Buy Godawari Power; target of Rs 185: Motilal Oswal

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Buy Godawari Power; target of Rs 185: Motilal Oswal

Motilal Oswal is bullish on Godawari Power and has recommended buy rating on the stock with a target of Rs 185 in its January 27, 2012 research report.

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Motilal Oswal is bullish on Godawari Power and has recommended buy rating on the stock with a target of Rs 185 in its January 27, 2012 research report.

"Godawari Power, revenues increased 25% QoQ to INR4.2b due to higher steel and pellet sales volumes and realization. Billets realization improved 5%QoQ to INR 32,406/t while pellet realization improved 10% QoQ to INR 9002/t. Pellet production was down 2% QoQ at 150k tons. 600ktpa pellet plant at Raipur continues to operate at 100% capacity utilization. Another 600ktpa pellet plant under its subsidiary, Ardent steel produced 71k (down 3% QoQ) of pellets in 3QFY12. Iron ore production declined sharply due to extended monsoon in October followed by local logistics issue. However production has return to normal levels in December 2011 end."

"Sponge iron ore production declined 5% QoQ to 77k tons due to limited availability of low cost captive iron ore. As a result, sales volumes also declined 34% QoQ to 28k tons during the quarter. Sponge iron realization improved 8% QoQ at INR 21,464/t. Standalone EBITDA declined 4% QoQ to INR413m as high cost external iron ore impacted margins. EBIT from Steel division also decreased 2% QoQ to INR334m. Power generation increased 12% QoQ to 98mu. Average realization increased Paisa 10 QoQ to INR3/kwh. 20MW bio mass power plant is operating at lower utilization level due to demand. Average coal cost is around INR 4000/t with 50% of the requirement coming from linkage coal while rest of it being imported. No provision was made for INR229m MTM loss on forex loans."

"We expect pellet realization to remain at elevated levels due to shortage of DRI grade iron ore in India. Ramp up in pellet production in Ardent steel along with superior margins in pellet business will drive earnings. We expect consolidated earnings to grow at a cagr of 26% over FY11-13E on the back of stronger volume growth from the pellet plants and higher mine production. However we are lowering our mining output assumption to 474kt from earlier 601kt due to risk to production from local issues. The stock is trading at a P/E of 2.4x FY12E and EV/EBITDA of 3.3x FY12E. Maintain Buy," says Motilal Oswal research report.   

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To read the full report click on the attachment