Hi Manas, Good to see your conviction in GPIL. I am also invested in it and want to understand what are the risk do you see with the company and what will be your exit criteria? I am listing my thesis, risk and exist criteria. But want to know your thoughts since you are tracking it very closely.
Thesis - Low debt(company reducing debt every qtr), good OPM(30%), available at low valuation(1 time price to sale. company available at 4000+MCAP and have profit of 1800cr, Good ROE/ROCE etc
Risk - Cyclical industry like other steel companies, but I see steel cycle continuing for few more years due to Govt push on infra, rise in real estate sector etc. Another risk is company doing big Capex equal to its own MCap and revenue. What if it fails? It is risk and may be exit criteria for me if Capex doesnât work out well.
I want to know your thoughts on these points and if possible on current valuations too. I am invested for long term as long as any of the risk doesnât turn out to be real.
Such risks of capex failing are high in pharma, tech and FMCG cos.
For example- most brands of ITC have failed. The money ITC invested in brand building has gone down the drains.
In commodities, capex failing is very tough. They are building a big steel plant.
How will a steel plant fail?
The risk in commodity is - raw material and end material prices.
GPIL has raw material in control.
End material is in short supply because there is huge premium on iron ore mines in India due to change in auction laws.
What about importing iron ore in India?? Recently there was news that Iron ore import is stated in India due to low iron ore pieces in International marketâŚ
International ore has usually been expensive vs Indian ore. There is added logistic cost.
Due to high auction price of iron ore mines, Indian ore is now almost equal to international ore prices.
This is the reason that price in India continues to remain high. Pellet prices are still 12000 per ton as of today, though international ore price is down 65%.
As of now, this looks more like the bottom for prices.
If we import iron ore, the price doesnât change. In Commodity, only the price matters. And price of pellets today is 12000 per tonne in India as per steel mint, while international ore price is 65% down.
Price fell from Rs. 60 to Rs. 20 from Jan 2020 to March 2020 bcz there were more sellers than buyers.
Current EPS is likely to be Rs. 100/share for this year.
So, the price was 1/5th of current EPS in March 2020.
I guess the current reason of price fall is the same. There are more sellers than buyers.
Markets were very inefficient in pricing the stock even in Jan 2020.
Current quarter EPS for GPIL is 21 and with falling pellet prices (and also other product prices), how do to anticipate/project EPS to hit Rs100? Margins declined significantly this quarter (due to pricing and it looks like, it will go down further). Please clarify.
Another interesting thing, quarterly results of Sarda energy seems to be much better than GPIL (better EPS, OPM, EBITDA). Any suggestions.
Same case with Sandur mangnese though it is not proper peer comparison but these stocks havenât fallen that much compared to GPIL.
Please check my previous posts on this.
Last quarter had very poor volumes due to monsoons.
New mining capacity not started yet.- will ramp up from current quarter
Hira ferro results not integrated yet.- will from current quarter.
Solar plant will add to EBITDA from next yr.
Interest cost will further drop.
All these add to EBITDA. Higher volumes significantly contribute to EBITDA, and lower values do the opposite.
Sarda buys 50% ore from outside. GPIL used to buy 20%, from this quarter GPIL will be 100% using own ore leading to higher margins.
In April 2020, GPIL was at Rs. 80-90 (pre-split price) and sarda was at Rs. 120-130 range.
Today GPIL is in 1100-1400 range and Sarda is at 800-900 range.
It looks that sarda has fallen less, but it has performed much less than GPIL over the years.
Sarda spent 1700 crores on hydropower plant to get only 170 cr EBITDA. Thatâs too low incremental ROCE.
Compare this to GPIL spends and incremental capex. Their solar plant incremental return is 20-24% per yr.
GPIL had poor volumes this quarter due to monsoon rains however Sarda energy shows better sales (i believe, base location for both of them are same). May be they had higher inventory? They also have captive coal mine (which could be a differentiator)?
What will be the next big trigger for GPIL? Integrated steel plant? I believe, it will take time to get this started and commence the actual operations (after approvals, setup, etc).
Till this happens, what is their plan to significantly improve their revenues?
I mean, apart from interest cost reduction, increase in mining capacity, benefits from their subsidiaries investments?
Iâm in no way contradicting your views. Just trying to understand better.
Biggest trigger for the mkts is more buyers than sellers.
GPIL annual profit is almost equal to couple of NIFTY companies, and will remain so even in 2026 (when it will have the steel plant running)
It is not even part of the small cap index. No small cap mutual fund is invested in this despite that.
You can rank all listed companies by annual profit and see where GPIL stands in the list.
In terms of net profit, it is 125 in all listed cos, and in terms of mkt cap it is 520 in all listed companies.
A company with 250th place in mkt cap rank has 18000 cr mkt cap.
4x of 500th place.
Yes. Thats true.
It is @3.43x (Net profit to Market Cap). Need to see when this panic selling will be over.
Not sure whether pellet prices would recover anytime soon.
Not sure, what you mean here.
Pellet prices are in 11500-11600 range as of now as per steelmint data.
This is very good price and would keep GPIL EBITDA at 1800 cr annual EBITDA for both this yr, and next yr. Additional increase in pellet prices means more EBITDA. (after considering solar plant, Hira alloys, increase in mining capacity)
Not many companies in India make 1800 cr annual EBITDA and are debt free, and not a PSU.
Pellex also rose sharply.
You have to take average quarterly price not daily price.
What was the average price for October month?
what will be avg for current quarter?
Billet price was 41000 a few mths ago at peak, today it is at 43000, higher than the peak.
In 2026, pellet price may be 80% higher leading to tripling of profits or so, just bcz of this in addition to mega steel plant (mega compared to current size of operations).
@Kumar_manas have you made any changes to your portfolio in this downfall ? If not, then have you bought any of the existing stock in your portfolio. Asking this as the current correction seems driven by sentiment rather than fundamentals and hence could be a good phase to accumulate for long term
