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| India Infoline Research Team / 14:23 , Nov 11, 2011 |
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CMP Rs120, Target Rs185, Upside 54.2%
- Godawari Power & Ispat (GPIL) reported a 19.5% qoq decline in topline to Rs3.4bn on account of lower production across all segments. This quarter numbers cannot be compared on a yoy due to merger of group companies. Production of iron ore remained subdued due to rains. The management has indicated that the company would be able to achieve its target by ramping up its production in H2 FY12. Pellet production remained flat at 152,700 tons and continued to operate at +100% utilization rates. Sponge iron production declined by 11% qoq, but was higher by 50% yoy. Except billets, production of all other steel products was lower on a qoq basis. Steel product realizations were neutral to higher on a qoq basis, whereas that of pellets, ferro alloys and power declined on a qoq basis.
Quarterly operational data
| (tons) |
Q2 FY12 |
Q1 FY12 |
% qoq |
Q2 FY11 |
% yoy |
| Production (tons) |
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|
|
| Iron ore |
63,476 |
76,168 |
(16.7) |
56,017 |
13.3 |
| Pellets |
152,700 |
153,400 |
(0.5) |
62,315 |
145.0 |
| Sponge iron |
80,759 |
90,720 |
(11.0) |
53,637 |
50.6 |
| Billets |
30,714 |
30,031 |
2.3 |
15,228 |
101.7 |
| MS Rounds |
16,058 |
23,308 |
(31.1) |
- |
- |
| HB wire |
18,620 |
25,664 |
(27.4) |
15,130 |
23.1 |
| Ferro-alloys |
1,471 |
1,988 |
(26.0) |
1,888 |
(22.1) |
| Power (mn units) |
87 |
101 |
(13.3) |
62 |
40.6 |
| Sales volume (tons) |
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| Pellets |
52,937 |
43,625 |
21.3 |
3,319 |
1,495.0 |
| Sponge iron |
42,501 |
58,974 |
(27.9) |
38,460 |
10.5 |
| Billets |
30,160 |
30,476 |
(1.0) |
14,478 |
108.3 |
| MS Rounds |
11,395 |
18,564 |
(38.6) |
0 |
- |
| HB wire |
16,743 |
24,802 |
(32.5) |
12,866 |
30.1 |
| Ferro-alloys |
1,567 |
1,631 |
(3.9) |
1,259 |
24.5 |
| Power (mn units) |
22 |
34 |
(34.7) |
18 |
22.0 |
| Realisation (Rs/ton) |
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| Pellets |
8,146 |
8,291 |
(1.7) |
5,371 |
51.7 |
| Sponge iron |
19,873 |
19,404 |
2.4 |
14,438 |
37.6 |
| Billets |
30,389 |
30,002 |
1.3 |
24,669 |
23.2 |
| MS Rounds |
33,484 |
33,144 |
1.0 |
0 |
- |
| HB wire |
36,415 |
35,855 |
1.6 |
28,956 |
25.8 |
| Ferro-alloys |
50,498 |
51,301 |
(1.6) |
53,366 |
(5.4) |
| Power (Rs/units) |
2.9 |
2.9 |
(1.0) |
2.7 |
9.1 | Source: Company, India Infoline Research
- Operating profit for the company declined 38% qoq on account of lower sponge iron production and high coal costs. OPM for the quarter declined by 378bps on account of purchase of iron ore fines from external sources and increase in coal costs for the quarter. The impact of high input costs was reduced with the increase in pellet volumes. Raw material costs as a % of sales decreased marginally from 69.3% in Q1 FY12 to 68.8% in Q2 FY12.
Cost Analysis
| As a % of net sales |
Q2 FY12 |
Q1 FY12 |
% qoq |
Q2 FY11 |
% yoy |
| Material costs |
68.8 |
69.3 |
(48) |
49.1 |
1,970 |
| Personnel Costs |
2.9 |
1.8 |
109 |
5.1 |
(224) |
| Other overheads |
15.7 |
12.5 |
316 |
25.2 |
(956) |
| Total costs |
87.3 |
83.6 |
378 |
79.4 |
789 |
Source: Company, India Infoline Research
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Also, the company has received a demand of Rs75.8mn from Chhattisgarh State Power Distribution Company relating to cross subsidy on power sold under open access for FY2009- 10. The company has contested the demand and obtained a stay from CSERC. No provision has been made by the company in this regards.
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GPIL, over the last three years, has been tactfully changing its business mix to gain maximum profitability. We believe over FY11-13E, power business share would reduce on account of the subdued power tariffs and earnings would be largely driven by its steel business. The loss of production in Ari Dongri in H1 FY12 would be made up in H2 FY12 and the management was strong in achieving its full year target of 0.6mn tons. 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 3.7x & 3.4x and EV/EBIDTA of 4.2x & 4.1x for FY12E and FY13E respectively, which is at a discount to its peers. We maintain our Buy rating on the stock with a revised 9-month price target of Rs185.
Result table (Standalone)
| (Rs m) |
Q2 FY12 |
Q1 FY12 |
% qoq |
Q2 FY11# |
% yoy |
| Net sales |
3,386 |
4,208 |
(19.5) |
1,478 |
129.1 |
| Material costs |
(2,329) |
(2,914) |
(20.1) |
(726) |
221.0 |
| Personnel costs |
(98) |
(76) |
29.1 |
(76) |
29.1 |
| Other overheads |
(530) |
(526) |
0.8 |
(373) |
42.2 |
| Operating profit |
429 |
692 |
(38.0) |
304 |
41.1 |
| OPM (%) |
12.7 |
16.4 |
(378) bps |
20.6 |
(789) bps |
| Depreciation |
(127) |
(125) |
1.4 |
(112) |
13.5 |
| Interest |
(179) |
(204) |
(12.4) |
(102) |
74.6 |
| Other income |
9 |
8 |
15.2 |
1 |
658.3 |
| PBT |
132 |
371 |
(64.3) |
91 |
45.6 |
| Tax |
(33) |
(74) |
(55.2) |
(18) |
79.9 |
| Effective tax rate (%) |
25.0 |
19.9 |
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20.3 |
- |
| Adjusted PAT |
99 |
297 |
(66.6) |
72 |
36.9 |
| Adj. PAT margin (%) |
2.9 |
7.0 |
(412) bps |
4.9 |
(197) bps |
| Reported PAT |
99 |
297 |
(66.6) |
72 |
36.9 |
| Ann. EPS (Rs) |
12.5 |
37.4 |
(66.6) |
10.7 |
16.1 | Source: Company, India Infoline Research, # premerger numbers
Financial summary
| Y/e 31 Mar (Rs m) |
FY10 |
FY11 |
FY12E |
FY13E |
| Revenues |
8,224 |
11,161 |
13,579 |
14,657 |
| yoy growth (%) |
(24.7) |
35.7 |
21.7 |
7.9 |
| Operating profit |
1,304 |
2,323 |
2,786 |
3,122 |
| OPM (%) |
15.9 |
20.8 |
20.5 |
21.3 |
| Pre-exceptional PAT |
559 |
859 |
1,037 |
1,127 |
| Reported PAT |
559 |
859 |
1,037 |
1,127 |
| yoy growth (%) |
(9.0) |
53.5 |
20.7 |
8.8 |
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| EPS (Rs) |
20.8 |
27.0 |
32.6 |
35.5 |
| P/E (x) |
5.8 |
4.4 |
3.7 |
3.4 |
| Price/Book (x) |
0.6 |
0.6 |
0.5 |
0.5 |
| EV/EBITDA (x) |
6.3 |
4.9 |
4.2 |
4.1 |
| Debt/Equity (x) |
1.0 |
1.5 |
1.2 |
1.1 |
| RoE (%) |
11.9 |
15.6 |
15.9 |
15.1 |
| RoCE (%) |
10.9 |
14.8 |
14.5 |
15.3 | Source: Company, India Infoline Research
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