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| India Infoline Research Team / 16:27 , May 23, 2012 |
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CMP Rs106, Target Rs154, Upside 45.3%
- Godawari Power & Ispat (GPIL) reported a 30.4% qoq jump in its topline to Rs5.5bn on the back of higher production of pellets & billets coupled with strong realizations across all segments. Production of iron ore which had dipped sharply in Q3 FY12 due to extended rains and logistics issues has recovered during the quarter. The company managed to produce 183,110 tons of iron ore, ~6x on a qoq basis. Pellet production increased to 167,500 tons from 150,150 tons in Q3 FY12, largely on account of improved supplies from captive iron ore mines. It continued to operate at +100% utilization rates. Sponge iron production too jumped by 24.2% qoq, led by increased supply from the captive iron ore mines. Steel product realizations were higher on a qoq basis, whereas that of ferro alloys were flat on a qoq basis.
- External sales of pellets declined on a qoq basis despite increase in production due to higher internal consumption. Sales of all the steel products were quite strong on a qoq basis due to strong demand for long products in the domestic market. Pellet production under Ardent Steel increased 35.2% qoq due to higher supply of iron ore in the state.
Quarterly operational data
| (tons) |
Q4 FY12 |
Q3 FY12 |
% qoq |
Q4 FY11 |
% yoy |
| Production (tons) |
|
|
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|
|
| Iron ore |
183,110 |
26,549 |
589.7 |
212,308 |
(13.8) |
| Pellets |
167,500 |
150,150 |
11.6 |
133,750 |
25.2 |
| Sponge iron |
95,150 |
76,598 |
24.2 |
88,955 |
7.0 |
| Billets |
56,568 |
49,470 |
14.3 |
39,033 |
44.9 |
| MS Rounds |
22,211 |
17,034 |
30.4 |
22,514 |
(1.3) |
| HB wire |
18,256 |
18,545 |
(1.6) |
18,901.00 |
(3.4) |
| Ferro-alloys |
2,152 |
2,387 |
(9.8) |
1,312 |
64.0 |
| Power (mn units) |
103 |
98 |
5.5 |
92 |
12.2 |
| Sales volume (tons) |
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| Pellets |
58,278 |
76,753 |
(24.1) |
49,561 |
17.6 |
| Sponge iron |
39,223 |
27,886 |
40.7 |
44,001 |
(10.9) |
| Billets |
56,516 |
49,687 |
13.7 |
39,097 |
44.6 |
| MS Rounds |
18,219 |
12,300 |
48.1 |
17,822 |
2.2 |
| HB wire |
20,278 |
19,710 |
2.9 |
19,566 |
3.6 |
| Ferro-alloys |
2,761 |
766 |
260.5 |
2,322 |
18.9 |
| Power (mn units) |
14 |
15 |
(8.2) |
22 |
(39.7) |
| Realisation (Rs/ton) |
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| Pellets |
9,955 |
9,002 |
10.6 |
7,924 |
25.6 |
| Sponge iron |
23,441 |
21,464 |
9.2 |
19,445 |
20.5 |
| Billets |
33,731 |
32,046 |
5.3 |
28,741 |
17.4 |
| MS Rounds |
37,657 |
35,267 |
6.8 |
32,121 |
17.2 |
| HB wire |
39,525 |
37,818 |
4.5 |
34,811 |
13.5 |
| Ferro-alloys |
50,334 |
50,369 |
(0.1) |
51,981 |
(3.2) |
| Power (Rs/units) |
2.6 |
3.0 |
(13.0) |
2.5 |
4.4 | Source: Company, India Infoline Research
- Operating profit for the company doubled on a qoq basis led by strong realization and production numbers. In addition to this, the increase in supply of iron ore from the captive mine led to lower costs for the company. Supply of coal supply from Coal India too improved during the quarter. Raw material costs as a % of sales declined from 73.4% in Q3 FY12 to 65.6%. However, other expenditure increased on a qoq basis. We have taken the forex loss taken by the company in other expenditure as an extraordinary.
Cost Analysis
| As a % of net sales |
Q4 FY12 |
Q3 FY12 |
% qoq |
Q4 FY11 |
% yoy |
| Material costs |
65.6 |
73.4 |
(774) |
58.1 |
749 |
| Personnel Costs |
2.0 |
2.3 |
(33) |
2.4 |
(38) |
| Other overheads |
15.1 |
14.6 |
54 |
17.5 |
(241) |
| Total costs |
82.7 |
90.2 |
(753) |
78.0 |
471 | Source: Company, India Infoline Research
± We have lowered our FY12 and FY13 estimates factoring in the slower ramp up in iron ore mining and the delay in commissioning of the new mine. We have also increased coal costs for the company on the back of tight domestic coal market. The impact of higher input costs would be cushioned by the jump in pellet production and higher pellet prices. We believe iron ore mining operations and pellet plant would be the value drivers for the company over the next two years. The stock trades at a P/E of 3.4x and EV/EBIDTA of 3.8x for FY13E, which is at a discount to its peers. We maintain our Buy rating on the stock with a 9-month price target of Rs154.
Result table (Standalone)
| (Rs m) |
Q4 FY12 |
Q3 FY12 |
% qoq |
Q4 FY11 |
% yoy |
| Net sales |
5,502 |
4,220 |
30.4 |
3,288 |
67.3 |
| Material costs |
(3,610) |
(3,096) |
16.6 |
(1,911) |
88.9 |
| Personnel costs |
(109) |
(97) |
11.6 |
(77) |
40.6 |
| Other overheads |
(830) |
(614) |
35.2 |
(575) |
44.3 |
| Operating profit |
952 |
413 |
130.8 |
724 |
31.5 |
| OPM (%) |
17.3 |
9.8 |
753 bps |
22.0 |
(471) bps |
| Depreciation |
(128) |
(130) |
(1.2) |
(114) |
12.5 |
| Interest |
(284) |
(202) |
40.2 |
(230) |
23.5 |
| Other income |
(2) |
16 |
(114.1) |
4 |
(157.9) |
| PBT |
538 |
96 |
461.2 |
384 |
40.2 |
| Tax |
(81) |
(21) |
276.2 |
(74) |
8.3 |
| Effective tax rate (%) |
15.0 |
22.3 |
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19.3 |
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| Adjusted PAT |
458 |
74 |
514.4 |
310 |
47.8 |
| Adj. PAT margin (%) |
8.3 |
1.8 |
655 bps |
9.4 |
(110) bps |
| Extra ordinary items |
(139) |
- |
- |
- |
- |
| Reported PAT |
319 |
74 |
328.5 |
310 |
3.1 |
| Ann. EPS (Rs) |
57.7 |
9.4 |
514.4 |
39.0 |
47.8 | Source: Company, India Infoline Research
Financial summary
| Y/e 31 Mar (Rs m) |
FY11 |
FY12E |
FY13E |
FY14E |
| Revenues |
11,161 |
20,604 |
22,008 |
22,409 |
| yoy growth (%) |
35.7 |
84.6 |
6.8 |
1.8 |
| Operating profit |
2,323 |
2,977 |
3,334 |
3,819 |
| OPM (%) |
20.8 |
14.4 |
15.1 |
17.0 |
| Pre-exceptional PAT |
859 |
1,002 |
1,030 |
1,280 |
| Reported PAT |
859 |
843 |
1,030 |
1,280 |
| yoy growth (%) |
53.5 |
(1.9) |
22.2 |
24.3 |
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| EPS (Rs) |
27.0 |
27.0 |
31.5 |
32.4 |
| P/E (x) |
4.1 |
3.9 |
3.4 |
3.3 |
| Price/Book (x) |
0.6 |
0.6 |
0.5 |
0.4 |
| EV/EBITDA (x) |
4.7 |
4.7 |
3.8 |
3.8 |
| Debt/Equity (x) |
1.5 |
1.5 |
1.3 |
1.3 |
| RoE (%) |
15.6 |
15.6 |
15.6 |
14.2 |
| RoCE (%) |
14.8 |
14.8 |
14.9 |
15.5 | Source: Company, India Infoline Research
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