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4QFY2013 Result Update | Mining

June 4, 2013

GMDC
Performance Highlights
Quarterly highlights (Consolidated)
Y/E March (` cr) Total operating income EBITDA EBITDA margin (%) Adjusted PAT
Source: Company, Angel Research

BUY
CMP Target Price
Investment Period
% chg (yoy) (17.6) (9.0) 479bp (5.9) 3QFY13 353 176 49.8 133 % chg (qoq) 25.2 27.3 82bp 12.6 537 246 45.9 159

`139 `193
12 Months

4QFY13 443 224 50.6 149

4QFY12

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Mining 4,422 (56) 0.5 222/135 23,092 2 19,546 5,919 COAL.BO COAL@IN

GMDCs 4QFY2013 net sales declined 17.6% to `443cr, mainly due to lower lignite sales volumes (- 20.5% yoy) to 3.1mn tonne. We maintain our Buy rating on the stock. Lower costs mute EBITDA decline: The companys staff costs and other expenses declined by 16.0% and 26.8% yoy to `21cr and `200cr respectively and therefore the EBITDA declined at a lower rate of 9.0% yoy to `224cr whereas the EBITDA margin improved by 479bp. The power segment posted an EBIT loss of `63cr in 4QFY2013 as compared to an EBIT loss of `128cr in 4QFY2012. Higher other income and lower depreciation contained the decline in PAT to only 5.9%. Outlook and valuation: GMDC beats other PSU miners in terms of efficiency, volume growth and ability to take price hikes. Despite these factors, GMDC is currently trading at an inexpensive valuation compared to its peers, which is unwarranted, in our view. GMDC ticks most boxes for a long-term view: A stock which is a virtual monopoly with proven ability to increase sales volume and prices, available at an inexpensive valuation. The key catalysts for the stock are likely to be: 1) lignite price hikes, 2) regulatory approvals for brownfield expansions, and 3) commencement of production from Umarsar mines. We value GMDC at an EV/EBITDA of 4.0x FY2015E with a target price of `193 and maintain our Buy rating. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA margin (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 74.0 13.2 6.7 6.1

Abs. (%) Sensex GMDC

3m 3.5 (25.4)

1yr 22.2 (19.5)

3yr 14.2 13.6

FY2012 1,631 14.7 487 29.8 14.8 46.6 9.4 2.2 26.2 34.6 2.7 5.8

FY2013E 1,675 2.7 622 27.7 18.9 52.9 7.3 1.8 27.0 33.4 2.4 4.5

FY2014E 1,920 14.6 710 14.2 21.6 53.1 6.4 1.5 25.1 31.7 1.9 3.6

FY2015E 2,239 16.6 822 15.7 25.0 52.9 5.6 1.2 23.8 30.6 1.4 2.7

Bhavesh Chauhan
Tel: 022- 3935 7800 Ext: 6821 bhaveshu.chauhan@angelbroking.com

Vinay Rachh
Tel: 022- 39357600 Ext: 6841 vinay.rachh@angelbroking.com

Please refer to important disclosures at the end of this report

GMDC | 4QFY2013 Result Update

Exhibit 1: 4QFY2013 performance (Standalone)


Particulars (` cr)
Net Sales Inc./(Dec) in stock and WIP % of net sales Staff Cost % of net sales Other Expenditure % of net sales Total Expenditure % of net sales Operating Profit OPM% Other Operating Income EBIDTA EBITDA margins (%) Interest Depreciation Other Income Exceptional Items Profit before Tax % of net sales Tax % of PBT Net profit
Source: Company, Angel Research

4QFY13 443 (3) (0.6) 21 4.8 200 45.2 218 49.4 224 50.6 224 50.6 28 34 0.0 230 51.9 80 35.0 149

4QFY12 537 (11) (2.0) 25 4.7 273 50.9 291 54.1 246 45.9 246 45.9 32 24 237 44.1 78 33.0 159

yoy % (17.6) (74.9) (16.0) (26.8) (24.9) (9.0)

3QFY13 353 (4) (1.1) 29 8.1 152 43.1 177 50.2 176 49.8 -

qoq % 25.2 (27.4) (26.1) 31.2 23.2 27.3

FY2013 1,675 1 0.0 104 6.2 593 35.4 788 47.1 886 52.9 -

FY2012 1,631 4 0.2 108 6.6 640 39.2 870 53.4 760 46.6 760 46.6 7.4 108 73 718 44.0 231 32.2 487

yoy % 2.7 (82.5) (3.4) (7.4) (9.4) 16.6

(9.0)

176 49.8 -

27.3

886 52.9 -

16.6

(11.4) 43.6 (3.1) 2.7 (5.9)

30 40 20.4 166 46.9 54 32.3 133

(4.2) (14.4) 38.5 50.2 12.6

117 155 20.4 925 55.2 303 32.8 622

8.3 112.3 28.8 31.2 27.7

Result highlights
Lower volumes drag top-line
GMDCs 4QFY2013 net sales declined by 17.6% yoy to `443cr due to lower lignite sales volumes which declined by 20.5% to 3.1mn tonne, and due to decline in the mining segments revenue by 11.9% yoy.

Exhibit 2: Lignite sales volumes decline 20.6% yoy


4.5
4.0 3.9 3.4 2.5 2.0 3.1

40.0
30.0 20.0

3.5
(mn tommes)
3.0

2.0 1.5

1.0
0.5

(10.0)
(20.0)

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13


Lignite sales volumes
Source: Company, Angel Research

(30.0)
yoy growth - RHS

June 4, 2013

(%)

2.5

10.0

GMDC | 4QFY2013 Result Update

EBITDA declined by 9.0% yoy


The companys staff costs and other expenses declined by 16.0% and 26.8% yoy to `21cr and `200cr respectively. Therefore the EBITDA declined at a lower rate of 9.0% yoy to `224cr whereas the EBITDA margin improved by 479bp. On the EBIT front the power segment continued to post losses. For 4QFY2013 the power segment posted an EBIT loss of `6cr as compared to an EBIT loss of `13cr in 4QFY2012.

Exhibit 3: Power segment sales and EBIT performance


100
80 60 51 50

94 73 62
44 31 15

(` cr)

40 20
(20) (6)

31

(13)

(2)

(6)

(40)
2QFY12

(28)
3QFY12 4QFY12 1QFY13 2QFY13 EBIT 3QFY13 4QFY13 Net sales

Source: Company, Angel Research

Higher other income and lower depreciation mutes PAT decline


The other income for the quarter grew by 43.6% yoy to `34cr and depreciation expenses declined by 11.4% yoy to `28cr. Hence the net profit declined at a lower rate of 5.9% yoy to `149cr.

Exhibit 4: EBITDA stood at `224cr


300 250 246

Exhibit 5: PAT stood at `149cr


60.0 224

268 217
159 176

180 160
140 120 112

159

171

169 149

200.0
150.0 112

50.0

200

40.0

( ` cr)

( ` cr)

(%)

150 100

30.0 20.0

80 60 40 20 3QFY12 4QFY12 1QFY13 PAT 2QFY13 3QFY13 4QFY13 yoy growth- RHS

50.0

50 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 EBITDA EBITDA margin - RHS

10.0 -

(50.0)

Source: Company, Angel Research

Source: Company, Angel Research

June 4, 2013

(%)

100

100.0

GMDC | 4QFY2013 Result Update

Investment arguments
Volume growth to lead net sales growth
GMDC has scaled up its lignite volumes at a CAGR of 7.5% over FY2003-12, which is a growth rate much higher compared to its peers. However, the companys volumes declined by 3.5% yoy due to lower production from Tadkeshwar and Mata-no-Madh mines. Nevertheless, the company is expanding its capacity via brownfield expansion at Mata-no-Madh and Bhavnagar mines, which are expected to add production capacities of 1mn tonne and 2.0mn tonne, respectively, during FY2014. Further, GMDC has got through regulatory hurdles for its upcoming Umarsar mine (production capacity -1mn tonne). The company is not required to acquire any land for this mine. Further, since the mine has very little overburden, production can be ramped up faster once the mine goes operational. We expect the mine to start production from 2HFY2014. Beyond FY2015, the companys volume growth is likely to be driven by Lakhpat, Ghala and Damalai Padal mines, with capacities of 1.5mn tonne, 2.0mn tonne and 1.5mn tonne, respectively. These mines will increase GMDCs reserves and volumes significantly; however, they are currently at early stages of seeking approval from the Ministry of Environment and Forest (MoEF).

Exhibit 6: Volume growth trend


14 12

Exhibit 7: Upcoming mines estimated reserves


55 50 45

50

(mn tonnes)

10
8 6 4 2 -

(mn tonnes)

40 35 30 25 30

35

21

20 15

FY2009
Umarsar

FY2010
Panadhro

FY2011
Rajpadi

FY2012

Mata's Math

FY2013E FY2014E FY2015E Tadkeshwar Bhavnagar

10
Umarsar Damalai Ghala Lakhpat

Source: Company, Angel Research

Source: Company, Angel Research

Logistics advantage backs pricing power, monopoly-like status


GMDC has exhibited strong pricing power due to the prevalence of a robust demand scenario in the pro-industry state of Gujarat (realizations have grown at a 9.9% CAGR over FY2006-12). Moreover, absence of any other merchant miner in the state makes GMDC a virtual monopoly. For consumer industries in the state, purchasing coal from CIL (at least 700km away), or importing coal, stands to be expensive compared to purchasing lignite from GMDC (Exhibit 4). Also, a decline in international coal prices has insignificant impact on GMDCs lignite realizations as the companys customers mainly comprise of small to medium players whose boilers are designed to run on domestic lignite. GMDC intends to raise prices by `100-150/tonne during 1QFY2014 in order to pass on the recent diesel price hike. However, on a conservative basis, we factor in a price hike of only `70-120/tonne (across various mines). The company is also setting up a lignite beneficiation plant at Bhavnagar with a capacity of 1.2mn tonne, which is expected to improve its lignite realization (at Bhavnagar) by `400/tonne (+25%). Post the successful setting up of a pyrite plant at Bhavnagar, the company could potentially set up new pyrite plants at its other mines which have lignite grades similar to Bhavnagar.

June 4, 2013

GMDC | 4QFY2013 Result Update

Outlook and valuation


GMDC beats other PSU miners in terms of efficiency, volume growth and ability to take price hikes. Despite these factors, GMDC is currently trading at an inexpensive valuation compared to its peers, which is unwarranted in our view. GMDC ticks most boxes for a long-term view: A stock which is a virtual monopoly with proven ability to increase sales volume and prices, and available at an inexpensive valuation. The key catalysts for the stock are likely to be: 1) lignite price hikes, 2) regulatory approvals for brownfield expansions, and 3) commencement of production from Umarsar mines. We value GMDC at an EV/EBITDA of 4.0x FY2015E with a target price of `193 and maintain our Buy rating.

Exhibit 8: EPS Angel forecast vs consensus (Consolidated)


Year (`) FY2014E FY2015E
Source: Bloomberg, Angel Research

Angel forecast 21.6 25.0

Bloomberg consensus

Variation (%) (2.2) 0.4

22.1 24.9

Exhibit 9: Recommendation summary


Companies CMP (`) Target price (`) Reco. Mcap Upside (` cr) (%) P/E (x) FY14E FY15E P/BV (x) FY14E FY15E EV/EBITDA (x) FY14E FY15E RoE (%) FY14E FY15E RoCE (%) FY14E FY15E

NMDC Coal India GMDC

116 325 139 203

156 193 248

Buy Buy Buy

46,109 4,422 3,409

34 6 39 22

7.1 11.2 6.4 7.6

6.6 10.8 5.6 7.0

1.5 3.1 1.5 1.1

1.3 2.7 1.2 1.0

3.6 5.5 3.6 2.1

3.2 5.2 2.7 1.5

22.1 37.4 25.1 15.4

21.4 34.6 23.8 14.7

25.1 22.4 31.7 14.5

25.9 20.3 30.6 13.7

343 Accum. 205,281

MOIL

Source: Company, Angel Research

Company background
GMDC was established by the Government of Gujarat, in the year 1963, for developing major mineral resources in the state of Gujarat. GMDC is the largest merchant miner of lignite in India, supplying lignite to various industrial units, including textiles, chemicals, ceramics, bricks, and captive power plants. The company operates 5 lignite mines in Gujarat. Apart from lignite, it also produces bauxite, fluorspar, and manganese ore and operates a 250MW lignite-based power plant. The company also operates a 150MW wind power plant.

June 4, 2013

GMDC | 4QFY2013 Result Update

Profit & loss statement (Consolidated)


Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Stock Adjustments Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Inc/(Exp) PBT (reported) Tax (% of PBT) PAT (reported) Extraordinary Inc/(Exp) Adj. PAT % chg Basic EPS (`) Fully Diluted EPS (`) FY2010 1,065 1,065 9.0 583 (10) 390 108 95 482 5.8 45.2 86 396 4.8 37.2 26 36 8.9 406 9.8 4 410 126 31.1 284 4 280 20.9 8.4 8.4 FY2011 1,421 1,421 33.4 770 4 438 152 177 651 35.1 45.8 90 561 41.7 39.5 15 39 6.6 585 44.0 1 585 210 35.8 376 1 375 34.0 11.3 11.3 FY2012 1,631 1,631 14.7 870 4 759 108 0 760 16.8 46.6 108 652 16.2 40.0 7 73 10.2 718 22.8 718 231 32.2 487 487 29.8 14.8 14.8 FY2013 1,675 1,675 2.7 788 683 104 0 886 16.6 52.9 117 769 17.9 45.9 155 16.8 925 28.8 20 945 303 33.0 642 20 622 27.7 18.9 18.9 FY2014E 1,920 1,920 14.6 900 747 114 38 1,020 15.1 53.1 123 897 16.7 46.7 163 15.4 1,060 14.7 1,060 350 33.0 710 710 14.2 21.6 21.6 FY2015E 2,239 2,239 16.6 1,054 862 125 67 1,185 16.1 52.9 129 1,055 17.6 47.1 171 13.9 1,226 15.7 1,226 405 33.0 822 822 15.7 25.0 25.0

June 4, 2013

GMDC | 4QFY2013 Result Update

Balance sheet (Consolidated)


Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Other Long Term liabilities Net Deferred tax liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Other Assets Misc Exp. not w/o Total Assets 1,976 635 1,341 10 133 1,481 96 1,264 122 1,121 360 18 1,862 2,236 719 1,517 19 133 570 35 441 94 524 46 400 2,115 2,557 800 1,758 6 133 999 56 833 110 507 491 320 2,708 2,607 917 1,690 206 133 1,403 466 833 105 536 867 320 3,216 2,862 1,040 1,822 306 133 1,763 810 833 120 568 1,194 320 3,775 3,222 1,169 2,053 306 133 2,237 1,265 833 140 603 1,634 320 4,446 64 1,342 1,406 216 240 1,862 64 1,606 1,670 52 139 254 2,115 64 1,982 2,046 369 293 2,708 64 2,490 2,554 369 293 3,216 64 3,050 3,113 369 293 3,775 64 3,720 3,784 369 293 4,446 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E

June 4, 2013

GMDC | 4QFY2013 Result Update

Cash flow statement (Consolidated)


Y/E March (` cr) Profit before tax Depreciation Change in working capital Less: Other income Others Direct taxes paid Cash flow from operations (Inc.)/ Dec. in fixed assets (Inc.)/ Dec. in investments Others Cash flow from investing Issue of equity Inc./(Dec.) in loans Dividend paid Others Cash flow from financing Inc./(Dec.) in cash Opening cash bal. Closing cash bal. FY2010 FY2011 FY2012 FY2013E FY2014E 406 86 172 6 3 121 554 (135) (74) 20 (190) (263) (74) (26) (363) 1 95 96 585 90 (108) (3) 10 185 389 (275) 19 (257) (83) (93) (17) (193) (61) 96 35 718 106 14 (38) 11 248 562 (333) 46 (287) (133) (111) (10) (254) 21 35 56 925 117 34 303 773 (250) (250) (113) (113) 410 56 466 1,060 123 17 350 850 (355) (355) (151) (151) 344 466 810 FY2015E 1,226 129 15 405 966 (360) (360) (151) (151) 455 810 1,265

June 4, 2013

GMDC | 4QFY2013 Result Update

Key ratios
Y/E March
Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.)

FY2010 FY2011 FY2012 16.6 12.5 3.3 0.0 4.3 9.6 2.5 8.4 8.4 11.1 2.5 42.1 23.9 24.9 21.3 15.0 23 24 34 123 (0.0) (0.0) 15.2 12.3 9.9 2.8 0.0 3.2 6.9 2.1 11.3 11.3 14.0 3.0 50.4 33.6 30.7 24.4 38.0 18 10 31 35 (0.1) (0.2) 36.7 9.4 7.7 2.2 0.0 2.7 5.8 1.6 14.8 14.8 18.1 3.0 62.3 34.6 33.7 26.2 46.5 15 8 28 50 (0.1) (0.2) 88.1

FY2013E 7.3 6.4 1.8 0.0 2.4 4.5 1.2 18.9 18.9 21.9 3.0 77.7 33.4 39.7 27.0 41.6 15 8 28 91 (0.2) (0.7) -

FY2014E 6.4 5.5 1.5 0.0 1.9 3.6 1.0 21.6 21.6 25.4 4.0 94.7 31.7 42.6 25.1 49.7 15 8 28 75 (0.3) (0.9) -

FY2015E 5.6 4.8 1.2 0.0 1.4 2.7 0.7 25.0 25.0 28.9 4.0 115.2 30.6 44.6 23.8 50.0 15 8 28 61 (0.4) (1.2) -

June 4, 2013

GMDC | 4QFY2013 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

GMDC No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

June 4, 2013

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