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Equirus Securities
GMDC (Long)
CMP: ₹73.2
Target: ₹139
GMDC paid about ₹30 crore to a Bhavnagar mining contractor as compensation for higher waste production in earlier years. Even on adjusting for this, EBITDA at ₹91 crore declined 31 per cent y-o-y to come in 14 per cent below expectations as 1) profitability of a thermal power plant was also lower due to lower PLF; and 2) there was some increase in the cost of production at Bhanagar and Umarsar mines with new contractors taking charge.
Despite a favourable demand environment amid higher coal prices, GMDC has not been able to capitalise on the same due to internal production-related issues. While Coal India has taken multiple price increases (via direct or indirect hikes), GMDC has been a laggard. lignite production for 3Q declined 21 per cent y-o-y as contractor changes and a delayed pick-up in production post monsoon impacted volumes, with a similar decline expected in 4Q as well. We now expect FY19/FY20 lignite production at 9.1/9.5 million tonne versus 9.8/10.9 mt earlier, leading to an 11 per cent/24 per cent cut in EPS. However, with cash & cash equivalents forming around 65 per cent of CMP, valuations are extremely attractive. Retain ‘long’ with a March 2020 DCF-based TP of ₹139 (versus ₹164 earlier).
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