- Company proposes to be debt free in the current financial year.
Annual interest payment by the Company for last 6 years are:
2015 Rs 224 Cr
2016 Rs 252 Cr
2017 Rs 259 Cr
2018 Rs 263 Cr
2019 Rs 253 Cr
2020 Rs 212 Cr
Total interest paid during last 6 years : 1463 Cr
Consolidated Debt outstanding:
31.03.2017 Rs 2,214 Cr
31.03.2018 Rs 2,124 Cr
31.03.2019 Rs 1,856 Cr
31.03.2020 Rs 1,697 Cr
30.09.2021 Rs 280 Cr (Standalone GPIL debt Nil, Rs 280 Cr in subsidiary)
Apart from interest paid during last 6 years for Rs 1463 Cr , on the principal side Company would have paid debt of around Rs 1900 Cr (excluding Rs 300 Cr in subsidiary) by 30.09.2021 i.e total financial liabilities paid (Principal + interest) by the Company in last 5 to 6 years is in excess of Rs 3300 Cr.
The Company will have huge savings due to non payment of interest.
Additional EPS once the Company goes debt free is around Rs 50âŚ
- Once the Company is debt free the pledged shares will also be released which will also be very much positive for the Company as then it would come in the investment category of many investors in screener who search for Company without any pledge.
Average EBIDTA for the last 4 years i.e 2016-17, 2017-18,2019-20 & 2020-21 is around Rs 775 Cr and lowest is Rs 600 Cr.
We can easily give EV/EBIDTA of 5 for a debt free Company.
So on a conservative basis the market Cap at lowest EBIDTA of last 4 years comes at around Rs 3000 Cr .
If we consider the average it is at around Rs 3875 Cr
At last year EBIDTA it is at around 1100 Cr i.e 5500 Cr.
Present market cap is around 2800 Cr. Cyclical uptrend should ideally start only once the market cap is above 3000 Cr i.e @ around share price of Rs 855. We need to understand that the company was not getting its fair valuation as debt was a big overhang
And if the steel cycle continues for next 12 months, EBIDTA for current year will easily be Rs 1500 Cr.
Management is trust worthy as this Company was once NPA in 2016 and when other Company where going to NCLT, this Company survived and came back and is now A rated by 3 rating agencies : CRISIL , FITCH AND RECENTLY BY CARE.
Very few company have such a track record of turn around
RATING UPDATED FROM BBB+ TO A BY CARE
06042021063846_Godawari_Power_and_Ispat_Limited CARE rating update.pdf (776.8 KB)
I am invested in the company since past six months. Not much holding but a few hundred shares. What I fail to understand is why Has the FIIs and DIIs which had approx 5.9 percent holding around Sep 2018 (but had reduced it subsequently) . In the QE Dec 2020 there has been some addition in share holding pattern of Institutional Investors but it is well below the expected percentage of a share which has been exhibiting an extremely bullish pattern , in recent months.
I am keenly awaiting the release of Share holding pattern for QE Mar 21.
Can any senior boarder be kind enough to shed some light ?
Only one FII, HSBC Global was holding for last 2-3years. They were exiting the counter for last few quarters and and now fully out. Some new funds have added but you are right the quantum bought is too less for the run-up.
Hi Satish, from what I know is that HSBC had to exit GPIL as they were closing that fund and it was due to their selling stock had seen the levels of 100-150s. Also, with quantum, ICICI pru had bought some shares of GPIL but not sure if they currently hold it or not. My reckoning is that alot of PMS / AIF / sell side guys must have bought which might not reflect in the shareholding pattern. If you require detailed shareholding you can request the company, they will share it with you for a better understanding.
What I have observed that Mutual Funds avoid buying stocks which have very low market cap. GPIL was available under 500 Cr. Market cap last year. This year Market cap rose to around 2800 Cr. Now many Mutual Funds may be looking to take stake in the company. Lot of meetings with investors was made recently. Let us wait for shareholding of Mar 21.
It is good thing that Mutual Funds were not there because when they will enter, it will give further momentum to the stock.
Personally I am not a very big fan of Mutual Funds, they used overlook the value stocks with low market cap.
I guess that Company is holding lot of meetings with institutional investors and others and it is good that more and more institutional investors/mutual funds invest in this stock. The institutional investors understand the value of Company and generally do not press sell button in panic like retail investors/traders, unless there is some structural change. This adds stability to the stock price and stability in stock price adds credibility to the Company for retail investors like us.
So there is no selling pressure from Chinese companies will lift the steel prices much higher ?
I was also wondering why company having annual sale of 3500 cr is available at mcap of 3000cr with annual profit around 800-900cr. Being it a commodity company could be one reason with high debt and pledge. But there are companies like JSPL which are also having high debt and enjoying higher valuation. Is it just a factor of market ignoring the company or are there any other risk associated which we are not seeing. Any thoughts from anyone who is tracking company for a long time.
Disc - Invested with trackable quantity.
My very limited knowledge - could be pledged shares by promoters. However my instinct suggests that after the annual results this share will be noticed and upside is clearly visible.
GPIL is the cheapest metal stock available in the market in the iron and steel segment. All negatives mentioned e.g commodity stock, high debt, share pledge exist, but have been taken care by increased profit during last 2 years. This will be a debt free company within 6 months. Pledge is there as collateral for debt taken for expansion, which will be released within 6 months. Though share has gone up recently but is not commensurate with companyâs performance. As the Company has recently engaged with institutional investors, fresh trigger is expected on the expectation of spectacular 4th QTR result. If recent rise in steel companyâs share is any indication, the share is all set to touch newer heights shortly.
In one stroke, the management has taken care of all the negatives and even set the tone for the future. Uptill now godawari power consisted of ardent steel, godawari power and godawari green energy. the ardent steel stake was divested completely. this left only godawari power and godawari green energy. with the rise in iron ore prices, godawari power standalone was expected to be debt free by Q2 FY22 although in all probability it is going to happen sooner because the rise in iron ore prices is much higher than anticipated.
today, the co has announced divestment of stake in godawari green energy and valued it at 246 cr. with this the debt on books for godawari green energy will be off the books in next 6 months. the AGM is scheduled on 12th june 2021 for the same for shareholderâs approval.
most important to note is the announcement that co has approved 200 cr limit for buying distressed asset in the metal/steel sector which are now coming up for auction. with the inorganic expansion and these 200 cr to be channeled from internal accruals, the debt free status is expected to be maintained.
i think with the commodity cycle starting and going on for next 3-4 years will be very beneficial for the co.
Another good development and step being taken by the management - https://www.bseindia.com/xml-data/corpfiling/AttachLive/f3b3b08c-dc1d-4c42-900e-95d8c9a71a75.pdf
Having been invested in this co for last 3-4 years now, Its really good to see that the management has been walking the talk all the way and doing several right things. One of the rare co to be on way to reduce debt from almost 2200 Cr to being debt free in just about 3 years. And a large part of debt reduction has happened before the supercycle we are seeing now.
Sadly it has been labeled like an average commodity company all the way.
It will be interesting to see if they are able to materially up their game in high grade pellets.
The next trigger would be the approval for expansion of mining output, hopefully it happens soon.
It will be important to see how this co evolves to utilize the windfall in cashflows going forward.
Ayush
Disc: Invested in family and client acs.
@ayushmit whats ur approach towards valuing such companies. Do u typically use Ev Ebitda or some other metric . Also when u say there is a valuation gap - what should be the right valuation multiple in ur mind
So u mean to say itâs not an commodity company ? Just bcos prices have move up doesnât make a commodity company anything else.
The company is classic example of value unlocking through delveraging. The kind of deleveraging done by the company is commendable. In 2017 it had a debt of 2200 crores, which has come down to 800 odd crores as of last quarter. From what I remember 375 crore debt belongs to Godavari green, which will also be taken care of with the proposed divestment. Over a period of 5- 6 years the management has given most importance to the deleveraging exercise. They realized early on, that the high leverage is the biggest threat to their business and used every opportunity and good part of their profits to pare down debt. This deleveraging didnât start with the current commodity bull run that ensued after covid crisis, it started back in 17-18 when there was a small upcycle. With the debt gone, company will be out of debt restructuring and we may see the pledged shares getting released( 32.5%).
If the company is able to get the environmental clearance for increasing the mining capacity that will be a tremendous boost to the profits of the company. The company was quite confident of getting the EC soon in the last concall.
The company has announced a dividend of Rs.5 per share in the last quarter. With debt almost retired, the company can come up with a dividend distribution policy giving more return to the shareholders. Even if the iron ore prices corrects from here, this addl value will be there which is not true with many other commodity companies like hind copper.
The first export order of 50,000 MTs (65.5% Fe)of high grade pellet has already been booked and the delivery will take place in the month of April, 2021.Going forward the Company will mainly concentrate on production and export of High Grade iron ore pellet only. This has higher margins.
The companyâs market price has so far not even grown to the extend of deleveraging done so far. Looking at all the above factors , it looks like the company is uniquely positioned within the commodity space. The company has triggers more than just iron ore prices.
Key risks
- Current p/b is 2.21, which is usually very high while looking at commodity stocks.
- Currently govt is fully focused on covid crisis, once the situation is handled, It may look into other matters and if it comes up with an export duty on pellet export to China,it will be a negative sentiment.
Discl: Exited last week due to some urgent fund requirements. But still very positive about the company.
Godawari has not fully divested from Ardent and they still continue to hold around 37%. Kindly advise from Where did you find the valuation of Rs 246 Cr for Godawari Green.
I agree that it makes the consolidated balance sheet lighter but it was a steady income generating assets throwing EBIDTA of 80 to 100 Cr every year.
I think Company will use the divested amount from Godawari Green to buy out Stressed asset.
I hope that Company will find other avenues where it can generate better ROE.
Disclosure : Invested from levels of 220 and added at 440, 660,760 and 800. Forms 10% of my portfolio
And they still hold operational control in Ardent Steel. As for the divestment in the Ardent steel, I think the uncertainty in ore availability in Orissa could have been one of the main reasons in company roping in a strategic partner there. The company seems to be more interested in adding capacities close to their mines. This is evident from the MOUs they have signed with Chattisgarh govt.
As for Godawari green energy the networth is 246 crores and not valuation. It will be interesting to see the valuation as the subsidiary has a ppa for 25 years with NTPC for offtake of power at 12.20 rs/kWh
@varun_kejriwal - i donât have any scientific method. I think its more on some broad nos and developments. When we started, the feeling was that the co is doing few things right (huge scale up in captive iron ore production over last 5 yearsâŚfrom about 3/4 lac ton pa to 15 lac ton pa) and the valuations were too cheap. Yet stock did nothing and fell by over 50% during covid times and earlier too. At that time it was more of a value-investing thing. However, in last 1 year or so, the way the co has de-leveraged, executed and walked the talk, it became very interesting. Plus they have been lucky on the super strong iron/pellet cycle and are making the most of it.
I donât know the right way of valuing. In highlight later, todays prices maybe peak too if the iron ore/pellet price crash big time from here in coming times.
So one needs to have own framework.
@bimalb - it is a commodity co. but generally when a commodity label is give, nobody looks at the company. Even in commodities there are cos which are better most due to their integration and execution or perhaps lowest cost structure.