Godawari Power & Ispat Ltd - 188.00 Rs
Incorporated in 1999, Godawari Power & Ispat Ltd (GPIL) a flagship company of Raipur-based Hira Group of Industries, is an integrated steel manufacture having dominant presence in the long products segment, mainly mild steel wire. In the process, company manufactures sponge iron, billets, ferro alloys, captive power, wires rods and steel wires. Over the last few years, it has not only scaled up its capacity five-fold but has also got itself backward as well as forward integrated to emerge as an end-to-end manufacturer of mild steel wires. Today, GPIL boast of being the third largest producer of coal based sponge iron in India and is one of the largest players in the mild steel wires segment. Remarkably, company has also been awarded rights for iron ore and coal mining for captive consumption, as a result of which, it has managed to traverse the entire value chain (i.e. raw material to final product) and is now a fully integrated manufacturer.
GPIL’s manufacturing facilities are located in Siltara industrial estate, near Raipur in Chattisgarh. It produces steel via the sponge iron route and generates captive power from waste gases produced at the kilns to feed its induction furnaces for making billets. Post the completion of its Phase-II expansion in Sept 2007, company is currently having an installed capacity of 495,000 TPA for sponge iron, 400,000 TPA for steel billets, 150,000 TPA for HB wires along with 53 MW of captive power plant. Besidies it also has two subsidiaries, RR Ispat and Hira steel which are also engaged in manufacturing of wire rods and HB wire. Currently, GPIL generates power only for captive consumption - of the installed capacity of 53 MW, it uses the waste gas from its sponge iron plant as feedstock to generate 42 MW and the rest is generated from coal rejects. Because of this, company will earn nearly 150,000 to 175,000 carbon emission receipts (CER) under the clean development mechanism (CDM) project.
Significantly, in 2005 GPIL was awarded two iron ore mines in Chattisgarh, one at Boria Tibu (reserve of approx 8 mn tonne) and another one in Ari Dongri (reserve of approx 7 mn tonne), both about 150km away from the existing plant. But only last week company got the in-principle approval from the forest department for mining iron ore from 107 hectare land at Ari Dongri in Chhattisgarh. For the other mine forest approval is still waited. In addition, company has also been allotted prospective license for iron ore mines over 754 hectares land at Dhalli Rajhara in Durg District of Chhattisgarh during Jan 2008. Besides, GPIL has also been allotted captive coal blocks of Nakia I and II in Madanpur, Chhattisgarh by the Ministry of Coal in consortium with 4 other partners. Its share is worth 63mn tons in the total reserves of 243mn tons. The mining activities are under progress and company is estimated to start getting the benefit not before FY10. So accordingly, GPIL is executing backward integration plan under a capex of Rs 235 cr which includes setting up of 0.6 mtpa iron ore Pelletization plant, 0.1 mtpa iron ore Beneficiation plant, 1.2mtpa iron ore Crushing plant etc. In addition, it has acquired 75% stake in Ardent Steel Ltd, which is a newly formed company and is under the process of setting up 0.6mtpa pelletization plant in Orissa. All this projects are slated to complete in the calendar year 2010.
Meanwhile, GPIL reported spectacular result for the March qtr and ended FY08 on quite a buoyant note. Sales and NP both increased by more than 80% to Rs 829 cr and Rs 95 cr respectively thereby posting an EPS of Rs 34 on current equity of Rs 28 cr. As the Phase II expansion got completed during Q3FY08, the full benefit of it will be visible in FY09. Accordingly it is estimated to operate at 70~80% capacity utilization and produce 350,000 tonne of sponge iron and 275,000 tonne of steel billets. On the back of higher sponge iron prices and better profit margin GPIL t is expected to clock a turnover of Rs 1200 cr and PAT of Rs 125 cr i.e. EPS of Rs 45 on current equity for FY09. Investor are advised to accumulate at declines for a price target of Rs 300 in 12~15 months.
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