Godawari Power & Ispat - 2QFY2013 Result Update - Angel Broking

Godawari Power and Ispat (GPIL) reported a strong growth in bottom-line in its 2QFY2013 results. The consolidated net sales grew by 39.3% yoy to Rs.597cr, while net profit increased by 102.1% yoy to Rs.22cr. We recommend a Buy rating on the stock.

Top-line growth led by increases in prices and realizations: During the quarter, GPIL's net sales grew by 39.3% yoy to Rs.597cr on account of increases in both, realizations as well as sales volumes across product categories. Average realization for sponge iron, HB wire, billets, ferro alloys and pellets grew by 13.0%, 7.0%, 5.9%, 6.5% and 6.8% yoy, respectively; however, on a sequential basis the realizations declined by 6.0%, 4.7%, 6.5%, 5.9% and 9.6%, respectively. Billets, HB wires and pellet sales volume increased by 54.5%, 41.9% yoy and 61.0% yoy, respectively.

EBITDA growth in line with increase in top-line: Employee cost as a percentage of net revenue fell to 2.8% in 2QFY2013 vs 3.1% in 2QFY2012 and other expenditure as a percentage of net revenue fell to 17.3% in 2QFY2013 vs 18.8% in 2QFY2012. Thus, the EBITDA margin expanded by 23bp yoy to 12.5% and EBITDA grew by 41.9% yoy to Rs.75cr. Interest expenses increased by 14.3% yoy to Rs.29cr and net profit increased by 102.1% yoy to Rs.22cr.

Outlook and valuation: GPIL reported a strong profitability growth in 2QFY2013. 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 4.7x FY2013E and 3.6x FY2014E EV/EBITDA. On a P/BV basis, it is trading at 0.4x FY2013E and 0.4x FY2014E estimates. We maintain Buy on GPIL with a revised target price of Rs.144, valuing it at 3.8x FY2014E EV/EBITDA.

Source : Equity Bulls

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