23 May 2012
4QFY12 Results Update | Sector: Metals
Godawari Power & Ispat
BSE SENSEX
S&P CNX
16,026
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD m)
4,861
GODPI IN
31.8
187/70
-2/-5/-26
3.5
65.7
CMP: INR112
TP: INR210
Buy
Consolidated
Godawari Power and Ispat (GODPI) posted 328% QoQ growth in adjusted standalone PAT for 4QFY12 to INR319m
(v/s our estimate of INR223m) on higher production, sales and realization. Consolidated PAT increased 210%
QoQ to INR329m.
Iron ore production increased 7x QoQ to 183k tons, as production returned to normal levels. In 3QFY12,
production was impacted by extended monsoon.
Sponge iron production increased 24% QoQ to 95k tons, while billet production increased 14% QoQ to 57k
tons, aided by improved captive iron ore production. For billets, realization improved 5% QoQ to INR33,731/
ton, while for sponge iron, realization improved 9% QoQ to INR23,441/ton.
Pellet production grew 12% QoQ to 168k tons, with capacity utilization at 112%. Pellet realization increased
11% QoQ to INR9,955/ton.
Other expenditure increased 58% QoQ, partly due to year-end provisions and adjustment of forex loss of
INR139m for the full year in 4Q.
For FY12, consolidated PAT declined 2% to INR843m. Subsidiaries and associates contributed INR53m to PAT.
The company has declared a dividend of INR2.5/share for FY12. It will issue 5m warrants to the promoters at
INR130/share, leading to equity base expansion of 15.7%. Promoter stake will go up by 4.9% post execution
of warrants.
The stock is trading at 3.3x FY13E EPS, 0.5x FY13E BV, and at an EV of 4.7x FY13E EBITDA. Maintain
Buy.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 39825412/
Pavas Pethia
(Pavas.Pethia@MotilalOswal.com); +9122 39825413

Godawari Power & Ispat
Net sales up 30% QoQ, EBITDA up 2x, driven by strong production and prices
Net sales grew 30% QoQ to INR5.5b, driven by higher steel and pellet sales volumes
and realization.
For billets, realization improved 5% QoQ to INR33,731/ton, while for sponge iron,
realization improved 9% QoQ to INR23,441/ton.
Its 600ktpa pellet plant continues to operate at over 100% capacity utilization,
with output of 168k tons in 4QFY12. Pellet realization increased 11% QoQ to
INR9,955/ton. Subsidiary, Ardent Steel’s 600ktpa pellet plant produced 95k tons
(up 35% QoQ) in 4QFY12.
Sponge iron production increased 24% QoQ to 95k tons while billet production
increased 14% QoQ to 57k tons on improved availability of captive iron ore.
Standalone EBITDA increased 2x QoQ to INR814m on higher volumes and realization
across product portfolio. Steel division EBIT declined 87% QoQ to INR623m.
Power generation increased 6% QoQ to 103MU. Average realization decreased
13% QoQ to INR2.6/kwh.
Renewable purchase obligation (RPO) has been made effective in Chhattisgarh
from 1 April 2012. GODPI has registered its 20MW biomass power plant for
renewable energy certificate (REC).
Sponge iron sales increased 41% QoQ to 39k tons
Iron ore production increased 7x to return to normal levels
Source: Company/MOSL
23 May 2012
2

Godawari Power & Ispat
Consolidated earnings to grow at a CAGR of 18% over FY12-14; Buy
Subsidiaries contributed INR53m to FY12 consolidated PAT.
We expect pellet prices to remain strong due to shortage of DRI grade iron ore in
India. Ardent Steel’s pellet production is likely to increase 50% in FY13. Volume
growth and operating leverage will drive earnings growth.
We expect consolidated earnings to grow at a CAGR of 18% over FY12-14. The
stock is trading at 3.3x FY13E EPS, 0.5x FY13E BV, and at an EV of 4.7x FY13E EBITDA.
Valuations are attractive. Maintain
Buy.
23 May 2012
3

Godawari Power & Ispat
Godawari Power & Ispat: an investment profile
Company description
Godawari Power and Ispat (GODPI) is a mid-sized
integrated player that produces steel through the sponge
iron route and generates captive power (from waste
gases produced at its kilns) to feed its induction furnaces.
GODPI’s product slate includes sponge iron, steel billets,
steel wires, wire rods and ferroalloys, and it has been
allotted coal and iron ore mines, as well. It has doubled
its sponge iron capacity to 495,000tpa and steel billet
capacity to 400,000tpa. GODPI has a 53MW CPP, with an
additional 20MW biomass-based power plant.
Recent developments
GODPI has declared INR2.5/share dividend for FY12.
Will issue 5m warrants to the promoters at INR130/
share, leading to a dilution of 15.7%.
Valuation and view
The stock is trading at 3.3x FY13E EPS, 0.5x FY13E BV,
and at an EV of 4.7x FY13E EBITDA. Valuations are
attractive. Maintain
Buy.
Sector view
Steel prices improved in 4QFY12 after declining in
3QFY12. Prices were 11%, 11%, 7% and 6% higher in
4QFY12 than their 3QFY12 lows for Russia, Europe,
North America and China, respectively. However,
prices have started to correct on declining raw
material prices and subdued demand. Prices of key
inputs such as coking coal and iron ore have eased in
the past few months and are expected to correct
further.
Domestic steel prices also showed QoQ
improvement in 4QFY12, as large producers
benefitted at the cost of secondary producers.
Increased regulatory vigil has resulted in scarcity of
iron ore for secondary producers. However, with
decreasing raw material prices, subdued demand
and commissioning of new capacities, we expect
domestic steel prices to correct in FY13.
EPS: MOSL forecast v/s consensus (INR)
MOSL
Consensus
Forecast
Forecast
FY13
33.9
23.7
FY14
37.0
29.7
Target price and recommendation
Current
Target*
Price (INR)
Price (INR)
112
210
Variation
(%)
42.9
24.7
Key investment arguments
Self sufficiency in iron ore, sale of surplus pellets
and recovery of sponge iron prices will expand
margins of the steel segment. GODPI’s 0.6mtpa pellet
plant is operating at 100% capacity, allowing it to
benefit from strong pellet realization.
A 0.6mtpa pellet unit in a 75% subsidiary (Ardent
Steel) was commissioned in 1HFY11. This plant,
located in Barbil, will add growth to consolidated
earnings over the next few years.
Key investment risks
Earnings are highly leveraged to sponge iron and
steel prices.
Comparative valuations
Godawari
Power
3.3
3.0
0.5
0.4
0.5
0.6
4.7
5.1
Sarda
Energy
3.5
4.2
0.4
0.4
0.9
0.7
5.4
3.9
Prakash
Ind.
2.1
1.8
0.3
0.2
0.4
0.5
2.4
2.5
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
Upside
(%)
87.6
Reco.
Buy
Basis:4XEV/EBITDA (+80% project capex, CWIP)
Stock performance (1 year)
Shareholding pattern (%)
Mar-12
Promoter
Domestic Inst
Foreign
Others
23 May 2012
63.8
6.8
1.3
28.2
Dec-11
63.7
7.6
1.6
27.1
Mar-11
63.7
5.3
5.7
25.3
4

Godawari Power & Ispat
Financials and Valuation
23 May 2012
5

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Godawari Power & Ispat
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