Galada Power & Telecommuncations Ltd Rs19.80: Poised for Take-Off

RATIONALE FOR RECOMMENDATION:

1. Co is in Power sector manufacturing Aluminium Rods and Aluminium Conductors (product same as of Apar Ind, Sterlite Tech).

2.  OTS (One Time Settlement) done with IDBI/UTI for just Rs 26 crores.

3. Additional interest and Damages of 215 crores already waived by SASF/UTI.

4. GPTL has non-core assets. Market value of same are more than Rs 45 crores against current market cap of 14 crores.

5. GPTL planning to sell part of non-core assets to pay off OTS money and try to become DEBT-FREE.

6.Presently, plant operating at low capacity on job-work/conversion basis. Subsequent to settlement of OTS dues and if Galada can generate bank guarantee post selling of non-core assets, company should be in a position to produce and sell on its own which can enable it to attain Sales of 250 crores for FY18.

7. One Rod making plant lying at Mumbai customs since several years.If company succeeds in clearing this plant from Mumbai Customs (after waiver of demurrage), this plant can double its rod making capacity.

BACKGROUND:  GPTL is engaged in production of Aluminium Alloy Rods with installed capacity of 22000 tonnes and Aluminium Conductors with installed capacity of 24000 tonnes at Silvassa. Company has closed down its Hyderabad plant and this surplus land is for sale. Once a dividend paying company making profits, GPTL had fallen into bad times due to slowdown in power sector, nonreceipt of payments from SEBs and excessive capex.  As a result, company had accumulated large debt which it was not able to service. Banks had frozen all credit limits and company started operating its plant on lower capacity and that too on job-work/conversion basis. Since, company's networth had become negative, GPTL had gone BIFR for rehabiliation package.  After years' of struggle and negotiations, finally GPTL is on path of recovery as OTS has been finalised with IDBI and UTI which is huge huge relief to

GPTL.

FINANCIAL PERFORMANCE:

                           

Currently, there is nothing great about financials of GPTL as company is not producing and selling on its own. Rather, company is doing conversion work for other companies like Apar and Sterlite and plant operating at low capacity due to paucity of working capital.

                                    Q1/FY16

Income from Jobwork         0.78

Loss                                -0.70

Other Income                    1.79

Interest                             0.73

NP                                   0.36

In Q1, GPTL had done job work and operating at very low capacity. GPTL made Other Income of 1.79 crores by selling part of non-core assets. 

However, now, ITS ORDER BOOK FOR JOB WORK IS FULL UPTO MARCH 2016 AND PERFORMANCE OF H2 WILL BE SUBSTANTIALLY BETTER. As per our estimates, from Q3 onwards, GPTL may generate Profit Before Interest (but after depreciation) of 35 lacs PER MONTH. EVEN IF GPTL CONTINUES WITH JOB WORK, AT FULL CAPACITY, GPTL CAN REPORT PAT OF 3 CRORES FOR FY16.

MAIN FEATURES/SIGNIFICANT DEVELOPMENTS:

1. In FY14, GPTL had written back 8.62 crores as it had settled with IDBI its liability (leased equipments) of 9.72 crores for just 1.10 crores.

2. GPTL has finalised OTS with IDBI and UTI for total sum of mere Rs 26 crores. As a result, it has written back amount of 77 crores which is reflected in above results.

3. Loan of Canara Bank and IIBI has been taken over by Edelweiss ARC. Loan of Syndicate Bank is also likely to be taken over by Edelweiss ARC. This total liability of these 3 banks is likely to be settled for Rs 5 crores and same may be concluded in Q3

4. SASF/UTI has already waived Additional Interest/Damages of Rs 315 crores.

5. GPTL is providing in books Interest charges of roughly 6 crores. Same is mere accounting entry. Company is not PAYING the same. Once all formalities pertaining to OTS with all banks/lenders are done, there will not be any interest cost of this 6 crores.

6. As per terms of OTS with IDBI, GPTL can make payment of same in quarterly EMIs by adding 12% interest . However, GPTL may sell any/part of its non-core assets to pay off in 1 shot entire OTS amount. GPTL has the following surplus/non-core assets:

A. GPTL has 3.80 acres of land in Uppal Hyderabad which is just 500 mtr away from under-construction Metro. Fair market value is this land parcel is 25-30 crores

B. GPTL also has 6.50 acres surplus land in Patancheru. Fair market value of this land parcel is 12-15 crores.

C. GPTL also owns part of Galada Tower in Hyderabad. After keeping some space for its office use, if Galada sells surplus space, same may fetch nearly 8-10 crores.

Thus, TOTAL MARKET VALUE OF SURPLUS ASSETS IS BETWEEN 45 TO 50 CRORES. Against same, its market cap is hardly 14 crores.  Part sale of these assets is enough to pay off OTS amount and become DEBTFREE.

7. Finally, company had imported in 1997rod making plant from Germany for Rs 12 crores (same is shown in its annual accounts as "Machinery in Transit).

However, company could not clear the same from Customs as it had already fallen into bad times and due to funds crunch, could not make payment of custom duty. This plant still lying in Mumbai customs. As on date, custom duty of Rs 30 lacs and demurrage/warehousing charges of bonded warehouse are 3.52 crores Company may try (through BIFR) waiver of demurrage charges. Although it may happen only in 2017 but once this plant is cleared from Customs (and this plant will become operational by replacing softwares costing less than 2 crores), PRODUCTION CAPACITY OF ROD WILL DOUBLE. Brand new plant (lying in custom) of same size as on today will involve investment of more than 60 crores.

When GPTL succeeds in selling some non-core assets , becomes debtfree and manages to get surplus funds (or some borrowings from banks), GPTL can start producing Rods and Conductors on its own which can fetch turnover of nearly 250 crores per annum. POWERGRID is very keen to place orders with GPTL.

17 years back GPTL had done share issue @ Rs 40 per share and its share price at Bse had touched Rs 110/.

With above developments, GPTL has entered the lane of strong recovery. Worst is behind.  Considering that part sale of non-core assets can enable GPTL to become debtfree, GPTL at current market cap of 14 crores is dirt cheap.

Once GPTL attains turnover of 250 crores, its PAT can be more than 15 crores. because its fixed overheads like Salary/wages, depreciation will remain almost same (at current levels) and Finance Cost will almost vanish.

A DARK HORSE.  A VERY VERY STRONG BUY.  If all goes well as under planning at present, GPTL should deliver REAL MULTIBAGGER appreciation to its shareholders. Share price can be Rs 45-50 in next 9-12 months and can cross even 100 mark in next 2-3 years.