Company Introduction: GMDC was established by the Government of Gujarat, in the year 1963, for developing important and major mineral resources of the State. Its product range includes energy minerals like Lignite, Bauxite, Fluorspar, Granite and Marble.
Investment Arguments The nearest coal mine is almost 700 Kms away from Gujarat Border makes it bit difficult for companies to transport coal from mines. Transportation cost is again major chunk in total cost of coal which is on upward move (Container corp. recently hike the freight cost by 20-25%). Imported coal is again costly because of rupees depreciation and difficult to accommodate in domestic boilers. Overall cost benefits analysis forced companies to buy the coal from GMDC.
Expected Value: 264 Sector: Power & Mining
GMDC is continuously decreasing its dependency on lignite and putting effort to de-risk the business by entering into Bauxite, power; both thermal & Wind alongwith Manganese, Coal, Cement, Lead, Zinc, Copper production. Total Demand for Lignite in India is expected to grow at a CAGR 10% from 55.8 mn tonnes in 2011-12 to 87.8 mn tonnes in 2015-17. Power sector is major driver of growth. Company has thermal power plant of 250 MW which is running below its optimal capacity, GMDC has outsourced Korean company to enhance the PLF. We expect thermal power will start contribution in EBIDTA from FY 14 onwards.
Valuation In PE term stock is quoting at 8.5x FY15E EPS of Rs 24.7 and 9.5x FY14E EPS of Rs 22.1. We see the price target of Rs. 264 based on FY 15, EPS. (Value based on 5 years median PE multiple.)
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