GIPCL Confcall Transcript

GIPCL Confcall Transcript

Analyst Picks - Prathiba Industries,Satyam

Jet Airways
cmp: Rs 548.65
target price: Rs 765

Citi has maintained a ‘sell’ rating on Jet Airways with a price target of Rs 765 after factoring in the competitive domestic aviation sector, the infancy of the company’s international operations and the acquisition of Air Sahara. Citi feels while Jet arguably has superior growth opportunities to most of the global full service carriers, it has still to demonstrate its ability to deliver robust and consistent earnings over time and strong sustainable market share in the face of aggressive competition. However, the company’s ‘market position within the domestic market is fairly well entrenched, and its international operations are proceeding at a satisfactory pace’, says the brokerage. It further feels that any ‘faster than anticipated capacity rationalisation in the domestic airline industry’ and ‘a sustained decline in ATF prices’ can provide upside risks to its recommendation and target price. ‘A faster than anticipated ramp up, greater than forecast profitability of international operations and rapid restructuring and turnaround of Jet Lite’ can also provide further upside.

Gammon India
cmp: Rs 395.55
target price: Rs 461

Morgan Stanley has maintained its ‘overweight’ rating on Gammon India while marginally reducing its price target to Rs 461 from the earlier Rs 471. The foreign brokerage’s price target is based on a sum of the parts and factors in the core construction business (Rs 246/share) based on its residual income model, Gammon Infrastructure Projects (GIPL) share value (Rs 202/share) based on the IPO price, and Gammon’s investment in Sadbhav Engineering (Rs 14/share). Morgan Stanley has also reduced its PAT estimates for F2008E and F2009E by 27-30%, taking into account the higher marginal tax rate of 34% instead of the reduced tax rate (under section 80 IA) that was used by Gammon. While the GIPL issue closed at Rs 167 per share, the brokerage ‘believes that the listing price of the stock might be an important driver’.

Satyam Computer
cmp: Rs 411.05
target price: Rs 463

Indiabulls has maintained a ‘buy’ rating on Satyam Computer Services after the company’s EBITDA margin, topline and the utilisation rate improved in the third quarter. According to the report, the software major’s EBITDA margin improved by 164 basis points (bps) for Q3FY08 to 21.5% driven by higher utilisation rate, steadily increasing offshore contribution and 2.3% QoQ (quarter-on-quarter) increase in offshore billing rates. The company’s topline also grew at 8.10% QoQ on account of offshore volumes growing at 12% and rise in offshore & onsite billing rates by 227 bps and 236 bps respectively, adds the report. The brokerage feels the company can maintain volume growth in Q4FY08 and FY09 through larger revenue contribution from retail, transport & logistic segments and manufacturing segment as it continues to diversify. Meanwhile, the utilisation rate of Satyam improved to 78.2% from 76.4% in Q2FY08 for offshore (including trainees), despite aggressive hiring.


Pratibha Industries
cmp: Rs 293.35
target price: Rs 490

PINC has maintained a ‘buy’ on Pratibha Industries as it feels that a ‘strong order book and revenues from the pipe manufacturing business’ would enable the company ‘to capitalise on the burgeoning opportunities in the infrastructure sector’. The brokerage has also set an 18-month price target of Rs 490 for the stock. The brokerage has also factored in the execution delays for some projects (Ulhasnagar water supply project) while revising its operating profit margin (OPM) estimates downwards due to steep increase in key raw material prices

GIPCL, Sarda Energy, HDFC Bank, Maruti Suzuki

GIPCL, Sarda Energy, HDFC Bank, Maruti Suzuki

Corporation Bank, GIPL, Gujarat State Fertilizer

Corporation Bank, GIPL, Gujarat State Fertilizer

Gujarat Industries Power: Buy

Investors can consider buying the Gujarat Industries Power Company (GIPC) stock at the current market price with a medium- to long-term perspective.

The company is in the growth mode and is increasing generation capacity that will add to earnings from 2009-10. Meanwhile, the existing generation units are stabilising and improving their operating efficiencies.

At the current price of around Rs 80, the stock is valued at a discount to its peers such as Neyveli Lignite Corporation; re-rating could happen sooner than later given the company’s improving performance and its investment in capacity expansion.

Growing fast

GIPC now runs three power stations adding up to a total capacity of 555 MW, which is just about 10 per cent of the total installed power generation capacity in Gujarat.

The company’s capacity will increase to 805 MW by March 2009 when the new units under construction are commissioned. GIPC supplies its power to the State electricity board under power purchase agreements already signed.

The company has a healthy fuel mix for generation. The two older units at Vadodara (aggregate capacity of 305 MW) run on natural gas while the third and the latest one at Surat (250 MW) commissioned in 2000 is fuelled by lignite from the company’s captive mine. GIPC has firm allocation for more than 90 per cent of its gas requirements from GAIL and a fallback allocation for the remainder. But it has faced problems in gas availability in the past for its second 160 MW unit in Vadodara and has had to resort to naphtha which is dearer.

Operating margins have been hit due to this; the low plant load factor at this station has also not helped overall performance.

The new capacity of 250 MW under implementation will be fuelled by lignite and will be a pit-head plant. The company has adequate lignite reserves in its mine to fuel the new capacity comfortably in the long term.

This is expected to ensure fuel security and also help in increasing margins as the pit-head location will save on transportation costs for lignite. The first 125 MW unit of this plant is scheduled to go on stream in November 2008 and the second by March 2009 which means that initial revenues from these projects will get reflected in the financial statements of 2009-10.

Meanwhile, GIPC has initiated a study for another new 500-600 MW plant at the pit-head of another mine that it has been leased by the Gujarat Government. This augurs well for the long-term growth plans of the company.

Sound financials

Though it has had challenges in the past in the form of declining margins, GIPC has managed to stabilise its financials well in the last couple of years.

Thanks to a significant reduction in debt, interest costs have dropped appreciably (20 per cent lower in 2006-07) enabling the company to post good earnings growth in the last few quarters.

The falling debt has also lowered the leverage of the company which will come in handy now as it embarks on borrowings for its ongoing expansion project at Surat. However, the flip side is that interest charge could now increase and could pressure margins in the near-term till the projects are commissioned.

More gas, higher price

Margins could also come under some pressure when gas supply contracts come up for renewal in the next couple of years.

Though gas availability is set to improve significantly in the region, it could come at a relatively higher cost than the subsidised prices that GIPC has been used to till now.

What lends confidence though is that Gujarat has an 8.5 per cent energy deficit which goes up to 13.6 per cent during peak hours.

Given this large deficit, GIPC’s power will be consumed even at marginally higher prices. Shareholders can buy the stock with a two- to three-year holding period in mind.

Merrill Lynch - Gujarat Industries Power Co.: Generation Disappoints

Merrill Lynch - Gujarat Industries Power Co.: Generation Disappoints

UTI Sec - GIPL

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