godawari power, 1q fy 2014

7/27/2019 Godawari Power, 1Q FY 2014

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

Quarterly Highlights (Consolidated)(` cr) 1QFY2014 1QFY2013 % chg (yoy) 4QFY2013 % chg (qoq)Net sales 511 602 (15.2) 624 (18.1)EBITDA 76 110 (30.7) 77 (1.1)

% margin 14.9 18.2 (333)bp 12.3 256bp

Net income 28 47 (41.0) 62 (55.9)Source: Company, Angel Research

Godawari Power and Ispat (GPIL) reported a decline in both top-line as well as

profitability for 1QFY2014. We recommend a Buy rating on the stock.Lower realizations dent top-line performance: GPILs net sales declined by 15.2%yoy to `511cr due to lower sales volumes of billets and pellets coupled with lower

realizations across all the segments. Average realization for sponge iron, billets,

HB Wire and ferro alloys declined by 21.2%, 15.9%, 14.3% and 9.5% yoy,

respectively. Billets and pellets sales volumes declined 32.8% and 56.8% yoy,

respectively.

EBITDA declined 30.7% yoy on higher costs: Raw material cost as a percentage ofnet revenue increased to 63.5% in 1QFY2014 vs 61.0% in 1QFY2013. Thus,

EBITDA margin declined by 333bp to 14.9% and EBITDA declined by 30.7% yoy

to `76cr. The companys interest expenses decreased by 4.7% yoy to `28cr andthe tax rate stood at 4.2% compared to 23.2% in 1QFY2013. Consequently, the

companys adjusted net profit declined by 41.0% yoy to `28cr.

Outlook and valuation: We expect GPIL to improve its operating profitability onthe back of increase in product prices during FY2015. A key catalyst for the stock

would be commencement of iron ore mining from Boria Tibu. At the CMP, the

stock is trading at 3.4x FY2014E and 2.7x FY2015E EV/EBITDA. On a P/BV basis,

it is trading at 0.2x FY2014 and 0.2x FY2015 estimates. We recommend a Buyrating on GPIL with a revised target price of `78, valuing it at 2.8x FY2015EEV/EBITDA.Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013E FY2014E FY2015ENet sales 2,060 2,357 2,171 2,317% chg 84.2 14.4 (7.9) 6.7

Net profit 84 149 117 150% chg (1.9) 76.5 (21.2) 28.0

FDEPS (`) 26.5 46.1 36.4 46.6OPM (%) 13.7 14.0 14.9 15.8

P/E (x) 2.4 1.4 1.8 1.4

P/BV (x) 0.3 0.2 0.2 0.2

RoE (%) 11.6 17.5 11.6 13.0RoCE (%) 13.7 13.6 11.4 12.1

EV/Sales (x) 0.5 0.6 0.5 0.4

EV/EBITDA (x) 3.4 4.2 3.4 2.7

Source: Company, Angel Research: Note: CMP as of 5th August 2013

BUYCMP `65

Target Price `78

Investment Period 12 months

Stock Info

Sector

Net Debt (`cr) 751

Bloomberg Code GODPI@IN

Shareholding Pattern (%)

Promoters 64.9

MF / Banks / Indian Fls 6.5

FII / NRIs / OCBs 0.8Indian Public / Others 27.8

Abs. (%) 3m 1yr 3yr

Sensex (3.6) 8.9 4.6

GPIL (24.9) (48.1) 8.9

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Steel

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

10

18,971

5,610

GDPI.BO

210

0.8

134/63

6,365

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

Vinay RachhTel: 022- 39357800 Ext: 6841

[email protected]

Godawari Power & IspatPerformance Highlights

1QFY2014 Result Update | Steel

August 6, 2013


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Godawari Power| 1QFY2014 Result Update

August 6, 2013 2

Exhibit 1:1QFY2014 performance (Consolidated)

Y/E March (` cr) 1QFY2014 1QFY2013 yoy % 4QFY2013 qoq % FY2013 FY2012 yoy %Net sales 511 602 (15.2) 624 (18.1) 2,357 2,060 14.4Raw material 325 368 (11.7) 409 (20.5) 1,519 1,353 12.3% of net sales 63.5 61.0 65.5 64.5 65.7

Staff cost 15 14 11.5 14 7.4 61 52 18.6

% of net sales 3.0 2.3 2.3 2.6 2.5

Other expenditure 95 111 (14.7) 124 (23.6) 445 374 19.0

% of net sales 18.6 18.5 19.9 18.9 18.2

Total expenditure 435 493 (11.7) 547 (20.5) 2,026 1,779 13.9

% of net sales 85.1 81.8 87.7 86.0 86.3

Operating profit 76 110 (30.7) 77 (1.1) 331 282 17.4OPM(%) 14.9 18.2 12.3 14.0 13.7

Other operating income - - - - -

EBIDTA 76 110 (30.7) 77 (1.1) 331 282 17.4EBITDA margins (%) 14.9 18.2 12.3 14.0 13.7

Interest 28 29 (4.7) 33 (15.0) 121 116 4.5

Depreciation 18 17 4.0 18 1.3 71 68 4.8

Other income 2 3 (21.6) 5 15 11 30.5

Exceptional items - - - - -

Profit before tax 32 66 (51.0) 31 4.2 154 110 40.2% of net sales 6.3 10.9 5.0 6.5 5.3

Tax 1 15 (91.0) (33) (104.1) 5 (22) (120.7)

% of PBT 4.2 23.2 (108.1) 3.0 (20.1)

Net income 28 47 (41.0) 62 (55.9) 149 84 76.5% of net sales 5.4 7.7 10.0 6.3 4.1

Source: Company, Angel Research

Lower realizations dent top-line performance

During the quarter, GPILs net sales declined by 15.2% yoy to `511cr on account

of lower sales volumes of billets and pellets coupled with lower realizations across

all the segments. Average realization for sponge iron, billets, HB Wire and ferro

alloys declined by 21.2%, 15.9%, 14.3% and 9.5% yoy respectively. Billets sales

volume for 1QFY2014 declined 32.8% yoy to 27,065 tonne and pellet volumes

declined 56.8% yoy to 43,501 tonne. Sponge iron sales volume increased by

72.4% yoy to 47,632 tonne.


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August 6, 2013 3

Exhibit 2:Quarterly production trend

(tonnes) 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 yoy % qoq %Sponge iron 76,598 95,150 68,486 71,179 70,502 83,720 91,857 34.1 9.7

Billets 49,470 56,568 40,151 46,601 50,200 48,070 45,510 13.3 (5.3)HB wire 18,545 18,256 24,738 25,339 20,624 23,967 22,944 (7.3) (4.3)

Ferro alloys 2,387 2,152 1,823 2,202 2,644 2,766 2,399 31.6 (13.3)

Power (mn units) 98 103 88 99 108 106 105 19.5 (1.5)

Iron ore 26,549 183,110 261,314 128,459 142,990 160,849 107,587 (58.8) (33.1)

Pellet 150,150 167,500 168,700 153,800 156,320 140,800 131,650 (22.0) (6.5)


Exhibit 3:Quarterly sales volume trend(tonnes) 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 yoy % qoq %Sponge iron 76,753 39,223 27,622 36,899 24,825 48,883 47,632 72.4 (2.6)

Billets 49,687 56,516 40,261 46,602 50,278 47,506 27,065 (32.8) (43.0)

HB wire 19,710 20,278 25,012 23,760 22,242 19,551 25,313 1.2 29.5

Ferro alloys 766 2,761 1,506 2,040 2,248 3,452 1,488 (1.2) (56.9)

Power (mn units) 15 14 14 14 20 201 193 1,308.8 (4.0)

Pellet 76,753 58,278 100,598 85,223 60,082 59,544 43,501 (56.8) (26.9)


Exhibit 4:Quarterly realization trend

(`/tonne) 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 yoy % qoq %Sponge iron 21,464 23,441 22,681 21,318 20,628 19,228 17,869 (21.2) (7.1)

Billets 32,046 33,731 34,396 32,170 30,953 30,271 28,911 (15.9) (4.5)

HB wire 37,818 39,525 40,859 38,956 37,018 36,451 35,031 (14.3) (3.9)

Ferro alloys 50,369 50,334 57,135 53,762 51,360 52,873 51,694 (9.5) (2.2)

Power (mn units) 3.0 2.6 2.6 2.8 2.6 2.7 3.0 12.2 8.9

Pellet 9,002 9,955 9,623 8,701 9,133 8,610 7,995 (16.9) (7.1)


EBITDA declined 30.7% yoy on higher costs

Raw material cost as a percentage of net revenue increased to 63.5% in

1QFY2014 vs 61.0% in 1QFY2013. Thus, EBITDA margin declined by 333bp to

14.9% and EBITDA declined by 30.7% yoy to `76cr. The companys interestexpenses decreased by 4.7% yoy to `28cr and the tax rate stood at 4.2%

compared to 23.2% in 1QFY2013. However, the companys adjusted net profit

declined by 41.0% yoy to `28cr.


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August 6, 2013 4

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 are likely to

result in higher profitability during FY2015.

Steel production to rise during FY2015

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 FY2015. Hence, we expect GPIL to

increase steel products production during FY2015.

Outlook and valuation

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

product prices during FY2015. A key catalyst for the stock would be

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

trading at 3.4x FY2014E and 2.7x FY2015E EV/EBITDA. On a P/BV basis, it is

trading at 0.2x FY2014 and 0.2x FY2015 estimates. We recommend a Buy ratingon GPIL with a revised target price of `78, valuing it at 2.8x FY2015E EV/EBITDA

Exhibit 5:EV/EBITDA band

Source: Bloomberg, Angel Research

0

500

1,000

1,500

2,000

2,500

3,000

Apr-08 Dec-08 Aug-09 Apr-10 Dec-10 Aug-11 Apr-12 Dec-12 Aug-13

(`

cr)

2x 4x 6x 8x


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August 6, 2013 5

Exhibit 6:P/E band


Exhibit 7:P/BV band


Exhibit 8: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 65 78 Buy 210 19 1.8 1.4 0.2 0.2 3.4 2.7 11.6 13.0 11.4 12.1Sarda 75 128 Buy 265 71 2.2 1.9 0.3 0.2 2.5 1.9 12.6 13.2 12.2 12.7

Prakash 30 45 Buy 369 48 3.1 2.9 0.2 0.2 3.4 3.0 6.5 6.5 6.4 6.5


0

100

200

300

400

500

600


(`)

2x 4x 6x 8x 12x

0

100

200

300

400

500

600

700

800


(`)

0.5x 1.0x 1.5x 2.0x


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August 6, 2013 6

Profit & Loss Statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ENet sales 822 1,119 2,060 2,357 2,171 2,317Other operating income - - - - - -Total operating income 822 1,119 2,060 2,357 2,171 2,317% chg (24.7) 36.0 84.2 14.4 (7.9) 6.7

Total expenditure 692 884 1,779 2,026 1,847 1,951Net raw materials 580 637 1,353 1,519 1,179 1,238

Other mfg costs 92 211 374 445 603 644

Personnel 19 35 52 61 65 70

Other - - - - - -

EBITDA 131 235 282 331 324 366% chg 6.2 80.0 19.9 17.4 (2.0) 12.8

(% of net sales) 15.9 21.0 13.7 14.0 14.9 15.8

Depreciation 34 55 68 71 69 74

EBIT 96 180 214 260 255 292% chg 2.1 86.3 19.3 21.4 (2.0) 14.5

(% of net sales) 11.7 16.0 10.4 11.0 11.7 12.6

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 10.4 9.0

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

Recurring PBT 67 119 110 154 156 199% chg (5.1) 79.0 (8.1) 40.2 1.5 27.7

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

PBT (reported) 67 119 110 154 156 199Tax 11 20 22 (5) 36 46

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

PAT (reported) 56 99 88 158 120 153Add: Earnings of asso. 1.2 0.4 - - - -

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

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

PAT after MI (reported) 57 86 84 149 117 150Adj. PAT 57 86 84 149 117 150% chg (8.1) 50.0 (1.9) 76.5 (21.2) 28.0(% of net sales) 7.0 7.7 4.1 6.3 5.4 6.5

Basic EPS (`) 21.2 27.0 26.5 46.9 36.9 47.3Fully diluted EPS ( ) 20.5 27.0 26.5 46.1 36.4 46.6% chg (8.1) 32.0 (1.9) 73.8 (21.2) 28.0


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August 6, 2013 7

Balance Sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015ESOURCES OF FUNDSEquity Share Capital 27 32 32 37 37 37Reserves& Surplus 471 573 646 795 945 1,084

Shareholders Funds 498 605 678 832 982 1,121Share Warrants - - - - - -

Minority Interest 10 76 92 102 105 108Total 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 2,328 2,501APPLICATION OF FUNDS - - - -Gross Block 752 1,172 1,318 1,568 1,818 2,068

Less: Acc. Depreciation 122 202 268 339 408 483

Net Block 630 971 1,050 1,229 1,410 1,586Capital 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 288 588 633 866 853 858Cash 20 130 99 (20) 293 443

Loans & Advances 59 102 91 91 91 91

Other 210 357 443 794 468 324

Current liabilities 101 243 336 272 253 256

Net Current Assets 188 345 297 593 601 602Deferred Tax Asset - 5 5 5 5 5Mis. Exp. not written off - - - - - -

Total Assets 1,027 1,449 1,672 2,146 2,328 2,501


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August 6, 2013 8

Cash flow statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EProfit before tax 67 119 110 154 156 199

Depreciation 34 55 68 71 69 74Change in working capital (23) (65) 40 (416) 306 148

Less: Other income 33 63 106 - - -

Direct taxes paid 10 19 18 (5) 36 46

Cash flow from operations 101 45 305 (187) 496 376(Inc.)/ Dec. in fixed assets (250) (246) (336) (248) (245) (245)

(Inc.)/ Dec. in investments - (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 -

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) 313 149

Opening cash bal. 44 29 126 50 (20) 293Closing cash bal. 20 126 50 (20) 293 443


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August 6, 2013 9

Key ratios

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E FY2015EValuation ratio (x)P/E (on FDEPS) 3.2 2.4 2.4 1.4 1.8 1.4P/CEPS 2.0 1.5 1.4 1.0 1.1 0.9

P/BV 0.3 0.3 0.3 0.2 0.2 0.2

Dividend yield (%) 3.8 3.8 4.6 4.6 4.6 4.6

EV/Sales 0.8 0.7 0.5 0.6 0.5 0.4

EV/EBITDA 5.1 3.5 3.4 4.2 3.4 2.7

EV/Total assets 0.6 0.6 0.6 0.6 0.5 0.4

Per share data (`)EPS (Basic) 21.2 27.0 26.5 46.9 36.9 47.3

EPS (fully diluted) 20.5 27.0 26.5 46.1 36.4 46.6

Cash EPS 32.7 44.5 47.9 68.1 57.9 69.6

DPS 2.5 2.5 3.0 3.0 3.0 3.0

Book value 188.7 214.6 242.7 294.2 342.3 387.0

DuPont analysisEBIT margin 11.7 16.0 10.4 11.0 11.7 12.6

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 1.0 1.1

RoIC (Post-tax) 9.1 12.9 11.8 14.3 9.3 11.0

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 10.9 13.5

Returns (%)RoCE (Pre-tax) 10.5 14.5 13.7 13.6 11.4 12.1

Angel RoIC (pre-tax) 14.0 17.6 17.0 16.4 14.0 16.5

RoE 11.9 14.4 11.6 17.5 11.6 13.0

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

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 77 37

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 27.7 21.3

Interest coverage 2.9 2.5 1.8 2.1 2.2 2.6


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August 6, 2013 10

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

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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.

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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

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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, 1q fy 2014

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