Godawari Power & Ispat Q1FY13: An 'ardent' performance
Key highlights of the result
- Net Sales up ~22% YoY: Godawari Power & Ispat’s (GPIL) Consolidated Net Sales for Q1FY13 was up ~22% YoY at ~Rs602cr, whereas, it was down ~8.3% QoQ. The increase in the top-line on YoY basis was due to strong growth in subsidiaries (pellet production under Ardent Steel increased ~123% YoY due to higher supply of iron ore in the state) and improvement in sales volume in different segments like steel billets, HB wires, pellet, etc. Sponge iron production and billet production increased during the quarter aided by improved captive iron ore production. In Q1FY13, an increase in realization was witnessed across segments i.e. Sponge iron (up ~17% YoY to Rs22,681/MT), HB wire (up ~51% YoY to Rs40,859/MT), pellet (up ~16% to Rs9,623/MT) and steel billet (up ~15% YoY to Rs34,396/MT), which also assisted the growth in sales.
- OPMs up 283bp YoY: GPIL reported Consolidated EBITDA of ~Rs110cr in Q1FY13, an increase of ~44% YoY. EBITDA margin increased a significant 283bp YoY on account of lower raw material costs (down 715bp YoY) and also due to the improvement in margins of steel (up 192bp YoY) and power (up 568bp YoY). EBITDA margin was higher by 339bp QoQ.
- Net Profit up ~55%: Net Profit for Q1FY13 increased ~55% YoY to ~Rs47cr (~Rs30cr in Q1FY12), due to strong growth in sales and better operating performance on account of lower raw material costs.
Outlook and Valuation
Godawari Power’s Q1FY13 results were in-line with their expectations with strong performance on the top-line and bottom-line front. GPIL has also planned to raise funds by preferential issue to promoters, which will be used for the ongoing capital expenditure of GPIL and its subsidiaries (Reliance Securities has factored this in their numbers). Going forward, Reliance Securities anticipates good growth in the top-line due to increasing higher mining output with capacity utilizations in pellets (for both GPIL and Ardent Steel) to be the key drivers, which will further aid GPIL’s profitability. They expect GPIL to report Net Sales CAGR of ~18% and Net Profit CAGR of ~26% over FY12-14E, owing to the expected strong volume growth, increase in realizations and high-priced value-added sales. At the CMP of Rs130, the stock is trading at a P/E of 3.7x and 3.6x its FY13E and FY14E EPS respectively. Reliance Securities maintains their Buy recommendation on Godawari Power with a target price of Rs157.
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Reliance Securities comes from the house of Reliance Capital, one of India’s leading & prominent financial houses. Founded in 1986, Reliance Capital has come a long way from being into steady annuity yielding businesses such as leasing, bill discounting, and inter-corporate deposits to diversifying its activities in the areas of asset management and mutual fund; life and general insurance; consumer finance and industrial finance; stock broking; depository services; private equity and proprietary investments; exchanges, asset reconstruction; distribution of financial products and other activities in financial services.
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