Buy Gujarat Mineral; target of Rs 255: Ventura

Ventura is bullish on Gujarat Mineral Development Corporation and has recommended buy rating on the stock with a target of Rs 255 in its July 23, 2012 reports.

“We initiate coverage on Gujarat Mineral Development Corporation Ltd (GMDC) as a BUY with a Price Objective of Rs255 (target 6.5x FY14 EV/EBITDA). At CMP of Rs187, the stock is trading at 5.9x and 4.8x its EV/EBITDA estimated for FY13 & FY14 respectively, representing a potential upside of ~36% over a period of 18 months. Led by uptick in lignite volumes, price hikes, growth in bauxite business and possible turnaround in the power segment, we expect GMDC’s revenues and earnings to post a CAGR of 27.1% and 23.7% to Rs2636.2 crore and Rs745.3 crore, respectively by FY14. Being the sole trader of lignite and other minerals in the state of Gujarat, GMDC enjoys assured off-take and significant pricing power, thereby ensuring long term revenue visibility.”
“On the back of commencement of new lignite mines and the management's ability to scale up production at the existing mines, GMDC's lignite segment has witnessed a robust production growth of ~7.3% CAGR over the period of 5 years from 2007 to 2012. Going forward, we expect this segment to grow at a CAGR of 13.5% from FY12-FY14 aided by the commissioning of the new mine - Umarsar and healthy production growth from existing mines. Additionally, on the back of being the sole player and absence of coal mines in the region of Gujarat, GMDC enjoys significant pricing power. This can be reiterated from the fact that GMDC has been able to increase lignite prices at a CAGR of 14.5% since FY07-FY12, enabling it to easily offset cost pressures.”
“At the CMP of Rs187, GMDC is trading at 5.9x and 4.8x its estimated EV/ EBITDA for FY13 and FY14, respectively. We initiate coverage on GMDC as a BUY with a Price Objective of Rs 255 (6.5x FY14 EV/EBITDA) over a period of 18 months. Considering the increasing production, adequate reserves life of its mines and pricing power, we expect GMDC to continue to register robust growth. The bauxite mining business is also witnessing good growth and the JV with Nalco for setting up an alumina plant and aluminum smelter project, augurs well in terms of long term revenue visibility. However, we have not factored any business revenue from this JV in our earning model,” says Ventura research report.   Shares held by Mutual Funds/UTI Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

Read More