1QFY2014 Result Update | Power

August 6, 2013

GIPCL
Performance Highlights
Quarterly Performance
Y/E March (` cr) Net revenue Operating profit OPM (%) Adj. profit 1QFY2014 311 106 34.2 36 1QFY2013 349 133 38.2 55 % chg yoy (10.8) (20.1) (399) (33.8) 4QFY2013 329 137 41.7 62 % chg qoq (5.4) (22.5) (755) (41.0)

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 892 475 0.5 83/54 8,615 10 19,182 5,685 GJIP.BO GIP@IN

`59 `65
12 Months

Source: Company, Angel Research

For 1QFY2014, Gujarat Industries Power Company (GIPCL) reported a weak set of numbers. The operating profit was below our expectations, and declined by 20.1% yoy to `106cr. The Surat Lignite Power Plant [SLPP] station I recorded a lower plant availability factor (PAF) of 68.4% in 1QFY2014 (as compared to a healthy 95.6% in 1QFY2013) which was on account of annual overhaul/shutdown which lasted for almost a month and also impacted the operational costs. The PAF for SLPP station II stood at 88.9% (94.8% in 1QFY2013) while that for Vadodara station I and II stood at a healthy 98.4% (95.4% in 1QFY2013) and 99.9% (99.8% in 1QFY2013). Consequently the Net Profit declined by 33.8% yoy to `36cr (`55cr in 1QFY13). Operational highlights: For 1QFY2014, GIPCL reported a 10.8% yoy decline in top-line to `311cr, as power generation declined by 22.4% yoy to 1,018BU. The plant load factor (PLF) at Vadodara station I remained flat at 62.4% (64.4% in 1QFY2013) while PLF at Vadodara station II declined sharply to 15.1% (34.0% in 1QFY13). Even the SLPP stations I and II reported a decline in PLF yoy at 62.6% (90.7% in 1QFY2013) and 77.6% (89.6% in 1QFY2013), respectively. The decline was on account of overhaul/shutdown of SLPP Station I and grid restrictions as well as backing down instances resulting from merit order position in the gas-based plants of Vadodara. 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 off-take 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. We recommend Accumulate on the stock, assigning a P/BV multiple of 0.5x FY2015E book value to arrive at a target price of `65.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 58.2 19.5 2.5 19.8

Abs. (%) Sensex GIP

3m (2.0)

1yr 11.5

3yr 5.6

(18.1) (10.0) (47.7)

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) FY2012 1,291 19.8 118 (27.4) 32.9 7.8 7.5 0.6 8.4 10.0 1.5 4.5 FY2013E 1,407 9.0 219 85.4 38.1 14.5 4.0 0.5 14.4 14.9 1.0 2.5 FY2014E 1,444 2.6 208 (5.3) 33.4 13.7 4.3 0.5 12.3 12.3 0.7 2.2 FY2015E 1,482 2.6 224 7.6 33.0 14.8 4.0 0.5 12.0 12.3 0.5 1.5

Amit Patil
022-39357800 Ext: 6839 amit.patil@angelbroking.com

Akshay Narang
022-39357800 - Ext 6829 akshay.narang@angelbroking.com

Source: Company, Angel Research; Note: CMP as of August 5, 2013.

Please refer to important disclosures at the end of this report

GIPCL | 1QFY2014 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

1QFY2014 311 145 46.6 14 4.6 45 14.6 205 106 34.2 23 39 9 53 53 17.1 17 31.5 36 11.7 151 2.4 36

1QFY2013 349 178 51.1 13 3.6 25 7.1 215 133 38.2 26 41 5 71 71 20.3 16 22.0 55 15.8 151 3.6 55

% chg yoy (10.8)

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

% chg qoq (5.4) 0.6 (10.2) 44.0 6.8 (22.5) (9.3) 0.8 28.6 (33.5) (33.5) (8.4) (41.0)

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

(18.6)
14.9 82.7 (5.0) (20.1) (11.4) (4.4) 97.9 (24.6) (24.6) 7.9 (33.8)

85.0

(33.8) (33.8)

4.1 62

(41.0) (41)

14.5 159

85.0 25.1

August 6, 2013

GIPCL | 1QFY2014 Result Update

Exhibit 2: Performance trend

400 350 300 250 349 38.2 360 369 329 41.7 35.8 37.0 311 50.0 45.0 40.0 35.0 34.2 30.0 20.0 55 70 62 36 15.0 10.0 5.0 0.0

(` cr)

150 100 50 0 -50 1QFY13 2QFY13 (28) Net Sales 3QFY13 Net Profit 4QFY13 1QFY14 OPM (RHS)

Source: Company, Angel Research

Performance highlights
For 1QFY2014, GIPCL reported a weak set of numbers. The operating profit was below our expectations and declined by 20.1% yoy to `106cr. The Surat Lignite Power Plant [SLPP] station I recorded a lower plant availability factor (PAF) of 68.4% in 1QFY2014 (as compared to a healthy 95.6% in 1QFY2013) which was on account of annual overhaul/shutdown which lasted for almost a month. This also impacted the operational costs which almost doubled from `24.8cr in 1QFY2013 to `45.3cr in 1QFY2014 in absolute terms. The PAF for SLPP station II stood at 88.9% (94.8% in 1QFY2013) while that for Vadodara station I and II stood at a healthy 98.4% (95.4% in 1QFY2013) and 99.9% (99.8% in 1QFY2013). Consequently the Net Profit also declined by 33.8% yoy to `36cr (`55cr in 1QFY2013).

Operational highlights
GIPCLs total power generation stood at ~1,018MU in 1QFY2014 vs 1,312MU in 1QFY2013, a decrease of 22.4% yoy. Consequently, the top-line declined by 10.8% to `311cr. Vadodara stations I and II generated 198MU and 55MU power, respectively while SLPP stations I and II generated 342MU and 424MU of power, respectively, during the quarter. The SLPP 5MW solar power plant generated 2.0MU during the quarter. The PLF at Vadodara station I remained flat at 62.4% (64.4% in 1QFY2013) while that at Vadodara station II declined sharply to 15.1% (34.0% in 1QFY2013). Even the SLPP stations I and II reported a decline in PLF yoy at 62.6% (90.7% in 1QFY2013) and 77.6% (89.6% in 1QFY2013), respectively. The decline was on account of overhaul/shutdown of SLPP Station I and grid restrictions as well as backing down instances in the gas-based plants of Vadodara.

August 6, 2013

(%)

200

25.0

GIPCL | 1QFY2014 Result Update

Exhibit 3: PLF of plants

100 80 65 60 46 34 15 91 90 78 67 66 64 62 63

(%)

40 20 0 FY2013 Vadodara Station 1 - 145MW SLPP 1&2- 250MW

1QFY2013

1QFY2014 Vadodara Station 2 - 165MW SLPP 3&4- 250MW

Source: Company, Angel Research

Investment arguments
Assured off-take
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 (MW) 145 160 250 250 Fuel Type Gas/RLNG Gas/RLNG Lignite (Captive mines) Lignite (Captive mines) Off-take arrangement Supplied to promoter companies namely GACL, GUVNL, GSFC Supplied to GUVNL under PPA Supplied to GUVNL under PPA Supplied to GUVNL under PPA

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. As per the Management, the project is running on schedule.

August 6, 2013

GIPCL | 1QFY2014 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 off-take 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. We recommend Accumulate on the stock, assigning a P/BV multiple of 0.5x FY2015E book value to arrive at a target price of `65.

Exhibit 5: One-year forward P/BV

250 200 Price 0.5x 1x 1.5x 2x

Share Price (` )

150 100 50 0 Apr-06

Mar-07

Feb-08

Jan-09

Dec-09 Nov-10

Oct-11

Sep-12

Aug-13

Source: BSE, Angel Research

Exhibit 6: Recommendation summary

Company GIPCL NTPC Reco. Accum. Buy CMP (`) 59 135 Tgt. Price (`) 65 163 Upside (%) 10.2 20.7 FY2015E P/BV (x) 0.5 1.1 FY2015E P/E (x) 4.3 9.3 FY2013-15E EPS CAGR (%) 1.9 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.

August 6, 2013

GIPCL | 1QFY2014 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 Exp./(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 FY2013E 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 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

August 6, 2013

GIPCL | 1QFY2014 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

August 6, 2013

GIPCL | 1QFY2014 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

August 6, 2013

GIPCL | 1QFY2014 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 6.3 0.6 10.1 21.3 82.0 0.7 11.8 9.6 0.4 12.7 21.2 83.1 0.7 13.0 10.3 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 8.3 4.5 0.7 5.0 2.1 8.9 0.8 5.4 3.1 0.6 5.0 1.9 6.6 0.8 7.5 3.1 0.6 5.0 1.5 4.5 0.7 4.0 2.3 0.5 5.0 1.0 2.5 0.5 4.3 2.3 0.5 5.0 0.7 2.2 0.4 4.0 2.2 0.5 5.0 0.5 1.5 0.3 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

August 6, 2013

GIPCL | 1QFY2014 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

August 6, 2013

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