Nov 07, 2016

Energy-Oil, Gas & Coal Gujarat Mineral Development Corporation Ltd

Gujarat Mineral Development Corporation Ltd

Bloomberg Code: GMDC IN

India Research - Stock Broking

BUY
Business Revival and Firming of Imported Coal Prices to Recommendation (Rs.)
CMP (as on Nov 04, 2016) 104
Strengthen Revenues
Target Price 122
Gujarat Mineral Development Corporation has delivered great Q1 result, having
Upside (%) 18
registered top line growth of 26.1% to Rs.3993 Mn from Rs.3166 Mn on YoY
basis and bottom-line growth of 56.1% to Rs.1148 Mn from Rs.735 Mn on YoY Stock Information
basis on the back of healthy operational performance. The EBITDA margin Mkt Cap (Rs.mn/US$ mn) 32976 / 494
has expanded by 317 bps to 34.8% from 31.7%. We expect the company to 52-wk High/Low (Rs.) 119 / 52
continue with the great showing on the back of strengthening international coal 3M Avg. daily volume (mn) 1.1
prices and rationalization of taxation with the likely implementation of GST from Beta (x) 1.1
Apr 01, 2017 which will make GMDCs lignite price very competitive and help Sensex/Nifty 27526 / 8525
improve lignite pricing and realization. Besides, the performance of power segment O/S Shares(mn) 318.0
will get further improved as company has power purchase agreements with Gujarat Face Value (Rs.) 2.0
Urja Vikas Nigam Limited (GUVNL) and other government entities for both thermal
Shareholding Pattern (%)
and wind power.
Promoters 74.0
Indian Governments initiatives to propel growth: The government of India FIIs 2.3
has initiated major legislative and policy reforms such as enactment of Mines & DIIs 11.9
Minerals Act, 2015 for auction of minerals, notification of National Mineral Exploration Others 11.8
Trust to encourage minerals exploration, 100% FDI allowed in mining sector and
Stock Performance (%)
for exploration of metals and non-metals ores under automatic route, anti-dumping
1M 3M 6M 12M
measures to counter cheap Chinese imports and likely GST to be implemented from
Absolute 8 22 54 47
Apr 01, 2017 aiming at rationalizing taxes. Further, government initiatives such as
Relative to Sensex 10 25 41 40
Make in India and thrust on power sector augur well for power segment.
Source: Bloomberg

Valuation and Outlook Relative Performance*

The company has Net debt-to-Equity ratio hovering at ~0.2x and enjoys sound 140
balance sheet. It has been paying a regular dividend of Rs. 3 per share. At CMP 120
of Rs. 104, the stock is trading at EV/EBITDA of 9.4x of FY18E EBITDA. At this 100
price, the stock is trading below its book value per share of Rs.106 of FY16. We
80
value stock at average EV/EBITDA 10.8x of FY18E which gives the target price
60
of Rs. 122, representing an upside of 18% and initiate the coverage with BUY
May-16
Feb-16
Mar-16
Nov-15
Dec-15

Jul-16
Aug-16
Sep-16
Oct-15

Apr-16

Oct-16
Jan-16

Jun-16

recommendation for 9-12 months period.

Key Risks GMDC IN Sensex

Source: Bloomberg; *Index 100
1) Price volatility of Coal. 2) Delay in land acquisitions and allowing the land under
mining lease for non-mining purposes.
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Net Sales 12897 14393 12027 13230 15215
EBITDA 6169 5242 3268 3708 4213
EBITDA Margin (%) 47.8 36.4 27.2 28.0 27.7
Net Profit 4391 5009 2412 2716 3194
EPS (Rs.) 13.8 15.8 7.6 8.5 10.0
RoE (%) 15.3 15.4 7.2 7.7 8.6
PE (x) 9.4 7.1 8.6 12.1 10.3
Source: Company, Karvy Research; *Represents multiples for FY14, FY15 & FY16 are based on historic market price
Analyst Contact
Kiran Shankar Prasad
For private circulation only. For important information about Karvys rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, 040 - 3321 6275
Thomson Publishers & Reuters kiran.prasad@karvy.com

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 Nov 07, 2016
Gujarat Mineral Development Corporation Ltd

Company Financial Snapshot (Y/E Mar) Company Background

Profit & Loss (Rs. Mn) Gujarat Mineral Development Corporation (GMDC) was
FY16 FY17E FY18E incorporated in 1963 and is engaged in business of mining
Net sales 12027 13230 15215 and power. The company started its operations with a small
Optg. Exp (Adj for OI) 8759 9522 11002 sand crushing facility which is majorly used by sodium silicate
and glass manufacturers. Then it entered into beneficiation
EBITDA 3268 3708 4213
of fluorspar which is rare mineral and has applications in
Depreciation 1325 1345 1427
industries like steel, aluminum, hydrochloric acid, foundry flux
Interest 6 6 6
and welding electrodes. In 1970, the company commissioned
Other Income 1446 1527 1726
mining of lignite which is cheaper substitute of coal to supply
PBT 3384 3884 4506
it to textile industries. Since then GMDC has emerged as one
Tax 972 1168 1312 of the largest merchant sellers of lignite in the country. Apart
Adj. PAT 2412 2716 3194 from lignite, the company also mines bauxite and has power
Profit & Loss Ratios divisions consisting of Thermal Power, Wind Power and Solar
EBITDA Margin (%) 27.2 28.0 27.7 Power plants. The company is also into exploration activities.
Net Margin (%) 20.1 20.5 21.0 The company first implemented ISO-9001 at corporate office
P/E (x) 8.6 12.1 10.3 in 2010 and aims at obtaining it for all the mines in operation
EV/EBITDA (x) 8.8 10.8 9.4 with Occupational Health and Safety systems (OHS-18000)
Dividend yield (%) 4.6 2.9 2.9 along with Environmental Management systems (ISO-14000).
Source: Company, Karvy Research

Balance sheet (Rs. Mn) Cash Flow (Rs. Mn)

FY16 FY17E FY18E FY16 FY17E FY18E
Total Assets 53515 55674 59194 PBT 3384 3884 4506
Net Fixed assets 29457 28773 28867 Depreciation 1325 1345 1427
Current assets 16024 17532 19319 Interest (net) 1 6 6
Other assets 8033 9369 11008 Tax (1594) (1168) (1312)
Total Liabilities 53515 55674 59194 Changes in WC 385 (1272) (871)
Networth 33694 35262 37308 Others (1344) (1527) (1726)
Debt 7759 7712 7694 CF from Operations 2157 1268 2031
Current Liabilities 4596 4031 4627 Capex (3492) (660) (1521)
Other liabilities 7466 8669 9564 Others 1096 1394 983
CF from Investing (2396) 733 (538)
Balance Sheet Ratios Change in Debt/Interest 1614 (572) (15)
RoE (%) 7.2 7.7 8.6 Dividends (1149) (1148) (1148)
RoCE (%) 8.3 9.1 10.2 CF from Financing 465 (1720) (1164)
Net Debt/Equity (x) 0.2 0.2 0.2 Change in Cash 226 281 329
Equity/Total Assets 0.6 0.6 0.6
P/BV (x) 0.6 0.9 0.9
Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 2: Shareholding Pattern (%) Exhibit 3: Revenue Segmentation - FY16 (%)

Others
11.8%

DIIs
11.9% Power
Revenue
29.7%
FIIs
2.3% Promoters Mining
74.0% Revenue
70.3%

Source: BSE, Karvy Research Source: Company, Karvy Research

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 Nov 07, 2016
Gujarat Mineral Development Corporation Ltd

Global Mining Outlook:

The year CY16 seems to be turnaround year for metals and
Exhibit 4: India PMI
mining industries. Prices of metals and mining have surged
56
during Q1FY17 on the back of strengthening demand for
54
these commodities. We expect that the trend of moderate price
52
recovery to continue in view of growth stabilization in major
50
economies along with Chinese economy. However, global
48
mining scenario still appears to be weak given the backdrop
46 of weaker growth outlook for global economy in general and
Chinese economy in particular. IMF, in its latest report, has
May-15

May-16
Jul-15

Jul-16
Feb-15
Mar-15

Feb-16
Mar-16
Apr-15

Oct-15

Apr-16
Aug-15
Sep-15

Nov-15
Dec-15

Aug-16
Sep-16
Jan-15

Jun-15

Jan-16

Jun-16
raised Indias growth forecast to 7.6% from 7.4% for 2016 and
Manufacturing PMI Composite PMI 2017 while retained global growth forecast at 3.1% for 2016
Source: Bloomberg, Karvy Research
and 3.4% for 2017. While advanced economies appear to be
stabilizing, emerging economies have started showing signs of recovery. However, IMF has warned of economic stagnation on
the back of subdued global growth and Brexit (Britain exiting from European Union). However, optimists believe that the sharper
fall in the prices of most of commodities that occurred during the better parts of FY14-FY15 have got stabilized and any revival
in demand from China will be big booster to the sector.

Indian Mining & Power Sector perspective:

India is endowed with huge mining resources and it produces as many as 88 minerals, which include 4 fuels, 10 metallic, 50
non-metallic and 24 minor minerals. These minerals are basic raw materials to many important industries like power generation
(thermal), iron & steel, cement, petroleum, natural gas, petro-chemicals, fertilizers, precious & semi-precious metals, electrical
and electronic equipments, glass and ceramics etc. Lignite which is also known as brown coal is considered lowest rank of coal
due to its low heat content is mined all around world and is used mainly as a fuel for steam-electric power generation. The two
major lignite producing companies are Neyveli Lignite Corporation Ltd (NLC) and GMDC with contribution of 55% and 18.3%
respectively. Like coal, lignite is mainly dispatched to power sector. Share of power sector stands around 84%. Other users in
case of raw coal and lignite include supply to defense, railway, private crockery etc. Lignite has got nearly 13.5% application in
generating synthetic natural gas and 7.5% to produce fertilizer products. A small percentage is used as steel production, home
heating fuel and oil well drilling mud.

India ranks at number three in production of coal while it accounts for over 7.5% of total world production. It is fourth largest coal
importer accounting for about 10% of global imports of coal. Coal is imported from Indonesia, South Africa, Australia and USA
and exported to Bangladesh, Nepal, UAE and others.

In spite of sufficient coal reserve, India is not been able to meet its demand from its own production. Moreover, the supply of high
quality coal in the country has been limited. Therefore, to bridge the gap of demand and supply, there is no option but to import
of coal, especially low-ash coal. The coal deposit is primarily concentrated in the Eastern and central parts of peninsular India
and also in parts of North Eastern regions like Sikkim, Assam and Arunachal Pradesh. Lignite deposits are in the Southern and
Western parts particularly in Tamil Nadu, Pondicherry, Gujarat, Rajasthan and Jammu & Kashmir. Since lignite is poor quality
substitute of coal, its price is mainly dictated by coal price and its availability.

Exhibit 5: Non-coking Coal of India (MT) Exhibit 6: Non-Coking Coal (US$ / MT)
140
Year Demand Despatch Import Export
110
2010-11 584.04 471.32 48.57 2.18
80
2011-12 649.36 483.58 71.05 1.92
50

2012-13 720.54 511.28 110.23 2.39 20

May-09

May-14
Jul-13
Mar-10

Feb-13

Mar-15
Oct-09

Apr-12

Oct-14
Dec-08

Aug-10

Nov-11

Sep-12

Dec-13

Aug-15
Jan-11
Jun-11

Jan-16
Jun-16

2013-14 715.71 513.60 129.99 2.18

2014-15 731.57 551.02 168.39 1.20 Non-Coking Coal (US$ / MT)

Source: Annual Plan Ministry of Coal (MoC), Karvy Research Source: Bloomberg, Karvy Research

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Gujarat Mineral Development Corporation Ltd

We have of late witnessed firming of ferrous and non-ferrous prices. There has been smart recovery in domestic steel prices with
decline in import of Chinese steel. We have also witnessed firming of non-ferrous metals including aluminum, copper, zinc etc.
This is largely due to government measures to check cheap Chinese imports and expectations of firming global metal prices.

Exhibit 7: India IIP

14

-1

-6

Oct-15

Nov-15

Dec-15
Jan-15

Jun-15

Jan-16

Jun-16
May-15

May-16
Jul-15

Jul-16
Feb-15

Mar-15

Feb-16

Mar-16
Apr-15

Apr-16
Aug-15

Sep-15

Aug-16
IIP Growth (%) IIP Mfg Growth (%) IIP Electricity Growth (%) IIP Mining Growth (%)
Source: Bloomberg, Karvy Research

As per estimates from RBI, mining & quarrying contributes to 3.7% in total GDP which is likely to increase with any rebound
in sector performance. However, on account of excess production and subdued demand, some commodities including iron
ore had hit decade-low price levels. Moreover, slow down in China, the worlds largest metal consumer, has led to the markets
across the world including India getting flooded with cheap imports of steel, aluminum and other finished products thereby
hitting domestic mining industry adversely. However, of late, there have been signs of revival in global demand for commodities
which gets reflected in terms of rebound in manufacturing activities across leading economies resulting into rebound in metals
and mining prices. Governments initiatives like Make-in-India and likelihood of Indian economy growing over 7% in the years to
come wherein sectors like infrastructure and automobiles may receive renewed thrust, could lead greater demand for minerals
like coal, lignite and bauxite.

Mining - the mainstream of business of GMDC:

Lignite mining constitutes major chunk of GMDC business. The company has 6 operational lignite mines with annual production
capacity of 8.8 Mn tones per annum. Lignite operations account for 70 per cent of the total revenue with Panandhro lignite
mine contributing the maximum of 3.0 Mn tonnes of production. Lignite is used in Thermal Power Plants, Textiles Industries,
Paint Industries, Soda Ash Industries, Roof & Tiles Industries etc. Lignite sales of GMDC has decreased by about 20% in FY16
compared to FY15 mainly because of slowdown in Chinese economy and subdued demand of power in Europe resulted into
decrease in prices of imported coal which caused reduced cost of lignite in comparison to lignite supplied by GMDC which is
25% costlier than imported coal. This led GMDC to reduce its lignite price by 7.1% on an average which led to spike in sales in
Q3FY16. The companys mining volumes have tapered off and it produced only 7.0 mt in FY16 as against its peak volume of
11.3mt in 2012. The companys mining volumes have tapered off and it produced only 7.0 mt in FY16 as against its peak volume
of 11.3mt in 2012. The Ministry of Coal, Govt. of India has allotted three lignite blocks to GMDC for power generation and for
general mining under the auction by competitive bidding of coal mines rules. Collectively these three mines have estimated
34 Mn tones of lignite reserves. With this decision, industries such as ceramic, bricks manufacturers, textiles and chemical which
use lignite for fuel, will get it on reasonable rates which will lead to rise in supply volume thereby profitability for the company.
According to state government estimate, demand for lignite will increase to 30-35 Mn tons a year in future.

Decline in imported coal price has been a challenge for GMDC which seems to have been overcoming following recent
strengthening of imported coal prices. Further, imposition of GST will remove the VAT anomaly on lignite (Gujarat charges VAT
@ 22.5% as against most of the other states like Rajasthan which charges VAT @ 5-5.5%) and make GMDCs lignite much more
competitive, thereby helping improve realizations. VAT charge on coal stands at 4%. In the expected situation where all levies
are rationalized and normalized with the likely implementation of GST, GMDC will stand to benefit given much higher incidence
of taxation on account of Gujarat VAT rate.

Further, with the removal of restriction placed on GMDC to sell lignite to only end users, the company can sell lignite in the open
market and the management expects that volumes will increase by 25 per cent.

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Gujarat Mineral Development Corporation Ltd

Bauxite:
Exhibit 8: Index of Mineral Production
130
130 GMDC operates 9 Bauxite deposits. Its cumulative bauxite
128
128 production was at 0.13 Mn mt from its 8 active mines
wherein contribution of Mevasa mines being highest of
126 127 0.12 Mn mt during FY16. GMDCs production capacity of
126
124 125 bauxite is likely to be stable in years to come. Current market
share of GMDC in total sales of bauxite in Gujarat is about
122 2.9%.
FY12 FY13 FY14 FY15 FY16
Mineral Production

Source: Company Annual Report, Karvy Research

Besides lignite and bauxite, the company also mines Fluorspar (used in industries like steel, aluminum, hydrochloric acid, foundry
flux and welding electrodes), Manganese (used for making iron-manganese and non-ferrous alloys), Silica Sand (used for water
purification and manufacturing of glass), Limestone (used as tiles and floors for large commercial complexes), Bentonite (used
as a binder in the preparation of pellets, in foundry and oil-well drilling) and Ball Clay (used in ceramic industries).

Power:
GMDC derives about 30 per cent of its revenue from its 250 MW thermal, 150.9 MW wind and 5MW solar power plants. A
500 MW thermal power plant in Bhavnagar through a joint venture with Bhavnagar Energy Corporation Ltd, has been put up
wherein GMDC owns promoter stake of 26%. First unit of plant of 250 MW has already been commenced in May 2016. The
company is having Power Purchase Agreements (PPAs) with Gujarat Urja Vikas Nigam Limited (GUVNL) for both thermal and
wind power and hence, realization is confirmed. With the Akrimota power plant stabilizing and low Plant Load Factor (PLF) of
around 65 per cent, there is enough scope of improvement. Besides, governments initiatives like Make in India and its thrust
on improving power sector having launched UDAY and Deen Dayal Yojana, augur well for the company. The policy decisions
like these are in consistence with expected growth of Indias economy at 7.4 per cent; wherein infrastructure sector will witness
more power and steel demand which will ultimately be resulting into more minerals demand like lignite, coal and bauxite.
GMDC power division consists of Thermal, Wind and Solar Power Plants. A total of 1746 Mn Units of power was produced in
FY16. This is an increment of 5% than previous financial year and the trend so set is likely to continue with pick up in infrastructure
activities.

Thermal Power Plant:

Exhibit 9 Thermal Power units and PLF Utilization
1500 62.0% 65.0% 80%

45.0% 60%
1000
The power generation and Plant Load Factor (at 65%) - both
1427 40%
1359 have increased over the past two years. The improvements
500 985
20% are attributed mainly to the fast response time to breakdowns
by KEPCO (Korea Electric Power Corporation).
0 0%
FY14 FY15 FY16
Thermal Power Units (MW) PLF (Plant Load Factor)

Source: Company, Karvy Research

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 Nov 07, 2016
Gujarat Mineral Development Corporation Ltd

Wind Power:
Exhibit 10: Wind Power units and PLF Utilization
330 24%
23.0%

322 23%
22.3%
300
The PLF of wind projects has increased to 21.1% in the
22%
FY16. FY17E is expected to see a capacity addition of
270 303
286 21% 50 MW by Inox. 2 wind turbine generators of 4MW capacity
21.1%
have already been commissioned on Mar 31, 2016.
240 20%
FY14 FY15 FY16
Wind Power Units (MW) PLF

Source: Company, Karvy Research

Solar Power:
Exhibit 11: Solar Power units and PLF Utilization
10 25%
19.2%
18.8%
8 18.0% 20%
The generation of solar power has marginally come down
6 15%
in FY16 which has to be attributed to deterioration of solar
4 8.4 8.21 7.9 10% cells with time, which lower the efficiency and hence lower
2 5% generation.

0 0%
FY14 FY15 FY16
Solar Power Units (MW) PLF

Source: Company, Karvy Research

Exploration Activities:
GMDC continuously undertakes exploration activities
Exhibit 12: Exploration Activities through tendering process within Gujarat for establishment
70 of minerals and reserves within the state of Gujarat. The
66 company has established 18 Mn tones of lignite reserves in
50 Mata-no-Madh area of Gujarat. GMDC adopts satellite
48 imagery and Geographic Information Systems (GIS)
technology for geological mapping and geological surveys.
30
Aggressive exploration activities and resultant finding of
29 27 25 lignite mines will help counter any adverse fall out of certain
10 exhaustion of the companys largest lignite mines, Panandhro.
FY12 FY13 FY14 FY15 FY16
Drilling in metres
All-in-all, the company is much better placed in qualitative and
quantitative terms; and implementation of GST is expected to
Source: Company, Karvy Research
provide big push to GMDCs mining business.

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Gujarat Mineral Development Corporation Ltd

Exhibit 13: Business Assumptions

Y/E Mar (Rs. Mn) FY15 FY16 FY17E FY18E Comments
We expect the company to show improvement
Revenue 14393 12027 13230 15215
on revenue front on the back of better realization
and registering CAGR growth of 12.5% during
Revenue Growth (%) 11.6 (16.4) 10.0 15.0
FY16-FY18E.
We expect EBITDA margin to improve further by
EBITDA 5242 3268 3708 4213
FY18E registering margin of 27.7% on the back
of better revenue realization in both mining and
EBITDA Margins (%) 36.4 27.2 28.0 27.7
power segments.
With rise in sales and improvement in operating
PAT (normalized) 5009 2412 2716 3194 cost, PAT margin is likely to improve to 21.0% by
FY18E.
Fully Diluted EPS (Rs.) 15.8 7.6 8.5 10.0 Likely rise in sales, further backed by price rise,
will positively impact Earning Per Share rising to
Fully Diluted EPS Growth (%) 14.1 (51.9) 12.6 17.6 Rs.10.0 level by FY18E.

Better business realization will contribute in better

Net CFO 1011 2157 1268 2031
Net CFO.
The company may continue with maintenance
Capex (762) (3492) (660) (1521)
capex.
The company has been maintaining near debt free
Net Debt 170 (564) (568) (419) status and with improved profit, it might emerge as
completely debt free company.
The company may have improved free cash flow
Free Cash Flow 249 (1335) 608 509
with improved sales and net profit.
Source: Company, Karvy Research

Exhibit 14: Karvy vs Consensus

Karvy Consensus Divergence (%) Comments
Revenues (Rs. Mn)
The companys YoY performance has not been
FY17E 13230 14541 (9.0) very encouraging especially during FY13-16
and commodities being global product are
prone to risk of Brexit. Consideration of these
FY18E 15215 15750 (3.4) facts has made us conservative with regard to
the companys earning.
EBITDA (Rs. Mn)
We have witnessed consistent rise in employee
FY17E 3708 4213 (12.0)
expenses while other expenses remaining
constant, we are conservative on EBITDA
FY18E 4301 4515 (4.7)
estimates also.
EPS (Rs.)

FY17E 8.54 10.0 (14.6)

EPS to grow in line with topline and bottomline.
FY18E 10.0 9.9 1.5
Source: Bloomberg, Karvy Research

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Gujarat Mineral Development Corporation Ltd

Exhibit 15: Revenue & YoY Growth

18000 11.6% 20%
2.7% 10.0% 15.0%
13500 -16.4%
0%
GMDC has delivered great Q1 result wherein it has experienced 26.1%
12897

9000
-20% revenue growth on YoY basis. We expect revenue to grow CAGR at 12.5%
16747

14393

13230

15215
12027
4500
-23.0% during FY16-18E on the back of overall improvement in demand situation
0 -40% and rationalization of taxes with the implementation of GST.
FY13

FY14

FY15

FY16

FY17E

FY18E

Revenue (Rs. Mn) YoY Growth (%)

Source: Company, Karvy Research

Exhibit 16: EBITDA & EBITDA Margin

9000 52.9% 60%

47.8%
36.4%
6000 40%
27.2% 28.0% 27.7%
Although there has been consistent softening trend in EBITDA margin, it is
3000 20% still at ~27.0% which is impressive and we expect it to improve to 27.7% by
8860

6169

5242

3708

4213
3268

0 0%
FY18E on the back of rise in sales volume and prices.
FY13

FY14

FY15

FY16

FY17E

FY18E

EBITDA (Rs. Mn) EBITDA Margin (%)

Source: Company, Karvy Research

Exhibit 17: PAT & PAT Margin

6600 38.3% 40%

34.0% 34.8%

4400 21.0%
30% PAT margin too, has softened over the period of FY11-16 but still at healthy
20.5%
20.1%
20% level of 20%. We expect PAT margin to improve to 21.0% by FY18E on the
2200 back of rise in prices and sales volume, following improvement in overall
6416

4391

5009

2716

3194
2412

10%

0 0%
demand scenario for commodities on one hand; and likely rationalization
of taxes post implementation of GST.
FY13

FY14

FY15

FY16

FY17E

FY18E

PAT (Rs. Mn) PAT Margin (%)

Source: Company, Karvy Research

Exhibit 18: RoE & RoCE

50%
40.3%
40%
23.3%
30%
20% 15.6% There has been decline in both RoE and RoCE over the period of
25.3% 10.2%
10% 15.3% 15.4%
8.3% 9.1% FY11-16 and we expect improved performances going forward, on the
0%
7.2% 7.7% 8.6% back of improved realization from mining and power business segments.
FY13

FY14

FY15

FY16

FY17E

FY18E

RoE (%) RoCE (%)

Source: Company, Karvy Research

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Gujarat Mineral Development Corporation Ltd

Exhibit 19: Net Debt-to-Equity Ratio

0.30
0.24
0.21 0.20
0.18
0.20

The companys net debt to equity ratio at ~0.2x confirms to it being at

0.10
comfortable debt levels.
-0.02 -0.01
0.00
FY13 FY14 FY15 FY16 FY17E FY18E
-0.10 Net Debt-to-Equity Ratio (x)
Source: Company, Karvy Research

Exhibit 20: Current Ratio

4.5 4.3 4.2

4.0 3.7 3.7

3.5
3.5
Current ratio of the company hovers around ~3.5x which reflects the
3.0
2.5 financial soundness of the company and its ability to meet liabilities.
2.5

2.0
FY13 FY14 FY15 FY16 FY17E FY18E
Current Ratio (x)

Source: Company, Karvy Research

Exhibit 21: Company Snapshot (Ratings)

Low High
1 2 3 4 5
Quality of Earnings 33
Domestic Sales 33
Exports 33
Net Debt/Equity 33
Working Capital Requirement 33
Quality of Management 33
Depth of Management 33
Promoter 33
Corporate Governance 33
Source: Company, Karvy Research

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Gujarat Mineral Development Corporation Ltd

Valuation & Outlook

The company has Net debt-to-Equity ratio hovering at ~0.2x and enjoys sound balance sheet. It has been paying a regular
dividend of Rs. 3 per share. At CMP of Rs. 104, the stock is trading at EV/EBITDA of 9.4x of FY18E EBITDA. At this price, the
stock is trading below its book value per share of Rs.106 of FY16. We value stock at average EV/EBITDA 10.8x of FY18E which
gives the target price of Rs. 122, representing an upside of 18% and initiate the coverage with BUY recommendation for 9-12
months period.

Exhibit 22: EV/EBITDA

25 15

20 13

15 11

10 9

5 7

0 5
Oct-14

Oct-15

Oct-16
Nov-14

Dec-14

Nov-15

Dec-15
Jun-14

Jan-15

Jun-15

Jan-16

Jun-16
May-14

May-15

May-16
Jul-14

Jul-15

Jul-16
Feb-15

Mar-15

Feb-16

Mar-16
Apr-14

Apr-15

Apr-16
Aug-14

Sep-14

Aug-15

Sep-15

Aug-16

Sep-16
Avg of EV/EBITDA SD1 SD2 -SD1 EV/EBITDA (RHS)
Source: BSE, Karvy Research

Exhibit 23: PE Band

25 25
20 20
15 15
10 10
5 5
0 0
Oct-11

Oct-12

Oct-13

Oct-14

Oct-15

Oct-16
Dec-11

Dec-12

Dec-13

Dec-14

Dec-15
Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16
Feb-12

Feb-13

Feb-14

Feb-15

Feb-16
Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16
Avg. PE 1 SD 2 SD -1 SD -2SD 1yr forward PE (RHS)
Source: BSE, Karvy Research

Exhibit 24 (a): Comparative Valuation Summary

CMP Mcap EV/EBITDA (x) P/E (x) EPS (Rs.)
(Rs.) (Rs. Mn) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
GMDC 104 32976 8.8 10.8 9.4 8.6 12.1 10.3 7.6 8.5 10.0
Neyveli 78 130545 6.8 5.5 5.0 9.9 9.3 7.8 7.2 8.4 10.0
NMDC 127 501944 8.0 10.0 8.9 13.2 14.1 15.3 7.4 9.0 8.3
Moil 336 56204 8.4 12.6 9.0 21.0 20.2 16.7 10.3 16.7 20.2
Source: Bloomberg, Karvy Research

Exhibit 24 (b): Comparative Operational Metrics Summary

CAGR % (FY16-18E) RoE (%) Price Perf (%) Net Sales (Rs. Mn)
Sales EBITDA EPS FY16 FY17E FY18E 3m 6m 12m FY16 FY17E FY18E
GMDC 12.5 13.5 15.1 7.2 7.7 8.6 22.2 53.8 46.8 12027 13230 15215
Neyveli 1.4 4.4 18.0 7.0 8.9 10.1 6.1 17.8 (1.0) 78960 74537 81133
NMDC 9.0 11.3 5.9 9.4 11.7 11.8 25.0 37.6 38.2 64558 71223 76667
Moil 16.5 147.1 39.7 5.1 7.9 9.3 36.9 39.2 61.8 6277 7492 8525
Source: Bloomberg, Karvy Research

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 Nov 07, 2016
Gujarat Mineral Development Corporation Ltd

Peer Comparison

Exhibit 25: EPS (Rs.) Exhibit 26: EV/EBITDA

30 16

12 10.8
20 9.4
15.8 8.1 8.8
8
10.0
8.5
10
4
7.6

0 0
FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E
GMDC Neyveli NMDC Moil GMDC Neyveli NMDC Moil

Source: Bloomberg, Karvy Research Source: Bloomberg, Karvy Research

Exhibit 27: P/E Exhibit 28: RoE (%)

60 22

50
17 15.4
40

30 12

20 7.2
7 8.6
10 7.7
12.1
7.1 8.6 10.3
0 2
FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E
GMDC Neyveli NMDC Moil GMDC Neyveli NMDC Moil
Source: Bloomberg, Karvy Research Source: Bloomberg, Karvy Research

Key Risks
yyPrice volatility of Coal.
yyDelay in land acquisitions and allowing the land under mining lease for non-mining purposes.

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Gujarat Mineral Development Corporation Ltd

Financials

Exhibit 29: Income Statement

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Revenues 12897 14393 12027 13230 15215
Growth (%) (23.0) 11.6 (16.4) 10.0 15.0
Operating Expenses 6728 9150 8759 9522 11002
EBITDA 6169 5242 3268 3708 4213
Growth (%) (30.4) (15.0) (37.7) 13.5 13.6
Depreciation & Amortization 1246 1384 1325 1345 1427
EBIT 6297 5301 3390 3890 4512
Other income 1374 1443 1446 1527 1726
Interest Expenses 1 24 6 6 6
PBT 6295 6369 3384 3884 4506
Tax 1905 1360 972 1168 1312
Adjusted PAT 4391 5009 2412 2716 3194
Growth (%) (31.6) 14.1 (51.9) 12.6 17.6
Source: Company, Karvy Research

Exhibit 30: Balance Sheet

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Cash & Cash Equivalents 419 125 351 659 961
Trade receivables 518 814 933 951 1216
Inventory 472 522 456 631 619
Loans & Advances 16620 19633 21072 22215 23585
Investments 2603 1208 1230 2430 3930
Net Block 18743 27289 29457 28773 28867
Other current assets 82 8 15 15 15
Total Assets 39457 49600 53515 55674 59194
Current Liabilities 3528 3454 3955 3910 4498
Debt 0 6784 8399 7833 7824
Other Liabilities 7306 6931 7466 8669 9564
Total Liabilities 10835 17169 19821 20412 21886
Equity capital 636 636 636 636 636
Reserves & Surplus 27987 31795 33058 34626 36672
Total Networth 28623 32431 33694 35262 37308
Total Networth & Liabilities 39457 49600 53515 55674 59194
Source: Company, Karvy Research

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 Nov 07, 2016
Gujarat Mineral Development Corporation Ltd

Exhibit 31: Cash Flow Statement

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
PBT 6295 5267 3384 3884 4506
Depreciation 1237 1355 1325 1345 1427
Net Interest flow 0 0 1 6 6
Tax Paid (2473) (2177) (1594) (1168) (1312)
Inc/dec in Net WC (1180) (1171) 385 (1272) (871)
Others (1013) (2263) (1344) (1527) (1726)
Cash flow from operating activities 2866 1011 2157 1268 2031
Inc/dec in capital expenditure (1946) (762) (3492) (660) (1521)
Inc/dec in investments (776) (387) (20) (1200) (1500)
Others 817 1020 1116 2594 2483
Cash flow from investing activities (1904) (129) (2396) 733 (538)
Inc/dec in borrowings 3 0 1614 (566) (9)
Dividend paid (1115) (1114) (1149) (1148) (1148)
Interest paid (0) (0) 0 (6) (6)
Cash flow from financing activities (1112) (1114) 465 (1720) (1164)
Net change in cash (150) (232) 226 281 329
Source: Company, Karvy Research

Exhibit 32: Key Ratios

YE Mar FY14 FY15 FY16 FY17E FY18E
EBITDA Margin (%) 47.8 36.4 27.2 28.0 27.7
EBIT Margin (%) 48.8 36.8 28.2 29.4 29.7
Net Profit Margin (%) 34.0 34.8 20.1 20.5 21.0
Dividend Payout Ratio (%) 21.7 19.0 39.6 35.1 29.9
Net Debt/Equity (x) (0.0) 0.2 0.2 0.2 0.2
RoE (%) 15.3 15.4 7.2 7.7 8.6
RoCE (%) 23.3 15.6 8.3 9.1 10.2
Source: Company, Karvy Research

Exhibit 33: Valuation Parameters

YE Mar FY14 FY15 FY16 FY17E FY18E
EPS (Rs.) 13.8 15.8 7.6 8.5 10.0
DPS (Rs.) 3.0 3.0 3.0 3.0 3.0
BVPS (Rs.) 90.0 102.0 106.0 110.9 117.3
PE (x) 9.4 7.1 8.6 12.1 10.3
P/BV (x) 1.4 1.1 0.6 0.9 0.9
EV/EBITDA (x) 6.6 8.1 8.8 10.8 9.4
EV/Sales (x) 3.2 2.9 2.4 3.0 2.6
Source: Company, Karvy Research; *Represents multiples for FY14, FY15 & FY16 are based on historic market price

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Gujarat Mineral Development Corporation Ltd

Stock Ratings Absolute Returns

Buy : > 15%
Hold : 5-15%
Sell : <5%

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