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GMDC 3QFY2014 performance highlights and results update

February 14, 2014, Friday, 17:51 GMT | 12:51 EST | 22:21 IST | 00:51 SGT
Contributed by Angel Broking

Gujarat Mineral Development Corporation (GMDC) reported a disappointing set of numbers during 3QFY2014 on the back of weaker-than-expected volumes. Nevertheless, we maintain our Buy rating on the stock.

Lower volumes dent top-line: GMDC’s 3QFY2014 net sales declined by 17.7% yoy to Rs.291cr due to lower lignite sales volumes (down 21.5% to 1.9mn tonne). EBITDA declines in-line with decline in top-line: The company's EBITDA declined 29.5% yoy to Rs.124cr due to decline in sales. However, on the positive side, its Power business turned around during the quarter and reported an EBIT of Rs.33.2cr compared to an EBIT loss of Rs.0.6cr in 2QFY2014 and EBIT loss of Rs.2cr in 3QFY2013. The tax rate for 3QFY2014 increased to 37.2% compared to 32.2% in 3QFY2013 and hence, the company’s net profit declined by 38.0 yoy to Rs.82cr.

Outlook and valuation: GMDC’s last several quarters’ performance has been lower than expected due to decline in volumes and lack of price hikes despite rise in mining costs. However, the stock price decline more than discounts these negatives. Moreover, its power operations have reported some improvement lately. The key catalysts for the stock are likely to be: 1) regulatory approvals for brownfield expansions, and 2) improvement in production from existing mines. We value GMDC at an EV/EBITDA of 4.0x FY2015E with a target price of Rs.127 and maintain our Buy rating.