Godawari Power - Any Trackers?

Looks like govt policy on pellets being duty free is quite old


However, as an investor we should be prepared for all kind of scenarios-

1) Scenario of 5% pellet export tax- This will hit 50% of marginal pellet makers who buy iron ore at high rates, convert it into pellet and sell it at a small margin of 5-10%. A 5% export duty will lead to huge losses of their factories and unemployment.
For GPIL- since around 50% will be non-pellet sales, 5% export tax will hit GPIL earnings by 3-4% only as it has very high operating margin.
Below text from GPIL latest concall.

2) Scenario 2- Export tax of 30% on pellets. This will close down almost all pellet makers who don’t have their own mines. Companies like Shyam metaliks will lose their pant and shirt.
Thousands of crores worth pellets plants will shut down and thousands will be jobless.
Companies like GPIL- derive their margin from iron ore mine and not from pellet conversion primarily.
They will have to buy a small sponge iron or billet plant to convert iron ore into billet/sponge iron and then sell it. Initial Hit will be around 20% to their total earnings (as 50% will be non-pellet sales).
But eventually, they will find a better and more profitable use of their own iron ore.

3) Scenario -3 - no change. This is infact the most probable scenario- as this question has been asked many times (every few months)- by the supreme court, in the parliament, in the media, and the govt reply has been pretty convincing and with backing of the facts. This govt notification is a legal document I guess and it removed the pellet export tax and has some weightage I guess in the Supreme court.


Luck has played an important role here. GPIL got mining license just a few years before the mining laws changed.
Result is it has long mining license vs other companies.
Now, Pellet prices are having huge volatility and this petition etc- but it already is shifting from pellet maker to wire rod/billet maker instead, thanks to the huge cash flows. And, no longer will be dependent on pellet sales (as majority) in a few months from now.


With new ore mining license costs, no miner would sell below cost of production $80-90, which means domestic ore prices are likely at bottom currently. As per the recent additional capacities + debottlenecking + higher grade pellet spreads + 170cr solar PV EBIDTA, the model shared by Rakesh earlier estimates the min sustainable EBITDA from FY23 onwards at 1700-1800cr, without factoring specialty steel

It might take a significant punt by a DII or HNI to really bring parity to undervaluation here. A fresh entry now might be risky but I feel the downside should be protected from here on (meaningful dividend yield too). However, a counter perspective is that despite the biggest of bull runs, if market hasn’t recognized this gap, it might never achieve it’s fair valuation once the interest rate and liquidity climate turns, being a ‘commodity business’


Does this calculation of EBITDA include-

  1. Increased pellet capacity to 2.4 mnT/yr
  2. 100% captive iron ore and increase of mining capacity.
  3. Increased capacity of billet, wire rod, sponge iron
  4. Solar plant adding 170 cr EBITDA from next yr
  5. New power plant being built by subsidiary- Hira ferro alloys
  6. GGEL EBITDA- since that is no longer being sold to another company. Infact it will become a wholly owned subsidiary as per latest announcement. Hira alloys will also become a subsidiary from an associate. They are purchasing shares worth 120-130 crores in both combined, so both of them will add to additional EBITDA.

If not, can someone please post revised Table taking all these factors into account?
This would be sustainable EBITDA .
Also, the market cap and EV, both have changed since this table was posted. So, that will also change.

Today, Iron ore price is back up to 118 USD on SGX.
Short term fluctuations like falling to 100 USD anyway doesn’t matter because the company has 2-3 months forward contracts already booked. When iron ore went to 200 USD, that also didn’t matter as well. The average selling price is midway between the highs and lows for the company.

Disclosure- Bought today as well.


Tata Steel Mining’s 141.25% premium offer for over 300 million tonnes (mn t) of greenfield deposit of Gandhalpada, a departure from its thus far conservative bids, has raised a few eyebrows.

India’s third largest steelmaker in terms of capacity has always had the advantage of captive raw material supplies from its iron ore mines in Joda and Noamundi, to which it has rights till 2030 with a first right of refusal when they are auctioned. With no immediate need for iron ore, Tata Steel had watched from the side-lines while peers such as JSW and AM/NS volunteered steep premiums in early 2020.

Tata Steel had been reluctant to proceed with a 100% premium particularly when it had ample supply of captive ore.

Today, Odisha’a leading miner & exporter - Kashvi International has placed the highest bid for the Dholtapahar iron ore block in the ongoing mines auctions in Odisha at a premium of 126.55%, SteelMint learnt from sources.


Pellet prices continue to be at 11,000 in Raipur even now.

This is today’s interview of physical neighbor of GPIL- Sarda energy. It is a pretty similar business model and trades at almost double the valuations as I described here- Manas Portfolio - #39 by Kumar_manas

At 11700 Pellet price GPIL had reported an EBITDA of 470 cr in Q4, with 80% iron ore integration.

At current pellet price of 11,000, (assuming this as avg price for next 6 mths), with 100% captive iron ore, and additional profit from GGEL, Hira ferro alloys, plus additional billet capacity, quarterly EBITDA at this level comes to around 500+ cr, and annual EBITDA to 2000+ cr. And annual EPS around 440-450+
Please correct me if I am wrong in my calculations.
(haven’t added solar plant 170 cr EBITDA which will come online in next FY)


Godawari power export revenue in Q2 (Jul-Sep) close to 580 cr vs 621 cr in Q1. Q2 no can be off by 10-20 cr on the upside. Again a strong performance.


Q1 performance was very poor actually.
If you see the total revenues, it was 1126 cr in Q1 vs 1237 cr in Q4. Why did that happen when pellet prices were higher by 2.2k in Q1 vs Q4.
The reason was 2nd intense wave of covid, leading to very poor domestic sales in Q1.
If you see the volumes slide in investor presentation, you will notice that Q1 volumes of everything- from pellet to billet etc were very poor due to low domestic sales.
I think Q1 may be one of the worst quarters in this FY because of such poor volumes.

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Godawari Power And Ispat limited has informed the Exchange regarding 'Acquisition of Shares of Godawari Green energy Limited Pursuant to the decision of the Board of Directors of Godawari Power and Ispat Limited (GPIL) in its meeting held on 14.09.2021, GPIL has acquired 55,87,920 equity shares (22.13%) of GGEL from external shareholders at a Fair Value of Rs.102/- per share and accordingly the GPIL s holding in GGEL has been increased to 99.95% of the total Equity of GGEL. The remaining 12,080 equity shares shall also be acquired in due course.ᅡᅠᅡᅠAcquisition of Shares of Hira Ferro Alloys Limited Similarly, pursuant to the decision of the Board of Directors of GPIL in its meeting held on 27.07.2021, GPIL has subscribed to the Preferential Offer made by HFAL initially for the first trench of 9,00,000 equity shares at a price of Rs. 195/- per share. Subsequent to allotment of these 9,00,000 equity shares of HFAL, GPIL s holding in HFAL has been increased from 48.45% to 50.72%. As a result of this HFAL has become Subsidiary Company of GPIL. '.

Both these companies will add to additional EBITDA for GPIL shareholders in coming quarter.
Pellet prices in Raipur are back to 13,000.
This increases EBITDA levels significantly.


@Rakesh_Arora another insightful post as usual. Some thoughts on GPIL based on it, would love your inputs:

  1. Can the second order effect of ore cost curve moving up irreversibly, be that players like GPIL with captive mines, have less volatile (esp. on downside) earnings, bridging the perception gap vs converters?
  2. GPIL is further integrating downstream from pellets or semis to finished (and later specialty) steel, which should further reduce earnings volatility given macro changes wrt China steel?

I feel these might be strong factors to drive multiples rerating, which is anyways quite subdued currently for GPIL


Rising cost curve doesn’t reduce volatility but increases sustainable margins. And moving downstream will help remove uncertainty about export taxes and indeed volatility related to China.


and also increase total revenues and total EBITDA significantly.

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This article posted today mentions GPIL has raised pellets price to 13,500
At 13,500+ levels, annual EPS should be in 550-600 range.

PE has come down to almost 2 now from 2.6-3 earlier due to rise in pellet prices.

My rationale for investing in a commodity company is that- a debt free company, that is putting capex almost equal to its mkt cap and has 25+ yr iron ore mining license should trade at PE of 6-9 at the least, or more one day, like other commodity companies also do.


@Kumar_manas Abhishek Agrawal (ED) of company while giving interview to CNBC 18, 2 weeks ago was looking dicey to achieve EBITDA margin of 1600 cr this fiscal. How can you be sure it will be able to achieve 2000cr+ ?

He is always very conservative on giving forward numbers. Basically, the management is always over-delivering if you track their past concalls and interviews over last couple of years.

The EBITDA and revenue is easy to calculate if you check last 2 quarters results and correlate it with volumes of each product sold for each quarter from their investor presentation of each quarter.

Following are the basis of this calculations-

  1. Interest cost going to zero (infact, additional interest income may start from Q3, company should have 1000 cr cash on balance sheet by end of this year). This impacts EPS (not EBITDA though).
  2. Q1 (last quarter) was a very poor quarter because of very poor domestic sales. Rest 3 quarters should be better- explained here Godawari Power - Any Trackers? - #318 by Kumar_manas
  3. GGEL EBITDA- since that is no longer being sold to another company. Infact, it will become a wholly owned subsidiary as per latest announcement. Hira alloys will also become a subsidiary from an associate. They are purchasing shares worth 120-130 crores in both combined, so both of them will add to additional EBITDA.
  4. Average pellet price, billet price (much higher than earlier quarters), wire rod price etc.
  5. Increased pellet capacity to 2.4 mnT/yr
  6. 100% captive iron ore and increase of mining capacity.
  7. Increased capacity of billet, wire rod, sponge iron
  8. Solar plant adding 170 cr EBITDA from next yr (not needed for this yr 2000+ cr calculations)
  9. New power plant being built by subsidiary- Hira ferro alloys (not needed for this yr)
  10. Last but not the least- Higher proportion of higher grade pellets- adds 3-4% to EBITDA i guess.

If you add all these points, EBITDA should be much higher than 2000 cr. Last quarter with poor sales and poor volumes was 570 cr EBITDA


Even if there is no PE re-rating, we can always ride the growth story & cash in decent return. The best thing is that you know the downside is limited.
So both the Bulls & Bears should get decent returns from here on!!!

  1. I haven’t seen stocks trading at 2-3 PE for a long time in Indian markets.

  2. Pellet prices are at 14,000 now. Seems PE may dip below 2 soon, or price may go up a lot for that not to happen.

What happened to theory of pellet prices crashing because of China ore prices going down?
We need to remember good quality iron ore is a scarce commodity in India, post the change in iron ore mines auction policy in 2019-20.

At current pellet, billet prices annualised EPS is in 600-650 range. I can’t find a cheaper stock, that too debt free in Indian mkts.



Apart from stock split, There was talk of 1:1 bonus shares as well, right?

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