We expect GPIL to benefit from earnings CAGR of 50% over FY10-FY12 on volume growth and margin expansion driven by the recently commissioned Ari Dongri mine, 0.6mntpa pellet plant, and 20MW biomass power plant. We expect the 0.6mntpa pellet plant of 75% subsidiary Ardent Steel to provide additional earnings growth (not factored in our estimates).

What will move the stock?
1) Stabilization of the newly commissioned 20MW biomass power plant would ensure further power availability for captive use; sale of surplus power to be revenue accretive. 2) Higher output from Ari Dongri iron ore mine and 0.6mntpa pellet plant to help in revenue growth and margin expansion. 3) Contribution from subsidiary Ardent Steel to consolidated earnings expected from Q3FY11 onward (not included in our earnings and TP estimates). 4) Boria Tibu mines, impacted by delay in handover of forest area, are now expected to commence mining from Q1FY12.

Where are we stacked versus consensus? Our earnings estimates are below consensus estimates, mainly because we have not included Ardent Steel in our estimates.

What will challenge our target price?
1) Impediments in ramping up of output from pellet plant (own as well in Ardent Steel), 20MW power plant;
2) Continued delay in acquiring forest land in the Boria Tibu mine, and 3) Simultaneous decline in steel prices and power tariff.