Wednesday, November 11, 2009

[Investors Please Listen] Gujarat Industries Power Initiating Coverage ; ROE to double; Grab it! ; BUY ; Target: Rs 135


With the commissioning of Surat-II (project level ROE of 27%) in Q4FY10E, GIPCL's capacity will increase from 555MW to 805MW, thereby converting its capital WIP into regulated equity. Consequently, we expect its net profit to double to Rs1.9bn in FY11E and ROE to jump from 7% to 15%.

Change in the heat rate norms of the Vadodara-II plant (160MW) is also likely to aid GIPCL's ROE.

With the ROEs (15%) comparable to the best and valuations (1.2xFY11E Book Value) cheaper than the rest; GIPCL is a compelling value proposition. BUY, with a target price of Rs135/Share (1.5xP/BV).

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