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Tuesday, May 31, 2011

Stock Analysis - GIPCL

Quarterly result and stock analysis on GIPCL for 4QFY2011 with target stock price for one year. It is certainly a good dividend yielding stock to buy for safe investment returns. 

GIPCL was incorporated in 1985 as Public Limited company under the Government of Gujarat. The company is engaged in business of Electrical Power Generation. The total present capacity of Vadodara and Mangrol plants is 810 MW. The company has a vision to transform itself into a national level power sector enterprise. The company has its registered office at P.O. Petrochemical, Vadodara, Gujarat.

GIPCL has posted 124.9% yoy growth in net profit to Rs 81.2cr in 4Q FY2011. This was due to a substantial reduction in fuel costs and write-back of taxes related to previous years. During this quarter, 165MW Vadodara Station II that company owns was shut down for maintenance. This lead to low PLF of 30.8% ( against 80.8% in 4Q FY2010), which is the reason behind low fuel costs. However, Vadodara Station II achieved the requisite PAF for FY2011 as a whole and, hence, the company’s top line was not impacted majorly in 4Q FY2011. Consequently, OPM surged to 39%. The company indicated that operations of the newly commissioned SLPP Units 3 and 4 (250MW) have stabilized and are currently operating at healthy PAFs of ~80%.

Result Analysis
GIPCL’s 4Q FY2011 revenues grew by 24.1% yoy to Rs 315cr. OPM for this quarter rose by 1,457 basis points yoy and 1,236 basis points qoq to 39% due to lower fuel costs at 49% of net sales.

Net profit of the company rose by 124.9% yoy to Rs 81.2 cr on account of a surge in operating profit and net tax gains of Rs 21.4cr for the quarter due to tax adjustments of earlier years and deferred tax income.

Stock Valuation
GIPCL’s revenues and net profits are expected to show CAGR growth of above 20% over next 2 years.

At the current stock price of Rs 84, the stock trades at P/E ratio of 7.7 for trailing four quarters. The book value of stock is at Rs 93.16. It is trading at Price/Book value of 0.90. The stock dividend yield comes at healthy 2.99% that makes it a good dividend yielding stock.

If we consider the expected growth, the EPS in one year could reach Rs 13. Valuing the stock at similar valuations after one year, stock price target could be Rs 95-100 i.e. roughly 15-20% investment returns in one year with almost 3% dividend yield as additional returns. All in all, GIPCL is a good stock to buy at dips from current stock price levels.

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