Godawari eyes assets under IBC, aims to be debt free in 5 years

Godawari Power and Ispat Limited a name which has grabbed eye balls of prospective stock investors from across the country in the last 6 months after its share prices begin to skyrocket in 2017. Price of the company’s shares increased from INR 100 in September 2017 to INR 598 on 25January 2018. Propelled by its strong growth in revenue and future market prospects investors have flocked towards the company. The company also stands as the largest producer of pellet in Central India with a mammoth 2.1 mnt pellet production facility in Raipur. The company also manufactures sponge iron and other products but pellets stand as Godawari’s core business. We speak to Executive Director Siddharth Agrawal in an exclusive chat with Steel360 as he reveals future possibilities of the company’s plans in the market and also sheds light on the present market situation.

After the Chinese winter cuts are over, how would the overseas pellet market react?
Pellet demand still remains stable in China for at least a quarter or so owing to the demand for quality products. So we are looking at a positive price trend between USD155 to USD125.
Polluting industries have been shut. The over production has come under control. Now they are targeting quality products. Earlier they were taking low grade ore and going for beneficiation etc. But now their approach has changed and they are looking to go for quality products. Even if you see the present pellet demand, prices have not crashed owing to the winter cuts, as was the trend earlier. Beside the production cut we are still positive on the price. Earlier demand would be strong before winter and then there would be a sudden dip by at least USD 30 to 40 and the market would remain affected for about 3 months. But this time around prices have stayed balanced.

What about the Indian demand-supply dynamics? What is your view on the domestic market?
In terms of the Indian demand-supply situation it seems to be stable. First the mines which have been closed in Odisha have kept Iron Ore supply under pressure thus leading to better realization. Even though ESSEL and Sirajuddin have paid the penalty it would not affect the market severely. About 15 mnt out of the 20 mnt closed capacity might recommence. Another thing is the case for violation of rule 37. That case is also being heard and the decision might come in the next couple of months. There is presently a gap between demand and supply. Owing to these closures the strong demand for pellet has persisted.
Pellet prices have slipped marginally in the last week? Is it a matter of concern?
There is a pricing issue where pellets are concerned. The market has gone as high as Rs 7400 and now it has come down to Rs 7000. It accounts for about a 5% drop and another 5% is expected. But the demand continues to be quite strong. These fluctuations are part of normal trading activity and isn’t a major cause of concern for us. We are quite comfortable with the pellet pricing and stability as the market continues to be fundamentally strong because of demand.

Do you see pellet export from your plant in Odisha strengthening?
There is always a possibility for pellet export from Odisha subject to the Chinese demand. As long as the prices are between 115 to 125 FOB China, export would continue. Last exports were done at 118 USD. But from last 15 days there have been no delays because of the approaching new years and large amount of stock at the ports. So I think by end of Feb the orders will start happening again. From Ardent we have exported 100 per product last year. It is only in February that we have done local sale.
Interms of our Raipur based plant there is a lot of demand in and around the region. We are utilizing 90% plus capacity.

Sponge prices have been quite slack do you see a turn-around any time soon?
Sponge Iron should be stable at around between INR 19500 to 20500 for March. There is a lot of infra work happening especially in low housing sector. A lot development works are being undertaken by the railways as well. Real Estate over all is picking up pace as RERA is getting established across the country gradually. Considering these factors the market looks positive. We are looking at constant domestic growth over 2 years.

Is there expansion plans?
We are doing a minor INR 250 to 500 million capex to complete a finishing cycle. We are having excess capacity of billet. So we are putting up a hot charging rolling mill to balance out the excess capacity so as to become more integrated in the mid segment. Billet production would be increased by 100 %. We have a capacity of about 400,000t and we are manufacturing about 200,000t so after the expansion of rolling mill we would be able to maximize production as part of the optimization exercise. We are also planning to acquire a 25MW power plant the deal for which is almost on finalization stage. With this acquisition our captive power generation would go up from 73 MW to 98 MW we will be able to manufacture 400,000t billet.

What are the challenges being faced on the Solar front?
Solar in India has two technologies one is Solar PV and Solar CSP. PV is doing very well in India. The initial cost in 2010 per mega watt was 14 to 15 cr it has now come down to 3.5 to 4 cr per mega watt. It has been adopted across the country. The tariff as part of Jawaharlal Nehru Solar Mission was around 12 to 14 per unit has now come down to 3 to 4 per unit. The other technology Solar CSP has not been able to adapt well in India. The cost which was at 2010 is still hovering around the same level. That is where we are facing the challenge. Solar is definitely a very big boon to the India scenario. Solar is one of the turnaround in India moving forward. The government is planning to encourage manufacturers to set solar equipment manufacturing in India as well there is also a policy in place in this direction.

Will you convert to PV for better feasibility?
We have no intention to convert from pv to csp. We have acquired a lot of expertise in CSP and are current plant operation is stable. We would not be interested in switching if there is any good opportunity in CSP we are open to that. Despite the higher cost of production. We believe the government can come up with a policy that could sustain the cost of production and capital cost.

Down the line how do you see forward integration progressing? What is your plan for the INR 5 billion investment?
Debt reduction remains are focus and we aim to be a debt free company within 5 years. If we get some good asset in the region under the NCLT proposals we would be keen to acquire. We might bid for these projects.

Is Monnet Ispat on the cards?
Monnet is too large for us. We are looking at assets around 1 mnt capacity. We are seeking this investment for debt reduction and possibility of asset acquisition. So out of the investment if nothing happens on the asset acquisition front all of it would go towards debt reduction. We presently have a debt of about INR 20 billion and are looking to reduce around INR 3 to 5 billion in FY 19-20. And ultimately we want to be debt free five years down the line.
We are looking for a fully integrated steel plant and planning inorganic growth. We have a few gaps. We plan to cover the entire cycle from mining to selling finished products such as wire rods and tmt. We are positive on opportunities for inorganic growth.

What is your EBITDA forecast for Q4?
Are current EBITDA was INR1.7 billion for December. We are looking at an improvement by about 10 per cent or in Q4. In FY 19 we are expecting an improvement of additional 10%. The marginal price fluctuation is not a major concern for us. We book for one or two months in advance so in December we sold at around 5400 and that is why we are positive on our EBITDA growth for Q4.

Do you see mining activity improve in times to come?
On the mining front we are doing quite well. Out of the 2mnt capacity we have mined around 1.5 mnt in the present fiscal and in FY 19 we are looking at production of around 1.8 to 1.9 mnt. Captive mines are major boon for us and the pelletization plant as well. We are the largest pellet producers in Central India. It contributes to at least 70% of the EBITDA of the company.

Where do you see Godawari five years down the line?
Our goal is to see Godawari as a debt free company five years down the line.