PINC POWER PICKS :GODAWARI POWER: BUY, TP-Rs288 (32% upside)

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What’s the theme?
GPIL is one of our top picks in the steel space, as we expect margin expansion and earnings CAGR of
54% over FY10-FY13, driven by backward integration. We expect the recently-commissioned 0.6mt pellet
plant to boost GPIL's earnings further.
What will move the stock?
1) Timely commencement of the Boria Tibu mine in Q3 FY11 will boost margins. 2) The 20 MW biomassbased
power plant, expected to be operational in H2 FY11, would ensure further power availability and
become revenue accretive. 3) Strong upstream integration would boost top line and bottom line. 4)
Production from the 0.6mtpa pellet plant in Orissa may provide further upside of Rs43/share (not included
in our estimates).
Where are we stacked versus consensus?
Our FY12 earnings estimate is in line with consensus.
What will challenge our target price?
1) Lower-than-expected steel prices and volumes; 2) Delay in ramp-up of the Boria Tibu mine; and 3)
Sharper increase in costs.