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Cost-saving initiatives help margin improvement; maintain BUY!

Result Synopsis

GPIL’s Q1FY25 performance was above the consensus estimates on the margin front despite seeing revenues fall by over 12% on a QoQ basis owing to lower realizations and volumes. The company saw falling raw material costs due to the benefits received from commissioning solar power plants along with the new high-efficiency turbine generator. The company is currently undertaking capex on its backward integration plans of expanding its iron ore capacity at its Ari Dongri mines along with the pellet plant expansion. The expanded mine capacity is expected to be operational in Q4FY25 and is currently awaiting its public hearing. On the pellet plant expansion, the company has already placed orders and is on track to be operational by the end of Q1FY26.

On the operational performance of the company, the sales volume was lower on a QoQ basis, with pellets and billets sales dropping ~9%, long products’ sales falling 26%. The realizations were however better vs Q4FY24 by ~5.2% across the selling segments. We see that the steel market being under-pressure in the near-term will dent the company’s realizations in the upcoming quarter both for steel products and iron ore pellets; however, we maintain our positive stance on the company’s outlook.

We maintain our BUY rating and the Target Price for GPIL. We value GPIL at 6.5x FY26E EV/EBITDA to arrive at our target price of Rs 1,390/sh.

Result Highlights

* Revenue from operations for the quarter stood at Rs 1,342.5 crores (vs our estimate of Rs 1,539.4 crores), reporting a fall of over 12% QoQ and up 1.3% YoY.

* Absolute EBITDA for the quarter stood at Rs 407.6 crores (vs our estimate of Rs 366.4 crores). EBITDA margins stood at 30.4% for the quarter as compared to 21.5% for Q4FY24 and 23.0% for Q1FY24 – primarily driven by better cost structure.

* Net profit for the quarter stood at Rs 286.5 crores (vs our estimate of Rs 239.5 crores).

* The board declared a Special Dividend of 25% on face value of Rs.5/-each on the occasion of 25th anniversary of the company.

* Stock split announced: The Board of Directors of the company has approved subdivision of equity shares of Rs.5/- each in to 5 equity shares of Rs.1/- each, subject to the approval of shareholders of the company – to come into effect in approx. 2 to 3 months including the time required for seeking the shareholder approval.

* The board also approved the proposal to undertake energy efficiency and decarbonization initiatives at an estimated cost of Rs.75 crores.

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