Stock of this smallcap state-owned mining firm has zoomed 44% in one week

Shares of Gujarat Mineral Development Corporation (GMDC) moved higher by 15 per cent to Rs 107.70, which is also its 52-week high on the BSE in Friday’s intra-day trade on the back of heavy volumes. The stock of the state-owned coal company surpassed its previous high of Rs 94.70 touched on Thursday.

At 01:51 pm, GMDC was trading 14 per cent higher at Rs 106.05, as compared to a 0.13 per cent decline in the S&P BSE Sensex. The trading volumes on the counter jumped nearly five-fold with a combined 25.93 million shares, representing 8 per cent of total equity of the company, having changed hands on the NSE and BSE.

In the past one week, the stock has zoomed 44 per cent, on expectation of improvement of company’s performance, primarily due to the price hikes taken in the lignite division. In comparison, the S&P BSE Sensex was up 2.35 per cent during the week.

GMDC currently has 5 operational lignite mines. The mines are located in Kutch, South Gujarat and Bhavnagar region. GMDC's five active lignite mines together produced 60.04 lakh metric tonnes (mt) of lignite during the FY 2020-21.It is the largest merchant seller of lignite in the country.

Other than lignite, it is also operating Bauxite mines in Gujarat. GMDC Power Division consists of ATPS thermal power plant, wind power plants and solar power plants. A total 723.93 million units of power was produced in the financial year 2020-21 (FY21).

GMDC in its FY21 annual report said that in the coming years, coal production in the country is likely to receive a boost as the government plans to replace country's captive mining policy in coal and iron ore with an open bidding one.

As five mining leases are reserved by central government to GMDC, it will boost the lignite production, which will help in increasing revenue of the company. There are large amount of reserves of limestone at the company’s upcoming Lakhpat Punrajpur Mining, Panandhro Extension & Bharkandam. It is also approaching various cement companies across India for setting up of cement plant where it will be a long term limestone supplier, the company said.

Going ahead, analysts at Edelweiss Securities expect significant price support as the company has taken hikes of 25–30 per cent on average in lignite. However, variable expenses are also expected to increase owing to higher cost of diesel. All in all, we perceive the risk-reward as balanced, the brokerage had said in a November 2021 report.

“We expect lignite sales to pick up from H2FY22, resulting in FY22 lignite offtake at 8.4mt—much lower than the FY19 level of 9.2mt, but significantly higher than the past two years’ average of 6.5mt. That said, we expect the recent price hike of 25– 30 per cent taken across mines to spur earnings”, it said.