Stock market Result Update on GIPCL for 1QFY2012

Stock market Result Update on GIPCL for 1QFY2012 with a Buy recommendation and a Target Price of `96 (12 months).

GIPCL’s 1QFY2012 top line rose by 35.7% yoy to `343cr, aided by higher capacity. The 250MW SLPP station-II, which was in trial stages during 1QFY2011, was commercially operational during 1QFY2012. The company’s operating margin rose substantially by 1,246bp yoy to 37.8% on account of healthy availability factor in all the plants enabling full recovery of fixed costs along with incentives; and higher generation of lignite-based power. Despite the huge 102.4% increase in operating profit, the bottom line rose only marginally by 2.8% yoy to `43cr due to higher interest (`32cr vs. `4cr in 1QFY2011) and depreciation (`41cr vs. `21cr in 1QFY2011) costs. We maintain Buy on the stock.

OPM at 37.8%, up 1,246bp yoy: GIPCL’s plants including the newly commissioned Surat Lignite Power Plant (SLPP) station II had healthy plant availability factor (PAF). Vadodara stations I and II had PAF of 100% and 90.8%, respectively. SLPP I and II stations operated at PAFs of 90.1% and 78.4%, higher than normative PAF of 75%. However, PLFs were low at 58.9% and 60.2% at Vadodara I and II, respectively. PLFs in SLPP I and II stations were better at 75.8% and 71.6%, respectively. High availability factor coupled with higher generation of lignite-based power resulted in margin expansion of 1,246bp yoy to 37.8% during the quarter.

Outlook and valuation: Going ahead, we expect GIPCL to report steady performance on the profitability front due to the stabilisation of 250MW SLPP station II. However, the second quarter is a seasonally weak quarter on account of monsoons, resulting in low demand and maintenance activities planned by the company. At the CMP of `83, the stock is trading at 0.8x FY2013 P/BV. We have assigned a P/BV of 0.9x on FY2013 book value to arrive at a target price of `96. We maintain our Buy rating on the stock.