Buy GMDC; target of Rs 193: Angel Broking

Angel Broking`s research report on GMDC

“GMDC’s 4QFY2013 net sales declined 17.6 percent to Rs443cr, mainly due to lower lignite sales volumes (- 20.5 percent yoy) to 3.1mn tonne. We maintain our Buy rating on the stock.”

“The company’s staff costs and other expenses declined by 16.0 percent and 26.8 percent yoy to Rs21cr and Rs200cr respectively and therefore the EBITDA declined at a lower rate of 9.0 percent yoy to Rs224cr whereas the EBITDA margin improved by 479bp. The power segment posted an EBIT loss of Rs63cr in 4QFY2013 as compared to an EBIT loss of Rs128cr in 4QFY2012. Higher other income and lower depreciation contained the decline in PAT to only 5.9 percent.”

“GMDC beats other PSU miners in terms of efficiency, volume growth and ability to take price hikes. Despite these factors, GMDC is currently trading at an inexpensive valuation compared to its peers, which is unwarranted, in our view. GMDC ticks most boxes for a long-term view: A stock which is a virtual monopoly with proven ability to increase sales volume and prices, available at an inexpensive valuation. The key catalysts for the stock are likely to be: 1) lignite price hikes, 2) regulatory approvals for brownfield expansions, and 3) commencement of production from Umarsar mines. We value GMDC at an EV/EBITDA of 4.0x FY2015E with a target price of Rs193 and maintain our Buy rating,” says Angel Broking research report.    

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