4QFY2013 Result Update | Power

May 31, 2013

GIPCL
Performance Highlights
Quarterly Performance
Y/E March (` cr) Net revenue Operating profit OPM (%) Adj. profit 4QFY2013 329 137 41.7 62 4QFY2012 263 115 43.8 39 % chg yoy 25.3 19.3 (207)bp 57.4 3QFY2013 369 137 37.0 70 % chg qoq (10.9) 0.6 476bp (11.6)

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Power 1,107 475 0.5 83/57 11,881 10 19,760 5,986 GJIP.BO GIP@IN

`74 `78
12 Months

Source: Company, Angel Research

For 4QFY2013, Gujarat Industries Power Company (GIPCL)s operating profit was better than our expectations, growing by 19.3% yoy to `137cr. The robust operating performance was aided by a favorable base effect (as Surat Lignite Power Plant [SLPP] station I had recorded a lower plant availability factor (PAF) of 48.2% in 4QFY2012 due to technical problems, compared to a healthy 95.9% in 4QFY2013). The PAF for SLPP station II stood at a healthy 95.2% (93.2% in 4QFY2012) while that for Vadodara station I and II stood at a healthy 96.9% (97.2% in 4QFY2012) and 99.5% (81.6% in 4QFY2012). Consequently the company posted an impressive growth of 57.4% in net profit to `62cr. Operational highlights: For 4QFY2013, GIPCL reported a 25.3% yoy growth in top-line to `329cr, aided by a 3.6% yoy increase in power generation to 1,097BU. The plant load factor (PLF) at Vadodara station I stood at 61.7% (73.5% in 4QFY2012) while SLPP stations I and II reported a higher PLF yoy at 83.3% (47.8% in 4QFY2012) and 78.0% (90.1% in 4QFY2012), respectively. However, lower off-take due to expensive gas, led to a sharp decline in PLF of Vadodara station II to 6.9% (19.6% in the corresponding quarter of last year). Outlook and valuation: GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500MW SLPP stations I and II being met by captive lignite mines. Further, power generated by the company has assured offtake through power purchase agreements (PPAs) signed under the cost-plus model, ensuring RoE of 14% (excl. generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants, respectively. At the current market price of `74, the stock is trading at 0.6x FY2015E P/BV. We have assigned a P/BV multiple of 0.7x on FY2015 book value to arrive at a target price of `78. We maintain our Accumulate recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 58.2 19.0 2.4 20.4

Abs. (%) Sensex GIP

3m 4.8 1.7

1yr 21.1 20.0

3yr 16.6 (34.7)

Key financials
Y/E March (` cr) Net sales % chg Net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2012 1,291 19.8 118 (27.4) 32.9 7.8 9.4 0.8 8.4 10.0 1.6 5.0

FY2013E 1,407 9.0 219 85.4 38.1 14.5 5.0 0.7 14.4 14.9 1.1 2.9

FY2014E 1,444 2.6 208 (5.3) 33.4 13.7 5.3 0.6 12.3 12.3 0.9 2.7

FY2015E 1,482 2.6 224 7.6 33.0 14.8 4.9 0.6 12.0 12.3 0.7 2.0

V Srinivasan
022-39357800 - Ext 6831 v.srinivasan@angelbroking.com Amit Patil 022-39357800 Ext: 6839 amit.patil@angelbroking.com

Please refer to important disclosures at the end of this report

GIPCL | 4QFY2013 Result Update

Exhibit 1: Quarterly Performance

Y/E March (` cr) Net Sales Fuel Cost (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM Interest Depreciation Other Income PBT (excl. Extr. Items) Extr. Income/(Expense) PBT (incl. Extr. Items) (% of Sales) Provision for Taxation (% of PBT) Reported PAT PATM Equity shares (cr) EPS (`) Adjusted PAT
Source: Company, Angel Research

4QFY2013 329 144 43.8 16 4.9 31 9.6 192 137 41.7 25 39 7 80 80 24.4 18 22.8 62 18.8 151 4.1 62

4QFY2012 263 105 40.1 12 4.5 30 11.6 148 115 43.8 28 46 6 47 47 17.9 8 16.4 39 15.0 151 2.6 39

% chg yoy 25.3 366.7 37.0 3.5 29.9 19.3 (9.4) (14.7) 27.9 70.6 70.6 138.3 57.4

3QFY2013 369 195 52.7 14 3.7 25 6.6 233 137 37.0 25 40 5 76 76 20.7 7 8.5 70 18.9 151

% chg qoq (10.9) (25.9) 18.1 28.2 (17.6) 0.6 0.6 (2.0) 46.0 4.8 4.8 180.2 (11.6)

FY2013 1,407 693 49.3 56 4.0 122 8.7 871 536 38.1 105 161 23 293 60 354 25.1 135 38.1 219 15.6 151

FY2012 1,291 697 54.0 49 3.8 120 9.3 866 425 32.9 119 171 15 150 (9) 142 11.0 23 16.4 118 9.2 151 7.8 127

% chg 9.0 (0.6) 15.3 1.8 0.6 26.0 (11.6) (6.1) 56.1 95.4 149.8

85.0

57.4 57.4

4.6 70

(11.6) (12)

14.5 159

85.0 25.1

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GIPCL | 4QFY2013 Result Update

Exhibit 2: Performance trend

400
350 300 250 263

43.8

349 38.2

360 35.8

369 329 37.0 41.7

50.0
45.0

40.0
35.0

(` cr)

150 100 50
0 -50 4QFY12 1QFY13
Net Sales

20.0 48 55

70

62

15.0
10.0

2QFY13 (28)
Net Profit

3QFY13

4QFY13

5.0
0.0

OPM (RHS)

Source: Company, Angel Research

Performance highlights
For 4QFY2013, GIPCL reported a 25.3% yoy growth in top-line to `329cr, aided by a 3.6% yoy increase in power generation to 1,097BU. The companys operating profit grew by 19.3% yoy to `137cr. The robust operating performance was aided by a favorable base effect (as SLPP station I had recorded a lower PAF of 48.2% in 4QFY2012 due to technical problems compared to a healthy 95.9% in 4QFY2013). PAF for SLPP station II stood at a healthy 95.2% (93.2% in 4QFY2012) while that for Vadodara station I and II stood at a healthy 96.9% (97.2% in 4QFY2012) and 99.5% (81.6% in 4QFY2012). Consequently the company posted an impressive growth of 57.4% in net profit to `62cr.

Operational highlights
GIPCLs total power generation stood at ~1,097MU in 4QFY2013 vs 1059MU in 4QFY2013, an increase of 3.6% yoy. Vadodara stations I and II generated 194MU and 25MU power, respectively while SLPP stations I and II generated 450MU and 421MU of power, respectively, during the quarter. The SLPP 5MW solar power plant generated 7.6MU in the quarter.

May 31, 2013

(%)

200

30.0
25.0

GIPCL | 4QFY2013 Result Update

Exhibit 3: PLF of plants

100 90 80

80
60
(%)

80 58 43 65 46 67 66

83
62

74

78

48

40

20
0 FY2012 FY2013 Vadodara Station 1 - 145MW SLPP 1&2- 250MW
Source: Company, Angel Research

20

7
4QFY2012 4QFY2013 Vadodara Station 2 - 165MW SLPP 3&4- 250MW

Investment arguments
Assured offtake
A major portion of the power generated by GIPCL is sold to Gujarat Urja Vikas Nigam Ltd (GUVNL), which carries out power transmission and distribution in Gujarat. In the past few years, there has been a significant improvement in the financial position of GUVNL, which augurs well for GIPCL.

Enjoys reasonably strong fuel security

GIPCL is well placed in terms of fuel security, with its entire fuel requirements for 500MW SLPP stations I and II being met by its captive lignite mines. For gas-based plants, which have gas requirements of 1.55-1.60 mmscmd, the company has entered into tie-ups with GAIL and RIL-Niko for sourcing 1.01mmscmd of gas; while for the remaining quantity, the company has tied up with GSPC and GAIL for the supply of spot gas on 'as and when' required basis.

Exhibit 4: Snapshot of projects

Plant Vadodara-I Vadodara-II SLPP I SLPP II Capacity Fuel Type (MW) 145 160 250 250 Gas/RLNG Gas/RLNG lignite lignite Off-take arrangement Supplied to promoter companies GACL, GUVNL, GSFC Supplied to GUVNL under PPA Supplied to GUVNL under PPA Supplied to GUVNL under PPA Guaranteed RoE (%) Not applicable 14.0 14.0 14.0

Source: Company, Angel Research

Further expansion in Surat to be the new growth engine

Currently, the company is in the process of setting up a new 600MW lignite-based power plant in Surat, which includes development of a captive mine. The company has already issued Letter of Intent to Lanco Infratech and the project is expected to be commissioned by end of third quarter of FY2016-17

May 31, 2013

GIPCL | 4QFY2013 Result Update

Outlook and valuation

GIPCL is well placed in terms of fuel security, with the entire fuel requirement of 500MW SLPP stations I and II being met by captive lignite mines. Further, power generated by the company has assured offtake through PPAs signed under the cost-plus model, ensuring RoE of 14% (excl. generation linked incentives) at 75% and 80% PAF for lignite and gas-based plants, respectively. At the current market price of `74, the stock is trading at 0.6x FY2015E P/BV. We have assigned a P/BV multiple of 0.7x on FY2015 book value to arrive at a target price of `78. We maintain our Accumulate recommendation on the stock.

Exhibit 5: One-year forward P/BV

200
Price 0.5x 1x 1.5x 2x

Share Price (`)

150

100

50

0 Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Source: BSE, Angel Research

Exhibit 6: Recommendation summary

Company GIPCL NTPC Reco. Accum. Accum. CMP (`) 74 154 Tgt. Price (`) 78 163 Upside (%) 5.1 5.8 FY2015E P/BV (x) 0.6 1.3 FY2015E P/E (x) 4.9 10.6 FY2013-15E EPS CAGR (%) 1.0 4.0 FY2015E RoCE (%) 12.3 9.0 FY2015E RoE (%) 12.0 12.7

Source: Company, Angel Research

Company background
GIPCL is majorly (~63%) owned by various state-owned companies of Gujarat. The company currently has 810MW generation capacity, with 500MW (125x4) lignite-based capacity operational at Surat and the remaining 305MW (160MW+145MW) gas-based capacity operational at Vadodara. The company has also commissioned a 5MW SLPP solar power plant in January 2012.

May 31, 2013

GIPCL | 4QFY2013 Result Update

Profit and loss statement

Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel EBITDA % chg (% of Net Sales) Depreciation & Amort. EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT Tax (% of PBT) Adj. PAT % chg Basic EPS (`) Fully Diluted EPS (`) FY2010 939 (18.7) 720 611 82 27 219 3.9 23.3 88 131 6.9 13.9 16 14 11 128 17.9 128 22 16.8 107 24.5 7.1 7.1 FY2011 1,078 14.8 774 633 92 49 304 38.8 28.2 127 177 35.5 16.4 72 16 13 121 (5.7) 121 (42) (34.6) 163 52.5 10.8 10.8 FY2012 1,291 19.8 866 697 120 49 425 40.0 32.9 171 254 43.4 19.7 119 15 10 150 24.0 8.6 142 23 15.5 118 (27.4) 7.8 7.8 FY2013 1,407 9.0 871 693 122 56 536 26.1 38.1 161 376 47.8 26.7 105 23 8 294 95.5 (60.6) 354 135 45.9 219 85.4 14.5 14.5 FY2014E 1,444 2.6 962 780 124 58 483 (10.0) 33.4 174 308 (18.0) 21.3 80 25 10 254 (13.6) 254 46 18.0 208 (5.3) 13.7 13.7 FY2015E 1,482 2.6 993 803 130 59 489 1.4 33.0 174 315 2.2 21.2 70 25 9 269 6.2 269 46 16.9 224 7.6 14.8 14.8

May 31, 2013

GIPCL | 4QFY2013 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Dep. Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 1,936 1,210 726 1,755 27 291 2 49 241 427 (135) 13 2,387 3,865 1,335 2,530 30 373 1 67 304 418 (46) 11 2,525 3,955 1,506 2,449 10 80 469 51 78 340 469 (1) 11 2,549 3,876 1,667 2,209 7 69 652 275 85 292 456 196 4 2,485 3,876 1,841 2,035 7 89 890 419 90 380 514 376 4 2,511 3,876 2,016 1,860 7 109 1,147 664 93 390 527 620 4 2,600 151 1,095 1,246 1,064 76 2,387 151 1,214 1,365 1,114 47 2,525 151 1,288 1,439 1,064 47 2,549 151 1,463 1,614 750 121 2,485 151 1,627 1,778 612 121 2,511 151 1,806 1,958 522 121 2,600 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

May 31, 2013

GIPCL | 4QFY2013 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments (Inc)/ Dec in loans and adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E 128 88 21 14 23 201 (436) 35 14 (387) 224 44 (5) 185 (2) 3 2 121 127 (65) 16 (7) 174 (209) (3) 16 (197) 49 44 (17) 22 (0) 2 1 142 171 4 15 23 279 (100) (50) 15 (135) (50) 44 (94) 49 1 51 354 161 28 23 135 385 81 11 23 115 (314) 44 (82) (276) 225 51 275 254 174 (36) 25 46 321 (20) 25 5 (138) 44 (182) 144 275 419 269 174 1 25 46 374 (20) 25 5 (90) 44 (134) 245 419 664

May 31, 2013

GIPCL | 4QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.8 4.8 8.1 0.8 3.6 2.5 0.7 2.4 2.1 0.3 0.9 3.6 0.1 0.4 3.9 (0.1) (0.3) 4.5 0.5 38 61 206 (40) 0.4 35 57 199 (31) 0.3 32 59 187 (14) 0.4 32 50 194 (17) 0.4 33 52 184 (16) 0.4 35 60 191 (11) 5.8 18.3 8.8 7.2 11.3 12.5 10.0 10.2 8.4 14.9 16.1 14.4 12.3 14.4 12.3 12.3 15.7 12.0 13.9 83.2 0.4 4.9 1.42 0.8 7.6 16.4 134.6 0.4 9.7 8.85 0.8 10.5 19.7 84.5 0.5 8.6 9.24 0.8 8.1 26.7 54.1 0.6 8.7 6.28 0.6 10.1 21.3 82.0 0.7 11.8 9.58 0.4 12.7 21.2 83.1 0.7 13.0 10.32 0.3 13.8 7.1 7.1 12.9 2.9 82.4 10.8 10.8 19.1 2.9 90.3 7.8 7.8 19.1 2.9 95.2 14.5 14.5 25.1 2.9 106.7 13.7 13.7 25.3 2.9 117.6 14.8 14.8 26.3 2.9 129.4 10.4 5.7 0.9 4.0 2.3 9.9 0.9 6.8 3.8 0.8 4.0 2.1 7.3 0.9 9.4 3.8 0.8 4.0 1.6 5.0 0.8 5.0 2.9 0.7 4.0 1.1 2.9 0.6 5.3 2.9 0.6 4.0 0.9 2.7 0.5 4.9 2.8 0.6 4.0 0.7 2.0 0.4 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

May 31, 2013

GIPCL | 4QFY2013 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

Disclaimer
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

GIPCL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 31, 2013

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