Buy GMDC; target of Rs 249: Sushil Finance

Sushil Finance is bullish on Gujarat Mineral Development Corporation (GMDC) and has recommended buy rating on the stock with a target of Rs 249 in its October 19, 2012 research report.

“Gujarat Mineral Development Corporation (GMDC), Q2FY13 Revenues grew 57% YoY at Rs.3,822 mn led by 39% mining growth (Incl. Rs.305 mn pertaining to Panadhro price hike arrears for the 15 months till Q1FY13) and 83% power revenue growth (Incl. Rs.105 mn pertaining to Panadhro price hike arrears accounted in Thermal power). Adjusting for the Arrears, mining revenues increased by 24% (Lignite +15% & Bauxite +140%) and Power revenues grew by 63% (Thermal +37.5%, Wind +114%).”

“GMDC reported lignite volumes of 1.96 mn tons (Incl. Captive consumption) vs. 1.71 mn tons in Q2FY12, a growth of 15%. The company is well on track to achieve its targeted volume growth of +12% in FY13 with the H1 volumes growing by 12.5% and has guided for a 15% volume growth in FY14. However; considering that the company is still awaiting EC Limit approval at its two mines viz. Mata-no-Madh and Bhavnagar, we have factored low growth in FY13 & FY14 at 10.3% and 1.4% respectively. EC Limit approval at Mata-no-Madh and Bhavnagar is likely in the next 6 months and then it would take 1 month for implementation. In addition, the company is looking at a Price hike of Rs.100/ton of lignite from January 2013 mainly to offset the impact of diesel price hike (Rs.60-70/ton - 6% of CoP). The company has revised its earlier capex guidance to Rs.5,550 mn (Rs.4,000 mn) to be incurred on setting up wind farm with a capacity of 50 MW (Rs.3,050 mn) to be commissioned by Q4FY13E, land acquisition for future mining projects (Rs.500 mn) and land acquisition for Nalco JV (Rs.2,000 mn). The land acquired for Nalco JV will be transferred to JV as GMDC’s equity contribution (Rs.170 mn) at market rate once Nalco gets Government approval. For FY14, the company has guided for a capex of Rs.3,550 mn for setting up an additional 50 MW wind farm taking its total wind capacity to 200MW and land acquisition.”

“GMDC has come out with impressive results for Q2FY13. Given the company’s strong execution skills as witnessed in Q2FY13, increase in lignite prices at Panandhro & likely price hike at other mines we are upward revising our FY13E and FY14E earnings estimates to Rs.21.3 (Rs.20.8) & Rs.23.2 (Rs.22.3) respectively. Also, the company has a good pipeline of mine additions which will significantly add volumes in the subsequent years coupled with likely commencement of Alumina JV with Nalco will significantly add value to the company’s core business. Thus, based on consistent volume growth, strong pricing power, robust cash generation, healthy return ratios and likely improvement in the power business we maintain ‘BUY’ on the stock with a price target of Rs. 249,” says Sushil Finance research report. 

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