Gujarat Mineral Development Corporation Ltd: Mining profits
(BSE Code: 532181) (CMP: Rs.82.45) (FV: Rs.2) Incorporated in 1963, Gujarat Mineral Development Corporation Ltd (GMDC)
operates in two segments: Mining and Power. It is the largest merchant seller of lignite in India that sells 40% of its lignite to the government and has a power purchase agreement (PPA) with Gujarat Urja Vikas Nigam. Therefore, realizations in these two segments are assured.
In FY18, GMDC produced 106.01 lakh tonnes of lignite from its 6 lignite mines at Panandhro, Mata-No-Madh, Rajpardi, Tadkeshwar, Bhavnagar and Umarsar. It ran 2 x 125 MW Akrimota thermal power stations successfully. Its power plant generated 1,360 MUs with 62.107% PLF (plant load factor). It produced 2.609 lakh tonnes bauxite from 8 operating mines in Kutch and 0.729 lakh tonnes bauxite from its mines in Devbhoomi Dwarka. Its wind farm projects of 200.9 MW achieved 21.8% PLF while its 5 MW solar power project ran at 15% CUF (capacity utilization factor). It completed ~35,000 meters of core drilling within the allotted Panandhro Extension and Bharkhandam lignite blocks and established ~55 million tonnes of lignite. It completed ~20,000 meters of core drilling in Ghala lignite block as well and established 21 million tonnes of lignite.
GMDC continuously undertakes exploration activities in Gujarat to establish mineral reserves. It has also carried out geological mapping using satellite images and GIS technology over possible bauxite and laterite bearing areas in Kutch and established additional bauxite bearing areas for stage-II exploration. It has established 18 million tonnes of
additional lignite reserves in Mata-no-Madh along with 1,500 million tonnes of limestone resources in Kutch. Further, it is setting up a 40,000 TPA fluorspar beneficiation plant at Kadipani together with Gujarat Fluorochemicals Ltd and Navin Fluorine International Ltd.
For FY18, GMDC reported 9% higher PAT of Rs.353.06 crore on 31% higher sales of Rs.2069.97 crore with an EPS of Rs.11.10 and a dividend of 175% was paid. During Q1FY19, it reported 31% higher PAT of Rs.186.76 crore on 11% higher sales of Rs.645 crore and an EPS of Rs.5.87.
With an equity capital of Rs.63.6 crore and reserves of Rs.4288.31 crore, GMDC’s share book value works out to Rs.136.85. It is a debt-free company. Investments, cash and loans given were Rs.1964 crore whereas the value of its gross block was Rs.2275 crore as at FY18. The government holds 74% of the equity capital, foreign entities hold 4.7%, DIs hold 10.6% and PCBs hold 1.2%, which leaves 9.5% stake with the investing public. The Ministry of Coal, Government of India, has allotted three lignite blocks (Panandhro Extension and Bharkandam in Kutch and Ghala in Surat) to GMDC for power generation and general mining under an auction through competitive bidding. Collectively, these three lignite blocks have estimated 34 million tonnes of lignite reserves. GMDC signed the first MoU with Adani Cementation for the upcoming clinkering unit in the Kutch region. This ~Rs.5500 crore project is projected to be commissioned by 2020. It signed the second MoU with Shree Cement for the upcoming cement plant, captive power plant and jetty in Kutch. This ~Rs.3000 crore project is projected to be commissioned by 2021. Kutch is one of the most remote districts in Gujarat and any economic activity in this area will benefit the local population significantly.
GMDC is setting up a 500 MW lignite-based power project at Bhavnagar in a joint venture (namely Bhavnagar Energy Co. Ltd) with 7 other PSUs of the Government of Gujarat. GMDC’s equity in this joint venture is 23.36%. Further, the Government of Gujarat has approved its plans for setting up a Zeolite plant for Zeolite and other value-added products in a joint venture with Credo Mineral Industries Ltd. GMDC will supply 1,20,000 TPA NPG bauxite from Kutch to the company.
GMDC is in the process of setting up a 1,50,000 TPA silica sand beneficiation plant on Built-on-Operate (BOO) or Builton-Operate-Sales (BOOS) or any suitable business model where it will cater silica sand from its Rajpardi lignite project. It is also in the process of making a long-term supply agreement of lignite and bentonite with a company for its current and upcoming bio-fertilizer unit in Gujarat. As the market of overburden minerals like silica sand, ball clay and bentonite is growing, entering into the beneficiation industry of these overburden minerals will have a larger scope in terms of revenue, customer base and market share.
The six mining leases, which are reserved by the central government for GMDC, will boost lignite production and contribute to GMDC’s top-line. Moreover, there are large limestone reserves at GMDC’s upcoming Lakhpat Punrajpur mining lease area and existing Panandhro mine. The management is counting on these reserves and approaching various cement companies in India as well as abroad for setting a cement plant where GMDC will be a long-term supplier of limestone.
Based on its current going and bright industry prospects, GMDC is likely to notch an EPS of Rs.13.5 in FY19. At the CMP of Rs.82.45, the stock trades at a forward P/E of 6.10x. A reasonable P/E of 10x will take its share price to Rs.135 in the medium-term.