Godawari Power And Ispat limited (GPIL) Q3 FY23 Earnings Concall Transcript

Godawari Power And Ispat limited (NSE: GPIL) Q3 FY23 Earnings Concall dated Feb. 13, 2023

Corporate Participants:

Dinesh Gandhi — Executive Director

Sanjay Bothra — Chief Financial Officer

Abhishek Agrawal — Executive Director

Analysts:

Sana Kapoor — Go India Advisors — Analyst

Jatin Damania — Kotak Securities — Analyst

Mitul Shah — Reliance Securities — Analyst

Chirag Singhal — First Water Capital — Analyst

Prashant Kumar Kota — Emkay Global — Analyst

Bhavesh Chauhan — IDBI Capital — Analyst

Sanjaya Satapathy — Ampersand — Analyst

Hitesh Arora — Unified Capital — Analyst

Punit Mittal — Global Core Capital — Analyst

Ashish Kumar — Infinity Alternatives — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Godawari Power and Ispat Limited 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.

Sana Kapoor — Go India Advisors — Analyst

Thank you, Mike. Good afternoon, everybody, and welcome to Godawari Power and Ispat Limited earnings call to discuss the Q3 and nine months FY’23 results. We have on the call Mr. Abhishek Agarwal, 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 risk 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 afternoon, ladies and gentlemen. I would like to welcome you all to the earning call of Godawari Power and Ispat Limited on behalf of the company. Our Q3 FY’23 results and earning presentations have been uploaded on the company’s website and the stock exchanges. I believe that you have got a chance to have a look at it.

Just to begin with, it was an exciting quarter, we saw many important and strategic development. To begin with Government of India in the month of November removed the export duty on iron-ore pellet and steel products, which was levied in the month of May 2023. This was contrary to the popular surfiction and the surprise many — most expected that the iron-ore pellet export duty — export tax will not go away fully. It is now clear beyond doubt that Government of India has no intention to execute the iron-ore pellet and cease the value-added products and not par with iron-ore. Pellet industry is generating new employment and taxes and contributing to the growth of Indian economy. This movable government has made us more confident and we have accordingly announced doubling of our iron-ore mining and pellet capacity. The capacity of our iron ore mine is proposed to be expanded to 6 million ton from 2.35 million ton directly. Additionally, a 6 million ton iron-ore beneficiation facility it is also proposed to be built at the mine itself. Both these projects have a combined capex of about INR200 crore.

Another ended a 100 crore of capex is proposed to be made to increase the pellet capacity from 2.7 million to 5.7 million ton by establishing a new 3 million ton iron-ore pellet plant at the existing plant location. In this regard, I would like to clarify that although the company has announced a capacity of 2.7 million tons of pellet originally in view of availability of a single unit 3 million ton pellet plant capacity, we have decided to increase the capacity from 2.7 to 3 million ton of the proposed plant. And therefore, now the overall capacity would increase to 2.7 to 5.7 million tons. With the increased 0.3 million ton capacity there will not be any corresponding increase in the pellet cost, it will continue to be able to setup within the INR800 crore planned capex.

We trying to setup one million ton greenfield steel trajectory is still awaiting for process for the acquisition of leasehold land and other approvals, like environmental and approval water allocation, etc. The final plant configuration and product mix shall be it — it is still being worked out and shall be announced with the announcement of the capex post initiative of all these approvals. However, further — forward integration, we have decided to increase the capacity our steel billet plant from 0.4 lakh ton to 0.5 lakh ton, which was put on-hold and also decided to undertake modernization of over one of our existing rolling mill with a capacity of 2.16 mix to convert the same for manufacture of steel structural and steel mill as the backward integration to our fabrication come galvanizing facility and backward integration to our ERW pipe capacity. This will help us to setup a precedent of experience and setting up larger rolling mill for manufacture of narrow [Indecipherable] steel, for manufacturer of ERW pipes with our greenfield steel plants.

In the meanwhile, as detailed in our presentation, we are continuing with our normal capex plan to setting up of the solar projects, another efficiency improvement, capacity expansion project, when we funded through the internal accruals, this includes 6,000 ton beneficiation plant at the mine and still billet capacity, etc. The solar power plant, the company has already commissioned 70 MW solar power plant at Rajnandgaon [indecipherable] started drawing power from the plant. The acquisition of Jagdamba power plant has also been completed. Regarding other two solar projects, one solar project of GPIL with the capacity of 30 MW, is expected to be commissioned by end of June for supply of power to our mines, and another project of 60 MW capacity for Hira Ferro Alloys is expected to be commissioned by March 2023.

Coming on this operational performance production of iron ore mining and pellet production has increased by 4% and 2% respectively during Q3 FY’23. The production of steel billet increased by 18%, HB Wires increased by 706% and Galvanized Fabricated products by 22% on Y-o-Y basis. The sale of pellet and steel billets are up to 59% and 321% Y-o-Y, whereas sale of points sponge iron and rolled products reduced projected by 67% respectively, mainly the fall in of sponge iron and rolled products [indecipherable] mainly because of sale of partially steel billet and rolled products. Ferro Alloys sales volume or [Indecipherable] HFAL both increased to 50% — quarter-on-quarter on 50% and 20% respectively. The market price of iron ore for Q3 stood at INR5,500 per ton whereas company’s captive iron ore landed cost was about INR3,000 rupees a ton showcasing competitive advantage for the company, having the captive iron ore mine.

Coming on the financial performance, consolidated revenue increased to INR1,463 crores in Q3 FY’23, up 12%, part of quarter-on-quarter basis, but down 9% Y-o-Y. The lower sales on Y-o-Y basis was mainly due to falling realization of pellet and ferro alloys, higher Q-o-Q sale was on account of trading sale of INR241 crores, excluding trading sales, there was a fall in the revenue at INR1,222 crores. Consolidated EBITDA was INR173 crore is down 25% quarter-on-quarter, 65% Y-o-Y, mainly due to lower realization on Y-o-Y basis for the pellet and sponge iron and other value-added product on quarter-on-quarter basis. As you’re all aware, GPIL is the net debt free company. And as of December, we had a net cash of INR600 crore.

Coming on the market outlook, global outlook for iron ore is positive, prices of iron ore have risen from a low of $78 ton late last year to $120 currently, sudden shift in China’s COVID policy has done the sentiment to positive. NI is looking to revise raising property sector. And as announced number of [Indecipherable] and increase liquidity, at the same time, China is usual focusing on intra-spend to support economic growth. All these are given well for higher steel production in China and stronger demand for iron ore.

Another sector working in favor is — listed develop disruption in Australia and Brazil. Iron ore demand/supply is highly balanced, we should keep iron ore and therefore pellet prices well-supported. Domestic is still demand is very strong. Indian government in its budget is announced increased capital outlay by 33% to INR10 crore and also increased railway outlay to 75% to INR2.4 lakh crores, these are giving well for the steel demand in the country, especially for longest in products.

The current steel prices of the normal iron ore pellet is holding about INR10,000 a ton, the prices of sponge iron and other value-added products like billet, roll products, etc. have improved to Q2 level, which we have seen a fall in Q2 — Q3.

With this, I conclude my opening remarks and open the floor for Q&A. Thank you and over to you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have the first question from the line of Jatin Damania from Kotak Securities. Please go ahead.

Jatin Damania — Kotak Securities — Analyst

Thank you for the opportunity. I just wanted to understand because in the previous call —

Operator

Mr. Jatin, your audio is not very clear, if you could kindly go off the speaker phone.

Jatin Damania — Kotak Securities — Analyst

Now it’s audible?

Operator

Yes. It is. Thank you.

Jatin Damania — Kotak Securities — Analyst

Sir, just wanted to check that in the previous call, we are stated that the current order book of a pellet business was driven by the domestic order, now with the renewal of this export duty, how are we placed in terms of the domestic order book. And have we got any inquiry as far as the export order is concerned.

Sanjay Bothra — Chief Financial Officer

Good morning. [Indecipherable] discussion. So on the pellet book order side, we still haven’t started exporting, because the domestic license still much better competitive than export market. On the inquiry side, of course, we have been getting regular inquiries from our regular buyers, but the debt are between the domestic and export is almost INR20 bucks, which is a substantial difference. So the moment company is focused on selling everything domestic, but we already open by export given the price realization.

Jatin Damania — Kotak Securities — Analyst

Right. I think in your presentation that you said that we’ll be probably increasing our mining capacity from 6 million in next 18 months, and remaining the pellet will be probably coming the next 16 months. So by any chance, rather looking at selling incremental iron ore mine in the market in FY’25, ’26 before the pellet comes in place?

Sanjay Bothra — Chief Financial Officer

No. We will — we have no intention of selling any iron in the market. We want to elongate the mines life. So we will mine, as for the requirement of the pellet plant. We have no intention of selling in the market.

Jatin Damania — Kotak Securities — Analyst

Sure, thanks. I’ll come back in the queue. Thank you.

Operator

Thank you. We have the next question from the line of Mitul Shah from Reliance Securities Please go ahead.

Mitul Shah — Reliance Securities — Analyst

Yeah. Good afternoon sir, and thank you for giving opportunities. Sir, am I audible clearly?

Dinesh Gandhi — Executive Director

Yeah. Yeah. Yes. Yes. Yes.

Mitul Shah — Reliance Securities — Analyst

Yeah. Sir, you have given a remark that now prices are — have reached to a Q2 level which dipped in Q3. So can you give few ballpark numbers? It is almost at a Q2 average or peak level of Q2. And second question, how has been the volume trending in Jan-February and what is outlook for this quarter and maybe next one or two quarters after this export duty being removed? So any attraction in terms of orders and all?

Dinesh Gandhi — Executive Director

See, let me clarify. I said in my opening remark that pellet sizes are holding about INR10,000 per normal grade. And about INR11,000 for the high grade pellet. And the prices have come back to this sponge iron and value-added product like pellet steel billet products, the prices have gone to Q2 level, Q2 level meaning, sponge iron around INR32,500, steel billet at INR48,000 a ton and wire above INR50,000 a ton.

Mitul Shah — Reliance Securities — Analyst

Okay, because these number seems to be at least 2% to 5% lower than Q2 average, which we reported?

Dinesh Gandhi — Executive Director

My Q2 average, sponge iron is about INR32,000, INR33,000, and it’s the same level.

Mitul Shah — Reliance Securities — Analyst

No. In your PPT, it is INR34,000, INR33,900. That’s why I’m asking.

Dinesh Gandhi — Executive Director

Okay. No. So it is INR32,000 then, I will correct it.

Mitul Shah — Reliance Securities — Analyst

Yeah. And second on the volume side how has been the last 1.5 month and going forward, next one or two quarters view?

Dinesh Gandhi — Executive Director

Pellet, you’ll see the normal volumes. So far as, this sponge iron and billet steel we have already announced shut down of our sponge iron plant and other value-added facilities manufacturing like billet, etc., because we have already reached the sponge iron plant utilization of 90 — more than even 98% currently. And we do not have a scope to manufacture more sponge iron in the current financial year until March. So we are taking this opportunity and if we are not able to roll for produce sponge iron, then we have to shut down our waste heat recovery power plant and even the steel billet facility because running billet facility and grace power does not make any, says, it’ll put to loses. So we have decided that sponge iron billet power generating capacity and other value-added facilities will all remain shut down until last week of March. And definitely the volume — sponge iron volume will go down considerably and even billet and other products volume would go down considerably in the second half of the Q4 FY’23. Pellet and sponge iron will continue to operate, pellet will have an usual capacity production of over 650,000 tons and ferro alloys is at about 4,000 tons per — for the quarter.

Sponge iron, Abhishek, can you tell me, how much is the exact [Indecipherable] production till now?

Abhishek Agrawal — Executive Director

Sir, till now, we have produced about 485,000 and the capacity is 495,000.

Dinesh Gandhi — Executive Director

Current, current year number, you give — current quarter?

Abhishek Agrawal — Executive Director

Current quarter we produce say about 50,000 ton still now and additional 10,000 ton in production. So total volume, about 60,000 tons for Q4 — 60,000 that’s it.

Mitul Shah — Reliance Securities — Analyst

Okay, sir. And lastly on the capex side, we are planning to spend INR400 crore for this year. After this change in few dynamics FY’24, one should consider resemble part number or any change in our plants?

Dinesh Gandhi — Executive Director

See, out of this capex, power generation has already started building into the number. The Jagdamba Power Plant is already operational. We already put to use our 70 megawatt solar power plant. And the additional solar capacity will come into the production, where we’re likely to sell INR3 per unit of the power generation. And this plant will operate at about 15% capacity utilization level. It still be left — it still from 400,000 to 500,000 tons will get commissioned by September. And this will call site with commissioning of our new furnaces. So impact of that will come in the next financially. We already said that the additional power generation capacity of 8 MW will be available, when we commission the new turbine. And sponge iron, billet capacity will definitely help us produce more structural than other steel, where we should be able to save INR1,000 per ton.

Mitul Shah — Reliance Securities — Analyst

Okay. So we earlier indicated somewhere around INR500 crore kind of annual capex for next two, three years. So would be in the similar range, right?

Dinesh Gandhi — Executive Director

Yeah. Yeah. This INR400 crore is already coming it from the last year. We have not announced new capex in the current year. The 71 — rolling modification plant we recently announced in the current.

Mitul Shah — Reliance Securities — Analyst

FY’24, FY’25 may be FY’26, those two, three years.

Dinesh Gandhi — Executive Director

Yeah. Yeah. That is — that in those years the new mining and pellet capacity will come.

Mitul Shah — Reliance Securities — Analyst

Okay, sir. Thanks and all the best.

Dinesh Gandhi — Executive Director

Thank you.

Operator

Thank you. We have the next question from the line of Chirag Singhal from First Water Capital. Please go ahead.

Chirag Singhal — First Water Capital — Analyst

[Technical Issues] question. Sir, I wanted to know what is the coal consumption cost for Q3 and what was it during Q2? [Speech Overlap] Coal consumption cost for Q3 as well as Q2?

Dinesh Gandhi — Executive Director

That’s what I’m asking. Coal consumption as in for sponge iron or because coal is being consumed —

Chirag Singhal — First Water Capital — Analyst

For sponge iron?

Dinesh Gandhi — Executive Director

So for sponge iron, Q2 was at levels of about INR15,000 ton now it has come down to INR13,000 a ton. INR13,000.

Chirag Singhal — First Water Capital — Analyst

This is current, INR13,000 per ton is current?

Dinesh Gandhi — Executive Director

Yes. INR13,000 is for current Q4 and for Q3, it was about INR15,000 per ton.

Chirag Singhal — First Water Capital — Analyst

Okay. And what was it during Q2?

Dinesh Gandhi — Executive Director

Little higher, above INR17,000, because the national market of coal has started going down, I would say in post Diwali, which was November. So that’s why the impact of INR3,000 is being affected in Q4. And I’m hoping since the national market is down trend, so next financial year, the cost will further be, probably should be down by at least INR2,000, somewhere around of INR10,000 per ton.

Chirag Singhal — First Water Capital — Analyst

Okay. This is — this should be Q1 onwards?

Dinesh Gandhi — Executive Director

Yeah. This should be Q1 onwards. Yes.

Chirag Singhal — First Water Capital — Analyst

INR10,000 per ton?

Dinesh Gandhi — Executive Director

Yeah. Yeah. Yeah.

Chirag Singhal — First Water Capital — Analyst

Okay. All right. Thank you. I’ll get back in the queue. Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Prashant Kumar Kota from Emkay Global. Please go ahead.

Prashant Kumar Kota — Emkay Global — Analyst

Sir, good afternoon and thanks for the opportunity. Sir, my question is regarding the proposed 1 million ton steel plant. Now have we made up our mind fully and just waiting for clearances and commitments from government? That is the first question. And related to that, sir, have we also considered setting it up as DRI or a thermal coal based plant where in, because the coking coal is always out of control, always [Indecipherable] that happens. So since you are already in coal rich belt, and probably if we get some good auctions mine — in the auctions at good price in coal mine, would that be an option that you would consider and just wanted to know your thought processes on how you would go about it?

Abhishek Agrawal — Executive Director

Okay. So on the 1 million to steel site, the company is focused on setting up the plant, but of course, the land acquisition and water capability goes — on those [indecipherable] with the state government that is taking much longer than we expected. And on the plant side, since you mentioned, we should be work on probably a coal based DRI site. So what we have analyzing then, if you take an average of, let’s say, even leave the COVID period aside, you consider an average of say, five to seven years between the primary producer of blast furnace versus the secondary producer through DRI route, the added difference between the input to output is about INR7,000 a ton. So additional — INR7,000, when you go through a blast furnace route compared to DRI route. And so we are very clear, we will be going with the blast furnace route. We are going intention of setting up another 1 million plant to DRI route. [Speech Overlap] All the coking coal prices are in the highest at the moment, which is very correct. But if you see the long term, we think that coking coal also will stabilize going forward.

Prashant Kumar Kota — Emkay Global — Analyst

Sure, sir. And you say this INR7,000 increment in EBITDA is because of the higher realization for the [Speech Overlap]

Abhishek Agrawal — Executive Director

It’s both. It’s both. So the realization is higher about, say INR3,000 to INR4,000 a ton. And on the input side, because of the process, since the power climate is not there in steel making, the hot tire directly maintain the AC converter. So the operation side, the EBITDA is about INR4,000 a ton on the finished side because of the quality. So put together, INR7,000 to INR8,000 additional EBITDA will be there compared to the [Indecipherable]. So we have no intention of solving DRI going it, we will be go with the blast furnace itself, as when we get required approval.

Prashant Kumar Kota — Emkay Global — Analyst

Perfect. Thank you. And all the best.

Abhishek Agrawal — Executive Director

Thank you.

Operator

Thank you. We have the next question from the line of Bhavesh Chauhan from IDBI Capital. Please go ahead.

Bhavesh Chauhan — IDBI Capital — Analyst

Hi, sir. Can you talk a bit about the 18 months timeline that we have given to expand iron mining in terms of when can we expect the clearances and then how long will it take to complete the groundwork?

Abhishek Agrawal — Executive Director

Okay. So we have already applied for NMG clearance. And that process is already in place. We should be able to get the permission in Q2 of this financial year or early of Q3. And this is that moment we get the permission, we will start the mining activities. And on the renovation side, we already have 6 lakh a ton permission by beneficiation for which the plant is ordered — under reduction state and the remaining capacity of 5.4 million ton will also start building up once we get the approval.

Bhavesh Chauhan — IDBI Capital — Analyst

Okay. And sir, in terms for pellets, we are saying 36 months to expand it to nearly 5.7 million?

Abhishek Agrawal — Executive Director

Yeah.

Bhavesh Chauhan — IDBI Capital — Analyst

So I thought, it should take a little less than that, so —

Abhishek Agrawal — Executive Director

No. So, see, 10 months, 12 months will go for the required approval since we have to go to Delhi to do MOEF for the clearances. And then when we start work, so the groundwork will take up for 24 months, it’s 10, 12 months with the process, which we need to get approval from MOEF and then the pollution board. So that’s a total 36 months. And we have already filed for the — for the 3 million ton plant. So that — so we should be able to start the groundwork, say end of Q3 of this — next financial year, say November, December.

Bhavesh Chauhan — IDBI Capital — Analyst

Yeah, yeah. Okay, sir. Thank you and all the best.

Abhishek Agrawal — Executive Director

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question on line of Sanjaya Satapathy from Ampersand. Please go ahead.

Sanjaya Satapathy — Ampersand — Analyst

Sir, can you please help me in understanding that you have said that [Indecipherable] prices have recovered. So what kind margin that one can really look forward to in quarter four?

Abhishek Agrawal — Executive Director

Quarter four or like, there is one impact you will see negative side is from the closure of facilities for about four to five weeks. Baring that our pellet, we’ll continue to operate at say more than — around closer about 40% margin and payroll margin is usual 18% to 20%.

Sanjaya Satapathy — Ampersand — Analyst

Okay. And what would be billet steel price?

Abhishek Agrawal — Executive Director

Billet will be again, we’ll be closing down for 1.5 month. So whatever earnings it was there, we’ll go into fixed cost and maintenance expenses. So I’m not taking into account the margin for value-added facilities from sponge iron to steel.

Sanjaya Satapathy — Ampersand — Analyst

Understood. And in terms of — assuming that all these production would’ve been normal instead of the shutdown that you were taking, I’m just trying to get a sense as to where the prices and costs are and where exactly is the margin, assuming normal business risks?

Abhishek Agrawal — Executive Director

See, majority of our margin comes from the pellet business.

Sanjaya Satapathy — Ampersand — Analyst

Correct?

Abhishek Agrawal — Executive Director

Majority of margins come from the pellet business, but does — it’s not that that the value-added facilities does not contribute, it does contribute, and to that extent there will be impact, but there will be higher positive delta from the pellet business. And therefore we have said in our announcement that although this will have a negative impact, but overall it’ll be positive and profitability is expected to be higher than the last part of that is Q3 — in Q4.

Sanjaya Satapathy — Ampersand — Analyst

So will it be back to Q2 level at least?

Abhishek Agrawal — Executive Director

It could be.

Sanjaya Satapathy — Ampersand — Analyst

Okay.

Abhishek Agrawal — Executive Director

Yeah, depending on the average realization, but realization is, as I said, is around INR10,000 a ton currently. And definitely, last 1.5 months would be closer to average of last quarter. So definitely it should be better.

Sanjaya Satapathy — Ampersand — Analyst

And how much was the pellet margin in Q3?

Abhishek Agrawal — Executive Director

See, I’ll only able to give you in absolute term but in about INR2,000 to INR2,500 a ton.

Sanjaya Satapathy — Ampersand — Analyst

Thanks a lot.

Operator

Thank you. [Operator Instructions] We have the next question, line of Hitesh Arora from Unified Capital. Please go ahead. Thank you. [Operator Instructions] We have the next question from the line of Hitesh Arora from Unified Capital. Please go ahead.

Hitesh Arora — Unified Capital — Analyst

Thanks for the opportunity. Just to clarify — just to get your revenue break down for the quarter, you got the volumes in realizations — volume realization, think around INR150 crores thereabout. What is the — what contributes the delta of the [Technical Issues]?

Abhishek Agrawal — Executive Director

Sorry. Sorry, come again, I’m not understood?

Hitesh Arora — Unified Capital — Analyst

Sir, you got the volumes of the realization for your products [Technical Issues]

Abhishek Agrawal — Executive Director

For Q3. For Q3?

Hitesh Arora — Unified Capital — Analyst

Yes, yes, yes. Multiply those I get the difference of maybe around INR150 crores odds in the number that I get versus the actual revenue?

Dinesh Gandhi — Executive Director

I have said in my opening remarks that the sales of INR1,400 crores something includes INR241 crores trading sales.

Hitesh Arora — Unified Capital — Analyst

Of trading sales, okay?

Dinesh Gandhi — Executive Director

Yeah, yeah. Therefore, the difference is coming, if we reconsolidate that, it’ll get reconsolidated.

Hitesh Arora — Unified Capital — Analyst

Okay. How many did you said?

Dinesh Gandhi — Executive Director

INR241 crores.

Hitesh Arora — Unified Capital — Analyst

Okay. Is that trading, and this is normally you do it every quarter for trading?

Abhishek Agrawal — Executive Director

No. It is not higher because we have done certain — I think it is Bothra, it is called contracts.

Sanjay Bothra — Chief Financial Officer

It is regarding coal contracts. Yes.

Abhishek Agrawal — Executive Director

So in fact, I’ll just to clarify for the larger audience. We have done some hedging for the coal. So some transactions have settled in trading sales. Some we took delivery, some were settled. So therefore the difference is there. In fact, because of the accounting standard, it is appealing as a trading, but otherwise, if you consider this as hedging mechanism, then it is a part of the reduction in raw material cost, so corresponding entries are there.

Hitesh Arora — Unified Capital — Analyst

Okay. How much in [Technical Issues] last quarter?

Abhishek Agrawal — Executive Director

So it was neglectable.

Hitesh Arora — Unified Capital — Analyst

Okay. Yeah, fine.

Abhishek Agrawal — Executive Director

No. Normally, our trading sales in a year could be INR40 crores, INR50 crores normally it’s not that large. It is a one-time transaction.

Hitesh Arora — Unified Capital — Analyst

Okay. Thank you. Thank for the clarification.

Operator

Thank you. We have the next question from the line of Punit Mittal from Global Core Capital. Please go ahead.

Punit Mittal — Global Core Capital — Analyst

Hi. Thank you. Just one question to just to get my understanding correct, you have a significant difference in the production and the sales volume. So on the P&L, the cost that we see is based on the production versus the revenue that you show is based on the sales volume. Is that understand correct?

Abhishek Agrawal — Executive Director

Yeah. The difference in the sales volume, like, I’ll just give you an example. In pellet, we consume almost about 33% of our production for captive use is sponge iron. Similarly, these sponge iron whatever is produced, almost 80% is used for captive conjunction in making steel billet and billet goes into roll products, roll product goes into the wire, and therefore each product we fail in the market and there is a value addition as well. And therefore, there would be a different in sale production volume and sales volume.

Punit Mittal — Global Core Capital — Analyst

Okay. So part of that difference is in-house?

Abhishek Agrawal — Executive Director

In-house consumption. In-house consumption. Yeah.

Punit Mittal — Global Core Capital — Analyst

For the same products. Okay. Okay. Got it. That’s all from me. Thank you so much.

Abhishek Agrawal — Executive Director

Yeah.

Operator

Thank you. We have the next question from the line of Ashish Kumar from Infinity Alternatives. Please go ahead.

Ashish Kumar — Infinity Alternatives — Analyst

Thank you, sir. And sir, a couple of questions. One is in pellets how much is the production guidance, do you think that we can — we were looking at doing roughly 700,000 tons per quarter. So can we start hitting that from the 500,000 that we did last quarter?

Dinesh Gandhi — Executive Director

No. No. Last quarter will also be higher. Yes, Abhishek.

Abhishek Agrawal — Executive Director

No. No, please go ahead. Please go ahead.

Dinesh Gandhi — Executive Director

Yeah, last quarter also, we had a higher volume, it’s not 500,000 tons. 500,000 tons could be the sales.

Ashish Kumar — Infinity Alternatives — Analyst

Right? So we [Speech Overlap] 1.9 in nine months and our guidance was 2.7. So will it be [Speech Overlap]

Abhishek Agrawal — Executive Director

Yeah, our guidance was 2.6, 2.7 is capacity.

Ashish Kumar — Infinity Alternatives — Analyst

But do you think that we can hit the 2.6 guidance from?

Abhishek Agrawal — Executive Director

Yeah, 2.6 we can hit.

Ashish Kumar — Infinity Alternatives — Analyst

2.6, so we can have 700,000 tons this quarter?

Abhishek Agrawal — Executive Director

Yeah, yeah. So maybe 20,000 tons 25,000 tons plus minus, but it’s closer to that number.

Ashish Kumar — Infinity Alternatives — Analyst

Sure, sir. And the second thing was in relation to the use of cash. Now we have INR500 crores of cash and the export realizations have also come back to reasonably even the worst of times we generated positive cash flow. Are we looking at doing a large payout to the investors either in form of buyback or a one-time special dividend given the fact that — we have generate serious amount of cash flow from the business?

Abhishek Agrawal — Executive Director

No. You are right. The point is that we have a lot of capex lined up. We’re already going through a capex. If you see my presentation, there is a capex input together, solar plus other debottlenecking capex, including already done is close to INR1,000 crore. We have announced the further capex, about INR1,000 crore in pellet and mining business. And then we are looking to setup greenfield steel plant also. So our dividend will continue to be — is guide in our dividend policy of 10% to 15%. And we are not looking at buyback because we need to conserve case for capacity expansion projects. We’ll not intend to raise much debt. We will try to set it up through the internal generation only.

Ashish Kumar — Infinity Alternatives — Analyst

Sir, in terms of the steel plan, any — why is the thought process, because it’ll be ROC dilutive for our business. So why do we think that we should do good on that path?

Abhishek Agrawal — Executive Director

See, ROC diluted, like, you have a — you are into the business, we have mines and you need to consume your partial pellet into the manufacturing as well. So it’s a good head between pellet business and steel business. You have an opportunity to sell pellet, which gives you higher delta. And you consume the steel also, steel still gives also the opportunity. So rather than just giving the dividend and say looking at pellet business, we do not see business as like this. We’ll want to restrict ourselves to a pellet company. We’ll continue to manufacture steel.

Ashish Kumar — Infinity Alternatives — Analyst

And how do you think will be a capex for this we had projected INR400 crore capex? How much do you think will be a capex for FY’24?

Abhishek Agrawal — Executive Director

FY’24, we’ll place the order for our new pellet plan, once we get the approval for mining. Mining capex will start to what INR200 crore. We have to give the advance for our new pellet plan. Once the approval is in place, we’ll start building the — give the case. So maybe give a time of six to eight months after that the case will continue to be required.

Ashish Kumar — Infinity Alternatives — Analyst

Yeah. I’m just trying to understand as —

Abhishek Agrawal — Executive Director

No. That depends when we’re able to get the approval and after that the money would be required. My — as of now, my requirement would be closer to about maybe balance capex, which is close to about not more than INR250 crore to INR300 crore in whatever project which are in pipeline currently.

Ashish Kumar — Infinity Alternatives — Analyst

Okay. And last question on the ferro alloys business, have you seen a recovery in the prices on the ferro alloys business also?

Abhishek Agrawal — Executive Director

Yes.

Ashish Kumar — Infinity Alternatives — Analyst

So are they similar to Q2 levels or?

Abhishek Agrawal — Executive Director

No. No. No. It is much lower, much lower.

Ashish Kumar — Infinity Alternatives — Analyst

So what will it be —

Abhishek Agrawal — Executive Director

Ferro alloys is selling closer to about [Technical Issues] closer to about INR75,000. Last financial year, it was more than INR l lakh a ton, INR120,000. So it has not come to that level.

Ashish Kumar — Infinity Alternatives — Analyst

And how do you see that going forward?

Abhishek Agrawal — Executive Director

Maybe it is unlikely to go in a hurry to the levels, which was prevailing last year.

Ashish Kumar — Infinity Alternatives — Analyst

Okay. So we should budget in INR75,000 to INR80,000.

Abhishek Agrawal — Executive Director

Yeah, INR75,000 to INR80,000 tons mix.

Ashish Kumar — Infinity Alternatives — Analyst

So basically, yeah, the short term —

Dinesh Gandhi — Executive Director

The only silver lining in — for the ferro business is a lot of capacities of ferro alloys is going out of production, especially in high energy markets like Europe — Africa, Europe, or because ferro alloy got a lot of power. The same time the cost have gone down compared to last year. So that’s only silver lining, right. How the market’s going to play depends on the demanding supply.

Ashish Kumar — Infinity Alternatives — Analyst

Right. So basically in short-term, the volume growth is basically going to come from mining and the pellets [Technical Issues]? Is that a fair way to look at it?

Dinesh Gandhi — Executive Director

Yes. Yes.

Ashish Kumar — Infinity Alternatives — Analyst

Okay. Okay. Thank you. And wish you all the best, sir.

Dinesh Gandhi — Executive Director

Thank you.

Operator

Thank you. We have the next question from the line of Ramesh from [Indecipherable] Ventures. Please go ahead.

Unidentified Participant — — Analyst

Hi. Thank you. In your presentation it was mentioned in the pellet sales volume has, well, production is more or less on the line, it was 4% up, but pellet sales volume is gone down by around 13%. And your realization is more or less flat, like in the sense from Q2 to Q3. So what is the forecast for Q4 in terms of sales volume and realization? What will — can we expect? And as you mentioned some — second question, as you mentioned, some shut down the plant of sponge iron and all. And so what will the additional maintenance cost, which we expect in this year? Thank you.

Dinesh Gandhi — Executive Director

Abhishek, would you like to?

Abhishek Agrawal — Executive Director

Yeah. Yeah, I’ll take. So on the pellet side, see probably the sales are little down, because probably, our in-house DRI production was on the higher side, so 4% to 5% doesn’t make a difference because if whenever [Indecipherable] so that additional volume goes into the market for sales. So that is why there, there’s a difference in the production and the sales volume. On the Q4, since they already released a statement on Saturday, we are taking a shutdown of four to five weeks for the DI unit. So that entire volume usually consumed in DRI will be going in the market. So the sales volume in Q4 of pellet will be much higher compared to Q3 or even Q2, because the shutdown may [Indecipherable] DRI consumes about 70,000 every month. So that additional 70,000 material will be dispatched in the market. The sales volume in Q4 will be much higher. On the license side, Q3 was average about INR8,000, Q4, the average should be about close to INR10,000 say INR9,750, INR9000. So jump off about 20%, 25% compared to Q3.

Unidentified Participant — — Analyst

So there will be substantial increase both in sales volume as well as realization for pellet?

Abhishek Agrawal — Executive Director

Yes, yes, yes.

Unidentified Participant — — Analyst

And pellets being your mainstream sort of in terms of revenue, so it’ll be a good picture for you?

Dinesh Gandhi — Executive Director

Yeah. So overall, we expect better Q4 numbers compared to Q3 in terms of profitability definitely.

Unidentified Participant — — Analyst

And any additional cost which will incur in this maintenance and —

Abhishek Agrawal — Executive Director

No, no. See, we all — we already have a maintenance schedule for the entire year. So it’s substantial cost won’t be there, just a regular maintenance that the new turbine works, which we are undertaken. So we are using the opportunity to take up that as well, so that going forward when the turbine is commissioned, we don’t have take a shutdown for the plant.

Unidentified Participant — — Analyst

Right. Thank you.

Abhishek Agrawal — Executive Director

Only the fixed cost amount will go into the costing, since the plant will be shutdown for the next four to five weeks. Apart from that nothing major.

Unidentified Participant — — Analyst

Okay. Thank you.

Operator

Thank you. We have the next question from the line of Ganesh, an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Can you hear me well?

Abhishek Agrawal — Executive Director

Yeah.

Unidentified Participant — — Analyst

Okay. So from your presentation, I see that we are concentrating mostly on our Ari Dongri mines. But our estimated availability from both Ari Dongri and Boria Tibu, they are like by in large equal. So any reason for that or when do we plan to use Boria Tibu mines?

Dinesh Gandhi — Executive Director

Boria Tibu mines, some production will continue to go, but our focus is on Ari Dongri initially. And then later on when Ari Dongri volumes go down we’ll use Boria Tibu.

Unidentified Participant — — Analyst

Okay. Okay, got it. So just one more question.

Dinesh Gandhi — Executive Director

Life is — life is much more than what we can consume. So it is — it’ll better to focus on one location, reduce the cost. If you focus on two locations, then the cost also increases.

Unidentified Participant — — Analyst

Got it. Got it. Just have one more question. I’m assuming all our — the capacity additions, the long-term additions we have are in the new location. So but we have also been — gradually adding capacity in the old location, the current location that we have. So for this next three years or so, in our plan, can we assume that our capacity is by and large done in the old location or will we have opportunities to have —

Dinesh Gandhi — Executive Director

No, Old locations capacity is already done. We have some space and some additional land which we have purchased, which will help us setting up additional pellet capacity of 3 million tons in the existing location. And after that yes, there’s no more scope of doing anything and most of the debottlenecking capex also, we are simultaneously doing it. So we’ll be done with capex except the maintenance, there will not be any new capex at the existing location. Everything will go to new location.

Unidentified Participant — — Analyst

Okay. Got it. So this pellet plant that you just talked about in the extended location near to existing location?

Dinesh Gandhi — Executive Director

No. Yeah, we were earlier shifts, planning for setting our pellet at the new location, but since the land for the pellet is getting delayed. So we thought of setting up the pellet plant here so that we can keep on it at least.

Unidentified Participant — — Analyst

Got it. Got it. And this is also, we have a timeframe of three years or it’ll be lot sooner?

Dinesh Gandhi — Executive Director

No, it’ll not — it’ll be done within three years, because the new location is still uncertain because it is — it’s still taking lot of time in land allocation.

Unidentified Participant — — Analyst

Got it. Got it. Thank you. Thank you for the opportunity sir. I will go back in queue.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Shivam, an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello sir. Thanks for the opportunity. I would just like to know the range of the ferro alloys EBITDA, like if you can tell me over on the past year, what utility from the maximum to the minimum side, can you tell me?

Dinesh Gandhi — Executive Director

You know, prices?

Abhishek Agrawal — Executive Director

Yeah, yeah, yeah.

Unidentified Participant — — Analyst

I think on lower side.

Dinesh Gandhi — Executive Director

No. See, Abhishek take that question.

Abhishek Agrawal — Executive Director

Yeah, see on the pellet prices that the COVID phase of two years was quite, I would say, one of incident where the prices had gone up to INR1.2 lakh or say INR1 lakh average was different that year, that was very exceptional period. Usually, the pellet prices over about, say INR60,000, INR65,000. The lowest if we say probably when the cycle was quite low in 2013, ’14. The prices are as low as INR40,000, INR50,000 also. And on the higher side, we have seen about INR1.25 lakhs, INR1.3 lakhs, but on a longer-term, I would say, considering a INR5 on a year average is, it is what we usually consider by reviewing any project. So INR5,000 EBITDA when the market is quite settle and normal.

Unidentified Participant — — Analyst

So this is ferromanganese or silicon manganese, can you?

Abhishek Agrawal — Executive Director

No. So we don’t make ferromanganese, we’re mainly into silicon manganese of high grade. So I’m talking about silicon manganese only.

Unidentified Participant — — Analyst

Okay, okay. Silicon manganese?

Abhishek Agrawal — Executive Director

We do produce ferromanganese, but that’s very — very, probably once in a blue moon with the opportunity, we think the market is good, but more or less they’re in the silicon manganese market for different grades.

Unidentified Participant — — Analyst

Okay. Okay, sir. And for any reason to sticking into this silicon manganese only, like the other companies usually switch according to the market conditions basically?

Abhishek Agrawal — Executive Director

There is no specific reason, whether see for making ferromanganese, the purchase of the raw material has to be accordingly. To make ferromanganese, then you have to import lot of raw material, the Indian manganese were less than in quality. The reason for it was good quality ferromanganese. So accordingly, we have to plan all the inventories and all, and even the silicon manganese market in India expect substantial and with export happening. So we see sticking to one pretty product, it helps in planning, invent and other things. Switching back to ferromanganese again, silicon manganese is the raw material inventory goes up quite to substantial level, because if you maintain different [indecipherable] for different products. So on a group level, let’s stick with silicon manganese only.

Unidentified Participant — — Analyst

Okay. And sir can you give any guidance on volume growth? And can you tell us the why is the ferro alloy is under some pressure right now?

Abhishek Agrawal — Executive Director

See the ferro alloy is under pressure, because we think, one is, currently the export market is quite subdue from India because Middle East, Europe is not a big market in India. And as you’re aware, because of high energy prices, post of war, the consumption in ferro alloys have gone substantially, about 21 capacity of steel is out of production in Europe since post the war. So that is the reason the export market are quite subdued. And to balance all the demand in supply, India needs to keep exporting ferro alloys or else the domestic market will be oversupply and the price under pressure. So that is the reason the pellet price are quite under pressure right now.

Unidentified Participant — — Analyst

And sir, your volume guidance for ferro alloys?

Dinesh Gandhi — Executive Director

We have been producing it at the ready capacity level say 10%. So our volume would be on the same levels. We are not spanning the ferro as much.

Unidentified Participant — — Analyst

Okay. Thank you.

Operator

Thank you. We have the next question from the line of Punit Mittal from Global Core Capital. Please go ahead.

Punit Mittal — Global Core Capital — Analyst

Hi just a follow-up question. You had said that your margins for the pellet business is the highest, and then the other downstream — sorry, upstream products are low prices. And you also said that you don’t want to just stick to a pellet company even though the ROC of the other product may be lower. Can you explain why is the case, if the business pellet is generating substantial EBITDA with other products, why could you not stick to pellet? Thank you.

Dinesh Gandhi — Executive Director

Go ahead. Go ahead, Abhishek.

Abhishek Agrawal — Executive Director

Yeah. That the reason we don’t want only to pellet is that because a lot of expansion is happening in India in terms of pellet capacities. Lot of our current buyers will turn into producers rather become a merchant sell in the market. And depending only on one product, lifelong, I don’t think it’s the right strategy, but I just seen the iron ore prices are also gone on to below $40, when the market was — globally market was at a quite low level. So and pellet market or iron ore market, as you aware are many given by China market. So I would say, it is a big question mark, if the market goes down then straight away, our plant will takes a big hit. We see Q2, Q3 moment the pellet price has started going down, probably started going down. So looking into that, we want to probably be in the middle where we are a pellet player, where in cash flow, same time we enter the steel market also. And we use that to make good quality steel and earn profit in that as well. So it’s middle part.

Punit Mittal — Global Core Capital — Analyst

Got it. But actually lessening your business?

Abhishek Agrawal — Executive Director

Yeah, exactly. Yeah.

Punit Mittal — Global Core Capital — Analyst

Okay. Got it. Thank you. Thank you so much.

Operator

Thank you. We have the next question from the line of Hitesh Arora from Unified Capital. Please go ahead.

Hitesh Arora — Unified Capital — Analyst

Thanks. Thanks for the opportunity. There’s a chart in your presentation. So the cost of capital iron ore land cost from $2,900. So just understand, what is the cost of pellet production. So you’ve got this roughly INR21,000 here. You probably would’ve some conversion costs, we would’ve probably some transportation cost. Could you roughly break it down from, is it — or any other components that I’m missing?

Dinesh Gandhi — Executive Director

See on oral level as you’ve already mentioned, our mining cost is about INR3,000 a ton land to the plant and overall INR3,000 with beneficiation and other operating cost, roughly, today’s pellet cost is about, say INR6,000 a ton.

Hitesh Arora — Unified Capital — Analyst

Okay, so INR3,000 plus another INR3,000?

Dinesh Gandhi — Executive Director

Yeah, because the energy cost in the higher size, so the conversion is about say, INR2,000 and additional, INR1,000 on account of yield loss where we benefited and made high grade pellets. So put together the currently our cost is around INR6,000 a ton.

Hitesh Arora — Unified Capital — Analyst

Okay. Thank you. Thank you.

Operator

Thank you. That was the last question. I would now like to hand it over to the management for closing comments.

Abhishek Agrawal — Executive Director

Thank you all for joining the conference call with Godawari Power & Ispat Limited. Although we have tried to answer all your queries, if you have any more remaining, you can always touch to our investor relation team at Go India or you can directly reach us. Thank you very much and thank you for participating. Thank you all.

Dinesh Gandhi — Executive Director

Thank you.

Sanjay Bothra — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]