>GODAWARI POWER & ISPAT (EMKAY)

4QFY09 Result above estimates

Godawari Power and Ispat Ltd. (GPIL) reported 4QFY09 results, which were above our estimates. Net sales stood at Rs1,718mn (yoy down 34.8%, qoq down 18.9%), EBITDA stood at Rs173mn (yoy down 69.5%, qoq loss of Rs36mn) and Adj PAT stood at Rs79mn (yoy down 76.7%, qoq loss of Rs174mn). During the quarter, GPIL continued to sell surplus power in the merchant market as there was no billets production. In 4QFY09, the average realization of power was Rs6.50/unit. GPIL’s backward integration plan is progressing as per schedule. The 0.6mtpa pelletization plant is expected to be operational by Sep ‘09. The company has commenced Ari Dongri iron ore mine, having reserves of 7mt. GPIL is currently operating mine at a production level of 1,000t per day. GPIL has also received final approval for Borai Tibu iron ore mine and the company expects mine to be operational by 3QFY10. As on 31st Mar ’09, GPIL has net debt of Rs3.2bn at an average cost of 10.5%. At the CMP of Rs117, the stock is trading at 3.5x FY10E EPS of Rs33.6 and at 2.5x FY11E EPS of Rs46.3. On EV/EBITDA basis, the stock is trading at 3.5x FY10E EV/EBITDA and at 2.6x FY11E EV/EBITDA; while on P/B basis the stock is trading at 0.6x FY10E book value and at 0.5x FY11E book value. We maintain BUY on the stock with target price of Rs166 (0.7x FY11E book value).

Other highlights of the concall are as under:-
■ GPIL has commenced Ari Dongri iron ore mine, having reserves of 7mt. The company is currently operating at a production level of 1,000t per day and has target to produce around 0.3mt of iron ore in FY10. GPIL expects to be 50% captive for iron ore in FY10. This is expected to generate savings of around Rs3,500/t of iron ore as the cost of extraction is around Rs1,000/t and the current landed cost of iron ore for GPIL is around Rs4,500/t.

■ GPIL has also received final approval for Borai Tibu iron ore mine, having reserves of around 7-8mt. The company expects the mine to be operational by 3QFY10. The estimated capex for the mine development is around Rs150mn. The expected annual capacity for both the mines is around 0.6mtpa each.

■ During the quarter, the company continued to sell surplus power in the merchant market as the production of billets and ferro alloys has been temporarily discontinued due to low demand and better margins from power sales. The management has guided that production will be maintained at a very low level in for next few quarters. In 4QFY09, the average realization of power was Rs6.5/unit.

■ As per the management there will not be any production cut for HB wires and the company will purchase the billets required, from the market which is currently available at Rs21,000/t.

■ GPIL’s backward integration plans are progressing as per schedule. We expect 0.6mtpa pelletization plant to be operational by Sep ’09.

■ As on 31st Mar ’09, GPIL has total debt of Rs3,550mn and cash balance of Rs350mn, implying net debt of Rs3,200mn at an average cost of 10.5%.

■ In first FY09, GPIL has incurred capex of Rs1,700mn and expects to incur Rs850- 1,000mn in FY11.

To see full report: GODAWARI POWER