Recommendation from Coal sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year. 

GUJARAT MINERAL DEVP. CORP.:MINING FOR BIGGER PROFITS

HERE IS WHY
✓ In a strong position to increase market share
✓ Major contributor to India’s economic development
✓ Diversification and expansion into new markets

Minerals are precious natural resources that serve as essential raw materials for fundamental industries. As such, the growth of the mining industry is essential for the overall industrial development of a nation. The industry gives end-use industries like building, infrastructure, automotive and electricity, among others, a competitive edge by obtaining essential raw materials. Keeping the impact of mining and minerals sector in mind, the choice scrip for this issue is Gujarat Mineral Development Corporation Ltd. (GMDC).

GMDC was incorporated to develop major mineral resources in the state and started with a silica sand quarrying plant near Suraj Deval in district Surendra Nagar for crushing and screening of silica sand required for the glass industry. Now the company is engaged beyond that and is in the business of mining and mineral processing. The product range of the company includes lignite and fluorspar. The company also has two bauxite reserves and has a strong footprint in the business segment of power and mining projects.

The company operates five lignite mines in India. It has produced an aggregate of 86 lakh MT of lignite from these mines and caters to 25 per cent of Gujarat’s total demand for lignite. It plans to gain 30-35 per cent of this market space by FY 2024-25 and as of now 87 per cent of the company’s revenue is generated from this segment. It has wind farm projects of 200.9 MW capacity at different locations in Gujarat and 5 MW solar power projects. It generates about 5 per cent of the overall revenue from these projects.

The company has adopted a two-pronged strategy – one, to grow in the current core business and two, to tap into adjacencies and new frontiers. It is trying to tap into the western region’s booming cement industry by investigating the downstream integration of limestone and cement. GMDC’s strategic focus is on transformation from being known as a coal miner to becoming a diverse mineral resource player having interests in niche as well as volume segments. The company is targeting to increase the contribution from other minerals to over 20 per cent by 2027 and to 50 per cent by FY30.

Simultaneously, the company is focusing on ways to increase capacity in wind and solar power generation. In Q1FY24, on a consolidated basis the revenue decreased by 33.74 per cent YoY to ₹765.60 crore compared to ₹1,155.37 crore from the previous year’s same quarter due to lower commodity prices. PBIDT excluding other income decreased by 44 per cent to ₹246.74 crore YoY as compared to ₹440.61 crore from the previous year’s same quarter. Net profit stood at ₹215.59 crore compared to ₹344.70 crore, a YoY decrease by 37.46 per cent. 

Going ahead we will see strengthening of the commodity prices that will help it to post better returns. The company is currently trading at a PE of 8.42 times as against the industry PE of 11.8 times and higher than its three-year median PE of 7.8 per cent. In the last three years the company has delivered average ROE of 14.8 per cent and ROCE of 16.7 per cent, respectively. Considering GMDC’s strategic focus on diversification and expansion into new markets which is a positive sign for its future growth prospects, we recommend BUY.