IDFC Securities - Gujarat Mineral Development Corp. Ltd. (GMDCLTD) Event update: GMDC (Outperformer) - Price booster

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IDFC Securities

Ashish Kejriwal

Event update: GMDC (Outperformer) - Price booster

Event

GMDC has announced an average price hike of ~Rs130/t (~10%) for lignite effective from 1st June, 2019.

Details

GMDC has earlier increased prices by an average Rs150/t in April 2018. GMDC’s lignite prices were trading at a discount of 20-35% compared to its alternative fuels on GCV basis. The company tried to bridge the gap by increasing the lignite prices by an average of Rs130/t (~10%) effective 1^st June, 2019. The price hike ranges from Rs110-175/t across different mines. Notwithstanding the hike, GMDC’s lignite price is (~Rs0.91/kcal) still at 13-26% discount to alternative fuels.

Impact on financials

Out of FY20e volume of 9.2mt, this increase should be applicable for merchant volumes i.e. 75% of FY20e volume (6.8mt). Cost of mining is expected to increase in FY20E with higher stripping ratio (already factored in). Timely average price hike of ~Rs130/t is likely to give boost to lignite EBITDA/t by Rs51 to Rs469/t in FY20E. We now factor in the price hike and as a result, FY20E/FY21E EBITDA stands increased by 15%/22%.

Valuation & view: Reiterate Outperformer with revised TP of Rs126

We expect FY20 volumes to remain flat (9.2mt) as volume growth from other mines will be offset by absence of any production from Panandhro mines (0.7mt in FY19) as its reserves have been exhausted. We expect lignite prices to stay steady in FY20. GMDC has cash & cash equivalents of Rs10.5bn (Rs33/sh) at FY19-end which is 40% of CMP. Though majority of cash is parked with government bodies but it earns interest on it (FY19 interest income was Rs1.18bn). At CMP of Rs81, the stock is trading inexpensive at 1.9x FY20E EV/EBITDA. With increase in earnings, we revise upwards our TP to Rs126 (earlier Rs114), valuing it at 4.5x FY20E EV/EBITDA. Reiterate Outperformer.

03/06/2019 1 EN

Underlying

Gujarat Mineral Development Corp. Ltd.

Gujarat Mineral Development Corporation Ltd. Gujarat Mineral Development Corporation Limited is a holding company. The Company operates through two segments: Mining and Power. The Company's projects include Lignite, Bauxite, Fluorspar, Multi-Metal, Manganese, Power, Wind and Solar. It operates over six lignite mines, namely, Panandhro, Mata-No-Madh, Rajpardi, Tadkeshwar, Bhavnagar and Umarsar. The Company has bauxite mining operations at its Mewasa Bauxite Mines in Devbhoomi Dwarka, district of Gujarat. The Company's Fluorspar project is located at Kadipani, district of Baroda. The Company's Multi-Metal project is located at Ambaji, district of Banaskantha. The Company's Manganese project is located at Shivrajpur, district of Panchmahal. Its Power project is located at Nani Chher, district of Kutch. The Company's Wind Farm projects of 150.9 megawatts are situated at different locations in Gujarat, and a five megawatt peak Solar Power Project is situated at Panandhro Lignite Project.

See profile

INE131A01031 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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Analysts

Ashish Kejriwal

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Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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