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Investment Rationale

* Efficient Lignite-based Power plants: GIPCL operates – Surat Lignite Power Plant (SLPP phase I and II) of 250 MW each. Both the plants have strong operational history; in FY24, they achieved PLFs at 62.4% and 70.2% respectively against the average PLF of 69% for all India Coal and Lignite Based Power Plants. SLPP – Phase I has a PPA with GUVNL for 30 years since its commissioning in February 2000, and it will extend it by another 10 years. SLPP – Phase II, commissioned in Apr’10, has a 30-year long-term PPA with GUVNL. The PPAs provide assured ROE of 13.5% to GIPCL upon achievement of normative PAF.

* Captive Lignite Mines Provide Fuel Security: GPICL has open-cast Lignite and Limestone mines at Vastan and Mangrol-Valia region of Gujarat, which ensures an uninterrupted supply of lignite for its power plants. The mines have reserves of ~200 MT as on Mar’24, which is sufficient to cater for the current capacity over the life of the power plants. It will be expanding mining capacity to meet the extended SLPP – I PPAs in future.

* Impending Capacity Expansion: GIPCL’s revenue and profitability growth over the last decade was largely muted as its gas power plants were under care and maintenance, while its thermal power plants’ capacity was stagnant. However, from FY26 onwards, its capex on Renewable Energy (RE) capacity expansion will start giving results. GIPCL has been allotted land at the Great Rann of Kutch near Khavda to set up a 2,375 MW RE Park. The park development capex is ~Rs 1,200 Cr, 30% of which will be funded from the Ministry of New and Renewable Energy (MNRE), and 40% from user development charges (UDC) from project developers and the balance from internal accrual. Within the 2,375 MW RE park, GIPCL will set up 1100 MW of its own RE power capacity in two phases using a Debt: Equity ratio of 80:20. Phase I of a 600 MW solar power plant – GUVNL has given LOI to GIPCL with a capex of Rs 2,750 Cr with a tariff of Rs 2.73/KWh, which is likely to be commissioned by Q2FY26 (105 MW already commissioned on 28th Jun’25). Phase II of 500 MW – PPA is signed with GUVNL with a tariff of Rs 2.73/KWh, and likely commissioning date is Q1FY27 with a total capex of Rs 2,355 Cr. It has also commissioned and commercially operationalised a 75 MW Vastan Group Captive Solar Power Plant in Jun’25. These RE projects’ capex will drive earnings growth from FY26 onwards, and it will be fully reflected in the financials from FY28 onwards when it will reach to total capacity of 2359 MW by the end of FY27 (from 1184 MW currently).

Valuation / Analyst recommendation:

* NTPC Green Energy Ltd and Adani Green Energy Ltd are trading at 11.7x/15.5x on FY27 Consensus EV/EBITDA. GPIL has valuation headroom as it is trading at 10x of our FY27 EBITDA estimate. We recommend a BUY rating on the stock, with a target price of Rs 242/share reflecting 10% upside potential from the CMP.

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