GMDC - Robust performance continues albeit one offs - Sunidhi

GMDC's Q2FY13 results were well above our estimates on account of one off items in revenue as well in other income. Revenues included Rs.380 mn as arrears due to price hike approved for its Panandhro mine by Rs.150 per tonne from FY12 onwards. Other income also included Rs.270 mn write back on account of its mine closure expenses. However even after adjusting such one-offs, results were better than estimates. Lignite volumes for Q2FY13 were inline with our estimate of 1.96 mn tonnes which implies a growth of 20%YoY. However higher sales at Rajpardi and Panandhro mine made GMDC to beat our estimate on revenue front as these mines enjoy better realisations. Power plant continued with its subdued performance by operating at 48% PLF whereas windmill performance was stable during the quarter.

Bhavnagar mine ramping up well, Panandhro too surprised

GMDC's Rajpardi mines produced 0.2mn tonnes in Q2FY13 versus 0.02 mn tonnes in Q2FY12 which also suprised us. We expected Mata no Madh mine to produce 0.86 mn tonnes against which it produced 0.6mn tonnes. However, such volume loss was made up by Rajpardi and Panandhro mines. As Rajpardi mine enjoys high lignite prices in comparsion to its other mines, higher volume at this mine beat our revenue estimates. Panandhro mine too reported a healthy volume of 0.68 mn tonnes, for which price hike has been approved recently. Further Bhavnagar mine is maintaining its robust performance by registering 43% growth YoY. As management contemplated to double volume at Bhavnagar mine, the volume growth validates the same.

Thermal Power remains a drag though wind power stands stable

On power front, lower PLF resulted into underrecovery of its fixed costs during Q2FY13. Though headline power EBIT was reported at Rs.307 mn, much of it was from windmill and arrears of previous year to the tune of Rs.100 mn. Furhter if we deduct qtrly depreciation of Rs.225mn, the power segment contnued to be in red. PLF at thermal plant remained low at 48% in Q2FY13 against 45% in Q1FY13. Wind mill gave some resillence to its power segment by generating 132% higher units YoY, but that was primarily due to additional capacities and PLF at wind mill was at 40% during the quarter.

Valuation and Recommendation

At CMP of Rs.205 stock is trading at an EV/EBIDTA of 5.0x FY14E EBIDTA. It has applied to central govt for increasing its capacity in two of its mines, Kutch and Bhavnagar. We believe such capacity addition holds significant potential for company's future growth. Along with capacity addition price hike for its lignite too holds the key. However stabilization of its power plant in near term would be key concern. We have reduced our FY14E lignite volume estimates by 0.2 mn tonnes to 14.95mnt incorporating management guidance. Considering above we expect GMDC to maintain a CAGR of 18% in sales for FY12-FY14E. We roll forward our valuation to FY14E and value GMDC at 5.5x (6x earlier) its FY14E EBIDTA and maintain our HOLD recommendation with revised target price of Rs.224 from Rs.205 earlier.

Source : Equity Bulls

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