On the sponge side, that the Q2 average was about INR3,300. Currently, the prices stand at about INR30,500 crores. So there’s a drop of about INR2,500. On billet side, the average was about INR4,700, currently the price is at INR4,400. So that will drop about 8% on sponge and billet side. Pellet remain the same.

Vikash Singh — Phillip Capital — Analyst

Understood. One more question regarding the international scrap prices, which have been on a declining trajectory. So does that impact our sponge and the billet prices domestically or we remain fairly insulated? So what’s your take on that?

Abhishek Agrawal — Executive Director

See, maintenance to domestic industry, scrap prices do not affect so much. But what has happened lately because of the domestic prices on the scrap and figuring being higher, a lot of people have imported bulk vessels into India for their own consumption as a trading. For example, even Godawari, we import about 50,000 scrap on annual basis. For the first time, we imported a busier scrap, it’s going to arrive in December because if you compare your melting cost at this point, so scrap melting is much more viable at the current level. So depending on the market situation, it does impact here and there. The impact is not very big, but it is there. You cannot ignore it.

Vikash Singh — Phillip Capital — Analyst

Understood. Just one last question regarding our solar power plant. So right now, if you could give us some idea about the cost savings per unit, which we are having on that? And how does that move in a couple of quarters down the line?

Dinesh Gandhi — Executive Director

See, GPL 70-megawatt has already been commissioned, and we have started due to using the power in our steel melting plant like indicated plant in Siltara. There, we are buying power from the grid at INR5.50 per unit. Now so against this, our cost will be less than INR1.75 including the grid charges — the power banking charges. So net-net, there will be more than INR3.50 per unit sale. The 25-megawatt power brand, where effective power generation will be about 4.5 megawatts will be used in our mines. So mines, we are buying power at about INR12 per unit.

The tariff for the grid tariff in the mines is higher. So that will be again replaced with the power cost of INR1.75 from the solar. So the entire saving will project to the profitability. So against INR12, you can take INR2 is the cost. So INR10 saving is expected there. Similarly, in rotors, we — because of the very high cost of coal, we are using the power from the grid rather than running the coal-based power plant. And same will also get replaced with the solar power by end of the current financial year. So net-net we’re still maintaining the rolling business, we expect a saving of about INR3.5 per unit. And in our minds, our saving will be close to about INR10 per unit.

Operator

Our next question is from the line of Jathin from InvestSavvy.

Jathin Kaithavalappil — InvestSavvy — Analyst

To continue with the transfer picking question under COVID. On the power saving, you said 70 megawatts — and on the other 25-megawatt plant, there will be 4.5 megawatts, which will effectively be produced. So this is — while in megawatt terms, this is fine, but how many megawatts are actually produced — megawatt hours are actually produced, like for solar power in a month how many hours and how many days is it operational?

Abhishek Agrawal — Executive Director

No. So the decision of clarify, it will be difficult to answer that very specifically. You can consider a 17% PLF on an annual basis. For example, if it’s a 17-megawatt solar power, 17 megawatts, 1-7. So about 12 megawatts will be generation throughout the year.

Jathin Kaithavalappil — InvestSavvy — Analyst

To 12 megawatts into 365 into 24.

Abhishek Agrawal — Executive Director

Yes. Into 1,000. So basically, it’s 12 into 24 into 365 into 1,000 means about 10 crore units annually, 10.5 crore units annually. That is how the calculation is done.

Jathin Kaithavalappil — InvestSavvy — Analyst

So basically, you are saving INR3.5 to INR10 depending. And this 4.5 megawatts is already taking the 25 into 0.15 and converting to 4.5?

Abhishek Agrawal — Executive Director

Yes, exactly.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. So this will show up in the cost saving or it will shorten your…

Abhishek Agrawal — Executive Director

Cost saving. So as Dinesh already mentioned, in the mines currently, we are importing power on the grid, and then the average bill is about INR11.5 per unit, which will come down to about INR2, so I was saving about INR19 there. And on the plant side, the INR5 generation cost on the coal side, it’ll save about INR3.50. So that’s what Dinesh mentioned previously.

Dinesh Gandhi — Executive Director

The grid power we are buying from the small quantity of power from grid.

Abhishek Agrawal — Executive Director

Yes.

Operator

Sorry, Jathin, your voice is breaking and we are unable to hear you very clearly.

Jathin Kaithavalappil — InvestSavvy — Analyst

So basically if I do a rough math, there is a saving of about INR75 crores a year based on what you’ve said — so that is obviously a very heavy number. Also a question in terms of the fact of [Technical Issues] So if we look at the impact of dollar movement on your business, now is there a connection between the dollar, like the overseas price, you’re saying $80 to $120 is what you expect it to trade at? Now if dollar has moved up, then does that mean that your realization will be better in India?

Dinesh Gandhi — Executive Director

Export is not allowed my dear friend. Export is a not allowed.

Jathin Kaithavalappil — InvestSavvy — Analyst

It’s not allowed, but is there a relationship between the domestic price and the global price?

Dinesh Gandhi — Executive Director

There is no relationship because in India, pellets are not getting imported.

Abhishek Agrawal — Executive Director

What it means is what we see is that the dollar is moving up, does the domestic pie also start moving up. So I would say not readily. For some people, it might change — it might have an impact depending on the product cycle. For example, people in engineering or depending on imports, but on a regularly — on a larger scale, it doesn’t impact so much. And right now, the global prices of all the commodities or all the steel, I would say, production the pellets, billets, sponge product, the prices are much, much, much less compared to the international market right now. For example, billets, right now, FOB black fees it’s about $490, which is about INR40,000. And right now we’re setting at INR44,000. So it’s already 10% higher. So right now the impact is not very relative compared to the dollar movement.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. And historically, do domestic prices trade at — so when exports, et cetera, were allowed, as both — the domestic price at a discount to the global price? Or was it part of the global price or is it below the global price?

Abhishek Agrawal — Executive Director

It all depends, demand supply. There have been times that domestic prices are much lower compared to the global side. So people start exporting more. I mean the domestic prices are stronger than the global, then people start supplying domestic prices and decreased export volume. So every company, depending on the market scenario, keep changing the supply mix will be the metric in the export market. It’s a very volatile market right now. So there are a lot — it’s a lot of uses behind it. So it’s difficult to give one particular answer.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. What percentage of your cost is coking coal?

Abhishek Agrawal — Executive Director

We don’t use coking coal because we don’t have a blast furnace. We are in DRI-route. So we have pellet, sponge, coal-based sponge and then see making to industry man. So we only import thermal coal and we don’t import coking coal.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. And thermal coal is what percentage of your costs?

Abhishek Agrawal — Executive Director

It’s about — so it’s about 50% of mine. So the total coal I consume in an entire operation, thermal coal is about 50%.

Jathin Kaithavalappil — InvestSavvy — Analyst

50% is imported. And the rest is…

Abhishek Agrawal — Executive Director

Domestic.

Dinesh Gandhi — Executive Director

Total coal, total commodity cost, it could be closer to be about 10%.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. So domestic so the total cost of coal used is 10% of overall cost or 10% of the overall revenue.

Dinesh Gandhi — Executive Director

Yes.

Jathin Kaithavalappil — InvestSavvy — Analyst

No, revenue or costs?

Abhishek Agrawal — Executive Director

Overall cost.

Dinesh Gandhi — Executive Director

Cost, not the revenue.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. So — and in terms of your operating margin, as we can see that because of the factors you’ve been mentioning, we have seen a big drop in like realization. And hence, the EBITDA has dropped. But from 35%, it came down to almost 17% earlier for the quarter. So 28% to 17%, now do you think it bounces back from here or stay here or goes lower?

Abhishek Agrawal — Executive Director

That depends on the opening of the market for export and what is the international scenario. Otherwise, the long-term margins are closer to 20%.

Jathin Kaithavalappil — InvestSavvy — Analyst

Sorry, if — sorry, I lost the last sentence.

Abhishek Agrawal — Executive Director

Long-term margin in our business is close to about 20%. But if an extraordinary situation arises, like last financial year, then the margin can go up to 35%, 40%. Last year, we did 42% in H1 FY ’22. So that depends on the demand supply purely and it’s a commodity. So places are very wide.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. So if you were to add again, like assuming that exports not over for, let’s say, in the next 2 quarters, in this quarter and the next quarter, then given all that’s happening, you expect it to be around what it is or go up marginally or go down marginally?

Dinesh Gandhi — Executive Director

We expect it what it is to be. That is where 1%, 2% here and there, but mostly in this range what we did in Q2.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. Would your power benefit actually kick into this then? Because now…

Dinesh Gandhi — Executive Director

Not in the current year, the major benefit will kick in the next financial year when the projects get commissioned. Some benefit will come from the project which is already commissioned. But then as I said 2%, 3% here and there could always be a fluctuation in the margin. And to the extent, it will get covered within that.

Jathin Kaithavalappil — InvestSavvy — Analyst

You said that was commissioned in June. So it became operational in June or it was — it became operational later?

Dinesh Gandhi — Executive Director

No, it has already become operational. The impact of which will be sales from Q3 because in Q2, we had been entire power. So it is diluted cost only. So Q2, there will be some impact, but then you also see some prices have gone down in sponge around some prices have gone down in billet, so that impact will also progress. So on an average, it will be closer to 19%, 20% margin.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. And the 70-megawatt plant, which was, I think, there from August, it has that been commissioned? Or is it going to commission soon?

Dinesh Gandhi — Executive Director

No. It is commissioned, and we have started utilizing power from October onwards. For 2 months, the power was banked with the state grid.

Jathin Kaithavalappil — InvestSavvy — Analyst

Okay. So for basically both the plants, Q3 onwards full benefit will come in.

Dinesh Gandhi — Executive Director

Yes. For 70 megawatts, Q3 onwards will come. And for the rest of projects which are under construction, the benefit of which will come in Q1 FY ’24.

Operator

[Operator Instructions] We have the next question from the line of Chintan Mehta from Lloyd LLP.

Chintan Mehta — Lloyd LLP — Analyst

Regarding the cost of iron ore in your presentation, you have mentioned INR2,900 quarter-on-quarter. So I want to understand that this is including royalty. Aren’t the costs — costs should have gone down quarter-on-quarter considering the fall in the market price of iron ore and royalty is a function of — to a certain extent, the price of the iron ore. Don’t you think that cost should have fallen by INR200, INR300-odd, sir?

Abhishek Agrawal — Executive Director

No. Just to clarify what happens in we are supposed to pay royalty basis the IP price which have been published. So right now, IBM has printed the price of month of July. So there’s usually a backlog of 3 months. So right now, the royalty is being paid which is IBM price which is in the month of July. I’m seeing in October. So we expect, as we move forward and the price has come down, so there will be saving on account of royalty.

Chintan Mehta — Lloyd LLP — Analyst

And what kind of reductions do you foresee, sir, in that price — that will they are converted into our EBITDA one way or another?

Abhishek Agrawal — Executive Director

So the system right now, which IBM follows is they calculate average of the volumes sold in particular state based the top 5 miners. In Chhattisgarh, there’s only one miner which is selling, which is NMDC. So that is the impact of royalty on account of the mechanism IBM is adopting now. The impact won’t be very, very significant. If we have been Orissa because there are a lot of commission mining happening, the back in much more CBR but in Chhattisgarh, the impact will be very minimal. Say, probably in the range of INR100, INR150.

Chintan Mehta — Lloyd LLP — Analyst

And that impacts us more confident that the price has bottomed out because NMDC sees kind of 2 royalty structure from the mine of Karnataka as well where it has to pay premium royalty on an overall basis. So you think that NMDC prices have somewhat bottomed and that will be scope than Raipur as well on no scope of reduction? That’s the right way of thinking.

Abhishek Agrawal — Executive Director

So I did read an article, which has been respected chairman NMDC and he said, see the prices bottomed out, and we don’t see any further correction. So because statement, I’m assuming NMDC will not carry the prices further. So we don’t expect much correction in royalties going forward as well.

Operator

The next question is from the line of Yogansh Jeswani from Mittal Analytics.

Yogansh Jeswani — Mittal Analytics — Analyst

One question on your restructuring that you were doing. So we had bought in the assets from Alok Ferro Alloys and Hira Ferro Alloys. Just going to your group structure, Alok Ferro Alloys, we own around 79%, and then another 8%, 9% is owned by Hira Ferro Alloys and 12%, 13-odd percent by Ardent Steel, while Hira Ferro Alloys is a subsidiary and identify as associates. So are we further looking to simplify the structure and bring in the remaining stake also from local — sorry, from Ardent and Hira into GPIL directly?

Dinesh Gandhi — Executive Director

Hira will remain as it is. We don’t intend to buy that in GPIL. And I don’t — yes, we intend to buy it at some point of time, we’ll do the transfer, but we are not in a hurry, that is within the group only.

Yogansh Jeswani — Mittal Analytics — Analyst

Okay. Got it. And also Ardent Steel, we continue to maintain this 37%, 38%, or do we intend to sell this?

Abhishek Agrawal — Executive Director

No. We intend to maintain that. We will continue with that.

Yogansh Jeswani — Mittal Analytics — Analyst

One clarification, a lot of has been discussed over your past investments and past calls…

Abhishek Agrawal — Executive Director

Sorry, come again?

Yogansh Jeswani — Mittal Analytics — Analyst

Yes. I’m saying a lot has been discussed on your par investments and all the cost savings that effort that you are taking. So just one clarification. So post these solar power plants coming on stream will be roughly 250-plus megawatt power capacity. So we’ll be self-sufficient or will we have some access to selling the market as well?

Dinesh Gandhi — Executive Director

We will be self-sufficient for our existing operations, including whatever is capacity under commissioning, there is self sufficient. For new projects, we will have to look for the fresh power projects. This is not the requirement of — we don’t need any additional power from here on.

Yogansh Jeswani — Mittal Analytics — Analyst

So I’m asking a new project, you mean the greenfield, right?

Abhishek Agrawal — Executive Director

Greenfield, yes. For existing requirement, the power will be self sufficient.

Yogansh Jeswani — Mittal Analytics — Analyst

Got it. So once all these power plants are commissioned. So by next year, we can say, on an average or per unit, power cost will be below INR2.5 per unit on an average.

Dinesh Gandhi — Executive Director

In average, yes. I think so, yes.

Abhishek Agrawal — Executive Director

INR2.5 to INR3, depending on the…

Yogansh Jeswani — Mittal Analytics — Analyst

So overall, simplistically in terms of margins, I mean, you guys must have done this working. So just to simplify for us last year, full year, we had spent something around INR200 crores to INR220 crores on par. So that should come down to less than INR100 crores, right?

Dinesh Gandhi — Executive Director

No, in terms of the numbers which you are looking in belly heat includes the fuel consumed in the pellet plant. So there will not be the correct working because we’re already running the power plant captively. And the fuel for the power plant is clubbed into the raw material cost. So whatever power we are buying from the grid is classified into the power and fuel cost, plus the coal charge into the pellet plant, coal justification is charged into the power and fuel cost. But yes, our current cost of power is close to about INR4 per unit, which will come down to about INR2 to INR2.25 going forward.

Yogansh Jeswani — Mittal Analytics — Analyst

Okay. Got you. And what is our entire power consumption in terms of units for the entire operations, the increased operations that we’ll be doing in FY ’23 to FY ’24?

Abhishek Agrawal — Executive Director

At full capacity on any given day, the consumption will be about 95 megawatts.

Yogansh Jeswani — Mittal Analytics — Analyst

95 megawatts, okay. And one last question on the pellet usage, you’ve taken a maintenance shutdown. And so in Q3, we will see some impact of it or in Q3, we will be back to normal?

Dinesh Gandhi — Executive Director

Q3 we should be base to normal, but normal is now not like last year because the prices have already fallen from INR130,000 to about INR80,000. So perhaps volumes would be normal, but realization and profitability will definitely be — as compared to last year, it will be lower.

Abhishek Agrawal — Executive Director

No. And just what I’d add is saying, of course, prices we’ve taken care of. But on the volume side, Hira side, that will be absolutely back to normal. But Alok Ferro, there will be some impact because still the modification and revamping is going up and the revamping will take into effect end of November. So there will be a reduced volume from Alok Ferro this quarter, Q3 as well. From Q4 onwards, we’ll be back to normal in terms of volume.

Operator

[Operator Instructions] We have the next question from the line of Aman Madrecha from Augmenta Research Private Limited.

Aman Madrecha — Augmenta Research Private Limited — Analyst

Can you please throw some light on the domestic market, like those imposition of the export duty, the pellets are being sold in the domestic market? And generally, you’ve highlighted in your previous calls also that higher rate pellets of 63% to 64% efficient and don’t have much takers in the India market. So what has changed? And like how are these pellets being consumed by the domestic market or the domestic takers? Some highlights on this.

Abhishek Agrawal — Executive Director

So see, on the pellet side, what has happened is, as you must be aware, as we go ahead, the quality of iron ore India is going down. Orissa being one of the major suppliers of iron ore finds, which is the basic commodity for pellet, earlier, the benchmark was 63%, now the benchmark is 62%. So now pellet produced on an average basis, all over India is about 62.5%, which is a high alumina silica content, which is the mass production. In case of Godawari, the advantage we have is one is the higher pellet where we achieved about 65%, and we produce about 65% Jaisalmer. So our buyers are totally different. Players like Tata GSP, Uttam Galva, who are running the blast furnaces. The reason behind using our pellet and paying a premium rate because of the high coking coal costs. The coking coal prices still delivered to India are above INR300, which gives them an advantage to use the pellets in the charge mix. So that is the prime reason we are still getting a decent premium over and above the other leg in the market because of lower mine and higher FC. That is one thing.

And on the pellet side, the second advantage we have is our phosphorous is quite low because of own in ore mining because of which there are a few players in the domestic market who specifically want the pellet because of the steelmaking because right now, everybody in India is moving towards making quality steel. So phosphorous has been an important role. And the average phosphorous all over India is quite high. So that is the reason I keep mentioning again and again, when it comes to pellet from Abu Dhabi, we don’t have any question selling other we get a premium for an above events in the market. For example, our Orissa plant in Ardent, which is basically the average selling is about INR65 ex plant, whereas Abu Dhabi it’s about INR8,000. So straightaway an EBITDA in addition to continue to be the time, which is huge in the volume game.

Operator

[Operator Instructions] Next question is from the line of Satyan Wadhwa from Profusion Investment Advisors.

Satyan Wadhwa — Profusion Investment Advisors — Analyst

Just one question. In the breakup of power, how many units of power do you use in the mining operation for which you pay INR11.5, INR12? Just trying to get a sense of what the saving on the mining side will be.

Dinesh Gandhi — Executive Director

About 5 megawatts.

Satyan Wadhwa — Profusion Investment Advisors — Analyst

Sorry?

Dinesh Gandhi — Executive Director

5 Megawatts.

Operator

The next question is from the line Deepak Jalan from KLG Securities.

Deepak Jalan — KLG Securities — Analyst

Looking to the cost savings, and better realization of our product, pellet and all that, can we safely assume that in quarter 3 and 4, the profitability will be better than quarter 2?

Dinesh Gandhi — Executive Director

Deepak, it is very difficult to predict the profitability. But yes, the range would be somewhere closer to this, but there could be some variation here and there.

Deepak Jalan — KLG Securities — Analyst

No, if the situation maintains the same that about export and all that?

Dinesh Gandhi — Executive Director

No. But some of their input costs keep fluctuating. So it may not be exactly there, but the range would be closer to here only — at this level only.

Operator

Next question is from the line of Wayne D’Mello, as an Individual Investor.

Wayne D’Mello — Individual Investor — Analyst

So congrats on a good set of results given the circumstances. So my first question is in the previous quarter. Since the imposition of the export duties, the fall in realizations for pellets was a lot more than that of sponge iron. So management had guided that we would try to sort of push more volumes on the sponge iron front rather than pellets. But I have seen that we’ve sold a lot more pellets, whereas sponge iron volumes have slightly come down. So could you throw some light on that?

Dinesh Gandhi — Executive Director

No. We see we have a pellet capacity of 2.7 million tonnes, and sponge iron capacity for 500,000, 0.5 million tonne only. So we cannot change the mix largely. You can do some arbitrage, but whatever response we are purchasing, we are operating our sponge iron plant at 100%. So beyond that, we cannot increase the pellet sales will continue to the extent of 500,000 tonnes per month per quarter that will continue.

Wayne D’Mello — Individual Investor — Analyst

Okay. My second question is, so on the pellet front, we are doing 65% of high-grade pellets. And we’re selling to bigger players like Tata GSP like you mentioned. So you guys must be aware that Tata Steel has in this quarter, in Q3, they have pellet plant in Kalinganagar 6 million tonnes, I think. So given that scenario, I mean, do you have any outlook on the demand for our pellets?

Abhishek Agrawal — Executive Director

Yes, I am totally aware about the Tata steel commission a new pay plan. But as I mentioned earlier, the volume which we produce and volume, which the bigger players require, for example, Tata or GSP or Uttam Galva. So I don’t see any change in that. I think we will have — we’ll continue to do business with all these guys because of — only the reason is state and coking coal prices are at these levels, you think our pellets will always be beneficial for their total cost.

Wayne D’Mello — Individual Investor — Analyst

Okay. And one final question is, is there any update on — we were auctioning — we were bidding for some coal…

Abhishek Agrawal — Executive Director

Yes. We are still trying. Now government has come up with 6 plants of coal we have started evaluating all the options. And as we said earlier, we are still looking to acquire a coal mine, and we will keep — continue to work on that.

Operator

The next question is from the line of Ganesh, as an Individual Investor.

Ganesh — Individual Investor — Analyst

So I’m looking at our results in the corresponding quarter 2 years back, Q2 FY ’21, we made a similar EBITDA at that time also with the similar amount of pellet sales. But the gap between our iron ore cost and the pellet cost then compared to now, we have INR1,000 more per tonne. So what I’m trying to understand is if the profitability though the gap is INR1,000 more, is the profitability the same or similar because of higher input costs? And what are the input costs just wanted to understand that?

Dinesh Gandhi — Executive Director

No. You have to reframe your question, you are trying to ask because our profitability has gone down in the quarter. It is not same as last quarter or the same quarter of last year.

Ganesh — Individual Investor — Analyst

Same quarter 2 years back. I’m just trying to think if the input costs have varies drastically…

Abhishek Agrawal — Executive Director

I got your question. So I’ll tell you why. Iron ore side, although we are selling 1,000 tonnes, but you don’t understand on the energy side because of higher import prices for the DRI and about the thermal price per power plant, the input cost side has gone up. So that has utilized the saving which is on the pellets — on the iron ore side.

Ganesh — Individual Investor — Analyst

Okay. Got it. So do we see the same continuing also because I see the thermal coal prices are still fluctuating in the same way as it was last year?

Abhishek Agrawal — Executive Director

They have started cooling down. But in the current market scenario, I think we’ll continue to do so because still now also the prices are quite on the higher side. So I think going forward also, say everything globally stabilizing in terms of energy, I think we will be impacted by the current market scenario on the energy side.

Operator

Ladies and gentlemen, that would be our last question for today. I now hand the conference back to the management for their closing remarks. Thank you, and over to you.

Dinesh Gandhi — Executive Director

Ladies and gentlemen, thank you for joining the conference call of Godawari Power & Ispat to discuss Q2 results. We have tried to answer all your questions. But if anything is remaining or somebody has you can approve our IR team for further clarification, if any, required. Thank you very much.

Operator

[Operator Closing Remarks]