Godawari Power & Ispat - 1QFY2013 Result Update - Angel Broking

We resume our coverage on Godawari Power and Ispat Ltd (GPIL) with 1QFY2013 results. The company reported a strong set of numbers for 1QFY2013. The consolidated net sales grew by 22.0% yoy to Rs.602cr, while net profit increased by 64.5% yoy to Rs.51cr. We recommend a Buy rating on the stock. Net revenue growth driven by increased pellet sales: During the quarter, GPIL's net sales grew by 20.0% yoy to Rs.602cr on account of higher realization and increased sales volumes. The average realization for ferro alloys and HB wire grew by 13.5% and 3.4% yoy respectively. Pellet sales volume for 1QFY2013 was substantially higher at 1,00,598 tonne vs 43,625 tonne in 1QFY2012. HB wires' sales volume increased by 23.3% yoy to 25,012 tonne. However, sponge iron and ferro alloys sales volume declined 29.6% yoy to 27,622 tonne and 45.5% yoy to 1,506 tonne.

Strong operating performance: Raw-material cost as a percentage of net revenue fell to 61.0% in 1QFY2013 vs. 66.7% in 1QFY2012. Thus, the EBITDA margin expanded by 283bp yoy to 18.2% and EBITDA grew by 44.4% yoy to Rs.110cr. Interest expenses increased by 8.6% yoy to Rs.29cr and net profit increased by 64.5% yoy to Rs.51cr.

Outlook and valuation: GPIL reported a strong profitability growth in 1QFY2013. Going forward, we expect GPIL to further improve its profitability on the back of increase in high-margin pellet sales. A key catalyst for the stock would be commencement of iron ore mining from Boria Tibu. At the current market price, the stock is trading at 3.4x FY2013E and 3.0x FY2014E EV/EBITDA. On a P/BV basis, it is trading at 0.5x FY2013E and 0.4x FY2014E. We recommend a BUY on GPIL with a target price of Rs.161, valuing it at 3.2x FY2014E EV/EBITDA.

Source : Equity Bulls

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