Gujarat Mineral Development Corporation (GMDC) is one of the leading mining and mineral processing companies in the country. Company is into exploration of lignite, fluorspar and other minerals like calcined bauxite, alumina and manganese.
It reported an impressive performance for FY 2008. Net sales soared up 66.5% to Rs980.66 crore led by 60.3% spurt in mining sales of Rs855.34 crore. Power turnover grew at 31.8% to Rs161.54 crore.
OPM expanded to 52.7% (47.6%) as power business turned around in Q4 FY 2008. Aided by 65.3% higher other income of Rs57.64 crore, the PBT surged to Rs408.39 crore. PAT increased 179.4% to Rs263.93 crore.
The road ahead
GMDC has been allotted two coal mine block of 350 million metric tonnes (mt) and 250 million mt in Chattisgarh and Orissa to be developed over next 4 years. These mines will feed two power projects of 2,750 MW and 1,750 MW with GMDC investing in 26% of their equity.
However, coal supply will be at arms length and market determined rates and expect coal volumes at ~15-18mn mt in the next 4-5 years. With power business turning around in FY 2008, profitability is expected to improve further in FY 2009.
The company is also is setting up 6 mtpa cement plant in joint venture with Jaiprakash Associates in Gujarat.
At CMP (Rs 2/- paid up), share is trading at 17.4 times FY 2008 actual EPS of Rs16.60 and at 10.3 times FY 2009 expected EPS of Rs 28. Higher volumes and realisations should enable GMDC to grow over next few years.
This will be complemented by a ramp up in coal mining. Further, buoyant realisations of coal will also increase probability of lignite price. Hence, we recommend a BUY with a target price of Rs420.