The GIPCO scrip had been rising on the bourses and the counter was seeing good volumes. The stock has appreciated by nearly 40 per cent in less than one month and has even managed to defy the bearish market sentiment prevailing in the market for the past eight trading sessions (barring Tuesday). After the results were announced, the scrip shot up to Rs 30.2, which is close to its 52-week high of Rs 41.

Realisations from the sale of electrical energy in the first-quarter has risen sharply from Rs29.65 crore to Rs 103.93 crore. A substantial part of the realisations has come from the commissioning of the 162.5 megawatt multi-fueled fired combined cycle power plant. However, GIPCO's margins have come under pressure because of higher expenses -- the expenditure sales ratio has gone up from 55 per cent to over 60 per cent. Consequently, margins at the operating level have dipped marginally from 44 per cent to 39 per cent.

High interest costs as well as a higher provision for depreciation have restricted GIPCO's net profit growth. Interest cost has more than trebled from Rs 4.82 crore to Rs 16.93 crore. The high interest burden can be attributed to the borrowings undertaken by the company for its expansion programme. The company has a very high gearing with a debt-equity ratio of 5.7:1. The higher provision for depreciation (Rs 10.82 crore compared wwith Rs 4.46 crore last year) is on account of the commissioning of the Baroda plant.

On a Q1 net profit of Rs 13.15 crore, the annualised earning pershare has improved substantially to Rs 7 from Rs 2.7 in the corresponding period last year. On the current market price of Rs 30.2, the price-earning multiple works out to 4.3. The poor discounting is largely because of the frequent equity dilutions undertaken by the company.

Analysts say given GIPCO's high gearing, fresh equity issues are likely to fund the new projects coming up in Surat. According to them, the returns accruing from the naphtha plant at Baroda will be nullified if GIPCO issues fresh equity to finance the 2*125 megawatt lignite-based project at Surat. This explains why the GIPCO scrip has been moving in a narrow-bound range of Rs 20-40 for the past two years.