GMDC to fetch better valuation over Coal India by FY15: Report

Gujarat PSU fared better over CIL on operational and financial parameters

State-run Gujarat Mineral Development Corporation Ltd (GMDC) is set to surpass countrys largest mining player Coal India Ltd on operational, financial and valuation parameters by the fiscal 2015, an analyst report noted.

However, factors such as expansion approvals, cost management and utilization of surplus cash are believed to have implications on the companys future performance.

According to a latest report by Angel Research, GMDC has fared better over CIL mainly on the on operational and financial parameters over the years.

Over the past ten years (2003-2012), GMDCs volume growth has increased at a compounded annual growth rate (CAGR) of 7.5 per cent, compared to CILs CAGR of 4.1 per cent. GMDCs realisation has also increased at a faster pace than CIL as socio-political concerns have hampered CILs ability to take price hikes, the equity research firm noted.

The companys realizations have grown at a 9.9 per cent CAGR over fiscals 2006-2012, as against 6.1 per cent for CIL.

Also, the analyst report released this week noted that GMDCs EBITDA have registered a CAGR of 24.5 per cent since fiscal 2005-06 to 2011-12, while that of CIL has been at 13.3 per cent for the same period. It has also been observed that GMDCs staff cost as a percentage of sales has been much below that of CIL. Unlike CIL, GMDC does not have an overhang of having to incur high staff costs, it said. While CILs staff cost as a percentage of sales is 40.5 per cent for fiscal 2011-12, GMDC has reported the same at 6.6 per cent.

"GMDC is setting up a lignite beneficiation plant at Bhavnagar with a capacity of 1.2 million tonne, which is expected to improve its lignite realization by Rs  400 per tonne. 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," the report noted.

The company also has set up a strong presence in the wind power generation with installed capacity of 150 megawatt.

Further, it is planning to invest around Rs  580 crore for additional 50 Mw capacity during fiscal 2013-14 and 2014-15. Despite these factors, GMDC is currently trading at an enterprise value (EV)/EBITDA multiple of 3.3x fiscal 2014-15(E), compared to CIL, which is trading at a multiple of 4.4x, which is unwarranted in our view. With a virtual monopoly with proven ability to increase sales volume and prices available at an inexpensive valuation, we value GMDC at an EV/EBITDA of 4.5x FY2015E, the research firm noted.

It may be noted that GMDC shares have plunged the most among other listed Gujarat state PSUs. GMDC shares traded at around Rs  154.8 in the afternoon trades on Wednesday on the Bombay Stock Exchange (BSE), down by 1.2 per cent from its previous close. The stock has lost over 25 per cent since January 1 against the benchmark index Sensexs fall of 5.5 per cent. Coal India shares have registered a fall of 14 per cent since January. CIL shares traded at 304.3 during afternoon traes on Wednesday, marginally down from its previous close.