Recommendations » India

GIPCL 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, GIPCL’s operating profit rose by 15.1% yoy to Rs.94cr, lower than our estimate of Rs.117cr. Lower-than-expected performance was on account of low PAF in SLPP station II, which had technical problems. Expensive gas led to a decline in PLF for gas-based plants, resulting in lower generation-linked  incentives. The company’s bottom line fell by 30.6% yoy to Rs.17cr due to higher depreciation and higher taxation. The company incurred tax of Rs.6cr during the quarter vs. negative taxation of Rs.8cr in 3QFY2011. We maintain our Buy recommendation on the stock.

Under recoveries and lower incentives result in a decline in OPM: GIPCL posted top-line growth of 26.9% yoy, largely driven by higher fuel cost. During the quarter, the company’s generation remained flat yoy at 1,181MU, while fuel cost rose by 34.1% on account of higher gas prices. Overall PLF for the quarter stood at low 67% due to low offtake from gas-based stations because of higher power cost on account of expensive gas prices. SLPP station II had low PAF of 61.6% during the quarter (60% in 3QFY2011), which led to under recoveries. However, Vadodara stations I and II had healthy PAF of 96.1% (93.7% in 3QFY2011) and 95.1% (100% in 3QFY2011), respectively. SLPP I station also operated at high PAFs of 83.9% (89.2% in 3QFY2011).

Outlook and valuation: GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500MW SLPP stations I and II met from captive lignite mines. Further, power generated by the company has assured offtake through PPAs signed under the cost-plus model, ensuring RoE of 14% (excl. generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants. At the CMP of Rs.71, the stock is trading attractively at 0.7x FY2013 P/BV. We have assigned a P/BV of 0.9x on FY2013 book value to arrive at a target price of Rs.93. We maintain our Buy recommendation on the stock