Buy Recommendation – GIPCL
GIPCL posted 42.3% yoy improvement in net profit to Rs42cr for 1QFY2011, despite a flat performance on the top-line front. Bottom-line grew on the back of lower tax expense resulting from the tax refunds received for the earlier years and booked during the quarter. The company had a net tax credit of Rs2.5cr during 1QFY2011 as against Rs6.3cr of tax expenses recorded in 1QFY2010. The recently set up 250MW Surat lignite power plant (SLPP) expansion is currently at the trial phase and did not contribute to top-line during 1QFY2011. We maintain a Buy on the stock. Bottom-line up 42.3% aided by lower tax expenses: GIPCL’s 1QFY2011 top-line remained flat at Rs253cr despite the 5% reduction in sales volume to 786MU. De-growth in sales volume was off-set by the 5% improvement in realisations. Operating profit grew 3.3% yoy to Rs64cr on better realisations. OPM for the quarter stood at 25.4%, up 82bp yoy. Net profit increased 42.3% yoy to Rs42cr.
Capacity addition to drive growth: The company recently set up power plants at Surat (125MW*2), at a cost of Rs1,630cr. The plants were declared commercially during 1QFY2011 and are currently at the trial stage. Lignite for the plant will be procured from the company’s captive mines in Surat, developed exclusively for the project. This expansion is expected to boost the company’s profitability and significantly improve cash flows going ahead. Further, with the commissioning of this Rs1,630cr plant, the company’s RoE is expected to improve substantially going ahead The company also plans to develop a new 600MW lignite-based power plant in Surat, and is in the midst of examining the feasibility of the project. With this, the company intends to make the best use of the coal mine in its possession, which has adequate lignite to support 1,000MW of power generation for 35 years.
Outlook and Valuation
We remain positive on the domestic power industry, as we expect it to grow in line with the country’s GDP growth. India’s peak power demand (in excess of 11%) gives substantial opportunity to players like GIPCL. Moreover, in the last few years, there has been significant improvement in GEB’s financial position, which will indirectly benefit GIPCL, as it sells around 80% of its power to GEB, – it is GIPCL’s single largest customer. The company’s expansion plans are also on track, which we believe will help it continue on growth path. We expect the company’s to register CAGR of 32.5% and 28.3% in top-line and bottom-line respectively, over FY2010E-12E. We expect RoE to improve from 8.8% in FY2010 to 12.4% in FY2012E following commissioning of new plants. At the CMP of Rs113, the stock is trading at 1.2x P/BV and EV/MW of Rs3.5cr on its FY2012E estimates, which we believe is attractive compared to its peers. We maintain a Buy on the stock, with a Target Price of Rs135.
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Comments
Hi
This company is running at Tortoise speed. Started in 1985 and first power plant of 145 MW was commenced in 1992 and thereafter in another 18 long years it just added 655 MW. What an achievement?? It is just because there is just no personal touch in the management. the head of the company is always a
bureaucrat who will never take slightest of the risk and will always go by what his seniors and labour unions want.
This company requires a crazy guy who can single handedly just like the CM Mr. Narendra Modi can totally transform this company to be No.1 Power generation company in Gujarat.
This company indeed can be a very major player and a company worth noticing in power sector.
Private sector companies are implementing single project of 4000MW or more where is the problem with this company to only look for 2x250MW or so and that too takes 3-4 years to implement.
Second most important factor is PLF, they must work hard and
technically more innovatively to acheive at least 100% PLF.
Hope the management is listening.
I also happen to be one of the oldest at least 15 years old shareholder of the company.
G8 RESEARCH ..ITS A VALUE PICK