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Godawari Power Ispat + Nav Bharat Ventures initiating coverage

June 14, 2008

SBI Cap Securities has initiated coverage on Godawari Power & Ispat Ltd [GPIL] and Nav Bharat Ventures with a BUY recommendation.

GPIL:
GPIL’s manufacturing plant is located closer to the main raw material source and the main market for its wires. Further the company also owns a railway siding for its captive use. GPIL has received sales tax exemption for a period of 11 years (starting April 2001), with an upper limit amounting to 150 percent of capital investment in production facilities up to March 2006.

GPIL is moving up the value chain, its focus being to increase the share of value added products (carbon steel wires, power transmission wires, railway slippers) thereby increasing operating margins.

GPIL’s power plant is registered with the CDM Executive Board for the carbon credits under the Kyoto protocol. It recently installed 25 MW capacities are under the registration process. Carbon credits are an additional source of revenue, at no major incremental cost, thereby affecting the margins positively.

SBI Caps expects the top line and bottom line to increase at a CAGR of 21.47% and 41.80% over the next three years on account increased production capacity and volume growth. At CMP of 186 INR GPIL is quoting at a P/Ex of 6.99x, 4.85x & 3.51x of FY2008E, FY2009E and FY2010E earnings. One can buy the stock with a long term view and a price target of Rs 280.

Nav Bharat Ventures Ltd: NBVL
NBVL is a leading Ferro Alloy manufacturer, has diversified business interests including Power, Sugar, down stream products and infrastructure. The company is the second largest manufacturer of Ferro alloy with installed capacity of 200000 MT and market share of over 15 percent.

NBVL has further plans to integrate its Ferro alloy business through acquisition of manganese ore mines in South Africa and Indonesia. Post manganese ore linkage from mines, the material cost is expected to go down by 30-35 percent.

The company has decided to de-risk the cyclical nature of Ferro Alloy business through capacity ramp-up in its power generation business from current 144 MW to 237 MW by second quarter 2008. With this, NBVL would be able to sell around 100 MW (700 million units) of merchant power at 4.90 per unit. The company is also setting up a 2250 MW coal based power plant in Orissa in a phased manner.

Landbank Saga:NBVL has received in-principle approval for the development of IT/ITES SEZ on 250 acres through an SPV with Mantri Developers, where it has economic interest of around 2 Mn sqft. The total net present value of its land as on date is approximately Rs 840 crore.

NBVL is expected to report an EPS of Rs 54.17 and Rs 65.39 for FY2009 and FY2010 respectively. SBI Caps recommends a BUY with a target price of Rs 361.

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