Buy GMDC; hold CESC, DLF: Ventura

Ventura's research report on Gujarat Mineral Development Corporation(GMDC), CESC, DLF

GMDC: Despite a weak performance in Q4FY13 led by technical issue in some of its mines, we believe in GMDC’s overall strength and expect these issue can be resolved in near future given strong execution done in past. Potential trigger for the stock include ramp in lignite volumes, increase in prices and improvement in PLFs in power business. The management maintains the same status without specific time frame within which such price hike would be taken. However, we believe with the falling international coal prices, the company may face some difficulty to hike prices. At a CMP of Rs 134, GMDC trades at EV/EBITDA multiple of 6.2x and 5.5x FY14E & FY15E estimates. We recommend a BUY on the stock.

CESC reported numbers which were well above street estimates on account of cumulative tariff adjustments for the first three quarters following the WBERC order for tariff hike. The status of project completion is on track with the Haldia project running as per schedule and Chandrapur which should get commissioned in July 2013. The losses of Spenser continue to decline and it’s likely to breakeven by March FY14. While the recent First Source (an unrelated acquisition) is likely to add to its debt, the distribution franchise win in Ranchi opens up a new opportunity to earn high RoE (>15.5 percent) over the next couple of years. With uncertainty in FDI in retail and unrelated acquisition of first source the stock is likely to trade at a discount. At the CMP of Rs 349 the stock is trading at P/E of 8.44 FY14 and 7.27 FY15 estimates we recommend to HOLD the stock.

DLF's overall prospects remained stable led by consistency in execution, reduction in debt level and expected improvement in operating cash flows. However, Q4FY13 was a disappointing quarter for DLF Ltd backed by the lower revenue recognition (due to new accounting policy). However, the management has guided for strong visibility of earnings and cash flows in near future on the back of commissioning of Mall of Noida and Phase V. However, the discouraging capital markets and higher borrowing costs remain a risk to the company’s guidance. Further, leasing volumes continue to remain under pressure due to global uncertainties. Currently at CMP of Rs.198, the stock is trading at 25.8x and 18.2x its FY14E and FY15E consensus earnings estimates and we recommend a HOLD on the stock.

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