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Godawari Power & Ispat -Pellet plant stabilizing
Godawari Power and Ispat produces steel via the sponge iron route and generates
captive power from waste gases produced at the kilns. The company doubled its
sponge iron capacity to 495ktpa and steel billet capacity to 400ktpa along with a
53MW captive power plant (CPP) in FY08. Since then, it has shifted focus to
reducing costs through backward integration. Its 700ktpa iron ore mine and 600ktpa
pellet plant started operations in FY10. The 20MW biomass based power plant
has been commissioned in December 2010.
The company has focused on sponge iron production and power generation. Its
steel production keeps fluctuating depending on the economics between value
addition and merchant sale of power.
After initial teething problems in the last few quarters, the pellet plant is getting
stabilized. In 3QFY11, Godawari produced 103k tons of pellets, achieving capacity
utilization of 69%. Prices of special grade iron ore needed for sponge iron production
have shot up due to shortage in the country. Low cost pellets produced from
captive iron ore have substituted expensive iron ore, thereby generating significant
savings. The captive iron ore lumps and pellets are meeting 90-95% of its
requirement.
Iron ore production is expected to ramp up from 309k tons in 9MFY11 to 480k tons
in FY12 and 700k tons in FY13. Another iron ore mine at Boria Tibu in Chhattisgarh
is awaiting forest clearance. Statutory clearance for captive coal blocks (Nakia I &
II and Madanpur) is still pending.
The 20MW biomass-based power unit at Raipur is under stabilization phase and
will boost earnings further. The company is also setting up a 1,200MW independent
power project (IPP) through a 100% subsidiary (Godawari Energy Limited). It is
awaiting regulatory clearances and coal linkages before beginning work on the
project.
We expect iron ore and pellet production to increase at a CAGR of 28% and 37%
over FY11-13 to 700k tons and 500k tons, respectively. Widening spread between
thermal coal and steel prices is the key earnings driver. We expect earnings to
grow at a CAGR of 26% over FY10-13. The stock trades at an EV of 4.2x FY12E
EBITDA. Re-iterate Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Godawari Power & Ispat -Pellet plant stabilizing
Godawari Power and Ispat produces steel via the sponge iron route and generates
captive power from waste gases produced at the kilns. The company doubled its
sponge iron capacity to 495ktpa and steel billet capacity to 400ktpa along with a
53MW captive power plant (CPP) in FY08. Since then, it has shifted focus to
reducing costs through backward integration. Its 700ktpa iron ore mine and 600ktpa
pellet plant started operations in FY10. The 20MW biomass based power plant
has been commissioned in December 2010.
The company has focused on sponge iron production and power generation. Its
steel production keeps fluctuating depending on the economics between value
addition and merchant sale of power.
After initial teething problems in the last few quarters, the pellet plant is getting
stabilized. In 3QFY11, Godawari produced 103k tons of pellets, achieving capacity
utilization of 69%. Prices of special grade iron ore needed for sponge iron production
have shot up due to shortage in the country. Low cost pellets produced from
captive iron ore have substituted expensive iron ore, thereby generating significant
savings. The captive iron ore lumps and pellets are meeting 90-95% of its
requirement.
Iron ore production is expected to ramp up from 309k tons in 9MFY11 to 480k tons
in FY12 and 700k tons in FY13. Another iron ore mine at Boria Tibu in Chhattisgarh
is awaiting forest clearance. Statutory clearance for captive coal blocks (Nakia I &
II and Madanpur) is still pending.
The 20MW biomass-based power unit at Raipur is under stabilization phase and
will boost earnings further. The company is also setting up a 1,200MW independent
power project (IPP) through a 100% subsidiary (Godawari Energy Limited). It is
awaiting regulatory clearances and coal linkages before beginning work on the
project.
We expect iron ore and pellet production to increase at a CAGR of 28% and 37%
over FY11-13 to 700k tons and 500k tons, respectively. Widening spread between
thermal coal and steel prices is the key earnings driver. We expect earnings to
grow at a CAGR of 26% over FY10-13. The stock trades at an EV of 4.2x FY12E
EBITDA. Re-iterate Buy.
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