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Godawari Power and Ispat 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Godawari Power and Ispat (GPIL) reported a strong growth in bottom-line in its 3QFY2013 results. The consolidated net sales grew by 25.3% yoy to Rs.603cr, while net profit increased by 75.8% yoy to Rs.20cr. We recommend Accumulate rating on the stock.

Top-line grew 25.3% yoy: GPIL’s net sales grew by 25.3% yoy to Rs.603cr on account of higher sales volumes of billets, HB wire and ferro alloys. However, higher volumes were partially offset by lower realizations. Average realization for sponge iron, billets and HB Wire declined by 3.9%, 3.4% and 2.1% yoy respectively.

EBITDA growth in line with increase in top-line: Employee cost as a percentage of net revenue fell to 2.7% in 3QFY2013 vs 2.8% in 3QFY2012 and other expenditure as a percentage of net revenue rose to 17.6% in 3QFY2013 vs 17.2% in 3QFY2012. Thus, EBITDA margin was flat at 11.6% and EBITDA grew by 24.9% yoy to Rs.70cr. Net profit increased by 75.8% yoy to Rs.20cr. No new update on iron ore mine: The company refrained from providing any timelines for commencement of production from Boria Tibu iron ore mines.

Outlook and valuation: GPIL reported a strong operating performance during 3QFY2013. 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 CMP, the stock is trading at 4.3x FY2013E and 3.9x FY2014E EV/EBITDA. On a P/BV basis, it is trading at 0.4x FY2013E and 0.3x FY2014E estimates. We recommend Accumulate rating on GPIL with a revised target price of Rs.112, valuing it at 4.0x FY2014E EV/EBITDA.