A nearly 70 percent jump in export and a similar boost to margins thanks to an about 20 percent increase in prices of the main product.
It is rare to come across an outlook as robust as this for a year that has been disrupted by the novel coronavirus, or COVID-19, pandemic. But BL Agrawal, the Managing Director of Godawari Power & Ispat is confident about FY21 faring better than the last year, as far the flagship product of the company is concerned.
All thanks to China.
"China has become a net importer of steel, which is quite a change from a few months ago when it was exporting the metal. With the new found hunger, it is also driving demand for raw materials," Agrawal told Moneycontrol.
One of the raw material for which China has re-discovered its hunger, post the COVID-19 outbreak, is pellets. The pellets, made from iron ore, are used to manufacture sponge iron, which is further converted into steel.
Godawari Power & Ispat produces 2.1 million tonne (MT) of pellets a year.
Demand from China has been such that as markets opened in India, post the temporary closure during the initial part of the nationwide lockdown, prices of pellets had increased from their previous levels.
That surge was driven by China. In April, even as the country emerged after being closed for most parts since the start of the year because of COVID-19, steel production hit a new high. The country made up for 62 percent of the world's steel produced for the month, but its share was a shade less than 55 percent a year ago.
Agarwal wants to make the most of the demand from China. "In the last financial year, we exported 6 lakh tonne of pellets. This year, we plan to increase it to 10 lakh tonne," the founder added.
Prices of pellets are expected to increase further. While the rate last year was about Rs 6,700 per tonne, it has now increased to Rs 7,000 a tonne. Agarwal expects this to increase to over Rs 8,000 by the end of the year.
Godawari Power & Ispat produces two grades of pellets. One consists of high grade pellets that are used in-house in the manufacture of steel products for construction and infrastructure sectors. The second are low-grade pellets that are mainly exported.
Adding cushion to the company is its iron ore mines. While last year, the company had bought 30 percent of its iron ore requirement from the market, this year, the plan is to completely source this need from its captive mines.
"This will help us reduce costs in a big way," Agrawal said.
Godawari Power & Ispat, which is headquartered in Raipur, has two iron ore mines in Chhattisgarh. Apart from pellets, it also manufactures sponge iron and operates a power plant.
The boost from additional exports of pellets will help the company improve upon its last year's performance. For the nine months ending December 31, Godawari Power & Ispat's net profit was down 29 percent from a year ago, even though revenue inched up by 3 percent to Rs 2,498 crore.
Not everyone though is happy about the company looking to increase its exports. And discontent comes from Agrawal's own neighbourhood.
Chhattisgarh Sponge Iron Manufacturers Association has asked for export duty to be imposed on pellets exports, in a bid to keep prices of the raw material low. But Agrawal, who is a member of the rival Chhattisgarh Sponge and Steel Manufacturers Association, is not perturbed.
"Even if only 85 percent of the pellet capacity is utilised this year, there will still be surplus of the raw material. There is no way a shortage could happen, as other are claiming," the veteran entrepreneur said.
Source:- moneycontrol.com