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    Godawari Power

    GPILNeutral
    Capital Goods·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

    8
    • 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

    1
    • Significant miscalculation of capex for the 2 million ton integrated steel plant project.

    What Changed3

    vs Q4 FY25

    Tone shiftGood → NeutralGuidance items25 → 12 (-13)Risks discussed3 → 4 (+1)
    Key financials

    Metrics

    5

    Periods

    2

    Q3 FY25

    3
    • EBITDA Margin
      22%
    • PAT Margin
      15%
    • Net Cash Balance
      ₹725 Cr

    9M FY25

    2
    • Revenue
      ₹3,908 Cr
      YoY0%
    • Pellet Realization
      10,387 Rs/ton
      YoY+2%

    Guidance & targets

    12
    CategoryTargetPriority
    Capacity
    Mining Capacity (Ari Dongri)
    6 million tons
    High
    Capacity
    Pellet Plant Capacity
    4.7 million tons
    High
    Capacity
    New Pellet Plant Trial Production Start
    Start
    High
    Market Share
    Domestic Steel Demand Growth
    8-9%
    Medium
    Volume
    Pellet Production and Sales
    Previous levels
    Medium
    Volume
    New Pellet Plant Full Production
    Full production
    Medium
    Volume
    Total Pellet Production
    3-3.25 million tons
    High
    Volume
    Total Pellet Production
    4.5 million tons
    High
    Capex
    New Pellet Plant Capex Completion
    Complete
    High
    Capex
    New Steel Plant Capex (0.8-1 million tons capacity)
    INR3,500-4,000 crores
    Medium
    Profitability
    Additional EBITDA from Pellet Plant
    INR600 crores
    Medium
    Product Mix
    High-grade production mix
    80%
    High

    Risks & concerns

    6
    RiskSeverity

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

    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

    high

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

    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

    medium

    Inconsistent and confusing capex guidance for future periods.

    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 acknowledged

    medium

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

    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

    low

    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

    3

    “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

    3 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.