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Stock Ideas Multi Bagger Stock Ideas Gujarat Industries Power(GUJIP)
Stock Ideas Multi Bagger Stock Ideas Gujarat Industries Power(GUJIP) 
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By Chris Johnson We've commented on the softness in the semiconductor sector, which has been headed south while the rest of the market has rallied. With seasonal electronic sales about to get a boost from the holiday shopping season, it's strange to see the semiconductor group in its current weakened state. |
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| Gujarat Industries Power(GUJIP) |
| Friday, 07 September 2007 | ||||||||
Company BackgroundGujarat Industries Power Co Ltd (GIPCL) was promoted by Gujarat Urja Vikas Nigam Ltd (GUVNL - erstwhile Gujarat Electricity Board), Gujarat State Fertilizers and Chemicals Ltd (GSFC), Gujarat Alkalies and Chemicals Ltd (GACL) and Petrofils Cooperatives Ltd.It commissioned its first power project, a 145-MW gas-based combined cycle power plant, in February 1992 at Vadodara. Power from this plant is distributed to its promoters in proportion to their original equity holding. The company expanded its capacity and commissioned a 160-MW naphtha and gas-based combined cycle power plant in November 1997 as an independent power producer (IPP) with a power purchase agreement (PPA) with GUVNL. Later, it commissioned a 250-MW lignite-based power plant in Surat. The company is implementing a 2x125-MW expansion project, including the development of a captive mine, that would increase the generating capacity of its lignite-based plants to 500 MW. Investment RationaleState government initiatives a boon The recent initiatives by the Gujarat state government provide a better platform for state-run enterprises and in particular the panchratnas, which include GIPCL. The initiatives include reforms in the power sector, restructuring the Gujarat Electricity Board, near completion of the Sardar Sarovar project, provision of cheaper fuel and developing infrastructure for facilitating domestic trade, import, export and logistics Expansion to drive future growth The company is setting up a lignite-based power plant. It has already awarded the engineering, procurement and construction (EPC) contract for its 2x125 MW expansion project at Surat to Bhel for Rs 1,199.5 crore (excluding cost of spares, lignite shed, service tax and works contract tax). It is expected that unit-3 will start commercial operation by November 2008 and unit-4 will start commercial operation from March 2009. The company already has long-term and guaranteed power off-take Customers tied-up The company operates power plants with a total installed capacity of 555 MW. Electricity produced from the lignite-based power plant at Surat with an installed capacity of 250 MW is supplied to GEB under a power purchase agreement (PPA). The company has two other power plants in Baroda Station I and Station II with installed capacities of 145 MW and 160 MW respectively. The gas based Baroda Station I plant supply 28% of the electricity generated to its promoters and the rest to GEB. Meanwhile, the gas and naphtha-based Baroda Station II plant supplies to the GEB through a PPA. With customers already tied up, the company does not have to look for buyers and can focus more on enhancing efficiency. More expansions in offing The company's board has considered a proposal to set-up a 500-MW lignite-based plant with the option of increasing it by 20% at Surat. The techno-economic feasibility report and detailed project report for the proposed expansion project will be taken up soon. Risks & Concerns
FinancialsThe company has displayed stability in its financial performance. Revenue grew from Rs 744.67 crore in FY05 to Rs 795.58 crore in FY07.
Net profit during the same period increased from Rs 103.67 crore to Rs 182.92 crore on account of higher other income and improvement in interest cost. Interest cost has declined significantly due to debt restructuring. The company's debt-equity ratio came down from 1.96 in FY05 to 0.57 in FY07 on positive cash flows. ValuationsAt the current price of Rs 76.50, the stock discounts its FY07 EPS of Rs 11.8 by 6.48x. On an EV/EBITDA basis, it is trading at 3.85x FY07 earnings. A peer like Neyveli Lignite is trading at a P/E multiple of 26x. We rate the stock an outperformer with a 3-6 month price target price of Rs 92, an upside of 20%.Source:ICICI Direct
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