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Godawari Power & Ispat – Review

November 7, 2009

GPIL’s adjusted net profit was lower-than-expectations at Rs24.9mn, declining 92.7% YoY and 80.7% QoQ. This was primarily on account of (1) lower price realizations from power which dropped almost 50% QoQ to Rs3.5 per unit, (2) 10% QoQ decline in power generation to 70.9mn units (3) 13% QoQ decline in production volumes of sponge iron to 60680 tonnes.

Net Sales was reported at Rs1531.1mn, declining 53.8% YoY.

However, analysts expect a significant improvement in earnings only from Q4FY10. GPIL’s 600,000 tpa pellet plant and an additional 20MW power plant are expected to get commissioned in Dec’09. This along with ramp up in iron ore mining is likely to significantly expand GPIL’s margins and earnings from Q4FY10.

In FY11, increased utilisation of its captive raw material assets (iron ore mines and pellet plant) and increased power generation are expected to not only lead to significant growth in GPIL’s earnings but also reduce the past cyclicality in its earnings. GPIL is expected to earn an EPS of Rs 18 and Rs 40 for fy10 and fy11 respectively.

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