Long-term value investing – Gujarat Industries Power Co Ltd – Is it the right pick?

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Gujarat Industries Power Co Ltd is one of the hidden gems in Indian stocks market which have the potential to create shareholders wealth. Indian stock market is trading at higher levels and “value investing” at these higher levels could turn out to be highly beneficial. This is so because the chances of oozing out good news are somewhat dried up and it’s no wonder that some bad news may also creep in. However, as there is the continuous flow of funds in Indian equity from every segment of local as well as global investment community, the quality value stocks will flourish even in bad market condition. Thus, it is good if we choose value stocks for our portfolio so that even in case of bad news our portfolio can generate the handsome profit.

With this argument in place, I am picking up an Indian company share from the long-term investment perspective. This stock is expected to generate handsome shareholder’s wealth in coming years due to its strong fundamentals. And the company name is “Gujarat Industries Power Company Ltd. (GIPCL).”

About Gujarat Industries Power Co Ltd

The Gujarat government started GIPCL in the year 1985. Gujarat Industries Power Company Limited is operating under power sector. It is in the business of electricity generation and distribution. It has gas-based power plants at Vadodara. The combined installed capacity of 829 MW is at Vadodara, Surat Amrol, and Vastan. It is also operating 12 MW Wind Power Plant at Kotadapitha, Amreli District.

GIPCL operates mines as well as Vastan Lignite Mine and Mangrol-Valia Lignite Mine. Other services which the company offers includes operation and maintenance (O&M) services, such as power plant services, and demineralization (DM) water supply and laboratory testing services.

Who holds Gujarat Industries Power Co Ltd shares? 

Besides promoters and the general public, 11 institutions also hold shares of the company for long term. ICICI Prudential Balanced Fund (7 million shares), HDFC Prudence Fund-Regular Plan (4 million shares) and UTI Mid Cap Fund (1.52 million shares) are the mutual funds that have the stake in the GIPCL.

As on date, Foreign Institution Investors (FII) like Government of Singapore-E (2,100,000 shares), Comgest Growth PLC-Comgest Growth India (1,785,101 shares), Domestic institution investors (DII) like Life Insurance Corporation of India (5,258,204 shares), Gujarat power corporation Ltd (4,977,491), Gujarat State Petroleum Corporation Ltd (3,697,000) and Gujarat State Electricity Corporation Ltd (2,205,882) had also done value investment in the company. A detailed list of most recent institutional holding the shares of GIPCL is given in here (excel).

Further, as on November 30, 2017, Dimensional Fund Advisors LP bought 91.86k shares of GIPCL. While ICICI Prudential Asset Management Co. Ltd. Sold 200k shares, Acadian Asset Management LLC 22.29k shares and Birla Sun Life Insurance Co. Ltd. 95 shares of the company. The list of movement of institutions shareholding is given in here (excel).

Why is Gujarat Industries Power Co Ltd fundamentals strong?

GIPCL is a regular dividend paying company and is paying regularly for over last 15 years. It is having a strong book value of INR 148 and bonus may also be expected in coming years.  The retained earnings of the company have grown from INR 246 Cr in 2013 to INR 289 Cr in 2017.

Further, the company managed to reduce both its long-term debt as well as short-term debts. GIPCL long-term borrowings stands at Rs.271.46 Cr in 2017 as against Rs.641.95 Cr in 2013. Similarly, Gujarat Industries Power short-term debt is now Rs.40.70 Cr in 2017 as against Rs.108.07 Cr in 2013.

One more good thing about the company is that the GIPCL reserves and surplus is growing constantly over a period of time. From Rs.1614.08 Cr in 2013 the reserve and surplus of the company currently stand at Rs.2236.11 Cr in 2017.

A detailed analysis of the cash flow of GIPCL suggests that the company is managing to generate positive cash flows from its operating activities. However, the cash thus, generated is being used up completely in investment and financing activities undertaken for the long-term growth of the company.

What do GIPCL technical charts say?

The INR 10 face value company may turn to be lucrative defensive stock with value for investment at current levels. Currently trading at 130 levels it has strong resistance to 185 levels and then around 210 levels. On the downside it GIPCL support is at 125 and 120 levels.

Fundamentally, the stock is on strong footing and is ready to take off on the growth front. On technical, remaining above 120 levels this is possible. Anyway, the stock is likely to be a “safe fixed deposit” in coming years.

DEEPAK SAREEN

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Deepak Sareen is an expert financial advisor in Sector 05, vasundhara Ghaziabad. He is well known financial advisor in the field of financial market. Having been into financial industry more than 15 years. Deepak majorly deals in Mutual funds, IPOs, Shares, Demat, General Insurance. Deepak thinks Investment in stock market requires in-depth research and expertise. Retail investors find it very difficult to find the right information and resource at the right time and in absence of this feature they lose their wealth and faith in the stock market. There is a huge gap in the investing environment in India as compare to other developed economies.

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