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EC approvals delayed, however, long-term story remains intact; maintain BUY! 

Results Synopsis

Q2FY25 performance for Godawari Power & Ispat Ltd (GPIL) was below our estimates, primarily driven by mining activities taking a hit during the quarter due to monsoon rains clubbed with the 0.9 mtpa pellet plants’ maintenance shutdown for about 50 days. Net revenue from operations decreased by 5.6% QoQ to Rs 12,676 mn, while EBITDA for Q2FY25 stood at Rs 2,466 mn, down 35.6% QoQ and 30.5% YoY. GPIL’s mine expansion plans currently await the EC approvals from the state government which now have been delayed from Dec’24 to Q4FY25.

EC for mining expansion facing delays, however FY26E expected to bring in substantial growth on both the cost and volume front. 

 GPIL’s current capex plan on the setting up of the beneficiation plant, pellet plant expansion, and future greenfield HRC plant heavily depends on its mining capacity expansion from 2.35 mtpa to 6.00 mtpa. The expansion, however, has faced challenges over the last six months with EC approvals getting delayed from Dec’24 to Q4FY25. This pushback in timelines is likely to impact GPIL’s mining volumes and cost structure for FY25E, prompting us to adjust our forecasts accordingly. Looking forward, we have maintained our FY26E estimates, as the company expects its new pellet plant to be operational by Q1FY26E, potentially contributing an additional ~1.0 mn tonnes in volumes over the year. This capacity boost should help offset previous challenges and position GPIL for stronger operational performance in the coming year. 

Valuation and View 

With global iron ore prices expected to average between $100-110/t for the remainder of FY25E, we anticipate pellet realizations to stay in the range of Rs 10,000-11,000/t. Q2FY25 volumes were impacted by the plant maintenance shutdowns and seasonal monsoon challenges, however, we expect a strong recovery in pellet volumes for H2FY25. As production normalizes, this should support margin improvements from the Q2FY25 lows. We project Revenue/EBITDA growth for GPIL at a CAGR of 12%/32%, over FY24-26E. The company’s 2.0 mtpa capacity additions on the pellet front, coupled with planned expansions in iron ore mining, will give GPIL a strong foothold in the industry. Currently trading at 4.5x FY26E EV/EBITDA, GPIL appears undervalued, and we believe that securing the EC approvals for the mining expansion could be transformative, potentially leading to a re-rating of the stock. We value GPIL at 6.5x FY26E EV/EBITDA to arrive at our target price of Rs 275/sh. 

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