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Godawari Power and Ispat's 2QFY11 adjusted (standalone) net profit declined 46% QoQ to Rs71m due to lower
sponge and power production and a sharp fall in power realizations.
Net sales declined 20% QoQ to Rs1.4b. Revenue from the steel division declined 8% QoQ to Rs1.4b due to lower
volumes and realizations. The production of sponge iron declined 13% QoQ to 53,637 tons due to maintenance
shutdown of sponge iron kilns, power generation also declined 18% QoQ to 62Mkwh. Induction furnaces were restarted
with production of 15,228 tons of billets in 2QFY11. Captive consumption of sponge iron left less tonnage for
outside sales. Iron ore production was low due to heavy monsoons.
Sponge iron sales volumes declined 37% QoQ to 38,460 tons as company produced more billets. Sponge realizations
also declined surprisingly by 6% QoQ to Rs14,438/ton. Pellet realizations declined 26% QoQ to Rs5,371/ton.
Revenue from the power division declined 54% QoQ to Rs145m as power realizations declined sharply. Average
power rates were Rs2.6 for the quarter (down 49% QoQ). The company sold less power as it produced more steel.
Sales volumes declined 65% QoQ to 18.2MU.
Commercial generation from 20MW power plant started; improved 2HFY11 outlook on higher pellet production
A 20MW biomass based power unit at Raipur started commercial generation from 1 November 2010. The earnings
will get a boost from the sale of excess power generated.
The pellet production rate has been improving continuously after the replacement of all the three filter presses. The
company's iron ore mine will also ramp-up production. The 2HFY11 outlook seems better as the company is looking
for long term (annual) power supply agreements to cut earnings volatility.
The stock trades at a P/E of 5.4x FY12E and EV/EBITDA of 4.1x FY12E. Maintain Buy.
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