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August 8, 2011
BUY
CMP Target Price `150 `221
12 months
4QFY2011 329 72 22.0 31 % chg (qoq) 50.2 4.9 (665)bp (0.7)
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
For 1QFY2012, Godavari Power & Ispat (GPIL) reported robust top-line growth, however its profitability was hit on account of higher iron ore and coal costs. Further, higher interest expenses impacted its bottom-line growth for the quarter. Rising input costs hit margins: GPILs net sales grew by 152.0% yoy to `494cr on account of higher realisation, increased sales volumes and merger with Hira Industries and R.R. Ispat. Average realisation for sponge iron, HB wires, pellets and billets grew by 26.3%, 17.6%, 14.3% and 6.6% yoy, respectively. Billet sales volume for 1QFY2012 was substantially higher at 30,476 tonnes vs. 533 tonnes in 1QFY2011. Pellet sales volume stood at 43,625 tonnes vs. 8,591 tonnes in 1QFY2011. Raw-material cost as a percentage of net revenue rose to 66.7% in 1QFY2012 vs. 62.2% in 1QFY2011. Thus, although EBITDA grew by 110.5% yoy to `76cr, EBITDA margin contracted by 303bp yoy to 15.4%. Interest expenses increased by 169.9% yoy to `27cr. Consequently, net profit for the quarter increased by 143.5% yoy to `31cr. Outlook and valuation: Although GPILs 1QFY2012 profitability was affected by higher iron ore and coal costs, going forward we expect GPIL to further improve its profitability on the back of increased high-margin pellet sales. A key catalyst for the stock would be commencement of iron ore mining from Boria Tibu. At the CMP, the stock is trading at 3.6x FY2012E and 2.4x FY2013E EV/EBITDA. On a P/BV basis, it is trading at 0.6x FY2012E and 0.5x FY2013E estimates. We maintain our Buy view on GPIL with a revised target price of `221, valuing it at 3.0x FY2013E EV/EBITDA.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 63.7 4.7 4.3 27.3
3m (8.3)
1yr (6.4)
3yr 12.0
FY2010 822 (24.7) 57 (8.1) 20.5 15.9 7.3 0.8 11.9 10.5 1.1 6.9
FY2011E 1,116 35.7 86 50.0 27.1 20.8 5.6 0.7 14.4 13.6 1.0 4.9
FY2012E 1,774 58.9 109 26.6 34.2 17.2 4.4 0.6 14.8 15.2 0.6 3.6
FY2013E 1,916 8.0 175 60.7 55.0 20.5 2.7 0.5 20.0 19.9 0.5 2.4
Bhavesh Chauhan
Tel: 022- 39357600 Ext: 6821 bhaveshu.chauhan@angelbroking.com
Source: Company, Angel Research; Note: 1QFY2012 and FY2011 numbers include the impact of the merger with Hira Industries and R.R Ispat Ltd., while 1QFY2011 and FY2010 do not include the impact of merger with Hira Industries and R.R. Ispat
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Investment rationale
Mining capacity at Ari Dongri mine to increase
Currently, GPIL has an approval to mine 0.6mn tonnes of iron ore from the Ari Dongri mine. Management aims to increase the mining capacity to 0.9mn tonnes during FY2012. Increased production from captive iron ore mine should further lower costs, given a steep rise in iron ore prices recently.
August 8, 2011
Bloomberg consensus
38.3 46.9
Variation (%)
(10.6) 17.3
1,500 1,000 500 0 Apr-06 Dec-06 Aug-07 Apr-08 2x Dec-08 Aug-09 4x 6x Apr-10 8x Dec-10 Aug-11
300 200 100 0 Apr-06 Dec-06 Aug-07 2x Apr-08 4x Dec-08 6x Aug-09 8x Apr-10 12x Dec-10 Aug-11
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300 200 100 0 Apr-06 Dec-06 Aug-07 Apr-08 0.5x Dec-08 1.0x Aug-09 1.5x Apr-10 Dec-10 Aug-11 2.0x
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Key ratios
Y/E March Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book value DuPont analysis EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Post-tax) Cost of debt (post tax) Leverage (x) Operating RoE Returns (%) RoCE (Pre-tax) Angel RoIC (pre-tax) RoE Turnover ratios (x) Asset turnover (gross block) Inventory (days) Receivables (days) Payables (days) WC cycle (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest coverage 0.6 13.6 4.5 0.7 25.3 2.7 1.0 38.2 2.9 1.0 28.9 2.4 0.8 20.0 2.1 0.5 12.1 2.8 2.1 115 20 20 61 2.3 60 10 16 53 1.3 109 16 12 71 1.3 164 22 25 81 1.7 122 22 24 71 1.7 122 22 23 73 23.9 28.6 33.1 12.6 16.0 14.7 10.5 14.0 11.9 13.6 16.7 14.4 15.2 17.6 14.8 19.9 22.8 20.0 17.6 87.7 1.5 22.4 9.5 0.6 30.0 8.6 88.1 1.6 11.9 9.7 0.7 13.5 11.7 84.2 0.9 9.1 6.5 1.0 11.7 15.9 83.4 0.9 12.5 8.7 1.0 16.3 13.4 83.0 1.3 14.3 11.3 0.8 16.6 16.7 83.0 1.4 18.7 13.1 0.5 21.5 40.8 35.6 44.9 4.0 146.4 23.1 22.3 32.5 2.5 169.1 21.2 20.5 32.7 2.5 188.7 27.1 27.1 44.5 2.5 214.6 34.2 34.2 55.5 3.0 248.0 55.0 55.0 78.0 3.0 302.5 4.2 3.3 1.0 2.7 0.8 3.8 0.9 6.7 4.6 0.9 1.7 0.7 5.8 0.9 7.3 4.6 0.8 1.7 1.1 6.9 0.9 5.6 3.4 0.7 1.7 1.0 4.9 0.7 4.4 2.7 0.6 2.0 0.6 3.6 0.7 2.7 1.9 0.5 2.0 0.5 2.4 0.6 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Godawari Power No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) :
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