BUY

Godawari Power & Ispat Ltd (Q3 FY08)

ä Revenue surged 74.6%yoy and 22% qoq

February 04, 2008
ä OPM expanded 170 basis points yoy, but down 240 basis points qoq
Stock data ä The company was awarded prospecting license of iron ore
Sensex: 18,243 ä Captive resources to show results in FY10
CMP (Rs): 258
ä Maintain BUY with a target of Rs400
Target price (Rs): 400
Upside (%): 55.0
Result table
52 Week h/l (Rs): 376.5/92.4
Period to 12/07 12/06 Growth 12/07 12/06 Growth
Market cap (Rs cr) 724
(Rs mn) (3) (3) (%) (9) (9) (%)
6m Avg vol BSE&NSE (‘000 nos): 132.7
Net sales 2,174 1,245 74.6 5,659 3,319 70.5
No of o/s shares (mn): 28.1
Expenditure (1,770) (1,034) 71.1 (4,535) (2,719) 66.8
FV (Rs): 10
Operating profit 405 211 91.9 1,124 600 87.3
Bloomberg code: GODPI IN
Other income 3 2 33.3 9 12 (19.0)
Reuters code: GDPI.BO
Interest (82) (28) 187.7 (216) (78) 176.9
BSE code: 532734
Depreciation (57) (27) 113.8 (170) (79) 113.7
NSE code: GPIL
PBT 269 158 70.1 748 454 64.6
Tax (31) (28) 13.5 (86) (52) 67.0
Shareholding pattern
PAT 238 131 82.0 662 403 64.3
December 2007 (%)
Adjusted PAT 238 131 82.0 662 403 64.3
Promoters 63.4
OPM (%) 18.6 16.9 1.7 19.9 18.1 1.8
FIIs & institutions 15.9
Equity capital 248 248 - 248 248 -
Non promoter corp hold 6.1
EPS (Rs)(Annualised) 38.3 21.0 - 35.5 21.6 -
Public & others 14.6
Revenue surged 74.6% yoy and 22% qoq
Share price trend GPIL reported a 74.6% yoy growth in revenues at Rs2.2bn on account of an
GPIL Sensex increase in realization. On qoq basis it registered a 22% growth on the back of
360
lower sponge iron production. Realization of sponge iron and ferro manganese
310
increased 32% and 37% qoq respectively. Production of sponge iron fell 7.1% qoq
260
and that of ferro alloys fell 8.5% on shortage of raw material availa bility. The
210 company faced problems in sourcing iron ore from the market on account of lower
160
grade of iron content. The increase in revenue was due to an increase in the sales
110
volume of power. Turnover from sales of power increased 10x qoq to 7.5mn units
60
from last quarter’s 0.7mn units. The company has during the quarter started
Feb-07 Jul-07 Dec-07
supply of power to CSEB and also commissioned 132 KVA sub-stations.

OPM expanded 170 basis points yoy, but down 240 basis points qoq
Operating profit for the quarter was Rs405mn, 91.9% higher yoy and 8% higher
qoq. But OPM fell from 21.0% in Q2FY08 to 18.6% in Q3FY08 on account of higher
raw material costs. Raw material costs as a percentage of sales increased from
69.2% in second quarter to 74.6% in third quarter. With iron ore pric es rising
during the year and with GPIL sourcing half of its requirement from the spot
market, landed cost of iron ore rose to Rs3,500. Adding to the cost side pressure
was the surge in thermal coal prices in India. With the demand rising prices of
thermal coal have gone up around 15% in the last two quarters.

India Infoline Research Team

research@indiainfoline.com
91-22-67491700

India Infoline Ltd, 15th Floor, P.J.Tower, Dalal Street, Mumbai -01. Tel 91-22-67491700. 1
 Godawari Power & Ispat Ltd (Q3 FY08)

Quarterly revenue and OPM Raw material as a percentage of sales

2,300 Revenue OPM 22 76 %
Rs mn %
2,100
21
1,900 74
20
1,700
19 72
1,500
1,300 18
70
1,100
17
900
68
16
700
500 15 66
Q3FY07 Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q3FY07 Q4FY07 Q1FY08 Q2FY08 Q3FY08

Source: Company, India Infoline Research Source: Company, India Infoline Research

Captive resources to show results in FY10

During the quarter, the company was awarded prospective license for iron ore mines over 754 hectares of area by the
Government. This is in addition to the 15mn tons of reserves already awarded to the company.

GPIL has received the mining license for iron ore at Boria Tibbu and Ari Dongari in Chattisgarh with reserves of 15mn
tons. The company has acquired all clearances, except forest, for Boria Tibu mines and would commence mining after
the forest clearance is received. The company expects to start production within six months of receiving the clearance.
However, application for clearances for Ari Dongri mines is still under consideration by the central government.

Coal mines with reserves of 243mn tons at Madanpur North and South, Nakia I & II, which is 250km away from the
company's plant have been allotted to a consortium of companies. GPIL’s share of the total reserves is ~63mn tons.
Development of the coal mines is progressing as per schedule and is expected to commence from FY2009-10.

Backward integration process on track

The company has announced its plans to build an iron ore crushing plant with a capacity of 1.2mtpa, a beneficiation
plant with a capacity of 0.1mtpa and a pelletization plant with a capacity of 0.6mtpa with railway siding and other
infrastructure development, at a cost of Rs2.35bn.

The company completed its QIP issue of Rs1bn during the quarter, resulting into a dilution of 13.01%. The Rs1bn QIP
was done at a price of Rs310 per share to 18 entities. The company has also allotted 1mn warrants convertible into
equity to M/s Hira Industries Ltd (Promoter group) at a price of Rs324 per warrant which will be converted into one
equity share of Rs10 each fully paid at a premium of Rs314 per share.

Bottom-line to witness a CAGR of 85.7% over FY07-10E; recommend BUY

Capacity additions, which were commissioned 100% on Sept’07 will lead to robust volume growth for the company.
GPIL’s strong volume growth coupled with higher realisations, will lead to its revenues rising by a CAGR of 50.9% over
the period FY07-10E. Operating margins are expected to remain flat at 19.8% in FY08 and 19.9% in FY09 and then
expand to 22.9% in FY10.

At CMP of Rs258, the stock trades at P/E multiple of 6.5x and 5.2x on estimated earnings of Rs39.6 in FY08E and Rs49.9
in FY09E respectively. We recommend a BUY with a target price Rs400 based on a P/E multiple of 8x FY09 consolidated
EPS, an upside of 54.8%.

Quarterly Update 2
 Godawari Power & Ispat Ltd (Q3 FY08)

Financials
Rs mn FY06 FY07 FY08E FY09E FY10E
(12) (12) (12) (12) (12)
Revenues 2,348 4,421 7,563 9,701 10,064
yoy growth (%) 88.3 71.1 28.3 3.7
Operating profit 360 793 1,499 1,929 2,308
OPM (%) 15.3 17.9 19.8 19.9 22.9
Pre-exceptional PAT 225 522 1,110 1,451 1,800
yoy growth (%) 132.0 112.7 30.7 24.0

EPS (Rs) 13.9 21.0 39.6 49.9 61.9

P/E (x) 18.5 12.3 6.5 5.2 4.2
P/BV (x) 4.3 3.1 2.1 1.8 1.7
EV/EBITDA (x) 16.0 11.4 6.6 5.4 4.3
ROE (%) 23.1 25.5 32.3 35.3 40.3
ROCE (%) 14.2 16.9 23.6 26.6 32.4

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Quarterly Update 3