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Home Gujarat Industries Power – Stock of the Month (June 2017)

Gujarat Industries Power – Stock of the Month (June 2017)

Date: 5 June, 2017

Price: Rs. 105.85

Incorporated in 1985, Gujarat Industries Power Company Limited (“Gujarat Industries Power” or the “Company”) is engaged in business of Electrical Power Generation. The Company operates with total capacity of 929.4 MW.

Previous Projects Timeline

  • The Company commissioned its first power project of 145 MW in 1992 at Vadodara.
  • In 1997, the Company expanded its capacity and commissioned 165 MW Naphtha & Gas based power plant at Vadodara.
  • In 1999, Gujarat Industries Power commissioned 250 MW lignite based power plant at Nani Naroli, District Surat. The Company has its own captive lignite mines at Vastan.
  • 2 x 125 MW Surat Lignite Power Plant Phase II commissioned in April 2010.
  • The Company commissioned a 5 MW photovoltaic Solar Power Station at Vastan Mines of Surat Lignite Power Station in January 2012.
  • The Company has set up 112.4 MW capacity of Wind Power Projects as on 31.03.2017 in the State of Gujarat at different sites.

Shareholding Pattern

Promoters

58.21 %

Central/State Govt. Bodies Corporate

11.22 %

Institutional Investors

15.60 %

Foreign Institutional Investors/ NRI

3.64 %

Indian Public

11.33 %

Promoters Detail                         

Gujarat Urja Vikas Nigam Limited (Gujarat Electricity Board)

25.38 %

Gujarat Alkalies & Chemicals Ltd.

15.27 %

Gujarat State Fertilizers and Chemicals Ltd.

14.79 %

Petrofils Co-operative Limited

2.52 %

Liquidator Petrofils Co-operative Limited

0.26 %

INVESTMENT RATIONALE                                                                                                                                                       

Strong Financial Position

Gujarat Industries Power has shown consistent growth over the last 5 years (i.e. 2012-13 to 2016-17). The Company’s net profit over this period grew at an impressive CAGR of 14.14 % .The Company has reserves in excess of Rs. 2,084.85 Cr and operates with negligible debt (0.12:1) on its books.

Gujarat Industries Power’s current dividend yield is around 2.55% (CMP = Rs. 105.85 as on June 05, 2017).

AT CMP OF RS. 105.85, THE COMPANY IS TRADING AT A P/E OF 6.98X.

Particulars (in Rs. Cr.)

2017

2016

2015

2014

Income from operations

1310.56

1,351.86

1,214.66

1,376.68

EBITDA

430.35

423.79

465.97

501.14

PAT

229.25

188.41

126.31

185.88

EPS

12.45

12.46

8.35

12.29

Equity Share Capital

151.25

151.25

151.25

151.25

Reserves and Surplus

2,084.85

1,824.53

1,685.27

1,604.52

Total Shareholders’ funds

2,236.10

1,975.78

1,836.52

1,755.77

Total Debt

271.46

326.59

431.71

536.83

EBITDA Margin (In %)

32.84

31.34

38.36

36.40

Net Profit Margin (In %)

17.49

13.93

10.39

13.50

Return on capital employed (In %)

17.16

18.41

20.54

21.86

Return on Shareholders’ funds (In %)

10.25

9.54

6.88

10.59

Current Ratio

0.85

1.46

1.36

1.35

Gujarat Industries Power Operational Performance

[1] Vadodara Stations:

Station – I (145 MW): In FY 2016, the Station generated 719.48 Million Units (MUs) at a Plant Load Factor (PLF) of 56.49%.

Station – II (165 MW): In FY 2016, the generation was 235.478 Million Units (MUs) at a Plant Load Factor (PLF) of 16.25%

*Plant load factor is a measure of the output of a power plant compared to the maximum output it could produce. 

[2] Surat Lignite Power Plant (SLPP):

Phase-I (2 x 125 MW Units 1 & 2): In FY 2016, Phase–I generated 1643.210 Million Units (MUs) at a Plant Load Factor (PLF) of 74.83%.

Phase II (2 x 125 MW Units 3 & 4): In FY 2016, Phase-II generated 1440.694 MUs at a PLF of 65.61%

[3] 5 MW PV based Solar Power Plant:

In FY 2016, 5 MW PV based Solar Power Plant at SLPP generated 7.73 MUs with 17.61% PLF.

Expansion Projects in 2017

[1] 51 MW Wind Power Projects: The Company has set up Wind based Power Projects of 27 MW (18 x 1.5 MW) at Village Kotadapitha and 24 MW (16 x 1.5 MW) at Village Jambarwada, Taluka Babra, Dist.: Amreli, Gujarat respectively.

[2] 97.4 MW Wind Power Projects: In FY 2017, the Company has set up 2 Wind Energy Farm Projects as follows: – 26 MW (13 X 2 MW) Wind Power Project at Village Rojmal, Dist. Amreli, Gujarat, on turnkey EPC basis with Operation and Maintenance Contract (O&M). Another project of 71.4 MW (34 x 2.1 MW) at three different locations in Gujarat, on turnkey EPC basis including O & M Contract (completed in April 2017).

[3] 2 x 40 MW Solar Power Projects at Gujarat Solar Park, Charanka: The Company has emerged as successful Bidder in the e-reverse auction for 2 x 40 MW Solar Power Projects at Gujarat Solar Park, Village Charanka, Dist. Patan, Gujarat under the National Solar Mission, Phase II, Batch IV on EPC basis. The Projects are scheduled to commission by July, 2017.

INVESTMENT CONCERNS

Sale of Power to ONLY Promoters

As per the Memorandum of Understanding (MoU) and Power Purchase Agreement (PPAs), the Company is required to sell power generated to its promoters.

The Company is not entitled to sell power generated by power plants in the open market or based on open market energy prices under prevailing Government policies. In case SEBs/other promoters fail to pay the Company for the power produced by them, the Company will take a significant hit to their operating margins.

In addition, promoters namely Gujarat Alkalies & Chemicals, Gujarat State Fertilizers and Chemicals and Gujarat State Electricity Corporation Limited (a wholly owned subsidiary company of the Gujarat Urja Vikas Nigam) operate in the same business i.e power generation, which may impact the growth opportunities in the coming years.

Risks Relating to Power Projects

Power Sector is a highly capital-intensive industry with long gestation periods. Revenue generation could take many years after the initial conceptualization of a project. Since most of the projects have a long gestation period (4-5 years of construction period and operating period of over 25 years), the uncertainties and risks involved are high and often very unpredictable.

Delay in commissioning of projects is also a concern as it leads to delay in inflow of revenues. At the same time, power companies have to incur costs on the delayed projects, thus affecting margins and overall profitability which could have a negative impact on the share price.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.