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GODAWARI POWER 3QFY11: In-line; Improved pellet plant operations drive earnings; Margin expansion ahead; Buy

Net sales increased 52% QoQ to Rs.2.2b. Revenues from steel division increased 51% QoQ to Rs.2.1b due to higher volumes and better realizations.

Production of sponge iron increased 40% QoQ to 75,315tons on low base as maintenance shutdown was undertaken in previous quarter.

Billets sales were up 115% QoQ to 31,168 tons while average realization also increased 3% QoQ to Rs.25,331/ton.

Revenue from power division increased 48% QoQ to Rs.215m. Average power rates were up 9% QoQ to Rs.2.9/kwH..

EBITDA increased 79% QoQ to Rs.513m. EBIT from Steel division increased 92% QoQ to Rs.455m, while EBIT of power division increased 7x to QoQ to Rs.35m.

Ardent Steel too has recently started pellet plant. Current prices of steel and other products are significantly higher in 4QFY11, while the cost of raw material is likely to increase only marginally due to captive iron ore mines. This is likely to expand margins going forward. The stock is trading at P/E of 5.5x FY12E and EV/EBITDA of 4.2x FY12E. Maintain Buy