Invest in GMDC - A consistent Performer

 

The investment rationals are as given below

 

1.     Lignite demand intact -The macro-economic factor is favorable for lignite, which has seen a constant rise in production at CAGR of 7.3% in the period from 2007 to 2012 for GMDC. Lignite is holding 80% revenue of GMDC.

 

2.   Increase in Lignite production – GMDC’s Bhavnagar mine has seen a huge increase in production. GMDC further planned to increase Bhavnagar’s production capacity to 5 MT. Apart from this, GMDC’s  other plants excluding Panandhro have also shown impressive increase in production.  GMDC’s new plant at Umarsar is expected to start production at the end of FY 2013. Combining all factors, GMDC will see good increase in Lignite production in the next year and thereafter.

 

3.   Diversification of Business – Apart from mining business, GMDC has also diversified its business into other areas. Power is one of the major portfolios. Though the power segment hasn’t contributed majorly, going forward it will play an important role.

 

4.   High growth prospect of Bauxite – Though bauxite only contributes to 5% of the overall revenue, the growth prospective of Bauxite is quite high. GMDC has also planned to increase its bauxite production.

 

5.    Vertical Integration – To add more value to its product, GMDC has explored into the areas of vertical integration. This strategy is already operative as it has formed joint ventures with number of organizations namely Gujarat Jaypee Cement and Infrastructure Ltd, Gujarat Gokul Power Company Ltd, Bhavnagar Energy Company Ltd, Gujarat state mining and resources corporation ltd, Naini Coal Company Ltd, RBG Mineral industries ltd, Gujarat credo mineral industries ltd, National Aluminium Company Ltd (NALCO), Alumina Refinery Chemicals, Gujarat Fluorochemicals Ltd, Navin Fluorine International Ltd.

 

6.   Price increment in near future – GMDC is in a position to increase the price of lignite in near future. This will improve the bottomline of the company.  GMDC being the sole trader of lignite in the state and as there is no nearby coal mine, GMDC is well poised to increase the price.

 

 

7.    Process efficiency – The project iMine has gone live in April, 2011. After implementing ERP, one year has passed by and it has been stabilized. This has improved the overall process by integrating the applications, workflow management and e-mail facility.

 

8.   Financial Performance – GMDC’s financial performance is quite impressive and consistent. In the last year, total revenue was up 16.72% and profit was up by 29.82%. Being a debt free company, GMDC doesn’t have any debt burden. Currently the stock is hovering at PE of 10.76 and expected to be around a PE of 8 in FY 2014.

 

Risk – The strict norms and environmental regulations take long time to give clearance to the mining projects, which delays the overall project timeline.

 

Considering overall performance of GMDC, its track record and macro-economic factor, it can give 20% to 30% return in the next 6 to 12 months.

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