Godawari Power And Ispat limited — Q3 FY25 earnings call

Call held 13 Feb 2025

Management summary

Godawari Power reported a stable performance for the first nine months of FY25, despite Q3 facing a drop in revenue, EBITDA, and PAT due to lower iron ore pellet production and realization challenges. The company maintained healthy margins with 22% EBITDA and 15% PAT, alongside a robust net cash position of INR725 crores. Strategic shifts include dropping a large-scale steel plant project in favor of smaller, value-added steel initiatives and expanding mining and pellet capacities, with significant solar power additions planned.

Highlights

  • 9M FY25 Revenue remained flat at ₹3,908 crores.

  • Q3 FY25 EBITDA margin stood at 22% and PAT margin at 15%.

  • The company reported a robust net cash balance of INR725 crores.

  • Pellet realization increased by 2% on a 9-month basis to INR10,387 a ton.

  • Mining capacity expansion of Ari Dongri's mines from 2.35 million to 6 million tons is expected by Q1 FY26.

  • Pellet plant capacity is set to increase from 2.7 million to 4.7 million tons, with commissioning by Q2 FY26.

  • The greenfield integrated steel plant (2 million ton capacity) project has been dropped due to revised capex estimates and market conditions.

  • Acquired a 49% stake in Jammu Pigments Limited as of December 31, 2024, contributing ~INR50 lakhs profit for 40 days.

Concerns

  • Significant miscalculation of capex for the 2 million ton integrated steel plant project.

Key financials

2 periods

Q3 FY25

  • EBITDA Margin
    22%
  • PAT Margin
    15%
  • Net Cash Balance
    ₹725 Cr

9M FY25

  • Revenue
    ₹3,908 Cr
    YoY 0%
  • Pellet Realization
    ₹10,387/ton
    YoY +2%

What they filed

Q1 FY27: revenue up 32.3%, net profit up 2.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,268 1,298 1,468 1,323 1,308 +3%1,139 −12%1,610 +10%1,750 +32%
EBITDA247 221 318 324 260 +5%218 −1%439 +38%334 +3%
Net profit159 145 222 216 162 +2%143 −1%280 +26%222 +3%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Capacity

  • Mining Capacity (Ari Dongri) Capacity · Q1 FY26 · High confidence 6 million tons

    Previously 2.35 million tons → 6 million tons

    The approval for mining capacity expansion of Ari Dongri's mines from 2.35 million to 6 million ton is expected to be in place by Q1 FY '26.

    — Sanjay Bothra, CFO

  • Pellet Plant Capacity Capacity · Q2 FY26 · High confidence 4.7 million tons

    Previously 2.7 million tons → 4.7 million tons

    The increase in pellet plant capacity from 2.7 million to 4.7 million ton is expected to be commissioned by Q2 FY '26.

    — Sanjay Bothra, CFO

  • New Pellet Plant Trial Production Start Capacity · Early Q2 FY26 · High confidence Start
    So we envisage the pellet plant will start trial production by early Q2.

    — Abhishek Agrawal, Executive Director

Market Share

  • Domestic Steel Demand Growth Market Share · 2025 · Medium confidence 8-9%
    India's steel demand is projected to grow by 8% to 9% in 2025, driven by increased construction in housing and infrastructure sector.

    — Sanjay Bothra, CFO

Volume

  • Pellet Production and Sales Volume · End of FY25 · Medium confidence Previous levels
    we remain hopeful about restoring our pellet production and sales to previous levels.

    — Sanjay Bothra, CFO

  • New Pellet Plant Full Production Volume · End of Q3 or mid of Q3 FY26 (worst case Q4 FY26) · Medium confidence Full production
    See, 3 to 6 months maximum. So end of probably Q3 or mid of Q3, we can expect full production. No, I think in the worst-case scenario, I think Q4 FY '26.

    — Abhishek Agrawal, Executive Director

  • Total Pellet Production Volume · FY26 · High confidence 3-3.25 million tons
    So FY '26, we'll do about 3 million to 3.25 million tons of pellet.

    — Abhishek Agrawal, Executive Director

  • Total Pellet Production Volume · FY27 · High confidence 4.5 million tons
    But FY '27, we should do about 4.5 million tons of pellets.

    — Abhishek Agrawal, Executive Director

Capex

  • New Pellet Plant Capex Completion Capex · End of Q1 FY26 · High confidence Complete
    And by the end of Q1 of FY '26, the entire capex will be done.

    — Abhishek Agrawal, Executive Director

  • New Steel Plant Capex (0.8-1 million tons capacity) Capex · FY27 onwards · Medium confidence INR3,500-4,000 crores
    So 0.8 million, INR3,500 crores for 1 million, probably INR4,000 crores. That's a ballpark figure.

    — Abhishek Agrawal, Executive Director

Profitability

  • Additional EBITDA from Pellet Plant Profitability · FY27 · Medium confidence INR600 crores
    But yes, for current market scenario, you can easily assume an additional EBITDA of close to INR600 crores from any pellet plant.

    — Abhishek Agrawal, Executive Director

Product Mix

  • High-grade production mix Product Mix · Going forward · High confidence 80%

    Previously 35% → 80%

    Going forward, our high grade will be close to about 80% and 20% will be the commercial grade, which is in the domestic market.

    — Abhishek Agrawal, Executive Director

Risks & concerns

  • Significant miscalculation of capex for the 2 million ton integrated steel plant project.

    high

    Initial capex estimate of INR5,000-6,000 crores for the 2MTPA steel plant was found to be closer to INR8,000 crores, leading to the project's cancellation.

    Management acknowledged

  • Increased competition and oversupply in the pellet market leading to price pressure.

    medium

    New merchant pellet plants in Raipur and Orissa caused oversupply and impacted Q3 realizations; management plans to hedge by using pellets for captive steelmaking.

    Both acknowledged

  • Inconsistent and confusing capex guidance for future periods.

    medium

    Management provided conflicting figures for future capex, including a ₹432 crore balance for the pellet plant over 4 months, alongside other figures like ₹80-100 crores for Q4 FY25 and next FY, and a wide range of ₹100-1000 crores for FY26.

    Analyst confusing/partial

  • No commercial benefit from switching to natural gas for pellet plants.

    low

    Switching to natural gas for the new pellet plant is for strategic options (e.g., CBAM for exports) rather than cost savings, as natural gas is imported and has logistics costs.

    Management acknowledged

Areas of evasion (2)

  • Conflicting capex figures for FY26 and pellet plant balance
  • Clarification on the 'INR50,000 crores' typo for coke oven

Q&A highlights

2 direct, 1 evasive
Reasons for dropping the 2 million ton integrated steel plant project and future cash utilization. Direct
So the capex we envisage initially, we got it wrong. So usually what happens, we thought 60% is equipment cost and 40% will be the intra cost. But what has happened is it is opposite. So 40% is your equipment cost 60% is your intra cost, so the entire capex which is about INR5,000 crores to INR6,000 crores 2 million plant will probably cross INR8,000 crores.

Reveals a significant miscalculation in initial capex estimates for a major project, leading to its cancellation and a strategic pivot to smaller, value-added steel projects to avoid debt.

Asked by Vikash Singh, Phillip Capital

Clarity on future capex projections, specifically for the pellet plant balance and overall FY26 capex. Evasive
So solar will take about INR5 crores and mining, which is about INR150 crores balance to be incurred and about INR400 crores. So about INR80 crores to INR100 crores of capex will be incurred in this quarter and next financial year.

Highlights a lack of clarity and potential inconsistency in the company's capex projections, making it difficult for investors to accurately model future spending, especially when conflicting with a previously stated INR432 crores balance for the pellet plant.

Asked by Manav Gogia, YES Securities

Impact of new pellet plants and increased competition on future pellet prices and GPIL's strategy to mitigate this risk. Direct
In terms of competition, there will be competition because see even Lloyd is coming out a 4 million plant in Maharashtra... So that is the reason in the longer term, we want to hedge our pellet beds and use those additional pellets into captive steelmaking in the longer term.

Addresses a key competitive risk in the pellet market and outlines management's long-term strategy to mitigate this by integrating backward into captive steelmaking.

Asked by Aditya Welekar, Axis Securities

3 min read 6 chapters

Detailed narrative

Q3 FY25 Performance and 9M Overview

Godawari Power reported a stable performance for the first nine months of FY25, with revenue remaining flat at ₹3,908 crores. However, Q3 FY25 saw a decline in revenue, EBITDA, and PAT, primarily due to lower iron ore pellet production and reduced realizations across most products, except ferro alloys. Despite these challenges, the company maintained healthy margins, with EBITDA margin at 22% and PAT margin at 15%, supported by a robust net cash balance of INR725 crores. Pellet realization for the 9-month period increased by 2% to INR10,387 per ton.

Strategic Project Revisions and Capacity Expansion

The company has strategically dropped its plan for a 2 million ton greenfield integrated steel plant, citing an initial capex miscalculation (actual cost projected at INR8,000 crores versus INR5,000-6,000 crores) and increased competition from large players. Instead, GPIL is evaluating alternative, smaller-capacity (0.8-1 million tons) value-added steel projects with a capex of INR3,500-4,000 crores, aiming to avoid significant debt. The OPVC pipe manufacturing project (INR125 crores capex) was also dropped due to a changed market scenario and loss of first-mover advantage.

Iron Ore Mining and Pellet Capacity Growth

Godawari Power is aggressively expanding its core capacities. Approval for mining capacity expansion of Ari Dongri's mines from 2.35 million to 6 million tons is expected by Q1 FY26. The company has also restarted operations at Boria Tibu iron ore captive mines (0.7 million tons per annum). Furthermore, the pellet plant capacity is set to increase from 2.7 million to 4.7 million tons, with commissioning expected by Q2 FY26. The remaining capex of INR432 crores for the pellet plant is slated for completion by the end of Q1 FY26, with trial production starting early Q2 FY26 and full production by mid-Q3 FY26.

Solar Power and Natural Gas Initiatives

To support its expanded operations, GPIL plans to set up an additional 70MW solar power plant for the pellet plant and a 25MW solar plant for the new beneficiation plant at Ari Dongri mines. The company has also signed an MOU with GAIL for the supply of natural gas to its upcoming pellet plant for seven years. While natural gas is not expected to offer commercial benefits over coal gas due to import and logistics costs, it provides strategic flexibility, particularly in light of potential CBAM regulations for exports from January 2026.

Market Dynamics and Competitive Landscape

The domestic steel demand is projected to grow by 8-9% in 2025, driven by construction and infrastructure. However, the pellet market faces increased competition and oversupply, particularly from new merchant plants in the Raipur area and Orissa, which impacted GPIL's Q3 realizations. Management plans to mitigate this by focusing on high-grade pellet production (aiming for 80% high-grade mix, up from an implied 35%) and integrating backward into captive steelmaking to utilize pellets internally in the longer term.

Financial Health and Future Outlook

Despite Q3 challenges, the company maintains a healthy balance sheet with a net cash balance of INR725 crores. Management is confident in restoring pellet production and sales to previous levels by the end of FY25. For FY26, total pellet production is projected to be 3-3.25 million tons, rising to 4.5 million tons in FY27. The company anticipates an additional EBITDA of approximately INR600 crores from the new pellet plant by FY27 under current market scenarios.

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