GMDC to gain from rise in imported coal prices, GST

ET Intelligence Group: Gujarat Mineral Development Corporation is likely to benefit from rising prices in international market. The company has been weighed down by falling coal prices since FY12. The sharp rise in the imported coal prices has made lignite 30% cheaper than imported coal. This may lead to a spike in demand for lignite and also provide GMDC with better pricing power.

Another major trigger for the company will be implementation of GST in the next financial year. Industry experts believe that the tax rate for GMDC on lignite could reduce from 37%, at present to 12%, post GST.

This is because coal and lignite outside Gujarat are taxed at 12% (valueadded tax plus excise). Lower taxation should boost the company’s volumes, margins and return on capital in the coming years.

But the medium-term trigger will be the rise in international coal prices, which have shot up 60% in the past six months. Currently, imported coal costs Rs 1 per 1,000 kcals, while lignite costs Rs 0.7 per 1,000 kcals. Coal India has cheaper coal to offer but GMDC’s clients do not have that option due to logistical issues. This puts GMDC in a sweet spot.

The exact benefit of this will be seen in the coming quarters. Its September quarter numbers were weak due to lower volume from clo sure from exhaustion of one of its biggest mine — Panandhro. But production has been increased in other mines to make up for this. Besides heavy monsoon also impacted.

While GMDC’s EBIDTA grew 42% YoY in the June quarter, it fell 8% in the September quarter. The exact benefit of increasing difference between international coal and lignite will be seen in the coming quarters.

Post demonetisation and weak results, the stock has fallen 20% from its peak, making it more attractive. It is trading at 3.8 times EV to EBIDTA.

This is the lowest among all the listed coal and lignite mining companies.