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Centrum Broking
GMDC (Buy)
CMP: ₹119.30
Target: ₹150
Gujarat Mineral Development Corporation’s Ebitda stood 4.7 per cent above expectations at ₹126 crore as mining Ebit/t increased by 10 per cent y-o-y to ₹480/t on the back of lower expense for mining cost and CSR expenses. Volumes remained muted at 2 mt with production issues at Tadkeshwar and Rajpardi and muted volumes from Bhavnagar.
Discussion with management pointed to 1) volume guidance of 2.8 mt in Q4 and 13 mt in FY16E; 2) resolution of hard strata issue at Tadkeshwar in Q3; 3) additional contractors for Bhavnagar/ Tadkeshwar for increasing production likely to be finalised in Q4; 4) delays in start of production from Umarsar mine and pyrite removal plant at Bhavnagar which is now expected in February.
We reduce our volume estimates for FY15E/16E to 9/10.8 mt (vs 9.8/11.7 mt earlier) and also remove our price hike assumption for FY16E even though GMDC lignite’s discount to similar calorific value coal from imports/WCL still remains high. Maintain ‘Buy’ as risk-to-reward remains favourable. Risks to our call would be lower production, investments in low return projects.
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