Karvy Stock Broking has maintained an outperformer rating on Godawari Power & Ispat with a target of Rs 260 in its October 7, 2010 research report.
“In Q2FY11, we expect Godawari Power & Ispat (GPIL) to report a sales growth of 19% (YoY) and 2.2% (QoQ) to Rs 1822 million. Steel segment sale is expected to record a 15% (YoY) growth, primarily driven by 9% improvement in realization over Q2 FY10. Further, power segment is expected to record sales of Rs 272 million in Q2 FY11, 140% growth (YoY) backed by volume growth of 87% (YoY), with expanded power generation capacity. Sequential, sales growth is estimated ~2%, where steel segment should grow by 3.4%. Steel segment realization is expected to be flat sequentially; while volume to inch up by ~5%. Despite above 30% volume growth, power sales to register only 2.5% (QoQ) growth, as we expect 22% drop in realization, in line with lower merchant power prices.”
“We expect GPIL to maintain EBITDA margin of 19.8%, in line with Q1 FY11. However, it would be 843 bps margin expansion (YoY), owning to backward integration through iron ore mines and pellet plant. In Q2 FY11, we estimate EBITDA of Rs 360 million, 107% growth (YoY) and 2% growth (QoQ). Net profit should be around Rs 134 million, a flat growth sequentially but staggering 436% growth (YoY) backed by back ward integration coupled with improved steel prices. GPIL had faced production constraint in Q1 FY11; hence production slipped below our estimates. We expect constraint to continue in Q2 FY11 also. Hence, we retain our valuation cautiously and watch the production constraint issue. We retain our target price at Rs 260 (1x FY12 BV) but upgrade rating from Market performer to Outperformer owning to recent price correction,” says Karvy Stock Broking research report.
