GMDC Q2 Results 2008 Analysis

Gujarat Mineral Development Corporation GMDC) is a Gujarat State government undertaking engaged in the business of lignite, bauxite and fluorspar mining as also power generation units based on lignite. Being a substitute for coal, lignite has a huge potential. When crude scaled new highs and coal prices touched the sky, lignite prices were also ruling the roost. But now that prices of crude and coal have come down, price of lignite has also come down, henceforth the company might not be able to show the kind of realizations it did during the peak time.

The financial performance of the company for the second quarter ended 30th September 2008 has not been good. The fall on a QoQ basis has been quite drastic wherein net sales fell 50% at Rs.135.28 crore and PAT wads down 74% at Rs.18.64 crore. YoY, the fall is there but not as steep – net sales was down 25% and PAT was down 55%. Cyclically also, second quarter is always the worst and then the company more than makes up for it in remaining two quarters, with Q4 being the best.

We have recommended buying into this stock time and again, when it was cum-bonus and also prior to the bonus being declared. Those who had followed would have surely got the advantage of capital appreciation. Though the stock price has today touched Rs.31 levels, there is no need to fret as the long term story in the stock remains intact.

The company is has ploughed back all the bounty it is earning into building up more. It is leveraging all the coal capabilities into cement, power, SEZ and port in Gujarat. The company is presently producing about 80 lakh MT of lignite at its three mines. New mines have been developed at the various locations at Surat to cater to South Gujarat where estimated annual production would be 10 lakh MT. 10 lakh MT of lignite production at Amod near Bharuch would fully contribute in FY09. 30 lakh tonne of lignite production is estimated from Bhavnagar mines to cater to Saurashtra region and Central Gujarat. So, in FY 09, the production of lignite will get increased by about 40%. The company also has 250 MW power plant in operation based on lignite.


Lignite referred to as brown gold, is an alternative for coal, which is in great demand, as natural resources are becoming scarce all over the world.
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