Godawari Power 4Q FY 2013

7/28/2019 Godawari Power 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

Quarterly Highlights (Consolidated)(` cr) 4QFY2013 4QFY2012 % chg (yoy) 3QFY2013 % chg (qoq)Net sales 624 657 (5.0) 603 3.5EBITDA 77 97 (21.0) 70 9.9

% margin 12.3 14.8 (250)bp 11.6 71bp

Net income 62 33 89.4 19 237.1Source: Company, Angel Research

Godawari Power and Ispat (GPIL) reported a strong growth in its bottom-line

during 4QFY2013 due to tax benefit. We recommend a Buy rating on the stock.Top-line declines 5.0% yoy:During the quarter, GPILs net sales declined by 5.0%yoy to `624cr on account of lower sales volumes of billets and lower realizations.

Average realization for sponge iron, billets and HB Wire declined by 18.0%,

10.3% and 7.8% yoy respectively and billets and HB Wire sales volume declined

15.9% and 3.6% yoy to 47,506 and 19,551 tonnes, respectively.

EBITDA declined 21.0% yoy on higher costs: Raw material cost as a percentage ofnet revenue increased to 65.5% in 4QFY2013 vs 62.7% in 4QFY2012. Thus,

EBITDA margin declined by 250bp to 12.3% and EBITDA declined by 21.0% yoy

to`

77cr. The companys interest expenses decreased by 8.7% yoy to`

33cr and itgot a tax benefit of `33cr which led to the company to post a net profit growth of

89.4% yoy to `62cr.Outlook and valuation: We expect GPIL to improve its operating profitability onthe back of increase in high-margin pellet sales during FY2014-15. A key catalyst

for the stock would be commencement of iron ore mining from Boria Tibu. At the

CMP, the stock is trading at 3.3x FY2014E and 2.6x FY2015E EV/EBITDA. On a

P/BV basis, it is trading at 0.2x FY2014 and 0.2x FY2015 estimates. Werecommend a Buy rating on GPIL with a revised target price of `102, valuing it at2.9x FY2015E EV/EBITDA.Key financials (Consolidated)

Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 2,060 2,357 2,344 2,509% chg 84.2 14.4 (0.5) 7.0

Net profit 84 149 125 151% chg (1.9) 76.5 (16.1) 21.4

FDEPS (`) 26.5 46.1 38.7 47.0OPM (%) 13.7 14.0 14.9 15.4

P/E (x) 3.1 1.8 2.1 1.7

P/BV (x) 0.3 0.3 0.2 0.2

RoE (%) 11.6 17.5 12.3 12.8RoCE (%) 13.7 13.6 12.2 12.6

EV/Sales (x) 0.5 0.6 0.5 0.4

EV/EBITDA (x) 3.6 4.4 3.3 2.6

Source: Company, Angel Research

BUYCMP `82

Target Price `102

Investment Period 12 months

Stock Info

Sector

Net Debt (`cr) 1,470

Bloomberg Code GODPI@IN

Shareholding Pattern (%)

Promoters 64.9

MF / Banks / Indian Fls 6.5

FII / NRIs / OCBs 0.9

Indian Public / Others 27.7

Abs. (%) 3m 1yr 3yr

Sensex 4.8 21.8 16.6

GPIL (9.5) (29.3) 21.8

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Steel

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

10

19,760

5,986

GDPI.BO

268

0.9

136/80

7,998

Bhavesh ChauhanTel: 022- 39357600 Ext: [email protected]

Vinay RachhTel: 022- 39357800 Ext: 6841

[email protected]

Godawari Power & IspatPerformance Highlights

4QFY2013 Result Update | Steel

May 31, 2013


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Godawari Power| 4QFY2013 Result Update

May 31, 2013 2

Exhibit 1:4QFY2013 performance (Consolidated)

Y/E March (` cr) 4QFY2013 4QFY2012 yoy % 3QFY2013 qoq % FY2013 FY2012 yoy %Net sales 624 657 (5.0) 603 3.5 2,357 2,060 14.4Raw material 409 412 (0.8) 410 (0.4) 1,519 1,353 12.3% of net sales 65.5 62.7 68.1 64.5 65.7

Staff cost 14 15 (3.6) 16 (12.2) 61 52 18.6

% of net sales 2.3 2.3 2.7 2.6 2.5

Other expenditure 124 133 (6.2) 106 17.2 445 374 19.0

% of net sales 19.9 20.2 17.6 18.9 18.2

Total expenditure 547 560 (2.2) 533 2.7 2,026 1,779 13.9

% of net sales 87.7 85.2 88.4 86.0 86.3

Operating profit 77 97 (21.0) 70 9.9 331 282 17.4OPM(%) 12.3 14.8 11.6 14.0 13.7

Other operating income - - - - -

EBIDTA 77 97 (21.0) 70 9.9 331 282 17.4EBITDA margins (%) 12.3 14.8 11.6 14.0 13.7

Interest 33 36 (8.7) 30 10.4 121 116 4.5

Depreciation 18 17 4.0 18 (0.2) 71 68 4.8

Other income 5 0 1,682.1 4 15 11 30.5

Exceptional items - - - - -

Profit before tax 31 44 (30.0) 26 20.2 154 110 40.2% of net sales 5.0 6.7 4.3 6.5 5.3

Tax (33) 10 (439.2) 5 (717.7) 5 (22) (120.7)

% of PBT (108.1) 22.3 21.0 3.0 (20.1)

Net income 62 33 89.4 19 237.1 149 84 76.5% of net sales 10.0 5.0 3.4 6.3 4.1


Net revenue declined by 5.0% yoy

During the quarter, GPILs net sales declined by 5.0% yoy to `624cr on account of

lower sales volumes of billets and lower realizations. Average realization for

sponge iron, billets and HB Wire declined by 18.0%, 10.3% and 7.8% yoy

respectively. However Ferro alloys realizations were up by 5.0% yoy. Ferro alloys

sales volume for 4QFY2013 was also higher at 3,452 tonne vs 2,761 tonne in

4QFY2012 and the sponge iron sales volume increased by 24.6% yoy to 48,883

tonne. However, Billets and HB Wire sales volume declined 15.9% and 3.6% yoy to

47,506 and 19,551 tonne respectively.


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Exhibit 2:Quarterly production trend

(tonnes) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 yoy % qoq %Sponge iron 80,759 76,598 95,150 68,486 71,179 70,502 83,720 (12.0) 18.7

Billets 30,714 49,470 56,568 40,151 46,601 50,200 48,070 (15.0) (4.2)HB wire 18,620 18,545 18,256 24,738 25,339 20,624 23,967 31.3 16.2

Ferro alloys 1,471 2,387 2,152 1,823 2,202 2,644 2,766 28.5 4.6

Power (mn units) 87 98 103 88 99 108 106 3.1 (1.5)

Iron ore 63,000 26,549 183,110 261,314 128,459 142,990 160,849 (12.2) 12.5

Pellet 152,700 150,150 167,500 168,700 153,800 156,320 140,800 (15.9) (9.9)


Exhibit 3:Quarterly sales volume trend(tonnes) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 yoy % qoq %Sponge iron 42,501 76,753 39,223 27,622 36,899 24,825 48,883 24.6 96.9

Billets 30,160 49,687 56,516 40,261 46,602 50,278 47,506 (15.9) (5.5)

HB wire 16,743 19,710 20,278 25,012 23,760 22,242 19,551 (3.6) (12.1)

Ferro alloys 1,567 766 2,761 1,506 2,040 2,248 3,452 25.0 53.6

Power (mn units) 22 15 14 14 14 20 201 1,335.7 895.0

Pellet 52,937 76,753 58,278 100,598 85,223 60,082 59,544 2.2 (0.9)


Exhibit 4:Quarterly realization trend

(`/tonne) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 yoy % qoq %Sponge iron 18,873 21,464 23,441 22,681 21,318 20,628 19,228 (18.0) (6.8)

Billets 30,389 32,046 33,731 34,396 32,170 30,953 30,271 (10.3) (2.2)

HB wire 36,415 37,818 39,525 40,859 38,956 37,018 36,451 (7.8) (1.5)

Ferro alloys 50,498 50,369 50,334 57,135 53,762 51,360 52,873 5.0 2.9

Power (mn units) 2.9 3.0 2.6 2.6 2.8 2.6 2.7 3.8 3.8

Pellet 8,146 9,002 9,955 9,623 8,701 9,133 8,610 (13.5) (5.7)


EBITDA declined 21.0% yoy on higher costs

Raw material cost as a percentage of net revenue increased to 65.5% in

4QFY2013 vs 62.7% in 4QFY2012. Thus, EBITDA margin declined by 250bp to12.3% and EBITDA declined by 21.0% yoy to `77cr. The companys interest

expenses decreased by 8.7% yoy to `33cr and it got a tax benefit of `33cr which

helped it post a net profit growth of 89.4% yoy to `62cr.


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Investment rationale

Increasing pellet sales to improve GPILs profits

GPILs 0.6mn tonne pellet plant in its 75% subsidiary Ardent Steel in Keonjhar,Odisha, had started commercial production during August 2010. However, it

achieved stabilization during FY2013. Going forward, additional volumes from

high-margin pellet sales alongside GPILs 0.6mn tonne pellet plant is likely to

result in margin-stability despite lower realizations in FY2014.

Steel production to rise during FY2014

Merchant power rates have recently declined to `2.62.8 per unit. We expect

merchant power rates to remain stable in the medium term. Further, we expect

steel product prices to rise modestly during 2HFY2014. Hence, we expect GPIL to

increase steel products production during FY2014-15.

Outlook and valuation

We expect GPIL to improve its operating profitability on the back of increase in

high-margin pellet sales during FY2014-15. A key catalyst for the stock would be

commencement of iron ore mining from Boria Tibu. At the CMP, the stock is

trading at 3.3x FY2014E and 2.6x FY2015E EV/EBITDA. On a P/BV basis, it is

trading at 0.2x FY2014 and 0.2x FY2015 estimates. We recommend Buy rating onGPIL with a revised target price of `102, valuing it at 2.9x FY2015E EV/EBITDA.

Exhibit 5:EPS Angel forecast v/s consensus

Year (`) Angel forecast Bloomberg consensus Variation (%)FY2014E 38.7 39.5 (2.0)

FY2015E 47.0 52.0 (9.7)

Source: Bloomberg, Angel Research

Exhibit 6:EV/EBITDA band


0

500

1,000

1,500

2,000

2,500

3,000

Apr-08Oct-08Apr-09 Oct-09Apr-10 Oct-10Apr-11 Oct-11Apr-12 Oct-12Apr-13

(`

cr)

2x 4x 6x 8x


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Exhibit 7:P/E band


Exhibit 8:P/BV band


Exhibit 9:Recommendation summary

Companies CMP Target Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)(`) Price (`) (` cr) (%) FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E FY14E FY15E

Godawari 82 102 Buy 268 24 2.1 1.7 0.2 0.2 3.3 2.6 12.3 12.8 12.2 12.6Sarda 106 128 Buy 372 21 3.1 2.6 0.4 0.3 2.9 2.3 12.6 13.2 12.2 12.7

Prakash 35 45 Buy 461 27 3.6 3.4 0.2 0.2 3.6 3.2 6.5 6.5 6.4 6.5


0

100

200

300

400

500

600

Apr-08Oct-08 Apr-09Oct-09 Apr-10Oct-10 Apr-11Oct-11 Apr-12Oct-12 Apr-13

(`)

2x 4x 6x 8x 12x

0

100

200

300

400

500

600

700

800

Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13

(`)

0.5x 1.0x 1.5x 2.0x


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Profit & Loss Statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ENet sales 822 1,119 2,060 2,357 2,344 2,509Other operating income - - - - - -Total operating income 822 1,119 2,060 2,357 2,344 2,509% chg (24.7) 36.0 84.2 14.4 (0.5) 7.0

Total expenditure 692 884 1,779 2,026 1,995 2,122Net raw materials 580 637 1,353 1,519 1,273 1,349

Other mfg costs 92 211 374 445 651 697

Personnel 19 35 52 61 70 75

Other - - - - - -

EBITDA 131 235 282 331 349 387% chg 6.2 80.0 19.9 17.4 5.5 10.9

(% of net sales) 15.9 21.0 13.7 14.0 14.9 15.4

Depreciation 34 55 68 71 75 80

EBIT 96 180 214 260 274 307% chg 2.1 86.3 19.3 21.4 5.5 11.9

(% of net sales) 11.7 16.0 10.4 11.0 11.7 12.2

Interest charges 34 73 116 121 115 110

Other income 4 13 11 15 16 18

(% of PBT) 6.0 10.8 10.3 9.6 9.3 8.3

Share in profit of asso. - - - - - -

Recurring PBT 67 119 110 154 175 214% chg (5.1) 79.0 (8.1) 40.2 14.1 22.2

Extra. Inc/(Expense) - - - - - -

PBT (reported) 67 119 110 154 175 214Tax 11 20 22 (5) 40 49

(% of PBT) 15.8 16.6 20.1 (3.0) 23.0 23.0

PAT (reported) 56 99 88 158 135 165Add: Earnings of asso. 1.2 0.4 - - - -

Less: Minority interest - (14) (3) (9) (10) (14)

Extra. Expense/(Inc.) (0.0) - - - - -

PAT after MI (reported) 57 86 84 149 125 151Adj. PAT 57 86 84 149 125 151% chg (8.1) 50.0 (1.9) 76.5 (16.1) 21.4(% of net sales) 7.0 7.7 4.1 6.3 5.3 6.0

Basic EPS (`) 21.2 27.0 26.5 46.9 39.3 47.7Fully diluted EPS ( ) 20.5 27.0 26.5 46.1 38.7 47.0% chg (8.1) 32.0 (1.9) 73.8 (16.1) 21.4


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Balance Sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 27 32 32 37 37 37Reserves& Surplus 471 573 646 795 953 1,093

Shareholders Funds 498 605 678 832 989 1,130Share Warrants - - - - - -

Minority Interest 10 76 92 102 112 126Total Loans 518 765 868 1,178 1,208 1,238

Deferred Tax Liability 1 - - - - -

Other Long term liabilities - 2 32 32 32 32

Long term provisions - 2 2 2 2 2

Total Liabilities 1,027 1,449 1,672 2,146 2,343 2,527APPLICATION OF FUNDSGross Block 752 1,172 1,318 1,568 1,818 2,068

Less: Acc. Depreciation 122 202 268 339 414 494

Net Block 630 971 1,050 1,229 1,404 1,574Capital Work-in-Progress 194 94 285 283 278 273

Goodwill 5 - - - - -

Investments 12 22 18 18 18 18Long term loans and adv. - 6 7 7 7 7Other non-current assets - 6 9 9 9 9Current Assets 288 588 633 866 879 903Cash 20 130 99 (20) 282 459

Loans & Advances 59 102 91 91 91 91

Other 210 357 443 794 506 352

Current liabilities 101 243 336 272 258 263

Net Current Assets 188 345 297 593 621 640Deferred Tax Asset - 5 5 5 5 5

Mis. Exp. not written off - - - - - -

Total Assets 1,027 1,449 1,672 2,146 2,343 2,527


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Cash flow statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 67 119 110 154 175 214

Depreciation 34 55 68 71 75 80Change in working capital (23) (65) 40 (416) 274 158

Less: Other income 33 63 106 - - -

Direct taxes paid 10 19 18 (5) 40 49

Cash flow from operations 101 45 305 (187) 484 404(Inc.)/ Dec. in fixed assets (250) (246) (336) (248) (245) (245)

(Inc.)/ Dec. in investments (0) (11) (45) - - -

(Inc.)/ Dec. in loans and adv. - - - - - -

Other income 1 5 10 - - -

Cash flow from investing (250) (251) (371) (248) (245) (245)Issue of equity - - - 16 44 0

Inc./(Dec.) in loans 163 342 103 310 30 30

Dividend paid 8 10 11 11 11 11

Others 30 21 103 - - -

Cash flow from financing 125 312 (11) 315 63 19Inc./(Dec.) in cash (24) 106 (76) (119) 302 177

Opening cash bal. 44 29 126 50 (20) 282Closing cash bal. 20 126 50 (20) 282 459


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Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation ratio (x)P/E (on FDEPS) 4.0 3.0 3.1 1.8 2.1 1.7P/CEPS 2.5 1.8 1.7 1.2 1.3 1.1

P/BV 0.4 0.4 0.3 0.3 0.2 0.2

Dividend yield (%) 3.0 3.0 3.7 3.7 3.7 3.7

EV/Sales 0.9 0.8 0.5 0.6 0.5 0.4

EV/EBITDA 5.4 3.7 3.6 4.4 3.3 2.6

EV/Total assets 0.7 0.6 0.6 0.7 0.5 0.4

Per share data (`)EPS (Basic) 21.2 27.0 26.5 46.9 39.3 47.7

EPS (fully diluted) 20.5 27.0 26.5 46.1 38.7 47.0

Cash EPS 32.7 44.5 47.9 68.1 62.0 71.9

DPS 2.5 2.5 3.0 3.0 3.0 3.0

Book value 188.7 214.6 242.7 294.2 347.0 395.5

DuPont analysisEBIT margin 11.7 16.0 10.4 11.0 11.7 12.2

Tax retention ratio (%) 84.2 83.4 79.9 103.0 77.0 77.0

Asset turnover (x) 0.9 1.0 1.4 1.3 1.1 1.2

RoIC (Post-tax) 9.1 12.9 11.8 14.3 10.0 11.4

Cost of debt (post tax) 6.5 9.5 11.3 12.2 7.4 7.0

Leverage (x) 1.0 0.9 1.0 1.3 0.8 0.6

Operating RoE 11.7 15.9 12.3 17.0 12.1 14.2

Returns (%)RoCE (Pre-tax) 10.5 14.5 13.7 13.6 12.2 12.6

Angel RoIC (pre-tax) 14.0 17.6 17.0 16.4 15.0 17.1

RoE 11.9 14.4 11.6 17.5 12.3 12.8

Turnover ratios (x)Asset turnover (gross block) 1.3 1.2 1.7 1.6 1.4 1.3

Inventory (days) 100 132 243 168 118 68

Receivables (days) 15 17 14 14 14 14

Payables (days) 15 18 21 21 21 21

WC cycle (days) 70 62 37 63 74 38

Solvency ratios (x)Net debt to equity 1.0 0.9 1.0 1.3 0.8 0.6

Net debt to EBITDA 37.3 26.1 26.7 35.7 26.0 19.7

Interest coverage 2.9 2.5 1.8 2.1 2.4 2.8


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Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannottestify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may beregulatory, compliance, or other reasons that prevent us from doing so.

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates mayhave investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Godawari Power

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Godawari Power 4Q FY 2013

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