Godawari Power & Ispat - Q4FY12 Result update - Centrum

Strong operational show; maintain buy

Godawari Power & Ispat (GPIL) reported much better operational performance than our expectations with net sales at ~Rs6.6bn, up by ~53% YoY and ~37% QoQ on account of higher volumes across products in the steel segment. EBITDA stood at Rs972mn (margin of ~14.8%, up by 320 bps QoQ) and PAT was strong at Rs329mn despite an increase in interest costs. GPIL delivered ~110% PLF at its Chhattisgarh pellet plant and iron ore volumes from Ari Dongri mines reached ~1.8 lakh tonnes during Q4FY12. With operational bottlenecks on iron ore mining and logistics sorted out, we expect GPIL to maintain its strong operational performance going forward and revise our volume and earnings estimates upwards for FY13E/14E. We revise our target price upwards to Rs 172 and maintain Buy.

- Strong volumes across products: GPIL showed strong volume growth QoQ across products on the back of operational improvements and better domestic demand. Iron ore production went up sequentially as logistical problems w solved and mining activity picked up speed after prolonged monsoons. Chhattisgarh pellet plant maintained its strong operational performance and utilization reached ~110% in the quarter. Sales volume went up QoQ by 41% and 76% for sponge iron and billets on the back of higher production and backward integration benefits. Pellets and power sales were lower QoQ due to higher captive use by GPIL for making steel products. Realizations remained strong across products and pellet realizations reached ~Rs10000/tonne. Realizations have continued to remain strong in Q1FY13 till date.

- EBITDA margin improvement QoQ more than expected: Riding on higher iron ore and pellet production, GPIL could use higher proportion of captive raw material for producing steel and as a result EBITDA margin improved to 14.8%, up 320 bps QoQ. EBITDA went up by 13.3% to Rs972mn mainly on account of higher volumes and strong realizations.

- Operations expected to maintain robust performance: With captive iron ore mining operations getting back on track and pellet plant operating at high capacity utilization levels, we expect robust operational performance of GPIL to continue going forward with only seasonal dip expected in Q2FY13E due to monsoons. Pellet expansion of 1.2 mtpa at Chhattisgarh is expected to be on-stream in FY14E and would further increase pellet volumes. We have revised our volumes and realizations estimates upwards to factor in the robust operational performance and as a result our EBITDA estimates for FY13E/14E have been revised upwards by 15.1%/14.9% respectively. We expect iron ore and pellet production of ~5 lakh tonnes and 6 lakh tonnes respectively in FY13E.

- Valuations: We continue to like the operations of the company with captive iron ore, power and pellets backed steel portfolio. We see the iron ore and pellet production stabilizing at higher capacity utilization levels going forward. We value the company at 3.5x FY14E EV/EBITDA to arrive at a target price of Rs172. We maintain Buy with an upward revised target of Rs 172.

Source : Equity Bulls

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