Monday, September 8, 2008

Stock Idea: GMDC

Gujarat Mineral Development Corporation (GMDC) is a Gujarat State government undertaking engaged in the business of lignite, bauxite and fluorspar mining as also power generation units based on lignite.
The fourth quarter of FY08 had been its best and in comparison, all else pales. Especially the performance for the first quarter ended 30th June 2008. Sequentially, the performance has dropped. Net sales is down 15%, and though it managed to reduce its operating expenses, by 25% which itself is a feat given the rising costs in Q1. Despite that EBITDA dropped 3% and then interest outgo rose 215 and depreciation by 4% and this pushed down the PBT growth by 19%. And then it added back the expenses provided for overburden removal and loading of lignite and this was to the tune of Rs.38.88 crore. This boosted the PAT by 14% at Rs.72.35 crore. The company might have managed to show an increase in the last leg but the profit margins indicate the pressure. OPM slipped down from 55.08% to 48.15% and NPM from 26.53% to 19.75%.

A look at the net sales break-up indicates that there had been a fall overall. Its income from mining fell from Rs.292.45 crore to Rs.239.40 crore. The income from power also fell, from Rs.50.91 crore to Rs.40,52 crore.

YoY, the company has done well and that to a large extent is very reassuring. The company continues to remain on a good wicket, it’s just that Q4FY08 was its best and expecting Q1CY09 to match up or exceed would be unfair, especially with many companies showing a slower growth.

The company is presently producing about 80 lakh MT of lignite at its three mines. New mines have been developed at the various locations at Surat to cater to South Gujarat where estimated annual production would be 10 lakh MT. 10 lakh MT of lignite production at Amod near Bharuch would fully contribute in FY09. 30 lakh tonne of lignite production is estimated from Bhavnagar mines to cater to Saurashtra region and Central Gujarat. So, in FY 09, the production of lignite would rise by about 40%. The company also has 250 MW power plant in operation based on lignite.
Lignite referred to as brown gold, is an alternative for coal, which is in great demand, as natural resources are becoming scarce all over the world. The stock went ex-bonus from 1st September and on 5th September it touched a new low at Rs.192. Currently it is quoted at Rs.195. Stay invested as it remains a fundamentally sound stock.


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