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For 2QFY2012, Godavari Power & Ispat (GPIL) reported robust top-line growth;
however, its profitability was hit on account of higher iron ore and coal costs.
We maintain our Buy rating on the stock.
Higher volumes and realization drive strong top-line growth: During the quarter,
GPIL’s net sales grew by 190.0% yoy to `429cr on account of higher realization
and increased sales volume. Pellet, sponge iron, billets and HB wire realizations
increased by 51.7%, 30.7%, 23.2% and 25.8% yoy, respectively. Billets, HB wire,
ferro alloys, and power sales volumes grew by 108.3%, 30.1%, 24.5% and 21.9%
yoy, respectively, during the quarter.
Higher input costs mute profit growth: Raw-material cost as a percentage of net
sales stood at 65.8% in 2QFY2012 compared to 49.1% in 2QFY2011, as the rise
in iron ore and coal prices more than offset the rise in product prices. Thus,
EBITDA margin slipped by 828bp yoy to 12.3% in 2QFY2012 and EBITDA grew
by 73.2% yoy to `53cr. Interest and depreciation expenses grew by 145.0% and
51.7% yoy to `25cr and `17cr, respectively. Consequently, net profit increased by
only 50.0% yoy to `11cr during the quarter.
Outlook and valuation: Although GPIL’s 2QFY2012 profitability was affected by
higher iron ore and coal costs, going forward we expect the company to improve
its profitability on the back of increased high-margin pellet sales. At the CMP, the
stock is trading at 3.7x FY2012E and 3.0x FY2013E EV/EBITDA. On a P/BV basis,
it is trading at 0.5x FY2012E and 0.4x FY2013E estimates. We maintain our Buy
recommendation on GPIL with a revised target price of `154, valuing it at 3.3x
FY2013E EV/EBITDA.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Godavari Power & Ispat (GPIL) reported robust top-line growth;
however, its profitability was hit on account of higher iron ore and coal costs.
We maintain our Buy rating on the stock.
Higher volumes and realization drive strong top-line growth: During the quarter,
GPIL’s net sales grew by 190.0% yoy to `429cr on account of higher realization
and increased sales volume. Pellet, sponge iron, billets and HB wire realizations
increased by 51.7%, 30.7%, 23.2% and 25.8% yoy, respectively. Billets, HB wire,
ferro alloys, and power sales volumes grew by 108.3%, 30.1%, 24.5% and 21.9%
yoy, respectively, during the quarter.
Higher input costs mute profit growth: Raw-material cost as a percentage of net
sales stood at 65.8% in 2QFY2012 compared to 49.1% in 2QFY2011, as the rise
in iron ore and coal prices more than offset the rise in product prices. Thus,
EBITDA margin slipped by 828bp yoy to 12.3% in 2QFY2012 and EBITDA grew
by 73.2% yoy to `53cr. Interest and depreciation expenses grew by 145.0% and
51.7% yoy to `25cr and `17cr, respectively. Consequently, net profit increased by
only 50.0% yoy to `11cr during the quarter.
Outlook and valuation: Although GPIL’s 2QFY2012 profitability was affected by
higher iron ore and coal costs, going forward we expect the company to improve
its profitability on the back of increased high-margin pellet sales. At the CMP, the
stock is trading at 3.7x FY2012E and 3.0x FY2013E EV/EBITDA. On a P/BV basis,
it is trading at 0.5x FY2012E and 0.4x FY2013E estimates. We maintain our Buy
recommendation on GPIL with a revised target price of `154, valuing it at 3.3x
FY2013E EV/EBITDA.
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