Q1 Results were really good and with the steel Cycle turning upwards, re-rating of valuations seems imminent sooner or later. Major Part of the Debt is for the hydro power plant and will not be impacted by covid in case of a third wave, so upcoming Q2-3 results should continue the current upward trend.
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any idea what would be the tariff from this 113 MW hydro plant, and what is the total energy going to be supplied from this plant (primary energy and secondary energy). the total project cost seems to be in the range of 12 cr/MW which means the tariff ideally should not be less than Rs 4.5 per unit. In one of the call i heard EBITDA on full year basis is estimated at 225-250 Cr which seems to be on a higher side. on standalone basis keeping 12% interest rate for this project, Interest cost in a year after COD should be around Rs 114 crores and depreciation approx 50 cr. even if we assume assume at 50% PLF, it should generate 49.4 Cr units, with Rs 4.5 per unit, the yearly revenue should be Rs 222 cr and 20 cr will be O&M, so EBITDA on this rate if its gets approved by the commission, then an EBITDA of Rs 200 can be expected. so from year 1 should be in cash positive keeping 1 year moratorium for principal repayment.
The provisional tariff rate is 6.5 per unit. It coulbe be anywhere between 6.5-7, but a minimum of 6.21 given on renewable energy products. Expected topline at 6.5 per unit is 225-240cr and EBITDA of 175-200cr. This is assuming the 50% capacity utilization. The biggest and probably the only risk with hydropower plants is monsoon rainfall. Therefore only 2 quarters produce at peak output levels? Also there are transmission charges of Rs 1 per unit. The interest rate on the project is 11% which they said would be refinancing and brought down.
This company continues to post super numbers quarter after quarter. The full impact of its new projects in Ferro Alloys and Power are yet to reflect in the numbers
Disclosure: Invested
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Since, GPIL is a big chunk of my portfolio, it is natural that I have studied Sarda energy too.
Sarda energy is physical neighbor of GPIL (mines are on adjacent plots) and business is very very similar.
Now, let us look at the valuations-
- Sarda energy consol quarterly EBITDA = 320 crore, annual EBITDA = 1188 cr.
Enterprise value = 4820 cr
EV/EBITDA = 3.7
- GPIL quarterly EBITDA = 493 cr, annual EBITDA = 2000 cr
Enterprise value = 4600 cr
EV/EBITDA = 2.3 only
Thus, Sarda energy is 60% more expensive than GPIL.
GPIL is also doing expansion projects like almost doubling billet capacity, 20% more sponge iron capacity, solar power plants - all these will start contribution to profits in a few months.
In addition, GPIL is building a pretty big specialty steel plant which will take 2-3 years.
(P.S- Sorry to take the limelight off the sarda energy results, but their business is so similar, that, it makes sense to compare them)
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I started re-evaluating Sarda Energy after Abakkus Fund increased their holding marginally. Even though the percentage is relatively small it shows conviction of a fund manager to do so.
Coming to the current valuations of Sarda and GPIL, Sarda currently trades at 3.9 EV/EBITDA and GPIL trades at 3.7 EV/EBIDTA. So GPIL has certainly caught up.
So with recent capex of Sarda going live where do you the competition heading?
Also since you have tracked GPIL closely, could you please explain the reason behind drastic drop in fixed asset of GPIL during 21-22 period.
