Godawari Power & Ispat Ltd is a completely debt free company engaged in the business of Mining of Iron Ore and Manufacturing of Iron Ore Pellets, Sponge Iron, Steel Billets, Wire Rods, H.B. Wire and Ferro Alloys with generation of Electricity.
Godawari Power & Ispat Ltd
Current Market price on the date of publishing this report-: 254
Incorporated in 1999, Godawari Power & Ispat Ltd is a flagship Company of Raipur-based Hira Group of Industries. The company was established with an objective to set up facilities for manufacture of sponge iron, Steel Billets and Captive Power, as a backward integration facility for our Group’s Steel Rolling facilities. The company is mainly engaged in generation of electricity, Iron ore mining and manufacturing of Sponge Iron, Iron Ore Pellets, Steel Billets, Ferro Alloys and H.B. Wire. The company is having their production facilities located at Siltara in Raipur.
In 2009, the company signed an MoU with the Government of Chhattisgarh to establish a Cement Plant with a capacity of 2 million tons per annum of cement and 1 million tons per annum of clinker, as well as a Power Plant with a capacity of 50 MW, through a subsidiary company, and as a result, they promoted a 100 percent subsidiary company called Godawari Clinkers & Cement Ltd.
Hira Group
Hira Group of Enterprises is a conglomerate of 13 companies in India, employing about 6000 people. The Group has branches across India and is extending its activities globally. Hira Group’s businesses span seven industrial sectors, including steel, ferro alloys, energy, mining, cement, technology, and real estate.
Business / Products
The firm has a significant foothold in the Steel industry’s long product area, primarily in mild steel wire. Sponge iron, billets, Ferro alloys, captive power, wire rods (through a subsidiary firm), steel wires, oxygen gas, fly ash brick, and pallets are all manufactured by the company. Iron ore and coal mining rights were granted to the firm for captive use.
The corporation is divided into two business segments: steel and electricity. Their Steel division produces steel intermediate items such as sponge iron and ferro alloys, as well as completed long steel products such as billets, wire rods, and mild steel wires. The firm also generates captive electricity, which is utilized in the steel manufacturing process, and sells power in the short term market through merchant sale.
Pellets
2.1 MTP from GPIL Siltara and 0.6 MTPA from Ardent Steel Ltd, a subsidiary of Godawari Power & Ispat Limited, are used in the production of high-quality pellets with low phosphorus content. Iron Ore Pelletization is the agglomeration of fragmented iron ore fines into iron ore pellets suitable for use in the downstream process of iron making.
Because GPIL is the only firm in India producing high-quality pellets, its target clients are quite varied, including the largest steel mills such as Tata and JSP, all of which choose to purchase from GPIL.
In domestic market companies such as Tata Steel, JSPL, and all these big buyers who operate the big blast furnace have been using GPIL’s high grade pellets for the last few months. Tata Steel has been buying from GPIL every month and the management is confident that with bigger chunk of production being on the high gate side they will be able to utilize some level of price drop because of export ban rather duty on export side.
In terms of production volume, the present production volume is around 60%-65% for high quality pellets and approximately 30%-35 percent for low grade pellets.
65 percent of the pellets are completely sold out in the domestic market; the remaining high quality pellets are utilized in steel production and will be exported. However, due to a recent government duty, it will be used/sold in the domestic market for the time being.
Sponge Iron
Sponge-iron made from coal is a metallic product created by direct reduction of iron ore in the solid form. As a result, it is often referred to as Direct Reduced Iron (DRI). Iron Ore Pellet is used in the reduction process. Because of the holes left behind after the elimination of oxygen, the result following reduction of iron ore pellet resembles a sponge. As a result, it is known as Sponge Iron. In steel melting, sponge iron is used to replace scrap. Manufacturing ISI products from 0.495 MTPA high grade pellets and iron ore-based sponge iron with low phosphorus.
Power
In order to boost production and energy efficiency, the firm built its own power division, which began operations in 2002 with a capacity of 30 tons per hour. A year later, GPIL expanded to a capacity of 70 tons per hour. Again in January 2006, capacity was increased with the installation of 54 ton/hr capacity, boosting generation capacity to 28 MW. In April-2007, the generating capacity was increased by 25 MW with the installation of a boiler generation capacity of 51 tom/hr, bringing the total generation capacity to 53 MW.
In November 2010, generation capacity was increased by 20 MW with the addition of a 100-ton-per-hour AFBC boiler, bringing total current generation capacity to 73 MW.
Billets
Billets are made from pellet-based sponge iron, which has a major favorable influence on the re-rolling process due to its surface polish and chemical properties that stand up under testing conditions. Billets, which come in a range of sizes, are used for re-rolling strips, wire, bar, hexagons, and profiles. The company produces 0.4 MTPA HIGH QUALITY BILLETS IN ACCORDANCE WITH IS 2830 & 2831.
Silico Manganese
Silico Manganese is a key component used in the manufacture of various types of steel. Routine production planning includes Silico Manganese, High Carbon Ferro Manganese, and Medium Carbon Ferro Manganese. Furthermore, the current EAF (Electric Arc Submerged Furnace) has successfully produced Pig Iron in response to market demand. The company has a capacity of 16500 MT per year and a range of Silica Manganese in its belt.
HB Wire
Company creates distinguished re-rolled Mild Steel Wires, hugely responsive across the seas, stamping our importance and worldwide signature, marching ahead with time and pioneering the product mix.
The company produces 0.142 MTPA high grade HB wires in a variety of gauges ranging from 6 to 14 gauge.
Profiting from foresight in technical investment, the firm, along with its subsidiary and affiliate enterprises, is one of the country’s major manufacturers of mild steel wires. It has an annual capacity of 1.2 million metric tons.
Steel wires are widely appreciated in the infrastructure sector for their ability to bear the stresses of construction. Such a high-quality finish boosted Binding wire and nails wire are widely used in the building sector, and barbed wire is used in fencing and other purposes.
Sale / Disposal of assets
The firm has disposed its full 100 percent stake in Godawari Green Energy’s non-core business of solar and thermal power, earning a net profit of Rs.98 crores on investment, which is recorded as an extraordinary item in our results.
Capex
The firm is pushing forward with expanding the environmental clearance limit for its iron ore mining capacity from 3 million tonne to 5 million tonne, and eventually to 9 million tonne, depending on the company’s future expansion goals.
The capex projection for FY2023 is about Rs.500 crores, with the majority of the funds coming from internal accruals. In terms of production volume, the business anticipates producing around 2.7 to 2.9 million tonne of iron ore and approximately 2.4 million tonne of pellets in FY2023.
The firm is now completely self-sufficient in terms of iron supply.
Financials
FY2022 was a landmark year in the history of GPIL. Company achieved many strategic milestones during the year such as record breaking financial performance substantially higher and highest ever revenue EBITDA and PAT.
For the year ended FY22
- GPIL has reached the biggest amount of production in the iron ore mining, iron ore pellet, and ferro alloys businesses. On a year-over-year basis, they are all 36 percent, 6 percent, and 14 percent, respectively.
- On a Y-o-Y basis, the sales of iron ore pellet and sponge iron were up 3% and 21% respectively. The sale of billet and HD wire reduced by 33% and 64%
- The total income grew to Rs.5399 crores.
- EBITDA has climbed to Rs.1864 crores, a 36% increase.
- The consolidated PAT more than doubled to Rs.1403 crores from Rs.627 crores, representing a 136 percent growth year on year.
- Even on a quarterly basis, PAT from continuing activities attributable to the company’s owners climbed by 24%.
- On a standalone financial sheet, the firm reached net debt free status in Q1 FY2022 and on a consolidated basis in Q4 FY2022. As of March 31, 2022, the firm is net cash positive.
- The commitment on promoter shares was entirely extinguished and decreased to zero in April 2022, down from 32% at the end of the previous fiscal year.
Going Forward / Management’s Comments
During the year, the firm began producing high quality pellets, which attract a higher market price of around Rs.1500 per tonne over commercial grade pellets. The firm has begun delivering pellet to significant steel producers in the domestic market as well as exporting it.
The firm has made steps to integrate the group’s iron and steel activities, which are now being consolidated under GPIL, and has increased its holding in HFAL to 76 percent.
In the coming period management intends to consolidate its remaining holdings in Hira Ferro and Alok Ferro.
Moving forward with the consolidation, the board has authorized the acquisition of Jagdamba Power’s 25 megawatt thermal power plant on a slump sale basis for a lump sum price of Rs.70 crores. The transaction is scheduled to close by the end of June. This deal adds value since GPIL requires electricity and the cost of power on a long-term basis, which will be substantially lower than grid power.
The 25 megawatt power plant is particularly crucial for value addition industry since the volume cannot be moved on grid power alone.
GPIL is decreasing its carbon impact by establishing three captive solar power plants with a combined capacity of 155 megawatts. These initiatives are not only environmentally good, but they are also intended to save the corporation money by substituting grid electricity. The projects are moving along nicely.
Regarding the 70 megawatt Rajnandgaon project of GPIL, it is totally ready and awaiting grid synchronization, and it is expected to begin producing very soon, maybe within a few of days.
The remaining two projects are scheduled to be completed by the end of Q3 FY2022. Aside from that, the firm already generates 42 megawatts of captive electricity from waste recovery, as well as 20 megawatts of biomass power in GPIL and 8 megawatts of biomass power in HFA.
Iron ore mines have a 35-year life cycle, and management recently reported that reserves in their iron ore mines have significantly increased as a result of additional trialing conducted by the company during the year, with the reserves now estimated to be in the range of 165 million tonnes for the mine, up from an earlier estimate of 35 million to 40 million tonnes. Because there is a high demand for its pellets in the local market, the business plans to build a one million-tonne Greenfield pig iron facility.
The company’s main risk comes from the steel side, where future development has been put on hold for two reasons. One is that the corporation is awaiting the sponge iron Environmental Clearance since a lot depends on it. If the corporation extends its capacity but fails to obtain approval for sponge iron, it would be left without raw materials to feed its steel-making capacity, creating a significant bottleneck.
Sectorial Outlook
On the international front, the iron ore market is marginally deficient in Q4 FY2022, and production is severely disrupted. The war between Russia and Ukraine hampered the supply of iron ore, steel, and raw materials, raising demand for iron ore in Europe and Asia. Iron ore prices were range bound in Q4 and are projected to remain so for the remainder of the year. Steel and other commodity demand and consumption in China are restrained as a result of the turmoil caused by the COVID and the shutdown. The Chinese markets are anticipated to revive if the lockdowns are eased and the government provides the necessary boost. There have been media claims that the Chinese government has announced a 300 billion Yuan stimulus package. Although the stories have not been validated, this is what is circulating on social media.
Concerning domestic iron ore, the government recently imposed an export levy on iron ore. Iron ore fines ranging from 0 percent to 30 percent and pellets, which previously had no export charge, now have a 45 percent export duty. The export tariff on completed steel goods, as well as semi-finished and finished steel products, is set at 15%. This is anticipated to put downward pressure on domestic iron ore and pellet prices, as well as finished steel prices. Based on international demand supply, the prices are likely to be close to export prices. NMDC has already dropped iron ore pricing by Rs.750 per tonne in recent days.
In the future, the price dynamics of iron ore and pellet will be influenced by the impact of export duties as well as the demand and supply picture in both local and foreign markets. Under even conditions, the increasing cost of the auction of iron ore mine will provide some assistance. The markets are anticipated to return to normalcy in the coming days. However the exact effect will be discovered only at the end of the 1st quarter.
Conclusion
Godawari Power & Ispat Ltd a completely debt free company engaged in the business of Mining of Iron Ore and Manufacturing of Iron Ore Pellets, Sponge Iron, Steel Billets, Wire Rods, H.B. Wire and Ferro Alloys with generation of Electricity. Management has laid out an ambition plan of carrying out 500 crores of capex which would be funded mainly through internal accruals. Apart from that company counts some of the biggest steel manufacturers such as Tata steel as its clients which continuously purchases from the company and is expected to continue in the coming period as well. Apart from that what makes company attractive is its huge positive operating cash flows coupled with its cash balance of about 500+ crores. Astonishingly GPIL is currently available at P/E multiple of less than 3 , Price/sales of less than, Price to Book value of almost 1 and most importantly any further relief in the export duty levied by the government could be a big beneficiary for the company. Thus this company is worth exploring for long term.
