Godawari - 3QFY09 Result significantly below estimates; HOLD; Target: Rs55

Godawari Power & Ispat

 

3QFY09 Result significantly below estimates

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HOLD

 

CMP: Rs49                             Target Price: Rs55

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Godawari Power and Ispat Ltd. (GPIL) reported 3QFY09 results, which were significantly below our estimates. Net sales stood at Rs2,117mn (yoy down 2.6%, qoq down 36.2%). There was loss at EBITDA level of Rs36mn and net loss of Rs174mn. During the quarter, there was MTM forex loss of Rs72mn. In 3QFY09, there was inventory write down of Rs310mn. During the quarter, the billets production declined by 90% on yoy and sequential basis and there was no production of ferro alloys. The production declined as the management has reduced billets and ferro alloys production due to economic unviability and will maintain production at a very low level for next few quarters  due to very low demand in the market. However, this will enable the company to increase sale of power where it is fetching better realization. In 3QFY09, the avaerage realization of power was Rs7.50/unit. GPIL's backward integration plan is progressing as per schedule. The 0.6mtpa pelletization plant is expected to be operational by Jun '09. GPIL expects the Ari Dongri iron ore mine, having reserves of around 7mt, to be operational by 1QFY10 (delay of 4-5 months). At the CMP of Rs49, the stock is trading at 2.5x FY09E FDEPS of Rs19.4 and at 1.8x FY10E FDEPS of Rs26.8. On EV/EBITDA basis, the stock is currently trading at 3.7x FY09E EV/EBITDA and at 2.6x FY10E EV/EBITDA; while on P/BV basis the stock is trading at 0.29x FY09E book value and at 0.26x FY10E book value. We downgrade the stock from BUY to HOLD with revised target price of Rs55.