Scripscan:Gujarat Industries Power Co Ltd
Code:517300
cmp:120
Story:With the commissioning of Surat-II (project level ROE of 27%) in Q4FY10E, GIPCL's capacity will increase from 555MW to 805MW, thereby converting its capital WIP into regulated equity.Consequently, we expect its net profit to double to Rs 1.9 billion in FY11E and ROE to jump from 7% to 15%. Change in the heat rate norms of the Vadodara-II plant (160MW) is also likely to aid GIPCL's ROE. With the ROEs (15%) comparable to the best and valuations (1.2xFY11E Book Value) cheaper than the rest; GIPCL is a compelling value proposition. The mid cap stock had performed very well for the past one month . We remain positive on the domestic Power industry as we expect it to grow in line with the country’s GDP growth. India’s peak power demand in excess of 11%, gives substantial opportunity to players like GIPCL. The company’s expansion plans are also on track, which we believe will help it continue on growth path ahead. The Gujarat Industries Power Company Ltd has the advantage of the backing of the Govt. of Gujarat (GOG) while at the same time full functional freedom is given to it.At the current market price Gujarat Industries Power Co is trading at discount of 2011E PE multiple. We recommend BUY rating on the stock with a target price of Rs 160 (32% upside) in 12 month with DCF valuation .
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