During Friday’s trading session, the shares of a dominant player in the iron & steel industry surged nearly 0.5 percent to hit an intraday high at Rs. 236.95 on BSE.
Stock Performance:
With a market cap of Rs. 15,610.5 crores, the shares of Godawari Power & Ispat Limited (GPIL) closed in the red at Rs. 233.35, down by nearly 1 percent, as against its previous closing price of Rs. 235.85.
The stock has delivered positive returns of nearly 69 percent in one year, as well as around 10 percent returns in the last six months. So far in 2024, the shares of Godawari Power have given positive returns of about 50.7 percent.
Market Outlook:
Global iron ore prices have experienced fluctuations, initially dropping below $90, rising to $115 driven by China’s stimulus measures, and now settling back below $100. In the domestic market, iron ore prices remain supported by auction prices and reduced supply from merchants.
Steel demand in India is expected to grow robustly, with an 8 percent increase projected for FY24 and a 5 percent rise anticipated in the calendar year 2025.
Recent Development:
In November, GPIL entered into a definitive agreement to acquire up to 51 percent stake in Jammu Pigments Limited (JPL) at a post-money valuation of ~Rs. 500 crores. With this acquisition of the recycling business, the company entered the non-ferrous segment.
GPIL completed the acquisition of a 49 percent stake in JPL on a fully diluted basis and the balance is to be acquired in compliance with certain conditions. JPL is a non-ferrous metals recycling company that has plants spread across Kathua (J&K) and Kota (Rajasthan).
Capex Plans & Solar Power Initiatives:
The company has outlined an ambitious capex plan to nearly double its iron ore mining and pellet production capacities, alongside developing an integrated steel plant with 4x its current capacity. Approval for increasing iron ore mining capacity from 2.35 million tons to 6 MnT has been delayed and is now expected by Q4 FY25.
By FY25, the company expects to increase its production capabilities significantly, with plans to increase iron ore pellet capacity to 2.44 MnT, sponge iron capacity to 0.594 MnT, steel billets capacity to 0.5 MnT, ferro alloys capacity to 80,000 tons, and rolled products capacity to 0.325 MnT.
Further, the project to expand pellet capacity from 2.7 MnT to 4.7 MnT is going on as per schedule and is expected to be commissioned by Q1 FY26, with a total estimated project cost of ~Rs. 600 crores.
On the solar power front, the company has commissioned a 165 MW solar power plant, which is now operational. Additionally, land acquisition is underway for a proposed 70 MW solar power plant to support the additional capacity of the 2 MnT pellet plant. This project is expected to be completed by Q2 FY26, with an estimated total capex of ~Rs. 250 crores.
Management Outlook:
The company’s captive iron ore mines, with reserves of 165 MnT and a mine life exceeding 35 years, currently have a capacity of 3.05 MnT, which is expected to increase to 6.7 MnT by FY25.
GPIL is expected to more than double the capacities across key segments, with iron ore mining reaching 6.7 MnT, pellet production expanding to 4.7 MnT, and the integrated steel plant growing to 2.5 MnT. Annual maintenance shutdown of pellet plants impacted production and margins.
Operationally, the annual maintenance shutdown of pellet plants and heavy rains have impacted production and margins. However, management remains optimistic about recovering iron ore mining and pellet production in the second half of FY25.
A strong cash flow position and strategic capex plans provide a solid foundation for future growth. Additionally, the company anticipates improved margins and operational efficiencies driven by its solar power initiatives.
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Financials:
Godawari Power reported a marginal decline in revenue from operations, experiencing a year-on-year fall of nearly 2 percent, from Rs. 1,291 crores in Q2 FY24 to Rs. 1,268 crores in Q2 FY25.
Similarly, its net profit decreased during the same period from Rs. 257 crores to Rs. 159 crores, representing a decline of nearly 38 percent YoY.
The fall in Revenue & Profitability was due to lower production volumes of Iron Ore Pellets and a fall in sales realisation of finished products like sponge iron, billets etc, despite higher volumes of finished products. The profitability was also impacted by an increase in other operating costs for maintenance of the Pellet plant.
EBITDA for Q2 FY25 decreased by about 32 percent YoY to Rs. 247 crores, down from Rs. 361 crores in Q2 FY24, while the EBITDA margins fell to 19 percent, from 28 percent, over the same period.
Key Financial Ratios:
In terms of key financial metrics, Godawari Power currently has a Return on Equity (RoE) of 21.9 percent and a return on capital employed (RoCE) of 29.2 percent.
Additionally, the stock has a P/E ratio of 17.4, compared to the industry’s P/E ratio of 20.8, while the company’s debt-to-equity ratio stands at 0.01.
Shareholding Pattern:
As per the September 2024 shareholding pattern, the Promoters hold a 63.49 percent stake in the company, Foreign Institutional Investors (FII) hold a 7.39 percent stake, while Retail Investors and Domestic Institutional Investors (DII) hold a 27.54 percent and 1.56 percent stake in Godawari Power, respectively.
About the company:
Incorporated in 1999, Godawari Power & Ispat Limited (GPIL) is mainly engaged in the business of mining of iron ore and manufacturing of iron ore pellets, sponge iron, steel billets, wire rods, HB wire, ferro alloys and galvanized fabricated products. Captive Iron Ore Mines and manufacturing plants are strategically located in Chhattisgarh.
Written by Shivani Singh
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