Funny to see the panic on this esteemed forum.
Let us breakdown GPIL-
- 20% profits are from ferro-alloys (25% if you include the new solar power plant here)
- so 25% profits have zero impact
- around 10% or so profits from billets- as far as I understand, billets are not impacted from this duty thing.
- 65% of profits are impacted in the short term for next 6 months only.
65% of profits from pellets may come down by 30%
Net impact on profits for next 6 months- 20% fall in profits.
Why 6 months?
Because duty has not been imposed on billets and many other steel products.
GPIL can build or buy a billet plant or any other plant, that converts pellets into a product on which duty is not imposed.
GPIL mining license is a 20 years call option on steel prices in India.
Duties will come and go. Govts will come and go. Many small steel companies and small pellet plants may become bankrupt and may shut down because of reduced exports.
But, cash rich GPIL would not be impacted in the long run.
Is stock value based on next 6 months profits or next 10 year profits?
Let us say, next 6 months profits.
How much will the profit fall- by 20%, as detailed above.
Let us take the most pessimistic view and say, pellet profits will fall by 40%, and net profits will fall by 30%.
Most pessimistic view gives annualised EPS of 70-75 from current 100-110 annual EPS.
7 price earning ratio for 70 annual EPS gives Rs. 490 share price. (remember GPIL is now cash rich, debt free, so it deserves 7 pe in a downcycle atleast)
Also, is the EPS of 2030 impacted by these duties put 3 days ago?
Yes, EPS in 2030 should be higher due to these duties (higher than EPS without the duties)- if anyone can explain the reasoning, it would be good for the forum!