Management Interaction Takeaways
GMDC
We recently interacted with the management of GMDC and following are the key takeaways from the same:-Lignite Volumes & Price Hikes
m The management has reiterated that volumes would remain strong on the back of robust demand and FY13E volumes should be anywhere between 12.7-13.0 MT, up by 12-14% YoY.
m With regards to the long awaited price hikes in merchant mines, the company communicated that the same would be taken up now only after elections in Gujarat. GMDC is looking to take price hikes of ~Rs100/tonne (in the range of 6-8% across merchant mines).
Bauxite volumes seen at 1 MT for FY13E
m Bauxite volumes for FY13E are expected to be ~1 MT and the company remains confident on achieving the same easily this year despite challenges.
Panandharo North block to replace existing Panandharo as regulated price mine
m Panandharo North mine block, which lies 5kms away from the existing Panandharo South mines are expected to replace the existing mine as a regulated price lignite supplier in the next 3-4 years.
m Panandharo North block has ~30 MT of reserves and is a separate mine with no part of the same included in any other existing mines of GMDC.
Pyrite removal plant at Bhavnagar still awaits pollution board approval
m Company is still awaiting the pollution control board clearance for the project and expects to start production post the receipt of the same. The ramp up to full capacity of 1.5 mtpa (phase 1) is expected to take 4-6 months after start.
m The current GCV of lignite at Bhavnagar mines is ~3000 Kcal/kg and the same is expected to be improved to 4500Kcal/kg after the pyrite removal process. Company has guided for 5% rejects during the pyrite removal process.
m The realizations increase post increase in GCV is expected to be ~Rs400/tonne and the work has been outsourced to a third party vendor at a fixed cost of Rs150/tonne.
Bauxite volumes seen at 1 MT for FY13E
m Bauxite volumes for FY13E are expected to be ~1 MT and the company remains confident on achieving the same easily this year despite challenges.
Panandharo North block to replace existing Panandharo as regulated price mine
m Panandharo North mine block, which lies 5kms away from the existing Panandharo South mines are expected to replace the existing mine as a regulated price lignite supplier in the next 3-4 years.
m Panandharo North block has ~30 MT of reserves and is a separate mine with no part of the same included in any other existing mines of GMDC.
Pyrite removal plant at Bhavnagar still awaits pollution board approval
m Company is still awaiting the pollution control board clearance for the project and expects to start production post the receipt of the same. The ramp up to full capacity of 1.5 mtpa (phase 1) is expected to take 4-6 months after start.
m The current GCV of lignite at Bhavnagar mines is ~3000 Kcal/kg and the same is expected to be improved to 4500Kcal/kg after the pyrite removal process. Company has guided for 5% rejects during the pyrite removal process.
m The realizations increase post increase in GCV is expected to be ~Rs400/tonne and the work has been outsourced to a third party vendor at a fixed cost of Rs150/tonne.
Our View: We maintain our bullish stance on the stock on the back of expected strong volume growth from the lignite division in the coming years and better pricing ahead post merchant hikes after elections. At CMP of Rs208, the stock trades at FY14E P/E of 8.8x and FY14E EV/EBITDA of 5x. We maintain our Buy rating with a target of Rs246.
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