this is a bit different. The vast majoirty of coal mined in India is lignite and other poorer forms of coal suitable for power generation but not steel making. And Coal India has taken 3 years to go from 450M to 700MT of mined coal. Target is 1000MT. Till Coal India and private players get going(last year they got licenses) AND they increase coal plants, this bottleneck is going to be there
6 Likes
Iron ore consumption of a country is highly linked to GDP per capita, and as there is inflection point here- once GDP per capita crosses a certain level, steel consumption will just go up at a pretty fast rate.
While- you can build new steel plants with money- you canât build new iron ore mines just like that.
Iron ore is a limited resource like crude.
We import majority of crude.
They key point is- international iron ore prices are more than double of Indian prices if you add logistic costs.
Once our iron ore supply falls short of increasing demand by steel industry, the domestic prices will just take off.
Will take a few years. Rome wasnât built in an year!
One can compare EV/EBITDA of GPIL with other companies selling pellets/iron ore- Jindal Saw, Lloyd metals, Sandur manganese. Other companies have much higher valuations, and much lower growth and donât have this much cash too!
Jindal Saw EV is 11000 crore, annual EBITDA is 1700 cr. EV/EBITDA of 6.7, which is normal for a commodity company. Jindal saw has lot of debt too.
Lloyd metal EV is 15000 crore, EBITDA is 800 cr, EV/EBITDA is 19- as it is priced in for increase in mining capacity.
Since GPIL is doubling capacity, EV/EBITDA of 10 will give it a valuation of 15000 crore. (EBITDA should be 1500 cr per yr without steel duty impact, sponge iron issue impact)
13 Likes
Results are subdued this year due to
- steel export duty impact in Q2 and Q3- once in 10 yrs kind of event.
- Sponge iron capacity got over in Q4- primarily only pellets sold in Q4, also there was an incident at the mine.
3 Likes
Sponge iron capacity got over early in FY22 Q4 too - so a lot of pellets were sold in Q4 FY22 vs Q1-Q3 FY22, but it was before export levy and pellets were a lot more profitable. Once the investor ppt is available maybe the extent of incident in Q4 will be clear w.r.t iron ore mining and pellet production.
There was a news release later that the mining incident wouldnât affect Q1 output, but selling prices are a bit down now vs Q4 and may be more subdued in late Q1 and most of Q2 with monsoon season.
2 Likes
One should look at total annual EBITDA and not quarterly EBITDA.
If steel export duty had not happened, annual EBITDA would have been 1500 cr.
once they double pellet capacity in 2.5 yrs, annual EBITDA should reach 2500 cr at current iron ore price.
If iron ore prices are up by 30% in 3 yrs, the annual EBITDA would be 3500-4000 crores.
How many listed cos in India, have annual EBITDA of more than 2000 crores and zero debt?
4 Likes
Only 23 listed companies in India out of 8000 listed companies come under this criteria on screener-
1. EBIDT last year > 2000 crores AND
2. Debt < 500 crores
GPIL will join this top 25 companies list in whole Indiaâs listed market in another 2-3 years!
23 Likes
@Kumar_manas
Your insights & deep understanding of the mining sector have been of great help!
Can you shed some light on other Co.'s that own mines & which amongst them stand to benefit the most?
2 Likes
GPIL is a very unique company in this regards. Another co- Lloyd with iron ore mines and similar profit as GPIL is near 15000 cr mkt cap.
6 Likes
@Kumar_manas
What could possibly be the reason for such low valuations being given to Godawari Power? Itâs not that the market is unaware of its numbers or the fact that unlike many other steel co.'s, Godawari owns mines that is indeed a scarce resource. Why does the market treat Lloyd steel differently? Any insights would be very useful. Thanks
3 Likes
Time time kee baat hai sir.
There was a time, when GPIL was at 500 cr mkt cap. This year, it did buyback of 250 crores.
There was a time when shree cements was less than 10 PE, today it is at 30-40 PE.
Markets are not perfect that each stock will trade at fair valuations.
If it was so, how will investors make big alpha?
shree cements annual EBITDA is 3000 cr with 1 lakh cr mkt cap.
15 Likes
Based on the concall, we are currently running at 100% capacity and additional volumes will come only post capex which will get completed next year. So I believe market is discounting the stock currently due to lack of immediate tailwinds and volume growth.
8 Likes
no, as capacity will double in a couple of yrs or so. EBIDA will reach 2500-3000 crs.
How is mkt discounting that in price?
2 Likes
As you said for GPIL capacity will double in a year or so whereas at the moment there are better opportunities available in the likes of Shyam metallics which will have strong volume growth going forward as the capex has already been capitalised. I personally believe for FY24, Shyam metallics is better placed than GPIL. Things will change in FY25 for GPIL but price reacts on near term triggers.
7 Likes
shyam is also cheap, and comparison only to shyam is not right.
One should compare with 20-30 other companies in steel/metal/mining sector and see the ratios here vs in others.
Beg to differ with comparison with Shyam etal others. Comparison should be Apple to Apple and not Apple to Oranges or Apple to pumpkin. GPIL should be compared to iron ore companies only at present. So likes of Sarda, NMDC, Loyd etc should do. While comparing, lease period is of vital importance, which for GPIL is upto 2055. I personally feel it is grossly undervalued at present. Steel sector experts like Rakesh Aroraji are best to opine on sector valuation.
1 Like
This is free markets. Investors are free to compare with any company.
GPIL is not at all comparable with NMDC btw, because NMDC is a PSU with very very poor track record of capital allocation and very poor corporate governance for minority shareholders.
GPIL is also not comparable with asset heavy companies like Tata Steel or JSW because GPIL is a very asset light business with very low depreciation and very high free cash flows
11 Likes
Valuations are changing now, albeit slowly! Still a long way to go.
1 Like
Indeed, and with a bit of vengeance!!
Perhaps a few big investors have been reading this chat!!!
8 Likes
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Intel Details
India: GPIL launches new grade of pellets for sale
Pellets
20 Jun 2023, 15:35 IST
Godawari Power and Ispat Ltd (GPIL) has launched a new grade of pellets comprising iron (min 66%), alumina (max 1.1%), silica (max 3.25%), phosphorous (0.02-0.025%), and sulphur (max 0.01%) at a price of INR 11,200/t exw-Raipur. Currently, the company is holding back sales of Fe63% pellets while other players are offering at INR 8,900-9,200/t exw. GPILâs pellet production stood at 2.62 mnt in FY23, up 9% y-o-y.
20 Jun 2023, 15:35 IST
https://www.steelmint.com/intel/india-gpil-launches-new-grade-of-pellets-for-sale-23893
This might be the latest trigger for GPIL
9 Likes
This is very big news. Huge increase in EBITDA possible due to this.
However, last 1 month- Sarda energy is up 25%, GPIL is up 32%, shyam metalliks is up 20%- the cheap stocks in this sector- all up 20-30%.
So, I totally disagree that last 1 month move has got anything to do with this news.
8 Likes