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| India Infoline Research Team / 16:14 , Jan 25, 2012 |
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CMP Rs105, Target Rs154, Upside 46.3%
Godawari Power & Ispat (GPIL) reported a 24.6% qoq jump in its topline to Rs4.2bn on the back of higher production across all steel segments and higher realisations. This quarter numbers cannot be compared on a yoy due to merger of group companies. Production of iron ore dipped sharply due to extended rains and logistics issues. The management has indicated that the issues related to logistics have been resolved and it would achieve the optimum rate this quarter. Pellet production declined marginally to 150,150 tons from 152,700 tons in Q2 FY12, but continued to operate at +100% utilization rates. Sponge iron production declined by 5.2% qoq, but was higher by 1.7% yoy. Billet production during the quarter jumped 61% qoq and 60% yoy due to lower power realizations and higher realisations for steel products. Steel product realizations were higher on a qoq basis, whereas that of ferro alloys declined marginally on a qoq basis. Sales of sponge iron, ferro alloys and power declined on a qoq basis due to higher internal consumption for steel products. Pellet production under Ardent Steel declined due to a decline in supply of iron ore.
Quarterly operational data
(tons)
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Q3 FY12
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Q2 FY12
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% qoq
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Q3 FY11
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% yoy
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Production (tons)
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Iron ore
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26,549
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63,476
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(58.2)
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111,398
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(76.2)
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Pellets
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150,150
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152,700
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(1.7)
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103,100
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45.6
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Sponge iron
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76,598
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80,759
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(5.2)
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75,314
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1.7
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Billets
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49,470
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30,714
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61.1
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30,990
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59.6
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MS Rounds
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17,034
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16,058
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6.1
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-
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-
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HB wire
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18,545
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18,620
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(0.4)
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13,457.00
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37.8
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Ferro-alloys
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2,387
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1,471
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62.3
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1,971
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21.1
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Power (mn units)
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98
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87
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11.8
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80
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21.8
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Sales volume (tons)
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Pellets
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76,753
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52,937
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45.0
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18,265
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320.2
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Sponge iron
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27,886
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42,501
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(34.4)
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41,194
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(32.3)
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Billets
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49,687
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30,160
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64.7
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31,168
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59.4
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MS Rounds
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12,300
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11,395
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7.9
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-
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-
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HB wire
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19,710
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16,743
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17.7
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14,952
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31.8
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Ferro-alloys
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766
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1,567
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(51.1)
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852
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(10.1)
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Power (mn units)
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15
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22
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(33.8)
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19
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(23.4)
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Realisation (Rs/ton)
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Pellets
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9,002
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8,146
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10.5
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7,292
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23.5
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Sponge iron
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21,464
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19,873
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8.0
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16,988
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26.3
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Billets
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32,046
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30,389
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5.5
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25,331
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26.5
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MS Rounds
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35,267
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33,484
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5.3
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-
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-
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HB wire
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37,818
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36,415
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3.9
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29,441
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28.5
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Ferro-alloys
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50,369
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50,498
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(0.3)
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52,289
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(3.7)
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Power (Rs/units)
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3.0
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2.9
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3.8
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2.9
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4.2
| Source: Company, India Infoline Research
Operating profit for the company declined 3.8% qoq on account of lower iron ore production and high coal costs. The company had to buy iron ore from external sources as supply of ore from captive mine was lower. Coal costs too continued to trend upwards due to lower linkage coal and high import coal prices. The impact of higher input costs was lowered by higher realisations. Long product prices increased on a qoq basis due to tight market conditions. Raw material costs as a % of sales increased sharply from 68.8% in Q2 FY12 to 73.4% in Q3 FY12.
Cost Analysis
As a % of net sales
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Q3 FY12
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Q2 FY12
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% qoq
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Q3 FY11
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% yoy
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Material costs
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73.4
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68.8
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458
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57.1
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1,629
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Personnel Costs
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2.3
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2.9
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(59)
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3.3
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(97)
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Other overheads
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14.6
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15.7
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(111)
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16.7
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(214)
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Total costs
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90.2
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87.3
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288
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77.0
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1,318
| 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 2.7x and EV/EBIDTA of 4.2x for FY13E, which is at a discount to its peers. We maintain our Buy rating on the stock with a revised 9-month price target of Rs154.
Result table (Standalone)
(Rs m)
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Q3 FY12
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Q2 FY12
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% qoq
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Q3 FY11#
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% yoy
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Net sales
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4,220
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3,386
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24.6
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2,285
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84.7
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Material costs
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(3,096)
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(2,329)
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32.9
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(1,304)
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137.4
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Personnel costs
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(97)
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(98)
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(0.6)
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(75)
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30.0
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Other overheads
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(614)
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(530)
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15.8
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(382)
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60.9
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Operating profit
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413
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429
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(3.8)
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525
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(21.3)
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OPM (%)
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9.8
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12.7
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(288) bps
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23.0
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(1,318) bps
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Depreciation
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(130)
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(127)
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2.4
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(118)
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10.0
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Interest
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(202)
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(179)
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13.3
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(154)
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31.3
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Other income
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16
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9
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71.4
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6
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160.0
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PBT
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96
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132
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(27.5)
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258
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(62.9)
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Tax
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(21)
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(33)
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(35.3)
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(47)
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(54.0)
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Effective tax rate (%)
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22.3
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25.0
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18.0
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Adjusted PAT
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74
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99
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(24.8)
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212
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(64.8)
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Adj. PAT margin (%)
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1.8
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2.9
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(116) bps
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9.3
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(750) bps
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Reported PAT
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74
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99
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(24.8)
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212
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(64.8)
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Ann. EPS (Rs)
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9.4
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12.5
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(24.8)
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31.4
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(70.2)
| Source: Company, India Infoline Research, # premerger numbers
Financial summary
Y/e 31 Mar (Rs m)
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FY10
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FY11
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FY12E
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FY13E
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Revenues
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8,224
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11,161
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19,902
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19,134
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yoy growth (%)
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(24.7)
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35.7
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78.3
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(3.9)
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Operating profit
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1,304
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2,323
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2,789
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3,260
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OPM (%)
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15.9
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20.8
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14.0
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17.0
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Pre-exceptional PAT
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559
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859
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922
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1,180
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Reported PAT
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559
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859
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922
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1,180
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yoy growth (%)
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(9.0)
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53.5
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7.4
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27.9
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EPS (Rs)
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20.8
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27.0
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29.1
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37.2
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P/E (x)
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4.8
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3.7
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3.4
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2.7
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Price/Book (x)
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0.5
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0.5
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0.5
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0.4
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EV/EBITDA (x)
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5.9
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4.6
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4.7
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4.2
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Debt/Equity (x)
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1.0
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1.5
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1.4
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1.4
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RoE (%)
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11.9
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15.6
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14.3
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16.0
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RoCE (%)
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10.9
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14.8
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13.9
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14.8
| Source: Company, India Infoline Research
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