SmallCap Spotlight throws the spotlight on Abhishek Agrawal, Executive Director, as he takes us through the journey of Godawari Power & Ispat Ltd. a company that mines its own iron ore, converts it into pellets, into sponge iron and then eventually makes finished steel products. Tune in to know more.
Mubina Kapasi: This inconspicuous grey object you see in my hand is actually something that’s omnipresent. It’s been used to make the coastal road in Mumbai and probably in some of the devices that you are watching this video on. This is called a sponge iron.
It’s used to make steel. And here I am at Godawari Power, the company that mines its own iron ore, converts it into pellets, converts it into sponge iron and eventually makes finished steel products. I have with me Abhishek Agrawal, the Executive Director of Godawari Power and Ispat Limited to talk about the journey of this fully integrated company.
Hi Abhishek, and thank you so much for giving us your time today. So here at Small Cap Spotlight, we love talking about the origins of a company. And you are one of the youngest steel companies in India, only in 1999.
What was the avatar that Godawari Power had back then?
Abhishek Agrawal: Hi, a very good afternoon. Back in 1999, you know, I was still studying, you know, very young age for me to even understand all this process. But yes, my MD and his fellow brothers decided to venture into the steel market.
We were already into steel by way of rolling mills. We used to buy billets from Bhilai Steel Plant, roll them and make finished steel and sell them. But then there was a boom in this industry, especially in this area because of the cold belt, where people started venturing into DRI and backward integration of making steel to generate more profits. That is when, you know, my MD decided to put up this complex under the name of Godawari Power and Ispat.
Godawari is basically my grandma’s name. So that is where Godawari comes from. And the first plant, the first unit which came up in 2001, was a second hand plant, a cement kiln, second hand, which is quite similar to a DRI kiln.
And the turbine was also second hand, you know. So the first unit which came in was about, you know, one 200 DPD plant and a 7 megawatt power plant along with 50,000 tons of steel making. The entire unit was bought second hand, only to reduce capex.
We probably say that time the capex would have been about, say, 200 crores and we were able to do it, you know, below 100 crores. Only because everything was second hand. So of course, there were challenges with, you know, old used machines.
But gradually, eventually, we would, we were able to, you know, move forward for further expansion by making more profits.
Mubina Kapasi: So 1999, a 100 crore investment. And today, where are you?
Abhishek Agrawal: So today, our company’s market cap is close to 15,000 crores.
Mubina Kapasi: And it’s not just, of course, you know, billets, etc. anymore. The capacity, the portfolio of Godawari Power has expanded significantly. And you’re primarily responsible for that because you joined in 2008.
And you brought about pellets as a part of the business. And today that is contributing a big chunk. So why pellets?
Abhishek Agrawal: You know, I wouldn’t say, you know, it’s because of me. I think it’s been a very dedicated team, you know, and a lot of hard work from my MD. Then earlier, you know, before I joined, my elder brother was working, you know, in this.
So his contribution is immense. Because from 1999, the first phase came in. The second phase of growth came in 2005, which was, you know, under my elder brother, Siddharth, you know.
And then I joined in 2008. When I joined, eventually, he moved out in 2010. And I was given the entire responsibility of this complex.
So it’s been a team effort right from the management side. And of course, my leaders who have been with me since, you know, almost 15, 20 years. So my core team, you know, all my, my CFO, my CEOs has been with me for almost 15 years.
So I would say it’s good teamwork.
Mubina Kapasi: It always is.
Abhishek Agrawal: Yeah, exactly. And now why pellets? In 2007, we applied for INO mines in Chhattisgarh by way of allotment.
That is what the MMA Act used to say till then. And parallelly, we had put up a pellet plant, ordered from a Chinese company in this complex, because pellet was the new technology which is coming up. It was quite old in China.
But the concern going forward was, you know, in any INO mines, when you do mining, 30% is generation of lumps, which is, say, 5 to 18 or 10, 40, which can be directly used in steelmaking through either DRI or brass furnace route. But fine, there was no way to consume it apart from sinter plants. So for secondary steel, a pellet is a boon, where you can use those fines, convert to pellets, and those pellets will act as a raw material for a DRI making, which is sponge iron for secondary steel.
So that is where the idea of pellets came in. And in 2008, we installed the first capacity of 0.6 million. And 2010, it was up and running.
That is how the journey of pellets began in Godawari.
Mubina Kapasi: So essentially, if it wasn’t for this pellet making technology, 70% of the iron ore in the country would have probably gone, well, to waste, because it wouldn’t have been able to be used in steel.
Abhishek Agrawal: Not 70% because, you know, the primary pillars are sinter technology. So they would use some of it. But I can say still, today, India’s primary production is about, you know, 60%.
So 40% of fines of that quantity would have gone down to waste. Or we would have happily exported to other countries.
Mubina Kapasi: Well, it’s not just about the division between lumps and fines. It’s also about the quality of the iron ore.
And I think Godawari is one of those few companies that has that high grade of iron ore. So could you just explain the entire iron ore market, the dynamics, and especially this entire bit on the quality of iron ore?
Abhishek Agrawal: Right. So first, I’ll talk about the market dynamics. So usually, in India, the mines are totally hematite.
About, say, 90-95% mines are of hematite quality. Whereas Godawari mines are a little different. It’s called magnetite.
And it’s one of the few deposits in India where we are one of the ones where we got the deposit of magnetite. You talk about Odisha, you talk about Karnataka, you talk about NMDC, who’s the biggest mining company in India right now. All have hematite deposits.
So the way you have to use it to process is a little different compared to magnetite mines, which we have. So the average grade today in India, you know, back then was, say, 63-64 Fe. Now it’s come down to about 61-62 Fe.
Because the industry is trying to use more low grades. So trying to set a combination so that more volumes can be, you know, consumed in the domestic market rather than selling it outside. In the case of Godawari, when we started the mines, we realised it’s not hematite.
It’s a magnetite mine. The good part of magnetite is its gold for pellets. Because of its, I say, chemical or the nature of, you know, iron ore.
The bad part is magnetite cannot be used directly into steelmaking, whether a DRI route or a blast furnace route. So that is where, you know, this pellet plant idea came up. This is the only way to, you know, consume our own iron ore mines.
And that is how, you know, we started using Godawari. The difference is currently the average Fe in the mines is about 60-61, which we beneficiate and take it to 68-69. And that is from where we, you know, make our pellets.
So a pellet plant feed is about 68-69 Fe, where we produce a pellet of 65-66, which we call the hybrid pellets. That is where Godawari differs from other players in the market.
Mubina Kapasi: So there are players out there who want to, what I’m trying to understand is how does grade of pellets impact the downstream steel? Because let’s, in my mind, I’m thinking, I want to produce the best quality steel. So I will go for the highest grade pellets.
Is that how it works?
Abhishek Agrawal: No. See, you can make steel with the worst quality of iron ore. The only difference would be the operating cost and, you know, the production.
So if you get the best input to the best, you know, the machine will give you the best output. So the volume of production will matter and your cost will matter, at what price you are producing steel. But you can also produce steel by using a 50-52 Fe iron ore as well.
You know, the advantage of best quality iron ore is, the output of the machine is best and your conversion cost to make steel drastically goes down.
Mubina Kapasi: So the beneficiation plant, well, two things actually. One, you’re investing in expanding your iron ore capacity to 6 million tons and you have a beneficiation plant as well of 6 million tons. Firstly, what is the investment?
And secondly, what sort of, you know, ROI are you looking at after these investments?
Abhishek Agrawal: Okay, so currently we are investing on two fronts. One is the new pellet plant of 2 million tons. That will take about a capex of, say, 600 crores.
And on the mining side, we are increasing capacity from 2.4 currently to 6 million tons. That also will require investment of about 250 crores. So put together about 850 crores.
And for the capital requirement of energy power for both the mining as well as the pellet plant, we are putting up solar plants of a total 95 megawatts, which will require a capex of about 300 crores. So put together a capex of about 1100-1200 crores to fund all these three projects.
Mubina Kapasi: Okay, and how do you see all these investments play out for you in terms of, you know, your cash flows, maybe improved realisations as well, right? Because you have all of these new plants coming in to upgrade the quality of your iron ore and thus pellets.
Abhishek Agrawal: So see, you know, currently at a current mining cost, and you know, the market where it has been for pellets from the last couple of years, you know, we do a EBITDA of about, say, 4,000, be the ton. So to produce, say, 4.7 going forward, we can see, you know, at 4,000, somewhere about, you know, 1214 crores of EBITDA, you know, consistently on, you know, yearly on a yearly basis. Of course, it’s difficult to predict the prices going forward, but in the current scenario, yeah, that’s what we see.
So currently we generate about 1000 crores from the new plant, we probably generate another 400-500 crores. So 2 million into, say, 4,000, because initially, you know, there’ll be challenges to, you know, raise the production. But going forward, we can see a EBITDA of, say, 1500 crores from the pellet division itself.
Mubina Kapasi: Okay, 1500 from pellets.
Including mining, of course.
Yeah, okay. Speaking of prices, because like you said, you cannot, you know, we are all subject to the vulnerabilities. But pellet prices hit 11,000 rupees. Is this an all-time high?
Abhishek Agrawal: No, of course, it’s not an all-time high. The all-time high was back in 2021, when China was at its peak, the INO market was at about 250 dollars. That time we sold pellets at about 16,000 rupees a ton.
Abhishek Agrawal: And next year when duty was, you know, the government imposed duty on pellet makers, it was down to about 9,000 rupees. So the market keeps fluctuating depending on the demand, but currently the price is about 11,000 rupees a ton.
Nothing to complain about, to be honest.
Mubina Kapasi: Yeah, so what are the dynamics, essentially? I mean, if I could just understand what impacts pellet prices, because that impacts your profitability directly.
So what are the different factors that you look at, if you want to sort of just have some predictability of pellets, or to know what it will be in the future?
Abhishek Agrawal: See, of course, to a certain extent, I would say, it is a demand supply, but China has a certain role to play, because today in India, the capacity of pellet is on the surplus side. So plants which are based out of port, like, you know, the bigger plants, tend to export pellets rather than selling it domestically, because their logistics costs from port to inside India is quite high. So for them, it’s much more viable to export pellets rather than selling them domestically.
So when that is happening, when the exports are maintained at a certain level, so the demand supply is quite balanced, and the prices are at, you know, higher levels for pellets in India. For example, today’s situation, where there is export happening in India from the port players, so the demand supply is more or less matched, and pellet prices are 11,000 rupees. A month back, when China was down, I know it was about, say, 90 dollars, there was no export happening, the pellet prices were down to about 9,000 rupees a ton, you know.
So that’s one of the factors. Second is, of course, the steel market. You know, if the steel market is down, so DRI prices are down, eventually, you know, they expect cheaper pellet prices.
So these two things play a big role. Plus, what is happening is, for Godawari especially, a lot of DRI capacity is coming up in Chhattisgarh especially, you know. And there is new addition of, you know, input for them, either, you know, to NMDC or to new pellet plants.
So we are sitting in a very sweet spot, but today we feel the demand is much more of pellets, rather than the supply. And this is the right opportunity where our new operations can come into picture, and we can start, you know, making more money, to be honest. So with the new pellet capacity, we are confident, you know, with the current demand and future demand, we should be able to supply the pellets domestically.
Mubina Kapasi: So most of the new demand will be, you think it will be…
Abhishek Agrawal: Hopefully, yeah, yeah, it looks like that. But we are always open for exports. Our ports are very close by, it’s hardly, you know, a finite kilometres, Gangavaram port.
So, and since the quality of pellets we make, which is of 65 FE, low alumina, we always tend to, you know, keep a check on the market. And there is a good opportunity, we will always export.
Mubina Kapasi: You, of course, produce premium pellets. So I just want to understand, is there a certain premium you have in your realisations versus maybe other players in the markets?
Abhishek Agrawal: See, we get premiums in every segment of the supply chain we make, you know, right from pellets, because we do sell high-grade pellets in the market as well. So 50% is consumed in-house for my steelmaking and 50% of my premium pellets are sold in the market. So we have a certain premium benchmark over other pellets in the market.
Same when we sell DRI, you know, which we seldomly do. Again, we charge a premium because of the quality of DRI we produce, you know. And again, then it comes to pellets.
Again, the pellets we produce are much more premium than the commercial market. So we derive a premium there as well. So right from pellets to the entire finished steel, we demand a premium for the quality we make.
Mubina Kapasi: Got it. We haven’t touched upon power. And I think there are quite a few interesting developments happening over there.
Goes without saying, again, fully captive consumption of power, no doubt. And while just like every other steelmaker, traditional sources of power are always coal for the most part, you know, for most industries in India. But for you, that pie is obviously changing.
So how are you shifting to renewable?
Abhishek Agrawal: Correctly. Very correct. So today our captive generation is about 100 megawatts of power, out of which, you know, the old school traditional way of generating, you know, it’s hardly about 40% in the charge mix, you know.
So about 35-40 megawatts annually we generate through coal base. The 60 megawatts, it’s either through, you know, renewable source, which is solar. Second is biomass.
We have a 20 megawatt biomass plant. And third are the waste gases of DRI, you know, which is considered to be carbon neutral. So at 100 megawatts, only 40% is a coal-based, you know, pie chart right now.
The rest 60 is, you know, goes on the renewable side. And for the new pellet plant and the mines, as I mentioned, we already ventured into new solar plants. So again, that pie will further shift towards the greener side, you know, when going forward.
Mubina Kapasi: Yeah, when we entered the complex, I think one of the first few things that caught my attention were these big mounds of rice husks. And honestly, that was news to me that rice husks are used for biomass.
Abhishek Agrawal: Chhattisgarh has a big rice belt. So we are able to source so much rice husk on an annual basis.
Mubina Kapasi: Okay, that’s an interesting piece of information. So when will the solar power and, you know, the pellet plant as well be commissioned eventually? Like, when do you see its contribution?
Abhishek Agrawal: Hopefully, the pellet plant should be up and about, I think, by June 25, June 25. And the solar plant will be commissioned well within, I would say, April or May 25. So the solar plant, the mines have already been commissioned.
For the pellet plant, it will be commissioned before the pellet plant starts operation.
Mubina Kapasi: Going down a little now in the value chain, I think the final step, at least for this particular plant, is the wire rods, piles of them lying in your, you know, in your facility. Um, what is the current capacity? And do you have any, you know, expansion plans for that segment, for the long product segment?
Abhishek Agrawal: No, so the current capacity of a wire rod mill is about 2.5 million, 2.5 lakh tonnes, which is 0.25 million, you know, annually. And we further, you know, roll it to HV, hybrid wires, with the capacity of 0.1 million, 1 lakh tonne annually. We have no plans of expanding into this long segment any further.
We had a rolling mill in a different complex, which was making wire rods earlier. But now we have converted those rolling mills into a structure, come, you know, strip mill. So basically, you can say a flat segment.
So that mill capacity is another 0.2 million. So put together, it’ll be about 0.4, 0.45 million annually for the finished machine. Of course, these billets will be going to that mill to produce those flat products.
Mubina Kapasi: Okay, and we will talk about that as well, because I think that’s your next segment of growth. But before that, I want to talk a little bit about the ferro alloys division, of course, through your subsidiary. What are the plans over there?
Let’s start off with that actually first. What are your goals and plans?
Abhishek Agrawal: Okay, so ferro alloys, you know, so we have a decent capacity. We produce about, you know, 80,000 tonnes annually of silico manganese and ferro manganese. Everything is produced in, you know, Raipur, a couple of complexes.
We are looking to venture into new different products. For example, ferro silicon, you know, which is usually made out of Bhutan, because of cheap power and, you know, local raw material is available there. So we are, we’ve already taken approval for that.
And we would be investing into Bhutan to put up a ferro alloys plant to make ferro silicon. So that is next on the radar. That will be done through our subsidiary, which is Hira Ferro Alloys Limited.
Mubina Kapasi: I think right now there was some disturbance in the ferro alloys market. You’ll appreciate why, you know, my questions are leering towards commodity prices, because, you know, your business depends on that.
Abhishek Agrawal: Exactly, of course.
Mubina Kapasi: But there were some disturbances in the market over there, some problems in Australia. And then over your MOIL as well had, you know, hiked their prices. What’s the situation now, as we read it?
Abhishek Agrawal: See, as you mentioned, it’s a commodity, right? So you can expect anything to happen anytime, right? So, of course, there was a spike in the magnesium prices because, you know, one of the biggest mines in the world was out of production.
You know, they declared force majeure because of a cyclone. There was a lot of water inside the mines. It’s because of Australia, a company owned by, I think, I think, SMAG, right?
So they produced 10% of the world’s, you know, high magnesium production, which is 44 mm. So that is why there was a big hike in the raw material prices. And eventually, you know, people tried to jack up their finished prices.
But since the market was quite weak, you know, from June to, say, September, eventually prices came on to about, you know, 65,000 rupees a ton of silico manganese and 70,000 rupees of ferro manganese. So, you know, and again, the raw material has come down because the situation is stabilised. You know, China is not buying aggressively.
So again, the gap between the raw material and the finish is quite narrow. So we are again making money. So this, this thing keeps happening.
We are used to it now since COVID.
Mubina Kapasi: Yeah, it’s a part and parcel.
Abhishek Agrawal: Yeah, exactly.
Mubina Kapasi: You’ll appreciate my curiosity.
Abhishek Agrawal: Of course.
Mubina Kapasi: You have another interesting product, galvanised fabricated product. If you could share a little bit about that part of it.
Abhishek Agrawal: Yes, I was just mentioning earlier, you know, the new rolling mill of structure and flat, you know, it has come up with that complex. So basically, it’s a backward integration. So, you know, earlier we were buying and billets getting converted to structures, then galvanising and supplying to, you know, transition towers, solar frames, monopoles for, you know, electrification.
So that mill, you know, we have just put up. It’s under commissioning. So now these billets from Godawari will go to that mill to, you know, make structures.
So it will be a complete, again, backward-forward integration where we have our own billets, we’ll galvanise it, we’ll convert to structures and supply in the market. So basically, that is to, you know, further add to the margins. Earlier, we were, you know, buying from the market the billets and the structures.
So that rolling mill will, you know, take away that gap. So the billets from Godawari will go to that rolling mill, will roll it, galvanise it and sell it to the market. So we’re looking at production of about 0.2 million tons annually.
Mubina Kapasi: So even that little gap that was there, that’s also gone.
Abhishek Agrawal: Exactly, yeah, correct.
Mubina Kapasi: And finally, now, of course, the steel plant, what, 30 kilometres away from this current plant. And I think it’s a green steel plant. And, you know, it shouldn’t seem very out of the ordinary, but it is because you’re funding it fully through internal accruals.
Abhishek Agrawal: See, as I mentioned, of course, we are putting up a new 2 million green steel plant. It’s in a different complex. As you mentioned, it’s hardly, you know, 30 kilometres from here.
We have the idea, of course, to, you know, fund it fully, you know, internally. But we have made certain investments, you know, parallelly. And depending on, you know, how the project goes, we might, you know, raise some funds, might dilute some equity, depending on the market situation.
But I can assure you, even if we raise some funds, the equity-to-debt ratio will be well below 1. So we are very comfortable. It will be a very short-term arrangement if we have to.
Because we don’t want to shut out, you know, opportunities if there is available in the market. For example, we’re interested in Araspa, then the mining, then the pellet plant, then parallelly solar. So a lot of things are going, you know, parallelly.
Mubina Kapasi: Yes.
Abhishek Agrawal: But even if we raise, it will be at a very small level and for a short term only.
Mubina Kapasi: So any of the raw materials that you’re producing here, will that be fed into this new steel plant as well?
Abhishek Agrawal: Yes, correct. So, you know, the new pellet plant, which I was putting up, you know, it’s mainly we are putting up to feed that blast furnace. So there will be a stopgap, say about two to three years, we’ll be selling those pellets in the market.
Eventually, when that complex comes into operation, all the additional capacity will be feeding that mill to make steel.
Mubina Kapasi: OK, so what’s the rationale behind this HRC plant? I mean, I want to understand, you know, what is the reason?
Abhishek Agrawal: See, we are already into the long market, you know, we’re already producing wire rods. We just went into the flat market, which is the structure and the strip mill. And, you know, the demand of, you know, the way India Infra is growing, with the new airports, new buildings.
So we feel, we strongly feel, the demand of flat products, especially the coil, because coil is the raw material for either you make pipes, you make, you know, for automobiles, you know, for all the critical structures, right? So we feel, you know, we have been in long enough in long products. We want to shift the focus to flat products.
You know, so from HRC, probably we galvanise it, make it CRC, galvanise a lot of value-added downstream products. So that’s the whole idea, you know, to shift the focus from long to the flat market. And, you know, feed India’s requirements going forward.
Mubina Kapasi: All right. Yeah. Well, I think there is always this cavernous requirement of steel, because we have such ambitious plans for our infrastructure as well.
So that makes sense. But of course, you have that added advantage because you’ve got your own captive mines, you’ve got your own pellet plants, so on and so forth. So while there are other players out there, I think this is where you distinguish yourself.
So how do you think you will score in terms of your cost per ton? And then eventually, obviously, EBITDA per ton for steel production?
Abhishek Agrawal: See, I think the biggest advantage we have compared to our peers, not everyone, but most of them is our I&O mines of the old regime, where we are not paying any kind of premium to the government. We are only paying 20% royalty, which is as per the Indian Act. You know, vis-a-vis when the mines were auctioned in 2020, post-COVID era, you know.
So everybody is paying a certain premium to the government. So right from 70% to 100%, even to 120%. So actually, their mining costs or their I&O costs will be that much higher compared to mine.
So that gap, I will always have as a driver for me to make additional margin. So when in worst case scenarios, you know, if somebody has to die, I’ll be last in the queue to die compared to my peers, you know. Yeah, if there’s oversupply, there’s no demand.
So, you know, if people are dying, I’ll be last in the queue at least. That is for sure. So that’s the whole idea.
And another idea was, you know, we don’t want to be called only a pallet player because pallet commodities, you know, can be risky at times, you know. For example, back in 2022, the Indian government imposed duty on pallet exports. So there was a lot of pressure on pallets selling domestically.
So you want to hedge your bets, you know, make 50% convert to steel and 50% keep selling pallets. That’s the whole idea.
Mubina Kapasi: So what kind of incremental EBIT are you looking for?
Abhishek Agrawal: See at 2 million, if you see with our own iron ore mining, our own pallets, easily EBIT of, say, 10,000 rupees a ton. So you can say from 2 million about, you know, 800 crores, sorry, 2 million at 10,000 will be about 2,000 crore rupees. So 1,500 to 2,000 crores additionally EBIT from the new complex going forward.
Mubina Kapasi: Operationally as well, do you think the fact that everything is in your control, you know, all the raw material supply is in your control. So operationally as well, do you think that you would have fewer bottlenecks, you know, you would have fewer challenges and maybe feeding your plants would be smoother than others?
Abhishek Agrawal: Definitely, of course. Today also I’m able to source about 75% of my raw material from my own mines for my current operations. Once the mining expansion happens, it will become 100% captive.
So challenges, you know, sourcing the right material going forward will be much, much easier for me compared to my peers who don’t have captive mines.
Mubina Kapasi: I want to talk a little bit about the finances side of it. I think it was FY16 or 17 when things were not that great from a debt perspective. But honestly, you were not alone.
Most of these steel players, you know, we had the commodity crash and everything was an absolute mess. But now fast forward to FY24 and you’re net debt free. How, what has happened in these last seven years?
What are the steps you’ve taken and enforced rather in terms of work culture, in terms of, you know, financial discipline that has brought you here?
Abhishek Agrawal: So I wouldn’t say seven years. I think, you know, this journey probably started 10 years back. So in 2012, we finished our final expansion.
Assuming we start making profits. But of course things, you know, it happened, you know, on the opposite side. Market crashed.
I know prices crashed. Unfortunately, we’re not able to, you know, kickstart our mines at a certain volume production. So we were forced to buy a lot of raw material from the market.
And of course, things went haywire. So 2016, Godawari was, of course, an official NPA account. But the journey started in 2014.
So what happens, you know, it’s the biggest learning of my life. When I started my career, you know, pellets were making money from day one. So when you tend to save 110 rupees, now you can, you save only 100 rupees.
Like I did, you know, I didn’t bother about the 10 rupees, right? But when you’re losing 100 rupees, you bloody well save every penny of it, right? So my calculation with my team was from 100, we have to go to zero first.
So 99, 98, 98, and then you think of profit. So there’s two, three years from 2014 to 17, we really worked on efficiencies, you know, systems, you know, inventory levels, basically saving every penny, every corner possible, right? 2017, we got restructured.
Luckily, you know, the bank was quite supportive. In 2018, our mining started, you know, at a healthy level. Markets turned around.
And from then on, we have never looked back, you know, and of course, no one expected there’ll be a boom in commodities like this, right? At least, like me, it was like, not even my dreams. And of course, since COVID, things have been totally different.
Mubina Kapasi: You know, that’s the thing that while of course, internally, you know, you may have the best practices, and I’m sure now, you know, you’ve learned your lessons and you have a certain discipline you follow. But there is that vulnerability that comes around because if there is a commodity down cycle, there’s literally nothing you can do about it. Still, is there something you’re doing about it to maybe hedge yourself a little bit?
Abhishek Agrawal: So, see, yes. So, what have we done is all, you know, after becoming, you know, debt-free, since, you know, we had no plans of expanding because the focus of the company is that we have to become debt-free first and then only we’ll think of expanding. What have we done is, you know, from last two years, we have heavily invested in, you know, de-bottlenecks projects, you know, reducing the power cost, you know, increasing efficiencies by, you know, investing in modelling the machines, getting, you know, a few systems in place, you know, more, I would say, software-driven company where we have the data analytics so that we know, you know, where we are instead of, you know, assuming things. So, you know, yesterday only, you know, we have just signed a LOI with Siemens for another, you know, waste-to-wealth project where we will be generating power from waste gases.
Those gases were, you know, right now being emitted in the atmosphere. So, it will also help us in decarbonizing as well as generate certain levels of free power throughout the life cycle of that machine. So, we have been, you know, focusing on these kinds of projects.
So, today, you know, probably my power cost was about five rupees, you know, I would say three years back. Today, I can say proudly, we are down at 3.25 rupees per unit, which is a huge saving, you know. So, we have been investing heavily on these kinds of projects.
Mubina Kapasi: Yeah, it makes sense. Because, I mean, if the top line is not in your hands, you might as well try and control the bottom line, so that, you know, if in case things do go all right, then, you know, at least your, you know, you don’t see those old days back. Exactly.
So, I was seeing your financials, water turned around. I mean, the last five years’ CAGR is 30% for a commodity company.
Yeah, about 25-28%. Do you want to stick your neck out and say that I will try and maintain that for the next five years?
Abhishek Agrawal: 100%, of course. Given the market scenario, where everybody is spending into steel, you know, the government of India is pushing us to produce 30 million in steel by, you know, in the next five years.
With government spending, interest spending. So, we are quite bullish. You know, that is why we have planned for another steel plant.
And if the market remains like this, we can very well achieve, you know, the CAGR, you know, what we have achieved in the last few years.
Mubina Kapasi: You’re not, or at least you’re trying not to use debt to fund your expansion. Do you think you will miss out on the operating leverage that comes in really from using external funds?
Abhishek Agrawal: No, I don’t think so.
I don’t think so. People do say today probably, you know, borrowing money is the cheapest way of, you know, getting money. But I think we have learned a lesson, you know, where we heavily, you know, borrow money to, you know, fund our capexes.
The market didn’t support us. So, you know, we don’t want to, you know, erase that from our memory, you know. We want to be cautious in borrowing money, you know, rather than being very aggressive and again, borrowing heavily.
We want to make it, you know, a sustainable investment. So that in turn also, you know, we’re not in trouble.
Mubina Kapasi: You’re going to be hitting the market with the biggies out there.
HRC is a product that, well, there are many established players. So, it’s a very retail question that I’m going to ask you, but what’s your go-to market strategy?
Abhishek Agrawal: See, to be honest, where I’m sitting right now, as you mentioned, you know, quite early, we have a big location advantage. You know, there are a lot of pipe players around us, you know, who are buying coils from outside Chhattisgarh.
You know, plus we have the export market available. Plus, as I said, you know, today we are one of the best manufacturers of pellets in India because of certain quality. And I have no doubt, you know, why we can’t compete with the biggest in the market who have been in this industry for years, you know.
Even they started the journey, you know, one day. So probably for me, that one day is going to come soon, right? So we are confident, you know, we can very well compete with, you know, our peers, of course. They have the volumes, they have the experience, but I think we should be able to, you know, do it.
Mubina Kapasi: So, if you could break up the pie of your revenue right now, which product contributes how much right now versus, let’s say, fast forward five years later. And of course, hopefully, if all the targeted capexes, you know, hit your timeline.
How do you think the pie will change?
Abhishek Agrawal: See, it’s going to change in a big way because today our top line is about 5000 crores annually. From that 2 million complex at a price of, say, 50 also, you know, HRC, you can see our revenue of 10,000 crores. So totally if you say 50,000 crores, so that will be two third, this will be one third.
One third. Yeah. Okay.
All right. And how will that also change your margin and your profitability then? See, the margin of this complex will remain the same. It will further go up once our mining portion gets enhanced because we are still buying certain raw material from the market.
And for that, because the raw material will be going from here to a certain extent, you know, for a certain amount. Rest will be bought from the market. So, again, I would say probably this will generate about 30-40% of the profits and the remaining 60% will come from that.
Mubina Kapasi: This is a bit of a personal question. You know, and I love asking this to every entrepreneur that from where you sit, how, you know, what is that one motivating factor or that one driving force that, you know, helps you make decisions? And especially because there are so many lives dependent on you as well, right? There are thousands of employees. I think this complex alone has around 4,000 employees.So, what is that one driving force?
Abhishek Agrawal: I think it’s my passion, to be honest. You know, I think for me, work is passion. It’s not like a compulsion for me.
It’s not like by force on me. It’s my choice, you know.
Mubina Kapasi: You tap dance to work every day.
Abhishek Agrawal: Yeah, 100%. We work on Saturdays as well. And on Sundays, we work with my MD and his team.
So, my MD works seven days a week. For him, that is still the work. Whatever you call it, you know, overwork, whatever.
But that’s how it is in our family, at least. At least in my bloodstream, for sure, you know. So, I think, yeah.
Because work is my passion. And I can go on and on.
Mubina Kapasi: You know, I saw that same passion in many ways with all of your, you know, your team members when I interacted with them.
They were so excited to show me the different, you know, parts of the complex. Unfortunately, I was a bit short on time. But I could see that, you know, that little passion.
That, no, you have to see this part also. And, you know, you have to see this portion. This is very important.
So, I think, yeah. I always believe it comes from the top. So, if the management has that kind of passion.
Even if it’s seemingly a business like commodities. Which, well, Gen Z would call it as a boring business, you know, comparatively. But still, if the culture at the top is that of, you know, passion.
And, you know, putting in your best foot forward, it flows through.
Abhishek Agrawal: As I said, you know, I have passion. Because my team has more passion than me.
So, it dives down right from my MB probably to me and then my team. Yeah, it’s there.
Mubina Kapasi: Well, I think this was a very insightful conversation. Not just from a learning perspective but also from, you know, a passion perspective. As I can put it that way.
A very inspiring one as well. Abhishek, thank you so much.