Godawari Power & Ispat – 2QFY2011 Result Update: Angel Broking

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Godawari Power & Ispat – 2QFY2011 Result Update

Angel Broking maintains a Buy on Godawari Power & Ispat with a Target Price of Rs302.

For 2QFY2011, GPIL’s net revenue came in at `148cr, down 10.4% yoy and

24.6% qoq. However, net profit grew by 59.5% yoy to `7cr, down 42.7% qoq.

EBITDA margin expands: GPIL’s 2QFY2011 net revenue fell by 10.4% yoy and

24.6% qoq to `148cr on account of a) reduced sponge iron production

(53,637 tonnes v/s 60,860 tonnes in 2QFY2010 and 61,535 tonnes in

1QFY2011) and b) lower sales volume of billets and power. While sponge iron

realisation increased by 18% yoy (down 6% qoq) to `14,438/tonne, billet

realisation increased by 17.4% yoy (down 12.3% qoq) to `24,669/tonne. Pellet

production increased to 62,315 tonnes from 55,396 tonnes in 1QFY2011.

Average pellet realisation stood at `5,371/tonne, down 25.9% qoq. Despite other

expenses as a percentage of net revenue increasing to 25.2% from 11.2% in

2QFY2010 on account of higher fuel consumption, lower raw-material cost

(which as a percentage of net revenue declined to 49.1% from 73.7% in

2QFY2010) resulted in an 811bp yoy and 215bp qoq EBITDA margin expansion

to 20.6%. As a result, EBITDA grew by 48% yoy to `30cr (fell by 15.8% qoq), and

net income came in higher by 59.5% yoy to `7cr (down 42.7% qoq).

Outlook and valuation: At the CMP, the stock is trading at 4.2x FY2011E and

2.5x FY2012E EV/EBITDA. On a P/BV basis, it is trading at 0.9x FY2011E and

0.7x FY2012E estimates. We expect GPIL's earnings to log in a 77.8% CAGR over

FY2010–12E, given the ramp-up in iron ore mining capacity and commercial

production of pellets at Ardent Steel. We maintain Buy on GPIL with a revised

Target Price of `302 (`313), valuing it at 4x FY2012E EV/EBITDA.