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GMDC's Q4FY19 results (Outperformer) - Awaiting price hikes; inexpensive valuation

Q4FY19 result- Higher prices & lower mining cost offset volume decline

GMDC reported EBITDA of Rs1,691m, up 26% yoy (55% higher than IDFCe) .The beat was due to lower than anticipated mining costs which in turn was due to lower overburden removal during the quarter. The EBITDA growth was due to higher realisation and lower mining cost which offset impact of lower volumes.

• Mining EBIT, at Rs1,379m was up 26% yoy despite 22% lower lignite volumes (2.66mt) primarily due to higher lignite realisation (Rs1,759/t, up 10% yoy) and lower mining cost (Rs1,240/t, down 3.4% yoy). While the higher realisation reflects the benefits of price hike of Rs150/t taken in Apr 2018, mining costs bucked the increasing cost trend despite lower volumes. This was due to lower overburden removal costs during the quarter. As a result, EBIT/t was Rs519, up 61% yoy.
• Power EBIT stood at Rs194m, down 68% yoy (Q3FY19: Rs7m). This is primarily due to lower PLF in 250MW power plant at Akrimota (51% in Q4FY19 vs 82% in Q4FY18) as it generated 278m units, down 38% yoy. However, wind power generation grew 53% yoy to 81m units aiding profitability.

Key Positives: Lower mining cost, higher lignite prices

Key Negatives: Lower lignite and power volumes

Impact on financials: Unchanged

Valuation & view: Reiterate Outperformer with TP of Rs114

We expect FY20 volumes to remain flat 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. Cost of mining is expected to increase in FY20 with higher stripping ratio. Possibility of price hike in lignite exists in June 2019 as it is still at a discount of 20-35% to alternative fuel on GCV basis. We have not factored in any price hikes in our numbers. GMDC has cash of Rs10.5bn (Rs33/sh) at FY19-end which is 45% of CMP. At CMP of Rs72, the stock is trading inexpensive at 1.7x FY20E EV/EBITDA. We maintain our TP of Rs114, valuing it at 4.5x FY20E EV/EBITDA.​