Thread by @alphaspotcap

Godavari Power & Ispat Ltd Analysis!

A Detailed Thread🇮🇳🧵⬇️
#investing #StocksInFocus

(1/21)

About:

Godawari Power & Ispat Limited is
an integrated steel company with a
presence across the steel value chain extending from iron ore (two mines) to iron ore pellets and value-added steel
products.

(2/21)

Plants and Mines:

Plants
• Integrated Steel Plant, Siltara,
• Urla industrial Area, Chhattisgarh
• Bio-mass, Mahasamund
• Windmill, Kundur
• Pelletisation plant, Odisha

Mines
• Ari Dongri iron ore captive mine
&
• Boria Tibu iron ore captive mine in
Chhattisgarh

(3/21)

Products:

• Pellets: Used in the production
of steel and alloys. Has gained
growing traction owing to
growing demand of high-grade
iron content which is scarce
globally.

• Sponge iron: Represents
a critical input for the steel
industry as an energy-efficient
feedstock

(4/21)

• Iron and steel billets:
Processed iron or steel with a
square cross section, formed
after hot rolling with high
ductility

• Wire rods: Intermediate inputs
for steel plants as well as for
industries like construction and
infrastructure

(5/21)

• Hard black wires: Made
from rolled steel through
wire drawing; serve as raw
material for construction and
infrastructure

• Ferro alloys: Production of
silico manganese is used in
steel production

(6/21)

Understanding The Group Structure:

(7/21)

Greenfield Expansion Project:

The company proposed to set up
1.5-million-ton green field steel plant in Chhattisgarh, but the land acquisition and the environmental approval both got delayed.

However the company will do the capex of ₹500cr in this FY.

(8/21)

• The New Industrial Policy Regime:

The New Industrial policy opened up the Indian iron and steel
industry for private investment by-

(a) removing it from the list
of industries reserved for public sector
(b) exempting it from compulsory licensing

(9/21)

Demand Drivers for Steel in India:

1. Infra Projects under Gati Shakti:
• Bharatmala
• Railways Expansion (DFC)
• Sagarmala
• UDAN

2. Govt initiatives like:

PMAY, Make In India, PMUY, PMKSY, Smart city development, AMRUT & Clean Ganga Mission

(10/21)

Key Strengths:

• Significant Deleveraging:

The company’s debt has reduced drastically from ₹1856cr 3 years back to ₹429cr now.

GPIL is now Net Debt Free. Short term borrowings are not included in calculation of Net Debt.

(11/21)

• Backward/Forward Integration:

GPIL's standalone operations, which are based in Chhattisgarh, are backward integrated.

GPIL is working towards increasing its mining capacity to 3MnT from the current 2.1MnT.

continued:

(12/21)

GPIL benefits from partial forward integration, with its product mix consisting of sponge iron, billets, thermo mechanically treated bars, pre-fabricated structures, wire rods, hard bright wires, and so on.

Backward/forward integration improves GPIL’s EBITDA Margins.

(13/21)

Weakness:

Cyclicality:

The company is exposed to fluctuations in the prices of raw materials, thermal coal, exchange rate risk and volatility in finished good prices, which can impact the stability of operating margins.

As is visible in its Q2FY23 numbers.

(14/21)

Q2 Performance:

• Revenue increased to ₹1,307Cr, up 3% YoY

• EBITDA down to ₹231Cr vs ₹436cr YoY because of lower
realisations

• PAT for Q2 is ₹169Cr vs ₹292cr YoY

• EPS for the quarter is ₹13 per share vs ₹21 per share

(15/21)

Reason for lower Realisation:

• Largely on account of Fall in pellet realisation, which has gone down by almost ₹3500 a ton. This has led to a profitability loss of ₹200cr QoQ. Which is clearly reflected on the overal profitability of the company.

(16/21)

Lower Realisation was due to:

1. Government levied export duty on pellets from nil to 45% and steel from 0 to 15% in May 2022

Pellet prices decreased from
₹14,000/ton in April’22 to ₹8,000/ton now

2. Reduction in the international selling price of iron ore

(17/21)

Withdrawal Of Export Duty- Big positive for GPIL.

Now exports of Iron Pellet will attract Zero Export duty.

(18/21)

Ratios and Numbers:

• Market Cap: ₹4,393cr
• Stock P/E: 3.92
• 3 Year RoCE: 36.2%
• 3 Year RoE: 38.8%
• PEG: 0.05
• Sales 3 Year CAGR: 17.9%
• D/E: 0.12
• NPM Last Year: 25.8%
• Interest Coverage: 125

(19/21)

Update on Guidance given by the Management:

Source: Investors Presentation

(20/21)

Status of Production, Sales and Overall Realisation Volume in Q2FY23

Source: Investor Presentation

(21/21)

The company needs a stable tax policy from the govt in order to have a rather smooth numbers. Also volatility in RM prices and overall cold international market paints a dull picture for the near term for the company.

@caniravkaria @kuttrapali26 @chartmojo