GMDC - Q1FY14 Result Update - Sushil Finance

Gujarat Mineral Development Corporation (GMDC) came out with disappointing set of numbers for Q1FY14 with revenue & PAT de-growth of 25.5% & 30.4% respectively. The key highlights of the results are summarized as below:

- Q1FY14 Revenues de-grew 25.5% YoY at Rs.3,701 mn led by ~25% decline in both mining & Power divisions.

- GMDC witnessed de-growth in lignite volumes at 2.43 mn tons in Q1FY14 vs. 3.37 mn tons in Q1FY13 & 3.10 mn ton in Q4FY13, led by early monsoons, certain geological concerns affecting output & low demand from industries. The output from various mines (in mn tons) stood at: Panandhro 0.64 (0.86), Rajpardi 0.29 (0.31), Mata-no-Madh 0.70 (0.86), Tadkeshwar 0.37 (0.62) & Bhavnagar 0.42 (0.72). Panandhro output was down on account of poor performance of ATPS power plant and low demand from GIPCL (surplus power in Gujarat state). At Tadkeshwar, the thinning of seam thickness issue still persists in addition to land availability concern for dumping of overburden which affected the overall output. Bhavnagar output continues to remain subdued on account of couple of concerns which includes land availability for overburden dumping, early monsoons and machine breakdown impacting the operations of the mine. Considering the severity of the concerns, the management has lowered its earlier guidance of 2.5 mn ton & 3 mn ton at Tadkeshwar & Bhavnagar respectively to ~1.9 mn ton each.

- GMDC generated 122 mu of thermal power in Q1FY14 vs. 245 mu in Q1FY13. During the quarter, one unit of 2x125 MW was completely shut for the purpose of overhauling and the second unit will be shut for overhauling in Q2FY14E. In addition, the 2nd unit witnessed break-down of some critical component which resulted in 10 days of generation loss. KEPCO took over the operations of ATPS power plant w.e.f. February 1, 2013 and was given a grace period of 6 months to understand the modalities of the power plant & improve the performance. This period ends on July 31, 2013 post which KEPCO's performance will be measured against its assured PLF of 75%, below which it will be liable for a penalty. The company's wind & solar energy generation stood at 80 mu (86 mu) & 2.2 mu (1.94 mu) respectively.

- EBITDA de-grew by 36.2% YoY to Rs.1,714 mn with margin decline of 776 bps to 46.3% (54.1%). Margin deterioration was largely on account of higher diesel costs, increase in strip ratio at Tadkeshwar & Panandhro mines and power plant shut down.

- PAT declined by 30.4% to Rs.1,187 mn with margins of 32.1% (34.3%). PAT de-growth was contained due to higher other income which includes Rs.110 mn of penalty received from mine contractors for not meeting their obligated volumes.

OUTLOOK & VALUATION

GMDC came out with disappointing set of numbers for Q1FY14. However, we believe the concerns have been overdone and the stock at Rs.96 has factored in all the negatives. It provides a good entry opportunity for long term investors wherein the probability of outperformance is quite in FY15E. The management is actively looking to address the concerns and bring the company back to growth trajectory. We believe this transition though would be painful but will be long-term beneficial to the company. However, in the backdrop of consistently low volumes coupled with delay in price hike decision, we are downward revising our earnings estimate by 25.5% & 20.0% for FY14E & FY15E to Rs.15.8 & Rs.18.9 respectively. We recommend BUY on the stock with a revised price target of Rs.142 (based on 4x FY15E EBITDA). At the CMP of Rs.96, the stock is trading at 6.1x & 5.1x FY14E & FY15E EPS respectively.

Source : Equity Bulls

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