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Saturday, October 27, 2007

Gujarat Industries Power Company

Here were the key stats when I came across this company:-

RONW - 16%
P/BV - 0.92
which meant that I would get more than 17% if I just hold on to the shares. I wasn't expecting to write so soon about this particular company.

The reason for the discount was obvious. GIPCL was going for an expansion of their capacities and was taking on new debt. The new project is expected to go online by 2008-09. It would almost double their capacity. The expansion is for their lignite based power plant and GIPCL has captive lignite mines which implies that the cost of extraction will remain pretty much unchanged over the next years.
As per the projections by the government, power supply is going to remain behind peak demand for the coming years.
Considering this scenario, it is a great investment, though I have concerns about the pricing power of the company.

The share price almost doubled in the last few months. I booked the profits over the course of last few weeks. GIPCL will still be on my watch list for any future buying opportunities.

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