India: Godawari Power pellets output falls in Q2, impacting margins

Central India's leading steelmaker, Godawari Power and Ispat Limited (GPIL),recently announced its Q2FY'22 results, highlights of which are given below:

• Total iron ore production in Q2FY'22 was at 0.46 million tonnes (mn t) against 0.42 mn t in Q2FY'21.
  
  
• The company's total pellets production from the parent company stood at 0.552 mn t, lower by 11% y-o-y and 8% q-o-q. Subsidiary Ardent Steel's (ASL's) total pellet output stood at 0.18 mn t, up 5% q-o-q.
  
  
• The company's total pellets sales from parent GPIL stood at 0.34 mn t, down by 13% q-o-q. ASL's total pellet sales stood at 0.22 mn t.
  
  
• Total steel billets output for the quarter was at 0.08 mn t compared to 0.1 mn t in Q2FY'21.
  
  

Highlights of the investors' call:

1. Pellet sales outlook: The company's pellet sales share is currently 50:50 for domestic and exports. The company will continue to sell Fe 63% in the domestic market and export Fe 65% . High grade pellets give additional realization of about $20/t. The demand for pellets in China and other markets like Europe is rising.

2. Impact of coal prices: The company has done advanced buying for coal and has enough supplies till Jan-early Feb'22. So, in terms of coal, the company is covered properly and is not affected by its price rise. The company imports coal from Australia and South Africa.

3.Carbon neutrality and replacing grid power to reduce cost: The size of solar power plants has been reduced from 250MW to 100MW due to changes in the regulations of captive solar projects. The company was about to set up a solar plant at Raigarh. But, due to reduction in size, the location has been changed. The new plant, with a revised capacity of 70 MW, will be set up at Rajnandgaon. It will commence in Q1FY23.The company already has land for it, coinciding with commissioning of its steel billets capacity, to facilitate drawing power from it.

A 30MW plant will be installed in Chhattisgarh near Raipur. Land identification is done. Commissioning of the plant is expected towards H1FY23.

The existing 73-MW power generation will continue to remain the same; However, the company now plans to replace old turbines with new high-efficiency turbines with capacity of 48MW which will increase power generation by 8MW without any additional fuel and operating cost.

4. Scheme of arrangement with Jagdamba dropped for now: The merger of Jagdamba with the company has been dropped for now. However, it continues to draw power from Jagdamba in line with the previous set agreement till a fresh agreement is finalised.

5.Hira Ferro Alloys, with a capacity of about 61,500t, has now become a subsidiary of the company with a stake of about 52.79% which is likely to go up to about 56% in the near term.

6.The company is in the process of acquiring land for an integrated steel plant of 1.5-2 mn t. The company expects to file for environmental clearance approval for this project in the current month.

7.The average pellet realisation has dropped by 10% q-o-q to INR 13,000/t. However, it is 3% up compared to Q3CY20.

8.Pellet prices in the domestic market are currently at INR 13,000/t However, export offers are at INR 11,000-11,500/t.

9. The total PAT for GPIL was recorded at INR 296.7 crore, down 32% against INR 434.9 cr in Q1FY22.