870% rise in a year! This multibagger steel stock has a lot going for it

NEW DELHI: Shares of Godawari Power and Ispat (GPIL) have skyrocketed in the last one year. The stock has outperformed the benchmark indices by a wide margin, delivering multibagger returns to investors.

GPIL is the flagship company of Raipur-based Hira Group of Industries, and has a dominant presence in the long product segment of the steel industry, mainly in mild steel wire. The company manufactures sponge iron, billets, ferro alloys, captive power, wires rods, steel wires, oxygen, fly ash brick and iron ore pellets.

Stock performance
Shares of GPIL have delivered 55 per cent return in the last one month and is up 210 per cent in 2021 so far. On Monday, the stock gained 20 per cent to close at Rs 1,502 but fell some 3% on Tuesday to trade around Rs 1,450.

The stock has risen over 870 per cent in the last one year and 2,400 per cent in the last five years. If you had invested Rs 10,000 in the stocks five years ago, it would have become about Rs 2.5 lakh on Monday.

Reasons for the rally
Shares of Godawari Power and Ispat have been on a high for multiple reasons, including divestment of subsidiaries, robust March quarter earnings and a spike in demand.

The board of Godawari Power and Ispat has approved the proposal for divestment of its shareholding in Godawari Green Energy, a material subsidiary of the company at an extraordinary general meeting held on June 12.

The Hira Group's flagship company is also active in power generation and iron products, which analysts say should witness significant demand in 2021. The demand for power has also been rising constantly.

The company reported multifold jump in consolidated net profit at Rs 304.01 crore for the March quarter of 2020-21 on a total income of Rs 1,263.67 crore mainly on the back of higher revenues. Net profit for the year-ago period stood at Rs 34.22 crore.

Traders are comparing the IPO of Shyam Metalics and Energy as a direct peer of the Hira Group's entity. This is also adding to its attraction and making it a re-rating candidate.

What do analysts say?
The company has been reporting rising profits QoQ for the last four quarters and has reported consistent revenue growth for the last three quarters. Analysts say the company has shown operational excellence in the last few years, aided by a sharp rise in commodity prices.

AK Prabhakar, Head of Research at IDBI Capital, said the company has seen a turnaround in the last few years, with a focus on debt reduction. It has been a consistent performer in the last five years. Margin expansion is the main story, which has played out for the company.

"The metals pack has performed pretty well, thanks to the commodity super cycle and the demand for power is also rising," he said. “The company has shown healthy growth in margins, improving its operational profits and overall bottom line.”

Gaurav Garg, Head of Research at CapitalVia Global Research, said the company has been working in the metals sector, which is booming currently after the government announces plans to focus on infrastructure development. “Foreign Investors have also been raising stake in the company."

What should investors do?
Analysts are positive on the stock after the stellar show for the March quarter. They said investors should wait for some correction to make fresh investment in the stock.

“Such stocks shine in super-cycles. Investors should book partial profit for safety margin,” said Prabhakar of IDBI Capital. “Since everything is perfectly priced, new investment is not recommended at this stage,” he said.

“The stock has been showing a positive momentum in the market. We may see a small correction in the stock in the near future, but the fundamentals remain strong and can give good returns in the long run,” said Garg of CapitalVia.