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Tuesday, December 22, 2009

Gujarat Mineral Development Corporation LtdBuy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outl:

Scripscan:Gujarat Mineral Development Corporation Ltd
BSE code: 532181

Story:Gujarat Mineral Development Corporation happens to be an evergreen stock and must be bought on serious market declines. It is India’s largest lignite merchant seller and the second-largest producer of lignite in the country, after Neyveli Lignite. Lignite is more cost-effective than coal as a fuel but it is combustible and so cannot be transported over long distances. Current regulations allow GMDC to sell lignite only in Gujarat. Moreover, user industries are not permitted to sell lignite to third parties even though they may have the mining rights for lignite. This insulates GMDC’s profitability. But GMDC is also getting into extraction of other minerals. Although around 90% of its revenues come from lignite, its product range includes bauxite, fluorspar, granite and marble; it has also recently won coal blocks in Chhattisgarh and Jharkhand. Two years ago, GMDC entered the power sector by setting up the 2x125MW Akrimota thermal power project. The lignite required for the project is supplied from its own mine in Panandhro. In FY08-09, GMDC promoted Bhavnagar Energy Company, along with seven other companies, to set up a 500MW power plant in Bhavnagar district (Gujarat). It has also signed an agreement with KSK Energy Venture for the supply of seven million tonnes of lignite from the Morga II block in Chhattisgarh for a 1,750MW power plant. This power plant, in which GMDC has a 26% stake, is expected to be commissioned by 2012. The September quarter has been good for GMDC as its sales and operating profit grew 35% and 31%, respectively, compared with the same period last year. It operates with a high operating margin (45%). The stock is not going cheap. Its market-cap is 3.95 and 8.69 times its sales and operating profit, respectively. Buy it at dips.


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