Buy Godawari Power With Traget Of Rs 276

Buy Godawari Power With Traget Of Rs 276PINC Research has maintained buy rating on Godawari Power & Ispat Ltd (GPIL) with a price target of Rs 276 in its report dated Dec 15, 2010.

As per estimations, GPIL would record earnings CAGR of 50% over FY10-12 on volume growth and margin expansion, driven by the recently-commissioned Ari Dongri mine, 0.6mtpa pellet plant, and 20MW biomass power plant. The 0.6mtpa pellet plant of Ardent Steel (75%-owned subsidiary) is expected to provide additional earnings growth, but this is not factored into our estimates.

What will move the stock?

1) Stabilisation of the newly-commissioned 20MW biomass power plant.
2) Improved utilisation of the 0.6mtpa pellet plant and captive usage for DRI production to improve DRI output and profitability.
3) Contribution from Ardent Steel to consolidated earnings is expected from Q3FY11 onwards (not included in our valuations).
4) Boria Tibu mine, which was affected by delay in handover of forest area, is now expected to commence from Q1FY12. 5) Steel profitability expected to improve in seasonally strongest Q4.

What will challenge the target price?

1) Obstacles in ramping up of output from the pellet plant (own as well as Ardent Steel's) and the 20MW power plant;
2) Continued delay in acquiring forest land in the Boria Tibu mine;
3) Simultaneous decline in steel prices and power tariff.